Item 1. Business.
General. State Investors Bancorp was organized by State-Investors Bank in February 2011 to facilitate the conversion of the Bank from the mutual to the stock form of ownership and commenced operations in July 2011. A total of 2,909,500 shares of common stock of the Company were sold at $10.00 per share in the subscription offering to eligible depositors and borrowers of the Bank through which the Company received proceeds of approximately $27.9 million, net of offering expenses. The Company is a savings and loan holding company regulated by the Board of Governors of the Federal Reserve System. After completion of the conversion and the offering, all of State-Investors Bank’s stock is owned by State Investors Bancorp. The Company contributed approximately 50% of the net proceeds to the Bank. All remaining proceeds were retained by State Investors Bancorp for future capital needs.
State-Investors Bank is a federally chartered savings bank located in Metairie, Louisiana, which is in Jefferson Parish. State-Investors Bank’s business consists primarily of attracting deposits from the general public and using those funds to originate residential and commercial loans in Jefferson, Orleans and St. Tammany Parishes within the seven parish New Orleans-Metairie-Kenner Metropolitan Statistical Area.
Market Area and Competition
State-Investors Bank conducts its operations through its main office in Metairie, Louisiana located in Jefferson Parish, one additional branch office in Jefferson Parish, one branch office located in New Orleans, Louisiana, which is in Orleans Parish and one branch office located in Mandeville, Louisiana, which is in St. Tammany Parish. Jefferson and St. Tammany Parishes are suburbs of New Orleans and Orleans Parish consists solely of the city of New Orleans. Our business is dependent on the local economy in southeastern, Louisiana which includes the petrochemical industry, port activity along the Mississippi River, healthcare and tourism. Service jobs, primarily consisting of jobs in healthcare and tourism, represent the largest employment sector in Jefferson, St. Tammany and Orleans Parishes. Employment in government and the wholesale/retail trade sector historically have been the second and third largest employment sectors in our market area.
We face significant competition in originating loans and attracting deposits. This competition stems primarily from commercial banks, other savings banks and savings associations and mortgage-banking companies. Within our market area, more than 50 other banks, savings institutions and credit unions are operating. Many of the financial service providers operating in our market area are significantly larger, and have greater financial resources than us. We face additional competition for deposits from short-term money market funds and other corporate and government securities funds, mutual funds and from other non-depository financial institutions such as brokerage firms and insurance companies.
Lending Activities
General. At December 31, 2013, the Company’s net loan portfolio amounted to $199.3 million, representing approximately 77.0% of its total assets at that date. The principal lending activity of State Investors Bancorp is the origination of one- to four-family residential loans and, to a lesser extent, commercial real estate loans. At December 31, 2013, one- to four-family residential loans amounted to $130.4 million, or 64.9% of its total loan portfolio. At December 31, 2013, commercial real estate loans amounted to $53.0 million, or 26.4% of the total loan portfolio. Multi-family residential loans totaled $5.5 million, or 2.7% of the total loan portfolio. Home equity lines of credit totaled $2.2 million, or 1.1% of total loans. Construction loans and land loans totaled $4.5 million and $3.4 million, or 2.2% and 1.7%, respectively, of the total loan portfolio at December 31, 2013. Consumer non-real estate loans totaled $1.2 million, or 0.6% of the total loan portfolio at December 31, 2013.
The types of loans that State Investors Bancorp may originate or purchase are subject to federal and state laws and regulations. Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and the rates offered by our competitors. These factors are, in turn, affected by general and economic conditions, the monetary policy of the federal government, including the Federal Reserve Board, legislative and tax policies, and governmental budgetary matters.
As a federally chartered savings bank, State-Investors Bank is subject to a regulatory loans to one borrower limit. As of December 31, 2013, State-Investors Bank’s loans to one borrower limit was $9.9 million. At December 31, 2013, the five largest loans or groups of loans to one borrower, including related entities, aggregated $5.7 million, $3.8 million, $3.2 million, $2.4 million and $1.9 million. All of our largest loans or groups of loans were performing in accordance with their terms at December 31, 2013.
Loan Portfolio Composition. The following table shows the composition of our loan portfolio by type of loan at the dates indicated.
* Not meaningful
Origination and Purchase of Loans. Our lending activities are subject to the written underwriting standards and loan origination procedures established by the board of directors and management. Loan originations are obtained through a variety of sources, primarily existing customers as well as new customers obtained from referrals and local advertising and promotional efforts. Written loan applications are taken by a loan officer who also supervises the procurement of credit reports, appraisals and other documentation involved with a loan. In accordance with its lending policy and loan underwriting standards, State-Investors Bank obtains independent outside appraisals on its loans or broker valuations for small loans, under $250,000, or loans with low loan-to-value ratios. It is our practice to conduct an on-site visual inspection of real property collateral for all loans, including out-of-state properties, which are few in number. Borrowers must also obtain flood insurance policies when the property is in a flood hazard area. All loans considered for purchase are subject to the same underwriting standards as for loans we originate.
Our loan approval process is intended to assess the borrower’s ability to repay the loan, the viability of the loan and the value of the property that will secure the loan. Loans between $200,000 to $500,000 are approved by one outside director who is a member of our loan committee. The Board members of State-Investors Bank who serve on the loan committee are Messrs. Maslansky, Oustalet, and Albert, who is chair. All loans in excess of $500,000 are approved by the full loan committee and in excess of $1.0 million by the full Board of Directors. Mr. Carriere, our underwriter, is a non-voting member of the loan committee.
From time to time, we will purchase whole loans and loan participations secured by properties within and outside of our primary market area. Historically, the loan participations have been secured by one- to four-family residential properties and commercial properties. In these circumstances, we follow our customary loan underwriting and approval policies. Our participation interest in single-family residential loans is typically 90%. We have sufficient capital to take advantage of these opportunities to purchase loan participations, as well as strong relationships with other community banks in our primary market area that may desire to sell participations, and we intend to continue our purchases of participations in the future. At December 31, 2013, our loan participations totaled $25.5 million, or 12.7% of our loan portfolio, of which $5.3 million, or 2.7% of our loan portfolio, were outside our primary market area. The loan participations at December 31, 2013, included $16.1 million in commercial real estate, $8.8 million in residential real estate and $637,000 in commercial business loans. The average participation interest outside our market area was $197,000 as of December 31, 2013. We sold one participation interest in a commercial real estate loan to another bank in the amount of $906,000 during the year ended December 31, 2013.
Loan Originations. The following table shows our total loans originated, purchased, sold and repaid during the periods indicated.
Although federal laws and regulations permit savings banks to originate and purchase loans secured by real estate located throughout the United States, State-Investors Bank concentrates its portfolio lending activity in its primary market area in Jefferson, Orleans and St. Tammany Parishes and, to a lesser extent, St. Charles Parish, Louisiana. We also purchase residential real estate loans from time to time outside of our market area.
Contractual Terms to Final Maturities. The following table shows the scheduled contractual maturities of our loans as of December 31, 2013, before giving effect to net items, including the allowance for loan losses. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The amounts shown below do not take into account loan prepayments.
The following table shows the dollar amount of our loans at December 31, 2013, due after December 31, 2014, as shown in the preceding tables, which have fixed interest rates or which have floating or adjustable interest rates.
Scheduled contractual maturities of loans do not necessarily reflect the actual expected term of the loan portfolio. The average life of mortgage loans is substantially less than their average contractual terms because of prepayments. The average life of mortgage loans tends to increase when current mortgage loan rates are higher than rates on existing mortgage loans and, conversely, decrease when rates on current mortgage loans are lower than existing mortgage loan rates (due to refinancing of fixed-rate loans at lower rates). Under the latter circumstance, the weighted average yield on loans decreases as higher yielding loans are repaid or refinanced at lower rates.
One- to Four-Family Residential Real Estate Loans. Our principal lending activity is the origination of loans secured by single-family residences. At December 31, 2013, $130.4 million, or 64.9%, of our total loan portfolio, before net items, consisted of one- to four-family residential loans including primarily owner occupied properties
It is the policy of State-Investors Bank to originate loans as a first lien position on owner occupied residences. We primarily originate fixed-rate loans with terms of 15 to 20 years, and to a lesser extent, adjustable- rate loans of five to seven years. In recent periods, we reduced the origination of fixed-rate loans of 30 years in order to manage our interest rate risk. As of December 31, 2013, $101.0 million, or 77.1%, of our one- to four-family residential loans had contractual maturities of more than 15 years. Our residential loan portfolio includes both owner occupied and non-owner occupied properties. Mortgages without private mortgage insurance are generally limited to 80%, or less, of the appraised value, or purchase price, of the secured real estate property. Exceptions to this policy may be approved by the management loan committee.
Our guidelines for credit quality generally parallel the Federal National Mortgage Corporation, commonly called Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly called Freddie Mac, secondary market guidelines including income ratios and credit scores. We do, however, originate a small number of loans which do not conform to such requirements. We do not originate loans considered to be subprime under federal regulatory guidelines.
Commercial Real Estate Loans. As of December 31, 2013, loans secured by commercial real estate were $53.0 million, or 26.4% of total loans before net items. Although commercial real estate and lines of credit are generally considered to have greater credit risk than certain other types of loans, management attempts to mitigate such risk by originating such loans in its local market area to known borrowers. At December 31, 2013, $16.1 million of our commercial real estate loans were loan participations. The loan-to-value ratios on participations are generally limited to 70% or less of the appraised value and we generally require that out of market loans are seasoned with a history of repayment. Our commercial real estate loans primarily consist of owner occupied business and retail properties.
It is our current policy to lend in a first lien position on real property occupied as a commercial business property or mixed use properties. Commercial real estate loans are limited to a maximum of 75% of the lesser of appraised value or purchase price and primarily have fixed-rates and terms up to five years. We originate fixed-rate and adjustable-rate commercial real estate loans. Extended amortization schedules up to 20 years may be offered if justified by the borrower’s financial strength and/or low loan-to-value ratio. Rate commitments are limited to five years with adjustments thereafter based on a negotiated rate or spread relative to a market index. Commercial real estate loans are presented to the loan committee for review and approval, including analysis of the creditworthiness of the borrower.
Land Loans. As of December 31, 2013, land loans were $3.4 million, or 1.7% of the total loan portfolio before net items. Land loans primarily include land which has been acquired for the purpose of development and, to a lesser extent, unimproved land. Our loan policy provides for loan-to-value ratios up to 75% on improved land or land acquired for development and up to 65% for unimproved land loans. Land loans are originated with fixed rates and terms up to five years. Although land loans generally are considered to have greater credit risk than certain other types of loans, we attempt to mitigate such risk by originating loans to individuals who intend to build a single-family owner occupied home, rather than developers, and identifying a secondary source of repayment for the land loan other than the sale of the collateral.
Multi-family Residential Loans. We originate multi-family residential loans in our local market area primarily consisting of apartment rental properties with eight units or less. At December 31, 2013, our multi-family residential loans totaled $5.5 million, or 2.7% of total loans before net items. Multi-family residential loans have loan-to-value ratios up to 75% and terms up to five years. We require rental and cash flow data sufficient to cover the loan repayment as well as identify a secondary source of repayment, other than the sale of the collateral.
