OmniAmerican Bancorp, Inc. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - OmniAmerican Bancorp, Inc.	Financial_Report.xls
EX-32 - EXHIBIT 32 - OmniAmerican Bancorp, Inc.	copyofcopyofoabcexhibit323.htm
EX-31.1 - EXHIBIT 31.1 - OmniAmerican Bancorp, Inc.	copyofcopyofoabcexhibit311.htm
EX-31.2 - EXHIBIT 31.2 - OmniAmerican Bancorp, Inc.	copyofcopyofoabcexhibit312.htm

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2014



¨	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

(Registrant’s 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 ¨

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 ¨

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

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

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

There were 11,591,047 shares of Common Stock, par value $0.01 per share, issued and outstanding as of October 31, 2014.

Table of Contents



	Page Number
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets at September 30, 2014, Unaudited and December 31, 2013	1

Unaudited Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2014 and 2013	2

Unaudited Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2014 and 2013	3

Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2014	4

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013	5

Condensed Notes to Unaudited Consolidated Interim Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3. Quantitative and Qualitative Disclosures about Market Risk	47

Item 4. Controls and Procedures	49

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	50

Item 1A. Risk Factors	51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3. Defaults Upon Senior Securities	51

Item 4. Mine Safety Disclosures	51

Item 5. Other Information	51

Item 6. Exhibits	51

SIGNATURES	52

EXHIBIT INDEX	53

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

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, 2014			December 31, 2013
ASSETS
Cash and due from financial institutions	$	11,791		$	11,498
Short-term interest-earning deposits in other financial institutions	1,913			4,382
Total cash and cash equivalents	13,704			15,880
Investments:
Securities available for sale (Amortized cost of $438,918 on September 30, 2014 and $433,580 on December 31, 2013)	440,675			430,775
Other	16,486			19,782
Loans held for sale	2,014			1,509
Loans, net of deferred fees and discounts	774,015			831,326
Less allowance for loan losses	(6,248		)	(6,445		)
Loans, net	767,767			824,881
Premises and equipment, net	39,999			41,512
Bank-owned life insurance	44,669			43,606
Other real estate owned	931			177
Mortgage servicing rights	1,559			1,473
Deferred tax asset, net	2,434			4,066
Accrued interest receivable	3,168			3,447
Other assets	3,869			4,205
Total assets	$	1,337,275		$	1,391,313
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	57,399		$	58,071
Interest-bearing	741,392			755,503
Total deposits	798,791			813,574
Federal Home Loan Bank advances	302,833			362,000
Other borrowings	7,000			2,000
Accrued expenses and other liabilities	13,221			6,597
Total liabilities	1,121,845			1,184,171
Commitments and contingencies
Stockholders’ equity:
Common stock, par value $0.01 per share; 100,000,000 shares authorized; 11,573,681 shares issued and outstanding at September 30, 2014 and 11,451,596 shares issued and outstanding at December 31, 2013	116			115
Additional paid-in capital	111,819			109,250
Unallocated Employee Stock Ownership Plan (“ESOP”) shares; 771,282 shares at September 30, 2014 and 799,848 shares at December 31, 2013	(7,713		)	(7,999		)
Retained earnings	110,725			108,304
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale, net of income taxes	1,160			(1,851		)
Unrealized loss on pension plan, net of income taxes	(677		)	(677		)
Total accumulated other comprehensive income (loss)	483			(2,528		)
Total stockholders’ equity	215,430			207,142
Total liabilities and stockholders’ equity	$	1,337,275		$	1,391,313

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

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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,
	2014			2013			2014			2013
Interest income:
Loans, including fees	$	8,990		$	11,097		$	27,126		$	29,263
Securities — taxable	2,561			2,335			7,796			6,613
Securities — nontaxable	1			—			2			1
Total interest income	11,552			13,432			34,924			35,877
Interest expense:
Deposits	1,012			1,181			3,048			4,028
Borrowed funds	606			646			1,940			1,832
Total interest expense	1,618			1,827			4,988			5,860
Net interest income	9,934			11,605			29,936			30,017
Provision for loan losses	550			200			1,925			1,800
Net interest income after provision for loan losses	9,384			11,405			28,011			28,217
Noninterest income:
Service charges and other fees	2,141			2,349			6,301			6,795
Net gains on sales of loans	453			405			1,031			1,427
Net gains on sales of securities available for sale (reclassified from unrealized gains (losses) on available-for-sale securities in accumulated other comprehensive income)	—			—			607			1,701
Net (losses) gains on disposition of premises and equipment	—			—			(1		)	344
Net (losses) gains on sales of repossessed assets	(9		)	20			1			17
Commissions	327			462			1,104			1,067
Increase in cash surrender value of bank-owned life insurance	346			368			1,063			1,051
Other income	223			193			747			640
Total noninterest income	3,481			3,797			10,853			13,042
Noninterest expense:
Salaries and benefits	6,156			6,645			18,780			19,442
Software and equipment maintenance	573			719			1,668			2,025
Depreciation of furniture, software, and equipment	259			394			852			1,222
FDIC insurance	168			193			521			522
Net loss on write-down of other real estate owned	7			205			29			227
Real estate owned expense (income)	26			(29		)	90			(64		)
Service fees	155			133			453			373
Communications costs	195			258			652			731
Other operations expense	734			775			2,316			2,341
Occupancy	992			959			2,911			2,884
Professional and outside services	1,440			1,145			4,431			3,185
Loan servicing	27			281			271			513
Marketing	97			212			290			520
Total noninterest expense	10,829			11,890			33,264			33,921
Income before income tax expense	2,036			3,312			5,600			7,338
Income tax expense (includes income tax expense from items reclassified from accumulated other comprehensive income of $0 for the three months ended September 30, 2014 and 2013, and $206 and $578 for the nine months ended September 30, 2014 and 2013, respectively)	434			1,116			1,571			2,535
Net income	$	1,602		$	2,196		$	4,029		$	4,803
Earnings per share:
Basic	$	0.15		$	0.21		$	0.37		$	0.46
Diluted	$	0.15		$	0.21		$	0.37		$	0.46

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

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OmniAmerican Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(Dollars in thousands)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Net income	$	1,602		$	2,196		$	4,029		$	4,803

Change in unrealized gains (losses) on securities available for sale	(2,093		)	1,337			5,169			(8,027		)
Reclassification of amount realized through sale of securities	—			—			(607		)	(1,701		)
Income tax effect	712			(455		)	(1,551		)	3,307
Other comprehensive (loss) income, net of income tax	(1,381		)	882			3,011			(6,421		)
Comprehensive income (loss)	$	221		$	3,078		$	7,040		$	(1,618	)

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

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OmniAmerican Bancorp, Inc. and Subsidiary

Consolidated Statement of Changes in Stockholders’ Equity (Unaudited)

(Dollars in thousands, except share data)



	Common Stock		Additional Paid-in Capital			Unallocated ESOP Shares			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balances at January 1, 2014	$	115	$	109,250		$	(7,999	)	$	108,304		$	(2,528	)	$	207,142
ESOP shares allocated, 28,566 shares	—		405			286			—			—			691
Stock purchased and retired at cost, 6,469 shares	—		(25		)	—			—			—			(25		)
Share-based compensation expense	—		1,612			—			—			—			1,612
Tax benefit from share-based compensation	—		150			—			—			—			150
Stock options exercised, 37,476 shares	—		428			—			—			—			428
Restricted stock issued, net of forfeitures, 91,078 shares	1		(1		)	—			—			—			—
Net income	—		—			—			4,029			—			4,029
Dividends declared and paid	—		—			—			(1,608		)	—			(1,608		)
Other comprehensive income	—		—			—			—			3,011			3,011
Balances at September 30, 2014	$	116	$	111,819		$	(7,713	)	$	110,725		$	483		$	215,430

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

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OmniAmerican Bancorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)



	Nine Months Ended
	September 30,
	2014			2013
Cash flows from operating activities:
Net income	$	4,029		$	4,803
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,260			2,534
Provision for loan losses	1,925			1,800
Amortization of net premium on investments	1,903			2,505
Amortization and impairment of mortgage servicing rights	231			(15		)
Net gains on sales of securities available for sale	(607		)	(1,701		)
Net gains on sales of loans	(1,031		)	(1,427		)
Proceeds from sales of loans held for sale	42,256			54,174
Loans originated for sale	(42,034		)	(45,557		)
Net loss on write-downs of other real estate owned	29			227
Net losses (gains) on disposition of premises and equipment	1			(344		)
Net gains on sales of repossessed assets	(1		)	(17		)
Increase in cash surrender value of bank-owned life insurance	(1,063		)	(1,051		)
Federal Home Loan Bank stock dividends	(46		)	(31		)
ESOP compensation expense	691			685
Share-based compensation	1,612			1,459
Excess tax benefit from share-based compensation	(150		)	(129		)
Changes in operating assets and liabilities:
Accrued interest receivable	279			(162		)
Other assets	151			4,881
Accrued interest payable and other liabilities	6,624			4,593
Net cash provided by operating activities	17,059			27,227
Cash flows from investing activities:
Securities available for sale:
Purchases	(77,185		)	(210,004		)
Proceeds from sales	18,099			46,215
Proceeds from maturities, calls, and principal repayments	52,452			84,665
Purchases of other investments	(197		)	(8,649		)
Redemptions of other investments	3,539			1,195
Purchase of bank-owned life insurance	—			(10,000		)
Net decrease (increase) in loans held for investment	52,169			(131,435		)
Purchases of premises and equipment	(748		)	(1,471		)
Proceeds from sales of premises and equipment	—			693
Proceeds from sales of foreclosed assets	2,377			2,050
Proceeds from sales of other real estate owned	264			3,807
Net cash provided by (used in) investing activities	50,770			(222,934		)
Cash flows from financing activities:
Net increase in deposits	(14,783		)	(14,285		)
Net (decrease) increase in Federal Home Loan Bank advances	(59,167		)	210,000
Net increase (decrease) in other borrowings	5,000			(10,000		)
Payment of dividends	(1,608		)	—
Proceeds from stock options exercised	428			92
Excess tax benefit from share-based compensation	150			129
Purchase of common stock	(25		)	(22		)
Net cash (used in) provided by financing activities	(70,005		)	185,914
Net decrease in cash and cash equivalents	(2,176		)	(9,793		)
Cash and cash equivalents, beginning of period	15,880			23,853
Cash and cash equivalents, end of period	$	13,704		$	14,060
Supplemental cash flow information:
Interest paid	$	5,057		$	5,926
Income tax paid, net of refunds	$	1,805		$	1,400
Non-cash transactions:
Loans transferred to other real estate owned	$	1,011		$	184
Loans transferred to foreclosed assets	$	2,009		$	2,068
Change in unrealized gains on securities available for sale	$	4,562		$	(9,728	)

See Condensed Notes to Unaudited Consolidated Interim Financial Statements.

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements

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

Basis of Presentation

The accompanying unaudited consolidated financial statements of OmniAmerican Bancorp, Inc. (referred to herein as “the Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These interim consolidated financial statements and notes should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2013, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 7, 2014. In management’s opinion, the interim data as of September 30, 2014 and for the three- and nine-month periods ended September 30, 2014 and 2013, 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, the Company’s wholly-owned subsidiary.

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 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-04, “Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” This update clarifies that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of the residential real estate property collateralizing a consumer mortgage loan, upon either: (i) the creditor obtaining legal title to the property upon completion of the foreclosure; or (ii) the borrower conveying all interest in the property to the creditor to satisfy the loan through completion of a deed-in-lieu of foreclosure or through a similar legal agreement. ASU 2014-04 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” Under the new guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results when any of the following occurs: (i) the component of an entity or group of components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale; (ii) the component of an entity or group of components of an entity is disposed of by sale; or (iii) the component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spinoff). ASU 2014-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” This update states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update affects entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. ASU 2014-09 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

In June 2014, the FASB issued ASU 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.” This update aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements by accounting for these transactions as secured borrowings. This update also requires a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return of the transferred financial assets throughout the term of the transaction. ASU 2014-11 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. Early adoption is not permitted. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements.

In August 2014, the FASB issued ASU 2014-14, “Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.” This update affects creditors that hold government-guaranteed mortgage loans, including those guaranteed by the Federal Housing Administration (FHA) of the U.S. Department of Housing and Urban Development (HUD), and the U.S. Department of Veterans Affairs (VA). The update requires that, upon foreclosure, a guaranteed mortgage loan be derecognized and a separate other receivable be recognized when specific criteria are met. ASU 2014-14 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements.

