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| SPBC > SEC Filings for SPBC > Form 10-Q on 14-May-2012 | All Recent SEC Filings |
14-May-2012
Quarterly Report
Management's discussion and analysis of financial condition and results of operations at March 31, 2012 and for the three months ended March 31, 2012 and 2011 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto, appearing in Part 1, Item 1 of this report.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, which can be identified by the use of words such as "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect," "will," "may" and words of similar meaning. These forward-looking statements include, but are not limited to:
• statements of our goals, intentions and expectations;
• statements regarding our business plans, prospects, growth and operating strategies;
• statements regarding the asset quality of our loan and investment portfolios; and
• estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Form 10-Q.
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;
• 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 accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
• changes in our organization, compensation and benefit plans;
• changes in our financial condition or results of operations that reduce capital; and
• changes in the financial condition or future prospects of issuers of securities that we own.
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.
Overview
On October 29, 2010, Share Plus Federal Bank completed its conversion from a federal mutual savings bank to a capital stock savings bank. A new holding company, SP Bancorp, Inc., was established as part of the conversion. The public offering was consummated through the sale and issuance by SP Bancorp, Inc. of 1,725,000 shares of common stock at $10 per share. Net proceeds of $14.5 million were raised in the stock offering, after deduction of conversion costs of $2.0 million and excluding $0.8 million which was loaned by the Company to a trust for the Employee Stock Ownership Plan (the "ESOP"). The Bank's ESOP is authorized to purchase up to 138,000 shares of common stock. The ESOP purchased 67,750 of those shares in the offering and 66,056 in the open market through March 31, 2012. The remaining 4,194 shares are expected to be purchased in the near term.
At March 31, 2012, we had total assets of $273.2 million, compared to $273.0 million at December 31, 2011. This increase was primarily the result of an increase in cash and cash equivalents, partially offset by a decline in securities.
During the three months ended March 31, 2012, we had net income of $279,000, compared to a net income of $217,000 for the three months ended March 31, 2011. Higher net income resulted from higher net interest income and noninterest income, partially offset by higher noninterest expense and provision for loan losses.
Our results of operations depend mainly on our net interest income, which is the difference between the interest income we earn on our loan and investment portfolios and the interest expense we incur on our deposits and, to a lesser extent, our borrowings. Results of operations are also affected by service charges and other fees, provision for loan losses, commissions, gain on sales of securities and loans and other income. Our noninterest expense consists primarily of compensation and benefits, occupancy costs, equipment expense, data processing, ATM expense, professional and outside services, FDIC insurance assessments, marketing and income tax expense.
Our results of operations are also significantly affected by general economic and competitive conditions (such as changes in energy prices which have an impact on our Texas market area), as well as changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable laws, regulations or government policies may materially affect our financial condition and results of operations.
Critical Accounting Policies. There are no material changes to the critical accounting policies disclosed in SP Bancorp, Inc.'s Form 10-K dated December 31, 2011, as filed on March 30, 2012 with the Securities and Exchange Commission.
Economy. Like the national economy, the Texas economy has been weak, but the Texas unemployment rate has been below the national rate for several months. The Dallas-Fort Worth Metroplex unemployment rate was 7.1% in February 2012, compared to 8.1% in February 2011. The state's seasonally adjusted unemployment rate decreased from 8.1% in March 2011 to 7.0% in March 2012, and the corresponding U.S. rate decreased from 8.9% to 8.2% during the same period.
Comparison of Financial Condition at March 31, 2012 and December 31, 2011
Summary of Selected Balance Sheet Data.
