Attached files
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EXCEL - IDEA: XBRL DOCUMENT - OmniAmerican Bancorp, Inc. | Financial_Report.xls |
EX-32 - EXHIBIT 32 - OmniAmerican Bancorp, Inc. | c23971exv32.htm |
EX-31.1 - EXHIBIT 31.1 - OmniAmerican Bancorp, Inc. | c23971exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - OmniAmerican Bancorp, Inc. | c23971exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 September 30, 2011
OR
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.:
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o | |||
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 issuers classes of common stock, as of
the latest practicable date.
There were 11,272,375 shares of Common Stock, par value $0.01 per share, issued and outstanding as
of November 4, 2011.
Page | ||||||||
Number | ||||||||
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2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
30 | ||||||||
47 | ||||||||
51 | ||||||||
52 | ||||||||
52 | ||||||||
52 | ||||||||
53 | ||||||||
53 | ||||||||
53 | ||||||||
53 | ||||||||
54 | ||||||||
55 | ||||||||
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 |
i
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
OmniAmerican Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and due from financial institutions |
$ | 15,668 | $ | 12,842 | ||||
Short-term interest-earning deposits in other financial institutions |
15,430 | 11,755 | ||||||
Total cash and cash equivalents |
31,098 | 24,597 | ||||||
Investments: |
||||||||
Securities available for sale |
527,768 | 317,806 | ||||||
Other |
13,577 | 3,060 | ||||||
Loans held for sale |
975 | 861 | ||||||
Loans, net of deferred fees and discounts |
673,970 | 669,357 | ||||||
Less allowance for loan losses |
(8,489 | ) | (8,932 | ) | ||||
Loans, net |
665,481 | 660,425 | ||||||
Premises and equipment, net |
45,118 | 47,665 | ||||||
Bank-owned life insurance |
20,796 | 20,078 | ||||||
Other real estate owned |
9,318 | 14,793 | ||||||
Mortgage servicing rights |
1,180 | 1,242 | ||||||
Deferred tax asset, net |
1,212 | 6,935 | ||||||
Accrued interest receivable |
3,869 | 3,469 | ||||||
Other assets |
6,765 | 7,488 | ||||||
Total assets |
$ | 1,327,157 | $ | 1,108,419 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 75,602 | $ | 74,583 | ||||
Interest-bearing |
730,320 | 726,575 | ||||||
Total deposits |
805,922 | 801,158 | ||||||
Federal Home Loan Bank advances |
247,000 | 41,000 | ||||||
Other secured borrowings |
58,000 | 58,000 | ||||||
Accrued expenses and other liabilities |
14,188 | 9,634 | ||||||
Total liabilities |
1,125,110 | 909,792 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock, par value $0.01 per share; 100,000,000 shares authorized;
11,272,375 shares issued and outstanding at September 30, 2011 and
11,902,500 shares issued and outstanding at December 31, 2010 |
113 | 119 | ||||||
Additional paid-in capital |
106,588 | 115,470 | ||||||
Unallocated Employee Stock Ownership Plan (ESOP) shares; 885,546 shares
at September 30, 2011 and 914,112 shares at December 31, 2010 |
(8,856 | ) | (9,141 | ) | ||||
Retained earnings |
94,981 | 92,212 | ||||||
Accumulated other comprehensive income (loss): |
||||||||
Unrealized gain on securities available for sale, net of income taxes |
10,409 | 1,155 | ||||||
Unrealized loss on pension plan, net of income taxes |
(1,188 | ) | (1,188 | ) | ||||
Total accumulated other comprehensive income (loss) |
9,221 | (33 | ) | |||||
Total stockholders equity |
202,047 | 198,627 | ||||||
Total liabilities and stockholders equity |
$ | 1,327,157 | $ | 1,108,419 | ||||
See Condensed Notes to Unaudited Consolidated Interim Financial Statements.
1
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest income: |
||||||||||||||||
Loans, including fees |
$ | 9,806 | $ | 10,705 | $ | 29,696 | $ | 32,022 | ||||||||
Securities taxable |
3,886 | 2,831 | 10,974 | 8,106 | ||||||||||||
Securities nontaxable |
| 6 | | 31 | ||||||||||||
Total interest income |
13,692 | 13,542 | 40,670 | 40,159 | ||||||||||||
Interest expense: |
||||||||||||||||
Deposits |
1,755 | 2,393 | 5,603 | 7,269 | ||||||||||||
Borrowed funds |
1,519 | 1,183 | 4,256 | 3,280 | ||||||||||||
Total interest expense |
3,274 | 3,576 | 9,859 | 10,549 | ||||||||||||
Net interest income |
10,418 | 9,966 | 30,811 | 29,610 | ||||||||||||
Provision for loan losses |
550 | 2,750 | 1,550 | 5,000 | ||||||||||||
Net interest income after provision for loan losses |
9,868 | 7,216 | 29,261 | 24,610 | ||||||||||||
Noninterest income: |
||||||||||||||||
Service charges and other fees |
2,280 | 2,578 | 7,047 | 7,747 | ||||||||||||
Net gains on sales of loans |
380 | 455 | 563 | 1,080 | ||||||||||||
Net gains on sales and calls of securities available for sale |
| 13 | 11 | 104 | ||||||||||||
Net losses on sales of premises and equipment |
(1 | ) | | (6 | ) | | ||||||||||
Net losses on sales of repossessed assets |
(413 | ) | (40 | ) | (391 | ) | (15 | ) | ||||||||
Commissions |
246 | 162 | 615 | 483 | ||||||||||||
Increase in cash surrender value of bank-owned life insurance |
242 | | 718 | | ||||||||||||
Other income |
159 | 283 | 658 | 747 | ||||||||||||
Total noninterest income |
2,893 | 3,451 | 9,215 | 10,146 | ||||||||||||
Noninterest expense: |
||||||||||||||||
Salaries and benefits |
5,815 | 4,971 | 17,457 | 16,013 | ||||||||||||
Software and equipment maintenance |
596 | 575 | 1,803 | 2,200 | ||||||||||||
Depreciation of furniture, software and equipment |
638 | 793 | 2,136 | 2,384 | ||||||||||||
FDIC insurance |
190 | 434 | 863 | 1,282 | ||||||||||||
Net loss on write-down of other real estate owned |
714 | 48 | 2,226 | 67 | ||||||||||||
Real estate owned expense |
176 | 255 | 387 | 567 | ||||||||||||
Service fees |
125 | 150 | 374 | 548 | ||||||||||||
Communications costs |
230 | 165 | 694 | 637 | ||||||||||||
Other operations expense |
868 | 941 | 2,745 | 2,740 | ||||||||||||
Occupancy |
911 | 917 | 2,675 | 2,844 | ||||||||||||
Professional and outside services |
823 | 989 | 2,459 | 2,831 | ||||||||||||
Loan servicing |
94 | 71 | 311 | 199 | ||||||||||||
Marketing |
130 | 201 | 446 | 669 | ||||||||||||
Total noninterest expense |
11,310 | 10,510 | 34,576 | 32,981 | ||||||||||||
Income before income tax expense |
1,451 | 157 | 3,900 | 1,775 | ||||||||||||
Income tax expense (benefit) |
418 | (44 | ) | 1,131 | 434 | |||||||||||
Net income |
$ | 1,033 | $ | 201 | $ | 2,769 | $ | 1,341 | ||||||||
Earnings per share: |
||||||||||||||||
Basic |
$ | 0.10 | $ | 0.02 | $ | 0.26 | $ | 0.11 | (1) | |||||||
Diluted |
$ | 0.10 | $ | 0.02 | $ | 0.26 | $ | 0.11 | (1) | |||||||
(1) | The Company completed its mutual to stock conversion on January 20, 2010. The earnings per share for the nine months ended September 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.
2
Table of Contents
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, 28,566
shares |
| 138 | 285 | | | 423 | ||||||||||||||||||
Stock purchased at cost, 630,125
shares |
(6 | ) | (9,179 | ) | | | | (9,185 | ) | |||||||||||||||
Share-based compensation expense |
| 159 | | | | 159 | ||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net income |
| | | 2,769 | | 2,769 | ||||||||||||||||||
Change in fair value of
securities available for sale, net
of reclassification to earnings of
$(11) and income tax
effect of $4,767 |
| | | | 9,254 | 9,254 | ||||||||||||||||||
Total comprehensive income |
12,023 | |||||||||||||||||||||||
Balances at September 30, 2011 |
$ | 113 | $ | 106,588 | $ | (8,856 | ) | $ | 94,981 | $ | 9,221 | $ | 202,047 | |||||||||||
See Condensed Notes to Unaudited Consolidated Interim Financial Statements.
3
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flow
(Unaudited)
(In thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,769 | $ | 1,341 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
3,349 | 3,632 | ||||||
Provision for loan losses |
1,550 | 5,000 | ||||||
Amortization of net premium on investments |
2,895 | 1,651 | ||||||
Amortization and impairment of mortgage servicing rights |
322 | 294 | ||||||
Net gains on sales of securities available for sale |
(11 | ) | (104 | ) | ||||
Net gains on sales of loans |
(563 | ) | (1,080 | ) | ||||
Proceeds from sales of loans held for sale |
7,370 | 11,915 | ||||||
Loans originated for sale |
(7,484 | ) | (12,100 | ) | ||||
Net losses on write-down of other real estate owned |
2,226 | 67 | ||||||
Net losses on sales of premises and equipment |
6 | | ||||||
Net losses on sales of repossessed assets |
391 | 15 | ||||||
Increase in cash surrender value of bank-owned life insurance |
(718 | ) | | |||||
Federal Home Loan Bank stock dividends |
(18 | ) | (12 | ) | ||||
ESOP compensation expense |
423 | 325 | ||||||
Share-based compensation |
159 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accrued interest receivable |
(400 | ) | (231 | ) | ||||
Other assets |
1,380 | 5,499 | ||||||
Accrued interest payable and other liabilities |
4,554 | 7,566 | ||||||
Net cash provided by operating activities |
18,200 | 23,778 | ||||||
Cash flows from investing activities: |
||||||||
Securities available for sale: |
||||||||
Purchases |
(340,814 | ) | (231,383 | ) | ||||
Proceeds from sales |
71,782 | 1,734 | ||||||
Proceeds from maturities, calls and principal repayments |
70,207 | 79,892 | ||||||
Purchases of other investments |
(11,105 | ) | | |||||
Redemptions of other investments |
606 | 258 | ||||||
Purchases of loans held for investment |
| (1,108 | ) | |||||
Net increase in loans held for investment |
(32,980 | ) | (19,468 | ) | ||||
Proceeds from sales of loans held for investment |
22,634 | 37,892 | ||||||
Purchases of premises and equipment |
(838 | ) | (1,045 | ) | ||||
Proceeds from sales of premises and equipment |
30 | | ||||||
Proceeds from sales of foreclosed assets |
1,944 | 1,569 | ||||||
Proceeds from sales of other real estate owned |
5,256 | 2,421 | ||||||
Net cash used in investing activities |
(213,278 | ) | (129,238 | ) | ||||
Cash flows from financing activities: |
||||||||
Net increase (decrease) in deposits |
4,764 | (110,095 | ) | |||||
Net increase (decrease) in Federal Home Loan Bank advances |
206,000 | (15,400 | ) | |||||
Net increase in other secured borrowings |
| 75 | ||||||
Proceeds from issuance of common stock |
| 106,004 | ||||||
Purchase of common stock |
(9,185 | ) | | |||||
Net cash provided by (used in) financing activities |
201,579 | (19,416 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
6,501 | (124,876 | ) | |||||
Cash and cash equivalents, beginning of period |
24,597 | 140,144 | ||||||
Cash and cash equivalents, end of period |
$ | 31,098 | $ | 15,268 | ||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | 9,790 | $ | 10,398 | ||||
Non-cash transactions: |
||||||||
Loans transferred to other real estate owned |
$ | 2,417 | $ | 6,916 | ||||
Loans transferred to foreclosed assets |
$ | 1,886 | $ | 1,369 |
See Condensed Notes to Unaudited Consolidated Interim Financial Statements.