Residential Construction Loans. We originate residential construction loans to be converted to permanent financing. We do not actively solicit construction loans, but offer them as an accommodation to our borrowers. The same qualifications and loan-to-value ratios of real estate loans apply and no separate closing to convert to a permanent loan is required. Loans for the substantial renovation of an existing home are underwritten and administered as construction loans. At December 31, 2013, $4.5 million, or 2.2% of our total loan portfolio, before net items, consisted of residential construction loans.
Home Equity Loans and Lines of Credit. We originate second mortgage residential loans and home equity lines of credit to finance minor renovations and repairs as well as for other consumer or investment purposes. Second mortgage loans and home equity lines of credit are primarily extended when State-Investors Bank holds the first mortgage on the collateral and together are limited to loan-to-value ratios of 80% or less. At December 31, 2013, $2.2 million, or 1.1% of our total loans, before net items, consisted of home equity loans and lines of credit.
Consumer Non-real Estate Loans. We originate consumer non-real estate loans that have terms up to five years and generally higher interest rates than residential mortgage loans. The consumer loans consist of installment loans for various purposes including home improvement loans, auto loans, boat loans and loans on deposit accounts. We will make unsecured consumer loans to customers with an established history of performance and capacity for repayment. At December 31, 2013, our consumer loans totaled $1.2 million, or 0.6% of our total loan portfolio before net items.
Commercial Business Loans. We do not generally originate commercial business loans secured by inventory and accounts receivable. At December 31, 2013, we had $660,000, or 0.3% of our total loan portfolio before net items, in commercial business loans, all of which were loan participations. Although we do not actively solicit commercial business loans, we may provide them as an accommodation to existing customers.
Loan Origination and Other Fees. In addition to interest earned on loans, we may also receive loan origination fees or “points” for originating loans. Loan points are a percentage of the principal amount of the mortgage loan and are charged to the borrower in connection with the origination of the loan. Such origination fees, net of certain direct loan origination costs, are deferred and recognized as an adjustment to the yield (interest income) of the related loans over the contractual life of the loan.
Asset Quality
General. State-Investors Bank’s collection procedures provide that when a loan is 30 and 60 days past due, a notice is sent to the borrower. Borrowers who are 61-89 days delinquent will be sent a letter advising that payments must be received by the last day of the month. For those who are 90 days delinquent, a demand letter is sent by State-Investors Bank giving them 10 days within which the loan must be brought current. Customers who have not responded to the 90-day demand letter will receive an attorney’s letter advising them to bring the loan current. Late charges will be assessed based on the number of days specified in the note beyond the due date. The board of directors is notified of all delinquencies ninety days past due. In most cases, deficiencies are cured promptly. While we generally prefer to work with borrowers to resolve such problems, we will institute foreclosure or other collection proceedings when necessary to minimize any potential loss.
Loans are placed on non-accrual status when management believes the probability of collection of principal or interest is doubtful. When a loan is placed on non-accrual status, previously accrued but unpaid interest is deducted from interest income.
Real estate and other assets acquired as a result of foreclosure or by deed-in-lieu of foreclosure are classified as real estate owned until sold. State Investors Bancorp had no real estate owned at December 31, 2013 and December 31, 2012.
Delinquent Loans. The following table shows the delinquencies in our loan portfolio as of the dates indicated.
Non-performing Assets. The following table shows the amounts of our non-performing assets, which include non-accruing loans, accruing loans 90 days or more past due, other real estate owned and troubled debt restructurings at any of the dates indicated.
(1) Non-performing loans consist of non-accruing loans plus accruing loans 90 days or more past due.
(2)
Troubled debt restructurings not included in non-accruing loans and accruing loans 90 days or more past due.
At December 31, 2013, State Investors Bancorp had $2.7 million of non-performing loans included one loan participation in which our interest totaled $1.2 million and was secured by commercial and multi-family residential real estate. Management believes that the three loans are supported by adequate collateral and does not expect that the loans represent a significant risk of loss. As a result of adopting the amendments in ASU 2011-2, the Company reassessed all restructurings that occurred on or after the beginning of the fiscal year of adoption (January 1, 2011) to determine whether they are considered troubled debt restructurings (TDRs) under the amended guidance. The Company identified as TDRs certain loans for which the allowance for loan losses had previously been measured under a general allowance methodology. Upon identifying those loans as TDRs, the Bank classified them as impaired under the guidance in ASC 310-10-35. The amendments in ASU 2011-2 require prospective application of the impairment measurement guidance in ASC 310-10-35 for those loans newly identified as impaired. The majority of the loans identified as TDRs had previously been considered impaired and subject to impairment measurement guidance. As of December 31, 2013, we had seven loans totaling $2.7 million identified as troubled debt restructurings (TDRs). The TDRs include two non-accruing loan of $1.3 and five loans that are accruing interest totaling $1.4 million. The allowance for loan losses associated with the TDRs on the basis of a current evaluation of loss was $30,000.
During the year ended December 31, 2013, gross interest income of $4,000 would have been recorded on non-accruing loans under their original terms, if the loans had been current throughout the period. Interest income of $81,000 was recorded on non-accruing loans during the year ended December 31, 2013.
Classified Assets. Federal regulations require that each insured savings institution classify its assets on a regular basis. In addition, in connection with examinations of insured institutions, federal examiners have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a higher possibility of loss. An asset classified loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. Another category designated “special mention” also must be established and maintained for assets which do not currently expose an insured institution to a sufficient degree of risk to warrant classification as substandard, doubtful or loss. Assets classified as substandard or doubtful require the institution to establish general allowances for loan losses. If an asset or portion thereof is classified as loss, the insured institution must either establish specific allowances for loan losses in the amount of 100% of the portion of the asset classified loss, or charge-off such amount. General loss allowances established to cover possible losses related to assets classified substandard or doubtful may be included in determining an institution’s regulatory capital, while specific valuation allowances for loan losses do not qualify as regulatory capital. Federal examiners may disagree with an insured institution’s classifications and amounts reserved.
At December 31, 2013, State Investors Bancorp had $6.3 million of assets classified substandard and none classified doubtful or loss. State Investors Bancorp had an additional $1.3 million of assets designated as special mention at December 31, 2013.
Allowance for Loan Losses. At December 31, 2013, the allowance for loan losses amounted to $1.4
million. The allowance for loan losses is maintained at a level believed, to the best of management’s knowledge, to cover all known and inherent losses in the portfolio both probable and reasonable to estimate at each reporting date. The level of allowance for loan losses is based on management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing conditions. State-Investors Bank is primarily engaged in originating single-family residential loans secured by owner occupied and non-owner occupied properties and commercial real estate loans to known borrowers in our market area. Management considers the deficiencies of all classified loans in determining the amount of allowance for loan losses required at each reporting date. Management analyzes the probability of the correction of the classified loans’ weaknesses and the extent of any known or inherent losses that may be sustained.
While management believes that it determines the size of the allowance based on the best information available at the time, the allowance will need to be adjusted as circumstances change and assumptions are updated. Future adjustments to the allowance could significantly affect net income.
The following table shows changes in our allowance for loan losses during the periods presented.
The following table shows how our allowance for loan losses is allocated by type of loan at each of the dates indicated.
We regularly review the loan portfolio and make provisions for loan losses in order to maintain the allowance for loan losses in an amount management believes to be appropriate to absorb probable losses on existing loans. The allowance for loan losses consists primarily of two components: (1) specific allowances established for impaired loans; and (2) general allowances established for loan losses on a portfolio basis for loans that do not meet the definition of impaired loans. A loan is deemed impaired when, based on current information, it is probable that we will be unable to collect all amounts due under the loan contract. If impairment is determined, we will measure that impairment and create a specific valuation allowance for each such loan. General allowances are established for the remainder of the loan portfolio which is separated by category and, with respect to non-homogenous loans, further broken down into one of three risk classifications we have assigned to the loan. Appropriate provisions for each category are calculated taking total loans by type and/or risk class and applying the historical four-year charge off percentage for that category plus a current economic adjustment percentage. The economic adjustment used at each quarterly review period is analyzed to ensure that it is appropriate and reasonable based on current trends and economic conditions. Following the quarterly allowance for loan loss analysis, we will make additional loan loss provisions, if warranted.
Investment Activities
General. Our investment policy is designed primarily to manage the interest rate sensitivity of our assets and liabilities, to generate a favorable return without incurring undue interest rate and credit risk, to complement our lending activities and to provide and maintain liquidity.
At December 31, 2013, our mortgage-backed securities portfolio amounted to $38.3 million, or 14.8% of total assets at such date. At December 31, 2013, we did not hold any Fannie Mae or Freddie Mac common or preferred stock.
At December 31, 2013, we had an aggregate of $694,000 in net unrealized gains on our mortgage-backed securities portfolio. Such unrealized gains reflect an increase in market value of securities as a result of changes in market rates of interest.
Management classifies securities as available for sale, held to maturity, or trading, at the time of acquisition. Securities classified as held to maturity must be purchased with the intent and ability to hold that security until its final maturity, and can be sold prior to maturity only under rare circumstances. Held to maturity securities are accounted for based upon the historical cost of the security. Available for sale securities can be sold at any time based upon needs or market conditions. Available for sale securities are accounted for at fair value, with unrealized gains and losses on these securities, net of income tax provisions, reflected in stockholders’ equity as accumulated other comprehensive income. At December 31, 2013, we had $37.9 million of mortgage-backed securities classified as available for sale, $319,000 of mortgage-backed securities classified as held to maturity and none classified as trading account.
We do not purchase mortgage-backed derivative instruments that would be characterized “high-risk” under Federal banking regulations at the time of purchase, nor do we purchase corporate obligations which are not rated investment grade or better.
Our mortgage-backed securities consist primarily of mortgage pass-through certificates issued by the Government National Mortgage Association (“GNMA” or “Ginnie Mae”), Fannie Mae or Freddie Mac. At December 31, 2013, all of our mortgage-backed securities were issued by the GNMA, Fannie Mae or Freddie Mac and we held no mortgage-backed securities from private issuers.
Investments in mortgage-backed securities involve a risk that actual prepayments will be greater than estimated prepayments over the life of the security, which may require adjustments to the amortization of any premium or accretion of any discount relating to such instruments thereby changing the net yield on such securities. There is also reinvestment risk associated with the cash flows from such securities or in the event such securities are redeemed by the issuer. In addition, the market value of such securities may be adversely affected by changes in interest rates.
