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

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SMPL > SEC Filings for SMPL > Form 10-Q on 10-Feb-2014All Recent SEC Filings

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

Form 10-Q for SIMPLICITY BANCORP, INC.


10-Feb-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company and the Bank that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate," and "intend" or future or conditional verbs such as "will," "should," "could," or "may" and similar expressions or the negative thereof. Certain factors that could cause actual results to differ materially from expected results include, changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business of Simplicity Bancorp, Inc. and Simplicity Bank, and changes in the securities markets. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments.
Market Area
Our success depends primarily on the general economic conditions in the California counties of Los Angeles, Orange, San Diego, San Bernardino, Riverside, Santa Clara and Alameda, as nearly all of our loans are to customers in this market area. There have been positive developments in current economic conditions since the end of the recession. Improving financial conditions, increasing credit availability, accommodative monetary policy, and healthier labor and housing markets all support the economic growth in our market area. According to the Beige Book published by the Federal Reserve in December 2013, economic activity continued to expand at a modest to moderate pace from early October to mid-November 2013. In the Twelfth Federal Reserve District (San Francisco), demand for residential real estate expanded and commercial real estate activity improved. Home prices appreciated and robust sales activity in the market for extremely high-end homes was noted in California. Residential permit issuances expanded in several regions and construction activity appeared to increase. Overall loan demand edged up and asset quality improved relative to the prior reporting period in our market area of California. However, lenders continue to face margin compression due to the low interest rate environment, ample liquidity and generally stiff competition over well-qualified borrowers. Future growth opportunities will be influenced by the stability of the nation and the regional economy and other trends within California, including unemployment rates and housing market conditions.
Both California and national unemployment rates remain high by historic standards. In particular, California continues to experience elevated unemployment rates as compared to the national average. Unemployment rates in California decreased slightly from 8.5% in June 2013 to 8.3% in December 2013. This compares to the national unemployment rate which trended down from 7.6% in June 2013 to 6.7% in December 2013.
Comparison of Financial Condition at December 31, 2013 and June 30, 2013. Assets. Total assets declined 1.4% to $854.9 million at December 31, 2013 from $867.4 million at June 30, 2013 due primarily to a decrease in cash and cash equivalents and securities available-for-sale, partially offset by an increase in gross loans receivable.
Cash and cash equivalents decreased by $28.0 million, or 32.7%, to $57.6 million at December 31, 2013 from $85.7 million at June 30, 2013. The decrease was primarily due to cash deployed to fund the net growth in loans receivable and a decline in deposits.
Securities available-for-sale decreased by $6.9 million, or 13.3%, to $45.3 million at December 31, 2013 from $52.2 million at June 30, 2013 due to maturities, principal repayments and amortization.
Gross loans receivable increased by $24.8 million or 3.6%, to $719.2 million at December 31, 2013 from $694.3 million at June 30, 2013. The increase was primarily attributable to organic loan growth in multi-family residential loans and consumer loans, offset in part by principal repayments and payoffs in addition to the sale of newly originated conforming fixed rate one-to-four family residential loans in the secondary market. Multi-family loans increased $42.2 million, or 15.0%, to $322.9 million at December 31, 2013 from $280.8 million at June 30, 2013 due to $76.2 million in loan originations during the six months ended December 31, 2013. Commercial real estate loans decreased $9.4 million, or 16.9%, to $46.2 million at December 31, 2013 from $55.6 million at June 30, 2013 due to principal prepayments and payoffs as there have been no new commercial real estate loan originations during the six months ended December 31, 2013. One-to-four family residential real estate loans decreased $20.6 million, or 6.5%, to $299.0 million at December 31, 2013 from $319.6 million at June 30, 2013 due primarily to principal prepayments and payoffs and sales of newly originated conforming fixed rate loans held for sale in the secondary market. Consumer loans which were comprised primarily of automobile loans totaling $36.3 million and unsecured loans totaling $9.2 million increased $12.7 million, or 33.2%, to $51.0 million at December 31, 2013 from $38.3 million at June 30, 2013 due to $16.4 million and $8.4