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, 2014 and December 31, 2013 were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
September 30, 2014
U. S. government sponsored mortgage-backed securities	$	278,912	$	3,714	$	(2,544	)	$	280,082
U. S. government sponsored collateralized mortgage obligations	148,825		1,801		(968		)	149,658
Agency bonds	5,000		—		(242		)	4,758
Municipal obligations	181		—		(3		)	178
Other equity securities	6,000		—		(1		)	5,999
Total investment securities available for sale	$	438,918	$	5,515	$	(3,758	)	$	440,675
December 31, 2013
U. S. government sponsored mortgage-backed securities	$	282,180	$	2,616	$	(5,208	)	$	279,588
U. S. government sponsored collateralized mortgage obligations	140,221		1,758		(1,403		)	140,576
Agency bonds	5,000		—		(462		)	4,538
Municipal obligations	179		—		(9		)	170
Other equity securities	6,000		—		(97		)	5,903
Total investment securities available for sale	$	433,580	$	4,374	$	(7,179	)	$	430,775

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Investment securities available for sale with gross unrealized losses at September 30, 2014 and December 31, 2013, 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 Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
September 30, 2014
U. S. government sponsored mortgage-backed securities	$	44,139	$	(145	)	$	90,496	$	(2,399	)	$	134,635	$	(2,544	)
U. S. government sponsored collateralized mortgage obligations	48,080		(300		)	16,430		(668		)	64,510		(968		)
Agency bonds	—		—			4,758		(242		)	4,758		(242		)
Municipal obligations	—		—			178		(3		)	178		(3		)
Other equity securities	5,999		(1		)	—		—			5,999		(1		)
	$	98,218	$	(446	)	$	111,862	$	(3,312	)	$	210,080	$	(3,758	)
December 31, 2013
U. S. government sponsored mortgage-backed securities	$	142,715	$	(5,088	)	$	2,248	$	(120	)	$	144,963	$	(5,208	)
U. S. government sponsored collateralized mortgage obligations	50,066		(1,403		)	—		—			50,066		(1,403		)
Agency bonds	4,538		(462		)	—		—			4,538		(462		)
Municipal obligations	170		(9		)	—		—			170		(9		)
Other equity securities	5,903		(97		)	—		—			5,903		(97		)
	$	203,392	$	(7,059	)	$	2,248	$	(120	)	$	205,640	$	(7,179	)

At September 30, 2014, the Company owned 192 investment securities of which 80 had unrealized losses. At December 31, 2013, the Company owned 202 investment securities of which 82 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, 2014 and December 31, 2013, 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, 2014 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	—		—
Due from five to ten years	31,606		31,072
Due after ten years	401,312		403,604
Equity securities	6,000		5,999
Total	$	438,918	$	440,675

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Investment securities with a fair value of $91.4 million and $161.6 million at September 30, 2014 and December 31, 2013, respectively, were pledged to secure Federal Home Loan Bank advances. In addition, investment securities with a fair value of $2.5 million and $2.2 million at September 30, 2014 and December 31, 2013, respectively, were pledged to secure repurchase agreements which are included in other borrowings.

Sales activity of securities available for sale for the three and nine months ended September 30, 2014 and 2013 was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Proceeds from sales of investment securities	$	—	$	3	$	18,099	$	46,215
Gross gains from sales of investment securities	—		—		607		1,701

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

NOTE 4 — Loans and Allowance for Loan Losses

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



	September 30, 2014			December 31, 2013
	(In thousands)
Residential real estate loans:
One- to four-family	$	274,902		$	262,723
Home equity	15,654			17,106
Total residential real estate loans	290,556			279,829
Commercial loans:
Commercial real estate	107,259			106,560
Real estate construction	73,210			59,648
Commercial business	76,083			69,320
Total commercial loans	256,552			235,528
Consumer loans:
Automobile, indirect	177,213			264,671
Automobile, direct	31,478			31,598
Other consumer	16,074			15,330
Total consumer loans	224,765			311,599
Total loans	771,873			826,956
Plus (less):
Deferred fees and discounts	2,142			4,370
Allowance for loan losses	(6,248		)	(6,445		)
Total loans receivable, net	$	767,767		$	824,881

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 following table presents loans sold and serviced as of September 30, 2014 and December 31, 2013:



	September 30, 2014		December 31, 2013
	(In thousands)
Principal balances of the loans sold and serviced for FNMA	$	203,045	$	189,084
Mortgage servicing rights associated with the mortgage loans serviced for FNMA	1,559		1,473

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The following table presents loans identified as impaired by class of loans as of September 30, 2014 and December 31, 2013:



	Recorded Balance		Unpaid Principal Balance		Related Allowance		Average Recorded Balance		Interest Income Recognized
	(In thousands)
September 30, 2014:
With no related allowance recorded:
One- to four-family	$	6,334	$	6,334	$	—	$	7,189	$	169
Home equity	—		—		—		28		—
Commercial real estate	837		837		—		1,838		90
Real estate construction	—		—		—		—		—
Commercial business	—		—		—		267		1
Automobile, indirect	684		684		—		640		11
Automobile, direct	29		29		—		208		—
Other consumer	26		26		—		12		—
Impaired loans with no related allowance recorded	7,910		7,910		—		10,182		271
With an allowance recorded:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity	—		—		—		—		—
Commercial real estate	500		500		153		531		—
Real estate construction	—		—		—		—		—
Commercial business	640		640		172		793		4
Automobile, indirect	—		—		—		—		—
Automobile, direct	—		—		—		—		—
Other consumer	—		—		—		—		—
Impaired loans with an allowance recorded	1,140		1,140		325		1,324		4
Total	$	9,050	$	9,050	$	325	$	11,506	$	275

December 31, 2013:
With no related allowance recorded:
One- to four-family	$	7,531	$	7,531	$	—	$	7,468	$	305
Home equity	42		42		—		14		1
Commercial real estate	2,347		2,347		—		4,237		31
Real estate construction	—		—		—		3,171		66
Commercial business	591		591		—		700		21
Automobile, indirect	824		824		—		738		26
Automobile, direct	32		32		—		34		2
Other consumer	15		15		—		4		—
Impaired loans with no related allowance recorded	11,382		11,382		—		16,366		452
With an allowance recorded:
One- to four-family	$	—	$	—	$	—	$	—	$	—
Home equity	—		—		—		—		—
Commercial real estate	551		551		321		46		—
Real estate construction	—		—		—		—		—
Commercial business	1,040		1,040		200		1,064		8
Automobile, indirect	—		—		—		—		—
Automobile, direct	—		—		—		—		—
Other consumer	—		—		—		—		—
Impaired loans with an allowance recorded	1,591		1,591		521		1,110		8
Total	$	12,973	$	12,973	$	521	$	17,476	$	460

For the nine months ended September 30, 2013, the average recorded investment in impaired loans and the related amount of interest income recognized during the time within the period that the loans were impaired were $18.5 million and $324,000, respectively.

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

As of September 30, 2014 and December 31, 2013, no additional funds were committed to be advanced in connection with impaired loans.

The following table presents the recorded investment in non-accrual loans by class of loans as of September 30, 2014 and December 31, 2013:



	September 30, 2014		December 31, 2013
	(In thousands)
Residential real estate loans:
One- to four-family	$	1,063	$	2,050
Home equity	—		42
Commercial loans:
Commercial real estate	618		800
Real estate construction	—		—
Commercial business	403		864
Consumer loans:
Automobile, indirect	427		558
Automobile, direct	16		15
Other consumer	26		15
Total	$	2,553	$	4,344

There were no loans greater than 90 days past due that continued to accrue interest at September 30, 2014 or December 31, 2013.

The following table presents the aging of the recorded investment in past due loans as of September 30, 2014 and December 31, 2013 by class of loans:



	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(In thousands)
September 30, 2014:
Residential real estate loans:
One- to four-family	$	—	$	625	$	953	$	1,578	$	273,324	$	274,902
Home equity	—		—		—		—		15,654		15,654
Commercial loans:
Commercial real estate	65		—		118		183		107,076		107,259
Real estate construction	—		—		—		—		73,210		73,210
Commercial business	31		—		75		106		75,977		76,083
Consumer loans:
Automobile, indirect	1,990		446		427		2,863		174,350		177,213
Automobile, direct	76		—		17		93		31,385		31,478
Other consumer	87		21		26		134		15,940		16,074
Total loans	$	2,249	$	1,092	$	1,616	$	4,957	$	766,916	$	771,873

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)



	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Loans Not Past Due		Total
	(In thousands)
December 31, 2013:
Residential real estate loans:
One- to four-family	$	1,170	$	—	$	1,932	$	3,102	$	259,621	$	262,723
Home equity	1		—		42		43		17,063		17,106
Commercial loans:
Commercial real estate	—		—		120		120		106,440		106,560
Real estate construction	876		—		—		876		58,772		59,648
Commercial business	—		—		—		—		69,320		69,320
Consumer loans:
Automobile, indirect	2,217		615		558		3,390		261,281		264,671
Automobile, direct	48		21		15		84		31,514		31,598
Other consumer	72		33		15		120		15,210		15,330
Total loans	$	4,384	$	669	$	2,682	$	7,735	$	819,221	$	826,956

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 are 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-homogeneous loans, including one- to four-family residential real estate loans with balances in excess of $1 million, commercial real estate, real estate construction, and commercial business loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, consumer and one- to four-family residential real estate loans with balances less than $1 million are not separately identified for impairment disclosures, unless such loans are the subject of a restructuring agreement.

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;

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)


•	changes in the nature and volume of the loan portfolio;


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


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


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


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


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

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

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

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

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

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

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

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, 2014 and December 31, 2013:



	Commercial Real Estate		Real Estate Construction		Commercial Business		One- to Four- Family		Total
	(In thousands)
September 30, 2014:
Pass	$	102,992	$	73,210	$	72,336	$	17,051	$	265,589
Special Mention	319		—		1,215		—		1,534
Substandard	3,948		—		2,532		4,551		11,031
Doubtful	—		—		—		—		—
	$	107,259	$	73,210	$	76,083	$	21,602	$	278,154
December 31, 2013:
Pass	$	101,134	$	59,536	$	64,155	$	15,514	$	240,339
Special Mention	735		—		2,164		—		2,899
Substandard	4,691		112		3,001		3,175		10,979
Doubtful	—		—		—		—		—
	$	106,560	$	59,648	$	69,320	$	18,689	$	254,217

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;


•	One or more 60 day delinquencies in the past 24 months;


•	Bankruptcy filing within the past 60 months;


•	Judgment or unpaid charge-off of $500 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, 2014 and December 31, 2013:



	One- to Four- Family		Home Equity		Total
	(In thousands)
September 30, 2014:
Prime	$	192,145	$	15,166	$	207,311
Subprime	61,155		488		61,643
	$	253,300	$	15,654	$	268,954
December 31, 2013:
Prime	$	195,919	$	16,521	$	212,440
Subprime	48,115		585		48,700
	$	244,034	$	17,106	$	261,140

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

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 661 at the time of funding. The following table presents the credit score for each of the classes of consumer loans as of September 30, 2014 and December 31, 2013:



Risk Tier	Credit Score	Automobile, indirect		Automobile, direct		Other consumer		Total
	(In thousands)
September 30, 2014:
A	720+	$	92,698	$	22,752	$	12,038	$	127,488
B	690–719	35,052		4,255		2,164		41,471
C	661–689	29,608		2,486		1,475		33,569
D	660 and under	19,855		1,985		397		22,237
		$	177,213	$	31,478	$	16,074	$	224,765
December 31, 2013:
A	720+	$	135,583	$	23,137	$	11,453	$	170,173
B	690–719	53,678		4,311		2,228		60,217
C	661–689	44,732		2,320		1,268		48,320
D	660 and under	30,678		1,830		381		32,889
		$	264,671	$	31,598	$	15,330	$	311,599

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The following table presents the activity in the allowance for loan losses by portfolio segment based on impairment method for the three months ended September 30, 2014 and 2013:



	Residential Real Estate			Commercial			Consumer			Total
	(In thousands)
September 30, 2014:
Allowance for loan losses for the three months ended:
Beginning balance	$	871		$	2,853		$	2,664		$	6,388
Charge-offs	(122		)	(37		)	(672		)	(831		)
Recoveries of loans previously charged-off	18			25			98			141
Provision for loan losses	131			9			410			550
Ending balance	$	898		$	2,850		$	2,500		$	6,248
Allowance for loan losses for the nine months ended:
Beginning balance	$	851		$	2,517		$	3,077		$	6,445
Charge-offs	(224		)	(116		)	(2,166		)	(2,506		)
Recoveries of loans previously charged-off	41			59			284			384
Provision for loan losses	230			390			1,305			1,925
Ending balance	$	898		$	2,850		$	2,500		$	6,248
Ending balance attributable to loans:
Individually evaluated for impairment	$	—		$	325		$	—		$	325
Collectively evaluated for impairment	898			2,525			2,500			5,923
Total ending balance	$	898		$	2,850		$	2,500		$	6,248
September 30, 2013:
Allowance for loan losses for the three months ended:
Beginning balance	$	794		$	3,375		$	2,913		$	7,082
Charge-offs	(86		)	—			(591		)	(677		)
Recoveries of loans previously charged-off	6			18			61			85
Provision for loan losses	157			(961		)	1,004			200
Ending balance	$	871		$	2,432		$	3,387		$	6,690
Allowance for loan losses for the nine months ended:
Beginning balance	$	870		$	3,133		$	2,897		$	6,900
Charge-offs	(239		)	(202		)	(1,890		)	(2,331		)
Recoveries of loans previously charged-off	28			48			245			321
Provision for loan losses	212			(547		)	2,135			1,800
Ending balance	$	871		$	2,432		$	3,387		$	6,690
Ending balance attributable to loans:
Individually evaluated for impairment	$	—		$	209		$	—		$	209
Collectively evaluated for impairment	871			2,223			3,387			6,481
Total ending balance	$	871		$	2,432		$	3,387		$	6,690

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The Company’s recorded investment in loans as of September 30, 2014, December 31, 2013, and September 30, 2013 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology is as follows:



	Residential Real Estate		Commercial		Consumer		Total
	(In thousands)
September 30, 2014:
Loans individually evaluated for impairment	$	6,334	$	1,977	$	739	$	9,050
Loans collectively evaluated for impairment	284,222		254,575		224,026		762,823
Total ending balance	$	290,556	$	256,552	$	224,765	$	771,873
December 31, 2013:
Loans individually evaluated for impairment	$	7,573	$	4,529	$	871	$	12,973
Loans collectively evaluated for impairment	272,256		230,999		310,728		813,983
Total ending balance	$	279,829	$	235,528	$	311,599	$	826,956
September 30, 2013:
Loans individually evaluated for impairment	$	7,851	$	6,698	$	719	$	15,268
Loans collectively evaluated for impairment	270,280		243,672		334,766		848,718
Total ending balance	$	278,131	$	250,370	$	335,485	$	863,986

A loan is considered a troubled debt restructuring (“TDR”) if the Company, for economic or legal reasons related to a debtor’s 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 to less than a current market rate of interest or an extension of a loan’s stated maturity date. Loans classified as TDRs are designated as impaired.