March 31, December 31, Increase
(Dollars in thousands) 2012 2011 (Decrease) % Change
Total assets $ 273,169 $ 272,959 $ 210 0.08 %
Total cash and cash equivalents 19,634 9,928 9,706 97.76
Securities available for sale,
at fair value 17,326 25,097 (7,771 ) (30.96 )
Loans held for sale 4,199 4,884 (685 ) (14.03 )
Loans, net 213,125 212,688 437 0.21
Other real estate owned 2,024 1,824 200 10.96
Premises and equipment, net 4,275 4,346 (71 ) (1.63 )
Federal Home Loan Bank of
Dallas stock and other
restricted stock, at cost 1,662 2,020 (358 ) (17.72 )
Bank-owned life insurance 6,249 6,193 56 0.90
Other assets (1) 4,674 5,979 (1,305 ) (21.83 )
Deposits 229,018 211,934 17,084 8.06
Borrowings 9,043 25,978 (16,935 ) (65.19 )
Stockholders' equity 32,947 33,127 (180 ) (0.54 )
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1) Includes fixed annuity investment, accrued interest receivable, deferred tax assets and other assets.
Total assets remained virtually unchanged and were $273.2 million at March 31, 2012. Proceeds from sale of securities were temporarily reinvested in cash and cash equivalents. Customer deposits were used to repay maturing FHLB advances.
Net loans increased slightly to $213.1 million at March 31, 2012, as loan originations were marginally higher than loan collections.
Deposits increased primarily from deposit inflows from existing customers.
Stockholders' equity decreased slightly primarily as a result of repurchases of common stock of $98,000 and ESOP shares purchased in the open market of $320,000, partially offset by net income of $279,000 for the three months ended March 31, 2012.
Comparison of Operating Results for the Three Months Ended March 31, 2012 and 2011
General. We recorded net income of $279,000 for the three months ended March 31, 2012, compared to net income of $217,000 for the same period last year. Net interest income increased by $217,000 to $2.5 million for the three months ended March 31, 2012 from $2.3 million for the three months ended March 31, 2011 and noninterest income increased by $409,000, which was partially offset by a higher provision for loan losses of $367,000 and noninterest expense of $198,000.
Summary of Net Interest Income.
XX,XXXXX XX,XXXXX XX,XXXXX XX,XXXXX
Three Months Ended March 31, Increase
(Dollars in thousands) 2012 2011 (Decrease) % Change
Interest income:
Interest and fees on loans $ 2,772 $ 2,618 $ 154 5.88 %
Securities-taxable 38 80 (42 ) (52.50 )
Securities-nontaxable 50 34 16 47.06
Other interest-earning assets 32 22 10 45.45
Total interest income 2,892 2,754 138 5.01
Interest expense:
Savings deposits 13 20 (7 ) (35.00 )
Money market 21 41 (20 ) (48.78 )
Demand deposit account 17 27 (10 ) (37.04 )
Certificates of deposit 234 251 (17 ) (6.77 )
Total deposits 285 339 (54 ) (15.93 )
Borrowings 87 112 (25 ) (22.32 )
Total interest expense 372 451 (79 ) (17.52 )
Net interest income $ 2,520 $ 2,303 $ 217 9.42 %
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Summary of Average Yields, Average Rates and Average Balances.
Average Yields and Rates
Three Months Ended March 31, Increase
2012 2011 (decrease)
Loans 5.12 % 5.37 % (0.25 )%
Securities-taxable 1.09 % 1.64 % (0.55 )
Securities-nontaxable 3.37 % 3.63 % (0.26 )
Other interest-earning assets 0.54 % 0.62 % (0.08 )
Total interest-earning assets 4.44 % 4.73 % (0.29 )
Savings deposits 0.15 % 0.25 % (0.10 )
Money market 0.22 % 0.42 % (0.20 )
Demand deposit account 0.13 % 0.21 % (0.08 )
Certificates of deposit 1.30 % 1.64 % (0.34 )
Total deposits 0.58 % 0.74 % (0.16 )
Borrowings 1.18 % 2.80 % (1.62 )
Total interest-bearing liabilities 0.66 % 0.90 % (0.24 )
Net interest rate spread 3.78 % 3.83 % (0.05 )
Net interest margin 3.87 % 3.96 % (0.09 )%
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Average Balances
Three Months Ended March 31, Increase
(Dollars in thousands) 2012 2011 (Decrease) % Change
Loans $ 216,515 $ 195,082 $ 21,433 10.99 %
Securities-taxable 13,982 19,474 (5,492 ) (28.20 )
Securities-nontaxable 5,935 3,745 2,190 58.48
Other interest-earning assets 23,941 14,484 9,457 65.29
Total interest-earning assets 260,373 232,785 27,588 11.85
Savings deposits 34,159 31,544 2,615 8.29
Money market 37,945 39,459 (1,514 ) (3.84 )
Demand deposit account 52,992 51,886 1,106 2.13
Certificates of deposit 72,139 61,274 10,865 17.73
Total deposits 197,235 184,163 13,072 7.10
Borrowings 29,453 15,982 13,471 84.29
Total interest-bearing liabilities 226,688 200,145 26,543 13.26
Net interest-earning assets $ 33,685 $ 32,640 $ 1,045 3.20 %
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Interest Income. Interest income increased primarily due to our growth in loans, our highest earning asset.
