OmniAmerican Bancorp, Inc. - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - OmniAmerican Bancorp, Inc.	Financial_Report.xls
EX-32 - EXHIBIT 32 - OmniAmerican Bancorp, Inc.	c18714exv32.htm
EX-31.1 - EXHIBIT 31.1 - OmniAmerican Bancorp, Inc.	c18714exv31w1.htm
EX-31.2 - EXHIBIT 31.2 - OmniAmerican Bancorp, Inc.	c18714exv31w2.htm
EX-10.6 - EXHIBIT 10.6 - OmniAmerican Bancorp, Inc.	c18714exv10w6.htm
EX-10.8 - EXHIBIT 10.8 - OmniAmerican Bancorp, Inc.	c18714exv10w8.htm
EX-10.5 - EXHIBIT 10.5 - OmniAmerican Bancorp, Inc.	c18714exv10w5.htm
EX-10.7 - EXHIBIT 10.7 - OmniAmerican Bancorp, Inc.	c18714exv10w7.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 2011


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

For the transition period from to

Commission file number 001-34605

OMNIAMERICAN BANCORP, INC.

(Exact Name of Registrant as Specified in its Charter)


Maryland		27-0983595

(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

1320 S. University Drive, Fort Worth, Texas		76107

(Address of Principal Executive Offices)		(Zip Code)

(817) 367-4640

(Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

There were 11,661,670 shares of Common Stock, par value $0.01 per share, issued and outstanding as of August 4, 2011.


	Page
	Number

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Consolidated Balance Sheets at June 30, 2011 and December 31, 2010		1

Unaudited Consolidated Statements of Income for the Three and Six Months Ended June 30, 2011 and 2010		2

Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2011		3

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010		4

Condensed Notes to Unaudited Consolidated Interim Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3. Quantitative and Qualitative Disclosures about Market Risk		47

Item 4. Controls and Procedures		51

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		52

Item 1A. Risk Factors		52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		52

Item 3. Defaults Upon Senior Securities		52

Item 4. Removed and Reserved		52

Item 5. Other Information		53

Item 6. Exhibits		53

SIGNATURE PAGE		54

EXHIBIT INDEX		55

Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 31.1
Exhibit 31.2
Exhibit 32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I — FINANCIAL INFORMATION


ITEM 1.		FINANCIAL STATEMENTS


	June 30,			December 31,
	2011			2010
ASSETS

Cash and due from financial institutions	$	10,821		$	12,842
Short-term interest-earning deposits in other financial institutions		1,879			11,755

Total cash and cash equivalents		12,700			24,597

Investments:
Securities available for sale		547,242			317,806
Other		13,566			3,060
Loans held for sale		628			861

Loans, net of deferred fees and discounts		668,956			669,357
Less allowance for loan losses		(8,638	)		(8,932	)

Loans, net		660,318			660,425
Premises and equipment, net		45,960			47,665
Bank-owned life insurance		20,554			20,078
Other real estate owned		11,136			14,793
Mortgage servicing rights		1,361			1,242
Deferred tax asset, net		4,098			6,935
Accrued interest receivable		3,987			3,469
Other assets		6,514			7,488


Total assets	$	1,328,064		$	1,108,419


LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:
Noninterest-bearing	$	76,748		$	74,583
Interest-bearing		718,829			726,575

Total deposits		795,577			801,158

Federal Home Loan Bank advances		252,000			41,000
Other secured borrowings		68,878			58,000
Accrued expenses and other liabilities		10,333			9,634

Total liabilities		1,126,788			909,792

Commitments and contingencies

Stockholders’ equity:
Common stock, par value $0.01 per share; 100,000,000 shares authorized; 11,661,670 shares issued and outstanding at June 30, 2011 and 11,902,500 shares issued and outstanding at December 31, 2010		117			119
Additional paid-in capital		111,996			115,470
Unallocated Employee Stock Ownership Plan (“ESOP”) shares; 895,068 shares at June 30, 2011 and 914,112 shares at December 31, 2010		(8,951	)		(9,141	)
Retained earnings		93,948			92,212
Accumulated other comprehensive income (loss):
Unrealized gain on securities available for sale, net of income taxes		5,354			1,155
Unrealized loss on pension plan, net of income taxes		(1,188	)		(1,188	)

Total accumulated other comprehensive income (loss)		4,166			(33	)

Total stockholders’ equity		201,276			198,627


Total liabilities and stockholders’ equity	$	1,328,064		$	1,108,419

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

OmniAmerican Bancorp, Inc. and Subsidiary

Consolidated Statements of Income (Unaudited)

(Dollars in thousands, except per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
Interest income:
Loans, including fees	$	9,785	$	10,675	$	19,890	$	21,317
Securities — taxable		4,402		2,770		7,088		5,275
Securities — nontaxable		—		12		—		25

Total interest income		14,187		13,457		26,978		26,617

Interest expense:
Deposits		1,862		2,463		3,848		4,876
Borrowed funds		1,542		1,041		2,737		2,097

Total interest expense		3,404		3,504		6,585		6,973


Net interest income		10,783		9,953		20,393		19,644

Provision for loan losses		600		1,450		1,000		2,250


Net interest income after provision for loan losses		10,183		8,503		19,393		17,394


Noninterest income:
Service charges and other fees		2,485		2,667		4,767		5,169
Net gains on sales of loans		10		328		183		625
Net gains on sales of securities available for sale		—		—		11		91
Net gains on sales of repossessed assets		—		8		22		25
Commissions		190		186		369		321
Increase in cash surrender value of bank-owned life insurance		240		—		476		—
Other income		253		282		499		464

Total noninterest income		3,178		3,471		6,327		6,695

Noninterest expense:
Salaries and benefits		5,663		5,369		11,642		11,042
Software and equipment maintenance		521		838		1,207		1,625
Depreciation of furniture, software and equipment		737		793		1,498		1,591
FDIC insurance		398		342		673		848
Net loss on write-down of other real estate owned		1,109		10		1,512		19
Real estate owned expense		103		156		211		312
Service fees		126		182		249		398
Communications costs		250		200		464		472
Other operations expense		987		989		1,877		1,799
Occupancy		862		967		1,764		1,927
Professional and outside services		655		1,000		1,636		1,842
Net losses on sales of premises and equipment		5		—		5		—
Loan servicing		82		68		217		128
Marketing		111		214		316		468

Total noninterest expense		11,609		11,128		23,271		22,471


Income before income tax expense		1,752		846		2,449		1,618
Income tax expense		535		239		713		478

Net income	$	1,217	$	607	$	1,736	$	1,140


Earnings per share:
Basic	$	0.11	$	0.06	$	0.16	$	0.10	⁽¹⁾

Diluted	$	0.11	$	0.06	$	0.16	$	0.10	⁽¹⁾


(1)		The Company completed its mutual to stock conversion on January 20, 2010. The earnings per share for the six months ended June 30, 2010 is calculated as if the conversion had been completed prior to January 1, 2010.

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

OmniAmerican Bancorp, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(Dollars in thousands, except share data)


												Accumulated
				Additional			Unallocated					Other			Total
	Common			Paid-in			ESOP			Retained		Comprehensive			Stockholders’
	Stock			Capital			Shares			Earnings		Income (Loss)			Equity

Balances at January 1, 2011	$	119		$	115,470		$	(9,141	)	$	92,212	$	(33	)	$	198,627
ESOP shares allocated, 19,044 shares		—			97			190			—		—			287
Stock purchased at cost, 240,830 shares		(2	)		(3,614	)		—			—		—			(3,616	)
Share-based compensation expense		—			43			—			—		—			43
Comprehensive income:
Net income		—			—			—			1,736		—			1,736
Change in fair value of securities available for sale, net of reclassification to earnings of $(11) and income tax effect of $(2,163)		—			—			—			—		4,199			4,199

Total comprehensive income																5,935


Balances at June 30, 2011	$	117		$	111,996		$	(8,951	)	$	93,948	$	4,166		$	201,276

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

OmniAmerican Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flow (Unaudited)

(In thousands)


	Six Months Ended
	June 30,
	2011			2010
Cash flows from operating activities:
Net income	$	1,736		$	1,140
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,303			2,424
Provision for loan losses		1,000			2,250
Amortization of net premium on investments		1,717			901
Amortization and impairment of mortgage servicing rights		56			112
Net gain on sales of securities available for sale		(11	)		(91	)
Net gain on sales of loans		(183	)		(625	)
Proceeds from sales of loans held for sale		4,888			9,788
Loans originated for sale		(4,655	)		(10,358	)
Net loss on write-down of other real estate owned		1,512			19
Net loss on the disposition of premises and equipment		5			—
Net gain on sales of repossessed assets		(22	)		(25	)
Increase in cash surrender value of bank-owned life insurance		(476	)		—
Federal Home Loan Bank stock dividends		(7	)		(8	)
ESOP compensation expense		287			217
Share-based compensation		43			—
Changes in operating assets and liabilities:
Accrued interest receivable		(518	)		(422	)
Other assets		307			2,840
Accrued interest payable and other liabilities		699			9,058

Net cash provided by operating activities		8,681			17,220

Cash flows from investing activities:
Securities available for sale:
Purchases		(340,815	)		(164,867	)
Proceeds from sales		71,782			1,734
Proceeds from maturities, calls and principal repayments		44,253			38,527
Purchases of other investments		(11,105	)		—
Redemptions of other investments		606			258
Purchases of loans held for investment		—			(706	)
Net increase in loans held for investment		(22,112	)		(8,944	)
Proceeds from sales of loans held for investment		20,745			24,840
Purchases of premises and equipment		(633	)		(608	)
Proceeds from sales of premises and equipment		30			—
Proceeds from sales of foreclosed assets		1,192			1,132
Proceeds from sales of other real estate owned		2,798			524

Net cash used in investing activities		(233,259	)		(108,110	)

Cash flows from financing activities:
Net decrease in deposits		(5,581	)		(112,212	)
Net increase (decrease) in Federal Home Loan Bank advances		211,000			(10,400	)
Net increase in other secured borrowings		10,878			—
Proceeds from issuance of common stock		—			106,004
Purchase of common stock		(3,616	)		—

Net cash provided by (used in) financing activities		212,681			(16,608	)


Net decrease in cash and cash equivalents		(11,897	)		(107,498	)
Cash and cash equivalents, beginning of period		24,597			140,144

Cash and cash equivalents, end of period	$	12,700		$	32,646


Supplemental cash flow information:
Interest paid	$	6,463		$	6,950
Non-cash transactions:
Loans transferred to other real estate owned	$	659		$	1,378
Loans transferred to foreclosed assets	$	3,208		$	1,553

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements

NOTE 1 — Basis of Financial Statement Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of OmniAmerican Bancorp, Inc. (referred to herein as “the Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2010, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2011. In management’s opinion, the interim data as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. References to the Company include, where appropriate, OmniAmerican Bank.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses and the fair values of financial instruments are particularly subject to change.

NOTE 2 — Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, which was codified as ASC Topic 820, “Fair Value Measurements and Disclosures.” The guidance requires companies to disclose transfers in and out of levels 1 and 2, and to expand the reconciliation of level 3 fair value measurements by presenting separately information about purchases, sales, issuances and settlements. The updated guidance also clarifies existing disclosure requirements on the level of disaggregation (provide fair value measurement disclosures for each class of assets and liabilities) and inputs and valuation techniques (disclose for fair value measurements that fall in either level 2 or level 3). This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the reconciliation of level 3 fair value measurements. Those disclosures are effective for periods beginning after December 15, 2010. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-18, “Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset.” As a result of the amendments in this update, modifications of loans that are accounted for within a pool under Subtopic 310-30 do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered to be a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The guidance in this ASU is effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

In July 2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires that additional information be disclosed about the credit quality of a company’s loans and the allowance for loan losses held against those loans. A company will need to disaggregate new and existing disclosure based on how it develops its allowance for loan losses and how it manages credit exposures. Existing disclosures to be presented on a disaggregated basis include a rollforward of the allowance for loan losses, the related recorded investment in such loans, the nonaccrual status of loans, and impaired loans. Additional disclosure is also required about the credit quality indicators of loans by class at the end of the reporting period, the aging of past due loans, information about troubled debt restructurings, and significant purchases and sales of loans during the reporting period by class. For public companies, ASU No. 2010-20 requires certain disclosures as of the end of a reporting period effective for periods ending on or after December 15, 2010. Other required disclosures about activity that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The additional disclosures required under this ASU have been included in Note 4 — Loans and Allowance for Loan Losses.