million in automobile and unsecured loan originations, respectively, during the six months ended December 31, 2013. The increase in consumer loans was primarily due to the successful launch of the consumer loan origination system in fiscal 2013 which enabled the Company to originate consumer loans and generate an instant credit decision at the point of sale as well as continued leveraging of retail delivery staff, building on brand recognition and consistent marketing of our competitive loan products.
The allowance for loan losses decreased by $604,000, or 10.7%, to $5.0 million at December 31, 2013 from $5.6 million at June 30, 2013 due primarily to a decrease in net charge-offs as well as improved asset quality of the loan portfolio as evidenced by a lower level of criticized, classified and non-accrual loans, and a decline in the historical loss factors. Non-performing assets decreased to $12.1 million, or 1.4% of total assets at December 31, 2013 as compared to $16.0 million, or 1.8% of total assets at June 30, 2013. Deposits. Total deposits decreased $30.2 million, or 4.6%, to $624.5 million at December 31, 2013 from $654.6 million at June 30, 2013. The decline was comprised of a $27.4 million decrease in interest-bearing deposits and a $2.8 million decrease in non-interest bearing demand deposits.
The decrease in interest bearing deposits consisted of a $23.5 million, or 8.4%, decrease in certificates of deposit from $280.1 million at June 30, 2013 to $256.6 million at December 31, 2013, and a $10.1 million, or 7.4%, decrease in savings accounts from $134.9 million at June 30, 2013 to $124.8 million at December 31, 2013. These decreases were partially offset by a $5.7 million, or 3.6%, increase in money market accounts from $159.6 million at June 30, 2013 to $165.3 million at December 31, 2013 and a $432,000, or 3.0% increase in interest-bearing checking from $14.5 million at June 30, 2013 to $14.9 million at December 31, 2013. The decrease in certificates of deposit was attributable to non-relationship customers seeking higher yields as accounts repriced to lower offering rates. Savings accounts decreased primarily due to the discontinuation of certain savings products which traditionally had higher offering rates. These customers were generally non-relationship customers seeking higher yields. The growth in money market balances was attributable to customers preferring the short-term flexibility of non-certificate accounts in a low interest rate environment. Non-interest bearing demand deposits decreased $2.8 million, or 4.3% from $65.7 million at June 30, 2013 to $62.9 million at December 31, 2013. The decline in non-interest bearing demand deposits was primarily a result of the timing of customer payroll deposits as compared to June 30, 2013.
Borrowings. FHLB advances increased to $85.0 million at December 31, 2013 as compared to $60.0 million at June 30, 2013. The weighted average cost of FHLB advances was 1.57% at December 31, 2013 as compared to 1.64% at June 30, 2013. During the six months ended December 31, 2013, the Bank borrowed $25.0 million in FHLB advances at a weighted average cost of 1.38%. The increase in borrowings has allowed the Bank to manage its liquidity position and improve its interest rate risk position by locking in longer term funding.
Stockholders' Equity. Total stockholders' equity, represented 16.5% of total assets and decreased to $141.1 million at December 31, 2013 from $145.4 million at June 30, 2013. The decrease in stockholders' equity was primarily attributable to shares repurchased at an aggregate cost of $6.0 million during the six months ended December 31, 2013 pursuant to the stock repurchase program previously announced as well as cash dividends paid of $1.2 million, partially offset by net income of $2.5 million.


Average Balances, Net Interest Income, Yields Earned and Rates Paid The following table sets forth certain information for the three months ended December 31, 2013 and 2012, respectively.

                                                    For the three months ended December 31,
                                               2013 (1)                                2012 (1)
                                                              Average                                 Average
                                   Average                     Yield/      Average                     Yield/
                                   Balance       Interest       Cost       Balance       Interest       Cost
                                                            (Dollars in thousands)
INTEREST-EARNING ASSETS
Loans receivable(2)              $ 718,515     $    8,016       4.46 %   $ 731,764     $    8,895       4.86 %
Securities(3)                       47,202            179       1.52        54,618             88       0.64
Federal funds sold                  36,946             22       0.24        79,520             49       0.25
Federal Home Loan Bank stock         5,962             84       5.64         7,770             57       2.93
Total interest-earning assets      808,625          8,301       4.11       873,672          9,089       4.16
Noninterest earning assets          38,272                                  37,292
Total assets                     $ 846,897                               $ 910,964
INTEREST-BEARING LIABILITIES
Interest-bearing checking        $  14,454     $        4       0.11 %   $  12,004     $        2       0.07 %
Money market                       163,133             95       0.23       165,745            103       0.25
Savings deposits                   129,108             28       0.09       133,920             50       0.15
Certificates of deposit            259,449          1,153       1.78       303,293          1,516       2.00
Borrowings                          72,500            287       1.58        75,000            428       2.28
Total interest-bearing
liabilities                        638,644          1,567       0.98       689,962          2,099       1.22
Noninterest bearing liabilities     65,902                                  70,286
Total liabilities                  704,546                                 760,248
Equity                             142,351                                 150,716
Total liabilities and equity     $ 846,897                               $ 910,964
Net interest/spread                            $    6,734       3.12 %                 $    6,990       2.94 %
Margin(4)                                                       3.33 %                                  3.20 %
Ratio of interest-earning assets
to interest bearing liabilities     126.62 %                                126.63 %


