Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SIBC > SEC Filings for SIBC > Form 10-K on 29-Mar-2013All Recent SEC Filings

Show all filings for STATE INVESTORS BANCORP, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-K for STATE INVESTORS BANCORP, INC.


29-Mar-2013

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

State Investors Bancorp's profitability depends primarily on net interest income, which is the difference between interest income earned on interest-earning assets, principally loans, and interest expense paid on interest-bearing liabilities, principally deposits. Net interest income is dependent upon the level of interest rates and the extent to which such rates are changing. State Investors Bancorp's profitability also depends, to a lesser extent, on interest-earning deposits in other institutions, non-interest income, borrowings from the Federal Home Loan Bank of Dallas, provisions for loan losses, non-interest expenses and federal income taxes.

State Investors Bancorp's primary lending activity is the origination of one- to four-family residential loans for portfolio. Historically, we have not originated residential mortgage loans for sale into the secondary market. We also originate or participate in commercial real estate loans which amounted to $37.3 million, or 21.1% of our total loans, before net items, at December 31, 2012. Typically, single-family loans involve a lower degree of risk and carry a lower yield than commercial real estate loans. State Investors Bancorp's loans are primarily funded by certificates of deposit, which typically have a higher interest rate than savings accounts. At December 31, 2012, certificates of deposit amounted to 64.7% of total deposits. We had $39.3 million of borrowings from the Federal Home Loan Bank of Dallas as of December 31, 2012, compared to $42.3 million as of December 31, 2011. Although we will attempt to diversify into other deposit products in the future in order to improve our interest rate risk, we anticipate that certificates of deposit will continue to be a primary source of funding for our assets in the near term.


State Investors Bancorp's results of operations are also significantly affected by general economic and competitive conditions, particularly with respect to changes in interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially affect our financial condition and results of operations.

Business Strategy

State Investors Bancorp's business strategy is focused on operating a growing and profitable community-oriented financial institution. Below are certain of the highlights of our business strategy:

? Maintaining High Asset Quality. At December 31, 2012, we had $3.3 million of non-performing loans in our portfolio, or 1.3%, of total assets, and no real estate owned. We attribute our high asset quality to our disciplined and conservative underwriting practices.

? Growing our Retail Deposits by Focusing on Long-Term Customer Relationships.
We strive to grow our retail deposits by focusing on the establishment of long-term customer relationships. Advertising, promotions and offering attractive rates on certain transaction accounts may be utilized as means to increase retail core deposits.

? Capitalize on our senior management's knowledge of the local real estate market and our personal service. As a community-oriented savings bank, we take pride in providing exceptional customer service as a means to attract and retain customers. We deliver personalized service to our customers that distinguishes us from the large regional banks operating in our market area. Our management team has strong ties to, and deep roots in, the community. We believe that we know our customers' banking needs and can respond quickly to address them.

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 contained in Item 8 of this Form 10-K. 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.


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.

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

State Investors Bancorp's total assets decreased by $3.7 million, or 1.5%, to $246.0 million at December 31, 2012, compared to $249.6 million at December 31, 2011. For the year ended December 31, 2012, the largest increase in our assets was in cash and cash equivalents, which increased $5.0 million, or 65.3%. The largest decrease was in investment securities, which decreased $6.9 million, or 12.9% at December 31, 2012 due to principle pay-downs. Federal Home Loan Bank stock decreased $713,000, or 28.7%, at December 31, 2012 compared to December 31, 2011, and other assets decreased $376,000, or 36.0%.

Loans receivable, net, decreased by $298,000, or 0.2%, to $174.8 million at December 31, 2012 compared to $175.1 million at December 31, 2011. During the year ended December 31, 2012, our total loan originations amounted to $30.0 million and loan principal payments were $40.9 million. All of our loans are originated for portfolio. The decrease in loans receivable, net, was primarily due to decreases in one- to four-family residential loans of $3.6 million, construction loans of $565,000, land loans of $455,000, and consumer non-real estate loans of $76,000. Such decreases were partially offset by increases of $2.9 million in commercial real estate loans, $675,000 in commercial business loans, $604,000 in multi-family residential loans and $119,000 home equity lines of credit.


Investment and mortgage-backed securities amounted to $46.5 million at December 31, 2012 compared to $53.4 million at December 31, 2011, a decrease of $6.9 million, or 12.9%. The decrease in investment securities at December 31, 2012, was due to maturities and pay-downs received during the 12-month period, partially offset by unrealized gains on such securities.