A summary of the Company’s loans classified as TDRs at September 30, 2014 and December 31, 2013 is presented below:



	September 30, 2014		December 31, 2013
	(In thousands)
TDR
Residential Real Estate	$	5,380	$	6,276
Commercial	1,047		2,581
Consumer	308		382
Total TDR	6,735		9,239
Less: TDR in non-accrual status
Residential Real Estate	109		795
Commercial	328		483
Consumer	38		99
Total performing TDR	$	6,260	$	7,862

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OmniAmerican Bancorp, Inc. and Subsidiary

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 nine months ended September 30, 2014 and 2013:



	Residential Real Estate		Commercial		Consumer		Total
	(In thousands)
Nine Months Ended September 30, 2014:
Interest rate reduction	$	1,430	$	—	$	48	$	1,478
Loan maturity extension	—		—		—		—
Forbearance	—		—		—		—
Principal reduction	—		—		35		35
Total	$	1,430	$	—	$	83	$	1,513
Nine Months Ended September 30, 2013:
Interest rate reduction	$	—	$	365	$	24	$	389
Loan maturity extension	—		—		28		28
Forbearance	—		—		—		—
Principal reduction	—		—		—		—
Total	$	—	$	365	$	52	$	417

The following table presents the number of loans modified and the balances before and after modification for the nine months ended September 30, 2014 and 2013:



	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
	(Dollar amounts in thousands)
Nine Months Ended September 30, 2014:
Residential Real Estate	1	$	1,430	$	1,430
Commercial	—	—		—
Consumer	7	98		84
Total	8	$	1,528	$	1,514
Nine Months Ended September 30, 2013:
Residential Real Estate	—	$	—	$	—
Commercial	1	371		371
Consumer	3	59		59
Total	4	$	430	$	430

Included in the impaired loans as of September 30, 2014 and December 31, 2013 were TDRs of $6.7 million and $9.2 million, respectively. The Company has allocated $62,000 and $72,000 of specific reserves to customers whose loan terms have been modified as TDRs at September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014 and December 31, 2013, no additional funds were committed to be advanced in connection with TDRs.

The Company’s 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.

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

At September 30, 2014 and December 31, 2013, the Company had balances in non-performing assets consisting of the following:



	September 30, 2014			December 31, 2013
	(Dollar amounts in thousands)
Other real estate owned and foreclosed assets
Residential Real Estate	$	861		$	107
Commercial	70			70
Consumer	447			850
Total other real estate owned and foreclosed assets	1,378			1,027
Total non-accrual loans	2,553			4,344
Total non-performing assets	$	3,931		$	5,371
Non-accrual loans/Total loans	0.33		%	0.53		%
Non-performing assets/Total assets	0.29		%	0.39		%

NOTE 5 — Derivative Financial Instruments

The Company has entered into commitments with prospective residential mortgage borrowers to originate loans whereby the interest rate on the loan is determined prior to funding and the borrowers have locked into that interest rate. The interest rate lock commitments on loans originated for sale are recorded at fair value in accordance with ASC 815, “Derivatives and Hedging,” and are recorded as an other asset or an accrued liability in the consolidated balance sheets. The estimated fair values of the interest rate lock commitments are based on quoted secondary market pricing, include the fair value of the servicing rights based on the discounted present value of expected future cash flows, and assume an approximate closure rate based on recent historical experience. Changes in the fair value of interest rate lock commitments are recorded in current earnings as a component of net gains on sales of loans.

To manage the interest rate risk associated with interest rate lock commitments and mortgage loans held for sale, the Company may enter into forward loan sales commitments to deliver mortgage loan inventory to investors. The estimated fair values of forward loan sales commitments are based on quoted secondary market pricing. The fair values of the forward loan sales commitments are recorded as an other asset or an accrued liability in the consolidated balance sheets. Changes in the fair values of forward loan sales commitments are recorded in current earnings as a component of net gains on sales of loans.

The outstanding notional value and fair values of outstanding positions as of September 30, 2014, and 2013, and December 31, 2013, and the recorded gains and losses during the nine months ended September 30, 2014 and 2013, and the year ended December 31, 2013 were as follows:



	Outstanding Notional Balance		Fair Value		Recorded (Losses)/Gains
	(In thousands)
September 30, 2014:
Interest rate lock commitments	$	4,971	$	43	$	(13	)

December 31, 2013:
Interest rate lock commitments	$	3,453	$	56	$	(208	)

September 30, 2013:
Interest rate lock commitments	$	6,792	$	202	$	(62	)

The Company had no forward loan sales commitments at September 30, 2014, December 31, 2013, or September 30, 2013.

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

NOTE 6 — Other Borrowings

Beginning July 26, 2007, the Company entered into sales of securities under agreements to repurchase (“Repurchase Agreements”) with PNC Bank, N.A. (“PNC”). The Repurchase Agreements are 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 Agreements are treated as financings, and the obligations to repurchase securities sold are included in other 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 $2.0 million in repurchase agreements outstanding at September 30, 2014 and December 31, 2013. These repurchase agreements were secured by investment securities with a fair value of $2.5 million and $2.2 million at September 30, 2014 and December 31, 2013, respectively.

Other borrowings included overnight borrowings from the Federal Home Loan Bank of Dallas of $5.0 million with an interest rate of 0.15% at September 30, 2014. There were no overnight borrowings on December 31, 2013.

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 OmniAmerican 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 8% 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, 2014 and December 31, 2013). The note payable and the corresponding note receivable have been eliminated for consolidation purposes.

The Company may make discretionary contributions to the ESOP in the form of debt service. Dividends received on the unallocated ESOP shares, if any, are 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 at 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.

The ESOP shares as of September 30, 2014 and December 31, 2013 were as follows:



	September 30, 2014		December 31, 2013
Allocated shares	180,918		152,352
Unearned shares	771,282		799,848
Total ESOP shares	952,200		952,200
Fair value of unearned shares (in thousands)	$	20,046	$	17,101
Year-to-date compensation expense recognized from the release of shares from the ESOP (in thousands)	691		893

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Pension Plan

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

The net periodic pension cost for the three and nine months ended June 30, 2014 and 2013 includes the following components:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands)
Interest cost on projected benefit obligation	$	55		$	57		$	165		$	171
Expected return on assets	(86		)	(74		)	(258		)	(222		)
Amortization of net loss	11			48			33			144
Net periodic pension cost	$	(20	)	$	31		$	(60	)	$	93

Share-Based Compensation

At its annual meeting held May 24, 2011, the Company’s 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 Company’s initial public offering, in the form of stock options and up to 7% of the shares issued in the initial public offering in the form of restricted stock. By resolution by the board of directors, the board confirmed that restricted stock awards will not exceed 4% of the common stock sold in the Company’s initial public offering. Pursuant to board resolution, 1,190,250 options to purchase shares of common stock and 476,100 restricted shares of common stock were made available. Share-based compensation expense for the three and nine months ended September 30, 2014 and 2013 was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(In thousands)
Share-based compensation expense	$	571	$	565	$	1,612	$	1,459

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. Shares awarded 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. Shares awarded to directors vest at rates of 20% to 33% 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 the involuntary termination of the award recipient’s service following a change in control of the Company or upon the termination of the award recipient’s service due to death or disability. Total restricted shares issuable pursuant to board resolution were 476,100 at September 30, 2014, of which 392,616 shares had been issued under the Plan through September 30, 2014.

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

A summary of changes in the Company’s non-vested restricted shares for the nine months ended September 30, 2014 follows:



	Shares		Weighted- Average Grant Date Fair Value Per Share
Non-vested at January 1, 2014	179,583		$	19.18
Granted	97,078		21.16
Vested	(57,470	)	(17.81		)
Forfeited	(6,000	)	(21.06		)
Non-vested at September 30, 2014	213,191		$	20.39

As of September 30, 2014, the Company had $3.2 million 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 3.47 years. The Company applied an estimated forfeiture rate of 12.19% to employees’ and 3.70% 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 Company’s common stock on the date the option is granted and may not be exercised later than 10 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 years and not more than five years, subject to acceleration of vesting upon the involuntary termination of the award recipient’s service following a change in control of the Company or upon the termination of the award recipient’s service due to 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. The risk-free interest rate utilized in the model 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 expected volatility is based on historical information about the Company's stock volatility and the volatility of peer banks.

The weighted average fair value of each stock option granted during the nine months ended September 30, 2014 was $7.03. The fair value of options granted was determined using the following weighted-average assumptions as of grant date:



Risk-free interest rate	2.12	%
Expected term of stock options (years)	7.5
Expected stock price volatility	30.64	%
Expected dividends	0.90	%
Forfeiture rate — for officers and employees	13.03	%
Forfeiture rate — for directors	—	%

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

A summary of activity in the stock option portion of the Plan for the nine months ended September 30, 2014 follows:



	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (In thousands)
Outstanding at January 1, 2014	394,933		$	16.13	7.54	$	2,088
Granted	428,788		21.11		9.68	2,092
Exercised	(37,476	)	14.70		—	(385		)
Forfeited	(22,400	)	21.09		—	(110		)
Expired	(2,400	)	22.24		—	(9		)
Outstanding at September 30, 2014	761,445		$	18.84	8.23	$	5,445
Fully vested and expected to vest	659,368		$	18.63	8.12	$	4,851
Exercisable at September 30, 2014	191,632		$	15.60	6.57	$	1,991

As of September 30, 2014, the Company had $2.9 million of total unrecognized compensation expense related to non-vested stock options. That expense is expected to be recognized over a weighted-average period of 3.81 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, 2014.

NOTE 8 — Earnings Per Share

Basic earnings per common share is computed by dividing net income adjusted for distributed and undistributed earnings to participating securities by the weighted-average number of common shares outstanding for the period, reduced for average unallocated ESOP shares and average unvested restricted stock awards. Unvested share-based awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock awards and options) were exercised or converted to common stock, or resulted in the issuance of common stock that then shared in the Company’s earnings. Diluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period increased for the dilutive effect of unexercised stock options and unvested restricted stock awards. The table below presents the information used to compute basic and diluted earnings per share:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(Dollars in thousands, except per share data)
Earnings:
Net income	$	1,602		$	2,196		$	4,029		$	4,803
Distributed and undistributed earnings to participating securities	(32		)	—			(87		)	—
Income available to common shareholders	1,570			2,196			3,942			4,803
Basic shares:
Weighted-average common shares outstanding	11,553,578			11,458,923			11,530,095			11,449,808
Less: Average unallocated ESOP shares	(774,456		)	(812,544		)	(783,978		)	(822,066		)
Average unvested restricted stock awards	(216,586		)	(199,377		)	(232,181		)	(233,265		)
Average shares for basic earnings per share	10,562,536			10,447,002			10,513,936			10,394,477
Net income per common share, basic	$	0.15		$	0.21		$	0.37		$	0.46
Diluted shares:
Weighted-average common shares outstanding for basic earnings per common share	10,562,536			10,447,002			10,513,936			10,394,477
Add: Dilutive effects of share-based compensation plan	93,145			112,321			79,702			143,050
Average shares for diluted earnings per share	10,655,681			10,559,323			10,593,638			10,537,527
Net income per common share, diluted	$	0.15		$	0.21		$	0.37		$	0.46

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

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 entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

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

Securities available for sale: Securities available for sale are valued at fair value on a recurring basis. The fair values of securities available for sale are 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).

Interest rate lock commitments: Interest rate locks on commitments to originate loans for the held for sale portfolio are reported at fair value in other assets on the consolidated balance sheets with changes in value recorded in current earnings. The estimated fair values of the interest rate lock commitments are based on quoted secondary market pricing, include the fair value of the servicing rights based on the discounted present value of expected future cash flows, and assume an approximate closure rate based on recent historical experience. At September 30, 2014, for loans with terms of 180 months, the fair value of the servicing rights was estimated as 0.91% of the loan balance if the loan had an interest rate of 3.50% or lower and 0.92% of the loan balance if the loan had an interest rate of higher than 3.50% and equal to or less than 4.00%. For loans with terms greater than 180 months, the fair value was estimated as 1.19% of the loan balance if the loan had an interest rate higher than 4.00% but equal to or less than 4.50% and 1.05% of the loan balance if the loan had an interest rate higher than 4.50% but less than 5.00%. At December 31, 2013, the fair value of the servicing rights was estimated as 1.00% of the loan balance for loans with terms of 180 months, and for loans with terms of greater than 180 month, the fair value was estimated as 1.31% of the loan balance if the loan had an interest rate of 4.50% or lower and 1.08% of the loan balance if the loan had an interest rate higher than 4.50%. A significant change in the closure rate may result in a significant change in the ending fair value measurement of these derivatives relative to their total fair value. At September 30, 2014 and December 31, 2013, the estimated closure rate based on historical experience over the preceding two-year period was 82.4% and 77.1%, respectively. Because the closure rate and fair value of servicing rights are significant unobservable assumptions, interest rate lock commitments are included in Level 3 of the hierarchy.