 _____________________________


(1) Yields earned and rates paid have been annualized.

(2) Calculated net of deferred fees, loss reserves and includes non-accrual loans.

(3) Calculated based on amortized cost of held-to-maturity securities and fair value of available-for-sale securities.

(4) Net interest income divided by interest-earning assets.


The following table sets forth certain information for the six months ended December 31, 2013 and 2012, respectively.

                                                    For the six months ended December 31,
                                               2013 (1)                               2012 (1)
                                                             Average                                Average
                                   Average                    Yield/      Average                    Yield/
                                   Balance      Interest       Cost       Balance      Interest       Cost
                                                           (Dollars in thousands)
INTEREST-EARNING ASSETS
Loans receivable(2)              $ 711,907     $  16,034       4.50 %   $ 746,695     $  18,612       4.99 %
Securities(3)                       48,861           346       1.42        53,940           169       0.63
Federal funds sold                  45,476            51       0.22        68,368            81       0.24
Federal Home Loan Bank stock         5,962           164       5.50         8,057            68       1.69
Total interest-earning assets      812,206        16,595       4.09       877,060        18,930       4.32
Noninterest earning assets          37,994                                 37,619
Total assets                     $ 850,200                              $ 914,679
INTEREST-BEARING LIABILITIES
Interest-bearing checking        $  14,414     $       6       0.08 %   $  10,543     $       4       0.08 %
Money market                       161,968           187       0.23       162,894           232       0.28
Savings deposits                   131,162            60       0.09       136,827            99       0.14
Certificates of deposit            265,166         2,418       1.82       304,405         3,085       2.03
Borrowings                          67,143           536       1.60        77,143           897       2.33
Total interest-bearing
liabilities                        639,853         3,207       1.00       691,812         4,317       1.25
Noninterest bearing liabilities     66,885                                 70,722
Total liabilities                  706,738                                762,534
Equity                             143,462                                152,145
Total liabilities and equity     $ 850,200                              $ 914,679
Net interest/spread                            $  13,388       3.09 %                 $  14,613       3.07 %
Margin(4)                                                      3.30 %                                 3.33 %
Ratio of interest-earning assets
to interest bearing liabilities     126.94 %                               126.78 %


 _____________________________


(1) Yields earned and rates paid have been annualized.

(2) Calculated net of deferred fees, loss reserves and includes non-accrual loans.

(3) Calculated based on amortized cost of held-to-maturity securities and fair value of available-for-sale securities.

(4) Net interest income divided by interest-earning assets.


