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SIBC > SEC Filings for SIBC > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for STATE INVESTORS BANCORP, INC.

Form 10-Q for STATE INVESTORS BANCORP, INC.


13-Nov-2012

Quarterly Report


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

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of State Investors Bancorp, Inc. ("State Investors Bancorp" or the "Company") from December 31, 2011 to September 30, 2012 and on its results of operations during the quarters and nine months ended September 30, 2012 and 2011. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the financial statements and related notes appearing in Item 1.

To the extent that statements in this Form 10-Q relate to future plans, objectives, financial results or performance of the Company or State-Investors Bank (the "Bank"), these statements are deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which are based on management's current information, estimates and assumptions and the current economic environment, are generally identified by the use of the words "plan", "believe", "expect", "intend", "anticipate", "estimate", "project" or similar expressions. The Company's or Bank's actual strategies and results in future periods may differ materially from those currently expected due to various risks and uncertainties. The Company does not intend to update these forward-looking statements.

Critical Accounting Policies

In reviewing and understanding financial information for State Investors Bancorp, you are encouraged to read and understand the significant accounting policies used in preparing our financial statements. These policies are described in Note 1 of the notes to our financial statements. The accounting and financial reporting policies of State Investors Bancorp conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Accordingly, the financial statements require certain estimates, judgments, and assumptions, which are believed to be reasonable, based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the periods presented. The following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results. These policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods.

Allowance for Loan Losses. The allowance for loan losses is maintained at a level to provide for probable credit losses related to specifically identified loans and for losses inherent in the loan portfolio that have been incurred as of the balance sheet date. The allowance for loan losses is comprised of specific allowances and a general allowance. Specific provisions are assessed for each loan that is reviewed for impairment or for which a probable loss has been identified. The allowance related to loans that are identified as impaired is based on discounted expected future cash flows using the loan's initial effective interest rate, the observable market value of the loan, or the estimated fair value of the collateral for certain collateral dependent loans. Factors contributing to the determination of specific provisions include the financial condition of the borrower, changes in the value of pledged collateral and general economic conditions. General allowances are established based on historical charge-offs considering factors that include risk rating, concentrations and loan type. For the general allowance, management also considers trends in delinquencies and non-accrual loans, concentrations, volatility of risk ratings and the evolving mix in terms of collateral, relative loan size and the degree of seasoning within the various loan products.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Our allowance levels may be impacted by changes in underwriting standards, credit administration and collection policies, regulation and other factors which affect the credit quality and collectability of the loan portfolio also impact the allowance levels. The allowance for loan losses is based on management's estimate of probable credit losses inherent in the loan portfolio; actual credit losses may vary from the current estimate. The allowance for loan losses is reviewed periodically, taking into consideration the risk characteristics of the loan portfolio, past charge-off experience, general economic conditions and other factors that warrant current recognition. As adjustments to the allowance for loan losses become necessary, they are reflected as a provision for loan losses in current-period earnings. Actual loan charge-offs are deducted from and subsequent recoveries of previously charged-off loans are added to the allowance.

Other-Than-Temporary Impairment. We review our investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, the financial condition and near-term prospects of the issuer including any specific events that may influence the operations of the issuer, and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market. Inherent in this analysis is a certain amount of imprecision in the judgment used by management.

We recognize credit-related other-than-temporary impairment on debt securities in earnings while noncredit-related other-than-temporary impairment on debt securities not expected to be sold is recognized in accumulated other comprehensive income. We assess whether the credit loss existed by considering whether (a) we have the intent to sell the security, (b) it is more likely than not that we will be required to sell the security before recovery, or (c) we do not expect to recover the entire amortized cost basis of the security. We may bifurcate the other-than-temporary impairment on securities not expected to be sold or where the entire amortized cost of the security is not expected to be recovered into the components representing credit loss and the component representing loss related to other factors. The portion of the fair value decline attributable to credit loss is recognized through earnings.

Corporate debt securities are evaluated for other-than-temporary impairment by determining whether it is probable that an adverse change in estimated cash flows has occurred. Determining whether there has been an adverse change in estimated cash flows involves the calculation of the present value of remaining cash flows compared to previously projected cash flows. We consider the discounted cash flow analysis to be our primary evidence when determining whether credit-related other-than-temporary impairment exists on corporate debt securities.