4
Table of Contents
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 Companys consolidated financial statements, and notes thereto, for the year
ended December 31, 2010, included in the Companys Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 10, 2011. In managements opinion, the interim data as
of September 30, 2011 and for the three and nine months ended September 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 GAAP 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 Companys 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 Companys consolidated financial statements.
5
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 companys loans and the allowance for loan losses held
against those loans. As a result, companies must 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 non-accrual 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 Creditors 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 did not have a material impact
on the Companys consolidated 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 Companys 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 GAAP 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 Companys 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 Companys financial
statements.
6
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 September 30, 2011 and December 31, 2010 were as follows:
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
September 30, 2011 |
||||||||||||||||
U. S. government sponsored mortgage-backed
securities |
$ | 258,529 | $ | 7,559 | $ | | $ | 266,088 | ||||||||
U. S. government sponsored collateralized mortgage
obligations |
248,468 | 7,949 | (6 | ) | 256,411 | |||||||||||
Other equity securities |
5,000 | 269 | | 5,269 | ||||||||||||
Total investment securities available for sale |
$ | 511,997 | $ | 15,777 | $ | (6 | ) | $ | 527,768 | |||||||
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 | |||||||
7
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Investment securities available for sale with gross unrealized losses at September 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) | ||||||||||||||||||||||||
September 30, 2011 |
||||||||||||||||||||||||
U. S. government
sponsored collateralized
mortgage obligations |
$ | | $ | | $ | 1,128 | $ | (6 | ) | $ | 1,128 | $ | (6 | ) | ||||||||||
$ | $ | $ | 1,128 | $ | (6 | ) | $ | 1,128 | $ | (6 | ) | |||||||||||||
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 September 30, 2011, the Company owned 205 investments of which one had an unrealized loss.
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
September 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
September 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 |
566 | 566 | ||||||
Due from five to ten years |
15,519 | 16,407 | ||||||
Due after ten years |
490,912 | 505,526 | ||||||
Equity securities |
5,000 | 5,269 | ||||||
Total |
$ | 511,997 | $ | 527,768 | ||||
8
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Investment securities with an amortized cost of $443.8 million and $242.5 million at September 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 $63.7 million and $66.2 million at
September 30, 2011 and December 31, 2010, respectively, were pledged to secure other borrowings.
Sales activity of securities available for sale for the three and nine months ended September 30,
2011 and 2010 was as follows:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 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 | ) | | |||||||||||
Proceeds from calls of investment securities |
| 19,395 | | 22,595 | ||||||||||||
Gross gains from calls of investment securities |
| 13 | | 13 |
Gains or losses on the sales of securities are recognized at the trade date utilizing the specific
identification method.
9
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Residential Real Estate Loans: |
||||||||
One- to four-family |
$ | 263,803 | $ | 271,792 | ||||
Home equity |
22,496 | 26,670 | ||||||
Total residential real estate loans |
286,299 | 298,462 | ||||||
Commercial Loans: |
||||||||
Commercial real estate |
87,341 | 87,887 | ||||||
Real estate construction |
46,918 | 34,502 | ||||||
Commercial business |
40,510 | 48,733 | ||||||
Total commercial loans |
174,769 | 171,122 | ||||||
Consumer Loans: |
||||||||
Automobile, indirect |
170,383 | 156,708 | ||||||
Automobile, direct |
23,365 | 24,523 | ||||||
Unsecured |
12,944 | 13,416 | ||||||
Other |
5,199 | 5,287 | ||||||
Total consumer loans |
211,891 | 199,934 | ||||||
Total loans |
672,959 | 669,518 | ||||||
Plus (less): |
||||||||
Deferred fees and discounts |
1,011 | (161 | ) | |||||
Allowance for loan losses |
(8,489 | ) | (8,932 | ) | ||||
Total loans receivable, net |
$ | 665,481 | $ | 660,425 | ||||
The Company originates one- to four-family residential real estate loans which are sold in the
secondary market. The Company retains the servicing for residential real estate loans that are
sold to the Federal National Mortgage Association (FNMA). Residential real estate loans serviced
for FNMA are not included as assets on the consolidated balance sheets. The principal balances of
the loans sold at September 30, 2011 and December 31, 2010 were $131.3 million and $122.5 million,
respectively. Mortgage servicing rights associated with the mortgage loans serviced for FNMA
totaled $1.2 million at September 30, 2011 and December 31, 2010.
10
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
The following table presents loans identified as impaired by class of loans as of September 30,
2011 and December 31, 2010:
Unpaid | Average | Interest | ||||||||||||||||||
Recorded | Principal | Related | Recorded | Income | ||||||||||||||||
Balance | Balance | Allowance | Balance | Recognized | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
September 30, 2011 |
||||||||||||||||||||
With no related allowance recorded: |
||||||||||||||||||||
One- to four-family |
$ | 6,412 | $ | 6,412 | $ | | $ | 5,845 | $ | 162 | ||||||||||
Home equity |
510 | 510 | | 318 | 2 | |||||||||||||||
Commercial real estate |
11,967 | 11,967 | | 12,703 | 189 | |||||||||||||||
Real estate construction |
| | | 239 | | |||||||||||||||
Commercial business |
1,559 | 1,559 | | 1,448 | 45 | |||||||||||||||
Automobile, indirect |
407 | 407 | | 428 | 17 | |||||||||||||||
Automobile, direct |
82 | 82 | | 103 | 6 | |||||||||||||||
Unsecured |
5 | 5 | | 5 | 1 | |||||||||||||||
Other consumer |
| | | | | |||||||||||||||
Impaired loans with no related allowance
recorded |
20,942 | 20,942 | | 21,089 | 422 | |||||||||||||||
With an allowance recorded: |
||||||||||||||||||||
One- to four-family |
$ | 3,217 | $ | 3,217 | $ | 131 | $ | 3,247 | $ | 88 | ||||||||||
Home equity |
| | | | | |||||||||||||||
Commercial real estate |
| | | | | |||||||||||||||
Real estate construction |
8,900 | 8,900 | 951 | 10,107 | 181 | |||||||||||||||
Commercial business |
1,658 | 1,658 | 1,242 | 1,645 | 16 | |||||||||||||||
Automobile, indirect |
| | | | | |||||||||||||||
Automobile, direct |
| | | | | |||||||||||||||
Unsecured |
| | | | | |||||||||||||||
Other consumer |
| | | | | |||||||||||||||
Impaired loans with an allowance recorded |
13,775 | 13,775 | 2,324 | 14,999 | 285 | |||||||||||||||
Total |
$ | 34,717 | $ | 34,717 | $ | 2,324 | $ | 36,088 | $ | 707 | ||||||||||
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 September 30, 2011 and December 31, 2010, no additional funds were committed to be
advanced in connection with impaired loans.
11
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
The following table presents the recorded investment in non-accrual loans by class of loans as of
September 30, 2011 and December 31, 2010:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Residential Real Estate Loans: |
||||||||
One- to four-family |
$ | 2,109 | $ | 2,294 | ||||
Home equity |
477 | 230 | ||||||
Commercial Loans |
||||||||
Commercial real estate |
5,765 | 5,587 | ||||||
Real estate construction |
863 | | ||||||
Commercial business |
2,271 | 1,051 | ||||||
Consumer Loans: |
||||||||
Automobile, indirect |
158 | 78 | ||||||
Automobile, direct |
| 11 | ||||||
Total |
$ | 11,643 | $ | 9,251 | ||||
There were no loans greater than 90 days past due that continued to accrue interest at
September 30, 2011 or December 31, 2010.
The following table presents the aging of the recorded investment in past due loans as of September
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) | ||||||||||||||||||||||||
September 30, 2011 |
||||||||||||||||||||||||
Residential real estate loans: |
||||||||||||||||||||||||
One- to four-family |
$ | | $ | 801 | $ | 2,109 | $ | 2,910 | $ | 260,893 | $ | 263,803 | ||||||||||||
Home equity |
10 | 8 | 477 | 495 | 22,001 | 22,496 | ||||||||||||||||||
Commercial loans: |
||||||||||||||||||||||||
Commercial real estate |
| 50 | 233 | 283 | 87,058 | 87,341 | ||||||||||||||||||
Real estate construction |
364 | | | 364 | 46,554 | 46,918 | ||||||||||||||||||
Commercial business |
41 | | | 41 | 40,469 | 40,510 | ||||||||||||||||||
Consumer loans: |
||||||||||||||||||||||||
Automobile, indirect |
1,319 | 419 | 158 | 1,896 | 168,487 | 170,383 | ||||||||||||||||||
Automobile, direct |
41 | 16 | | 57 | 23,308 | 23,365 | ||||||||||||||||||
Unsecured |
63 | 44 | | 107 | 12,837 | 12,944 | ||||||||||||||||||
Other |
8 | 1 | | 9 | 5,190 | 5,199 | ||||||||||||||||||
Total loans |
$ | 1,846 | $ | 1,339 | $ | 2,977 | $ | 6,162 | $ | 666,797 | $ | 672,959 | ||||||||||||
12
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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) | ||||||||||||||||||||||||
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 loans
effective interest rate, the loans 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.
13
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 borrowers
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 borrowers ability to repay the loan
may be impaired.