Total liabilities increased $808,000, or 0.4%, at December 31, 2012, to $202.5 million compared to $201.6 million at December 31, 2011. Deposits increased by $3.6 million, or 2.3%, to $161.2 million at December 31, 2012, compared to $157.6 million at December 31, 2011, primarily due to an increase in interest bearing checking accounts of $2.3 million, or 17.1%, money market accounts of $1.1 million, or 15.3%, non-interest bearing checking accounts of $844,000, or 16.8%, and savings accounts of $456,000, or 1.7%. Such increases were partially offset by decreases of $1.1 million, or 1.0%, in certificates of deposit. We held $39.3 million of Federal Home Loan Bank advances at December 31, 2012 compared to $42.3 million at December 31, 2011.

Total equity amounted to $43.5 million at December 31, 2012 compared to $48.0 million at December 31, 2011, a decrease of $4.5 million, or 9.3%. The reason for the decrease in our total equity was primarily due to the purchase of 116,380 shares for the employee benefit plans and 343,508 shares under the repurchase program, partially offset by net income of $752,000 for the year ended December 31, 2012, and an increase in unrealized gain on securities available for sale of $560,000, net of deferred tax effect.

Comparison of Operating Results for the Years Ended December 31, 2012 and 2011

General. State Investors Bancorp's net income amounted to $752,000 for the year ended December 31, 2012, a decrease of $298,000 or 28.4% compared to net income of $1.05 million for the year ended December 31, 2011. This decrease was primarily due to an increase in non-interest expense of $648,000, or 11.0%, a decrease of $392,000, or 3.6%, in interest income, and a decrease of $18,000, or 7.0%, in non-interest income. This was partially offset by a decrease of $686,000, or 20.1%, in total interest expense and a decrease of $62,000, or 11.2%, in the provision for income taxes. Interest expense decreased in fiscal 2012 primarily as a result of decreases in the average rate paid on certificates of deposit and Federal Home Loan Bank advances.

Net Interest Income. Net interest income amounted to $7.7 million for the year ended December 31, 2012 compared to $7.4 million for the year ended December 31, 2011. The $294,000 or 4.0% increase was primarily due to a $686,000 decrease in interest expense due to a 27 basis point decrease in the average rate paid on certificates of deposit and 117 basis point decrease in rate paid on Federal Home Loan Bank of Dallas advances for the year.

The average interest rate spread decreased 21 basis points from 3.24% for the year ended December 31, 2011 to 3.03% for the year ended December 31, 2012, while average interest-earning assets increased from $216.5 million to $232.5 million during the same periods. Average interest-earning assets to average interest-bearing liabilities increased from 111.09% for the year ended December 31, 2011 to 123.70% for the year ended December 31, 2012. The decrease in the average interest rate spread primarily reflects the decrease in average rate paid on interest-bearing liabilities from 1.75% in fiscal 2011 to 1.45% in fiscal 2012 compared to a decrease in the average yield on interest earning assets from 4.99% in 2011 to 4.48% in 2012. Net interest margin decreased 11 basis points from 3.41% to 3.30% at December 31, 2011 and 2012, respectively, primarily due to a decrease of 51 basis points in the average yield on interest-bearing assets compared to a decrease of 30 basis points in the average rate paid on interest-bearing liabilities for the periods.

Interest income decreased by $392,000, or 3.6%, to $10.4 million for the year ended December 31, 2012 compared to $10.8 million for the year ended December 31, 2011. Such decrease was primarily due to a decrease in the average yield on loans receivable from 5.74% in fiscal 2011 to 5.41% in fiscal 2012. To a lesser extent, the decline in interest income was due to a decrease in average yield on investment and mortgage-backed securities from 1.70% in fiscal 2011 to 1.63% in fiscal 2012. The decrease in the average yield on loans and investment securities reflects changes in the market rates of interest during fiscal 2012.


Interest expense decreased by $686,000, or 20.1%, to $2.7 million for the year ended December 31, 2012 compared to $3.4 million for the year ended December 31, 2011 primarily as a result of a decrease in the average rate paid on certificate of deposit accounts and Federal Home Loan Bank advances. Such 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 fiscal year. The decline in the cost of Federal Home Loan Bank advances was a result of our borrowing at a lower rate during the fiscal year.

Average Balances, Net Interest Income, 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, and the net interest margin. As State-Investors Bank owned no tax-exempt securities during the periods presented, no 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.