Interest income and fees on loans increased as the increase in the average balance of loans more than offset a decrease in the average yield on our loans. The average yield on our loan portfolio decreased, reflecting a lower market interest rate environment.
Interest income on taxable securities decreased from a decline in the average balance and average yield of our taxable securities. The decline in the average yield on our taxable securities portfolio resulted from lower market interest rates.
Interest Expense. Interest expense decreased as the decrease in the average cost of deposits more than offset the increase in the average balance of deposits. The average rate we paid on deposits decreased as we were able to reprice our deposits downward in the declining market interest rate environment. The increase in the average balance of our deposits resulted primarily from increases in the average balance of certificates of deposit, and to a lesser extent, non-maturity deposits, reflecting our successful marketing efforts.
During the March 2012 quarter, we utilized deposits and overnight and short-term advances to fund loans.
Net Interest Income. Net interest income increased as our net interest-earning assets increased. In contrast, our net interest rate spread decreased to 3.78% from 3.83%, and we experienced a 9 basis point decrease in our net interest margin to 3.87% from 3.96% due to an increase in nonaccrual loans.
Provision for Loan Losses. We recorded a provision for loan losses of $487,000 for the three months ended March 31, 2012, compared to $120,000 for the same period in 2011. The increase in the provision for loan losses was primarily attributable to an increase in the qualitative factors used to determine the general allowance for loan losses and an allowance allocated to one single-family loan, which was restructured during the three months ended March 31, 2012.
Summary of Noninterest Income.
Three Months Ended March 31, Increase
(Dollars in thousands) 2012 2011 (Decrease) % Change
Noninterest income:
Service charges $ 294 $ 320 $ (26 ) (8.13 ) %
Gain on sale of securities
available for sale 320 28 292 1,042.86
Gain on sale of mortgage loans 367 223 144 64.57
Increase in cash surrender value of
BOLI 56 17 39 229.41
Other 65 105 (40 ) (38.10 )
Total noninterest income $ 1,102 $ 693 $ 409 59.02 %
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Noninterest Income. Noninterest income increased primarily due to gains on sale of securities available for sale and mortgage loans. Gains on sale of securities are not stable sources of income and there is no assurance that the Company will generate such gains in the future. Our origination, sale and resulting gains on one-to-four family residential loans in the secondary market is dependent upon relative customer demand, which is affected by current and anticipated market interest rates.
Service charges decreased as a result of lower NSF charges and other deposit fees driven by new regulations related to overdraft protection programs. Other noninterest income decreased due primarily to lower fees from sales of investment and insurance products.
Summary of Noninterest Expense.