14
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 the Company 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 managements
close attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects for the asset or in the institutions 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 September 30, 2011 and December 31, 2010:
Commercial Real | Real Estate | Commercial | One- to Four- | |||||||||||||||||
Estate | Construction | Business | Family | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
September 30, 2011: |
||||||||||||||||||||
Pass |
$ | 70,636 | $ | 38,007 | $ | 33,493 | $ | 19,149 | $ | 161,285 | ||||||||||
Special Mention |
1,225 | | 84 | | 1,309 | |||||||||||||||
Substandard |
15,480 | 8,911 | 6,933 | 3,217 | 34,541 | |||||||||||||||
Doubtful |
| | | | | |||||||||||||||
$ | 87,341 | $ | 46,918 | $ | 40,510 | $ | 22,366 | $ | 197,135 | |||||||||||
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 | |||||||||||
15
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 September 30, 2011 and December 31, 2010:
One-to | ||||||||||||
Four- | Home | |||||||||||
Family | Equity | Total | ||||||||||
(In thousands) | ||||||||||||
September 30, 2011: |
||||||||||||
Prime |
$ | 200,564 | $ | 21,967 | $ | 222,531 | ||||||
Subprime |
40,873 | 529 | 41,402 | |||||||||
$ | 241,437 | $ | 22,496 | $ | 263,933 | |||||||
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 subprime 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 September 30, 2011 and December 31, 2010:
Automobile, | Automobile, | |||||||||||||||||||||
Risk Tier | Credit Score | indirect | direct | Unsecured | Other | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||||
September 30, 2011: |
||||||||||||||||||||||
A |
720+ | $ | 73,598 | $ | 17,778 | $ | 9,738 | $ | 4,303 | $ | 105,417 | |||||||||||
B |
690719 | 45,865 | 2,471 | 1,799 | 395 | 50,530 | ||||||||||||||||
C |
660689 | 33,885 | 1,741 | 992 | 348 | 36,966 | ||||||||||||||||
D |
659 and under | 17,035 | 1,375 | 415 | 153 | 18,978 | ||||||||||||||||
$ | 170,383 | $ | 23,365 | $ | 12,944 | $ | 5,199 | $ | 211,891 | |||||||||||||
December 31, 2010: |
||||||||||||||||||||||
A |
720+ | $ | 81,868 | $ | 18,853 | $ | 10,233 | $ | 4,510 | $ | 115,464 | |||||||||||
B |
690719 | 39,006 | 2,557 | 1,638 | 363 | 43,564 | ||||||||||||||||
C |
660689 | 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 | |||||||||||||
16
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 nine months ended September 30, 2011 and 2010:
Residential | ||||||||||||||||
Real Estate | Commercial | Consumer | Total | |||||||||||||
(In thousands) | ||||||||||||||||
September 30, 2011: |
||||||||||||||||
Allowance for loan losses for the three months ended: |
||||||||||||||||
Beginning balance |
$ | 1,311 | $ | 4,268 | $ | 3,059 | $ | 8,638 | ||||||||
Charge-offs |
(71 | ) | (241 | ) | (505 | ) | (817 | ) | ||||||||
Recoveries of loans previously charged-off |
12 | 8 | 98 | 118 | ||||||||||||
Provision for loan losses |
(80 | ) | 338 | 292 | 550 | |||||||||||
Ending balance |
$ | 1,172 | $ | 4,373 | $ | 2,944 | $ | 8,489 | ||||||||
Allowance for loan losses for the nine months ended: |
||||||||||||||||
Beginning balance |
$ | 1,365 | $ | 4,901 | $ | 2,666 | $ | 8,932 | ||||||||
Charge-offs |
(161 | ) | (422 | ) | (1,760 | ) | (2,343 | ) | ||||||||
Recoveries of loans previously charged-off |
13 | 68 | 269 | 350 | ||||||||||||
Provision for loan losses |
(45 | ) | (174 | ) | 1,769 | 1,550 | ||||||||||
Ending balance |
$ | 1,172 | $ | 4,373 | $ | 2,944 | $ | 8,489 | ||||||||
Ending balance attributable to loans: |
||||||||||||||||
Individually evaluated for impairment |
$ | 131 | $ | 2,193 | $ | | $ | 2,324 | ||||||||
Collectively evaluated for impairment |
1,041 | 2,180 | 2,944 | 6,165 | ||||||||||||
Total ending balance |
$ | 1,172 | $ | 4,373 | $ | 2,944 | $ | 8,489 | ||||||||
September 30, 2010: |
||||||||||||||||
Allowance for loan losses for the three months ended: |
||||||||||||||||
Beginning balance |
$ | 1,776 | $ | 3,808 | $ | 2,419 | $ | 8,003 | ||||||||
Charge-offs |
(290 | ) | (649 | ) | (603 | ) | (1,542 | ) | ||||||||
Recoveries of loans previously charged-off |
1 | 9 | 85 | 95 | ||||||||||||
Provision for loan losses |
264 | 1,909 | 577 | 2,750 | ||||||||||||
Ending balance |
$ | 1,751 | $ | 5,077 | $ | 2,478 | $ | 9,306 | ||||||||
Allowance for loan losses for the nine months ended: |
||||||||||||||||
Beginning balance |
$ | 1,477 | $ | 4,000 | $ | 2,851 | $ | 8,328 | ||||||||
Charge-offs |
(380 | ) | (2,316 | ) | (1,600 | ) | (4,296 | ) | ||||||||
Recoveries of loans previously charged-off |
2 | 15 | 257 | 274 | ||||||||||||
Provision for loan losses |
652 | 3,378 | 970 | 5.000 | ||||||||||||
Ending balance |
$ | 1,751 | $ | 5,077 | $ | 2,478 | $ | 9,306 | ||||||||
Ending balance attributable to loans: |
||||||||||||||||
Individually evaluated for impairment |
$ | 131 | $ | 2,777 | $ | | $ | 2,908 | ||||||||
Collectively evaluated for impairment |
1,620 | 2,300 | 2,478 | 6,398 | ||||||||||||
Total ending balance |
$ | 1,751 | $ | 5,077 | $ | 2,478 | $ | 9,306 | ||||||||
17
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
The Companys recorded investment in loans as of September 30, 2011, December 31, 2010 and
September 30, 2010 related to each balance in the allowance for loan losses by portfolio segment
and disaggregated on the basis of the Companys impairment methodology is as follows:
Residential | ||||||||||||||||
Real Estate | Commercial | Consumer | Total | |||||||||||||
(In thousands) | ||||||||||||||||
September 30, 2011: |
||||||||||||||||
Loans individually evaluated for impairment |
$ | 10,139 | $ | 24,084 | $ | 494 | $ | 34,717 | ||||||||
Loans collectively evaluated for impairment |
276,160 | 150,685 | 211,397 | 638,242 | ||||||||||||
Total ending balance |
$ | 286,299 | $ | 174,769 | $ | 211,891 | $ | 672,959 | ||||||||
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 | ||||||||
September 30, 2010: |
||||||||||||||||
Loans individually evaluated for impairment |
$ | 8,256 | $ | 19,742 | $ | 109 | $ | 28,107 | ||||||||
Loans collectively evaluated for impairment |
285,582 | 158,586 | 204,970 | 649,138 | ||||||||||||
Total ending balance |
$ | 293,838 | $ | 178,328 | $ | 205,079 | $ | 677,245 | ||||||||
A loan is considered a troubled debt restructuring (TDR) if the Company, for economic or
legal reasons related to a debtors financial difficulties, grants a concession to the debtor that
it would not otherwise consider. Concessions granted under a TDR typically involve a temporary or
permanent reduction in the interest rate at less than a current market rate of interest or an
extension of a loans stated maturity date. Loans classified as TDRs are designated as impaired.
A summary of the Companys loans classified as TDRs at September 30, 2011 and December 31, 2010 is
presented below:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
TDR |
||||||||
Residential Real Estate |
$ | 8,325 | $ | 8,362 | ||||
Commercial |
21,149 | 10,211 | ||||||
Consumer |
336 | 923 | ||||||
Total TDR |
$ | 29,810 | $ | 19,496 | ||||
Less: |
||||||||
TDR in non-accrual status |
||||||||
Residential Real Estate |
$ | 773 | $ | 325 | ||||
Commercial |
6,774 | 5,671 | ||||||
Consumer |
| 1 | ||||||
Total performing TDR |
$ | 22,263 | $ | 13,499 | ||||
18
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
The Company may grant concessions through a number of different restructuring methods. The
following table presents the outstanding principal balance of loans by class and by method of
concession that were the subject of a TDR during the three and nine months ended September 30,
2011:
Residential | ||||||||||||||||
Real Estate | Commercial | Consumer | Total | |||||||||||||
(In thousands) | ||||||||||||||||
For the three months ended September 30, 2011: |
||||||||||||||||
Interest rate reduction |
$ | | $ | | $ | 25 | $ | 25 | ||||||||
Loan maturity extension |
| 350 | | 350 | ||||||||||||
Forbearance |
| | | | ||||||||||||
Principal reduction |
| | 11 | 11 | ||||||||||||
Total |
$ | | $ | 350 | $ | 36 | $ | 386 | ||||||||
For the nine months ended September 30, 2011: |
||||||||||||||||
Interest rate reduction |
$ | 127 | $ | 11,329 | $ | 41 | $ | 11,497 | ||||||||
Loan maturity extension |
| 1,427 | 3 | 1,430 | ||||||||||||
Forbearance |
646 | 408 | | 1,054 | ||||||||||||
Principal reduction |
| | 24 | 24 | ||||||||||||
Total |
$ | 773 | $ | 13,164 | $ | 68 | $ | 14,005 | ||||||||
The following table presents the number of loans modified and the balances before and after
modification for the nine months ended September 30, 2011:
Pre-Modification | Post-Modification | |||||||||||
Number of | Outstanding | Outstanding | ||||||||||
Loans | Recorded Balance | Recorded Balance | ||||||||||
(Dollar amounts in thousands) | ||||||||||||
Residential Real Estate |
3 | $ | 810 | $ | 810 | |||||||
Commercial |
9 | 14,867 | 14,867 | |||||||||
Consumer |
7 | 81 | 76 | |||||||||
Total |
19 | $ | 15,758 | $ | 15,753 | |||||||
TDR loans which had payment defaults during the nine months ended September 30, 2011,
segregated by class, are shown in the table below. Default occurs when a loan is 90 days or more
past due or transferred to nonaccrual and is within 12 months of restructuring.
Number of | Recorded | |||||||
Loans | Balance | |||||||
(In thousands) | ||||||||
Residential Real Estate |
2 | $ | 646 | |||||
Commercial |
2 | 793 | ||||||
Consumer |
| | ||||||
Total |
4 | $ | 1,439 | |||||
Included in the impaired loans as of September 30, 2011 were TDRs of $29.8 million. The
Company has allocated $1.6 million of specific reserves to customers whose loan terms have been
modified in TDRs as of September 30, 2011. As of September 30, 2011, no additional funds were
committed to be advanced in connection with TDRs.
19
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
The Companys other real estate owned and foreclosed assets represent properties and personal
collateral acquired through customer loan defaults. The property is recorded at fair value less
the estimated costs to sell at the date acquired. Any difference between the book value and
estimated market value is recognized as a charge-off through the allowance for loan losses.
Subsequently, should the fair market value of an asset less the estimated cost to sell decline to
less than the carrying amount of the asset, the deficiency is recognized in the period in which it
becomes known and is included in noninterest expense.
At September 30, 2011 and December 31, 2010, the Company had balances in non-performing assets
consisting of the following:
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(Dollar amounts in thousands) | ||||||||
Other real estate owned and foreclosed assets |
||||||||
Residential Real Estate |
$ | 1,773 | $ | 2,196 | ||||
Commercial |
7,545 | 12,597 | ||||||
Consumer |
169 | 207 | ||||||
Total other real estate owned and foreclosed assets |
9,487 | 15,000 | ||||||
Total non-accrual loans |
11,643 | 9,251 | ||||||
Total non-performing assets |
$ | 21,130 | $ | 24,251 | ||||
Non-performing loans/Total loans |
1.73 | % | 1.38 | % | ||||
Non-performing assets/Total assets |
1.59 | % | 2.19 | % |
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 September 30,
2011 and December 31, 2010. These repurchase agreements were secured by investment securities with
a fair value of $63.7 million and $66.2 million at September 30, 2011 and December 31, 2010,
respectively.
NOTE 6
Contingent Liabilities
In August 2011,
the Chapter 11 Trustee for Taylor, Bean & Whitaker filed a complaint
against the Company seeking to recover payments totaling $1.5 million made
by Taylor, Bean & Whitaker to the Company as allegedly preferential transfers
paid to the Company during the 90 days preceding the filing of the bankruptcy
petition of Taylor, Bean & Whitaker. The Company asserts that the payments do
not constitute preferences and has engaged outside legal counsel to assist in
the matter. At the present time, the Company cannot determine the probability
of a material adverse result or reasonably estimate a range of potential exposures, if any.
Aside from the
litigation discussed above, the Company is involved in routine
legal actions that are considered ordinary routine litigation incidental to the
business of the Company. 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 Companys financial condition,
results of operations or cash flows.
NOTE 7 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 September
30, 2011 and December 31, 2010). The note payable and the corresponding note receivable have been
eliminated for consolidation purposes.
20
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 $423,000 and $325,000 for the nine months ended
September 30, 2011 and 2010, respectively.