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” ASU 2011-02 clarifies when a loan modification or restructuring is considered a troubled debt restructuring. In determining whether a loan modification represents a troubled debt restructuring, an entity should consider whether the debtor is experiencing financial difficulty and the lender has granted a concession to the borrower. ASU 2011-02 is effective for periods ending on or after December 15, 2011, for loan modifications that occur on or after September 1, 2011. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In April 2011, the FASB issued ASU No. 2011-03, “Transfer and Servicing: Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 is intended to improve the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The amendments in this update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. ASU 2011-03 is effective for the periods beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends Topic 820, “Fair Value Measurements and Disclosures,” to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820, and requires additional fair value disclosures. ASU 2011-04 is effective for periods beginning after December 15, 2011. The amendments in this update are to be applied prospectively and early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income: Presentation of Comprehensive Income.” ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity and requires that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. ASU 2011-05 is effective for periods beginning after December 15, 2011. The amendments in this update are to be applied retrospectively. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

NOTE 3 — Investment Securities

The amortized cost and estimated fair values of investment securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of June 30, 2011 and December 31, 2010 were as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
June 30, 2011
U. S. government sponsored mortgage-backed securities	$	274,707	$	4,191	$	(55	)	$	278,843
U. S. government sponsored collateralized mortgage obligations		259,423		3,892		(52	)		263,263
Other equity securities		5,000		136		—			5,136

Total investment securities available for sale	$	539,130	$	8,219	$	(107	)	$	547,242


December 31, 2010
U. S. government sponsored mortgage-backed securities	$	150,678	$	4,614	$	(678	)	$	154,614
U. S. government sponsored collateralized mortgage obligations		149,336		1,914		(458	)		150,792
Private-label collateralized mortgage obligations (residential)		3,349		47		—			3,396
Trust preferred securities		7,693		—		(3,773	)		3,920
Other equity securities		5,000		84		—			5,084

Total investment securities available for sale	$	316,056	$	6,659	$	(4,909	)	$	317,806

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Investment securities available for sale with gross unrealized losses at June 30, 2011 and December 31, 2010, aggregated by investment category and length of time that individual securities have been in a continuous loss position, were as follows:


	Continuous Unrealized Losses Existing for
	Less Than 12 Months					Greater Than 12 Months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
June 30, 2011
U. S. government sponsored mortgage-backed securities	$	21,414	$	(55	)	$	—	$	—		$	21,414	$	(55	)
U. S. government sponsored collateralized mortgage obligations		14,209		(52	)		—		—			14,209		(52	)

	$	35,623	$	(107	)	$	—	$	—		$	35,623	$	(107	)


December 31, 2010
U. S. government sponsored mortgage-backed securities	$	40,582	$	(678	)	$	—	$	—		$	40,582	$	(678	)
U. S. government sponsored collateralized mortgage obligations		36,704		(458	)		—		—			36,704		(458	)
Trust preferred securities		—		—			3,920		(3,773	)		3,920		(3,773	)

	$	77,286	$	(1,136	)	$	3,920	$	(3,773	)	$	81,206	$	(4,909	)

At June 30, 2011, the Company owned 205 investments of which 17 had unrealized losses. At December 31, 2010, the Company owned 238 investments of which 39 had unrealized losses. Unrealized losses generally result from interest rate levels differing from those existing at the time of purchase of the securities and, as to mortgage-backed securities, estimated prepayment speeds. These unrealized losses are considered to be temporary as they reflect fair values on June 30, 2011 and December 31, 2010, and are subject to change daily as interest rates fluctuate. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell prior to recovery. Management evaluates investment securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to sell or whether it would be more likely than not required to sell its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

The amortized cost and fair value of securities available for sale by contractual maturity at June 30, 2011 are summarized in the following table. Maturities are based on the final contractual payment dates, and do not reflect the impact of prepayments or earlier redemptions that may occur.


	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	—	$	—
Due from one to five years		703		705
Due from five to ten years		16,049		16,938
Due after ten years		517,378		524,463
Equity securities		5,000		5,136

Total	$	539,130	$	547,242

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Investment securities with an amortized cost of $468.5 million and $242.5 million at June 30, 2011 and December 31, 2010, respectively, were pledged to secure Federal Home Loan Bank advances. In addition, investment securities with a fair value of $65.3 million and $66.2 million at June 30, 2011 and December 31, 2010, respectively, were pledged to secure other borrowings.

Sales activity of securities available for sale for the three and six months ended June 30, 2011 and 2010 was as follows:


	Three Months				Six Months Ended
	Ended June 30,				June 30,
	2011		2010		2011			2010
	(In thousands)

Proceeds from sales of investment securities	$	—	$	—	$	71,782		$	1,734
Gross gains from sales of investment securities		—		—		2,922			91
Gross losses from sales of investment securities		—		—		(2,911	)		—

Gains or losses on the sales of securities are recognized at the trade date utilizing the specific identification method.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

NOTE 4 — Loans and Allowance for Loan Losses

The composition of the loan portfolio was as follows at the dates indicated:


	June 30,			December 31,
	2011			2010
	(In thousands)
Residential Real Estate Loans:
One- to four-family	$	261,645		$	271,792
Home equity		24,482			26,670

Total residential real estate loans		286,127			298,462


Commercial Loans
Commercial real estate		88,313			87,887
Real estate construction		42,057			34,502
Commercial business		44,347			48,733

Total commercial loans		174,717			171,122


Consumer Loans:
Automobile, indirect		165,448			156,708
Automobile, direct		23,776			24,523
Unsecured		12,898			13,416
Other		5,413			5,287

Total consumer loans		207,535			199,934


Total loans		668,379			669,518


Plus (less):
Deferred fees and discounts		577			(161	)
Allowance for loan losses		(8,638	)		(8,932	)

Total loans receivable, net	$	660,318		$	660,425

The Company originates real estate mortgage loans which are sold in the secondary market. The Company retains the servicing for residential mortgage loans that are sold to the Federal National Mortgage Association (“FNMA”). Mortgage loans serviced for FNMA are not included as assets on the consolidated balance sheets. The principal balances of the loans sold at June 30, 2011 and December 31, 2010 were $128.4 million and $122.5 million, respectively. Mortgage servicing rights associated with the mortgage loans serviced for FNMA totaled $1.4 million and $1.2 million at June 30, 2011 and December 31, 2010, respectively.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The following table presents loans identified as impaired by class of loans as of June 30, 2011 and December 31, 2010:


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(In thousands)
June 30, 2011
With no related allowance recorded:
One- to four-family	$	6,684	$	6,684	$	—	$	5,431	$	113
Home equity		251		251		—		265		1
Commercial real estate		13,158		13,158		—		12,627		110
Real estate construction		298		298		—		298		—
Commercial business		1,224		1,224		—		1,252		32
Automobile, indirect		371		371		—		429		14
Automobile, direct		95		95		—		107		5
Unsecured		5		5		—		6		—
Other consumer		—		—		—		—		—

Impaired loans with no related allowance recorded		22,086		22,086		—		20,415		275

With an allowance recorded:
One- to four-family	$	3,240	$	3,240	$	131	$	3,258	$	71
Home equity		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Real estate construction		10,041		10,041		701		10,510		106
Commercial business		1,690		1,690		1,329		1,888		20
Automobile, indirect		—		—		—		—		—
Automobile, direct		—		—		—		—		—
Unsecured		—		—		—		—		—
Other consumer		—		—		—		—		—

Impaired loans with an allowance recorded		14,971		14,971		2,161		15,656		197


Total	$	37,057	$	37,057	$	2,161	$	36,071	$	472


December 31, 2010
With no related allowance recorded:
One- to four-family	$	5,045	$	5,045	$	—	$	4,732	$	276
Home equity		210		210		—		222		13
Commercial real estate		9,241		9,241		—		10,441		141
Real estate construction		1,126		1,126		—		590		36
Commercial business		1,296		1,296		—		1,372		77
Automobile, indirect		628		628		—		748		46
Automobile, direct		123		123		—		180		18
Unsecured		6		6		—		6		1
Other consumer		1		1		—		1		—

Impaired loans with no related allowance recorded		17,676		17,676		—		18,292		608

With an allowance recorded:
One- to four-family	$	3,272	$	3,272	$	131	$	3,306	$	85
Home equity		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Real estate construction		10,352		10,352		701		1,546		24
Commercial business		2,025		2,025		1,477		978		46
Automobile, indirect		—		—		—		—		—
Automobile, direct		—		—		—		—		—
Unsecured		—		—		—		—		—
Other consumer		—		—		—		—		—

Impaired loans with an allowance recorded		15,649		15,649		2,309		5,830		155


Total	$	33,325	$	33,325	$	2,309	$	24,122	$	763

As of June 30, 2011 and December 31, 2010, no additional funds were committed to be advanced in connection with impaired loans.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Included in impaired loans as of June 30, 2011 and December 31, 2010 were troubled debt restructured loans of $32.5 million and $19.5 million, respectively.

The following table presents the recorded investment in non-accrual loans by class of loans as of June 30, 2011 and December 31, 2010:


	June 30,		December 31,
	2011		2010
	(In thousands)
Residential Real Estate Loans:
One- to four-family	$	1,999	$	2,294
Home equity		204		230
Commercial Loans
Commercial real estate		7,738		5,587
Real estate construction		1,237		—
Commercial business		2,312		1,051
Consumer Loans:
Automobile, indirect		88		78
Automobile, direct		4		11

Total	$	13,582	$	9,251

There were no loans greater than 90 days past due that continued to accrue interest at June 30, 2011 or December 31, 2010.

The following table presents the aging of the recorded investment in past due loans as of June 30, 2011 and December 31, 2010 by class of loans:


					Greater
	30-59		60-89		than
	Days		Days		90 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
	(In thousands)
At June 30, 2011
Residential real estate loans:
One- to four-family	$	—	$	645	$	2,005	$	2,650	$	258,995	$	261,645
Home equity		—		273		204		477		24,005		24,482
Commercial loans:
Commercial real estate		54		2,192		1,956		4,202		84,111		88,313
Real estate construction		126		—		298		424		41,633		42,057
Commercial business		50		685		—		735		43,612		44,347
Consumer loans:
Automobile, indirect		948		201		88		1,237		164,211		165,448
Automobile, direct		11		21		4		36		23,740		23,776
Unsecured		55		9		—		64		12,834		12,898
Other		12		—		—		12		5,401		5,413


Total loans	$	1,256	$	4,026	$	4,555	$	9,837	$	658,542	$	668,379

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)


					Greater
	30-59		60-89		than
	Days		Days		90 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
	(In thousands)
At December 31, 2010
Residential real estate loans:
One- to four-family	$	2,499	$	—	$	2,294	$	4,793	$	266,999	$	271,792
Home equity		46		—		230		276		26,394		26,670
Commercial loans:
Commercial real estate		4,105		149		1,568		5,822		82,065		87,887
Real estate construction		—		—		—		—		34,502		34,502
Commercial business		—		359		—		359		48,374		48,733
Consumer loans:
Automobile, indirect		1,434		204		78		1,716		154,992		156,708
Automobile, direct		45		9		11		65		24,458		24,523
Unsecured		96		40		—		136		13,280		13,416
Other		78		—		—		78		5,209		5,287


Total loans	$	8,303	$	761	$	4,181	$	13,245	$	656,273	$	669,518

Our methodology for evaluating the adequacy of the allowance for loan losses consists of:

•

a specific loss component which is the allowance for impaired loans and

•

a general loss component for all other loans not individually evaluated for impairment but that, on a portfolio basis, are believed to have some inherent but unidentified loss.

The specific component of the allowance for loan losses relates to loans that are considered impaired, which are generally classified as doubtful or substandard. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for non-homogenous loans, including one- to four-family residential real estate loans with balances in excess of $1 million, commercial real estate, real estate construction, and commercial business loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, consumer and one- to four-family residential real estate loans with balances less than $1 million are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The general component of the allowance for loan losses covers unimpaired loans and is based on the historical loss experience adjusted for other qualitative factors. The loan portfolio is stratified into homogeneous groups of loans that possess similar loss potential characteristics and an appropriate loss ratio adjusted for other qualitative factors is applied to the homogeneous pools of loans to estimate the incurred losses in the loan portfolio. The other qualitative factors considered by management include, but are not limited to, the following:

•

changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices;

•

changes in national and local economic and business conditions and developments, including the condition of various market segments;

•

changes in the nature and volume of the loan portfolio;

•

changes in the experience, ability, and depth of knowledge of the management of the lending staff;

•

changes in the trend of the volume and severity of past due and classified loans; and trends in the volume of non-accrual loans, troubled debt restructurings, and other loan modifications;

•

changes in the quality of our loan review system and the degree of oversight by the board of directors;

•

the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and

•

the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in our current portfolio.

Consumer loans generally have greater risk of loss or default than one- to four-family residential real estate loans, particularly in the case of loans that are secured by rapidly depreciable assets, such as automobiles, or loans that are unsecured. In these cases, a risk exists that the collateral, if any, for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the ability to recover on consumer loans.