Ginnie Mae is a government agency within the Department of Housing and Urban Development which is intended to help finance government-assisted housing programs. Ginnie Mae securities are backed by loans insured by the Federal Housing Administration, or guaranteed by the Veterans Administration. The timely payment of principal and interest on Ginnie Mae securities is guaranteed by Ginnie Mae and backed by the full faith and credit of the U.S. Government. Freddie Mac is a private corporation chartered by the U.S. Government. Freddie Mac issues participation certificates backed principally by conventional mortgage loans. Freddie Mac guarantees the timely payment of interest and the ultimate return of principal on participation certificates. Fannie Mae is a private corporation chartered by the U.S. Congress with a mandate to establish a secondary market for mortgage loans. Fannie Mae guarantees the timely payment of principal and interest on Fannie Mae securities. Freddie Mac and Fannie Mae securities are not backed by the full faith and credit of the U.S. Government, but because Freddie Mac and Fannie Mae are U.S. Government-sponsored enterprises, these securities are considered to be among the highest quality investments with minimal credit risks. In September 2008, the Federal Housing Finance Agency was appointed as conservator of Fannie Mae and Freddie Mac. The U.S. Department of the Treasury agreed to provide capital as needed to ensure that Fannie Mae and Freddie Mac continue to provide liquidity to the housing and mortgage markets.
Investment and Mortgage-backed Securities Portfolios. The following table sets forth certain information relating to our investment and mortgage-backed securities portfolios and our investment in FHLB stock at the dates indicated.
The following table sets forth the amount of investment and mortgage-backed securities which mature during each of the periods indicated and the weighted average yields for each range of maturities at December 31, 2013. As State Investors Bancorp held no tax-exempt securities during the periods presented, no yield adjustments were made.
Mortgage-backed securities. The following table sets forth the composition of our mortgage-backed securities portfolio at each of the dates indicated.
Sources of Funds
General. Deposits are the primary source of State Investors Bancorp’s funds for lending and to a lesser extent, borrowings from the Federal Home Loan Bank of Dallas. In addition to deposits, principal and interest payments on loans are a source of funds. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Borrowings may also be used on a short-term basis to compensate for reductions in the availability of funds from other sources and on a longer-term basis for general business purposes.
Deposits. Deposits are attracted principally from Jefferson, Orleans and St. Tammany Parishes, Louisiana. Deposit account terms vary, with the principal differences being the minimum balance required, the time periods the funds must remain on deposit and the interest rate.
The Company is affiliated with the Community Cash network. As part of the Community Cash network, customers of State-Investors Bank have access to over 200 ATMs in our market area with no service fee. We also utilize advertising, tiered rates on certain deposit accounts and Internet banking as a means to increase deposits. State-Investors Bank has not solicited deposits from outside Louisiana or paid fees to brokers to solicit funds for deposit.
Interest rates paid, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Management determines the rates and terms based on rates paid by competitors, the need for funds or liquidity, growth goals and federal regulations. The Company attempts to control the flow of deposits by pricing its accounts to remain generally competitive with other financial institutions in its market area.
The following table shows the distribution of, and certain other information relating to, our deposits by type of deposit, as of the dates indicated.
The following table shows the average balance of each type of deposit and the average rate paid on each type of deposit for the periods indicated.
The following table shows our deposit flows during the periods indicated.
The following table presents, by various interest rate categories and maturities, the amount of certificates of deposit at December 31, 2013.
The following table shows the maturities of our certificates of deposit of $100,000 or more at December 31, 2013, by time remaining to maturity.
Borrowings. State-Investors Bank may obtain advances from the Federal Home Loan Bank of Dallas upon the security of the common stock it owns in that bank and certain of its residential mortgage loans and mortgage-backed and other investment securities, provided certain standards related to creditworthiness have been met. These advances are made pursuant to several credit programs, each of which has its own interest rate and range of maturities. Federal Home Loan Bank advances are generally available to meet seasonal and other withdrawals of deposit accounts and to permit increased lending.
As of December 31, 2013, State-Investors Bank was permitted to borrow up to an aggregate total of approximately $126.9 million from the Federal Home Loan Bank of Dallas. State-Investors Bank had $56.0 million of Federal Home Loan Bank advances outstanding at December 31, 2013. Additionally, at December 31, 2013, State-Investors Bank was a party to a Master Purchase Agreement with First National Bankers Bank whereby we may purchase Federal Funds from First National Bankers Bank in an amount not to exceed $14.0 million. There were no amounts purchased under this agreement as of December 31, 2013.
The following table shows certain information regarding our borrowings at or for the dates indicated:
At December 31, 2013, $5.1 million of our borrowings were short-term (maturities of one year or less). Such short-term borrowings had a weighted average interest rate of 0.29%.
Subsidiaries
At December 31, 2013, State Investors Bancorp had one subsidiary, State-Investors Bank.
Total Employees
State Investors Bancorp had 30 full-time and six part-time employees at December 31, 2013. None of these employees are represented by a collective bargaining agreement, and State Investors Bancorp believes that it enjoys good relations with its personnel.
REGULATION
Set forth below is a brief description of certain laws relating to the regulation of State Investors Bancorp and State-Investors Bank. This description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations.
General
State-Investors Bank, as a federally chartered savings bank, is subject to federal regulation and oversight by the Office of the Comptroller of the Currency extending to all aspects of its operations. State-Investors Bank also is subject to regulation and examination by the Federal Deposit Insurance Corporation, which insures the deposits of State-Investors Bank to the maximum extent permitted by law, and requirements established by the Federal Reserve Board. Federally chartered savings institutions are required to file periodic reports with the Office of the Comptroller of the Currency and are subject to periodic examinations by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The investment and lending authority of savings institutions is prescribed by federal laws and regulations, and such institutions are prohibited from engaging in any activities not permitted by such laws and regulations. Such regulation and supervision primarily are intended for the protection of depositors and not for the purpose of protecting shareholders.
State Investors Bancorp is subject to the examination and supervision of the Federal Reserve Board as to certain restrictions regarding its operations and activities.
Federal law provides the federal banking regulators, including the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and the Federal Reserve Board, with substantial enforcement powers. The Office of the Comptroller of the Currency’s enforcement authority over all savings institutions and the Federal Reserve Board’s enforcement authority over all savings and loan holding companies includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports. Any change in these laws and regulations, whether by the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, the Federal Reserve Board or Congress, could have a material adverse impact on State Investors Bancorp and State-Investors Bank and our operations.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in 2010, the powers of the Office of Thrift Supervision regarding State-Investors Bank, and State Investors Bancorp transferred to other federal financial institution regulatory agencies on July 21, 2011. See “- 2010 Regulatory Reform.” As of the transfer date, all of the regulatory functions related to State-Investors Bank that were under the jurisdiction of the Office of Thrift Supervision transferred to the Office of the Comptroller of the Currency. In addition, as of that same date, all of the regulatory functions related to State Investors Bancorp, as a savings and loan holding company that were under the jurisdiction of the Office of Thrift Supervision, transferred to the Federal Reserve Board.
2010 Regulatory Reform
On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The financial reform and consumer protection act imposes new restrictions and an expanded framework of regulatory oversight for financial institutions, including depository institutions. In addition, the new law changed the jurisdictions of existing bank regulatory agencies and in particular transferred the regulation of federal savings associations from the Office of Thrift Supervision to the Office of Comptroller of the Currency, effective July 21, 2011. Savings and loan holding companies are now regulated by the Federal Reserve Board. The new law also established an independent federal consumer protection bureau within the Federal Reserve Board. The following discussion summarizes significant aspects of the law that may affect State-Investors Bank and State Investors Bancorp. Many regulations implementing these changes have not been promulgated, so we cannot determine the full impact on our business and operations at this time.
The following aspects of the financial reform and consumer protection act are related to the operations of State-Investors Bank:
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The Office of Thrift Supervision merged into the Office of the Comptroller of the Currency and the authority of the other remaining bank regulatory agencies were restructured. The federal thrift charter is preserved under the jurisdiction of the Office of the Comptroller of the Currency.
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A new independent consumer financial protection bureau was established within the Federal Reserve Board, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and existing consumer financial protection laws. Smaller financial institutions, like State-Investors Bank, are subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws.
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Tier 1 capital treatment for “hybrid” capital items like trust preferred securities was eliminated subject to various grandfathering and transition rules.
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The prohibition on payment of interest on demand deposits was repealed, effective July 21, 2011.
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State law is preempted only if it would have a discriminatory effect on a federal savings association or is preempted by any other federal law. The Office of the Comptroller of the Currency must make a preemption determination on a case-by-case basis with respect to a particular state law or other state law with substantively equivalent terms.
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Deposit insurance is permanently increased to $250,000 and unlimited deposit insurance for noninterest-bearing transaction accounts extended through the end of 2012.
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Deposit insurance assessment base calculation equals the depository institution’s total assets minus the sum of its average tangible equity during the assessment period.
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The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35 percent of estimated annual insured deposits or assessment base; however, the Federal Deposit Insurance Corporation is directed to “offset the effect” of the increased reserve ratio for insured depository institutions with total consolidated assets of less than $10 billion.
The following aspects of the financial reform and consumer protection act are related to the operations of State Investors Bancorp:
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Authority over savings and loan holding companies transferred to the Federal Reserve Board on July 21, 2011.
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Leverage capital requirements and risk based capital requirements applicable to depository institutions and bank holding companies were extended to thrift holding companies.
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The Federal Deposit Insurance Act was amended to direct federal regulators to require depository institution holding companies to serve as a source of strength for their depository institution subsidiaries.
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The Securities and Exchange Commission is authorized to adopt rules requiring public companies to make their proxy materials available to shareholders for nomination of their own candidates for election to the board of directors.
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Public companies are now required to provide their shareholders with a non-binding vote: (i) at least once every three years on the compensation paid to executive officers, and (ii) at least once every six years on whether they should have a “say on pay” vote every one, two or three years.
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A separate, non-binding shareholder vote is now required regarding golden parachutes for named executive officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the parachute payments.
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Securities exchanges are now required to prohibit brokers from using their own discretion to vote shares not beneficially owned by them for certain “significant” matters, which include votes on the election of directors, executive compensation matters, and any other matter determined to be significant.
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Stock exchanges will be prohibited from listing the securities of any issuer that does not have a policy providing for (i) disclosure of its policy on incentive compensation payable on the basis of financial information reportable under the securities laws, and (ii) the recovery from current or former executive officers, following an accounting restatement triggered by material noncompliance with securities law reporting requirements, of any incentive compensation paid erroneously during the three-year period preceding the date on which the restatement was required that exceeds the amount that would have been paid on the basis of the restated financial information.
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Disclosure in annual proxy materials will be required concerning the relationship between the executive compensation paid and the financial performance of the issuer.
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Item 402 of Regulation S-K will be amended to require companies to disclose the ratio of the Chief Executive Officer’s annual total compensation to the median annual total compensation of all other employees.
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Smaller reporting companies are exempt from complying with the internal control auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.