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

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



	Fair Value Measurements at September 30, 2014, Using						Total Fair Value at September 30, 2014
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(In thousands)
Measured on a recurring basis:
Assets:
Investment securities available for sale:
U.S. government sponsored mortgage-backed securities	$	—	$	280,082	$	—	$	280,082
U.S. government sponsored collateralized mortgage obligations	—		149,658		—		149,658
U.S. government agency securities	—		4,758		—		4,758
Municipal obligations	—		178		—		178
Other equity securities	—		5,999		—		5,999
Interest rate lock commitments	—		—		43		43



	Fair Value Measurements at December 31, 2013 Using						Total Fair Value at December 31, 2013
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
	(In thousands)
Measured on a recurring basis:
Assets:
Investment securities available for sale:
U.S. government sponsored mortgage-backed securities	$	—	$	279,588	$	—	$	279,588
U.S. government sponsored collateralized mortgage obligations	—		140,576		—		140,576
U.S. government agency securities	—		4,538		—		4,538
Municipal obligations	—		170		—		170
Other equity securities	—		5,903		—		5,903
Interest rate lock commitments	—		—		56		56

A reconciliation and income statement classification of gains and losses for the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2014 and 2013 has not been provided since the amounts are not significant.

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. Nonfinancial assets or liabilities required to be measured at fair value on a nonrecurring basis include other real estate owned.

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

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

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 June 30, 2014 and 2013:



	Nine Months Ended September 30,
	2014			2013
	(In thousands)
Carrying value of impaired loans	$	1,140		$	1,124
Specific reserve	(325		)	(209		)
Fair Value	$	815		$	915

Mortgage servicing rights are carried at the lower of amortized cost or estimated fair value. The estimated fair values of mortgage servicing rights are classified as Level 3 because they are obtained from independent third-party valuations through an analysis of cash flows and 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, such as the market’s perception of future interest rate movements. The Company’s mortgage servicing rights were recorded at $1.6 million and $1.5 million at September 30, 2014 and December 31, 2013, respectively.

Non-financial assets measured at fair value on a non-recurring basis are limited to other real estate owned. Other real estate owned is carried at fair value less estimated selling costs (as determined by independent appraisal) within Level 3 of the fair value hierarchy. At the time of foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, if necessary. The fair value is reviewed periodically and subsequent write-downs are recorded accordingly. The following table represents other real estate owned that was remeasured and reported at fair value as of September 30, 2014 and September 30, 2013:



	Nine Months Ended September 30,
	2014			2013
	(In thousands)
Carrying value of other real estate owned prior to remeasurement	$	1,214		$	1,631
Less: charge-offs recognized in the allowance for loan losses at initial acquisition	(96		)	(18		)
Add: fair value adjustments recognized in noninterest income at initial acquisition	—			43
Less: subsequent write-downs included in net loss on write-down of other real estate owned	(29		)	(227		)
Less: sales of other real estate owned	(228		)	(502		)
Carrying value of remeasured other real estate owned at end of period	$	861		$	927

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

Significant unobservable inputs used in Level 3 fair value measurements for financial assets and nonfinancial assets measured at fair value on a non-recurring basis at September 30, 2014 and December 31, 2013, are summarized below:



Quantitative Information about Level 3 Fair Value Measurements
	Fair Value (In thousands)		Valuation Techniques	Unobservable Input	Range (Average)
September 30, 2014:
Impaired loans, net of allowance	$	468	Discounted Cash Flow Analysis	Interest rate	1.5% - 7.0% (3.9%)
				Loan term (in months)	60 - 120 (95)
	$	347	Third-Party Appraisal	Discount of market value	0% (0%)
				Estimated marketing costs	6.0% (6.0%)
				Estimated property maintenance	0% (0%)
Mortgage servicing rights	$	1,559	Discounted Cash Flow Analysis	Interest rate	2.6% - 7.9% (4.2%)
				Loan term (in months)	111 - 527 (312)
Other real estate owned	$	931	Third-Party Appraisal	Discount of market value	0% - 0.3% (0.2%)
				Estimated marketing costs	6.0% - 12.0% (8.4%)
				Estimated property maintenance	0% (0%)
December 31, 2013:
Impaired loans, net of allowance	$	840	Discounted Cash Flow Analysis	Interest rate	1.5% - 7.0% (4.9%)
				Loan term (in months)	60 - 120 (91)
	$	230	Third-Party Appraisal	Discount of market value	0% (0%)
				Estimated marketing costs	6.0% (6.0%)
				Estimated property maintenance	3.6% (3.6%)
Mortgage servicing rights	$	1,473	Discounted Cash Flow Analysis	Interest rate	2.6% - 7.9% (4.3%)
				Loan term (in months)	82 - 527 (312)
Other real estate owned	$	177	Third-Party Appraisal	Discount of market value	0% (0%)
				Estimated marketing costs	0.0% - 6.0% (2.4%)
				Estimated property maintenance	0% (0%)

There were no transfers between levels during the nine months ended September 30, 2014 or the year ended December 31, 2013.

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

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.

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

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

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

Loans held for sale: The fair value of loans held for sale is based on quoted market prices in the secondary market for loans with similar characteristics.

Loans: The estimated fair values for all fixed-rate loans are derived utilizing discounted cash flow analyses, the calculations of which are performed on groupings of loan receivables that are similar in terms of loan type and characteristics. The expected future cash flows of each grouping are discounted using the U.S. Treasury curve and current offering rates to calculate a discount spread to the curve. 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. Significant inputs to the fair value measurement of the loan portfolio are unobservable, and as such are classified as Level 3.

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 interest curve and current offering rates to calculate a discount spread to the curve.

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

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

Table of Contents

OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

The carrying amount and estimated fair value of the Company’s financial instruments at September 30, 2014 and December 31, 2013 are summarized as follows:



	September 30, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
Financial assets:
Level 1 inputs:
Cash and cash equivalents	$	13,704	$	13,704	$	15,880	$	15,880
Level 2 inputs:
Securities available for sale	440,675		440,675		430,775		430,775
Other investments	16,486		16,486		19,782		19,782
Loans held for sale	2,014		2,014		1,509		1,522
Accrued interest receivable	3,168		3,168		3,447		3,447
Level 3 inputs:
Loans, net	767,767		773,716		824,881		840,478
Mortgage servicing rights	1,559		1,559		1,473		1,473
Interest rate lock commitments	43		43		56		56
Financial liabilities:
Level 2 inputs:
Federal Home Loan Bank advances	$	302,833	$	305,731	$	362,000	$	360,576
Other borrowings	5,000		5,000		—		—
Accrued interest payable	320		320		389		389
Level 3 inputs:
Deposits	798,791		801,065		813,574		824,856
Repurchase agreements	2,000		2,015		2,000		2,049
Off-balance sheet financial instruments:
Loan commitments	$	—	$	—	$	—	$	—
Letters of credit	—		—		—		—

NOTE 10 — Business Combination

On April 28, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Southside Bancshares, Inc. (“Southside”), and Omega Merger Sub, Inc., a wholly owned subsidiary of Southside (“Merger Sub”), whereby Merger Sub will merge with and into the Company with the Company as the surviving corporation (the “First Merger”). Immediately after the First Merger, the Company will be merged with and into Southside with Southside as the surviving corporation and, subsequently, OmniAmerican Bank will be merged into Southside’s wholly owned bank subsidiary, Southside Bank, with Southside Bank as the surviving bank. If the First Merger is completed, shareholders of the Company will receive 0.4459 of a share of Southside’s common stock plus $13.125 in cash for each outstanding share of OmniAmerican common stock. On October 14, 2014, OmniAmerican stockholders approved the First Merger. Also on October 14, 2014, Southside shareholders approved the issuance of Southside common stock to OmniAmerican stockholders in connection with the First Merger. Completion of the mergers is subject to the approval by the appropriate regulatory agencies and other customary terms and conditions as described in the Merger Agreement. The Merger Agreement was filed with the Securities and Exchange Commission as an exhibit to the Company’s Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31, 2014.

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OmniAmerican Bancorp, Inc. and Subsidiary

Condensed Notes to Unaudited Consolidated Interim Financial Statements — (Continued)

NOTE 11 — Commitments and Contingencies

On June 25, 2014, a purported stockholder of OmniAmerican filed a lawsuit in the Circuit Court for Baltimore City, Maryland (the "Court") captioned McDougal v. OmniAmerican Bancorp, Inc., et al., Case No. 24-C-14-003920 (the "Litigation"), naming OmniAmerican, members of OmniAmerican’s board of directors, Southside and Merger Sub as defendants. The lawsuit is purportedly brought on behalf of a putative class of OmniAmerican’s public stockholders and seeks a declaration that it is properly maintainable as a class action and a certification of the plaintiff and her counsel as class representative and class counsel. The lawsuit asserts direct and derivative claims against OmniAmerican’s directors and alleges that they breached their fiduciary duties and that OmniAmerican, Southside and Merger Sub aided and abetted those alleged breaches by, among other things, (a) failing to take steps to maximize shareholder value for OmniAmerican public stockholders; (b) failing to properly value OmniAmerican; (c) failing to protect against conflicts of interest; (d) failing to disclose material information necessary for OmniAmerican stockholders to make an informed vote on the First Merger; and (e) agreeing to deal protection devices that preclude a fair sales process. Among other relief, the plaintiff seeks to enjoin the mergers. On July 9, 2014, the plaintiff filed a motion to transfer the case to Maryland's Business and Technology Case Management Program.

On July 29, 2014, OmniAmerican, OmniAmerican’s board of directors and Southside filed a motion to dismiss the case. On July 30, 2014, the plaintiff filed a motion to take expedited discovery.

After filing the Litigation and engaging in certain limited discovery, plaintiff's counsel indicated to defendants’ counsel that they believed additional disclosures should be made available to the stockholders of OmniAmerican. On September 12, 2014, the defendants and the plaintiff in the Litigation entered into a memorandum of understanding (the “MOU”) agreeing in principle to settle the Litigation in exchange for defendants’ agreement to make certain supplemental disclosures described below. The MOU contemplates that the parties will prepare a definitive stipulation of settlement, which will be subject to Court approval. If approved by the Court, it is anticipated that the settlement will result in a release of the defendants from any and all claims that were or could have been asserted challenging any aspect of or otherwise relating to the mergers, the merger agreement or the disclosures made in connection therewith, and that the Litigation will be dismissed with prejudice.

Pursuant to the terms of the MOU, OmniAmerican has agreed to make certain supplemental disclosures regarding the mergers in a supplement to the joint proxy statement/prospectus. The supplemental disclosures are contained in a proxy supplement filed with the Securities and Exchange Commission on September 16, 2014, which should be read in its entirety. In return, the plaintiff has agreed to the dismissal of the Litigation with prejudice and to withdraw and/or refrain from filing any and all motions seeking to enjoin the mergers. In addition, the MOU contemplates that the parties will negotiate in good faith to attempt to agree upon an amount of attorneys' fees and expenses and that plaintiff's counsel may petition the Court for an award of attorneys’ fees and expenses, which if granted by the Court, would be paid by OmniAmerican or its insurers or successors. Should the parties fail to reach an agreement on attorneys' fees and expenses, the defendants may oppose the petition for an award of attorneys’ fees and expenses. There can be no assurance that the parties will ultimately reach agreement on a definitive stipulation of settlement or that the Court will approve the proposed settlement, even if the parties were to enter into such stipulation of settlement. In such event, the proposed settlement as contemplated by the MOU may be terminated. The proposed settlement will not affect the consideration to be paid to stockholders of OmniAmerican in connection with the proposed first merger.

The defendants have vigorously denied, and continue to vigorously deny, any wrongdoing or liability with respect to the facts and claims asserted, or which could have been asserted, in the Litigation, including that they have committed any violations of law or breach of fiduciary duty, aided and abetted any violations of law or breaches of fiduciary duty, acted improperly in any way or have any liability or owe any damages of any kind to the plaintiff or to the purported class, and specifically deny that any further supplemental disclosure is required under any applicable rule, statute, regulation or law or that the OmniAmerican directors failed to maximize stockholder value by entering into the merger agreement with Southside and Merger Sub. The settlement contemplated by the MOU is not, and should not be construed as, an admission of wrongdoing or liability by any defendant. However, to avoid the risk of delaying the mergers, and to provide additional information to the stockholders of OmniAmerican at a time and in a manner that would not cause any delay of the mergers, the defendants agreed to the settlement described above.

The parties considered it desirable that the Litigation be settled to avoid the substantial burden, expense, risk, inconvenience and distraction of continued litigation and to fully and finally resolve the Litigation.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “may,” and words of similar meaning. These forward-looking statements include, but are not limited to:


•	statements of our goals, intentions, and expectations;


•	statements regarding our business plans, prospects, growth, and operating strategies;


•	statements regarding the asset quality of our loan and investment portfolios; and


•	estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Quarterly Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:


•	general economic conditions, either nationally or in our market areas, that are worse than expected;


•	competition among depository and other financial institutions;


•	inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;


•	adverse changes in the securities markets;


•	changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;


•	our ability to enter new markets successfully and capitalize on growth opportunities;


•	our ability to successfully integrate acquired entities, if any;


•	changes in consumer spending, borrowing, and savings habits;


•	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission, and the Public Company Accounting Oversight Board;


•	inability of borrowers and/or third-party providers to perform their obligations to us;


•	the effect of developments in the secondary market affecting our loan pricing;


•	changes in our organization, compensation, and benefit plans;


•	changes in our financial condition or results of operations that reduce capital available to pay dividends;


•	changes in the financial condition or future prospects of issuers of securities that we own;


•	changes resulting from intense compliance and regulatory costs associated with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);


•	changes in our regulatory capital resulting from compliance with the final Basel III capital rules;


•	the Company’s pending merger with Southside could have a negative impact on our business; and

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•	the failure to complete the merger with Southside could negatively impact our business.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. For a more detailed discussion of these and other factors that may affect our business, see the discussion under the caption “Risk Factors” in our Annual Report on Form 10-K and the discussion in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

OmniAmerican Bancorp, Inc. (referred to herein as “we,” “us,” “our,” or the “Company”) is the Maryland corporation that owns all of the outstanding shares of common stock of OmniAmerican Bank (the “Bank”) following the January 20, 2010 completion of the mutual-to-stock conversion of the Bank and initial public stock offering of the Company. The Company has no significant assets other than all of the outstanding shares of common stock of the Bank and the net proceeds that we retained in connection with the offering.