Commercial real estate loans generally have greater credit risks compared to one- to four-family residential real estate loans, as they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties typically depends on the successful operation of the related real estate project and thus may be subject to a greater extent to adverse conditions in the real estate market and in the general economy.

Commercial business loans involve a greater risk of default than residential real estate loans of like duration since their repayment generally depends on the successful operation of the borrower’s business and the sufficiency of collateral, if any. Loans secured by multi-family residential real estate generally involve a greater degree of credit risk than one- to four-family residential real estate loans and carry larger loan balances. This increased credit risk is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties, and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by multi-family mortgages typically depends upon the successful operation of the related real estate property. If the cash flow from the project is reduced, the borrower’s ability to repay the loan may be impaired.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Real estate construction loans generally have greater credit risk than traditional one- to four-family residential real estate loans. The repayment of these loans depends upon the sale of the property to third parties or the availability of permanent financing upon completion of all improvements. In the event a loan is made on property that is not yet approved for the planned development, there is the risk that approvals will not be granted or will be delayed. These events may adversely affect the borrower and the collateral value of the property. Real estate construction loans also expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the ultimate sale or rental of the property may not occur as anticipated.

When establishing the allowance for loan losses, management categorizes loans into risk categories based on the class of loans: residential real estate, commercial, or consumer, and relevant information about the ability of the borrowers to repay the loans such as: the current economic conditions, historical payment experience, the nature and volume of the loan portfolio, the financial strength of the borrower and the estimated value of any underlying collateral, among other factors. Management classifies the loans individually analyzed for impairment as to credit risk. This analysis includes residential real estate loans with an outstanding balance in excess of $1 million and non-homogeneous loans, such as commercial real estate, real estate construction, and commercial business loans. The following definitions for the credit risk ratings are used for such loans:

Special mention. Special mention loans have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the institution to sufficient risk to warrant adverse classification.

Substandard. Substandard loans have well defined weaknesses where a payment default and/or a loss is possible, but not yet probable. Loans so classified are inadequately protected by the current net worth and repayment capacity of the obligor or of the collateral pledged, if any. If deficiencies are not corrected quickly, there is a possibility of loss.

Doubtful. Doubtful loans have the weaknesses and characteristics of Substandard loans, but the available information suggests that collection or liquidation in its entirety, on the basis of currently existing facts, conditions and values, is highly improbable. The possibility of a loss is exceptionally high, but certain identifiable contingencies could possibly arise (proposed merger, acquisition, capital injection, refinancing plans, and pledging of additional collateral) that may strengthen the loan, such that it is reasonable to defer its classification as a loss until a more exact status is determined.

Loans not meeting the criteria described above are considered to be pass-rated loans. The following table presents the risk category of loans by class for loans individually analyzed for impairment as of June 30, 2011 and December 31, 2010:


	Commercial		Real Estate		Commercial		One-to Four-
	Real Estate		Construction		Business		Family		Total
	(In thousands)
June 30, 2011:
Pass	$	69,124	$	31,718	$	37,191	$	20,266	$	158,299
Special Mention		1,675		—		2,824		—		4,499
Substandard		17,514		10,339		4,332		3,365		35,550
Doubtful		—		—		—		—		—

	$	88,313	$	42,057	$	44,347	$	23,631	$	198,348


December 31, 2010:
Pass	$	67,237	$	23,024	$	35,848	$	24,282	$	150,391
Special Mention		4,940		—		4,377		—		9,317
Substandard		15,710		11,478		8,508		3,272		38,968
Doubtful		—		—		—		—		—

	$	87,887	$	34,502	$	48,733	$	27,554	$	198,676

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The Company classifies residential real estate loans that are not analyzed individually for impairment (less than $1 million) as prime or subprime. The Company defines a subprime residential real estate loan as any loan to a borrower who has no credit score or a credit score of less than 661 along with at least one of the following at the time of funding:

•

Two or more 30 day delinquencies in the past 12 months;

•

1 or more 60 day delinquencies in the past 24 months;

•

Bankruptcy filing within the past 60 months;

•

Judgment or unpaid charge-off of $500,000 or more in the last 24 months; and

•

Foreclosure or repossession in the past 24 months.

All other residential real estate loans not individually analyzed for impairment are classified as prime.

The following table presents the prime and subprime residential real estate loans collectively evaluated for impairment as of June 30, 2011 and December 31, 2010:


	One-to		Home
	Four-Family		Equity		Total
	(In thousands)
June 30, 2011:
Prime	$	219,967	$	23,731	$	243,698
Subprime		18,047		751		18,798

	$	238,014	$	24,482	$	262,496


December 31, 2010:
Prime	$	206,277	$	25,879	$	232,156
Subprime		37,961		791		38,752

	$	244,238	$	26,670	$	270,908

The Company evaluates consumer loans based on the credit score for each borrower when the loan is originated. The Company defines a sub-prime consumer loan as any loan to a borrower who has a credit score of less than 660 at the time of funding. The following table presents the credit score for each of the classes of consumer loans as of June 30, 2011 and December 31, 2010:


		Automobile,		Automobile,
Risk Tier	Credit Score	indirect		direct		Unsecured		Other		Total
		(In thousands)
At June 30, 2011:
A	720+	$	75,121	$	18,006	$	10,002	$	4,496	$	107,625
B	690–719		44,316		2,568		1,651		443		48,978
C	660-689		30,419		1,769		971		303		33,462
D	659 and under		15,592		1,433		274		171		17,470

		$	165,448	$	23,776	$	12,898	$	5,413	$	207,535


At December 31, 2010:
A	720+	$	81,868	$	18,853	$	10,233	$	4,510	$	115,464
B	690–719		39,006		2,557		1,638		363		43,564
C	660-689		23,762		1,646		1,103		272		26,783
D	659 and under		12,072		1,467		442		142		14,123

		$	156,708	$	24,523	$	13,416	$	5,287	$	199,934

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The following table presents the activity in the allowance for loan losses by portfolio segment based on impairment method for the three and six months ended June 30, 2011 and 2010:


	Residential
	Real Estate			Commercial			Consumer			Total
	(In thousands)
June 30, 2011:
Allowance for loan losses for the three months ended:
Beginning balance	$	1,305		$	4,813		$	2,712		$	8,830
Charge-offs		(68	)		(181	)		(631	)		(880	)
Recoveries of loans previously charged-off		1			21			66			88
Provision for loan losses		73			(385	)		912			600

Ending balance	$	1,311		$	4,268		$	3,059		$	8,638


Allowance for loan losses for the six months ended:
Beginning balance	$	1,365		$	4,901		$	2,666		$	8,932
Charge-offs		(90	)		(181	)		(1,255	)		(1,526	)
Recoveries of loans previously charged-off		1			60			171			232
Provision for loan losses		35			(512	)		1,477			1,000

Ending balance	$	1,311		$	4,268		$	3,059		$	8,638


Ending balance attributable to loans:
Individually evaluated for impairment	$	131		$	2,030		$	—		$	2,161
Collectively evaluated for impairment		1,180			2,238			3,059			6,477

Total ending balance	$	1,311		$	4,268		$	3,059		$	8,638


June 30, 2010:
Allowance for loan losses for the three months ended:
Beginning balance	$	1,599		$	4,563		$	2,533		$	8,695
Charge-offs		(71	)		(1,667	)		(485	)		(2,223	)
Recoveries of loans previously charged-off		1			2			78			81
Provision for loan losses		247			910			293			1,450

Ending balance	$	1,776		$	3,808		$	2,419		$	8,003


Allowance for loan losses for the six months ended:
Beginning balance	$	1,477		$	4,000		$	2,851		$	8,328
Charge-offs		(90	)		(1,667	)		(997	)		(2,754	)
Recoveries of loans previously charged-off		1			6			172			179
Provision for loan losses		388			1,469			393			2,250

Ending balance	$	1,776		$	3,808		$	2,419		$	8,003


Ending balance attributable to loans:
Individually evaluated for impairment	$	131		$	758		$	—		$	889
Collectively evaluated for impairment		1,645			3,050			2,419			7,114

Total ending balance	$	1,776		$	3,808		$	2,419		$	8,003

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The Company’s recorded investment in loans as of June 30, 2011, December 31, 2010 and June 30, 2010 related to each balance in the allowance for possible loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:


	Residential
	Real Estate		Commercial		Consumer		Total
	(In thousands)
June 30, 2011:
Loans individually evaluated for impairment	$	10,175	$	26,411	$	471	$	37,057
Loans collectively evaluated for impairment		275,952		148,306		207,064		631,322

Total ending balance	$	286,127	$	174,717	$	207,535	$	668,379


December 31, 2010:
Loans individually evaluated for impairment	$	8,527	$	24,040	$	758	$	33,325
Loans collectively evaluated for impairment		289,935		147,082		199,176		636,193

Total ending balance	$	298,462	$	171,122	$	199,934	$	669,518


June 30, 2010:
Loans individually evaluated for impairment	$	8,889	$	13,779	$	264	$	22,932
Loans collectively evaluated for impairment		283,370		175,567		207,042		665,979

Total ending balance	$	292,259	$	189,346	$	207,306	$	688,911

NOTE 5 — Other Secured Borrowings

On July 24, 2007, the Company entered into a sale of securities under agreement to repurchase (“Repurchase Agreement”) with PNC Bank, N.A. (“PNC”). The Repurchase Agreement is structured as the sale of a specified amount of identified securities to PNC which the Company has agreed to repurchase five years after the initial sale. The Repurchase Agreement is treated as financing and the obligation to repurchase securities sold is included in other secured borrowings in the consolidated balance sheets. The underlying securities continue to be carried as assets of the Company and the Company is entitled to receive interest and principal payments on the underlying securities. The Company had $58.0 million in repurchase agreements outstanding at June 30, 2011 and December 31, 2010. These repurchase agreements were secured by investment securities with a fair value of $65.3 million and $66.2 million at June 30, 2011 and December 31, 2010, respectively.

Federal funds purchased are short-term borrowings that typically mature within one to ninety days. Federal funds purchased totaled $10.9 million at June 30, 2011. There were no federal funds purchased at December 31, 2010.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

NOTE 6 — Employee Benefit Plans

Employee Stock Ownership Plan

OmniAmerican Bank adopted an Employee Stock Ownership Plan (“ESOP”) effective January 1, 2010. The ESOP enables all eligible employees of the Bank to share in the growth of the Company through the acquisition of Company common stock. Employees are generally eligible to participate in the ESOP after completion of one year of service and attaining age 21.

The ESOP purchased eight percent of the shares sold in the initial public offering of the Company (952,200 shares). This purchase was facilitated by a note payable to the Company from the ESOP in the amount of $9.5 million. The note is secured by a pledge of the ESOP shares. The shares pledged as collateral are reported as unallocated ESOP shares in the accompanying consolidated balance sheets. The corresponding note is to be paid back in 25 approximately equal annual payments of $561,000 on the last day of each fiscal year, beginning December 31, 2010, including interest at an adjustable rate equal to the Wall Street Journal prime rate (3.25% as of June 30, 2011 and December 31, 2010). The note payable and the corresponding note receivable have been eliminated for consolidation purposes.

The Company may make discretionary contributions to the ESOP in the form of debt service. If dividends are received on the unallocated ESOP shares they would be utilized to service the debt. Shares are released for allocation to plan participants based on principal and interest payments of the note. Compensation expense is recognized based on the number of shares allocated to plan participants each year and the average market price of the stock for the current year. Released ESOP shares become outstanding for earnings per share computations.

As compensation expense is incurred, the unallocated ESOP shares account is reduced based on the original cost of the stock. The difference between the cost and average market price of shares released for allocation is applied to additional paid-in capital. Compensation expense recognized from the release of shares from the ESOP was $287,000 and $217,000 for the six months ended June 30, 2011 and 2010, respectively.

The ESOP shares as of June 30, 2011 were as follows:


Allocated shares		57,132
Unearned shares		895,068

Total ESOP shares		952,200

Fair value of unearned shares (in thousands)	$	13,399

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Pension Plan

The Company has a noncontributory defined benefit pension plan (the “Pension Plan”) that provides for benefits to be paid to eligible employees at retirement based primarily upon years of service with the Company and compensation levels at retirement. Effective December 31, 2006, the Company froze benefits under the Pension Plan, so that no further benefits would be earned by employees after that date. In addition, no new participants may be added to the Pension Plan after December 31, 2006.