Recent Regulatory Capital Regulations
The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, adopted Basel III in September 2010, which constitutes a strengthened set of capital requirements for banking organizations in the United States and around the world. In July of 2013 the respective U.S. federal banking agencies issued final rules implementing Basel III and the Dodd-Frank Act capital requirements to be fully-phased in on a global basis on January 1, 2019. The new regulations establish a new tangible common equity capital requirement, increase the minimum requirement for the current Tier 1 risk-weighted asset (“RWA”) ratio, phase out certain kinds of intangibles treated as capital and certain types of instruments and change the risk weightings of certain assets used to determine required capital ratios. Provisions of the Dodd-Frank Act require these capital ratios to apply to savings and loan holding companies and their savings association subsidiaries. The new common equity Tier 1 capital component requires capital of the highest quality - predominantly composed of retained earnings and common stock instruments. For community banks and savings and loan holding companies thereof, such as State-Investors Bank and State Investors Bancorp, a common equity Tier 1 capital ratio 4.5% will become effective on January 1, 2015. The new capital rules will also increase the current minimum Tier 1 capital ratio from 4.0% to 6.0% beginning on January 1, 2015. In addition, institutions that seek the freedom to make capital distributions and pay discretionary bonuses to executive officers without restriction must also maintain greater than 2.5% in common equity attributable to a capital conservation buffer to be phased in from January 1, 2016 until January 1, 2019. The new rules also increase the risk weights for several categories of assets, including an increase from 100% to 150% for certain acquisition, development and construction loans and more than 90-day past due exposures. The new capital rules maintain the general structure of the prompt corrective action rules, but incorporate the new common equity Tier 1 capital requirement and the increased Tier 1 RWA requirement into the prompt corrective action framework.
Recent Volcker Rule Regulations
Regulations were recently adopted by the federal banking agencies to implement the provisions of the Dodd Frank Act commonly referred to as the Volcker Rule. The regulations contain prohibitions and restrictions on the ability of financial institution holding companies and their affiliates to engage in proprietary trading and to hold certain interests in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds. The regulations will become effective on April 1, 2014 with full compliance being phased in over a period ending on July 21, 2015. State Investors Bancorp is currently reviewing its investment portfolio to ensure compliance as the various provisions of the Volcker Rule regulations become effective.
Regulation of State Investors Bancorp
State Investors Bancorp, a Louisiana corporation, is a registered savings and loan holding company within the meaning of Section 10 of the Home Owners’ Loan Act, as amended, and is subject to examination and supervision by the Federal Reserve Board as well as certain reporting requirements. In addition, because State-Investors Bank is a subsidiary of a savings and loan holding company, it is, subject to certain restrictions in dealing with us and with other persons affiliated with the Bank.
Holding Company Acquisitions. State Investors Bancorp is a savings and loan holding company under the Home Owners’ Loan Act, as amended. Federal law generally prohibits a savings and loan holding company, without prior approval of the Federal Reserve Board, from acquiring the ownership or control of any other savings institution or savings and loan holding company, or all, or substantially all, of the assets or more than 5% of the voting shares of the savings institution or savings and loan holding company. These provisions also prohibit, among other things, any director or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting shares of such holding company, from acquiring control of any savings institution not a subsidiary of such savings and loan holding company, unless the acquisition is approved by the Federal Reserve Board.
The Federal Reserve Board may not approve any acquisition that would result in a multiple savings and loan holding company controlling savings institutions in more than one state, subject to two exceptions: (1) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (2) the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions.
Holding Company Activities. State Investors Bancorp operates as a unitary savings and loan holding company and is permitted to engage only in the activities permitted for financial institution holding companies or for multiple savings and loan holding companies. Multiple savings and loan holding companies are permitted to engage in the following activities: (i) activities permitted for a bank holding company under section 4(c) of the Bank Holding Company Act (unless the Federal Reserve Board prohibits or limits such 4(c) activities); (ii) furnishing or performing management services for a subsidiary savings association; (iii) conducting any insurance agency or escrow business; (iv) holding, managing, or liquidating assets owned by or acquired from a subsidiary savings association; (v) holding or managing properties used or occupied by a subsidiary savings association; (vi) acting as trustee under deeds of trust; or (vii) activities authorized by regulation as of March 5, 1987, to be engaged in by multiple savings and loan holding companies. Under the recently enacted legislation, savings and loan holding companies became subject to statutory capital requirements. However, the Federal Reserve Board has not issued regulations that address the levels of these capital requirements and when they will apply to State Investors Bancorp. While there are no specific restrictions on the payment of dividends or other capital distributions for savings and loan holding companies, federal regulations do prescribe such restrictions on subsidiary savings institutions, as described below. State-Investors Bank will be required to notify the Federal Reserve Board 30 days before declaring any dividend. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the Federal Reserve Board and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution.
All savings associations subsidiaries of savings and loan holding companies are required to meet a qualified thrift lender, or QTL, test to avoid certain restrictions on their operations. If the subsidiary savings institution fails to meet the QTL, as discussed below, then the savings and loan holding company must register with the Federal Reserve Board as a bank holding company, unless the savings institution requalifies as a QTL within one year thereafter.
Federal Securities Laws. State Investors Bancorp registered its common stock with the Securities and Exchange Commission under Section 12(b) of the Securities Exchange Act of 1934. State Investors Bancorp is subject to the proxy and tender offer rules, insider trading reporting requirements and restrictions, and certain other requirements under the Securities Exchange Act of 1934. Pursuant to applicable federal banking regulations we have agreed to maintain such registration for a minimum of three years following the conversion and offering completed on July 6, 2011.
The Sarbanes-Oxley Act. As a public company, State Investors Bancorp is subject to the Sarbanes-Oxley Act of 2002 which addresses, among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act, our principal executive officer and principal financial officer are required to certify that our quarterly and annual reports do not contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the Sarbanes-Oxley Act have several requirements, including having these officers certify that: they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal control over financial reporting; they have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal control over financial reporting; and they have included information in our quarterly and annual reports about their evaluation and whether there have been changes in our internal control over financial reporting or in other factors that could materially affect internal control over financial reporting.
Regulation of State-Investors Bank
General. State-Investors Bank is subject to the regulation of the Office of the Comptroller of the Currency, as its primary federal regulator and the Federal Deposit Insurance Corporation, as the insurer of its deposit accounts, and, to a limited extent, the Federal Reserve Board.
Insurance of Accounts. The deposits of State-Investors Bank are insured to the maximum extent permitted by the Deposit Insurance Fund and are backed by the full faith and credit of the U.S. Government. The 2010 financial institution reform legislation permanently increased deposit insurance on most accounts to $250,000. As insurer, the Federal Deposit Insurance Corporation is authorized to conduct examinations of, and to require reporting by, insured institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to pose a serious threat to the Federal Deposit Insurance Corporation. The Federal Deposit Insurance Corporation also has the authority to initiate enforcement actions against savings institutions, after giving the Office of the Comptroller of the Currency an opportunity to take such action.
The Federal Deposit Insurance Corporation’s risk-based premium system provides for quarterly assessments. Each insured institution is placed in one of four risk categories depending on supervisory and capital considerations. Within its risk category, an institution is assigned to an initial base assessment rate which is then adjusted to determine its final assessment rate based on its brokered deposits, secured liabilities and unsecured debt. To implement the 2010 legislation, the Federal Deposit Insurance Corporation amended its deposit insurance regulations (1) to change the assessment base for insurance from domestic deposits to average assets minus average tangible equity and (2) to lower overall assessment rates. The revised assessments rates are between 2.5 to 9 basis points for banks in the lowest risk category and between 30 to 45 basis points for banks in the highest risk category.
In 2009, the Federal Deposit Insurance Corporation required insured deposit institutions on December 30, 2009 to prepay 13 quarters of estimated insurance assessments. Our prepayment totaled $900,000. Unlike a special assessment, this prepayment did not immediately affect bank earnings. Banks booked the prepaid assessment as a non-earning asset and recorded the actual risk-based premium payments at the end of each quarter. In addition, all institutions with deposits insured by the Federal Deposit Insurance Corporation are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize the predecessor to the Deposit Insurance Fund. These assessments will continue until the Financing Corporation bonds mature in 2019.
The Federal Deposit Insurance Corporation may terminate the deposit insurance of any insured depository institution, including State-Investors Bank, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the Federal Deposit Insurance Corporation. It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital. If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the Federal Deposit Insurance Corporation. Management is aware of no existing circumstances which would result in termination of State-Investors Bank’s deposit insurance.
Regulatory Capital Requirements. Federally insured savings institutions are required to maintain minimum levels of regulatory capital. Current Office of the Comptroller of the Currency capital standards require savings institutions to satisfy a tangible capital requirement, a leverage capital requirement and a risk-based capital requirement. The tangible capital must equal at least 1.5% of adjusted total assets. Leverage capital, also known as “core” capital, must equal at least 3.0% of adjusted total assets for the most highly rated savings associations. An additional cushion of at least 100 basis points is required for all other savings associations, which effectively increases their minimum Tier 1 leverage ratio to 4.0% or more. Under the Office of the Comptroller of the Currency’s regulation, the most highly-rated banks are those that the Office of the Comptroller of the Currency determines are strong associations that are not anticipating or experiencing significant growth and have well-diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity and good earnings. Under the risk-based capital requested, “total” capital (a combination of core and “supplementary” capital) must equal at least 8.0% of “risk-weighted” assets. The Office of the Comptroller of the Currency also is authorized to impose capital requirements in excess of these standards on individual institutions on a case-by-case basis.
Core capital generally consists of common stockholders’ equity (including retained earnings). Tangible capital generally equals core capital minus intangible assets, with only a limited exception for purchased mortgage servicing rights. State-Investors Bank had no intangible assets at December 31, 2013. Both core and tangible capital are further reduced by an amount equal to a savings institution’s debt and equity investments in subsidiaries engaged in activities not permissible to national banks (other than subsidiaries engaged in activities undertaken as agent for customers or in mortgage banking activities and subsidiary depository institutions or their holding companies). These adjustments do not affect State-Investors Bank’s regulatory capital.
In determining compliance with the risk-based capital requirement, a savings institution is allowed to include both core capital and supplementary capital in its total capital, provided that the amount of supplementary capital included does not exceed the savings institution’s core capital. Supplementary capital generally consists of general allowances for loan losses up to a maximum of 1.25% of risk-weighted assets, together with certain other items. In determining the required amount of risk-based capital, total assets, including certain off-balance sheet items, are multiplied by a risk weight based on the risks inherent in the type of assets. The risk weights range from 0% for cash and securities issued by the U.S. Government or unconditionally backed by the full faith and credit of the U.S. Government to 100% for loans (other than qualifying residential loans weighted at 80%) and repossessed assets.
Savings institutions must value securities available for sale at amortized cost for regulatory capital purposes. This means that in computing regulatory capital, savings institutions should add back any unrealized losses and deduct any unrealized gains, net of income taxes, on debt securities reported as a separate component of capital, as defined by generally accepted accounting principles.
At December 31, 2013, State-Investors Bank exceeded all of its regulatory capital requirements, with tangible, core and risk-based capital ratios of 14.8%, 14.8% and 26.1%, respectively.
Any savings institution that fails any of the capital requirements is subject to possible enforcement actions by the Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation. Such actions could include a capital directive, a cease and desist order, civil money penalties, the establishment of restrictions on the institution’s operations, termination of federal deposit insurance and the appointment of a conservator or receiver. The Office of the Comptroller of the Currency’s capital regulation provides that such actions, through enforcement proceedings or otherwise, could require one or more of a variety of corrective actions.