The ESOP shares as of September 30, 2011 were as follows:
Allocated shares |
66,654 | |||
Unearned shares |
885,546 | |||
Total ESOP shares |
952,200 | |||
Fair value of unearned shares (in thousands) |
$ | 12,088 |
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 nine months ended September 30, 2011 and 2010
includes the following components:
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands) | ||||||||||||||||
Interest cost on projected benefit obligation |
$ | 63 | $ | 60 | $ | 187 | $ | 179 | ||||||||
Expected return on assets |
(63 | ) | (48 | ) | (188 | ) | (144 | ) | ||||||||
Amortization of net loss |
16 | 19 | 49 | 58 | ||||||||||||
Net periodic pension cost |
$ | 16 | $ | 31 | $ | 48 | $ | 93 | ||||||||
Share-Based Compensation
At its annual meeting held May 24, 2011, the Companys shareholders approved the OmniAmerican
Bancorp, Inc. 2011 Equity Incentive Plan (the Plan) which provides for the grant of stock-based
and other incentive awards to officers, employees and directors of the Company. The 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 Companys 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 Companys 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.
Share-based compensation expense for the three and nine months ended September 30, 2011 was
$117,000 and $160,000, respectively.
21
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Restricted Stock
Compensation expense for restricted stock is recognized over the vesting period of the awards based
on the fair value of the stock at grant 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
Directors 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 Plan, awarded shares are restricted as to transferability
and may not be sold, assigned, or transferred prior to vesting. The vesting period is subject to
acceleration of vesting upon a change in control of the Company or upon the termination of the
award recipients service due to death or disability. Total restricted shares issuable pursuant to
board resolution are 476,100 at September 30, 2011, of which 118,738 shares had been issued under
the Plan through September 30, 2011.
A summary of changes in the Companys nonvested restricted shares for the nine months ended
September 30, 2011 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 September 30,
2011 |
118,738 | $ | 14.15 | |||||
As of September 30, 2011, the Company had $936,000 of unrecognized compensation expense related to
non-vested shares of restricted stock awarded under the Plan. The unrecognized compensation expense
is expected to be recognized over a weighted-average period of 3.54 years. At the grant date, the
Company applied an estimated forfeiture rate of 33.91% to employees and 3.33% to Directors shares
based on the historical turnover rates.
Stock Options
Under the terms of the Plan, stock options may not be granted with an exercise price less than the
fair market value of the Companys 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 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.
22
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
The weighted average fair value of each stock option granted during the nine months ended September
30, 2011 was $5.64. 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 for officers and employees (years) |
7.50 | |||
Expected term of stock options for Directors (years) |
6.50 | |||
Expected stock price volatility |
32.94 | % | ||
Expected dividends |
0 | % | ||
Forfeiture rate for officers and employees |
33.91 | % | ||
Forfeiture rate for Directors |
3.33 | % |
A summary of activity in the stock option portion of the Plan for the nine months ended September
30, 2011 follows:
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted | Remaining | Aggregate | ||||||||||||||
Average | Contractual Term | Intrinsic | ||||||||||||||
Shares | Exercise Price | (years) | Value | |||||||||||||
Outstanding at January 1, 2011 |
| $ | | | $ | | ||||||||||
Granted |
373,552 | 14.15 | 9.71 | | ||||||||||||
Exercised |
| | | | ||||||||||||
Forfeited |
| | | | ||||||||||||
Outstanding at September 30, 2011 |
373,552 | $ | 14.15 | 9.71 | $ | | ||||||||||
Fully vested and expected to vest |
183,950 | $ | 14.15 | 9.71 | $ | | ||||||||||
Exercisable at September 30, 2011 |
| $ | | | $ | | ||||||||||
As of September 30, 2011, the Company had $972,000 of total unrecognized compensation expense
related to non-vested stock options. That expense is expected to be recognized over a
weighted-average period of 4.04 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 September 30, 2011.
23
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
NOTE 8 Earnings Per Share
The table below presents the information used to compute basic and diluted earnings per share:
Three Months Ended | Nine Months Ended | |||||||
September 30, 2011 | September 30, 2011 | |||||||
(Dollars in thousands, except per share data) | ||||||||
Basic |
||||||||
Earnings: |
||||||||
Net income |
$ | 1,033 | $ | 2,769 | ||||
Shares: |
||||||||
Weighted average common shares outstanding |
11,454,290 | 11,702,117 | ||||||
Less: Average unallocated ESOP shares |
(888,720 | ) | (899,829 | ) | ||||
Average shares for basic earnings per share |
10,565,570 | 10,802,288 | ||||||
Net income per common share, basic |
$ | 0.10 | $ | 0.26 | ||||
Diluted |
||||||||
Earnings: |
||||||||
Net income |
$ | 1,033 | $ | 2,769 | ||||
Shares: |
||||||||
Weighted average common shares outstanding for
basic earnings per common share |
10,565,570 | 10,802,288 | ||||||
Add: Dilutive effects of share-based
compensation plan |
4,338 | 2,839 | ||||||
Average shares for diluted earnings per share |
10,569,908 | 10,805,127 | ||||||
Net income per common share, diluted |
$ | 0.10 | $ | 0.26 | ||||
24
Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Three Months Ended | Nine Months Ended | |||||||
September 30, 2010 | September 30, 2010(1) | |||||||
(Dollars in thousands, except per share data) | ||||||||
Basic and diluted |
||||||||
Earnings: |
||||||||
Net income |
$ | 201 | $ | 1,341 | ||||
Shares: |
||||||||
Weighted average common shares outstanding |
11,902,500 | 11,902,500 | ||||||
Less: Average unallocated ESOP shares |
(926,808 | ) | (936,330 | ) | ||||
Average shares |
10,975,692 | 10,966,170 | ||||||
Net income per common share, basic and diluted |
$ | 0.02 | $ | 0.11 | ||||
(1) | The Company completed its mutual to stock conversion on January 20, 2010. The earnings per share for the nine months ended September 30, 2010 is calculated as if the conversion had been completed prior to January 1, 2010. |
NOTE 9 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 entitys 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.
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Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 September 30, 2011, Using | September 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 |
$ | | $ | 266,088 | $ | | $ | 266,088 | ||||||||
U. S. government
sponsored collateralized
mortgage obligations |
| 256,411 | | 256,411 | ||||||||||||
Other equity securities |
| 5,269 | | 5,269 | ||||||||||||
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 |
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Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 nine months ended September 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, September 30, 2011 |
$ | | ||
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 nine months ended September 30, 2010:
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 |
(218 | ) | ||
Interest income on securities |
17 | |||
Settlements |
(65 | ) | ||
Ending balance, September 30, 2010 |
$ | 5,338 | ||
No changes in unrealized gains or losses were recorded through earnings for the nine months ended
September 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.
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Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 loans collateral (if collateral dependent). Fair value of
the loans collateral is determined by appraisals or independent valuation which is then adjusted
for the estimated costs related to liquidation of the collateral. Managements 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 Companys 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 reserve of the
allowance for loan losses based upon the fair value of the underlying collateral during the nine
months ended September 30, 2011 and 2010.
Nine Months Ended September 30, | ||||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Carrying value of impaired loans |
$ | 9,085 | $ | 8,169 | ||||
Specific reserve |
(1,492 | ) | (2,598 | ) | ||||
Fair Value |
$ | 7,593 | $ | 5,571 | ||||
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 markets perception of future interest rate movements and, as such, are classified as Level 3.
At September 30, 2011 and December 31, 2010 the Companys mortgage servicing rights were recorded
at $1.2 million.
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 loan losses, if necessary. The fair value is
reviewed periodically and subsequent write downs are recorded accordingly. The following table
represents other real estate that was remeasured and reported at fair value as of September 30,
2011 and December 31, 2010.
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In thousands) | ||||||||
Carrying value of other real estate owned prior to remeasurement |
$ | 16,721 | $ | 13,590 | ||||
Less: charge-offs recognized in the allowance for loan
losses at initial acquisition |
(234 | ) | (2,168 | ) | ||||
Less: subsequent write-downs included in net loss on
write-down of other real estate owned |
(2,226 | ) | (128 | ) | ||||
Less: sales of other real estate owned |
(5,667 | ) | (2,913 | ) | ||||
Carrying value of remeasured other real estate owned at end of
period |
$ | 8,594 | $ | 8,381 | ||||
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.
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Table of Contents
OmniAmerican Bancorp, Inc. and Subsidiary
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
Condensed Notes to Unaudited Consolidated Interim Financial Statements (Continued)
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 Companys 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.
The carrying amount and estimated fair value of the Companys financial instruments at September
30, 2011 and December 31, 2010 were summarized as follows:
September 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 31,098 | $ | 31,098 | $ | 24,597 | $ | 24,597 | ||||||||
Securities available for sale |
527,768 | 527,768 | 317,806 | 317,806 | ||||||||||||
Other investments |
13,577 | 13,577 | 3,060 | 3,060 | ||||||||||||
Loans held for sale |
975 | 975 | 861 | 861 | ||||||||||||
Loans, net |
665,481 | 685,853 | 660,425 | 675,641 | ||||||||||||
Mortgage servicing rights |
1,180 | 1,180 | 1,242 | 1,242 | ||||||||||||
Accrued interest receivable |
3,869 | 3,869 | 3,469 | 3,469 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Deposits |
$ | 805,922 | $ | 811,035 | $ | 801,158 | $ | 804,998 | ||||||||
Federal Home Loan Bank advances |
247,000 | 249,796 | 41,000 | 42,244 | ||||||||||||
Other secured borrowings |
58,000 | 60,038 | 58,000 | 61,125 | ||||||||||||
Accrued interest payable |
1,000 | 1,000 | 930 | 930 | ||||||||||||
Off-balance sheet financial instruments: |
||||||||||||||||
Loan commitments |
$ | | $ | | $ | | $ | | ||||||||
Letters of credit |
| | | |
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Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Cautionary Statement Regarding Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements, which can be
identified by the use of words such as estimate, project, believe, intend, anticipate,
plan, seek, expect, may and words of similar meaning. These forward-looking statements
include, but are not limited to:
| statements of our goals, intentions and expectations; |
| statements regarding our business plans, prospects, growth and operating strategies; |
| statements regarding the asset quality of our loan and investment portfolios; and |
| estimates of our risks and future costs and benefits. |
These forward-looking statements are based on our current beliefs and expectations and are
inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control. In addition, these forward-looking statements
are subject to assumptions with respect to future business strategies and decisions that are
subject to change. We are under no duty to and do not take any obligation to update any
forward-looking statements after the date of this Quarterly Report.
The following factors, among others, could cause actual results to differ materially from the
anticipated results or other expectations expressed in the forward-looking statements:
| general economic conditions, either nationally or in our market areas, that are worse than expected; |
| competition among depository and other financial institutions; |
| inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments; |
| adverse changes in the securities markets; |
| changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; |
| our ability to enter new markets successfully and capitalize on growth opportunities; |
| our ability to successfully integrate acquired entities, if any; |
| changes in consumer spending, borrowing and savings habits; |
| changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board; |
| changes in our organization, compensation and benefit plans; |
| changes in our financial condition or results of operations that reduce capital available to pay dividends; |
30
Table of Contents
| 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 transition from the Office of Thrift Supervision to the Office of the Comptroller of the Currency 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. For a more
detailed discussion of these and other factors that may affect our business, see the discussion
under the caption Risk Factors in our Annual Report on Form 10-K and the discussion in this
Managements Discussion and Analysis of Financial Condition and Results of Operations.
General
OmniAmerican Bancorp, Inc. (referred to herein as we, us, our, or the Company) is the
Maryland corporation that owns all of the outstanding shares of common stock of OmniAmerican Bank
(the Bank) following the January 20, 2010 completion of the mutual-to-stock conversion of
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 Bancorps primary federal
regulator is the Federal Reserve and OmniAmerican Banks primary federal regulator is the Office of
the Comptroller of the Currency. While we dont anticipate that the change in primary regulators
will have a material impact on our operations, the interpretation by these agencies of the
regulations governing our business may be different than the Office of Thrift Supervisions, which
may affect the manner in which we conduct our business in the future.