The net periodic pension cost for the three and six months ended June 30, 2011 and 2010 includes the following components:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)

Interest cost on projected benefit obligation	$	63		$	60		$	125		$	119
Expected return on assets		(63	)		(48	)		(125	)		(96	)
Amortization of net loss		16			19			32			39

Net periodic pension cost	$	16		$	31		$	32		$	62

Share Based Compensation

At its annual meeting held May 24, 2011, the Company’s shareholders approved the OmniAmerican Bancorp, Inc. 2011 Equity Incentive Plan which provides for the grant of stock-based and other incentive awards to officers, employees and directors of the Company. The Company records compensation cost for share-based payment transactions with employees in return for employment service. The 2011 Equity Incentive Plan provides the board or a committee thereof with the flexibility to award no less than half the eligible awards, constituting 7% of the shares issued in the Company’s initial public offering, in the form of stock options and up to 7% of the shares issued in the initial public offering in the form of restricted stock. By resolution by the board of directors, the board confirmed that restricted stock awards will not exceed 4% of the common stock sold in the Company’s initial public offering. Pursuant to board resolution, 1,190,250 options to purchase shares of common stock and 476,100 restricted shares of common stock were made available.

The compensation cost that has been charged against income for the restricted stock portion of the Equity Incentive Plan was $20,000 for the six months ended June 30, 2011. The compensation cost that has been charged against income for the stock option portion of the Equity Incentive Plan was $23,000 for the six months ended June 30, 2011.

Restricted Stock

The restricted stock portion of the plan allows the Company to grant restricted stock to directors, advisory directors, officers and other employees. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date, which is determined using the last sale price as quoted on the NASDAQ Stock Market. Awarded shares to employees vest at a rate of 20% of the initially awarded amount per year, beginning on the first anniversary date of the award, and are contingent upon continuous service by the recipient through the vesting date. Awarded shares to Director’s vest at a rate of 33.3% of the initially awarded amount per year, beginning on the first anniversary date of the award, and are contingent upon continuous service by the recipient through the vesting date. Under the terms of the Equity Incentive Plan, awarded shares are restricted as to transferability and may not be sold, assigned, or transferred prior to vesting. The Board of Directors’ Compensation Committee established a vesting period of five years, subject to acceleration of vesting upon a change in control of the Company or upon the termination of the award recipient’s service due to death or disability. Total restricted shares issuable pursuant to board resolution are 476,100 at June 30, 2011, and 118,738 shares had been issued under the plan through June 30, 2011.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

A summary of changes in the Company’s nonvested restricted shares for the year follows:


			Weighted-
			Average Grant
			Date Fair Value
	Shares		Per Share
Non-vested at January 1, 2011		—	$	—
Granted		118,738		14.15
Vested		—		—
Forfeited		—		—


Non-vested at June 30, 2011		118,738	$	14.15

As of June 30, 2011, there was $1.6 million of total unrecognized compensation expense related to non-vested shares awarded under the restricted stock plan. That expense is expected to be recognized over a weighted-average period of 4.2 years. At the grant date, the Company applied an estimated forfeiture rate of 33.91% based on the historical turnover rate.

Stock Options

The stock option portion of the plan pursuant to board resolution permits the grant of stock options to its officers, employees, and directors for up to 1,190,250 shares of common stock. Under the terms of the stock option plan, stock options may not be granted with an exercise price less than the fair market value of the Company’s common stock on the date the option is granted and may not be exercised later than ten years after the grant date. The fair market value is the last sale price as quoted on the NASDAQ Stock Market on the date of grant. All stock options granted must vest over at least three and not over five years, subject to acceleration of vesting upon a change in control, death or disability. The Stock Option Plan became effective on May 24, 2011, and remains in effect for a term of ten years.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. The risk-free interest rate is the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the stock option in effect at the time of the grant. Although the contractual term of the stock options granted is 10 years, the expected term of the stock options is less because option restrictions do not permit recipients to sell or hedge their options. Management believes these restrictions encourage exercise of the option before the end of the contractual term. The Company does not have sufficient historical information about its own employees’ vesting behavior; therefore, the expected term of stock options is estimated using the average of the vesting period and contractual term. The Company does not have sufficient historical information about its own stock volatility; therefore the expected volatility is based on an average volatility of peer banks.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The weighted average fair value of each stock option granted during the six months ended 2011 was $5.73. The fair value of options granted was determined using the following weighted-average assumptions as of grant date:


Risk-free interest rate	2.30	%
Expected term of stock options (years)	7.50
Expected stock price volatility	32.94	%
Expected dividends	0	%
Forfeiture rate	33.91	%

A summary of activity in the stock option portion of the plan for 2011 follows:


					Weighted-
			Weighted		Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price		Term		Value

Outstanding at January 1, 2011		—	$	—		—	$	—
Granted		373,552		14.15		9.96		306,000
Exercised		—		—		—		—
Forfeited		—		—		—		—

Outstanding at June 30, 2011		373,552	$	14.15		9.96	$	306,000


Fully vested and expected to vest		360,373	$	14.15		9.96	$	296,000


Exercisable at June 30, 2011		—	$	—		—	$	—

No stock options were exercised in 2011. As of June 30, 2011, there was $2.0 million of total unrecognized compensation expense related to non-vested stock options. That expense is expected to be recognized over a weighted-average period of 4.57 years. The intrinsic value for stock options is calculated based on the difference between the exercise price of the underlying awards and the market price of our common stock as of June 30, 2011.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

NOTE 7 — Earnings Per Share

Basic earnings per share are computed by dividing income by the weighted average number of common shares outstanding for the period.


	Three Months Ended			Six Months Ended
	June 30, 2011			June 30, 2011
	(Dollars in thousands, except per share data)

Basic
Earnings:
Net income	$	1,217		$	1,736


Shares:
Weighted average common shares outstanding		11,772,331			11,828,084
Less: Average unallocated ESOP shares		(898,242	)		(903,003	)

Average shares for basic earnings per share		10,874,089			10,925,081


Net income per common share, basic	$	0.11		$	0.16


Diluted
Earnings:
Net income	$	1,217		$	1,736


Shares:
Weighted average common shares outstanding for basic earnings per common share		10,874,089			10,925,081
Add: Dilutive effects of share-based compensation plan		163			82

Average shares for diluted earnings per share		10,874,252			10,925,163


Net income per common share, diluted	$	0.11		$	0.16

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)


	Three Months Ended			Six Months Ended
	June 30, 2010			June 30, 2010⁽¹⁾
	(Dollars in thousands, except per share data)

Basic and diluted
Earnings:
Net income	$	607		$	1,140


Shares:
Weighted average common shares outstanding		11,902,500			11,902,500
Less: Average unallocated ESOP shares		(936,330	)		(941,091	)

Average shares		10,966,170			10,961,409


Net income per common share, basic and diluted	$	0.06		$	0.10


(1)		The Company completed its mutual to stock conversion on January 20, 2010. The earnings per share for the six months ended June 30, 2010 is calculated as if the conversion had been completed prior to January 1, 2010.

NOTE 8 — Fair Value Measurements

ASC 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

•

Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 Inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

•

Level 3 Inputs — Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the fair value hierarchy, is set forth below.

Securities available for sale are valued at fair value on a recurring basis. The fair values of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). The Level 3 investments consisted of trust preferred securities at December 31, 2010, which are issued by financial institutions and insurance companies. The decline in the level of observable inputs and market activity in this class of investments by the measurement date has been significant and resulted in unreliable external pricing. Broker pricing and bid/ask spreads, when available, vary widely. There are currently very few market participants who are willing and/or able to transact for these securities.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Assets and liabilities measured at fair value on a recurring basis are summarized below:


							Total Fair Value at
	Fair Value Measurements at June 30, 2011, Using						June 30, 2011
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(In thousands)
Measured on a recurring basis:
Assets:
U. S. government sponsored mortgage-backed securities	$	—	$	278,843	$	—	$	278,843
U. S. government sponsored collateralized mortgage obligations		—		263,263		—		263,263
Other equity securities		—		5,136		—		5,136


							Total Fair Value at
	Fair Value Measurements at December 31, 2010, Using						December 31, 2010
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(In thousands)
Measured on a recurring basis:
Assets:
U.S. government sponsored mortgage-back securities	$	—	$	154,614	$	—	$	154,614
U.S. government sponsored collateralized mortgage obligations		—		150,792		—		150,792
Private-label collateralized mortgage obligations (residential)		—		3,396		—		3,396
Trust preferred securities		—		—		3,920		3,920
Other equity securities		—		5,084		—		5,084

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The table below presents a reconciliation and income statement classification of gains and losses for trust preferred securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2011:


	Securities
	available for sale
	(In thousands)

Beginning balance, January 1, 2011	$	3,920
Sale of trust preferred securities		(7,673	)
Total gains or losses (realized / unrealized):
Included in earnings:
Loss on sales of securities available for sale		2,911
Included in other comprehensive income
Change in unrealized gain on securities available for sale		862
Interest income on securities		2
Settlements		(22	)

Ending balance, June 30, 2011	$	—


	Securities
	available for sale
	(In thousands)

Beginning balance, January 1, 2010	$	5,604
Total gains or losses (realized / unrealized):
Included in other comprehensive income:
Change in unrealized gain on securities available for sale		15
Interest income on securities		147
Settlements		(41	)

Ending balance, June 30, 2010	$	5,725

No changes in unrealized gains or losses were recorded through earnings for the six months ended June 30, 2010 for the assets measured using significant unobservable inputs (Level 3 Inputs).

In accordance with ASC Topic 820, certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets or liabilities required to be measured at fair value on a nonrecurring basis include impaired loans and mortgage servicing rights.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Impaired loans (loans which are not expected to repay all principal and interest amounts due in accordance with the original contractual terms) are measured at an observable market price (if available) or at the fair value of the loan’s collateral (if collateral dependent). Fair value of the loan’s collateral is determined by appraisals or independent valuation which is then adjusted for the estimated costs related to liquidation of the collateral. Management’s ongoing review of appraisal information may result in additional discounts or adjustments to valuation based upon more recent market sales activity or more current appraisal information derived from properties of similar type and/or locale. A significant portion of the Company’s impaired loans are measured using the estimated fair market value of the collateral less the estimated costs to sell. Therefore, the Company has categorized its impaired loans as Level 3. The following table presents impaired loans that were remeasured and reported at fair value through a specific valuation allowance of the allowance for possible loan losses based upon the fair value of the underlying collateral during the six months ended June 30, 2011 and 2010.


	Six Months Ended June 30,
	2011			2010
	(In thousands)

Carrying value of impaired loans	$	1,875		$	1,909
Specific valuation allowance		(1,329	)		(578	)

Fair Value	$	546		$	1,331

Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. The estimated fair values of mortgage servicing rights are obtained through independent third-party valuations through an analysis of cash flows, incorporating estimates of assumptions market participants would use in determining fair value, including market discount rates, prepayment speeds, servicing income, servicing costs, default rates and other market-driven data, including the market’s perception of future interest rate movements and, as such, are classified as Level 3. At June 30, 2011 and December 31, 2010 the Company’s mortgage servicing rights were recorded at $1.4 million and $1.2 million, respectively.

Non-financial assets measured at fair value on a non-recurring basis are limited to other real estate owned. Other real estate owned is carried at fair value less estimated selling costs (as determined by independent appraisal) within Level 3 of the fair value hierarchy. At the time of foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for probable loan losses, if necessary. The fair value is reviewed periodically and subsequent write downs are made accordingly. The following table represents other real estate that was remeasured and reported at fair value as of June 30, 2011 and December 31, 2010.


	June 30,			December 31,
	2011			2010
	(In thousands)

Carrying value of other real estate prior to remeasurement	$	14,247		$	13,590
Less: charge-offs recognized in the allowance for probable loan losses at initial acquisition		(6	)		(2,168	)
Less: subsequent write-downs included in net loss on write-down of other real estate owned		(1,512	)		(128	)
Less: sales of other real estate owned		(2,804	)		(2,913	)

Carrying value of remeasured real estate at end of period	$	9,925		$	8,381

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for the other financial assets and financial liabilities are discussed below:

Cash and cash equivalents: The carrying amounts for cash and cash equivalents approximate fair values.

Accrued interest receivable and payable: The carrying amounts for accrued interest receivable and payable approximate fair values.

Other investments: The carrying amount for other investments, which consist primarily of Federal Home Loan Bank stock, approximates fair values.

Loans: The estimated fair value for all fixed rate loans is determined by discounting the estimated cash flows using the current rate at which similar loans would be made to borrowers with similar credit ratings and maturities. The estimated fair value for variable rate loans is the carrying amount. The impact of delinquent loans on the estimation of the fair values described above is not considered to have a material effect and, accordingly, delinquent loans have been disregarded in the valuation methodologies employed.

Deposits: The estimated fair value of demand deposit accounts is the carrying amount. The fair value of fixed-maturity certificates is estimated by discounting the estimated cash flows using the current rate at which similar certificates would be issued.

Borrowed Funds: The estimated fair value for borrowed funds is determined by discounting the estimated cash flows using the current rate at which similar borrowings would be made with similar ratings and maturities.