Prompt Corrective Action. The following table shows the amount of capital associated with the different capital categories set forth in the prompt corrective action regulations.
In addition, an institution is “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%. Under specified circumstances, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized institution or an undercapitalized institution to comply with supervisory actions as if it were in the next lower category (except that the Federal Deposit Insurance Corporation may not reclassify a significantly undercapitalized institution as critically undercapitalized).
An institution generally must file a written capital restoration plan which meets specified requirements within 45 days of the date that the institution receives notice or is deemed to have notice that it is undercapitalized, significantly undercapitalized or critically undercapitalized. A federal banking agency must provide the institution with written notice of approval or disapproval within 60 days after receiving a capital restoration plan, subject to extensions by the agency. An institution which is required to submit a capital restoration plan must concurrently submit a performance guaranty by each company that controls the institution. In addition, undercapitalized institutions are subject to various regulatory restrictions, and the appropriate federal banking agency also may take any number of discretionary supervisory actions.
At December 31, 2013, State-Investors Bank was deemed a well-capitalized institution for purposes of the prompt corrective action regulations and as such is not subject to the above mentioned restrictions.
Capital Distributions. Office of the Comptroller of the Currency regulations govern capital distributions by savings institutions, which include cash dividends, stock repurchases and other transactions charged to the capital account of a savings institution to make capital distributions. A savings institution must file an application for Office of the Comptroller of the Currency approval of the capital distribution if either (1) the total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years, (2) the institution would not be at least adequately capitalized following the distribution, (3) the distribution would violate any applicable statute, regulation, agreement or Office of the Comptroller of the Currency-imposed condition, or (4) the institution is not eligible for expedited treatment of its filings. If an application is not required to be filed, savings institutions must still file a notice with the Office of the Comptroller of the Currency at least 30 days before the board of directors declares a dividend or approves a capital distribution if either (1) the institution would not be well-capitalized following the distribution; (2) the proposed distribution would reduce the amount or retire any part of our common or preferred stock or retire any part of a debt instrument included in our regulatory capital; or (3) the savings institution is a subsidiary of a savings and loan holding company and the proposed capital distribution is not a cash dividend. If a savings institution, such as State-Investors Bank, that is the subsidiary of a stock savings and loan holding company, has filed a notice with the Federal Reserve Board for a cash dividend and it is not required to file an application or notice with the Office of the Comptroller of the Currency for any of the reasons described above, then the savings institution is only required to provide an informational copy to the Office of the Comptroller of the Currency of the notice filed with the Federal Reserve Board, at the same time that it is filed with the Federal Reserve Board.
An institution that either before or after a proposed capital distribution fails to meet its then applicable minimum capital requirement or that has been notified that it needs more than normal supervision may not make any capital distributions without the prior written approval of the Office of the Comptroller of the Currency. In addition, the Office of the Comptroller of the Currency may prohibit a proposed capital distribution, which would otherwise be permitted by Office of the Comptroller of the Currency regulations, if the Office of the Comptroller of the Currency determines that such distribution would constitute an unsafe or unsound practice.
Under federal rules, an insured depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it is already undercapitalized. In addition, federal regulators have the authority to restrict or prohibit the payment of dividends for safety and soundness reasons. The FDIC also prohibits an insured depository institution from paying dividends on its capital stock or interest on its capital notes or debentures (if such interest is required to be paid only out of net profits) or distributing any of its capital assets while it remains in default in the payment of any assessment due the FDIC. State-Investors Bank is currently not in default in any assessment payment to the FDIC.
Qualified Thrift Lender Test. All savings institution subsidiaries of savings and loan holding companies are required to meet a qualified thrift lender, or QTL, test to avoid certain restrictions on their operations. A savings institution can comply with the QTL test by either qualifying as a domestic building and loan association as defined in the Internal Revenue Code or meeting the Office of the Comptroller of the Currency QTL test. Currently, the Office of the Comptroller of the Currency QTL test requires that 65% of an institution’s “portfolio assets” (as defined) consist of certain housing and consumer-related assets on a monthly average basis in nine out of every 12 months. To be a qualified thrift lender under the IRS test, the savings institution must meet a “business operations test” and a “60 percent assets test,” each defined in the Internal Revenue Code.
If a savings association fails to remain a QTL, it is immediately prohibited from the following:
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Making any new investments or engaging in any new activity not allowed for both a national bank and a savings association;
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Establishing any new branch office unless allowable for a national bank; and
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Paying dividends unless allowable for a national bank and necessary to meet the obligations of its holding company.
Any company that controls a savings institution that is not a qualified thrift lender must register as a bank holding company within one year of the savings institution’s failure to meet the QTL test. Three years from the date a savings association should have become or ceases to be a QTL, the institution must dispose of any investment or not engage in any activity unless the investment or activity is allowed for both a national bank and a savings association. A savings institution not in compliance with the QTL test is also subject to an enforcement action for violation of the Home Owners’ Loan Act, as amended.
At December 31, 2013, State-Investors Bank believes that it meets the requirements of the QTL test.
Community Reinvestment Act. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighborhoods. An institution’s failure to comply with the provisions of the Community Reinvestment Act could result in restrictions on its activities. State-Investors Bank received a “satisfactory” Community Reinvestment Act rating in its most recently completed examination.
Limitations on Transactions with Affiliates. Transactions between savings associations and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act as made applicable to savings associations by Section 11 of the Home Owners’ Loan Act, as amended. An affiliate of a savings association includes any company or entity which controls the savings association or that is controlled by a company that controls the savings association. In a holding company context, the holding company of a savings association (such as State Investors Bancorp) and any companies which are controlled by such holding company are affiliates of the savings association. Generally, Section 23A limits the extent to which the savings association or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such association’s capital stock and surplus, and contains an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. Section 23B applies to “covered transactions” as well as certain other transactions and requires that all transactions be on terms substantially the same, or at least as favorable, to the savings association as those provided to a non-affiliate. The term “covered transaction” includes the making of loans to, purchase of assets from and issuance of a guarantee to an affiliate and similar transactions. Section 23B transactions also include the provision of services and the sale of assets by a savings association to an affiliate. In addition to the restrictions imposed by Sections 23A and 23B, a savings association is prohibited from (i) making a loan or other extension of credit to an affiliate, except for any affiliate which engages only in certain activities which are permissible for bank holding companies, or (ii) purchasing or investing in any stocks, bonds, debentures, notes or similar obligations of any affiliate, except for affiliates which are subsidiaries of the savings association.
In addition, Sections 22(g) and (h) of the Federal Reserve Act as made applicable to savings associations by Section 11 of the Home Owners’ Loan Act, as amended, place restrictions on loans to executive officers, directors and principal shareholders of the savings association and its affiliates. Under Section 22(h), loans to a director, an executive officer and to a greater than 10% shareholder of a savings association, and certain affiliated interests of either, may not exceed, together with all other outstanding loans to such person and affiliated interests, the savings association’s loans to one borrower limit (generally equal to 15% of the association’s unimpaired capital and surplus). Section 22(h) also requires that loans to directors, executive officers and principal shareholders be made on terms substantially the same as offered in comparable transactions to other persons unless the loans are made pursuant to a benefit or compensation program that (i) is widely available to employees of the association and (ii) does not give preference to any director, executive officer or principal shareholder, or certain affiliated interests of either, over other employees of the savings association. Section 22(h) also requires prior board approval for certain loans. In addition, the aggregate amount of extensions of credit by a savings association to all insiders cannot exceed the association’s unimpaired capital and surplus. Furthermore, Section 22(g) places additional restrictions on loans to executive officers. State-Investors Bank is subject to Section 22(g) and (h) of the Federal Reserve Act and at December 31, 2013, was in compliance with the above restrictions.
Anti-Money Laundering. All financial institutions, including savings associations, are subject to federal laws that are designed to prevent the use of the U.S. financial system to fund terrorist activities. Financial institutions operating in the United States must develop anti-money laundering compliance programs, due diligence policies and controls to ensure the detection and reporting of money laundering. Such compliance programs are intended to supplement compliance requirements, also applicable to financial institutions, under the Bank Secrecy Act and the Office of Foreign Assets Control Regulations. State-Investors Bank has established policies and procedures to ensure compliance with these provisions.
Federal Home Loan Bank System. State-Investors Bank is a member of the Federal Home Loan Bank of Dallas, which is one of 12 regional Federal Home Loan Banks that administers a home financing credit function primarily for its members. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. The Federal Home Loan Bank of Dallas is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. It makes loans to members (i.e., advances) in accordance with policies and procedures established by the board of directors of the Federal Home Loan Bank. At December 31, 2013, State-Investors Bank had $56.0 million of Federal Home Loan Bank advances and $70.9 million available on its credit line with the Federal Home Loan Bank.
As a member, State-Investors Bank is required to purchase and maintain stock in the Federal Home Loan Bank of Dallas in an amount equal to 0.04% of its total assets. At December 31, 2013, State-Investors Bank had $2.5 million in Federal Home Loan Bank stock, which was in compliance with the applicable requirement.
The Federal Home Loan Banks are required to provide funds for the resolution of troubled savings institutions and to contribute to affordable housing programs through direct loans or interest subsidies on advances targeted for community investment and low- and moderate-income housing projects. These contributions have adversely affected the level of Federal Home Loan Bank dividends paid in the past and could do so in the future. These contributions also could have an adverse effect on the value of Federal Home Loan Bank stock in the future.
Federal Reserve System. The Federal Reserve Board requires all depository institutions to maintain reserves against their transaction accounts (primarily NOW and Super NOW checking accounts) and non-personal time deposits. The required reserves must be maintained in the form of vault cash or an account at a Federal Reserve Bank. At December 31, 2013, State-Investors Bank had met its reserve requirement.
TAXATION
Federal Taxation
General. State Investors Bancorp and State-Investors Bank are subject to federal income taxation in the same general manner as other corporations with some exceptions listed below. The following discussion of federal, state and local income taxation is only intended to summarize certain pertinent income tax matters and is not a comprehensive description of the applicable tax rules. State-Investors Bank’s federal and state income tax returns for taxable years through December 31, 2008 have been closed for purposes of examination by the Internal Revenue Service.
State Investors Bancorp files a consolidated federal income tax return with State-Investors Bank. Accordingly, cash distributions made by State Investors Bancorp to its shareholders, if any, would be treated as cash dividends and not as a non-taxable return of capital to shareholders for federal and state tax purposes.
Method of Accounting. For federal income tax purposes, State-Investors Bank reports income and expenses on the accrual method of accounting and uses a December 31 tax year for filing its federal income tax return.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 eliminated the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning after 1995. Prior to that time, State-Investors Bank was permitted to establish a reserve for bad debts and to make additions to the reserve. These additions could, within specified formula limits, be deducted in arriving at taxable income. As a result of the Small Business Job Protection Act of 1996, savings associations must use the specific charge-off method in computing their bad debt deduction beginning with their 1996 federal tax return. In addition, federal legislation required the recapture over a six year period of the excess of tax bad debt reserves at December 31, 1995 over those established as of December 31, 1987.