Income Taxes. Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and gives current recognition to changes in tax rates and laws. Realizing our deferred tax assets principally depends upon our achieving projected future taxable income, we may change our judgments regarding future profitability due to future market conditions and other factors. We may adjust our deferred tax asset balances if our judgments change.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Financial Condition at September 30, 2012 and December 31, 2011

General. The Company's total assets increased by $19,000, to $249.64 million at September 30, 2012, compared to $249.62 million at December 31, 2011. For the nine months ended September 30, 2012, the increase in our assets was primarily due to increases in loans receivable, net of $4.1 million, or 2.3%, at September 30, 2012 compared to December 31, 2011, and in cash and cash equivalents of $1.4 million, or 18.0%, partially offset by a decrease in mortgage-backed securities, of $4.5 million, or 8.5%.

Cash and Cash Equivalents. Cash and cash equivalents increased $1.4 million, or 18.0%, from $7.7 million at December 31, 2011 to $9.1 million at September 30, 2012.

Loans Receivable, Net. Loans receivable, net, increased by $4.1 million, or 2.3%, to $179.2 million at September 30, 2012 compared to $175.1 million at December 31, 2011. During the nine months ended September 30, 2012, our total loan originations and purchases amounted to $13.1 million and loan principal payments were $8.9 million. All of our loans are originated for portfolio. The increase in loans receivable, net, was primarily due to increases in commercial real estate loans of $4.8 million, commercial business loans of $689,000, multi-family residential loans of $658,000, and home equity lines of credit of $144,000. These increases were partially offset by decreases of $1.5 million in residential construction loans, $316,000 in one-to-four family residential loans, $131,000 of consumer loans, and $79,000 in land loans.

Investment Securities. Mortgage-backed securities amounted to $48.8 million at September 30, 2012 compared to $53.4 million at December 31, 2011, a decrease of $4.5 million, or 8.5%. The decrease in mortgage-backed securities at September 30, 2012, was due to paydowns received during the nine-month period, offset by unrealized gains on available-for-sale securities.

Premises and Equipment, Net. Premises and equipment, net, decreased $216,000, or 2.5%, to $8.4 million at September 30, 2012, compared to $8.6 million at December 31, 2011, primarily due to depreciation of fixed assets.

Total liabilities. Total liabilities increased $72,000, at September 30, 2012, to $201.7 million compared to $201.6 million at December 31, 2011. Deposits decreased $501,000, or 0.3%, to $157.1 million at September 30, 2012, compared to $157.6 million at December 31, 2011, primarily due to decreases in certificates of deposit of $3.7 million, or 3.5%, passbook savings accounts of $300,000, or 1.1%, partially offset by a $2.8 million, or 15.0% increase in checking accounts and $683,000, or 9.8%, increase in money market deposit accounts. We had $42.0 million of advances from the Federal Home Loan Bank at September 30, 2012 compared to $42.3 million at December 31, 2011, a decrease of $265,000, or 0.6%.

Total Stockholders' Equity. Total stockholders' equity amounted to $47.9 million at September 30, 2012 compared to $48.0 million at December 31, 2011, a decrease of $53,000, or 0.1%. The reason for the decrease in our total stockholders' equity was primarily due to the purchase of $1.1 million of shares to fund the Recognition and Retention Plan and acquisitions of $466,000 of treasury stock, partially offset by net income of $655,000 for the nine months ended September 30, 2012, an increase in unrealized gain on securities available for sale of $565,000, net of the deferred tax effect and amortization of stock awards and options under our stock compensation plans of $165,000, and the release of $106,000 in ESOP shares.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2012 and 2011

General. The Company's net income amounted to $208,000 for the three months ended September 30, 2012, an increase of $15,000, or 7.8%, compared to net income of $193,000 for the three months ended September 30, 2011. This increase was primarily due to an increase in net interest income of $199,000, or 11.4%, offset by a decrease in non-interest income of $9,000, or 13.0%, and an increase in non-interest expense of $193,000, or 13.1%. The increase in net interest income was due to a decrease of $162,000, or 19.3%, in total interest expense in the third quarter of 2012 primarily as a result of decreases in the average rates paid on certificates of deposit and Federal Home Loan Bank advances and an increase of $37,000, or 1.4%, in total interest income.

The Company's net income amounted to $655,000 for the nine months ended September 30, 2012, a decrease of $27,000, or 4.0%, compared to net income of $682,000 for the nine months ended September 30, 2011. This decrease was primarily due to an increase in non-interest expense of $549,000, or 12.5%. This was partially offset by an increase in net interest income of $445,000, or 8.2%, an increase of $8,000 or 4.4%, in non-interest income and a decrease in the provision for income taxes of $37,000, or 9.0%. The increase in net interest income was due to a decrease of $609,000, or 23.1%, in total interest expense for the nine months ended September 30, 2012 primarily as a result of decreases in the average rate on interest bearing liabilities, partially offset by a decrease of $164,000, or 2.0%, in total interest income.