Off-balance sheet financial instruments: The fair values for the Company’s off-balance sheet commitments are estimated based on fees charged to others to enter into similar agreements taking into account the remaining terms of the agreements and credit standing of the members. The estimated fair value of these commitments is not significant.

OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The carrying amount and estimated fair value of the Company’s financial instruments at June 30, 2011 and December 31, 2010 were summarized as follows:


	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In thousands)
Financial assets:
Cash and cash equivalents	$	12,700	$	12,700	$	24,597	$	24,597
Securities available for sale		547,242		547,242		317,806		317,806
Other investments		13,566		13,566		3,060		3,060
Loans held for sale		628		628		861		861
Loans, net		660,318		671,704		660,425		675,641
Mortgage servicing rights		1,361		1,361		1,242		1,242
Accrued interest receivable		3,987		3,987		3,469		3,469

Financial liabilities:
Deposits	$	795,577	$	799,666	$	801,158	$	804,998
Federal Home Loan Bank advances		252,000		254,325		41,000		42,244
Other secured borrowings		68,878		71,299		58,000		61,125
Accrued interest payable		1,052		1,052		930		930

Off-balance sheet financial instruments:
Loan commitments	$	—	$	—	$	—	$	—
Letters of credit		—		—		—		—


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,” “will,” “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;

•

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; and

•

changes resulting from intense compliance and regulatory cost associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act and the elimination of the Office of Thrift Supervision as our primary regulator.

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.

General

OmniAmerican Bancorp, Inc. is the Maryland corporation that owns all of the outstanding shares of common stock of OmniAmerican Bank following the January 20, 2010 completion of the mutual-to-stock conversion of OmniAmerican Bank and initial public stock offering of OmniAmerican Bancorp, Inc. OmniAmerican Bancorp, Inc. has no significant assets other than all of the outstanding shares of common stock of OmniAmerican Bank and the net proceeds that it retained in connection with the offering.

Until July 21, 2011, OmniAmerican Bancorp, Inc. and OmniAmerican Bank were regulated by the Office of Thrift Supervision. As of July 21, 2011, OmniAmerican Bancorp’s primary federal regulator is the Federal Reserve and OmniAmerican Bank’s primary federal regulator is the Office of the Comptroller of the Currency. While we don’t anticipate that the change in primary regulators will have a material impact on our operations, there can be no assurance that the interpretation by these agencies of the regulations governing our business will not be different than the Office of Thrift Supervision’s which may affect the manner in which we conduct our business in the future.

OmniAmerican 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 and 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 loans 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 of 15 years or less. We generally sell the long-term, fixed-rate one- to four-family residential mortgage loans (terms greater than 15 years) that we originate either to Fannie Mae 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. We have in the past invested in trust preferred securities issued by third parties and private-label collateralized mortgage obligations. On March 22, 2011, as part of our new investment strategy, we sold our trust preferred securities and private-label collateralized mortgage obligations. We do not intend to invest in these types of securities in the future. At June 30, 2011, our investment securities portfolio had an amortized cost of $539.1 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.

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in OmniAmerican Bancorp, Inc.’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2011.

Comparison of Financial Condition at June 30, 2011 and December 31, 2010

Assets. Total assets increased $219.6 million, or 19.8%, to $1.33 billion at June 30, 2011 from $1.11 billion at December 31, 2010. The increase was primarily the result of increases in securities classified as available for sale of $229.4 million and other investments of $10.5 million, partially offset by decreases in total cash and cash equivalents of $11.9 million and other real estate owned of $3.7 million.

Cash and Cash Equivalents. Total cash and cash equivalents decreased $11.9 million, or 48.4%, to $12.7 million at June 30, 2011 from $24.6 million at December 31, 2010. The decrease in total cash and cash equivalents reflects $340.8 million in cash used to purchase securities classified as available for sale, $133.3 million in cash used to originate loans, and $11.1 million in cash used to purchase other investments. These decreases were partially offset by increases of $211.0 million in cash received from Federal Home Loan Bank advances, $116.0 million of proceeds from sales, principal repayments, and maturities of securities, $108.3 million in cash received from loan principal repayments, and $25.6 million of proceeds from the sales of loans. The sales of loans consisted of longer term (greater than 15 years) one- to four-family residential real estate loans, a real estate construction loan and a commercial business loan during the six months ended June 30, 2011.

Securities. Securities classified as available for sale increased $229.4 million, or 72.2%, to $547.2 million at June 30, 2011 from $317.8 million at December 31, 2010. The increase in securities classified as available for sale reflected purchases of $340.8 million during the six months ended June 30, 2011, of which $205.4 million was related to the implementation of an investment strategy which allowed us to utilize our excess capital to generate interest income. Due to the steepening of the yield curve, we were able to achieve a favorable interest rate margin between mortgage-backed securities investments and laddered maturity advances from the Federal Home Loan Bank, which is intended to provide increased earnings at a time when the relatively weak economy and our conservative underwriting standards resulted in an environment where it would not be prudent to aggressively originate loans. The investments purchased as part of the investment strategy are relatively short term fixed rate investments with an average duration of 3.99 years. In addition, $71.8 million in proceeds was generated from sales of securities, including the entire portfolio of trust preferred securities and private-label collateralized mortgage obligations. The proceeds from these sales were utilized to purchase $71.9 million in U. S. government sponsored mortgage-backed securities and collateralized mortgage obligations. Principal repayments and maturities totaled $44.2 million. At June 30, 2011, securities classified as available for sale consisted primarily of government-sponsored mortgage-backed securities, government-sponsored collateralized mortgage obligations, and other equity securities.

Other Investments. Other investments increased $10.5 million, or 338.7%, to $13.6 million at June 30, 2011 from $3.1 million at December 31, 2010. The increase in other investments during the six months ended June 30, 2011 reflected purchases of $9.4 million in Federal Home Loan Bank stock as a required investment associated with the additional $211.0 million in Federal Home Loan Bank advances incurred during the same time period. As part of our Community Reinvestment Act program, we purchased $1.8 million in qualified investments. The increase in other investments due to purchases was partially offset by principal repayments and maturities of $606,000.

Loans. Loans, net of the allowance for loan losses and deferred fees and discounts, decreased $107,000, or less than 1.0%, to $660.3 million at June 30, 2011 from $660.4 million at December 31, 2010. One- to four-family residential real estate loans decreased $10.2 million, or 3.8%, to $261.6 million at June 30, 2011 from $271.8 million at December 31, 2010, as loan repayments of $24.0 million, sales of $18.9 million, and the reclassification of three single-family residential real estate loans with balances totaling $659,000 to other real estate owned were partially offset by $33.5 million in originations of one- to four-family residential real estate loans. The decrease in one- to four-family residential real estate loans was primarily due to continued weakness in the housing market in our market area. Real estate construction loans increased $7.6 million, or 22.0%, to $42.1 million at June 30, 2011 from $34.5 million at December 31, 2010, as new construction demonstrated slight signs of recovery in certain segments of the economy. Automobile loans (consisting of direct and indirect loans) increased $8.0 million, or 4.4%, to $189.2 million at June 30, 2011 from $181.2 million at December 31, 2010, related primarily to our refocused sales initiatives and competitive rate structure. 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 $294,000, or 3.3%, to $8.6 million at June 30, 2011 from $8.9 million at December 31, 2010. The allowance for loan losses represented 1.29% and 1.33% of total loans at June 30, 2011 and at December 31, 2010, respectively. Total loans decreased $1.1 million, or 0.2%, to $668.4 million at June 30, 2011 from $669.5 million at December 31, 2010. The decrease in the allowance for loan losses attributable to commercial business and commercial real estate loans was partially offset by an increase in the allowance for loan losses related to automobile loans. Included in the allowance for loan losses at June 30, 2011 were specific allowances for loan losses of $2.2 million related to eleven impaired loans with balances totaling $15.0 million. Impaired loans with balances totaling $22.1 million did not require specific allowances for loan losses at June 30, 2011. The allowance for loan losses at December 31, 2010 included specific allowances for loan losses of $2.3 million related to eight impaired loans with balances totaling $15.6 million. Impaired loans with balances totaling $17.7 million did not require specific allowances for loan losses at December 31, 2010. The balance of unimpaired loans increased $2.9 million, or 0.5%, to $639.1 million at June 30, 2011 from $636.2 million at December 31, 2010. The allowance for loan losses related to unimpaired loans decreased $146,000, or 2.2%, to $6.5 million at June 30, 2011 from $6.6 million at December 31, 2010.

The significant changes in the amount of the allowance for loan losses during the six months ended June 30, 2011 related to: (i) a $427,000 decrease in the allowance for loan losses attributable to commercial business loans resulting primarily from a $279,000 decrease in the general allowance for loan losses on unimpaired commercial business loans reflecting a decrease of $4.0 million, or 8.8%, in the total outstanding balance of unimpaired commercial business loans to $41.4 million at June 30, 2011 from $45.4 million at December 31, 2010, (ii) a $277,000 decrease in the general allowance for loan losses on unimpaired commercial real estate loans reflecting a decrease of $3.0 million, or 3.8%, in the total outstanding balance of unimpaired commercial real estate loans to $75.6 million at June 30, 2011 from $78.6 million at December 31, 2010; and (iii) a $344,000 increase in the general allowance for loan losses on automobile loans primarily due to an increase of $8.0 million, or 4.4%, in the total outstanding balance of automobile loans to $189.2 million at June 30, 2011 from $181.2 million at December 31, 2010 and an increase in net charge-offs to average automobile loans outstanding, to 0.90% at June 30, 2011 from 0.67% at December 31, 2010. 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. During 2010, we purchased $20.0 million of life insurance policies on certain key employees to help offset costs associated with the Company’s compensation and benefit programs and to generate competitive investment yields. The policy premiums were invested in an insurance carrier which had a rating of A+ by Standard & Poor’s. As of June 30, 2011, the cash surrender value increased to $20.6 million from $20.1 million at December 31, 2010.

Deposits. Deposits decreased $5.6 million, or 0.7%, to $795.6 million at June 30, 2011 from $801.2 million at December 31, 2010. The decrease in deposits was primarily attributable to a decrease in certificates of deposits, partially offset by increases in checking and savings deposits. Certificates of deposit decreased $24.3 million, or 7.1%, to $318.7 million at June 30, 2011 from $343.0 million at December 31, 2010. The decrease in certificates of deposits resulted from rate sensitive customers whose certificates of deposit matured and were not renewed. Checking and savings deposits increased by $19.8 million, or 5.5%, to $377.2 million at June 30, 2011 from $357.4 million at December 31, 2010, reflecting our marketing efforts of these account products which included greater efforts to cross-sell these products to our borrowing customers.

Borrowings. Federal Home Loan Bank borrowings increased $211.0 million, or 514.6%, to $252.0 million at June 30, 2011 from $41.0 million at December 31, 2010. Additional borrowings were utilized in an investment strategy which allowed us to leverage our excess capital and benefit from the steep yield curve which provided a favorable interest rate margin between investment securities yields and rates on laddered maturity Federal Home Loan Bank advances. Other secured borrowings increased $10.9 million, or 18.8%, to $68.9 million at June 30, 2011 from $58.0 million at December 31, 2010. The increase was primarily attributable to federal funds purchased of $10.9 million at June 30, 2011. There were no federal funds purchased at December 31, 2010.

Stockholders’ Equity. At June 30, 2011, our stockholders’ equity was $201.3 million, an increase of $2.7 million, or 1.4%, from $198.6 million at December 31, 2010. This increase primarily reflected net income of $1.7 million for the six months ended June 30, 2011, an increase of $4.2 million in accumulated other comprehensive income (loss) to a gain of $4.2 million at June 30, 2011 compared to a loss of $33,000 at December 31, 2010, and the share-based compensation that was amortized. Partially offsetting this increase in stockholders’ equity was the repurchase of the Company’s common stock. The cost of repurchased shares at June 30, 2011 totaled $3.6 million representing the repurchases during the six months ended June 30, 2011 of 240,830 shares at an average cost of $15.02 per share, as part of the Company’s stock repurchase plan announced on January 26, 2011. The Company granted 373,552 options to purchase common stock during the second quarter resulting in share-based compensation for the three and six months ended June 30, 2011 of $23,000. The Company also granted 118,738 restricted shares of common stock resulting in share-based compensation for the three and six months ended June 30, 2011 of $20,000 at June 30, 2011.

Comparison of Operating Results for the Three Months Ended June 30, 2011 and 2010

General. Net income increased $610,000, or 100.5%, to $1.2 million for the three months ended June 30, 2011 from $607,000 for the prior year period. The increase in net income for the three months ended June 30, 2011 reflected a decrease in the provision for loan losses of $850,000 and an increase in net interest income of $830,000, partially offset by an increase in noninterest expense of $476,000, a decrease in noninterest income of $298,000, and an increase income tax expense of $296,000.