The Bank is a federally chartered savings bank headquartered in Fort Worth, Texas. The Bank was originally chartered in 1956 as a federal credit union serving the active and retired military personnel of Carswell Air Force Base. The Bank converted from a Texas credit union charter to a federal mutual savings bank charter on January 1, 2006. The objective of the charter conversion was to convert to a savings bank charter in order to carry out our business strategy of broadening our banking services into residential real estate and commercial lending, selling loans, and servicing loans for others, which has allowed us to better serve the needs of our customers and the local community.

Our principal business consists primarily of accepting deposits from the general public and investing those deposits, together with funds generated from operations and borrowings, in loans and investments. Our lending activity has focused primarily on mortgage loans secured by residential real estate, consumer loans, consisting primarily of indirect automobile loans (automobile loans referred to us by automobile dealerships), and to a lesser extent, commercial real estate, real estate construction, commercial business, and direct automobile loans. In recent years, we have increased our residential real estate, real estate construction, commercial real estate and commercial business lending while deemphasizing our consumer lending activities.

On October 9, 2013, the Company announced its plan to discontinue the purchase of auto loans originated through auto dealerships in order to further strengthen the Company’s focus on its commercial, direct retail and mortgage lending strategies. In addition, the Company eliminated 24 positions in the auto lending and administrative functions, or approximately eight percent of its total workforce.

Loans are originated from our main office in Fort Worth, Texas, and from our branch network in the Dallas-Fort Worth Metroplex and surrounding communities in North Texas. We generally sell the long-term, fixed-rate one- to four-family residential mortgage loans (terms 15 years or greater) that we originate either to the Federal National Mortgage Association on a servicing-retained basis or into the secondary mortgage market on a servicing-released basis, in order to generate fee income and for interest rate risk management purposes. We retain in our portfolio all adjustable-rate loans that we originate, as well as fixed-rate one- to four-family residential mortgage loans with terms less than 15 years.

In addition to loans, we invest in a variety of investments, primarily government sponsored mortgage-backed securities and government sponsored collateralized mortgage obligations, and to a lesser extent municipal obligations, agency bonds and equity securities. At September 30, 2014, our investment securities portfolio had an amortized cost of $438.9 million.

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We attract retail deposits from the general public in the areas surrounding our main office and our branch offices. We offer a variety of deposit accounts, including noninterest-bearing and interest-bearing demand accounts, savings accounts, money market accounts, and certificates of deposit.

Our revenues are derived primarily from interest on loans, mortgage-backed securities, and other investment securities. We also generate revenues from fees and service charges. Our primary sources of funds are deposits, principal and interest payments on securities and loans, and borrowings.

The Securities and Exchange Commission’s Division of Corporation Finance staff issued disclosure guidance that summarizes its observations about Management’s Discussion and Analysis of Financial Condition and Results of Operations and accounting policy disclosures of smaller financial institutions. The focus of the guidance is on asset quality and loan accounting issues. Please refer to Note 4 of our unaudited interim financial statements for our detailed disclosures related to asset quality and loan accounting issues.

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 7, 2014.

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

Assets. Total assets decreased to $1.34 billion at September 30, 2014 from $1.39 billion at December 31, 2013. Loans, net of the allowance for loan losses and deferred fees and discounts, decreased $57.1 million, other investments decreased $3.3 million, and cash and cash equivalents decreased $2.2 million while securities available for sale increased $9.9 million.

Cash and Cash Equivalents. Total cash and cash equivalents decreased $2.2 million, or 13.7%, to $13.7 million at September 30, 2014 from $15.9 million at December 31, 2013. The decrease in total cash and cash equivalents reflects $182.7 million in cash used to originate loans, $77.2 million in cash used to purchase securities classified as available for sale, a $59.2 million net decrease in Federal Home Loan Bank advances, and a net decrease in deposits of $14.8 million during the nine months ended September 30, 2014. These decreases in cash and cash equivalents were partially offset by loan principal repayments of $192.7 million, principal repayments and maturities of securities of $52.5 million, proceeds from the sales of loans of $42.3 million, and proceeds from the sales of securities available for sale of $18.1 million during the nine months ended September 30, 2014. The loans sold during the nine months ended September 30, 2014 consisted of one- to four-family residential real estate loans with terms 15 years or greater. These loans were sold in order to manage our interest rate risk.

Loans held for sale. Loans held for sale increased $505,000, or 33.5%, to $2.0 million at September 30, 2014 from $1.5 million at December 31, 2013. The increase in loans held for sale resulted from originations of $42.0 million, partially offset by $41.5 million in sales during the nine months ended September 30, 2014.

Securities. Securities classified as available for sale increased $9.9 million, or 2.3%, to $440.7 million at September 30, 2014 from $430.8 million at December 31, 2013. The increase was primarily due to purchases of $77.2 million in securities classified as available for sale and a increase in unrealized gains of $4.6 million during the nine months ended September 30, 2014, partially offset by principal repayments and maturities of $52.5 million, sales of investment securities of $17.5 million, and the amortization of net premiums on investments of $1.9 million. At September 30, 2014, securities classified as available for sale consisted of government sponsored mortgage-backed securities, government sponsored collateralized mortgage obligations, agency bonds, municipal obligations, and other equity securities.

Other Investments. Other investments decreased $3.3 million, or 16.7%, to $16.5 million at September 30, 2014 from $19.8 million at December 31, 2013. The decrease was primarily due to $3.5 million in redemptions of Federal Home Loan Bank stock, partially offset by $197,000 in purchases of other investments during the nine months ended September 30, 2014.

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Loans. Loans, net of the allowance for loan losses and deferred fees and discounts, decreased $57.1 million, or 6.9%, to $767.8 million at September 30, 2014 from $824.9 million at December 31, 2013.



	September 30, 2014			December 31, 2013			Dollar change			Percent change
	(Dollars in thousands)
One- to four-family	$	274,902		$	262,723		$	12,179		4.6	%
Home equity	15,654			17,106			(1,452		)	(8.5	)
Commercial real estate	107,259			106,560			699			0.7
Real estate construction	73,210			59,648			13,562			22.7
Commercial business	76,083			69,320			6,763			9.8
Automobile, indirect	177,213			264,671			(87,458		)	(33.0	)
Automobile, direct	31,478			31,598			(120		)	(0.4	)
Other consumer	16,074			15,330			744			4.9
Total loans	771,873			826,956			(55,083		)	(6.7	)
Other items:
Unearned fees and discounts, net	2,142			4,370			(2,228		)	(51.0	)
Allowance for loan losses	(6,248		)	(6,445		)	197			(3.1	)
Total loans, net	$	767,767		$	824,881		$	(57,114	)	(6.9	)%

The decrease in loans was primarily attributable to a decrease in indirect automobile loans of $87.5 million, or 33.0%, to $177.2 million at September 30, 2014 from $264.7 million at December 31, 2013, due to the discontinuation of our indirect lending program in October 2013. This decrease was partially offset by an increase in real estate construction loans of $13.6 million, or 22.7%, to $73.2 million at September 30, 2014 from $59.6 million at December 31, 2013, an increase in one- to four-family residential real estate loans of $12.2 million, or 4.6%, to $274.9 million at September 30, 2014 from $262.7 million at December 31, 2013, and an increase in commercial business loans of $6.8 million, or 9.8%, to $76.1 million at September 30, 2014 from $69.3 million at December 31, 2013. We continue to monitor the composition of our loan portfolio and seek to obtain a reasonable return while containing the potential for risk of loss.

Allowance for Loan Losses. The allowance for loan losses decreased $197,000 during the nine months ended September 30, 2014. The decrease was primarily due to a $196,000 decrease in specific reserves on impaired loans to $325,000 at September 30, 2014 from $521,000 at December 31, 2013. Impaired loans with balances totaling $1.1 million and $1.6 million required specific reserves at September 30, 2014 and December 31, 2013, respectively. Impaired loans with balances totaling $7.9 million and $11.4 million did not require specific reserves at September 30, 2014 and December 31, 2013, respectively. The allowance for loan losses represented 0.81% and 0.78% of total loans at September 30, 2014 and December 31, 2013, respectively.

The significant changes in the amount of the allowance for loan losses during the nine months ended September 30, 2014 related to a (i) $168,000 decrease in specific reserves on one impaired commercial real estate loan due to an increase in the appraised collateral value of the loan as well as regular paydowns received on the loan, a (ii) $577,000 decrease in the allowance for loan losses attributable to unimpaired consumer loans primarily due to the discontinuation of the indirect lending program in October 2013, partially offset by a (iii) $529,000 increase in the allowance for loan losses attributable to unimpaired commercial loans resulting from a $23.6 million, or 10.2%, increase in unimpaired commercial loans outstanding at September 30, 2014 from December 31, 2013. Management also considered local economic factors and unemployment as well as the higher risk profile of real estate construction and commercial business loans when evaluating the adequacy of the allowance for loan losses as it pertains to these types of loans.

Bank-Owned Life Insurance. Bank-owned life insurance increased $1.1 million, or 2.4%, to $44.7 million at September 30, 2014 from $43.6 million at December 31, 2013. The increase in bank-owned life insurance is due to the increase in the cash surrender value of the policies.

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Deposits. Deposits decreased $14.8 million, or 1.8%, to $798.8 million at September 30, 2014 from $813.6 million at December 31, 2013.



	September 30, 2014		December 31, 2013		Dollar change			Percent change
	(Dollars in thousands)
Noninterest-bearing demand	$	57,399	$	58,071	$	(672	)	(1.2	)%
Interest-bearing demand	141,526		146,818		(5,292		)	(3.6	)
Savings	108,806		105,030		3,776			3.6
Money market	235,362		233,918		1,444			0.6
Certificates of deposit	255,698		269,737		(14,039		)	(5.2	)
Total deposits	$	798,791	$	813,574	$	(14,783	)	(1.8	)%

The decrease in deposits was primarily attributable to a $14.0 million decrease in certificates of deposit and a $5.3 million decrease in interest-bearing demand deposits. The decrease in certificates of deposits resulted from certificates of deposit that matured and were not renewed. The decrease in interest-bearing demand accounts was primarily due to a decrease in consumer checking accounts. These decreases in deposits were partially offset by increases in savings deposits of $3.8 million and money market deposits of $1.4 million. Increases in savings deposits were primarily due to organic growth in the bank’s 14 branches, and increases in money market deposits were primarily attributable to growth in commercial deposits.

Borrowings. Federal Home Loan Bank advances decreased $59.2 million, or 16.3%, to $302.8 million at September 30, 2014 from $362.0 million at December 31, 2013. The decrease in Federal Home Loan Bank advances was attributable to scheduled maturities of $150.2 million advances, offset by new advances of $91.0 million during the nine months ended September 30, 2014. Other borrowings increased $5.0 million to $7.0 million at September 30, 2014 from $2.0 million at December 31, 2013 due to overnight borrowings.

Stockholders’ Equity. At September 30, 2014, our stockholders’ equity was $215.4 million, an increase of $8.3 million, or 4.0%, from $207.1 million at December 31, 2013.



	September 30, 2014			December 31, 2013			Dollar change		Percent change
	(Dollars in thousands)
Common stock	$	116		$	115		$	1	0.9	%
Additional paid-in capital	111,819			109,250			2,569		2.4	%
Unallocated ESOP shares	(7,713		)	(7,999		)	286		(3.6	)%
Retained earnings	110,725			108,304			2,421		2.2	%
Accumulated other comprehensive (loss) income	483			(2,528		)	3,011		(119.1	)%
Total stockholders’ equity	$	215,430		$	207,142		$	8,288	4.0	%

The increase in stockholders’ equity was primarily due to net income of $4.0 million, a increase in unrealized gains on available for sale securities of $3.0 million after tax, share-based compensation expense of $1.6 million, and ESOP compensation expense of $691,000 during the nine months ended September 30, 2014. These increases were partially offset by dividends declared and paid of $1.6 million.

Comparison of Operating Results for the Three Months Ended September 30, 2014 and 2013

General. Net income decreased $594,000, or 27.0%, to $1.6 million for the three months ended September 30, 2014 from $2.2 million for the prior year period. The decrease in net income reflected a decrease in net interest income of $1.7 million, an increase in the provision for loan losses of $350,000, and a decrease in noninterest income of $316,000, partially offset by a decrease in noninterest expense of $1.1 million and a decrease in income tax expense of $682,000.

Interest Income. Interest income decreased $1.8 million, or 14.0%, to $11.6 million for the three months ended September 30, 2014 from $13.4 million for the three months ended September 30, 2013. The decrease resulted primarily from a 57 basis point decrease in the average yield on interest-earning assets to 3.67% for the three months ended September 30, 2014 from 4.24% for the three months ended September 30, 2013 and a $9.1 million, or 0.7%, decrease in the average balance of

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interest-earning assets to $1.26 billion for the three months ended September 30, 2014 from $1.27 billion for the three months ended September 30, 2013.