Net Interest Income. Net interest income amounted to $1.9 million for the three months ended September 30, 2012 compared to $1.8 million for the three months ended September 30, 2011. The $199,000, or 11.4%, increase was primarily due to a $162,000 decrease in interest expense. Interest paid on deposits decreased $160,000 and interest on Federal Home Loan Bank advances decreased $2,000 for the three months ended September 30, 2012, compared to the prior year period.

The average interest rate spread was 3.07% for the three months ended September 30, 2012 and 2011. Average interest-earning assets to average interest-bearing liabilities increased from 107.31% for the three months ended September 30, 2011 to 123.67% for the three months ended September 30, 2012. The average interest rate spread reflects the decrease in average rate paid on interest-bearing liabilities from 1.64% for the third quarter of 2011 to 1.44% for the third quarter of 2012 offset by a decrease in the average yield on interest earning assets from 4.71% for the third quarter of 2011 to 4.51% for the third quarter of 2012. Net interest margin increased 16 basis points from 3.19% to 3.35% at September 30, 2011 and 2012, respectively.

Interest income increased by $37,000 or 1.4%, to $2.63 million for the three months ended September 30, 2012 compared to $2.59 million for the three months ended September 30, 2011. The increase was primarily due to a 21 basis point increase in the average yield on mortgage-backed securities from 1.38% for the third quarter in 2011 to 1.59% for the third quarter of 2012. To a lesser extent, the increase in interest income was due to a 5 basis point increase in the average yield of other interest earning assets from 0.08% for the third quarter of 2011 to 0.13% for the third quarter in 2012.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Interest expense decreased by $162,000, or 19.3%, to $677,000 for the three months ended September 30, 2012 compared to $839,000 for the three months ended September 30, 2011, primarily as a result of a 28 basis point decrease in the average rate paid on certificate of deposit accounts and an $18.1 million increase in the average balance of Federal Home Loan Bank advances, combined with a 132 basis point decline in average cost of such advances. The decrease in average rate is due to a decline in cost of certificates of deposit as higher cost certificates of deposit repriced at a lower rate during the period. The increase in Federal Home Loan Bank advances was to fund loan originations and cover deposit outflows.

Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, the average interest rate spread and the net interest margin. As the Company owned no tax-exempt securities during the periods presented, no tax-equivalent yield adjustments were made. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

                                                                                       Three Months Ended September 30,
                                                                          2012                                                  2011
                                                      Average                             Average           Average                             Average
                                                      Balance          Interest          Yield/Rate         Balance          Interest         Yield/Rate
                                                                                           (Dollars in thousands)
Interest-earning assets:
   Loans receivable(1)                              $    177,284     $       2,428               5.48 %   $    180,566     $       2,486              5.51 %
   Mortgage-backed securities                             49,340               196               1.59 %         29,343               101              1.38 %
   Other interest-earning assets                           6,252                 2               0.13 %          9,809                 2              0.08 %
     Total interest-earning assets                       232,876             2,626               4.51 %        219,718             2,589              4.71 %
Non-interest-earning assets                               17,383                                                21,766
     Total assets                                   $    250,259                                          $    241,484

Interest-bearing liabilities:
   Savings, NOW and money market accounts           $     42,253                19               0.18 %   $     67,017                60              0.36 %
   Certificates of deposit                               101,088               443               1.75 %        110,850               562              2.03 %
     Total deposits                                      143,341               462               1.29 %        177,867               622              1.40 %
   FHLB advances                                          44,961               215               1.91 %         26,882               217              3.23 %
     Total interest-bearing liabilities                  188,302               677               1.44 %        204,749               839              1.64 %
Non-interest-bearing liabilities                          13,742                                                10,151
     Total liabilities                                   202,044                                               214,900

Equity                                                    48,215                                                26,584
     Total liabilities and equity                   $    250,259                                          $    241,484

Net interest-earning assets                         $     44,574                                          $     14,969

Net interest income, average interest rate spread                    $       1,949               3.07 %                    $       1,750              3.07 %

Net interest margin(2)                                                                           3.35 %                                               3.19 %

Average interest earning assets to
average interest bearing liabilities                                                           123.67 %                                             107.31 %



(1) Includes non-accrual loans during the respective periods. Calculated net of deferred fees and discounts, loans in process and allowance for loan losses.