Interest Income. Interest income increased $730,000, or 5.4%, to $14.2 million for the three months ended June 30, 2011 from $13.5 million for the three months ended June 30, 2010. The increase resulted from a $203.6 million, or 19.8%, increase in the average balance of interest-earning assets to $1.24 billion for the three months ended June 30, 2011 from $1.03 billion for the three months ended June 30, 2010. Partially offsetting the increase in the average balance of interest-earning assets was a decrease of 62 basis points in our average yield on interest-earning assets to 4.59% for the three months ended June 30, 2011 from 5.21% for the three months ended June 30, 2010. The decrease in our average yield on interest-earning assets during the three months ended June 30, 2011 as compared to the prior year period was due to the continuing short-term market interest rate environment which has existed during the past two years.

Interest income on loans decreased $890,000, or 8.3%, to $9.8 million for the three months ended June 30, 2011 from $10.7 million for the three months ended June 30, 2010. The decrease resulted primarily from a decrease in the average balance of loans of $26.7 million, or 3.9%, to $666.3 million for the three months ended June 30, 2011 from $693.0 million for the three months ended June 30, 2010. In addition, the average yield on our loan portfolio decreased by 29 basis points to 5.87% for the three months ended June 30, 2011 from 6.16% for the three months ended June 30, 2010.

Interest income on investment securities increased $1.6 million, or 57.1%, to $4.4 million for the three months ended June 30, 2011 from $2.8 million for the three months ended June 30, 2010. The increase resulted primarily from a $235.8 million, or 74.7%, increase in the average balance of our securities portfolio to $551.3 million for the three months ended June 30, 2011 from $315.5 million for the three months ended June 30, 2010, due to increased purchases of securities, primarily U.S. government sponsored collateralized mortgage obligations. Partially offsetting the increase in the average balance of our securities portfolio was a decrease in the average yield on our securities portfolio (excluding nontaxable investment securities) of 35 basis points to 3.19% for the three months ended June 30, 2011 from 3.54% for the three months ended June 30, 2010.

Interest Expense. Interest expense decreased by $100,000, or 2.9%, to $3.4 million for the three months ended June 30, 2011 from $3.5 million for the three months ended June 30, 2010. The decrease resulted primarily from decreases in interest expense on deposits of $601,000, partially offset by an increase in interest expense on borrowed funds of $501,000. The average rate we paid on deposits decreased 35 basis points to 1.02% for the three months ended June 30, 2011 from 1.37% for the three months ended June 30, 2010. Partially offsetting the decrease in average rates paid on deposits was an increase in the average balance of interest-bearing deposits of $11.0 million, or 1.5%, to $729.8 million for the three months ended June 30, 2011 from $718.8 million for the three months ended June 30, 2010.

Interest expense on certificates of deposit decreased $290,000, or 15.3%, to $1.6 million for the three months ended June 30, 2011 from $1.9 million for the three months ended June 30, 2010. The average rate paid on certificates of deposit decreased 22 basis points to 1.93% for the three months ended June 30, 2011 from 2.15% for the three months ended June 30, 2010, reflecting the continuing low market interest rate environment. In addition, the average balance of certificates of deposit decreased $20.3 million, to $327.1 million for the three months ended June 30, 2011 from $347.4 million for the three months ended June 30, 2010.

Interest expense on borrowed funds increased by $501,000, or 50.1%, to $1.5 million for the three months ended June 30, 2011 from $1.0 million for the prior year period, primarily due to a $203.5 million increase in the average balance of Federal Home Loan Bank borrowings to $259.5 million for the three months ended June 30, 2011 from $56.0 million for the three months ended June 30, 2010. Partially offsetting the increase in the average balance was a decrease in the average rate paid on borrowed funds of 173 basis points to 1.92% for the three months ended June 30, 2011 from 3.65% for the three months ended June 30, 2010.

Net Interest Income. Net interest income increased by $830,000, or 8.3%, to $10.8 million for the three months ended June 30, 2011 from $10.0 million for the prior year period. The increase resulted primarily from a $235.8 million, or 74.7%, increase in the average balance of our securities portfolio to $551.3 million for the three months ended June 30, 2011 from $315.5 million for the three months ended June 30, 2010. The increase in income was partially offset by a 24 basis point decrease in our interest rate spread to 3.29% for the three months ended June 30, 2011 from 3.53% for the three months ended June 30, 2010. Our net interest margin decreased 57 basis points to 3.29% for the three months ended June 30, 2011 from 3.86% for the three months ended June 30, 2010. This decrease in the net interest margin resulted primarily from a change in the asset composition. The average yield on our securities portfolio was 3.19% for the three months ended June 30, 2011 and the average yield on our loan portfolio was 5.87% for the three months ended June 30, 2011. The securities portfolio has an average yield of 2.68% less than the loan portfolio, therefore as our securities portfolio increased in relation to our loan portfolio, the combined interest yield decreased. Partially offsetting the decrease in the yield on interest-earning assets was a decrease in our average yield on interest-bearing liabilities of 38 basis points to 1.30% for the three months ended June 30, 2011 from 1.68% for the three months ended June 30, 2010.

Provision for Loan Losses. We recorded a provision for loan losses of $600,000 for the three months ended June 30, 2011 compared to a provision for loan losses of $1.5 million for the three months ended June 30, 2010. 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. The decrease in the provision for loan losses is deemed to be appropriate as credit quality trends have begun to stabilize and the loan portfolio has decreased. Total loans decreased $20.5 million, or 3.0%, to $668.4 million at June 30, 2011 from $688.9 million at June 30, 2010. Net charge-offs decreased $1.4 million, to $792,000 for the three months ended June 30, 2011 from $2.1 million for the three months ended June 30, 2010. Net charge-offs as a percentage of average loans outstanding was 0.48% for the three months ended June 30, 2011 compared to 1.24% for the three months ended June 30, 2010. The allowance for loan losses to total loans receivable increased to 1.29% at June 30, 2011 from 1.16% at June 30, 2010.

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, 2011 or June 30, 2010. At June 30, 2011, non-performing loans totaled $13.6 million, or 2.03% of total loans, compared to $7.1 million, or 1.04% of total loans, at June 30, 2010. The allowance for loan losses as a percentage of non-performing loans decreased to 63.60% at June 30, 2011 from 113.02% at June 30, 2010.

Noninterest Income. Noninterest income decreased $298,000, or 8.5%, to $3.2 million for the three months ended June 30, 2011 from $3.5 million for the three months ended June 30, 2010. The decrease was primarily attributable to a $318,000 decrease in net gains on the sale of loans, and an $182,000 decrease in service charges and other fees, due primarily to a decrease in insufficient funds fee income. Partially offsetting this decrease in noninterest income was an increase in the cash surrender value of bank-owned life insurance of $240,000 from the purchase of life insurance policies on certain key employees in November 2010.

Noninterest Expense. Noninterest expense increased $476,000, or 4.3%, to $11.6 million for the three months ended June 30, 2011 from $11.1 million for the three months ended June 30, 2010. The increase was primarily attributable to a $1.1 million increase in net loss on write-down of other real estate owned and a $294,000 increase in salaries and benefits expense, partially offset by a $345,000 decrease in professional and outside services and a $317,000 decrease in software and equipment maintenance. The increase in net loss on write-down of other real estate owned was primarily due to decreases in the valuation of the properties held as real estate owned. The increase in salaries and benefits expense is primarily due to higher health insurance expense, increase in lending staff, annual salary increases, and compensation costs related to the employee stock ownership plan. The decrease in professional and outside services expense related primarily to refunds received and a reduction in rates charged for services provided by our debit card vendor as a result of a contract renegotiation. The decrease in software and equipment maintenance expense related primarily to savings from a new annual contract negotiated with our ATM servicing contractor.

Income Tax Expense. Income tax expense was $535,000 for the three months ended June 30, 2011 compared to $239,000 for the same period in 2010. Our effective tax rate was 30.48% for the three months ended June 30, 2011 compared to 28.25% for the three months ended June 30, 2010. The increase in the effective tax rate is attributable to an increase in expense related to the Texas state margin tax, partially offset by an increase in nontaxable income from the increase in the cash surrender value of bank-owned life insurance.

Analysis of Net Interest Income — Three Months Ended June 30, 2011 and 2010

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 and Yields

The following table sets forth average balance sheets, average yields and costs, and certain other information at or for the periods indicated. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances, but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.


	For the Three Months Ended June 30,
	2011								2010
	Average								Average
	Outstanding					Yield/			Outstanding					Yield/
	Balance			Interest		Rate⁽¹⁾			Balance			Interest		Rate⁽¹⁾
	(Dollars in thousands)

Interest-earning assets:
Loans	$	666,361		$	9,785		5.87	%	$	693,031		$	10,675		6.16	%
Taxable investment securities available for sale		551,289			4,392		3.19			311,053			2,753		3.54
Nontaxable investment securities available for sale		—			—		—			4,442			12		1.08	⁽²⁾
Cash and cash equivalents		4,895			5		0.41			20,123			14		0.28
Other		13,402			5		0.15			3,679			3		0.33

Total interest-earning assets		1,235,947			14,187		4.59			1,032,328			13,457		5.21
Noninterest-earning assets		103,304								82,538

Total assets	$	1,339,251							$	1,114,866


Interest-bearing liabilities:
Interest-bearing demand	$	80,161		$	41		0.20	%	$	74,636		$	72		0.39	%
Savings accounts		220,575			141		0.26			207,592			309		0.60
Money market accounts		101,992			104		0.41			89,194			216		0.97
Certificates of deposit		327,053			1,576		1.93			347,352			1,866		2.15

Total interest-bearing deposits		729,781			1,862		1.02			718,774			2,463		1.37
Federal Home Loan Bank advances		259,527			808		1.25			56,000			525		3.75
Other secured borrowings		61,171			734		4.80			58,000			516		3.56

Total interest-bearing liabilities		1,050,479			3,404		1.30			832,774			3,504		1.68
Noninterest-bearing liabilities⁽³⁾		88,684								83,021

Total liabilities		1,139,163								915,795
Equity		200,088								199,071

Total liabilities and equity	$	1,339,251							$	1,114,866


Net interest income				$	10,783							$	9,953

Interest rate spread ⁽⁴⁾							3.29	%							3.53	%
Net interest-earning assets ⁽⁵⁾	$	185,468							$	199,554

Net interest margin ⁽⁶⁾							3.49	%							3.86	%
Average interest-earning assets to interest-bearing liabilities		117.66	%							123.96	%


(1)		Annualized.

(2)		The tax equivalent yield of nontaxable investment securities was 1.64% for the three months ended June 30, 2010, assuming a marginal tax rate of 34%.

(3)		Includes noninterest-bearing deposits.

(4)		Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(5)		Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6)		Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by later volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, 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.


	Three Months Ended June 30,
	2011 vs. 2010
	Increase (Decrease)						Total
	Due to						Increase
	Volume			Rate			(Decrease)
	(In thousands)

Interest-earning assets:
Loans	$	(411	)	$	(479	)	$	(890	)
Taxable investment securities available for sale		2,126			(487	)		1,639
Nontaxable investment securities available for sale		(12	)		—			(12	)
Cash and cash equivalents		(11	)		2			(9	)
Other		8			(6	)		2


Total interest-earning assets	$	1,700		$	(970	)	$	730


Interest-bearing liabilities:
Interest-bearing demand	$	5		$	(36	)	$	(31	)
Savings accounts		19			(187	)		(168	)
Money market accounts		31			(143	)		(112	)
Certificates of deposit		(109	)		(181	)		(290	)

Total interest-bearing deposits		(54	)		(547	)		(601	)
Federal Home Loan Bank advances		1,908			(1,625	)		283
Other secured borrowings		28			190			218


Total interest-bearing liabilities	$	1,882		$	(1,982	)	$	(100	)


Change in net interest income	$	(182	)	$	1,012		$	830

Comparison of Operating Results for the Six Months Ended June 30, 2011 and 2010

General. Net income increased $596,000, or 54.2%, to $1.7 million for the six months ended June 30, 2011 from $1.1 million for the prior year period. The increase in net income for the six months ended June 30, 2011 reflected a decrease in the provision for loan losses of $1.3 million and an increase in net interest income of $749,000, partially offset by an increase in noninterest expense of $795,000, a decrease in noninterest income of $373,000, and increase in income tax expense of $235,000.

Interest Income. Interest income increased $361,000, or 1.4%, to $27.0 million for the six months ended June 30, 2011 from $26.6 million for the six months ended June 30, 2010. The increase resulted from a $122.1 million, or 12.0%, increase in the average balance of interest-earning assets to $1.14 billion for the six months ended June 30, 2011 from $1.02 billion for the six months ended June 30, 2010. Partially offsetting the increase in the average yield on interest-earning assets was a decrease of 49 basis points in our average yield on interest-earning assets to 4.72% for the six months ended June 30, 2011 from 5.21% for the six months ended June 30, 2010. The decrease in our average yield on interest-earning assets during the six months ended June 30, 2011 as compared to the prior year period was due to the continuing short-term market interest rate environment which has existed during the past two years.