                                                                                        Year Ended December 31,
                                                                         2012                                             2011
                                                                                        Average                                          Average
                                                       Average                          Yield/          Average                          Yield/
                                                       Balance         Interest          Rate           Balance         Interest          Rate
                                                                                        (Dollars in thousands)
Interest-earning assets:
 Loans receivable(1)                                 $   177,241     $      9,580            5.41 %   $   180,071     $     10,338            5.74 %
 Investment and mortgage-backed securities                50,036              818            1.63 %        26,477              449            1.70 %
 Other interest-earning assets                             5,270                9            0.17 %        10,001               12            0.12 %
   Total interest-earning assets                         232,547           10,407            4.48 %       216,549           10,799            4.99 %
Non-interest-earning assets                               16,228                                           18,687
   Total assets                                      $   248,775                                      $   235,236
Interest-bearing liabilities:
  Savings, NOW and money market accounts             $    42,301     $         76            0.18 %   $    53,656     $        206            0.38 %
  Certificates of deposit                                101,880            1,827            1.79 %       111,669            2,305            2.06 %
    Total deposits                                       144,181            1,903            1.32 %       165,325            2,511            1.52 %
FHLB advances                                             43,811              821            1.87 %        29,608              899            3.04 %
   Total interest-bearing liabilities                    187,992            2,724            1.45 %       194,933            3,410            1.75 %
Non-interest-bearing liabilities                          13,161                                            7,751
   Total liabilities                                     201,153                                          202,684
 Total stockholders' equity                               47,622                                           32,552
   Total liabilities and stockholders' equity        $   248,775                                      $   235,236
 Net interest-earning assets                         $    44,555                                      $    21,616

 Net interest income; average interest rate spread                   $      7,683            3.03 %                   $      7,389            3.24 %
 Net interest margin(2)                                                                      3.30 %                                           3.41 %
 Average interest-earning assets to average
interest-bearing liabilities                                                               123.70 %                                         111.09 %



(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.

Rate/Volume Analysis. The following table shows the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to
(1) changes in rate, which is the change in rate multiplied by prior year volume, and (2) changes in volume, which is the change in volume multiplied by prior year rate. The combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume.


                                Year Ended December 31, 2012                       Year Ended December 31, 2011
                                      compared to 2011                                   compared to 2010
                            Increase (Decrease)             Total              Increase (Decrease)              Total
                                  Due to                  Increase                   Due to                    Increase
                           Rate            Volume        (Decrease)          Rate              Volume         (Decrease)
                                                                 (In thousands)
Interest income:
Loans receivable        $     (598 )     $     (160 )    $      (758 )   $        (967 )     $      (33 )    $     (1,000 )
Investment and
mortgage-backed
securities                     (15 )            384              369               (49 )            255               206
Other
interest-earning
assets                          15              (18 )             (3 )              (4 )             --                (4 )
Total interest income         (598 )            206             (392 )          (1,020 )            222              (798 )
Interest expense:
Savings, NOW and
money market accounts          (93 )            (37 )           (130 )            (523 )            425               (98 )
Certificates of
deposit                       (286 )           (192 )           (478 )            (405 )            (46 )            (451 )
Total deposits                (379 )           (229 )           (608 )            (928 )            379              (549 )
FHLB advances and
other borrowings               308             (386 )            (78 )            (278 )           (189 )            (467 )
Total interest
expense                        (71 )           (615 )           (686 )          (1,206 )            190            (1,016 )
Increase (decrease)
in net interest
income                  $     (527 )     $      821      $       294     $         186       $       32      $        218

Provision for Loan Losses. The allowance for loan losses is established through a provision for loan losses charged to earnings as losses are estimated to have occurred in our loan portfolio. 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.

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.

During the year ended December 31, 2012, we made a provision of $142,000, compared to a provision of $154,000 in fiscal 2011. To the best of management's knowledge, the allowance is maintained at a level believed to cover all known and inherent losses in the loan portfolio, both probable and reasonable to estimate.

Non-Interest Income. Non-interest income, which includes fees and service charges, realized gains and losses on investments and sales of real estate owned, amounted to income of $239,000 for the year ended December 31, 2012, a decrease of $18,000 or 7.0% compared to non-interest income of $257,000 for the year ended December 31, 2011. The decrease was primarily due to an $11,000 gain on the sale of other real estate during the year ended December 31, 2011 compared to none in the year ended December 31, 2012, and a $7,000 net decrease in service charges, application fees, and other operating income.


Non-Interest Expense. Non-interest expense increased by $648,000, or 11.0% to $6.5 million for the year ended December 31, 2012, compared to $5.9 million for the year ended December 31, 2011. The increase was primarily the result of increases of $357,000 in salaries and employee benefits expense, $160,000 in professional fees, $157,000 in other non-interest expense, $135,000 in taxes and licenses expense and $44,000 in occupancy expense, partially offset by a decreases of $112,000 in computer expense, $59,000 in advertising expense, $26,000 in deposit insurance premiums, $6,000 in office supplies and postage, and $2,000 in security expense. The $160,000 increase in professional fees, $157,000 increase in other non-interest expense and $135,000 increase in taxes . . .

  Add SIBC to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SIBC - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.