The Bank was originally chartered in 1956 as a federal credit union serving the active and
retired military personnel of Carswell Air Force Base. The Bank converted from a Texas credit
union charter to a federal mutual savings bank charter on January 1, 2006. The objective of the
charter conversion was to convert to a savings bank charter in order to carry out our business
strategy of broadening our banking services into residential real estate and commercial lending,
selling loans and servicing loans for others. Broadening the services offered has allowed the Bank
to better serve the needs of its customers and the local community.
Our principal business consists primarily of accepting deposits from the general public and
investing those deposits, together with funds generated from operations and borrowings, in mortgage
loans secured by residential real estate, consumer loans, consisting primarily of indirect
automobile loans (automobile loans referred to us by automobile dealerships), and to a lesser
extent, commercial real estate, real estate construction, commercial business and direct automobile
loans. Since we completed our conversion from a credit union to a savings bank, we have increased
our residential real estate, real estate construction, commercial real estate and commercial
business lending while deemphasizing our consumer lending activities. Loans are originated from our
main office in Fort Worth, Texas, and from our branch network in the Dallas-Fort Worth Metroplex
and surrounding communities in North Texas. We retain in our portfolio all adjustable-rate loans
that we originate, as well as fixed-rate one- to four-family residential mortgage loans with terms
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.
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Table of Contents
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, we sold our trust preferred securities and private-label
collateralized mortgage obligations. We do not expect to invest in these types of securities in the
future. At September 30, 2011, our investment securities portfolio had an amortized cost of $512.0
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 our Annual
Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2011.
Comparison of Financial Condition at September 30, 2011 and December 31, 2010
Assets. Total assets increased $218.7 million, or 19.7%, to $1.33 billion at September 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 $210.0 million, other investments of $10.5
million, total cash and cash equivalents of $6.5 million and loans net of the allowance for loan
losses and deferred fees and discounts of $5.1 million, partially offset by decreases in deferred
tax assets of $5.7 million and other real estate owned of $5.5 million.
Cash and Cash Equivalents. Total cash and cash equivalents increased $6.5 million, or 26.4%,
to $31.1 million at September 30, 2011 from $24.6 million at December 31, 2010. The increase in
total cash and cash equivalents reflects $206.0 million in cash received from Federal Home Loan
Bank advances, $170.7 million in cash received from loan principal repayments, $142.0 million of
proceeds from sales, principal repayments, and maturities of securities, and $30.0 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 nine months ended September 30, 2011. These increases were
partially offset by decreases of $340.8 million in cash used to purchase securities classified as
available for sale, $206.0 million in cash used to originate loans, $11.1 million in cash used to
purchase other investments, and $9.2 million in cash used for the repurchase of common stock.
Securities. Securities classified as available for sale increased $210.0 million, or 66.1%,
to $527.8 million at September 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 nine
months ended September 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 3.46
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. Principal repayments and
maturities totaled $70.2 million. At September 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.
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Table of Contents
Other Investments. Other investments increased $10.5 million, or 338.7%, to $13.6 million at
September 30, 2011 from $3.1 million at December 31, 2010. The increase in other investments
during the nine months ended September 30, 2011 reflected purchases of $9.4 million in Federal Home
Loan Bank stock as a required investment associated with the additional $206.0 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 redemptions of Federal Home Loan Bank
stock of $606,000.
Loans. Loans, net of the allowance for loan losses and deferred fees and discounts, increased
$5.1 million, or 0.8%, to $665.5 million at September 30, 2011 from $660.4 million at December 31,
2010. Automobile loans (consisting of direct and indirect loans) increased $12.5 million, or 6.9%,
to $193.7 million at September 30, 2011 from $181.2 million at December 31, 2010, related primarily
to our refocused sales initiatives and competitive rate structure. Real estate construction loans
increased $12.4 million, or 35.9%, to $46.9 million at September 30, 2011 from $34.5 million at
December 31, 2010, as new construction borrowing demand increased. Commercial business loans
decreased $8.2 million, or 16.8%, to $40.5 million at September 30, 2011 from $48.7 million at
December 31, 2010, as loans are maturing and paying off. One- to four-family residential real
estate loans decreased $8.0 million, or 2.9%, to $263.8 million at September 30, 2011 from $271.8
million at December 31, 2010. 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. 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.
Potential problem loans consist of loans that are performing in accordance with contractual
terms but for which we have concerns about the ability of an obligor to continue to comply with
repayment terms because of the obligors potential operating or financial difficulties. We monitor
these loans closely and review their performance on a regular basis. As of September 30, 2011, we
had one loan of this type which was not included in either of the non-accrual or 90 days past due
loan categories. This loan had a balance of $1.1 million and was secured by closely held unlisted
stock. Weakness in the borrowers cash flow has caused us to heighten the attention given to this
credit.
Allowance for Loan Losses. The allowance for loan losses decreased $443,000, or 5.0%, to $8.5
million at September 30, 2011 from $8.9 million at December 31, 2010. The allowance for loan losses
represented 1.26% and 1.33% of total loans at September 30, 2011 and at December 31, 2010,
respectively. 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 September 30,
2011 were specific allowances for loan losses of $2.3 million related to 11 impaired loans with
balances totaling $13.8 million. Impaired loans with balances totaling $20.9 million did not
require specific allowances for loan losses at September 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 $2.0 million, or 0.3%, to $638.2 million at September 30, 2011 from
$636.2 million at December 31, 2010. The allowance for loan losses related to unimpaired loans
decreased $208,000, or 3.2%, to $6.4 million at September 30, 2011 from $6.6 million at December
31, 2010.
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The significant changes in the amount of the allowance for loan losses during the nine months
ended September 30, 2011 related to: (i) a $446,000 decrease in the allowance for loan losses
attributable to
commercial business loans primarily due to the charge-off of two impaired commercial business
loans in the nine months ended September 30, 2011 with specific allowances for loan losses of
$255,000 at December 31, 2010 and a $211,000 decrease in the general allowance for loan losses on
unimpaired commercial business loans reflecting a decrease of $8.1 million, or 17.8%, in the total
outstanding balance of unimpaired commercial business loans to $37.3 million at September 30, 2011
from $45.4 million at December 31, 2010, (ii) a $197,000 decrease in the general allowance for loan
losses on unimpaired commercial real estate loans reflecting a decrease of $3.3 million, or 4.2%,
in the total outstanding balance of unimpaired commercial real estate loans to $75.3 million at
September 30, 2011 from $78.6 million at December 31, 2010; and (iii) a $301,000 increase in the
general allowance for loan losses on automobile loans primarily due to an increase of $12.5
million, or 6.9%, in the total outstanding balance of automobile loans to $193.7 million at
September 30, 2011 from $181.2 million 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.
Other Real Estate Owned. Other real estate owned decreased $5.5 million, or 37.2%, to $9.3
million at September 30, 2011 from $14.8 million at December 31, 2010, primarily due to the sales
of ten properties totaling $5.7 million, consisting of two units of a condominium project, three
commercial properties, four single-family properties, and a residential real estate development
project with a book value of $2.7 million that was sold at a $300,000 loss. Write-downs of other
real estate owned to their current fair values less estimated costs to sell during the nine month
period totaled $2.2 million. Partially offsetting these decreases were additions due to the
reclassification of five commercial real estate loans totaling $1.8 million and three one- to-four
family residential real estate loans totaling $659,000 to other real estate owned.
Deposits. Deposits increased $4.8 million, or 0.6%, to $805.9 million at September 30, 2011
from $801.2 million at December 31, 2010. The increase in deposits was primarily attributable to
an increase in money market deposits, partially offset by a decrease in certificates of deposits.
Money market deposits increased $28.9 million, or 28.7%, to $129.7 million at September 30, 2011
from $100.8 million at December 31, 2010. Certificates of deposit decreased $25.5 million, or
7.4%, to $317.5 million at September 30, 2011 from $343.0 million at December 31, 2010. The
decrease in certificates of deposits resulted from certificates of deposit that matured and were
not renewed.
Borrowings. Federal Home Loan Bank borrowings increased $206.0 million, or 502.4%, to
$247.0 million at September 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 remained at $58.0 million at September 30, 2011 and December 31, 2010.
Stockholders Equity. At September 30, 2011, our stockholders equity was $202.0 million, an
increase of $3.4 million, or 1.7%, from $198.6 million at December 31, 2010. This increase
primarily reflected an increase of $9.3 million in accumulated other comprehensive income (loss) to
a gain of $9.2 million at September 30, 2011 compared to a loss of $33,000 at December 31, 2010,
net income of $2.8 million for the nine months ended September 30, 2011, and the amortization of
$159,000 of share-based compensation. Partially offsetting this increase in stockholders equity
was a decrease of $9.2 million resulting from the repurchase of 630,125 shares of the Companys
common stock.
Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010
General. Net income increased $832,000, or 413.9%, to $1.0 million for the three months ended
September 30, 2011 from $201,000 for the prior year period. The increase in net income for the
three months ended September 30, 2011 reflected a decrease in the provision for loan losses of $2.2
million and an increase in
net interest income of $452,000, partially offset by an increase in noninterest expense of
$800,000, an increase in income tax expense of $462,000, and a decrease in noninterest income of
$558,000.
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Interest Income. Interest income increased $150,000, or 1.1%, to $13.7 million for the three
months ended September 30, 2011 from $13.5 million for the three months ended September 30, 2010.
The increase resulted from a $168.6 million, or 15.9%, increase in the average balance of
interest-earning assets to $1.22 billion for the three months ended September 30, 2011 from $1.06
billion for the three months ended September 30, 2010. Partially offsetting the increase in the
average balance of interest-earning assets was a decrease of 66 basis points in our average yield
on interest-earning assets to 4.47% for the three months ended September 30, 2011 from 5.13% for
the three months ended September 30, 2010. The decrease in our average yield on interest-earning
assets during the three months ended September 30, 2011 as compared to the prior year period was
due to the continuing low short-term market interest rate environment which has existed during the
past two years.
Interest income on loans decreased $899,000, or 8.4%, to $9.8 million for the three months
ended September 30, 2011 from $10.7 million for the three months ended September 30, 2010. The
decrease resulted primarily from a decrease in the average balance of loans of $12.7 million, or
1.9%, to $668.0 million for the three months ended September 30, 2011 from $680.7 million for the
three months ended September 30, 2010. In addition, the average yield on our loan portfolio
decreased by 42 basis points to 5.87% for the three months ended September 30, 2011 from 6.29% for
the three months ended September 30, 2010.
Interest income on investment securities increased $1.1 million, or 39.3%, to $3.9 million for
the three months ended September 30, 2011 from $2.8 million for the three months ended September
30, 2010. The increase resulted primarily from a $184.7 million, or 52.0%, increase in the average
balance of our securities portfolio to $539.9 million for the three months ended September 30, 2011
from $355.2 million for the three months ended September 30, 2010, due to purchases of securities,
primarily U.S. government sponsored mortgage-backed securities and 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 34 basis points to 2.86% for the three months ended September 30, 2011 from 3.20%
for the three months ended September 30, 2010.
Interest Expense. Interest expense decreased by $302,000, or 8.4%, to $3.3 million for the
three months ended September 30, 2011 from $3.6 million for the three months ended September 30,
2010. The decrease resulted primarily from a decrease in interest expense on deposits of $638,000,
partially offset by an increase in interest expense on borrowed funds of $336,000. The decrease in
interest expense on deposits reflected decreases in the average rate we paid on deposits and in the
average balance of deposits. The average rate we paid on deposits decreased 33 basis points to
0.97% for the three months ended September 30, 2011 from 1.30% for the three months ended September
30, 2010. The decrease in the average balance of deposits was primarily due to a decrease in the
average balance of certificates of deposit.