Taxable Distributions and Recapture. Prior to the Small Business Job Protection Act of 1996, bad debt reserves created prior to January 1, 1988 were subject to recapture into taxable income if State-Investors Bank failed to meet certain thrift asset and definitional tests. New federal legislation eliminated these savings association related recapture rules. However, under current law, pre-1988 reserves remain subject to recapture should State-Investors Bank make certain non-dividend distributions or cease to maintain a bank charter.
At December 31, 2013, the total federal pre-1988 reserve was approximately $2.6 million. The reserve reflects the cumulative effects of federal tax deductions by State-Investors Bank for which no federal income tax provisions have been made.
Alternative Minimum Tax. The Internal Revenue Code imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences. The alternative minimum tax is payable to the extent such alternative minimum tax is in excess of the regular income tax. Net operating losses, of which State-Investors Bank has none, can offset no more than 90% of alternative minimum taxable income. Certain payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. State-Investors Bank has not been subject to the alternative minimum tax or any such amounts available as credits for carryover.
Corporate Dividends-Received Deduction. State Investors Bancorp may exclude from its income 100% of dividends received from State-Investors Bank as a member of the same affiliated group of corporations. The corporate dividends received deduction is 80% in the case of dividends received from corporations which a corporate recipient owns less than 80%, but at least 20% of the distribution corporation. Corporations which own less than 20% of the stock of a corporation distributing a dividend may deduct only 70% of dividends received.
State and Local Taxation
State Investors Bancorp is subject to the Louisiana Corporation Income Tax based on our Louisiana taxable income. The Corporation Income Tax applies at graduated rates from 4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes, “Louisiana taxable income” means net income which is earned by us within or derived from sources within the State of Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction. For the year ended December 31, 2013, State Investors Bancorp did not meet the minimum taxable income for Louisiana Corporation Income Tax purposes.
In addition, State-Investors Bank is subject to the Louisiana Shares Tax which is imposed on the assessed value of State-Investors Bank’s capital. The formula for deriving the assessed value is to apply the applicable rate to the sum of:
(a)
20% of our capitalized earnings, plus
(b)
80% of our taxable stockholders’ equity, minus
(c)
50% of our real and personal property assessment.
Various items may also be subtracted in calculating a company’s capitalized earnings. The Louisiana Shares Tax has been provided for by State-Investors Bank for the year ended December 31, 2013.
Item 1A.
Item 1A. Risk Factors.
Not applicable.
Item 1B.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2.
Item 2. Properties.
The Company conducts business from State-Investors Bank’s main office and three full-service banking offices. The following table sets forth the net book value of the land, building and leasehold improvements and certain other information with respect to the our offices at December 31, 2013.
(1) We have five-year renewal options on the term of this lease through August 30, 2034.
Item 3.
Item 3. Legal Proceedings.
The Company is not presently involved in any legal proceedings of a material nature. From time to time, we are a party to legal proceedings incidental to our business to enforce our security interest in collateral pledged to secure loans made by State-Investors Bank.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
(a) State Investors Bancorp’s common stock is traded on the Nasdaq Capital Market under the symbol “SIBC”. As of March 25, 2014, there were 2,343,249 shares of common stock outstanding, held by approximately 224 shareholders of record, not including the number of persons or entities whose stock is held in nominee or “street” name through various brokerage firms and banks.
Presented below is the high and low sales price information for State Investors Bancorp’s common stock for each of the quarters in fiscal 2013 and 2012. The Company has not declared or paid any cash dividends.
(b) Not applicable.
(c) Purchases of Equity Securities.
The Company’s repurchases of its common stock made during the quarter ended December 31, 2013 are set forth in the table below:
Notes to this table:
(a)
On November 27, 2012, the Company announced by press release a third repurchase program for up to 262,000 shares, or approximately 10.0% of the Company’s outstanding shares of common stock. The repurchase program does not have an expiration date.
(b)
On November 22, 2013, the Company announced by a Form 8-K filed with the Securities and Exchange Commission a fourth repurchase program to repurchase up to 118,100 shares, or approximately 5.0% of the Company’s outstanding shares of common stock. The repurchase program will commence upon completion of the third repurchase program and does not have an expiration date.
Item 6.
Item 6. Selected Financial Data.
Set forth below is selected financial and other data of State Investors Bancorp. The information at December 31, 2013 and 2012 and for the years ended December 31, 2013 and 2012 is derived in part from the audited financial statements that appear in Item 8 of this Form 10-K. The information at or for the years ended December 31, 2011, 2010 and 2009, is also derived from audited financial statements that do not appear in this document.
(Footnotes on the following page)
(1)
Due to the timing of State-Investors Bank’s conversion from the mutual to the stock form of organization as a subsidiary of State Investors Bancorp, Inc., and the completion of the Company’s initial public offering on July 6, 2011, earnings per share for the year ended December 31, 2011 is calculated based on the weighted average common shares outstanding for the entire year. Thus, the denominator used in the earnings per share calculations for the fiscal year is lower than it would have been had the shares been outstanding for a full year.
(2)
With the exception of end of period ratios, all ratios are based on average monthly balances during the indicated periods.
(3)
Average interest rate spread represents the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities, and net interest margin represents net interest income as a percentage of average interest-earning assets.
(4)
The efficiency ratio represents the ratio of non-interest expense divided by the sum of net interest income and non-interest income.
(5)
Asset quality ratios and capital ratios are end of period ratios, except for net charge-offs to average loans receivable.
(6)
Non-performing assets consist of non-performing loans and real estate owned. Non-performing loans consist of non-accruing loans and accruing loans 90 days or more past due. Real estate owned consists of real estate acquired through foreclosure, real estate acquired by acceptance of a deed-in-lieu of foreclosure.
Item 7.
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 $53.0 million, or 26.4% of our total loans, before net items, at December 31, 2013. 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, 2013, certificates of deposit amounted to 58.8% of total deposits. We had $56.0 million of borrowings from the Federal Home Loan Bank of Dallas as of December 31, 2013, compared to $39.3 million as of December 31, 2012. 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, 2013, we had $2.7 million of non-performing loans in our portfolio, or 1.03%, 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, 2013 and December 31, 2012
State Investors Bancorp’s total assets increased by $12.7 million, or 5.2%, to $258.7 million at December 31, 2013, compared to $246.0 million at December 31, 2012. For the year ended December 31, 2013, the largest increase in our assets was in loans receivable, net, which increased $24.4 million, or 14.0%. The largest decrease was in investment securities, which decreased $8.2 million, or 17.7% at December 31, 2013 due to principal pay-downs. Federal funds sold increased $750,000 at December 31, 2013 compared to none at December 31, 2012. Federal Home Loan Bank stock increased $712,000, or 40.1%, at December 31, 2013 compared to December 31, 2012, and other assets decreased $189,000, or 28.3%.
Loans receivable, net, increased by $24.4 million, or 14.0%, to $199.3 million at December 31, 2013 compared to $174.8 million at December 31, 2012. During the year ended December 31, 2013, our total loan originations amounted to $46.1 million and loan principal payments were $32.7 million. With the exception of a $3.1 million participation interest in a commercial real estate loan sold during the year ended December 31, 2013, all of our loans were originated for portfolio. The increase in loans receivable, net, was primarily due to increases in commercial real estate loans of $15.7 million, one- to four-family residential loans of $8.8 million, residential construction loans of $2.2 million, land loans of $525,000, and multi-family residential loans of $41,000. Such increases were partially offset by decreases of $2.4 million in home equity lines of credit, $350,000 in consumer non-real estate loans and $15,000 commercial business loans.
Investment and mortgage-backed securities amounted to $38.3 million at December 31, 2013 compared to $46.5 million at December 31, 2012, a decrease of $8.2 million, or 17.7%. The decrease in investment securities at December 31, 2013, was due to maturities and pay-downs received during the 12-month period, partially offset by unrealized gains on available for sale mortgage-backed securities.
Total liabilities increased $14.7 million, or 7.2%, at December 31, 2013, to $217.1 million compared to $202.5 million at December 31, 2012, primarily due to an increase of $16.7 million in advances from the Federal Home Loan Bank of Dallas. Deposits decreased by $2.0 million, or 1.3%, to $159.1 million at December 31, 2013, compared to $161.2 million at December 31, 2012, primarily due to a decrease in certificates of deposits of $10.6 million, or 10.2%, partially offset by increases of non-interest bearing checking accounts of $3.0 million, or 51.4%, money market accounts of $2.6 million, or 32.3%, interest bearing checking accounts of $2.3 million, or 14.6%, and savings accounts of $678,000, or 2.5%. We held $56.0 million of Federal Home Loan Bank advances at December 31, 2013 compared to $39.3 million at December 31, 2012. The increase in Federal Home Loan Bank advances was to fund loan originations and cover deposit outflows.
Total equity amounted to $41.6 million at December 31, 2013 compared to $43.5 million at December 31, 2012, a decrease of $1.9 million, or 4.5%. The reason for the decrease in our total equity was primarily due to the purchase of 175,658 shares under the repurchase program, and a decrease in unrealized gain on securities available for sale of $248,000 net of deferred tax effect, partially offset by net income of $508,000 for the year ended December 31, 2013, amortization of stock awards and options under our stock compensation plans of $274,000 and common stock earned by participants in the employee stock ownership plan of $173,000.
Comparison of Operating Results for the Years Ended December 31, 2013 and 2012
General. State Investors Bancorp’s net income amounted to $508,000 for the year ended December 31, 2013, a decrease of $244,000 or 32.4% compared to net income of $752,000 for the year ended December 31, 2012. This decrease was primarily due to a decrease of $348,000, or 3.3%, in interest income, a decrease of $92,000, or 38.5%, in non-interest income, an increase of $53,000, or 0.8%, in non-interest expense, and an increase of $14,000, or 9.9%, in provision for loan losses. This was partially offset by a decrease of $147,000, or 5.4%, in total interest expense and a decrease of $116,000, or 23.6%, in the provision for income taxes.
Net Interest Income. Net interest income amounted to $7.5 million for the year ended December 31, 2013 compared to $7.7 million for the year ended December 31, 2012. The $201,000 or 2.6% decrease was primarily due to a $348,000 or 3.3% decrease in total interest income due to a 53 basis point decrease in the average yield on investment and mortgage-backed securities and a 26 basis point decrease in the average yield on loans receivable, partially offset by a $147,000, or 5.4%, decrease in interest expense due to a 16 basis point decrease in the average rate paid on certificates of deposit.
The average interest rate spread decreased 9 basis points from 3.03% for the year ended December 31, 2012 to 2.94% for the year ended December 31, 2013, while average interest-earning assets increased from $232.5 million to $235.0 million during the same periods. Average interest-earning assets to average interest-bearing liabilities decreased from 123.70% for the year ended December 31, 2012 to 121.77% for the year ended December 31, 2013. The decrease in the average interest rate spread primarily reflects the decrease in average yield on interest earning assets from 4.48% in fiscal 2012 to 4.28% in fiscal 2013 compared to a decrease in the average rate paid on interest-bearing liabilities from 1.45% in 2012 to 1.34% in 2013. Net interest margin decreased 12 basis points from 3.30% to 3.18% at December 31, 2012 and 2013, respectively, primarily due to a decrease of 20 basis points in the average yield on interest earning assets compared to a decrease of 11 basis points in the average rate paid on interest-bearing liabilities for the periods.