	Three Months Ended September 30,				Dollar change			Percent change
	2014		2013		Dollar change			Percent change
	(Dollars in thousands)
Interest income:
Loans, including fees	$	8,990	$	11,097	$	(2,107	)	(19.0	)%
Securities—taxable	2,561		2,335		226			9.7
Securities—nontaxable	1		—		1			—
Total interest income	$	11,552	$	13,432	$	(1,880	)	(14.0	)%

The decrease in interest income on loans of $2.1 million was primarily due to the recognition of $1.3 million of interest income in the third quarter of 2013 on a non-performing loan that was paid off in July 2013 and a $1.1 million decrease in interest income earned on indirect auto loans resulting from the discontinuation of our indirect lending program in October 2013. These decreases resulted in a decrease in the average yield on our loan portfolio of 65 basis points to 4.62% for the three months ended September 30, 2014 from 5.27% for the three months ended September 30, 2013 and a decrease in the average balance of our loan portfolio of $64.2 million, or 7.6%, to $778.3 million for the three months ended September 30, 2014 from $842.5 million for the three months ended September 30, 2013.

The increase in interest income on investment securities of $227,000 resulted primarily from a $48.1 million, or 11.9%, increase in the average balance of our securities portfolio to $452.1 million for the three months ended September 30, 2014 from $404.0 million for the three months ended September 30, 2013, primarily due to purchases of securities. These increases were partially offset by a decrease in the average yield on our securities portfolio of 5 basis points to 2.24% for the three months ended September 30, 2014 from 2.29% for the three months ended September 30, 2013.

Interest Expense. Interest expense decreased by $209,000, or 11.4%, to $1.6 million for the three months ended September 30, 2014 from $1.8 million for the three months ended September 30, 2013.



	Three Months Ended September 30,				Dollar change			Percent change
	2014		2013		Dollar change			Percent change
	(Dollars in thousands)
Interest expense:
Deposits	$	1,012	$	1,181	$	(169	)	(14.3	)%
Borrowed funds	606		646		(40		)	(6.2	)
Total interest expense	$	1,618	$	1,827	$	(209	)	(11.4	)%

The decrease in interest expense on deposits of $169,000 resulted from a decrease in the average rate we paid on deposits and a decrease in the average balance of interest-bearing deposits. The average rate we paid decreased 9 basis points to 0.54% for the three months ended September 30, 2014 from 0.63% for the three months ended September 30, 2013, as we were able to reprice our deposits lower as market interest rates declined. The average balance of interest-bearing deposits decreased $2.8 million, or 0.4%, to $748.2 million for the three months ended September 30, 2014 from $751.0 million for the three months ended September 30, 2013. The decrease in the average balance of our interest-bearing deposits was primarily due to decreases in the average balances of our certificates of deposit, partially offset by increases in the average balances of our money market accounts, interest-bearing demand accounts, and savings accounts. This shift in deposit composition also contributed to the decrease in the average rate paid on deposits.

Interest expense on certificates of deposit decreased $178,000, or 17.5%, to $839,000 for the three months ended September 30, 2014 from $1.0 million for the three months ended September 30, 2013. The average rate paid on certificates of deposit decreased 18 basis points to 1.29% for the three months ended September 30, 2014 from 1.47% for the three months ended September 30, 2013, reflecting the continuing low market interest rate environment. In addition, the average balance of certificates of deposit decreased $17.1 million, or 6.2%, to $259.7 million for the three months ended September 30, 2014 from $276.8 million for the three months ended September 30, 2013.

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The decrease in interest expense on borrowed funds of $40,000 resulted primarily from a decrease of $33.8 million, or 9.6%, in the average balance of borrowed funds to $318.8 million for the three months ended September 30, 2014 from $352.6 million for the three months ended September 30, 2013, partially offset by a 3 basis point increase in the average rate paid on borrowed funds to 0.76% for the three months ended September 30, 2014 from 0.73% for the three months ended September 30, 2013.

Net Interest Income. Net interest income decreased by $1.7 million, or 14.4%, to $9.9 million for the three months ended September 30, 2014 from $11.6 million for the prior year period. Our interest rate spread decreased 52 basis points to 3.06% for the three months ended September 30, 2014 from 3.58% for the three months ended September 30, 2013. Our net interest margin decreased 50 basis points to 3.16% for the three months ended September 30, 2014 from 3.66% for the three months ended September 30, 2013. Theses decreases in net interest income, the net interest margin, and the interest rate spread resulted primarily from the recognition of $1.3 million of interest income in the third quarter of 2013 on a non-performing loan that paid off in July 2013 and a $1.1 million decrease in interest income earned on indirect auto loans resulting from the discontinuation of our indirect lending program in October 2013. These decreases resulted in a 65 basis point decrease in the yields on loans to 4.62% for the three months ended September 30, 2014 from 5.27% for the three months ended September 30, 2013. Partially offsetting the decrease in the yields on loans was a decrease in our average rates on certificates of deposit of 18 basis points to 1.29% for the three months ended September 30, 2014 from 1.47% for the three months ended September 30, 2013.

Provision for Loan Losses. We recorded a provision for loan losses of $550,000 for the three months ended September 30, 2014 compared to $200,000 provision for loan losses for the three months ended September 30, 2013. The provision for loan losses is charged to operations to bring the allowance for loan losses to a level that reflects management’s best estimate of the losses inherent in the loan portfolio. Net chargeoffs increased $98,000, to $690,000, or 0.35% of average loans outstanding, for the quarter ended September 30, 2014 from $592,000, or 0.28% of average loans outstanding, for the quarter ended September 30, 2013. Total loans decreased $92.1 million, or 10.7%, to $771.9 million at September 30, 2014 from $864.0 million at September 30, 2013. An evaluation of the loan portfolio, current economic conditions, and other factors is performed at each balance sheet date. The allowance for loan losses to total loans receivable increased to 0.81% at September 30, 2014 from 0.77% at September 30, 2013. Total substandard loans decreased $2.4 million, or 17.5%, to $11.0 million at September 30, 2014 from $13.4 million at September 30, 2013. Total impaired loans decreased $6.2 million, or 40.7%, to $9.1 million at September 30, 2014 from $15.3 million at September 30, 2013.

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, 2014 or September 30, 2013. At September 30, 2014, non-performing loans totaled $2.6 million, or 0.33% of total loans, compared to $5.9 million, or 0.69% of total loans, at September 30, 2013. The allowance for loan losses as a percentage of non-performing loans increased to 244.74% at September 30, 2014 from 112.70% at September 30, 2013.

Noninterest Income. Noninterest income decreased $316,000, or 8.3%, to $3.5 million for the three months ended September 30, 2014 from $3.8 million for the three months ended September 30, 2013.



	Three Months Ended September 30,					Dollar change			Percent change
	2014			2013		Dollar change			Percent change
	(Dollars in thousands)
Noninterest income:
Service charges and other fees	$	2,141		$	2,349	$	(208	)	(8.9	)%
Net gains on sales of loans	453			405		48			11.9
Net gains on sales of securities available for sale	—			—		—			—
Net losses on sales of repossessed assets	(9		)	20		(29		)	(145.0	)
Commissions	327			462		(135		)	(29.2	)
Increase in cash surrender value of bank-owned life insurance	346			368		(22		)	(6.0	)
Other income	223			193		30			15.5
Total noninterest income	$	3,481		$	3,797	$	(316	)	(8.3	)%

The decrease in noninterest income was primarily attributable to a $208,000 decrease in service charges and other fees and a $135,000 decrease in commissions, partially offset by a $48,000 increase in net gains on the sales of loans. Decreases in service charges and other fees was primarily due to an $89,000 increase in the impairment of mortgage servicing rights, a $76,000 decrease in insufficient funds fee income, a $66,000 decrease in commercial loan fee income, and a $22,000 decrease

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in debit card interchange income. The decrease in commissions was primarily due to a decline in the sales of fixed and variable rate annuities and real estate investment trust (REIT) investment products partially offset by an increase in the sales of mutual funds. The increase in net gains on sales of loans resulted primarily from an increase in the volume of loans sold to 84 loans for the three months ended September 30, 2014 compared to 63 loans for the three months ended September 30, 2013.

Noninterest Expense. Noninterest expense decreased $1.1 million, or 8.9%, to $10.8 million for the three months ended September 30, 2014 from $11.9 million for the three months ended September 30, 2013.



	Three Months Ended September 30,					Dollar change			Percent change
	2014		2013			Dollar change			Percent change
	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	6,156	$	6,645		$	(489	)	(7.4	)%
Software and equipment maintenance	573		719			(146		)	(20.3	)
Depreciation of furniture, software, and equipment	259		394			(135		)	(34.3	)
FDIC insurance	168		193			(25		)	(13.0	)
Net loss on write-down of other real estate owned	7		205			(198		)	(96.6	)
Real estate owned expense (income)	26		(29		)	55			(189.7	)
Service fees	155		133			22			16.5
Communications costs	195		258			(63		)	(24.4	)
Other operations expense	734		775			(41		)	(5.3	)
Occupancy	992		959			33			3.4
Professional and outside services	1,440		1,145			295			25.8
Loan servicing	27		281			(254		)	(90.4	)
Marketing	97		212			(115		)	(54.2	)
Total noninterest expense	$	10,829	$	11,890		$	(1,061	)	(8.9	)%

The decrease in noninterest expense was primarily attributable to a $489,000 decrease in salaries and benefits expense, a $254,000 decrease in loan servicing expense, and a $198,000 decrease in loss on write-down of other real estate owned, partially offset by a $295,000 increase in professional and outside services. The decrease in salaries and benefits was primarily due to a $458,000 decrease in salaries expense primarily from the reduction in force which occurred during the fourth quarter of 2013 and a $187,000 decrease in health insurance expense due to a decline in unfavorable medical claims experience, partially offset by a $137,000 increase in commissions paid to employees for mortgage loan originations and sales of investment products. The decrease in loan servicing expense was primarily due to a decrease in the provision for credit losses on unfunded loan commitments. The increase in professional and outside services was attributable to $344,000 increase in legal fees primarily related to the pending merger with Southside Bancshares incurred during the three months ended September 30, 2014, partially offset by a $106,000 decrease in ATM monthly fees due to ATM maintenance expense accrued in the third quarter of 2013.

Income Tax Expense. Income tax expense decreased $682,000, or 61.1%, to $434,000 for the three months ended September 30, 2014 from $1.1 million for the three months ended September 30, 2013 which reflected an effective tax rate of 21.32% and 33.70% for the three months ended September 30, 2014 and September 30, 2013, respectively. The decrease in income tax expense and the effective tax rate was primarily due to decreases in net income and increases in tax-deductible items.

Analysis of Net Interest Income — Three Months Ended September 30, 2014 and 2013

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 Three Months Ended September 30,
	2014							2013
	Average Outstanding Balance			Interest		Yield/ Rate ⁽¹⁾		Average Outstanding Balance			Interest		Yield/ Rate ⁽¹⁾
	(Dollars in thousands)
Interest-earning assets:
Loans ⁽²⁾	$	778,275		$	8,990	4.62	%	$	842,492		$	11,097	5.27	%
Investment securities available for sale	452,108			2,533		2.24		403,988			2,316		2.29
Cash and cash equivalents	11,217			7		0.25		3,553			2		0.23
Other	16,734			22		0.53		17,359			17		0.39
Total interest-earning assets ⁽²⁾	1,258,334			11,552		3.67		1,267,392			13,432		4.24
Noninterest-earning assets	101,913							109,093
Total assets	$	1,360,247						$	1,376,485
Interest-bearing liabilities:
Interest-bearing demand	$	144,252		$	24	0.07	%	$	140,172		$	22	0.06	%
Savings accounts	108,869			13		0.05		105,794			12		0.05
Money market accounts	235,402			136		0.23		228,231			130		0.23
Certificates of deposit	259,673			839		1.29		276,817			1,017		1.47
Total interest-bearing deposits	748,196			1,012		0.54		751,014			1,181		0.63
Federal Home Loan Bank advances	312,230			589		0.75		338,793			627		0.74
Other secured borrowings	6,560			17		1.04		13,841			19		0.55
Total interest-bearing liabilities	1,066,986			1,618		0.61		1,103,648			1,827		0.66
Noninterest-bearing liabilities ⁽³⁾	77,377							68,878
Total liabilities	1,144,363							1,172,526
Equity	215,884							203,959
Total liabilities and equity	$	1,360,247						$	1,376,485
Net interest income				$	9,934						$	11,605
Interest rate spread^{(2) (4)}						3.06	%						3.58	%
Net interest-earning assets ⁽⁵⁾	$	191,348						$	163,744
Net interest margin ^{(2) (6)}						3.16	%						3.66	%
Average interest-earning assets to interest-bearing liabilities	117.93		%					114.84		%

_______________________


(1)	Annualized.

(2)

Yields on loans and total interest-earning assets, the interest rate spread and the net interest margin include the effects of $1.3 million of non-accrual interest income recorded during the quarter ended September 30, 2013. The yields on loans and total interest-earning assets would have been 4.68% and 3.84%, respectively, excluding this non-accrual interest income. In addition, the interest rate spread would have been 3.18% and the net interest margin would have been 3.27%.