Interest expense on certificates of deposit decreased $349,000, or 18.4%, to $1.5 million for
the three months ended September 30, 2011 from $1.9 million for the three months ended September
30, 2010. The average rate paid on certificates of deposit decreased 17 basis points to 1.94% for
the three months ended September 30, 2011 from 2.11% for the three months ended September 30, 2010,
reflecting the continuing low market interest rate environment. In addition, the average balance of
certificates of deposit decreased $39.7 million, or 11.1%, to $317.8 million for the three months
ended September 30, 2011 from $357.5 million for the three months ended September 30, 2010.
Interest expense on borrowed funds increased by $336,000, or 28.1%, to $1.5 million for the
three months ended September 30, 2011 from $1.2 million for the prior year period, primarily due to
a $196.1 million increase in the average balance of Federal Home Loan Bank borrowings to $249.6
million for the three months ended September 30, 2011 from $53.5 million for the three months ended
September 30, 2010. Partially offsetting the
increase in the average balance was a decrease in the average rate paid on borrowed funds of
229 basis points to 1.95% for the three months ended September 30, 2011 from 4.24% for the three
months ended September 30, 2010.
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Net Interest Income. Net interest income increased by $452,000, or 4.5%, to $10.4 million for
the three months ended September 30, 2011 from $10.0 million for the prior year period. The
increase resulted primarily from a $184.7 million, or 52.0%, increase in the average balance of our
securities portfolio to $539.9 million for the three months ended September 30, 2011 from $355.2
million for the three months ended September 30, 2010. The increase in income was partially offset
by a 24 basis point decrease in our interest rate spread to 3.20% for the three months ended
September 30, 2011 from 3.44% for the three months ended September 30, 2010. Our net interest
margin decreased 38 basis points to 3.40% for the three months ended September 30, 2011 from 3.78%
for the three months ended September 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 2.86% for the three months ended September 30, 2011 and the average yield on our loan portfolio
was 5.87% for the three months ended September 30, 2011. The average yield of the securities
portfolio was 301 basis points less than the average yield of the loan portfolio, therefore as the
average balance of our securities portfolio increased in relation to the average balance of 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 42 basis points to 1.27% for the three months ended September 30,
2011 from 1.69% for the three months ended September 30, 2010.
Provision for Loan Losses. We recorded a provision for loan losses of $550,000 for the three
months ended September 30, 2011 compared to a provision for loan losses of $2.8 million for the
three months ended September 30, 2010. The provision for loan losses is charged to operations to
bring the allowance for loan losses to a level that reflects managements 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. Total loans decreased $4.2 million, or
0.6%, to $673.0 million at September 30, 2011 from $677.2 million at September 30, 2010. Net
charge-offs decreased $748,000, to $699,000 for the three months ended September 30, 2011 from $1.4
million for the three months ended September 30, 2010. Net charge-offs as a percentage of average
loans outstanding was 0.42% for the three months ended September 30, 2011 compared to 0.85% for the
three months ended September 30, 2010. The allowance for loan losses to total loans receivable
decreased to 1.26% at September 30, 2011 from 1.37% at September 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 September 30, 2011 or September 30, 2010. At September 30, 2011,
non-performing loans totaled $11.6 million, or 1.73% of total loans, compared to $11.0 million, or
1.62% of total loans, at September 30, 2010. The allowance for loan losses as a percentage of
non-performing loans decreased to 72.91% at September 30, 2011 from 84.93% at September 30, 2010.
Noninterest Income. Noninterest income decreased $558,000, or 15.9%, to $2.9 million for the
three months ended September 30, 2011 from $3.5 million for the three months ended September 30,
2010. The decrease was primarily attributable to a $373,000 increase in net losses on sales of
repossessed assets, a $298,000 decrease in service charges and other fees, due primarily to a
decrease in insufficient funds fee income, a $124,000 decrease in other income, primarily due to a
decrease in net earnings from the lease of our headquarters building, and a $74,000 decrease in net
gains on the sales of loans. Partially offsetting these decreases in noninterest income was an
increase in the cash surrender value of bank-owned life insurance of $242,000 from the purchase of
life insurance policies on certain key employees in November 2010.
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Noninterest Expense. Noninterest expense increased $800,000, or 7.6%, to $11.3 million for
the three months ended September 30, 2011 from $10.5 million for the three months ended September
30, 2010. The
increase was primarily attributable to an $844,000 increase in salaries and benefits expense
and a $666,000 increase in net loss on write-down of other real estate owned, partially offset by a
$244,000 decrease in FDIC insurance premium expense, a $166,000 decrease in professional and
outside services and a $155,000 decrease in depreciation of furniture, software and equipment. The
increase in salaries and benefits expense is primarily due to
increases in lending staff and
incentive compensation expense. 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
decrease in professional and outside services expense is primarily due to expenses incurred during
the three months ended September 30, 2010 for professional services related to the implementation
of Sarbanes-Oxley controls over financial reporting. The decrease in the FDIC insurance premium
expense resulted primarily from a change in the FDICs
assessment methodology to base assessments on the
average total consolidated assets less average tangible equity as required by the Dodd-Frank Act.
The decrease in depreciation of furniture, software and equipment is primarily attributable to
certain assets being fully depreciated.
Income Tax Expense (Benefit). Income tax expense was $417,000 for the three months ended
September 30, 2011 compared to an income tax benefit of $44,000 for the same period in 2010. Our
effective tax rate was 28.8% for the three months ended September 30, 2011. The income tax benefit
for the three months ended September 30, 2010 arose from the reversal of $178,000 of expense
recorded in prior years resulting from a change in the application of the Texas margin tax law as
it relates to the calculation of the in-state taxable margin.
Analysis of Net Interest Income Three Months Ended September 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.
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Table of Contents
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 September 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Outstanding | Yield/ | Outstanding | Yield/ | |||||||||||||||||||||
Balance | Interest | Rate (1) | Balance | Interest | Rate (1) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans |
$ | 668,004 | $ | 9,806 | 5.87 | % | $ | 680,668 | $ | 10,705 | 6.29 | % | ||||||||||||
Taxable investment securities available for
sale |
539,886 | 3,856 | 2.86 | 351,732 | 2,816 | 3.20 | ||||||||||||||||||
Nontaxable investment securities available
for sale |
| | | 3,433 | 6 | 0.70 | (2) | |||||||||||||||||
Cash and cash equivalents |
3,061 | 10 | 1.31 | 16,460 | 12 | 0.29 | ||||||||||||||||||
Other |
13,566 | 20 | 0.59 | 3,600 | 3 | 0.33 | ||||||||||||||||||
Total interest-earning assets |
1,224,517 | 13,692 | 4.47 | 1,055,893 | 13,542 | 5.13 | ||||||||||||||||||
Noninterest-earning assets |
97,805 | 80,032 | ||||||||||||||||||||||
Total assets |
$ | 1,322,322 | $ | 1,135,925 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing demand |
$ | 81,627 | $ | 24 | 0.12 | % | $ | 74,994 | $ | 56 | 0.30 | % | ||||||||||||
Savings accounts |
209,635 | 98 | 0.19 | 209,104 | 245 | 0.47 | ||||||||||||||||||
Money market accounts |
111,046 | 93 | 0.33 | 94,922 | 203 | 0.86 | ||||||||||||||||||
Certificates of deposit |
317,804 | 1,540 | 1.94 | 357,506 | 1,889 | 2.11 | ||||||||||||||||||
Total interest-bearing deposits |
720,112 | 1,755 | 0.97 | 736,526 | 2,393 | 1.30 | ||||||||||||||||||
Federal Home Loan Bank
advances |
249,554 | 777 | 1.25 | 53,530 | 502 | 3.75 | ||||||||||||||||||
Other secured borrowings |
62,086 | 742 | 4.78 | 58,001 | 681 | 4.70 | ||||||||||||||||||
Total interest-bearing liabilities |
1,031,752 | 3,274 | 1.27 | 848,057 | 3,576 | 1.69 | ||||||||||||||||||
Noninterest-bearing liabilities(3) |
88,367 | 85,401 | ||||||||||||||||||||||
Total liabilities |
1,120,119 | 933,458 | ||||||||||||||||||||||
Equity |
202,203 | 202,467 | ||||||||||||||||||||||
Total liabilities and equity |
$ | 1,322,322 | $ | 1,135,925 | ||||||||||||||||||||
Net interest income |
$ | 10,418 | $ | 9,966 | ||||||||||||||||||||
Interest rate spread (4) |
3.20 | % | 3.44 | % | ||||||||||||||||||||
Net interest-earning assets (5) |
$ | 192,765 | $ | 207,836 | ||||||||||||||||||||
Net interest margin (6) |
3.40 | % | 3.78 | % | ||||||||||||||||||||
Average interest-earning assets to
interest-bearing liabilities |
118.68 | % | 124.51 | % |
(1) | Annualized. | |
(2) | The tax equivalent yield of nontaxable investment securities was 1.06% for the three months ended September 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. |
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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 September 30, | ||||||||||||
2011 vs. 2010 | ||||||||||||
Increase (Decrease) | Total | |||||||||||
Due to | Increase | |||||||||||
Volume | Rate | (Decrease) | ||||||||||
(In thousands) | ||||||||||||
Interest-earning assets: |
||||||||||||
Loans |
$ | (199 | ) | $ | (700 | ) | $ | (899 | ) | |||
Taxable investment securities available for sale |
1,506 | (466 | ) | 1,040 | ||||||||
Nontaxable investment securities available for sale |
(6 | ) | | (6 | ) | |||||||
Cash and cash equivalents |
(10 | ) | 8 | (2 | ) | |||||||
Other |
8 | 9 | 17 | |||||||||
Total interest-earning assets |
$ | 1,299 | $ | (1,149 | ) | $ | 150 | |||||
Interest-bearing liabilities: |
||||||||||||
Interest-bearing demand |
$ | 5 | $ | (37 | ) | $ | (32 | ) | ||||
Savings accounts |
1 | (148 | ) | (147 | ) | |||||||
Money market accounts |
34 | (144 | ) | (110 | ) | |||||||
Certificates of deposit |
(210 | ) | (139 | ) | (349 | ) | ||||||
Total interest-bearing deposits |
(170 | ) | (468 | ) | (638 | ) | ||||||
Federal Home Loan Bank advances |
1,838 | (1,563 | ) | 275 | ||||||||
Other secured borrowings |
48 | 13 | 61 | |||||||||
Total interest-bearing liabilities |
$ | 1,716 | $ | (2,018 | ) | $ | (302 | ) | ||||
Change in net interest income |
$ | (417 | ) | $ | 869 | $ | 452 | |||||
Comparison of Operating Results for the Nine Months Ended September 30, 2011 and 2010
General. Net income increased $1.5 million, or 115.4%, to $2.8 million for the nine months
ended September 30, 2011 from $1.3 million for the prior year period. The increase in net income
for the nine months ended September 30, 2011 reflected a decrease in the provision for loan losses
of $3.5 million and an increase in net interest income of $1.2 million, partially offset by an
increase in noninterest expense of $1.6 million, a decrease in noninterest income of $931,000, and
an increase in income tax expense of $697,000.
Interest Income. Interest income increased $511,000, or 1.3%, to $40.7 million for the nine
months ended September 30, 2011 from $40.2 million for the nine months ended September 30, 2010.
The increase resulted from a $137.8 million, or 13.4%, increase in the average balance of
interest-earning assets to $1.17 billion for the nine months ended September 30, 2011 from $1.03
billion for the nine months ended September 30, 2010. Partially offsetting the increase in the
average balance on interest-earning assets was a decrease of 56 basis points in our average yield
on interest-earning assets to 4.63% for the nine months ended September 30, 2011
from 5.19% for the nine months ended September 30, 2010. The decrease in our average yield on
interest-earning assets during the nine months ended September 30, 2011 as compared to the prior
year period was primarily attributable to the continuing short-term market interest rate
environment.