Interest income on loans decreased $1.4 million, or 6.6%, to $19.9 million for the six months ended June 30, 2011 from $21.3 million for the six months ended June 30, 2010. The decrease resulted primarily from a decrease in the average balance of loans of $28.0 million, or 4.0%, to $666.0 million for the six months ended June 30, 2011 from $694.0 million for the six months ended June 30, 2010. In addition, the average yield on our loan portfolio decreased by 17 basis points to 5.97% for the six months ended June 30, 2011 from 6.14% for the six months ended June 30, 2010.

Interest income on investment securities increased $1.8 million, or 34.0%, to $7.1 million for the six months ended June 30, 2011 from $5.3 million for the six months ended June 30, 2010. The increase resulted primarily from a $161.7 million, or 55.7%, increase in the average balance of our securities portfolio to $451.8 million for the six months ended June 30, 2011 from $290.1 million for the six months ended June 30, 2010, due to increased purchases of securities, primarily U.S. government sponsored mortgage-backed securities and collateralized mortgage obligations. The purchases were a part of an investment leveraging strategy described above. Partially offsetting the increase in the average balance of our securities portfolio was a decrease in the average yield on our securities portfolio (excluding nontaxable investment securities) of 52 basis points to 3.13% for the six months ended June 30, 2011 from 3.65% for the six months ended June 30, 2010.

Interest Expense. Interest expense decreased by $388,000, or 5.5%, to $6.6 million for the six months ended June 30, 2011 from $7.0 million for the six months ended June 30, 2010. The decrease resulted primarily from decreases in interest expense on deposits of $1.0 million, partially offset by an increase in interest expense on borrowed funds of $640,000. The average rate we paid on deposits decreased 32 basis points to 1.06% for the six months ended June 30, 2011 from 1.38% for the six months ended June 30, 2010. Partially offsetting the decrease in average rates paid on deposits was an increase in the average balance of interest-bearing deposits of $21.1 million, or 3.0%, to $727.6 million for the six months ended June 30, 2011 from $706.5 million for the six months ended June 30, 2010.

Interest expense on certificates of deposit decreased $458,000, or 12.4%, to $3.2 million for the six months ended June 30, 2011 from $3.7 million for the six months ended June 30, 2010. The average rate paid on certificates of deposit decreased 23 basis points to 1.94% for the six months ended June 30, 2011 from 2.17% for the six months ended June 30, 2010, reflecting the continuing low market interest rate environment. In addition, the average balance of certificates of deposit decreased by $6.2 million, to $332.7 million for the six months ended June 30, 2011 from $338.9 million for the six months ended June 30, 2010.

Interest expense on borrowed funds increased by $640,000, or 30.5%, to $2.7 million for the six months ended June 30, 2011 from $2.1 million for the prior year period primarily due to a $116.8 million increase in the average balance of Federal Home Loan Bank borrowings to $174.1 million for the six months ended June 30, 2011 from $57.3 million for the six months ended June 30, 2010. Partially offsetting the increase in the average balance of Federal Home Loan Bank borrowings was a decrease on the average rate paid on Federal Home Loan Bank borrowings of 224 basis points to 1.47% for the six months ended June 30, 2011 from 3.71% for the six months ended June 30, 2010.

Net Interest Income. Net interest income increased by $749,000, or 3.8%, to $20.4 million for the six months ended June 30, 2011 from $19.6 million for the prior year period. The increase resulted primarily from a $161.7 million, or 55.7%, increase in the average balance of our securities portfolio to $451.8 million for the six months ended June 30, 2011 from $290.1 million for the six months ended June 30, 2010. The increase in income was partially offset by a 16 basis point decrease in our interest rate spread to 3.35% for the six months ended June 30, 2011 from 3.51% for the six months ended June 30, 2010. Our net interest margin decreased 28 basis points to 3.57% for the six months ended June 30, 2011 from 3.85% for the six months ended June 30, 2010. This decrease in the net interest margin resulted primarily from a change in the asset composition. The average yield on our securities portfolio was 3.13% for the six months ended June 30, 2011 and the average yield on our loan portfolio was 5.97% for the six months ended June 30, 2011. The securities portfolio has an average yield of 2.84% less than the loan portfolio, therefore as our securities portfolio increased in relation to our loan portfolio, the combined interest yield decreased. Partially offsetting the decrease in the yield on interest-earning assets was a decrease in our average yield on interest-bearing liabilities of 33 basis points to 1.37% for the six months ended June 30, 2011 from 1.70% for the six months ended June 30, 2010.

Provision for Loan Losses. We recorded a provision for loan losses of $1.0 million for the six months ended June 30, 2011 compared to a provision for loan losses of $2.3 million for the six months ended June 30, 2010. 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. The decrease in the provision for loan losses is deemed to be appropriate as credit quality trends have begun to stabilize and the loan portfolio has decreased. Total loans decreased $20.5 million, or 3.0%, to $668.4 million at June 30, 2011 from $688.9 million at June 30, 2010. Net charge-offs decreased $1.3 million to $1.3 million for the six months ended June 30, 2011 from $2.6 million for the six months ended June 30, 2010. Net charge-offs as a percentage of average loans outstanding was 0.38% for the six months ended June 30, 2011 compared to 0.75% for the six months ended June 30, 2010. The allowance for loan losses to total loans receivable increased to 1.29% at June 30, 2011 from 1.16% at June 30, 2010.

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, 2011 or June 30, 2010. At June 30, 2011, non-performing loans totaled $13.6 million, or 2.0% of total loans, compared to $7.1 million, or 1.04% of total loans, at June 30, 2010. The allowance for loan losses as a percentage of non-performing loans decreased to 63.60% at June 30, 2011 from 113.02% at June 30, 2010.

Noninterest Income. Noninterest income decreased $373,000, or 5.6%, to $6.3 million for the six months ended June 30, 2011 from $6.7 million for the six months ended June 30, 2010. The decrease was primarily attributable to a $442,000 decrease in net gains on the sale of loans and a $402,000 decrease in service charges and other fees, due primarily to a decrease in insufficient funds fee income. Partially offsetting this decrease in noninterest income was an increase in the cash surrender value of bank-owned life insurance of $476,000 from the purchase of life insurance policies on certain key employees in November 2010.

Noninterest Expense. Noninterest expense increased $795,000, or 3.5%, to $23.3 million for the six months ended June 30, 2011 from $22.5 million for the six months ended June 30, 2010. The increase was primarily attributable to increases in net loss on write-down of other real estate owned of $1.5 million and salaries and benefits expense of $601,000, partially offset by decreases in software and equipment maintenance of $417,000, professional and outside services expense of $206,000, and the FDIC insurance assessment of $175,000. The increase in net loss on write-down of other real estate owned was primarily due to decreases in the valuation of the properties held as real estate owned. The increase in salaries and benefits expense is primarily due to higher health insurance expense, increase in lending staff, annual salary increases, and compensation costs related to the employee stock ownership plan, partially offset by decreases in commission and incentive expense. The decrease in professional and outside services related primarily to refunds received and a reduction in rates charged for services provided by our debit card vendor as a result of a contract renegotiation. The decrease in software and equipment maintenance expense related primarily to savings from a new annual contract negotiated with our ATM servicing contractor. The decrease in the FDIC insurance premium expense was primarily attributable to a decrease in the general assessment rate applied to our insured deposits.

Income Tax Expense. Income tax expense was $713,000 for the six months ended June 30, 2011 compared to $478,000 for the same period in 2010. Our effective tax rate was 29.11% for the six months ended June 30, 2011 compared to 29.54% for the six months ended June 30, 2010. The decrease in the effective tax rate is primarily attributable to a $476,000 increase in nontaxable income from the increase in the cash surrender value of bank-owned life insurance for six months ended June 30, 2011 compared to prior year period.

Analysis of Net Interest Income — Six Months Ended June 30, 2011 and 2010

Average Balances and Yields


	For the Six Months Ended June 30,
	2011								2010
	Average								Average
	Outstanding					Yield/			Outstanding					Yield/
	Balance			Interest		Rate⁽¹⁾			Balance			Interest		Rate⁽¹⁾
	(Dollars in thousands)

Interest-earning assets:
Loans	$	666,008		$	19,890		5.97	%	$	693,997		$	21,317		6.14	%
Taxable investment securities available for sale		451,757			7,066		3.13			285,590			5,214		3.65
Nontaxable investment securities available for sale		—			—		—			4,492			25		1.11	⁽²⁾
Cash and cash equivalents		16,086			15		0.19			33,010			45		0.27
Other		9,093			7		0.15			3,764			16		0.85

Total interest-earning assets		1,142,944			26,978		4.72			1,020,853			26,617		5.21
Noninterest-earning assets		104,617								85,219

Total assets	$	1,247,561							$	1,106,072


Interest-bearing liabilities:
Interest-bearing demand	$	77,977		$	91		0.23	%	$	72,762		$	158		0.43	%
Savings accounts		215,425			307		0.29			204,760			603		0.59
Money market accounts		101,528			231		0.46			90,116			438		0.97
Certificates of deposit		332,674			3,219		1.94			338,867			3,677		2.17

Total interest-bearing deposits		727,604			3,848		1.06			706,505			4,876		1.38
Federal Home Loan Bank advances		174,105			1,278		1.47			57,302			1,063		3.71
Other secured borrowings		59,641			1,459		4.89			58,000			1,034		3.57

Total interest-bearing liabilities		961,350			6,585		1.37			821,807			6,973		1.70
Noninterest-bearing liabilities⁽³⁾		86,579								103,059

Total liabilities		1,047,929								924,866
Equity		199,632								181,206

Total liabilities and equity	$	1,247,561							$	1,106,072


Net interest income				$	20,393							$	19,644

Interest rate spread ⁽⁴⁾							3.35	%							3.51	%
Net interest-earning assets ⁽⁵⁾	$	181,594							$	199,046

Net interest margin ⁽⁶⁾							3.57	%							3.85	%
Average interest-earning assets to interest-bearing liabilities		118.89	%							124.22	%


(1)		Annualized.

(2)		The tax equivalent yield of nontaxable investment securities was 1.69% for the six months ended June 30, 2010, assuming a marginal tax rate of 34%.

(3)		Includes noninterest-bearing deposits.

(4)		Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(5)		Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(6)		Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis


	Six Months Ended June 30,
	2011 vs. 2010
	Increase (Decrease)						Total
	Due to						Increase
	Volume			Rate			(Decrease)
	(In thousands)

Interest-earning assets:
Loans	$	(860	)	$	(567	)	$	(1,427	)
Taxable investment securities available for sale		3,034			(1,182	)		1,852
Nontaxable investment securities available for sale		(25	)		—			(25	)
Cash and cash equivalents		(23	)		(7	)		(30	)
Other		23			(32	)		(9	)


Total interest-earning assets	$	2,149		$	(1,788	)	$	361


Interest-bearing liabilities:
Interest-bearing demand	$	11		$	(78	)	$	(67	)
Savings accounts		31			(327	)		(296	)
Money market accounts		55			(262	)		(207	)
Certificates of deposit		(67	)		(391	)		(458	)

Total interest-bearing deposits		30			(1,058	)		(1,028	)
Federal Home Loan Bank advances		2,167			(1,952	)		215
Other secured borrowings		29			396			425


Total interest-bearing liabilities	$	2,226		$	(2,614	)	$	(388	)


Change in net interest income	$	(77	)	$	826		$	749

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the Federal Home Loan Bank of Dallas, and maturities and sales of available-for-sale securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. We monitor our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies.

We regularly monitor and adjust our investments in liquid assets based upon our assessment of:

	(i)		expected loan demand;

	(ii)		expected deposit flows and borrowing maturities;

	(iii)		yields available on interest-earning deposits and securities; and

	(iv)		the objectives of our asset/liability management program.

Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At June 30, 2011, cash and cash equivalents totaled $12.7 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $547.2 million at June 30, 2011. On that date, we had $252.0 million in Federal Home Loan Bank advances outstanding, with the ability to borrow an additional $402.0 million.

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our consolidated financial statements.

At June 30, 2011, we had $38.6 million in commitments to extend credit. Included in these commitments to extend credit, were $30.8 million in unused lines of credit to borrowers. Certificates of deposit due within one year of June 30, 2011 totaled $186.0 million, or 23.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales and Federal Home Loan Bank advances. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before June 30, 2012. We believe, however, based on past experience, a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Generally, our primary investing activity is originating loans. During the six months ended June 30, 2011, we originated $133.3 million of loans. In addition, we purchased $340.8 million of securities classified as available for sale during the six months ended June 30, 2011.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances. Total deposits decreased $5.6 million for the six months ended June 30, 2011. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.

Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas, which provides an additional source of funds. Federal Home Loan Bank advances increased by $211.0 million for the six months ended June 30, 2011. At June 30, 2011, we had the ability to borrow up to $664.9 million from the Federal Home Loan Bank of Dallas. In addition, we maintained $27.5 million in federal funds lines with other financial institutions at June 30, 2011. We also have a line of credit with the Federal Reserve Bank of Dallas which allows us to borrow on a collateralized basis at a fixed term with pledged assignments. At June 30, 2011, the borrowing limit for this line of credit was $188.8 million.

OmniAmerican Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2011, OmniAmerican Bank exceeded all regulatory capital requirements. OmniAmerican Bank is considered “well capitalized” under regulatory guidelines. The table below presents the capital required as a percentage of total and risk-weighted assets and the percentage and the total amount of capital maintained at June 30, 2011 and December 31, 2010.


						Minimum					Capitalized Under
						For Capital					Prompt Corrective
	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
Consolidated as of June 30, 2011
Total risk-based capital to risk-weighted assets	$	197,353		26.44	%	$	59,708		8.00	%	$	74,636		10.00	%
Tier I risk-based capital to risk-weighted assets		190,876		25.57	%		29,854		4.00	%		44,781		6.00	%
Tier I (Core) capital to adjusted total assets		190,876		14.49	%		52,707		4.00	%		65,883		5.00	%
OmniAmerican Bank as of June 30, 2011
Total risk-based capital to risk-weighted assets	$	173,785		23.28	%	$	59,718		8.00	%	$	74,647		10.00	%
Tier I risk-based capital to risk-weighted assets		167,308		22.41	%		29,859		4.00	%		44,788		6.00	%
Tier I (Core) capital to adjusted total assets		167,308		12.70	%		52,711		4.00	%		65,889		5.00	%
Consolidated as of December 31, 2010
Total risk-based capital to risk-weighted assets	$	198,366		27.86	%	$	56,958		8.00	%	$	71,197		10.00	%
Tier I risk-based capital to risk-weighted assets		191,743		26.93	%		28,479		4.00	%		42,718		6.00	%
Tier I (Core) capital to adjusted total assets		191,743		17.40	%		44,078		4.00	%		55,097		5.00	%
OmniAmerican Bank as of December 31, 2010
Total risk-based capital to risk-weighted assets	$	170,526		23.95	%	$	56,965		8.00	%	$	71,207		10.00	%
Tier I risk-based capital to risk-weighted assets		163,903		23.02	%		28,483		4.00	%		42,724		6.00	%
Tier I (Core) capital to adjusted total assets		163,903		14.88	%		44,065		4.00	%		55,082		5.00	%

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at June 30, 2011. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.


	Payments Due by Period
			More than		More than
	One year or		one year to		three years to		More than
	less		three years		five years		five years		Total
	(In thousands)
Contractual obligations:
Long-term debt ⁽¹⁾	$	130,000	$	161,000	$	19,000	$	—	$	310,000
Operating leases		486		934		744		1,350		3,514
Certificates of deposit		185,963		108,299		24,448		—		318,710

Total contractual obligations	$	316,449	$	270,233	$	44,192	$	1,350	$	632,224


Off-balance sheet loan commitments:
Undisbursed portion of loans closed	$	7,729	$	—	$	—	$	—	$	7,729
Unused lines of credit ⁽²⁾		—		—		—		—		30,845

Total loan commitments	$	7,729	$		$		$		$	38,574


Total contractual obligations and loan commitments	$	324,178	$	270,233	$	44,192	$	1,350	$	670,798


(1)		Includes Federal Home Loan Bank advances and securities sold under agreements to repurchase.

(2)		Since lines of credit may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements


ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General. Because the majority of our assets and liabilities are sensitive to changes in interest rates, our most significant form of market risk is interest rate risk. We are vulnerable to an increase in interest rates to the extent that our interest-bearing liabilities mature or reprice more quickly than our interest-earning assets. As a result, a principal part of our business strategy is to manage interest rate risk and limit the exposure of our net interest income to changes in market interest rates. Accordingly, our board of directors has established an Asset/Liability Management Committee, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We have sought to manage our interest rate risk in order to control the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:

(i)

sell the long-term, fixed-rate one- to four-family residential mortgage loans (terms greater than 15 years) that we originate into the secondary mortgage market;

(ii)

lengthen the weighted average maturity of our liabilities through retail deposit pricing strategies and through longer-term wholesale funding sources such as fixed-rate advances from the Federal Home Loan Bank of Dallas;

(iii)

invest in shorter- to medium-term securities;

(iv)

originate commercial business and consumer loans, which tend to have shorter terms and higher interest rates than residential mortgage loans, and which generate customer relationships that can result in larger noninterest-bearing demand deposit accounts;

(v)

maintain adequate levels of capital; and

(vi)

evaluate the performance of the leveraging strategy by utilizing our internal measuring and monitoring systems which includes interest rate sensitivity analysis.

We have not engaged in hedging through the use of derivatives.

Net Portfolio Value. The Office of Thrift Supervision requires the computation of amounts by which the net present value of an institution’s cash flow from assets, liabilities and off-balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current relatively low level of market interest rates, an NPV calculation for an interest rate decrease of greater than 100 basis points has not been prepared. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. The Office of Thrift Supervision provides us the results of the interest rate sensitivity model, which is based on information we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value.

The table below sets forth, as of March 31, 2011 (the most recent date available), the Office of Thrift Supervision’s calculation of the estimated changes in our net portfolio value that would result from the designated immediate changes in the United States Treasury yield curve.


At March 31, 2011
									NPV as a Percentage of
									Present Value of Assets⁽³⁾
Change in			Estimated Increase									Increase
Interest Rates	Estimated		(Decrease) in NPV									(Decrease)
(basis points)⁽¹⁾	NPV⁽²⁾		Amount			Percent			NPV Ratio⁽⁴⁾			(basis points)
+300	$	141,495	$	(71,331	)		(33.52	)%		11.01	%		(434	)
+200		167,157		(45,669	)		(21.46	)%		12.66	%		(269	)
+100		191,302		(21,524	)		(10.11	)%		14.13	%		(122	)
0		212,826		—			—			15.35	%		—
-100		231,773		18,947			8.90	%		16.39	%		104


(1)		Assumes an instantaneous uniform change in interest rates at all maturities.

(2)		NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)		Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)		NPV Ratio represents NPV divided by the present value of assets.

Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. The Office of Thrift Supervision model illustrates the change in the economic value of our assets and liabilities at March 31, 2011 assuming an immediate change in interest rates. The table above indicates that at March 31, 2011, under the Office of Thrift Supervision model, in the event of a 200 basis point increase in interest rates, we would experience a 21.46% decrease in net portfolio value. In the event of a 100 basis point decrease in interest rates, we would experience an 8.90% increase in net portfolio value.

In addition to the Office of Thrift Supervision’s calculations with respect to the effects of changes in interest rates on net portfolio value, we prepare our own internal calculations of the estimated changes in our net portfolio value that would result from the designated immediate changes in the United States Treasury yield curve. We also analyze our sensitivity to changes in interest rates through our net interest income model. The model assumes loan prepayment rates, reinvestment rates and deposit decay rates based on historical experience and current economic conditions.

The following table presents our internal calculations of the estimated changes in our net portfolio value and net interest income that would result from the designated instantaneous changes in the interest rate yield curve as of June 30, 2011:


At June 30, 2011
									NPV as a Percentage of
									Present Value of Assets⁽³⁾					Net Interest Income
																Increase (Decrease) in
Change in			Estimated Increase									Increase		Estimated		Estimated Net Interest
Interest Rates	Estimated		(Decrease) in NPV									(Decrease)		Net Interest		Income
(basis points)⁽¹⁾	NPV⁽²⁾		Amount			Percent			NPV Ratio⁽⁴⁾			(basis points)		Income		Amount			Percent
	(Dollars in thousands)

+300	$	181,171	$	(57,563	)		(24.11	)%		13.76	%		333	$	39,983	$	(4,583	)		(10.28	)%
+200		202,359		(36,375	)		(15.24	)%		15.04	%		205		42,478		(2,088	)		(4.69	)%
+100		221,726		(17,008	)		(7.12	)%		16.16	%		93		44,284		(282	)		(0.63	)%
0		238,734		—			—			17.09	%		—		44,566		—			—
-100		241,661		2,927			1.23	%		17.17	%		8		40,826		(3,740	)		(9.16	)%


(1)		Assumes an instantaneous uniform change in interest rates at all maturities.

(2)		NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)		Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)		NPV Ratio represents NPV divided by the present value of assets.

The table above indicates that at June 30, 2011, in the event of a 200 basis point increase in interest rates, we would experience a 15.24% decrease in net portfolio value. In the event of a 100 basis point decrease in interest rates, we would experience a 1.23% increase in net portfolio value.

Net Interest Income. As of June 30, 2011, using our internal interest rate risk model, we estimated that our net interest income for the six months ended June 30, 2011 would decrease by 4.69% in the event of an instantaneous 200 basis point increase in market interest rates, and would decrease by 9.16% in the event of an instantaneous 100 basis point decrease in market interest rates. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. In our model, we estimate what our net interest income would be for a rolling forward twelve-month period using historical data for assumptions such as loan prepayment rates and deposit decay rates, the current term structure for interest rates, and current deposit and loan offering rates. We then calculate what the net interest income would be for the same period in the event of an instantaneous 200 basis point increase or a 100 basis point decrease in market interest rates.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value and net interest income. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value and net interest income information presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.


ITEM 4.		CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Senior Executive Vice President 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 June 30, 2011. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Senior Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2011, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION


ITEM 1.		LEGAL PROCEEDINGS

The Company and its subsidiary are subject to various legal actions that are considered ordinary routine litigation incidental to the business of the Company, and no claim for money damages exceeds ten percent of the Company’s consolidated assets. In the opinion of management, based on currently available information, the resolution of these legal actions is not expected to have a materially adverse effect on the Company’s results of operations.


ITEM 1A.		RISK FACTORS

There are no material changes to the risk factors as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2010, as filed with the Securities and Exchange Commission on March 10, 2011.


ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Not applicable.

(b)

Not applicable.

(c)

The following table provides information with respect to purchases made by or on behalf of the Corporation or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Corporation’s common stock during the three months ended June 30, 2011.


					(c)		(d)
					Total Number of		Maximum Number
	(a)				Shares Purchased		of Shares That May
	Total Number		(b)		as Part of Publicly		Yet Be Purchased
	of Shares		Average Cost		Announced Plans		Under the Plans or
Period	Purchased		Per Share		or Programs⁽¹⁾		Program ⁽¹⁾
April 1, 2011 through April 30, 2011		—	$	—		—		532,100
May 1, 2011 through May 31, 2011		136,486		14.89		136,486		395,614
June 1, 2011 through June 30, 2011		41,319		14.37		41,319		354,295

Total		177,805	$	14.77		177,805		354,295


(1)		On January 25, 2011, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to 595,125 shares of the Company’s common stock, from time to time, subject to market conditions. The repurchase program will continue until completed or terminated by the Board of Directors.


ITEM 3.		DEFAULTS UPON SENIOR SECURITIES

None


ITEM 4.		REMOVED AND RESERVED


ITEM 5.		OTHER INFORMATION

None


ITEM 6.		EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	OMNIAMERICAN BANCORP, INC. (Registrant)
Date: August 4, 2011	/s/ Tim Carter
	Tim Carter
	President and Chief Executive Officer

Date: August 4, 2011	/s/ Deborah B. Wilkinson
	Deborah B. Wilkinson
	Senior Executive Vice President and Chief Financial Officer

INDEX TO EXHIBITS


Exhibit
Number		Description
	10.5	Form of Employee Stock Option Award

	10.6	Form of Employee Restricted Stock Award

	10.7	Form of Director Stock Option Award

	10.8	Form of Director Restricted Stock Award

	31.1	Certification of Tim Carter, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

	31.2	Certification of Deborah B. Wilkinson, Senior Executive Vice President and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

	32	Certification of Tim Carter, President and Chief Executive Officer, and Deborah B. Wilkinson, Senior Executive Vice President and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.INS	XBRL Instance Document

	101.SCH	XBRL Taxonomy Extension Schema Document

	101.CAL	XBRL Taxonomy Calculation Linkbase Document

	101 DEF	XBRL Taxonomy Extension Definition Linkbase Document

	101 LAB	XBRL Taxonomy Label Linkbase Document

	101.PRE	XBRL Taxonomy Presentation Linkbase Document

OmniAmerican Bancorp, Inc. - FORM 10-Q - August 4, 2011

Attached files

OmniAmerican Bancorp, Inc. Reports