Three Months Ended March 31, Increase
(Dollars in thousands) 2012 2011 (Decrease) % Change
Noninterest expense:
Compensation and benefits $ 1,448 $ 1,286 $ 162 12.60 %
Occupancy costs 255 269 (14 ) (5.20 )
Equipment expense 65 69 (4 ) (5.80 )
Data processing expense 134 115 19 16.52
ATM expense 96 91 5 5.49
Professional and outside services 337 232 105 45.26
Stationery and supplies 30 38 (8 ) (21.05 )
Marketing 54 44 10 22.73
FDIC insurance assessments 46 92 (46 ) (50.00 )
Operations from OREO 31 102 (71 ) (69.61 )
Other 277 237 40 16.88
Total noninterest expense $ 2,773 $ 2,575 $ 198 7.69 %
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Noninterest Expense. Noninterest expense increased due primarily to an increase in compensation and benefits, data processing expense, professional and outside services, and other noninterest expense, partially offset by lower costs from operations from OREO and FDIC insurance assessments.
Compensation and benefits increased due to higher salary levels and mortgage commission expense, and additional personnel associated with the mortgage warehouse business. Data processing expense increased primarily as a result of higher data processing software related maintenance expenses. Professional and outside services reflects higher outside information technology ("IT") costs and expenses associated with the Company's public filing requirements with the SEC, partially offset by lower outside consultant fees incurred for general corporate purposes. During the three months ended March 31, 2011, the IT services were performed internally by one employee. FDIC insurance assessments decreased due to a lower insurance assessment rate. Operations from OREO decreased due to a greater degree of various holding costs related to other real estate owned in 2011. During late March 2012, the Bank experienced a fraudulent wire transfer from a customer's account. The Company has accrued and expensed the $50,000 deductible under its insurance policy and expects no other losses related to this incident.
Income Tax Expense. We recorded income tax expense of $83,000 for the three months ended March 31, 2012, compared to income tax expense of $84,000 for the same period in 2011. Our effective tax rate was 22.9% for the three months ended March 31, 2012, compared to 27.9% for the three months ended March 31, 2011. The decrease in the effective tax rate was primarily attributable to certain factors, including permanent differences related to tax exempt income consisting of interest on municipal obligations and BOLI income.
Average Balances and Yields
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Tax-equivalent yield adjustments have not been made for tax-exempt securities. All average balances are daily average balances. Nonaccrual 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 March 31,
2012 2011
Average Average
Outstanding Outstanding
Balance Interest Yield/Rate (1) Balance Interest Yield/Rate (1)
Interest-earning assets:
Loans, net $ 216,515 $ 2,772 5.12 % $ 195,082 $ 2,618 5.37 %
Taxable investment securities 13,982 38 1.09 % 19,474 80 1.64 %
Nontaxable investment securities 5,935 50 3.37 % 3,745 34 3.63 %
Total other interest earning assets 22,212 30 0.54 % 13,531 21 0.62 %
FHLB of Dallas stock 1,729 2 0.46 % 953 1 0.42 %
Total interest-earning assets 260,373 2,892 4.44 % 232,785 2,754 4.73 %
Non-interest-earning assets 17,277 11,763
Total assets $ 277,650 $ 244,548
Interest-bearing liabilities:
Savings deposits $ 34,159 $ 13 0.15 % $ 31,544 $ 20 0.25 %
Money market 37,945 21 0.22 % 39,459 41 0.42 %
Demand deposit accounts 52,992 17 0.13 % 51,886 27 0.21 %
Certificates of deposit 72,139 234 1.30 % 61,274 251 1.64 %
Total deposits 197,235 285 0.58 % 184,163 339 0.74 %
Borrowings 29,453 87 1.18 % 15,982 112 2.80 %
Total interest-bearing liabilities 226,688 372 0.66 % 200,145 451 0.90 %
Non-interest-bearing liabilities 17,732 12,080
Total liabilities 244,420 212,225
Equity 33,230 32,323
Total liabilities and equity $ 277,650 $ 244,548
Net interest income $ 2,520 $ 2,303
Net interest rate spread (2) 3.78 % 3.83 %
Net interest-earning assets (3) $ 33,685 $ 32,640
Net interest margin (4) 3.87 % 3.96 %
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(1) Yields and rates for the three months ended March 31, 2012 and 2011 are annualized.
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