Interest income decreased by $348,000, or 3.3%, to $10.1 million for the year ended December 31, 2013 compared to $10.4 million for the year ended December 31, 2012. Such decrease was primarily due to a decrease in the average yield on investment and mortgage-backed securities from 1.63% in fiscal 2012 to 1.10% in fiscal 2013. To a lesser extent, the decline in interest income was due to a decrease in average yield on loans receivable from 5.41% in fiscal 2012 to 5.15% in fiscal 2013. The decrease in the average yield on loans and investment securities reflects changes in the market rates of interest during fiscal 2013.
Interest expense decreased by $147,000, or 5.4%, to $2.6 million for the year ended December 31, 2013 compared to $2.7 million for the year ended December 31, 2012 primarily as a result of a decrease in the average rate paid on certificate of deposit accounts. 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.
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.
(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.
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, 2013, we made a provision of $156,000, compared to a provision of $142,000 in fiscal 2012. 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 $147,000 for the year ended December 31, 2013, a decrease of $92,000 or 38.5% compared to non-interest income of $239,000 for the year ended December 31, 2012. The decrease was primarily due to an $86,000 loss on the sale of other real estate during the year ended December 31, 2013 compared to none in the year ended December 31, 2012, and a $6,000 net decrease in service charges, application fees, and other operating income.
Non-Interest Expense. Non-interest expense increased by $53,000, or 0.8% to $6.6 million for the year ended December 31, 2013, compared to $6.5 million for the year ended December 31, 2012. The increase was primarily the result of increases of $159,000 in computer expense, $104,000 in salaries and employee benefits expense, $74,000 in occupancy expense, and $18,000 in advertising expense, partially offset by decreases of $95,000 in deposit insurance premiums, $92,000 in other non-interest expense, $41,000 in taxes and licenses expense, $37,000 in office supplies and postage, $19,000 in security expense, and $18,000 in professional fees.
Income Tax Expense. The income tax expense amounted to $375,000 and $491,000 for the fiscal years ended December 31, 2013 and 2012, respectively. Our effective federal tax rate was 42% and 40% for the years ended December 31, 2013 and 2012, respectively.
Exposure to Changes in Interest Rates
State Investors Bancorp’s ability to maintain net interest income depends upon its ability to earn a higher yield on assets than the rates it pays on deposits and borrowings. State Investors Bancorp’s interest-earning assets consist primarily of residential mortgage loans which have fixed rates of interest. State Investors Bancorp’s interest-bearing liabilities primarily consist of higher rate certificates of deposit rather than other types of deposit products. Consequently, State Investors Bancorp’s ability to maintain a positive spread between the interest earned on assets and the interest paid on deposits and borrowings can be adversely affected when market rates of interest rise. At December 31, 2013, certificates of deposit amounted to $93.6 million or 43.1% of total liabilities and 36.2% of total assets at such date.
Gap Analysis. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring a bank’s interest rate sensitivity “gap.” An asset and liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income while a positive gap would tend to result in an increase in net interest income. Conversely, during a period of falling interest rates, a negative gap would tend to result in an increase in net interest income while a positive gap would tend to adversely affect net interest income. Our one-year cumulative gap was a positive 2.20% at December 31, 2013.
The following table sets forth the amounts of our interest-earning assets and interest-bearing liabilities outstanding at December 31, 2013, which we expect, based upon certain assumptions, to reprice or mature in each of the future time periods shown (the “GAP Table”). Except as stated below, the amount of assets and liabilities shown which reprice or mature during a particular period were determined in accordance with the earlier of term to repricing or the contractual maturity of the asset or liability. The table sets forth an approximation of the projected repricing of assets and liabilities at December 31, 2013, on the basis of contractual maturities, anticipated prepayments, and scheduled rate adjustments within a three-month period and subsequent selected time intervals. The loan amounts in the table reflect principal balances expected to be redeployed and/or repriced as a result of contractual amortization and anticipated prepayments of adjustable-rate loans and fixed-rate loans, and as a result of contractual rate adjustments on adjustable-rate loans. Annual prepayment rates for adjustable-rate and fixed-rate single-family and multi-family mortgage loans are assumed to range from 11% to 47%. The annual prepayment rate for mortgage-backed securities is assumed to range from 10% to 14%. Money market deposit accounts, savings accounts and interest-bearing checking accounts are assumed to have annual rates of withdrawal, or “decay rates,” of 18%, 7% and 7%, respectively.
(1)
Interest-earning assets are included in the period in which the balances are expected to be redeployed and/or repriced as a result of anticipated prepayments, scheduled rate adjustments and contractual maturities.
(2)
For purposes of the gap analysis, loans receivable includes non-performing loans gross of the allowance for loan losses, undisbursed loan funds, unamortized discounts and deferred loan fees.
(3)
Interest-rate sensitivity gap represents the difference between net interest-earning assets and interest-bearing liabilities.
Net Portfolio Value Analysis. Our interest rate sensitivity is monitored by management through the use of models which generate estimates of the change in net portfolio value (“NPV”) over a range of interest rate scenarios. NPV represents the market value of portfolio equity, which is different from book value, and is equal to the market value of assets minus the market value of liabilities with adjustments made for off-balance sheet items. The NPV ratio, under any interest rate scenario, is defined as the NPV in that scenario divided by the market value of assets in the same scenario. The following table sets forth our NPV as of December 31, 2013 and reflects the changes to NPV as a result of immediate and sustained changes in interest rates as indicated.
Net Interest Income Analysis. In addition to modeling changes in NPV, we also analyze potential changes to net interest income (“NII”) for a 12-month period under rising and falling interest rate scenarios. The following table shows our NII model as of December 31, 2013.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in NPV requires the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV simulation model above provides an indication of interest rate risk exposure at a particular point in time, such model is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on net interest income and will differ from actual results.
Liquidity and Capital Resources
State Investors Bancorp maintains levels of liquid assets deemed adequate by management. State Investors Bancorp adjusts its liquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments. State Investors Bancorp also adjusts liquidity as appropriate to meet asset and liability management objectives.
State Investors Bancorp’s primary sources of funds are deposits, amortization and prepayment of loans and to a lesser extent, funds provided from operations. While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. State Investors Bancorp sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, State Investors Bancorp invests excess funds in short-term interest-earning accounts and other assets, which provide liquidity to meet lending requirements. State Investors Bancorp’s cash and cash equivalents amounted to $8.7 million at December 31, 2013.
A significant portion of State Investors Bancorp’s liquidity consists of non-interest earning deposits. State Investors Bancorp’s primary sources of cash are principal repayments on loans and increases in deposit accounts. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas, which provide an additional source of funds. At December 31, 2013, State-Investors Bank had $56.0 million of advances from the Federal Home Loan Bank of Dallas and had $70.9 million in additional borrowing capacity. Additionally, at December 31, 2013, State-Investors Bank was a party to a Master Purchase Agreement with First National Bankers Bank whereby we may purchase Federal Funds from First National Bankers Bank in an amount not to exceed $14.0 million. There were no amounts purchased under this agreement as of December 31, 2013.
At December 31, 2013, State Investors Bancorp had outstanding loan commitments of $1.9 million to originate loans. At December 31, 2013, certificates of deposit scheduled to mature in less than one year totaled $43.4 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In addition, in a rising interest rate environment, the cost of such deposits could be significantly higher upon renewal. State Investors Bancorp intends to utilize its liquidity to fund its lending activities.
Under applicable banking regulations, State-Investors Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, tier 1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0% and 8.0%, respectively. At December 31, 2013, State-Investors Bank exceeded each of its capital requirements with ratios of 14.8%, 25.2% and 26.1%, respectively.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. Our exposure to credit loss from non-performance by the other party to the above-mentioned financial instruments is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. In general, we require collateral or other security to support financial instruments with off-balance sheet credit risk.
Commitments. The following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit, lines of credit and undisbursed construction loans in process at December 31, 2013.
Contractual Cash Obligations. The following table summarizes our contractual cash obligations, consisting of certificates of deposit, Federal Home Loan Bank advances and operating lease obligations, at December 31, 2013.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein regarding State Investors Bancorp have been prepared in accordance with accounting principles generally accepted in the United States of America which generally require the measurement of financial position and operating results in terms of historical dollars, without considering changes in relative purchasing power over time due to inflation. Unlike most industrial companies, virtually all of State Investors Bancorp’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on State Investors Bancorp’s performance than does the effect of inflation. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services, since such prices are affected by inflation to a larger extent than interest rates.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
State Investors Bancorp, Inc. and Subsidiary
Metairie, Louisiana
We have audited the accompanying consolidated balance sheet of State Investors Bancorp, Inc. and Subsidiary, as of December 31, 2013, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended. The management of State Investors Bancorp, Inc. and Subsidiary is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of State Investors Bancorp, Inc. and Subsidiary, as of December 31, 2013, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ T. E. LOTT & COMPANY
Tuscaloosa, Alabama
March 28, 2014
Tremont Drive - Baton Rouge, La 70809
Del Orleans Avenue, Suite C - Denham Springs, LA 70726
Phone: (225) 928-4770	FAX: (225) 926-0945
www.htbcpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
State Investors Bancorp, Inc. and Subsidiary
Metairie, Louisiana
We have audited the accompanying consolidated balance sheet of State Investors Bancorp, Inc. and Subsidiary (the Company) as of December 31, 2012, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the year then ended. State Investors Bancorp, Inc. and Subsidiary’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of State Investors Bancorp, Inc. and Subsidiary as of December 31, 2012 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Hannis T. Bourgeois, LLP
Baton Rouge, Louisiana
March 26, 2013
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2013 AND 2012
See notes to consolidated financial statements.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2013 AND 2012
See notes to consolidated financial statements.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2013 AND 2012
See notes to consolidated financial statements.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2013 AND 2012
See notes to consolidated financial statements.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2013 AND 2012
See notes to consolidated financial statements.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2013 AND 2012
(Continued)
See notes to consolidated financial statements.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
State Investors Bancorp, Inc., a Louisiana chartered corporation (the Company) was organized by State-Investors Bank (the Bank) to facilitate the conversion of the Bank from the mutual to the stock form (the Conversion) of ownership. The Conversion was completed on July 6, 2011, at which time the Company became the holding company for the Bank, with the Company owning all of the issued and outstanding shares of the Bank’s common stock. Shares of the Company’s common stock were issued and sold in an offering to certain depositors of the Bank. As a result of the offering, the Company sold 2,909,500 shares of its common stock, raising proceeds of approximately $27.9 million, net of offering expenses. The Company was newly organized and owned no assets during any period prior to July 6, 2011. Therefore, the financial information for any period prior to July 6, 2011, presented in this report is that of the Bank only.