(2) Equals net interest income divided by average interest-earning assets.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Net interest income amounted to $5.9 million for the nine months ended September 30, 2012 compared to $5.4 million for the nine months ended September 30, 2011. The $445,000, or 8.2%, increase was primarily due to a decrease in interest paid on deposits of $528,000 and a decrease of interest paid on Federal Home Loan Bank advances of $81,000 which offset the $164,000 decrease in interest income for the nine months ended September 30, 2012, compared to the prior year period.

The average interest rate spread decreased 29 basis points from 3.35% for the nine months ended September 30, 2011 to 3.06% for the nine months ended September 30, 2012, while average interest-earning assets increased from $210.5 million to $234.0 million during the same periods. Average interest-earning assets to average interest-bearing liabilities increased from 105.19% for the nine months ended September 30, 2011 to 124.82% for the nine months ended September 30, 2012. The decrease in the average interest rate spread primarily reflects the 60 basis point decrease in the average yield on interest earning assets from 5.11% for the nine months ended September 30, 2011 to 4.51% for the nine months ended September 30, 2012. The average rate paid on interest-bearing liabilities decreased 31 basis points from 1.76% for the third quarter of 2011 to 1.45% for the third quarter of 2012. Net interest margin decreased 9 basis points from 3.44% to 3.35% at September 30, 2011 and 2012, respectively.

Interest income decreased by $164,000 or 2.0%, to $7.9 million for the nine months ended September 30, 2012 compared to $8.1 million for the nine months ended September 30, 2011. The decrease was primarily due to a 35 basis point decrease in the average yield on loans receivable from 5.78% for the nine months ended September 30, 2011 to 5.43% for the nine months ended September 30, 2012.

Interest expense decreased by $609,000, or 23.1%, to $2.0 million for the nine months ended September 30, 2012 compared to $2.6 million for the nine months ended September 30, 2011, primarily as a result of a 28 basis point decrease in the average rate paid on certificates of deposit accounts. The decrease in average rate is due to a decline in cost of certificates of deposit as higher cost certificates of deposit repriced at a lower rate during the period. In addition, the average balance of Federal Home Loan Bank advances increased $19.4 million but had a 176 basis point decline in average cost of such advances.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates, the average interest rate spread and the net interest margin. As the Company owned no tax-exempt securities during the periods presented, no tax-equivalent yield adjustments were made. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.

                                                                                            Nine Months Ended September 30,
                                                                            2012                                                      2011
                                                                                               Average                                                   Average
                                                     Average Balance        Interest         Yield/Rate        Average Balance        Interest         Yield/Rate
                                                                                                  (Dollars in thousands)
Interest-earning assets:
   Loans receivable(1)                              $         177,818             7,247              5.43 %   $         181,070     $       7,850              5.78 %
   Mortgage-backed securities                                  50,914               652              1.71 %              17,328               213              1.64 %
   Other interest-earning assets                                5,234                 7              0.18 %              12,122                 7              0.08 %
     Total interest-earning assets                            233,966             7,906              4.51 %             210,520             8,070              5.11 %
Non-interest-earning assets                                    15,044                                                    19,955
     Total assets                                   $         249,010                                         $         230,475

Interest-bearing liabilities:
   Savings, NOW and money market accounts           $          40,812                56              0.18 %   $          61,006               186              0.41 %
   Certificates of deposit                                    101,394             1,370              1.80 %             113,294             1,768              2.08 %
     Total deposits                                           142,206             1,426              1.34 %             174,300             1,954              1.49 %
   FHLB advances                                               45,235               607              1.79 %              25,841               688              3.55 %
     Total interest-bearing liabilities                       187,441             2,033              1.45 %             200,141             2,642              1.76 %
Non-interest-bearing liabilities                               13,186                                                     7,096
     Total liabilities                                        200,627                                                   207,237

Equity                                                         48,383                                                    23,238
     Total liabilities and equity                   $         249,010                                         $         230,475

Net interest-earning assets                         $          46,525                                         $          10,379

Net interest income, average interest rate spread                         $       5,873              3.06 %                         $       5,428              3.35 %

Net interest margin(2)                                                                               3.35 %                                                    3.44 %

Average interest earning assets to
average interest bearing liabilities                                                               124.82 %                                                  105.19 %


(1) Includes non-accrual loans during the respective periods. Calculated net of . . .

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