Comparison of Results of Operations for the Three Months Ended December 31, 2013 and December 31, 2012.
General. Net income for the three months ended December 31, 2013 was $1.3 million, an increase of $233,000, or 21.0%, as compared to net income of $1.1 million for the three months ended December 31, 2012. Earnings per basic and diluted common share were $0.18 for the three months ended December 31, 2013, compared to $0.13 for the three months ended December 31, 2012. The increase in net income was due primarily to a decrease in noninterest expense and provision for loan losses, partially offset by a decrease in noninterest income and net interest income.
Interest Income. Interest income decreased $788,000, or 8.7%, to $8.3 million for the three months ended December 31, 2013 from $9.1 million for the three months ended December 31, 2012. The decline in interest income was primarily due to decreases in interest and fees on loans.
Interest and fees on loans decreased $879,000, or 9.9%, to $8.0 million for the three months ended December 31, 2013 from $8.9 million for the three months ended December 31, 2012. The primary reason for the decrease was a decline of 40 basis points in the average yield on loans from 4.86% for the three months ended December 31, 2012 to 4.46% for the three months ended December 31, 2013 and a decrease of $13.2 million in the average balance of loans receivable to $718.5 million for the three months ended December 31, 2013 from $731.8 million for the three months ended December 31, 2012. The decrease in the average yield on loans was primarily caused by lower yields earned on new loan originations and payoffs of higher yielding seasoned loans during the period as a result of the current relatively low interest rate environment. The decrease in the average loan receivable balance was attributable to loan principal repayments, sales and payoffs exceeding new loan originations.
Interest Expense. Interest expense decreased $532,000, or 25.3% to $1.6 million for the three months ended December 31, 2013 from $2.1 million for the three months ended December 31, 2012. The decline reflected a reduction in the average cost of funds on deposits and borrowings as a result of the continuing low interest rates during the three months ended December 31, 2013.
Interest expense on deposits decreased $391,000, or 23.4% to $1.3 million during the three months ended December 31, 2013 as compared to $1.7 million for the same period last year. The primary reason for the decrease was a 19 basis point decline in the average cost of deposits from 1.09% for the three months ended December 31, 2012 to 0.90% for the three months ended December 31, 2013 due to the downward repricing of deposits in the low interest rate environment as well as a decrease of $48.8 million in the average balance of deposits to $566.1 million for the three months ended December 31, 2013 from $615.0 million for the three months ended December 31, 2012. The decrease in the average balance of deposits was a result of a decrease in certificates of deposit due to non-relationship customers seeking higher yields as accounts reprice to lower interest rates.
Interest expense on borrowings decreased $141,000 or 32.9% to $287,000 during the three months ended December 31, 2013 as compared to $428,000 for the same period last year. The decline was primarily attributable to a 70 basis point decrease in the average cost of borrowings from 2.28% for the three months ended December 31, 2012 to 1.58% for the three months ended December 31, 2013 as a result of the maturity of higher costing borrowings which were replaced by lower costing advances.
Provision for Loan Losses. Provision for loan losses reversal of $300,000 was recorded for the three months ended December 31, 2013 as compared to a $600,000 provision for loan losses for the same period last year. The decline in the provision during the current period was primarily a result of a decline in net charge-offs and historical loss factors on loans collectively evaluated for impairment. Annualized net charge-offs decreased to 0.08% of average outstanding loans for the three months ended December 31, 2013 as compared to 0.21% of average outstanding loans for the same period last year. Non-performing assets decreased to $12.1 million, or 1.4% of total assets at December 31, 2013 as compared to $16.0 million, or 1.8% of total assets at June 30, 2013. Delinquent loans 60 days or more past due decreased to $5.1 million or 0.71% of total loans at December 31, 2013 as compared to $5.5 million or 0.79% of total loans at June 30, 2013, while loans 30 to 59 days delinquent increased to $3.3 million or 0.46% of total loans at December 31, 2013, as compared to $584,000, or 0.08% of total loans at June 30, 2013. Loans 30 to 59 days delinquent were either criticized or classified assets. Some loans 30 to 59 days delinquent are individually evaluated for impairment and others were collectively evaluated for impairment with additional qualitative adjustments factored in due to loan classification.
The reversal of provision for loan losses was comprised of a $247,000 reduction in provision on one-to-four family loans, a $94,000 reduction in provision on multi-family loans, a $222,000 reduction in provision on commercial real estate loans, a $27,000 provision on automobile loans, a $1,000 reduction in provision on home equity loans and a $237,000 provision on other loans. The decrease in provision on one-to-four family residential loans was primarily due to a decline in the overall historical loss factors on one-to-four family loans collectively evaluated for impairment and a decrease in the one-to-four family residential loan balance collectively evaluated for impairment. The decrease in provision on multi-family loans was primarily due to a lower level of criticized and classified multi-family loans and a decline in the overall historical loss factors on multi-family loans collectively evaluated for impairment. The reduction in provision on commercial real estate loans was primarily due to a lower level of classified commercial