(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, 2014 vs. 2013
	Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	(846	)	$	(1,261	)	$	(2,107	)
Investment securities available for sale	276			(59		)	217
Cash and cash equivalents	4			1			5
Other	(1		)	6			5
Total interest-earning assets	$	(567	)	$	(1,313	)	$	(1,880	)
Interest-bearing liabilities:
Interest-bearing demand	$	1		$	1		$	2
Savings accounts	—			1			1
Money market accounts	4			2			6
Certificates of deposit	(63		)	(115		)	(178		)
Total interest-bearing deposits	(58		)	(111		)	(169		)
Federal Home Loan Bank advances	(49		)	11			(38		)
Other secured borrowings	(10		)	8			(2		)
Total interest-bearing liabilities	$	(117	)	$	(92	)	$	(209	)
Change in net interest income	$	(450	)	$	(1,221	)	$	(1,671	)

Comparison of Operating Results for the Nine Months Ended September 30, 2014 and 2013

General. Net income decreased $774,000, or 16.1%, to $4.0 million for the nine months ended September 30, 2014 from $4.8 million for the prior year period. The decrease in net income for the nine months ended September 30, 2014 reflected a decrease in noninterest income of $2.1 million and a decrease in interest income of $953,000, partially offset by a decrease in income tax expense of $964,000, a decrease in interest expense of $872,000, and a decrease in noninterest expense of $657,000.

Interest Income. Interest income decreased $953,000, or 2.7%, to $34.9 million for the nine months ended September 30, 2014 from $35.9 million for the nine months ended September 30, 2013. The decrease resulted from a decrease in the average yield on interest-earning assets of 33 basis points to 3.65% for the nine months ended September 30, 2014 from 3.98% for the nine months ended September 30, 2013, partially offset by an increase of $74.1 million, or 6.2%, in the average balance of interest-earning assets to $1.28 billion for the nine months ended September 30, 2014 from $1.20 billion for the nine months ended September 30, 2013. The decrease in our average yield on interest-earning assets during the nine months ended September 30, 2014 as compared to the prior year period was due to the sustained low short-term market interest rate environment.

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	Nine Months Ended September 30,				Dollar change			Percent change
	2014		2013		Dollar change			Percent change
	(Dollars in thousands)
Interest income:
Loans, including fees	$	27,126	$	29,263	$	(2,137	)	(7.3	)%
Securities—taxable	7,796		6,613		1,183			17.9
Securities—nontaxable	2		1		1			100.0
Total interest income	$	34,924	$	35,877	$	(953	)	(2.7	)%

The decrease in interest income on loans of $2.1 million was due to a decrease in the average yield on our loan portfolio of 39 basis points to 4.55% for the nine months ended September 30, 2014 from 4.94% for the nine months ended September 30, 2013, partially offset by an increase in the average balance of loans of $5.4 million, or 0.7%, to $794.7 million for the nine months ended September 30, 2014 from $789.3 million for the nine months ended September 30, 2013.

Interest income on investment securities increased $1.2 million, or 17.9%, to $7.8 million for the nine months ended September 30, 2014 from $6.6 million for the nine months ended September 30, 2013. The increase resulted from increases in the average balance and average yield of our securities portfolio. The average balance of our securities portfolio increased $53.5 million, or 13.5%, to $449.2 million for the nine months ended September 30, 2014 from $395.7 million for the nine months ended September 30, 2013, due to purchases of securities, primarily U.S. government sponsored mortgage-backed securities and collateralized mortgage obligations. The average yield on our securities portfolio increased 8 basis points to 2.29% for the nine months ended September 30, 2014 from 2.21% for the nine months ended September 30, 2013.

Interest Expense. Interest expense decreased by $872,000, or 14.9%, to $5.0 million for the nine months ended September 30, 2014 from $5.9 million for the nine months ended September 30, 2013.



	Nine Months Ended September 30,				Dollar change			Percent change
	2014		2013		Dollar change			Percent change
	(Dollars in thousands)
Interest expense:
Deposits	$	3,048	$	4,028	$	(980	)	(24.3	)%
Borrowed funds	1,940		1,832		108			5.9
Total interest expense	$	4,988	$	5,860	$	(872	)	(14.9	)%

The decrease in interest expense on deposits of $980,000 resulted from a decrease in the average rate we paid on deposits and a decrease in the average balance of interest-bearing deposits. The average rate we paid decreased 17 basis points to 0.54% for the nine months ended September 30, 2014 from 0.71% for the nine months ended September 30, 2013, as we were able to reprice our deposits lower as market interest rates declined. The average balance of interest-bearing deposits decreased $5.6 million, or 0.7%, to $753.8 million for the nine months ended September 30, 2014 from $759.4 million for the nine months ended September 30, 2013. The decrease in the average balance of our interest-bearing deposits was primarily due to decreases in the average balances of our certificates of deposit, partially offset by increases in the average balances of our money market accounts, interest-bearing demand accounts, and savings accounts. This shift in deposit composition also contributed to the decrease in the average rate paid on deposits.

Interest expense on certificates of deposit decreased $979,000, or 27.9%, to $2.5 million for the nine months ended September 30, 2014 from $3.5 million for the nine months ended September 30, 2013. The average rate paid on certificates of deposit decreased 36 basis points to 1.28% for the nine months ended September 30, 2014 from 1.64% for the nine months ended September 30, 2013, reflecting the continuing low market interest rate environment. In addition, the average balance of certificates of deposit decreased $21.1 million, or 7.4%, to $265.1 million for the nine months ended September 30, 2014 from $286.2 million for the nine months ended September 30, 2013.

The increase in interest expense on borrowed funds of $108,000 resulted primarily from an increase of $57.1 million, or 20.3%, in the average balance of borrowed funds to $337.7 million for the nine months ended September 30, 2014 from $280.6 million for the nine months ended September 30, 2013, partially offset by a decrease in the average rate paid on borrowed funds of 10 basis points to 0.77% for the three months ended September 30, 2014 from 0.87% for the nine months ended September 30, 2013.

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Net Interest Income. Net interest income decreased by $81,000, or 0.3%, to $29.9 million for the nine months ended September 30, 2014 from $30.0 million for the prior year period. The decrease in net interest income was primarily attributable to a 19 basis point decrease in our interest rate spread to 3.04% for the nine months ended September 30, 2014 from 3.23% for the nine months ended September 30, 2013, partially offset by a $74.1 million increase in average interest earning assets to $1.28 billion for the nine months ended September 30, 2014 from $1.20 billion for the nine months ended September 30, 2013. Our net interest margin decreased 20 basis points to 3.13% for the nine months ended September 30, 2014 from 3.33% for the nine months ended September 30, 2013. The decrease in the net interest margin resulted primarily from a 39 basis point decrease in the yields on loans to 4.55% for the nine months ended September 30, 2014 from 4.94% for the nine months ended September 30, 2013. Partially offsetting the decrease in the yields on loans was a decrease in our average rates on certificates of deposit of 36 basis points to 1.28% for the nine months ended September 30, 2014 from 1.64% for the nine months ended September 30, 2013.

Provision for Loan Losses. We recorded a provision for loan losses of $1.9 million for the nine months ended September 30, 2014 compared to a provision for loan losses of $1.8 million for the nine months ended September 30, 2013. The provision for loan losses is charged to operations to bring the allowance for loan losses to a level that reflects management’s best estimate of the losses inherent in the portfolio. An evaluation of the loan portfolio, current economic conditions and other factors is performed at each balance sheet date. Net charge-offs increased by $112,000 to $2.1 million for the nine months ended September 30, 2014 from $2.0 million September 30, 2013. Annualized net charge-offs as a percentage of average loans outstanding was 0.36% for the nine months ended September 30, 2014 compared to 0.34% for the nine months ended September 30, 2013. The allowance for loan losses to total loans increased to 0.81% at September 30, 2014 from 0.77% at September 30, 2013. Total substandard loans decreased $2.4 million, or 17.5%, to $11.0 million at September 30, 2014 from $13.4 million at September 30, 2013. Total impaired loans decreased $6.2 million, or 40.7%, to $9.1 million at September 30, 2014 from $15.3 million at September 30, 2013. Total loans decreased $92.1 million, or 10.7%, to $771.9 million at September 30, 2014 from $864.0 million at September 30, 2013.

Noninterest Income. Noninterest income decreased $2.1 million, or 16.8%, to $10.9 million for the nine months ended September 30, 2014 from $13.0 million for the nine months ended September 30, 2013.



	Nine Months Ended September 30,					Dollar change			Percent change
	2014			2013		Dollar change			Percent change
	(Dollars in thousands)
Noninterest income:
Service charges and other fees	$	6,301		$	6,795	$	(494	)	(7.3	)%
Net gains on sales of loans	1,031			1,427		(396		)	(27.8	)
Net gains on sales of securities available for sale	607			1,701		(1,094		)	(64.3	)
Net gains on sales of premises and equipment	(1		)	344		(345		)	(100.3	)
Net gains (losses) on sales of repossessed assets	1			17		(16		)	(94.1	)
Commissions	1,104			1,067		37			3.5
Increase in cash surrender value of bank-owned life insurance	1,063			1,051		12			1.1
Other income	747			640		107			16.7
Total noninterest income	$	10,853		$	13,042	$	(2,189	)	(16.8	)%

The decrease was primarily attributable to a $1.1 million decrease in net gains on sales of investment securities, a $494,000 decrease in service charges and other fees, a $396,000 decrease in the net gains on sales of loans, and a $345,000 decrease in net gains on sales of premises and equipment. The decrease in gains on sales of investment securities was attributable to sales of $17.5 million of securities available for sale with gross realized gains of $607,000 for the nine months ended September 30, 2014 compared to sales of $44.5 million of securities available for sale with gross realized gains of $1.7 million for the nine months ended September 30, 2013. The decrease in service charges and other fees was primarily due to a $246,000 increase in the amortization of mortgage servicing rights due to the stabilization of prepayment speeds resulting from consistent volumes of mortgage loan refinancing and a $238,000 decrease in insufficient funds fee income. The decrease in

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gains on sales of loans resulted primarily from a decrease in the volume of loans sold to 238 loans for the nine months ended September 30, 2014 compared to 313 loans for the nine months ended September 30, 2013. The decrease in gains on sales of premises and equipment resulted primarily from the sale of land adjacent to one of our branch locations during the nine months ended September 30, 2013.

Noninterest Expense. Noninterest expense decreased $657,000, or 1.9%, to $33.3 million for the nine months ended September 30, 2014 from $33.9 million for the nine months ended September 30, 2013.



	Nine Months Ended September 30,					Dollar change			Percent change
	2014		2013			Dollar change			Percent change
	(Dollars in thousands)
Noninterest expense:
Salaries and benefits	$	18,780	$	19,442		$	(662	)	(3.4	)%
Software and equipment maintenance	1,668		2,025			(357		)	(17.6	)
Depreciation of furniture, software, and equipment	852		1,222			(370		)	(30.3	)
FDIC insurance	521		522			(1		)	(0.2	)
Net loss on write-down of other real estate owned	29		227			(198		)	(87.2	)
Real estate owned (income) expense	90		(64		)	154			(240.6	)
Service fees	453		373			80			21.4
Communications costs	652		731			(79		)	(10.8	)
Other operations expense	2,316		2,341			(25		)	(1.1	)
Occupancy	2,911		2,884			27			0.9
Professional and outside services	4,431		3,185			1,246			39.1
Loan servicing	271		513			(242		)	(47.2	)
Marketing	290		520			(230		)	(44.2	)
Total noninterest expense	$	33,264	$	33,921		$	(657	)	(1.9	)%

The decrease in noninterest expense was primarily due to a $662,000 decrease in salaries and benefits, a $370,000 decrease in depreciation of furniture, software, and equipment, a $357,000 decrease in software and equipment maintenance, a $242,000 decrease in loan servicing expense, and a $230,000 decrease in marketing costs, partially offset by a $1.2 million increase in professional and outside services. The decrease in salaries and benefits was primarily due to a $1.6 million decrease in salaries expense primarily from the reduction in force which occurred during the fourth quarter of 2013, partially offset by a $574,000 increase in the incentive accrual based on improved performance of loan production and branch operations and a $426,000 increase in commissions paid to employees for mortgage loan originations and sales of investment products. The decrease in depreciation of furniture, software, and equipment was primarily due to items reaching full depreciation in 2013. The decrease in software and equipment maintenance expense was primarily due to contracts not renewed or renewed at reduced prices for 2014. The decrease in loan servicing costs was primarily due to a new fee structure for mortgage loans implemented in 2014, lower credit report costs due to the discontinuation of the indirect lending program in the fourth quarter of 2013, and a decrease in the provision for credit losses on unfunded loan commitments. The decrease in marketing cost was primarily due to marketing efforts and expenses being redirected in 2014. The increase in professional and outside services was attributable to $1.3 million of expenses related to the pending merger with Southside Bancshares incurred during the nine months ended September 30, 2014.

Income Tax Expense. During the nine months ended September 30, 2014, we recognized income tax expense of $1.6 million, reflecting an effective tax rate of 28.05%, compared to income tax expense of $2.5 million, reflecting an effective tax rate of 34.55%, for the nine months ended September 30, 2013. The decrease in the effective tax rate was primarily due to an increase in tax-deductible items.