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Table of Contents
Interest income on loans decreased $2.3 million, or 7.2%, to $29.7 million for the nine months
ended September 30, 2011 from $32.0 million for the nine months ended September 30, 2010. The
decrease resulted primarily from a decrease in the average balance of loans of $22.8 million, or
3.3%, to $666.7 million for the nine months ended September 30, 2011 from $689.5 million for the
nine months ended September 30, 2010. In addition, the average yield on our loan portfolio
decreased by 25 basis points to 5.94% for the nine months ended September 30, 2011 from 6.19% for
the nine months ended September 30, 2010.
Interest income on investment securities increased $2.9 million, or 35.8%, to $11.0 million
for the nine months ended September 30, 2011 from $8.1 million for the nine months ended September
30, 2010. The increase resulted primarily from a $169.5 million, or 54.3%, increase in the average
balance of our securities portfolio to $481.5 million for the nine months ended September 30, 2011
from $312.0 million for the nine months ended September 30, 2010, due to purchases of securities,
primarily U.S. government sponsored mortgage-backed securities and 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 46 basis points to 3.02% for the nine months ended September 30, 2011 from 3.48% for
the nine months ended September 30, 2010.
Interest Expense. Interest expense decreased by $690,000, or 6.6%, to $9.9 million for the
nine months ended September 30, 2011 from $10.5 million for the nine months ended September 30,
2010. The decrease resulted primarily from decreases in interest expense on deposits of $1.7
million, partially offset by an increase in interest expense on borrowed funds of $976,000. The
decrease in interest expense on deposits reflected decreases in the average rate we pay on
deposits, partially offset by an increase in the average balance of interest-bearing deposits. The
average rate we paid on deposits decreased 32 basis points to 1.03% for the nine months ended
September 30, 2011 from 1.35% for the nine months ended September 30, 2010. The average balance of
interest-bearing deposits increased $8.5 million, or 1.2%, to $725.1 million for the nine months
ended September 30, 2011 from $716.6 million for the nine months ended September 30, 2010.
Interest expense on certificates of deposit decreased $808,000, or 14.4%, to $4.8 million for
the nine months ended September 30, 2011 from $5.6 million for the nine months ended September 30,
2010. The average rate paid on certificates of deposit decreased 21 basis points to 1.94% for the
nine months ended September 30, 2011 from 2.15% for the nine months ended September 30, 2010,
reflecting the continuing low market interest rate environment. In addition, the average balance of
certificates of deposit decreased by $17.5 million, to $327.6 million for the nine months ended
September 30, 2011 from $345.1 million for the nine months ended September 30, 2010.
Interest expense on borrowed funds increased by $976,000, or 29.6%, to $4.3 million for the
nine months ended September 30, 2011 from $3.3 million for the prior year period primarily due to a
$143.5 million increase in the average balance of Federal Home Loan Bank borrowings to $199.5
million for the nine months ended September 30, 2011 from $56.0 million for the nine months ended
September 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 borrowed funds of 166 basis points to
2.18% for the nine months ended September 30, 2011 from 3.84% for the nine months ended September
30, 2010.
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Table of Contents
Net Interest Income. Net interest income increased by $1.2 million, or 4.1%, to $30.8 million
for the nine months ended September 30, 2011 from $29.6 million for the prior year period. The
increase resulted primarily from a $169.5 million, or 54.3%, increase in the average balance of our
securities portfolio to $481.5 million for the nine months ended September 30, 2011 from $312.0
million for the nine months ended September 30, 2010.
This increase in income was partially offset by a 20 basis point decrease in our interest rate
spread to 3.30% for the nine months ended September 30, 2011 from 3.50% for the nine months ended
September 30, 2010. Our net interest margin decreased 31 basis points to 3.51% for the nine months
ended September 30, 2011 from 3.82% for the nine months ended September 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 3.02% for the nine months ended September 30, 2011 and the
average yield on our loan portfolio was 5.94% for the nine months ended September 30, 2011. The
average yield of the securities portfolio was 292 basis points less than the average yield of 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 36
basis points to 1.33% for the nine months ended September 30, 2011 from 1.69% for the nine months
ended September 30, 2010.
Provision for Loan Losses. We recorded a provision for loan losses of $1.6 million for the
nine months ended September 30, 2011 compared to a provision for loan losses of $5.0 million for
the nine months ended September 30, 2010. The provision for loan losses is charged to operations
to bring the allowance for loan losses to a level that reflects managements 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. Total loans decreased $4.2 million,
or 0.6%, to $673.0 million at September 30, 2011 from $677.2 million at September 30, 2010. Net
charge-offs decreased $2.0 million to $2.0 million for the nine months ended September 30, 2011
from $4.0 million for the nine months ended September 30, 2010. Net charge-offs as a percentage of
average loans outstanding was 0.40% for the nine months ended September 30, 2011 compared to 0.78%
for the nine months ended September 30, 2010. The allowance for loan losses to total loans
receivable decreased to 1.26% at September 30, 2011 from 1.37% at September 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 September 30, 2011 or September 30, 2010. At September 30, 2011,
non-performing loans totaled $11.6 million, or 1.73% of total loans, compared to $11.0 million, or
1.62% of total loans, at September 30, 2010. The allowance for loan losses as a percentage of
non-performing loans decreased to 72.91% at September 30, 2011 from 84.93% at September 30, 2010.
Noninterest Income. Noninterest income decreased $931,000, or 9.2%, to $9.2 million for the
nine months ended September 30, 2011 from $10.1 million for the nine months ended September 30,
2010. The decrease was primarily attributable to a $700,000 decrease in service charges and other
fees, due primarily to a decrease in insufficient funds fee income, a $517,000 decrease in net
gains on the sale of loans, and a $376,000 increase in net losses on sales of repossessed assets.
Partially offsetting these decreases in noninterest income was an increase in the cash surrender
value of bank-owned life insurance of $718,000 from the purchase of life insurance policies on
certain key employees in November 2010.
Noninterest Expense. Noninterest expense increased $1.6 million, or 4.8%, to $34.6 million
for the nine months ended September 30, 2011 from $33.0 million for the nine months ended September
30, 2010. The increase was primarily attributable to increases in net loss on write-down of other
real estate owned of $2.2 million and salaries and benefits expense of $1.4 million, partially
offset by decreases in the FDIC insurance assessment of $419,000, software and equipment
maintenance of $397,000, professional and outside services expense of $372,000, depreciation of
furniture, software and equipment of $248,000, and marketing expense of $222,000. 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 an increase in lending staff, an increase in incentive compensation expense, and
higher health insurance expense. The decrease in the FDIC insurance premium expense is primarily
attributable to a decrease in the general assessment rate applied to our insured deposits and the
change in the FDICs assessment methodology to base assessments on the average total consolidated
assets less average tangible equity as
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required by the Dodd-Frank Act. 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 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 and expenses for professional services related to the
implementation of Sarbanes-Oxley controls over financial reporting during the nine months ended
September 30, 2010. The decrease in depreciation of furniture, software and equipment is primarily
attributable to certain assets being fully depreciated. The decrease in marketing expense is
primarily due to the discontinuance of our debit card reward program on December 31, 2010.
Income Tax Expense. Income tax expense was $1.1 million for the nine months ended September
30, 2011 compared to $434,000 for the same period in 2010. Our effective tax rate was 29.0% for
the nine months ended September 30, 2011 compared to 24.5% for the nine months ended September 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 Nine Months Ended September 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.
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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 Nine Months Ended September 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Average | Average | |||||||||||||||||||||||
Outstanding | Yield/ | Outstanding | Yield/ | |||||||||||||||||||||
Balance | Interest | Rate (1) | Balance | Interest | Rate (1) | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Interest-earning assets: |
||||||||||||||||||||||||
Loans |
$ | 666,681 | $ | 29,696 | 5.94 | % | $ | 689,505 | $ | 32,022 | 6.19 | % | ||||||||||||
Taxable investment securities available for
sale |
481,456 | 10,922 | 3.02 | 307,879 | 8,030 | 3.48 | ||||||||||||||||||
Nontaxable investment securities available
for sale |
| | | 4,135 | 31 | 1.00 | (2) | |||||||||||||||||
Cash and cash equivalents |
11,697 | 25 | 0.28 | 27,433 | 57 | 0.28 | ||||||||||||||||||
Other |
10,600 | 27 | 0.34 | 3,709 | 19 | 0.68 | ||||||||||||||||||
Total interest-earning assets |
1,170,434 | 40,670 | 4.63 | 1,032,661 | 40,159 | 5.19 | ||||||||||||||||||
Noninterest-earning assets |
102,321 | 83,471 | ||||||||||||||||||||||
Total assets |
$ | 1,272,755 | $ | 1,116,132 | ||||||||||||||||||||
Interest-bearing liabilities: |
||||||||||||||||||||||||
Interest-bearing demand |
$ | 79,207 | $ | 115 | 0.19 | % | $ | 73,514 | $ | 215 | 0.39 | % | ||||||||||||
Savings accounts |
213,474 | 405 | 0.25 | 206,224 | 847 | 0.55 | ||||||||||||||||||
Money market accounts |
104,735 | 325 | 0.41 | 91,736 | 641 | 0.93 | ||||||||||||||||||
Certificates of deposit |
327,663 | 4,758 | 1.94 | 345,148 | 5,566 | 2.15 | ||||||||||||||||||
Total interest-bearing deposits |
725,079 | 5,603 | 1.03 | 716,622 | 7,269 | 1.35 | ||||||||||||||||||
Federal Home Loan Bank
advances |
199,531 | 2,055 | 1.37 | 56,031 | 1,565 | 3.72 | ||||||||||||||||||
Other secured borrowings |
60,465 | 2,201 | 4.85 | 58,000 | 1,715 | 3.94 | ||||||||||||||||||
Total interest-bearing liabilities |
985,075 | 9,859 | 1.33 | 830,653 | 10,549 | 1.69 | ||||||||||||||||||
Noninterest-bearing liabilities(3) |
87,182 | 97,108 | ||||||||||||||||||||||
Total liabilities |
1,072,257 | 927,761 | ||||||||||||||||||||||
Equity |
200,498 | 188,371 | ||||||||||||||||||||||
Total liabilities and equity |
$ | 1,272,755 | $ | 1,116,132 | ||||||||||||||||||||
Net interest income |
$ | 30,811 | $ | 29,610 | ||||||||||||||||||||
Interest rate spread (4) |
3.30 | % | 3.50 | % | ||||||||||||||||||||
Net interest-earning assets (5) |
$ | 185,359 | $ | 202,008 | ||||||||||||||||||||
Net interest margin (6) |
3.51 | % | 3.82 | % | ||||||||||||||||||||
Average interest-earning assets to
interest-bearing liabilities |
118.82 | % | 124.32 | % |
(1) | Annualized. | |
(2) | The tax equivalent yield of nontaxable investment securities was 1.51% for the nine months ended September 30, 2011, 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. |
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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.