real estate loans, a decline in the overall historical loss factors and a reduction in the balance of commercial real estate loans collectively evaluated for impairment.
The increase in provision on automobile loans and other loans was primarily caused by an increase in loss factors and the balance of automobile loans and unsecured loans collectively evaluated for impairment. The provision reflects management's continuing assessment of the credit quality of the Company's loan portfolio, which is affected by various trends, including current economic conditions.
Noninterest Income. Our noninterest income decreased $675,000, or 32.6%, to $1.4 million for the three months ended December 31, 2013 as compared to $2.1 million for the three months ended December 31, 2012 due primarily to a $758,000 decline in gains on one-to-four family residential mortgage loans sold reflecting the impact of lower loan sale volume as a result of the recent increase in interest rates.
Noninterest Expense. Our noninterest expense decreased $462,000, or 6.8%, to $6.3 million for the three months ended December 31, 2013 as compared to $6.7 million for the three months ended December 31, 2012 primarily due to a decline in salaries and benefits expense, partially offset by an increase in advertising and promotional expenses.
Salaries and benefits expense decreased $343,000, or 9.9%, to $3.1 million for the three months ended December 31, 2013 as compared to $3.5 million for the same period last year. The decrease in salaries and benefits expense was due primarily to a lump sum severance payment to a former executive during the quarter ended December 31, 2012.
Advertising and promotional expenses increased $56,000, or 19.9%, to $337,000 for the three months ended December 31, 2013 as compared to $281,000 for the same period last year. The increase was primarily due to expenses incurred related to continuing branding and marketing campaign efforts.
Income Tax Expense. Income tax expense increased $198,000, or 32.6% to $805,000 for the three months ended December 31, 2013 as compared to $607,000 for the three months ended December 31, 2012. This increase was primarily the result of higher pretax income for the three months ended December 31, 2013 compared to the same period last year. The effective tax rates were 37.5% and 35.4% for the three months ended December 31, 2013 and 2012, respectively.
Comparison of Results of Operations for the Six Months Ended December 31, 2013 and December 31, 2012.
General. Net income for the six months ended December 31, 2013 was $2.5 million, a slight decrease of $11,000 as compared to the six months ended December 31, 2012. Earnings per basic and diluted common share were $0.33 for the six months ended December 31, 2013, compared to $0.30 for the six months ended December 31, 2012. The decrease in net income was due primarily to a decrease in noninterest income and net interest income offset by a decrease in noninterest expense and provision for loan losses.
Interest Income. Interest income decreased $2.3 million, or 12.3%, to $16.6 million for the six months ended December 31, 2013 from $18.9 million for the six months ended December 31, 2012. The decline in interest income was primarily due to decreases in interest and fees on loans.
Interest and fees on loans decreased $2.6 million, or 13.9%, to $16.0 million for the six months ended December 31, 2013 from $18.6 million for the six months ended December 31, 2012. The primary reason for the decrease was a decline of 49 basis points in the average yield on loans from 4.99% for the six months ended December 31, 2012 to 4.50% for the six months ended December 31, 2013 and a decrease of $34.8 million in the average balance of loans receivable to $711.9 million for the six months ended December 31, 2013 from $746.7 million for the six months ended December 31, 2012. The decrease in the average yield on loans was primarily caused by lower yields earned on new loan originations and payoffs of higher yielding seasoned loans during the period as a result of the current relatively low interest rate environment. The decrease in the average loan receivable balance was attributable to loan principal repayments, sales and payoffs exceeding new loan originations.
Interest Expense. Interest expense decreased $1.1 million, or 25.7% to $3.2 million for the six months ended December 31, 2013 from $4.3 million for the six months ended December 31, 2012. The decline reflected a reduction in the average cost of funds on deposits and borrowings as a result of the continuing low interest rates during the six months ended December 31, 2013.
Interest expense on deposits decreased $749,000, or 21.9% to $2.7 million during the six months ended December 31, 2013 as compared to $3.4 million for the same period last year. The primary reason for the decrease was an 18 basis point decline in the average cost of deposits from 1.11% for the six months ended December 31, 2012 to 0.93% for the six months ended December 31, 2013 due to the downward repricing of deposits in the low interest rate environment as well as a decrease of $42.0 million in the


average balance of deposits to $572.7 million for the six months ended December 31, 2013 from $614.7 million for the six months ended December 31, 2012. The decrease in the average balance of deposits was a result of a decrease in certificates of deposit due to non-relationship customers seeking higher yields as accounts reprice to lower interest rates.
Interest expense on borrowings decreased $361,000, or 40.2% to $536,000 during the six months ended December 31, 2013 as compared to $897,000 for the same period last year. The decline was primarily attributable to a 73 basis point decrease in the average cost of borrowings from 2.33% for the six months ended December 31, 2012 to 1.60% for the six months ended December 31, 2013 as a . . .

  Add SMPL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SMPL - 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.