Analysis of Net Interest Income — Nine Months Ended September 30, 2014 and 2013

Average Balances and Yields



	For the Nine Months Ended September 30,
	2014							2013
	Average Outstanding Balance			Interest		Yield/ Rate ⁽¹⁾		Average Outstanding Balance			Interest		Yield/ Rate ⁽¹⁾
	(Dollars in thousands)
Interest-earning assets:
Loans	$	794,741		$	27,126	4.55	%	$	789,284		$	29,263	4.94	%
Investment securities available for sale	449,175			7,705		2.29		395,671			6,555		2.21
Cash and cash equivalents	15,667			24		0.20		3,324			7		0.28
Other	17,563			69		0.52		14,770			52		0.47
Total interest-earning assets	1,277,146			34,924		3.65		1,203,049			35,877		3.98
Noninterest-earning assets	102,766							107,012
Total assets	$	1,379,912						$	1,310,061
Interest-bearing liabilities:
Interest-bearing demand	$	146,437		$	72	0.07	%	$	140,158		$	77	0.07	%
Savings accounts	107,120			37		0.05		105,404			36		0.05
Money market accounts	235,095			403		0.23		227,601			400		0.23
Certificates of deposit	265,129			2,536		1.28		286,206			3,515		1.64
Total interest-bearing deposits	753,781			3,048		0.54		759,369			4,028		0.71
Federal Home Loan Bank advances	333,830			1,895		0.76		266,463			1,769		0.89
Other secured borrowings	3,832			45		1.57		14,108			63		0.60
Total interest-bearing liabilities	1,091,443			4,988		0.61		1,039,940			5,860		0.75
Noninterest-bearing liabilities⁽²⁾	75,215							64,571
Total liabilities	1,166,658							1,104,511
Equity	213,254							205,550
Total liabilities and equity	$	1,379,912						$	1,310,061
Net interest income				$	29,936						$	30,017
Interest rate spread ⁽³⁾						3.04	%						3.23	%
Net interest-earning assets ⁽⁴⁾	$	185,703						$	163,109
Net interest margin ⁽⁵⁾						3.13	%						3.33	%
Average interest-earning assets to interest-bearing liabilities	117.01		%					115.68		%

_______________________


(1)	Annualized.


(2)	Includes noninterest-bearing deposits.


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


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


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

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Rate/Volume Analysis



	Nine Months Ended September 30, 2014 vs. 2013
	Increase (Decrease) Due to						Total Increase (Decrease)
	Volume			Rate			Total Increase (Decrease)
	(In thousands)
Interest-earning assets:
Loans	$	202		$	(2,339	)	$	(2,137	)
Investment securities available for sale	886			264			1,150
Cash and cash equivalents	26			(9		)	17
Other	10			7			17
Total interest-earning assets	$	1,124		$	(2,077	)	$	(953	)
Interest-bearing liabilities:
Interest-bearing demand	$	3		$	(8	)	$	(5	)
Savings accounts	1			—			1
Money market accounts	13			(10		)	3
Certificates of deposit	(259		)	(720		)	(979		)
Total interest-bearing deposits	(242		)	(738		)	(980		)
Federal Home Loan Bank advances	447			(321		)	126
Other secured borrowings	(46		)	28			(18		)
Total interest-bearing liabilities	$	159		$	(1,031	)	$	(872	)
Change in net interest income	$	965		$	(1,046	)	$	(81	)

Liquidity and Capital Resources

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

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

(i) expected loan demand;

(ii) expected deposit flows and borrowing maturities;

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

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

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

Our most liquid assets are cash and cash equivalents. The levels of these assets are affected by our operating, financing, lending and investing activities during any given period. At September 30, 2014, cash and cash equivalents totaled $13.7 million. Securities classified as available for sale, which provide additional sources of liquidity, totaled $440.7 million at September 30, 2014. On that date, we had $302.8 million in Federal Home Loan Bank advances, with the ability to borrow an additional $323.7 million.

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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, 2014, we had $129.8 million in commitments to extend credit. Included in these commitments to extend credit were $115.9 million in unused lines of credit to borrowers. Certificates of deposit due within one year of September 30, 2014 totaled $119.9 million, or 15.0% 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 unfavorable 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, 2015. We believe, however, based on past experience, that 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, 2014, we originated $182.7 million of loans. In addition, we purchased $77.2 million of securities classified as available for sale during the nine months ended September 30, 2014.

Financing activities consist primarily of activity in deposit accounts and Federal Home Loan Bank advances and other borrowings. Total deposits decreased $14.8 million for the nine months ended September 30, 2014. 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 decreased by $59.2 million for the nine months ended September 30, 2014. At September 30, 2014, we had the ability to borrow up to $631.5 million from the Federal Home Loan Bank of Dallas. In addition, we maintained $55.0 million in federal funds lines with other financial institutions at September 30, 2014. 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, 2014, the borrowing limit for this line of credit was $234.3 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, 2014, 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, 2014 and December 31, 2013 without giving effect to the final Basel III capital rules adopted by the Federal Reserve Board on July 2, 2013 and by the Office of the Comptroller of the Currency on July 9, 2013.



	Actual				Minimum For Capital Adequacy Purposes				Minimum To Be Well Capitalized Under Prompt Corrective Actions Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Consolidated as of September 30, 2014
Total risk-based capital to risk-weighted assets	$	218,922	25.53	%	$	68,614	8.00	%	$	85,767	10.00	%
Tier I risk-based capital to risk-weighted assets	212,106		24.73	%	34,307		4.00	%	51,460		6.00	%
Tier I (Core) capital to adjusted total assets	212,106		15.89	%	53,399		4.00	%	66,749		5.00	%
OmniAmerican Bank as of September 30, 2014
Total risk-based capital to risk-weighted assets	$	203,899	23.77	%	$	68,616	8.00	%	$	85,771	10.00	%
Tier I risk-based capital to risk-weighted assets	197,083		22.98	%	34,308		4.00	%	51,462		6.00	%
Tier I (Core) capital to adjusted total assets	197,083		14.76	%	53,401		4.00	%	66,751		5.00	%
Consolidated as of December 31, 2013
Total risk-based capital to risk-weighted assets	$	213,553	23.41	%	$	72,948	8.00	%	$	91,185	10.00	%
Tier I risk-based capital to risk-weighted assets	206,662		22.66	%	36,474		4.00	%	54,711		6.00	%
Tier I (Core) capital to adjusted total assets	206,662		14.86	%	55,633		4.00	%	69,542		5.00	%
OmniAmerican Bank as of December 31, 2013
Total risk-based capital to risk-weighted assets	$	196,115	21.50	%	$	72,957	8.00	%	$	91,197	10.00	%
Tier I risk-based capital to risk-weighted assets	189,224		20.75	%	36,479		4.00	%	54,718		6.00	%
Tier I (Core) capital to adjusted total assets	189,224		13.60	%	55,638		4.00	%	69,548		5.00	%

Management continues to evaluate the final Basel III capital rules and their impact, which rules will apply beginning in reporting periods after January 1, 2015.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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

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

The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at September 30, 2014. 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
	One year or less		More than one year to three years		More than three years to five years		More than five years		Total
	(In thousands)
Contractual obligations:
Long-term debt ⁽¹⁾	$	148,166	$	151,667	$	5,000	$	—	$	304,833
Operating leases	595		961		956		583		3,095
Certificates of deposit	119,938		88,013		47,747		—		255,698
Total contractual obligations	$	268,699	$	240,641	$	53,703	$	583	$	563,626
Off-balance sheet loan commitments:
Undisbursed portion of loans closed	$	13,878	$	—	$	—	$	—	$	13,878
Unused lines of credit ⁽²⁾	—		—		—		—		115,876
Total loan commitments	$	13,878	$	—	$	—	$	—	$	129,754
Total contractual obligations and loan commitments	$	282,577	$	240,641	$	53,703	$	583	$	693,380

_______________________


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


(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.

Our interest rate sensitivity is monitored through the use of a net interest income simulation model which generates estimates of the change in our net interest income over a range of interest rate scenarios. The model assumes loan prepayment rates, reinvestment rates, and deposit decay rates based on historical experience and current economic conditions.

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 15 years or greater) that we originate into the secondary mortgage market;

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(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 include interest rate sensitivity analysis.

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

Net Portfolio Value. We currently use a net portfolio value (“NPV”) analysis to monitor our level of interest rate risk. This analysis measures interest rate risk by capturing changes in the NPV of our cash flows from assets, liabilities, and off-balance sheet items, based on a range of assumed changes in market interest rates. NPV represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. These analyses assess the risk of loss in market risk-sensitive instruments in the event of a sudden and sustained 100 to 300 basis point increase or 100 basis point decrease in the United States Treasury yield curve with no effect given to any steps that we might take to counter the effect of that interest rate movement.

The table below sets forth, as of September 30, 2014, our calculation of the estimated changes in our NPV that would result from the designated immediate changes in the United States Treasury yield curve. In addition to NPV calculations, we analyze our sensitivity to changes in interest rates through our internal net interest income model which is also summarized in the table below at September 30, 2014:



At September 30, 2014
								NPV as a Percentage of
								Present Value of Assets⁽³⁾			Net Interest Income
													Increase (Decrease) in
Change in			Estimated Increase							Increase	Estimated		Estimated Net Interest
Interest Rates	Estimated		(Decrease) in NPV							(Decrease)	Net Interest		Income
(basis points)⁽¹⁾	NPV⁽²⁾		Amount			Percent		NPV Ratio⁽⁴⁾		(basis points)	Income		Amount			Percent
	(Dollars in thousands)
+300	$	264,357	$	9,707		3.81	%	20.58	%	303	$	35,765	$	(1,864	)	(4.95	)%
+200	265,852		11,202			4.40	%	19.84	%	229	35,876		(1,753		)	(4.66	)%
+100	264,901		10,251			4.03	%	18.96	%	141	35,974		(1,655		)	(4.40	)%
—	254,650		—			—		17.55	%	—	37,629		—			—
-100	240,408		(14,242		)	(5.59	)%	17.59	%	4	34,418		(3,211		)	(8.53	)%


(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, 2014, in the event of a 200 basis point increase in interest rates, we would experience a 4.40% decrease in NPV. In the event of a 100 basis point decrease in interest rates, we would experience a 5.59% decrease in NPV.

Net Interest Income. 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. As of September 30, 2014, using our internal interest rate risk model, we estimated that our net interest income for the nine months ended September 30,

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2014 would decrease by 4.66% in the event of an instantaneous 200 basis point increase in market interest rates, and would decrease by 8.53% in the event of an instantaneous 100 basis point decrease in market interest rates.

We use various assumptions in assessing interest rate risk through changes in NPV and net interest income. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analyses presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if there is a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. Prepayment rates can have a significant impact on interest income. Because of the large percentage of loans and mortgage-backed securities we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. While we believe these assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer and the Senior Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2014. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Senior Executive Vice President and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the quarter ended September 30, 2014, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is involved in 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 Company’s financial condition, results of operations, or cash flows.

On June 25, 2014, a purported stockholder of OmniAmerican filed a lawsuit in the Circuit Court for Baltimore City, Maryland captioned McDougal v. OmniAmerican Bancorp, Inc., et al., Case No. 24-C-14-003920, naming OmniAmerican, members of OmniAmerican's board of directors, Southside and Merger Sub as defendants. The lawsuit is purportedly brought on behalf of a putative class of OmniAmerican's public stockholders and seeks a declaration that it is properly maintainable as a class action and a certification of the plaintiff and her counsel as class representative and class counsel. The lawsuit asserts direct and derivative claims against OmniAmerican's directors and alleges that they breached their fiduciary duties and that OmniAmerican, Southside and Merger Sub aided and abetted those alleged breaches by, among other things, (a) failing to take steps to maximize shareholder value for OmniAmerican public stockholders; (b) failing to properly value OmniAmerican; (c) failing to protect against conflicts of interest; (d) failing to disclose material information necessary for OmniAmerican stockholders to make an informed vote on the First Merger; and (e) agreeing to deal protection devices that preclude a fair sales process. Among other relief, the plaintiff seeks to enjoin the mergers. On July 9, 2014, the plaintiff filed a motion to transfer the case to Maryland's Business and Technology Case Management Program.

On July 29, 2014, OmniAmerican, OmniAmerican’s board of directors and Southside filed a motion to dismiss the case. On July 30, 2014, the plaintiff filed a motion to take expedited discovery.

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ITEM 1A. RISK FACTORS

There are no material changes to the risk factors as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on March 7, 2014, and the Company's Form 10-Q for the quarter ended March 31, 2014, as filed with the Securities and Exchange Commission on May 2, 2014.

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 Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company’s common stock during the three months ended September 30, 2014.



Period	(a) Total Number of Shares Purchased ⁽¹⁾	(b) Average Cost Per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾	(d) Maximum Number of Shares That May Yet Be Purchased Under the Plans or Program⁽²⁾
July 1, 2014 through July 31, 2014	285	$	24.65	—	411,469
August 1, 2014 through August 31, 2014	222	26.08		—	411,469
September 1, 2014 through September 30, 2014	—	—		—	411,469
Total	507	$	25.28	—	411,469

______________________


(1)	Consists of 507 shares withheld from employees to satisfy tax withholding obligations upon the vesting of restricted shares awarded under our 2011 Executive Stock Incentive Plan. The shares were purchased pursuant to the terms of the plan and not pursuant to our publicly announced share repurchase program.


(2)	On September 1, 2011, the Company’s Board of Directors approved a stock repurchase program under which the Company may repurchase up to 565,369 shares of the Company’s common stock, from time to time, subject to market conditions. The repurchase program will continue until completed or terminated by the Board of Directors.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

None

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: October 31, 2014	/s/ Tim Carter
	Tim Carter
	President and Chief Executive Officer

Date: October 31, 2014	/s/ Deborah B. Wilkinson
	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.

OmniAmerican Bancorp, Inc. - FORM 10-Q - October 31, 2014

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OmniAmerican Bancorp, Inc. Reports