Nine Months Ended September 30, | ||||||||||||
2011 vs. 2010 | ||||||||||||
Increase (Decrease) | Total | |||||||||||
Due to | Increase | |||||||||||
Volume | Rate | (Decrease) | ||||||||||
(In thousands) | ||||||||||||
Interest-earning assets: |
||||||||||||
Loans |
$ | (1,060 | ) | $ | (1,266 | ) | $ | (2,326 | ) | |||
Taxable investment securities available for sale |
4,527 | (1,635 | ) | 2,892 | ||||||||
Nontaxable investment securities available for sale |
(31 | ) | | (31 | ) | |||||||
Cash and cash equivalents |
(33 | ) | 1 | (32 | ) | |||||||
Other |
35 | (27 | ) | 8 | ||||||||
Total interest-earning assets |
$ | 3,438 | $ | (2,927 | ) | $ | 511 | |||||
Interest-bearing liabilities: |
||||||||||||
Interest-bearing demand |
$ | 17 | $ | (117 | ) | $ | (100 | ) | ||||
Savings accounts |
30 | (472 | ) | (442 | ) | |||||||
Money market accounts |
91 | (407 | ) | (316 | ) | |||||||
Certificates of deposit |
(282 | ) | (526 | ) | (808 | ) | ||||||
Total interest-bearing deposits |
(144 | ) | (1,522 | ) | (1,666 | ) | ||||||
Federal Home Loan Bank advances |
4,008 | (3,518 | ) | 490 | ||||||||
Other secured borrowings |
73 | 413 | 486 | |||||||||
Total interest-bearing liabilities |
$ | 3,937 | $ | (4,627 | ) | $ | (690 | ) | ||||
Change in net interest income |
$ | (499 | ) | $ | 1,700 | $ | 1,201 | |||||
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;
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(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
September 30, 2011, cash and cash equivalents totaled $31.1 million. Securities classified as
available-for-sale, which provide additional sources of liquidity, totaled $527.8 million at
September 30, 2011. On that date, we had $247.0 million in Federal Home Loan Bank advances
outstanding, with the ability to borrow an additional $397.6 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 September 30, 2011, we had $50.9 million in commitments to extend credit. Included in
these commitments to extend credit were $39.9 million in unused lines of credit to borrowers.
Certificates of deposit due within one year of September 30, 2011 totalled $185.8 million, or 23.1%
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 September 30, 2011. 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 nine months ended
September 30, 2011, we originated $206.0 million of loans. In addition, we purchased $340.8
million of securities classified as available for sale during the nine months ended September 30,
2011.
Financing activities consist primarily of activity in deposit accounts and Federal Home Loan
Bank advances. Total deposits increased $4.8 million for the nine months ended September 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, we may utilize our borrowing
agreements with the Federal Home Loan Bank of Dallas, which provides an additional source of funds.
Federal Home Loan Bank advances increased by $206.0 million for the nine months ended September
30, 2011. At September 30, 2011, we had the ability to borrow up to $644.6 million from the
Federal Home Loan Bank of Dallas. In addition, we maintained $35.0 million in federal funds lines
with other financial institutions at September 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 September 30, 2011, the borrowing limit for this line of credit was
$185.1 million.
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The 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 September 30, 2011, the Bank exceeded all regulatory capital
requirements. The 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 September 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 September 30, 2011 |
||||||||||||||||||||||||
Total risk-based capital to risk-weighted assets |
$ | 193,280 | 25.66 | % | $ | 60,254 | 8.00 | % | $ | 75,318 | 10.00 | % | ||||||||||||
Tier I risk-based capital to risk-weighted assets |
186,865 | 24.81 | % | 30,127 | 4.00 | % | 45,191 | 6.00 | % | |||||||||||||||
Tier I (Core) capital to adjusted total assets |
186,865 | 14.24 | % | 52,479 | 4.00 | % | 65,599 | 5.00 | % | |||||||||||||||
OmniAmerican Bank as of September 30, 2011 |
||||||||||||||||||||||||
Total risk-based capital to risk-weighted assets |
$ | 175,658 | 23.32 | % | $ | 60,265 | 8.00 | % | $ | 75,332 | 10.00 | % | ||||||||||||
Tier I risk-based capital to risk-weighted assets |
169,243 | 22.47 | % | 30,133 | 4.00 | % | 45,199 | 6.00 | % | |||||||||||||||
Tier I (Core) capital to adjusted total assets |
169,243 | 12.90 | % | 52,485 | 4.00 | % | 65,606 | 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.
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The following table summarizes our significant fixed and determinable contractual obligations
and other funding needs by payment date at September 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) |
$ | 180,000 | $ | 106,000 | $ | 19,000 | $ | | $ | 305,000 | ||||||||||
Operating leases |
486 | 918 | 853 | 971 | 3,228 | |||||||||||||||
Certificates of deposit |
185,791 | 103,235 | 28,501 | 1 | 317,528 | |||||||||||||||
Total contractual obligations |
$ | 366,277 | $ | 210,153 | $ | 48,354 | $ | 972 | $ | 625,756 | ||||||||||
Off-balance sheet loan commitments: |
||||||||||||||||||||
Undisbursed portion of loans closed |
$ | 10,993 | $ | | $ | | $ | | $ | 10,993 | ||||||||||
Unused lines of credit (2) |
| | | | 39,526 | |||||||||||||||
Total loan commitments |
$ | 10,993 | $ | | $ | | $ | | $ | 50,519 | ||||||||||
Total contractual obligations and
loan commitments |
$ | 377,270 | $ | 210,153 | $ | 48,354 | $ | 972 | $ | 676,275 | ||||||||||
(1) | Includes Federal Home Loan Bank advances and securities sold under agreements to repurchase. | |
(2) | Because 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. |
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We have not engaged in hedging through the use of derivatives.
Net Portfolio Value. Prior to merging with the Office of the Comptroller of the Currency, the
Office of Thrift Supervision required the computation of amounts by which the net present value of
an institutions cash flow from assets, liabilities and off-balance sheet items (the institutions
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 provided all institutions that filed 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 used 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 was not 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 provided us the results of the interest rate sensitivity model,
which is based on information we provided to the Office of Thrift Supervision to estimate the
sensitivity of our net portfolio value.
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The table below sets forth, as of June 30, 2011 (the most recent date available), the Office
of Thrift Supervisions 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 June 30, 2011 | ||||||||||||||||||||
NPV as a Percentage of Present | ||||||||||||||||||||
Change in | Value of Assets(3) | |||||||||||||||||||
Interest Rates | Estimated Increase | Increase | ||||||||||||||||||
(basis points) | Estimated | (Decrease) in NPV | (Decrease) | |||||||||||||||||
(1) | NPV(2) | Amount | Percent | NPV Ratio(4) | (basis points) | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
+300 |
151,848 | (70,651 | ) | (31.75 | )% | 11.80 | % | (427 | ) | |||||||||||
+200 |
178,112 | (44,387 | ) | (19.95 | )% | 13.47 | % | (260 | ) | |||||||||||
+100 |
201,969 | (20,530 | ) | (9.23 | )% | 14.91 | % | (116 | ) | |||||||||||
0 |
222,499 | | | 16.07 | % | | ||||||||||||||
-100 |
238,991 | 16,492 | 7.41 | % | 16.97 | % | 90 |
(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
June 30, 2011 assuming an immediate change in interest rates. The table above indicates that at
June 30, 2011, under the Office of Thrift Supervision model, in the event of a 200 basis point
increase in interest rates, we would experience a 19.95% decrease in net portfolio value. In the
event of a 100 basis point decrease in interest rates, we would experience a 7.41% increase in net
portfolio value.
In addition to the Office of Thrift Supervisions 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.
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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 September 30, 2011:
At September 30, 2011 | ||||||||||||||||||||||||||||||||
NPV as a Percentage of | Net Interest Income | |||||||||||||||||||||||||||||||
Change in | Present Value of Assets(3) | Increase (Decrease) in | ||||||||||||||||||||||||||||||
Interest Rates | Estimated Increase | Increase | Estimated | Estimated Net Interest | ||||||||||||||||||||||||||||
(basis points) | Estimated | (Decrease) in NPV | (Decrease) | Net Interest | Income | |||||||||||||||||||||||||||
(1) | NPV(2) | Amount | Percent | NPV Ratio(4) | (basis points) | Income | Amount | Percent | ||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||
+300 |
$ | 186,420 | $ | (45,583 | ) | (18.95 | )% | 14.15 | % | (249 | ) | $ | 39,876 | $ | (2,625 | ) | (6.18 | )% | ||||||||||||||
+200 |
203,619 | (26,384 | ) | (11.47 | )% | 15.18 | % | (146 | ) | 41,868 | (633 | ) | (1.49 | )% | ||||||||||||||||||
+100 |
218,506 | (11,497 | ) | (5.00 | )% | 16.03 | % | (61 | ) | 43,264 | 763 | 1.80 | % | |||||||||||||||||||
0 |
230,003 | | | 16.64 | % | | 42,501 | | | |||||||||||||||||||||||
-100 |
228,944 | (1,059 | ) | (0.46 | )% | 16.50 | % | (14 | ) | 38,059 | (4,442 | ) | (10.45 | )% |
(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 September 30, 2011, in the event of a 200 basis point
increase in interest rates, we would experience an 11.47% decrease in net portfolio value. In the
event of a 100 basis point decrease in interest rates, we would experience a 0.46% decrease in net
portfolio value.
Net Interest Income. As of September 30, 2011, using our internal interest rate risk model,
we estimated that our net interest income for the nine months ended September 30, 2011 would
decrease by 1.49% in the event of an instantaneous 200 basis point increase in market interest
rates, and would decrease by 10.45% 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.
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Table of Contents
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 Companys
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
Companys disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the
Securities and Exchange Act of 1934, as amended) as of September 30, 2011. Based on that
evaluation, the Companys management, including the President and Chief Executive Officer and the
Senior Executive Vice President and Chief Financial Officer, concluded that the Companys
disclosure controls and procedures were effective.
During the quarter ended September 30, 2011, there have been no changes in the Companys
internal control over financial reporting that have materially affected, or are reasonably likely
to materially affect, the Companys internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
In August 2011, the Chapter 11 Trustee for Taylor, Bean & Whitaker filed a complaint against
the Company seeking to recover payments totaling $1.5 million made by Taylor, Bean & Whitaker to
the Company as allegedly preferential transfers paid to the Company during the 90 days preceding
the filing of the bankruptcy petition of Taylor, Bean & Whitaker. The Company asserts that the
payments do not constitute preferences and has engaged outside legal counsel to assist in the
matter. At the present time, the Company cannot determine the probability of a material adverse
result or reasonably estimate a range of potential exposures, if any.
Aside from the litigation discussed above, the Company is involved in routine legal actions
that are considered ordinary routine litigation incidental to the business of the Company. 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 Companys financial condition,
results of operations or cash flows.
ITEM 1A. | RISK FACTORS |
There are no material changes to the risk factors as previously disclosed in the Companys
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 Companys common stock during the three months ended September 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) | ||||||||||||
July 1, 2011
through July
31, 2011 |
| $ | | | 354,295 | |||||||||||
August 1, 2011
through
August 31, 2011 |
354,295 | 14.34 | 354,295 | | ||||||||||||
September 1, 2011
through
September 30, 2011 |
35,000 | 13.95 | 35,000 | 530,369 | ||||||||||||
Total |
389,295 | $ | 14.31 | 389,295 | 530,369 | |||||||||||
(1) | On January 25, 2011, the Companys Board of Directors approved a stock repurchase program under which the Company could repurchase up to 595,125 shares of the Companys common stock, from time to time, subject to market conditions. The repurchase program was completed in August 2011. On September 1, 2011, the Companys Board of Directors approved a stock repurchase program under which the Company may repurchase up to 565,369 shares of the Companys common stock, from time to time, subject to market conditions. The repurchase program will continue until completed or terminated by the Board of Directors. |
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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.
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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: November 4, 2011
|
/s/ Tim Carter
|
|||
President and Chief Executive Officer | ||||
Date: November 4, 2011
|
/s/ Deborah B. Wilkinson
|
|||
Senior Executive Vice President and Chief Financial Officer |
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INDEX TO EXHIBITS
Exhibit | ||||
Number | Description | |||
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+ | Interactive Data File |
+ | As provided in rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 |
55