State-Investors Bank is a federally chartered stock savings bank and currently conducts business from its main office in Metairie, Louisiana, as well as three additional full service banking centers in the surrounding areas. The Bank is subject to regulation by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation. The Company is subject to regulation by the Board of Governors of the Federal Reserve System (“Federal Reserve Board”).
The Bank is primarily engaged in attracting deposits from the general public and using those funds to invest in loans and investment securities. The Bank’s primary sources of funds are customer deposits, repayments of loans, repayments of investments and funds borrowed from outside sources such as the Federal Home Loan Bank (FHLB) of Dallas. The Bank derives its income primarily from interest earned on loans and investment securities, and the bank’s primary expenses are interest expense on deposits and borrowings and general operating expenses.
Principles of Consolidation
The consolidated financial statements include the accounts of State Investors Bancorp, Inc. and its wholly-owned subsidiary, State-Investors Bank. All significant intercompany transactions and amounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties.
The Company’s loan portfolio consists largely of real estate loans. The majority of loans are secured by first mortgages on area real estate and are expected to be repaid from cash flow of the debtor. A substantial portion of the debtors’ ability to honor their contracts is dependent on the economy and the industries of the region of Louisiana in which the Company operates, including the petrochemical industry, port activity along that region of the Mississippi River, healthcare and tourism.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
While management uses available information to recognize losses on loans and foreclosed real estate, further reductions in the carrying amounts of loans and foreclosed assets may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans and foreclosed real estate. Such agencies may require additional losses to be recognized based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed real estate may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all cash, amounts due from depository institutions and federal funds sold to be cash equivalents.
Investment Securities
FASB ASC 320, Investments, requires the classification of securities as trading, available-for-sale or held-to-maturity. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates this classification periodically.
Trading account securities are held for resale in anticipation of short-term market movements and are recorded at fair value. Gains and losses, both realized and unrealized, are reflected in earnings. The Company held no trading account securities at December 31, 2013 and 2012.
Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost. The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the period to maturity.
Securities not classified as held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of tax, reported in other comprehensive income (loss). Realized gains and losses are included in net securities gains in non-interest income, and, when applicable, are reported as a reclassification adjustment in other comprehensive income (loss). Gains and losses on securities sold are determined based on the specific identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other than temporary result in write-downs of the individual securities to their fair value. The written down amount then becomes the security’s new cost basis. The related write-downs are included in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Loans
The Company grants mortgage, commercial and consumer loans to customers. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding unpaid principal balances adjusted for unearned income, the allowance for loan losses, and any unamortized deferred fee or costs on originated loans.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan origination and commitment fees are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Discounts on consumer loans are recognized over the lives of the loans using methods that approximate the interest method.
The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in the process of collection. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual status or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of delay, the reasons for the delay, the borrower’s prior payment record, and the amount of shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis by either the present value of expected cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which, in management’s judgment, is considered to be adequate to absorb credit losses inherent in the loan portfolio. The allowance for loan losses is based upon management’s review and evaluation of the loan portfolio.
The allowance for loan losses is established, as losses are estimated to have occurred, through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. For loans that are classified as impaired, an allowance is established based on the discounted cash flows for collateral value or observable market price of the impaired loan. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
Although management uses available information to recognize losses on loans, because of uncertainties associated with local economic conditions, collateral values, and future cash flows on impaired loans, it is reasonably possible that a material change could occur in the allowance for loan losses in the near term. However, the amount of the change that is reasonably possible cannot be estimated.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are recorded at fair value less estimated selling cost at the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for loan losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell. Impairment losses on property to be held and used are measured as the amount by which the carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to the lower of its cost or fair value less cost to sell.
Premises and Equipment
Land is carried at cost. Buildings, leasehold improvements and furniture, fixtures and equipment are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization are calculated on the straight-line basis over the estimated useful lives of the assets which range from 3 to 39 years.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred taxes.
The Company determines deferred income taxes using the liability method. Under this method, the net deferred tax asset or liability is based on the tax effects of the difference between the book and tax bases of assets and liabilities. Enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The Company evaluates all significant tax positions as required by accounting principles generally accepted in the United States of America. As of December 31, 2013, the Company does not believe that it has taken any positions that would require the recording of any additional tax liability nor does it believe that there are any unrealized tax benefits that would either increase or decrease within the next year.
The Company files income tax returns in the U.S. federal jurisdiction. With few exceptions, the Company is no longer subject to federal tax examinations by tax authorities for years before 2009. Any interest and penalties assessed by income taxing authorities are not significant and are included in non-interest expense in these consolidated financial statements.
Earnings per Share
Earnings per share represent income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
Generally accepted accounting principles (“GAAP”) generally require that recognized revenues, expenses, gains, and losses be included in net earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported, net of tax, in accumulated other comprehensive income, a separate component of the equity section of the balance sheets, such items, along with net earnings, are components of comprehensive income.
Advertising
The Company follows the policy of charging the costs of advertising to expense as incurred. Advertising expense included in operations amounted to $74,000 and $56,000 in 2013 and 2012, respectively.
Recent Accounting Pronouncements
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The objective of ASU 2013-02 is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments included in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. For public entities, the amendments were effective prospectively for reporting periods beginning after December 15, 2012. As the adoption of ASU 2013-02 amended only disclosure requirements, the adoption had no impact on the Company’s results of operations or financial position.
Reclassifications
Certain reclassifications have been made to the 2012 financial statements to conform with the 2013 financial statement presentation. Such reclassifications had no effect on net income or retained earnings as previously reported.
Subsequent Events
Management has evaluated the effect of subsequent events on these financial statements through March 28, 2014, the date the financial statements were issued.
2.
RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash or on deposit. The Bank has on deposit the required reserve of $275,000 and $243,000 with First National Bankers Bank at December 31, 2013 and 2012, respectively.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
3.
INVESTMENT SECURITIES
A summary of the amortized cost and fair values of the securities is presented below:
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
3.
INVESTMENT SECURITIES (Continued)
The amortized cost and fair values of the mortgage-backed securities at December 31, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities with a carrying value of $37.3 million and $45.6 million were pledged to secure advances from the FHLB as of December 31, 2013 and 2012, respectively.
Investment in stock of the Federal Home Loan Bank of Dallas (FHLB) is carried at cost and is pledged to secure advances from the FHLB. The balance at December 31, 2013 and 2012, is $2.5 million and $1.8 million, respectively.
Gross unrealized losses in investment securities at December 31, 2013 and 2012, existing for continuous periods of less than 12 months and for continuous periods of 12 months or more, are as follows:
December 31, 2013
December 31, 2012
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
3.
INVESTMENT SECURITIES (Continued)
Management evaluates securities for other-than-temporary impairment on a periodic and regular basis, as well as when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans receivable at December 31 are summarized as follows:
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
In the ordinary course of business, the Company has granted loans to directors, officers and employees and their affiliates. Such loans were made on substantially the same terms as those prevailing at the time for comparable transactions with other customers. Such loans amounted to approximately $2.4 million and $2.6 million at December 31, 2013 and 2012, respectively.
Activity in loans to directors, officers and employees was as follows:
Management segregates the loan portfolio into portfolio segments, which is defined as the level at which the Company develops and documents a systematic method for determining its allowance for loan losses. The portfolio segments are segregated based on loan types and the underlying risk factors present in each loan type. Such risk factors are periodically reviewed by management and revised as deemed appropriate. The following tables set forth, as of December 31, 2013 and 2012, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.
Allowance for Credit Losses and Recorded Investment in Loans Receivable for the Year Ended December 31, 2013
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
Allowance for Credit Losses and Recorded Investment in Loans Receivable for the Year Ended December 31, 2012
Management further disaggregates the loan portfolio segments into classes of loans, which are based on the initial measurement of the loan, risk characteristics of the loan and the method for monitoring and assessing the credit risk of the loan.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
At December 31, 2013 and 2012, the credit quality indicators, disaggregated by class of loan, are presented in the following tables.
The above classifications follow regulatory guidelines and can generally be described as follows:
·
Pass loans are of satisfactory quality.
·
Special mention loans have existing weakness that could cause future impairment, including the deterioration of financial ratios, past due status, questionable management capabilities and possible reduction in collateral values.
·
Substandard loans have an existing specific and well defined weakness that may include poor liquidity and deterioration of financial ratios. The loan may be past due. Immediate corrective action is necessary.
·
Doubtful loans have specific weaknesses that are severe enough to make collection or liquidation in full highly questionable and improbable.
These classifications were the most current available as of December 31, 2013.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The following tables reflect certain information with respect to the loan portfolio delinquencies by loan class and amount as of December 31, 2013 and 2012:
Aged Analysis of Past Due Loans Receivable as of December 31, 2013
Aged Analysis of Past Due Loans Receivable as of December 31, 2012
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
Loan Receivables on Nonaccrual Status
A summary of the impaired loans by class of loans as of December 31, 2013 and 2012, is as follows:
Impaired Loans For the Year Ended December 31, 2013
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
Impaired Loans For the Year Ended December 31, 2012
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
4.
LOANS AND THE ALLOWANCE FOR LOAN LOSSES (Continued)
The Company seeks to assist customers that are experiencing financial difficulty by renegotiating loans within lending regulations and guidelines. The Company makes loan modifications primarily utilizing internal renegotiation programs through direct customer contact. During the years ended December 31, 2013 and 2012, the concessions granted to certain borrowers included extending the payment due dates or maturities and lowering of the contractual interest rates.
Once modified in a troubled debt restructuring, a loan is considered impaired until its contractual maturity. At the time of the restructuring, the loan is evaluated for an asset-specific allowance for credit losses. The Company continues to specifically reevaluate the loan in subsequent periods, regardless of the borrower’s performance under the modified terms. If a borrower subsequently defaults on the loan after it is restructured, the Company provides an allowance for credit losses for the amount of the loan that exceeds the value of the related collateral.
The following tables summarize information relative to the loan modifications as of December 31, 2013 and 2012. All of these loans are included in impaired loans as of December 31, 2013 and 2012.
None of the troubled debt restructurings defaulted subsequent to the restructuring through the date the financial statements were issued.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31 is summarized as follows:
6. PREMISES AND EQUIPMENT
Premises and equipment, at cost, at December 31 are summarized as follows:
Depreciation and amortization of premises and equipment amounted to $278,000 and $302,000 in 2013 and 2012, respectively.
7. DEPOSITS
Deposit account balances at December 31 are summarized as follows:
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
7. DEPOSITS (Continued)
Scheduled maturities of certificates of deposit at December 31, 2013, are summarized as follows:
The aggregate amount of time deposits with a minimum denomination of $100,000 was approximately $41.1 million and $44.8 million at December 31, 2013 and 2012, respectively. The weighted average interest rate on deposits at December 31, 2013 and 2012, was 1.03 % and 1.19%, respectively. The Company held deposits of approximately $2.5 million and $3.0 million for related parties at December 31, 2013 and 2012, respectively.
8. ADVANCES FROM FEDERAL HOME LOAN BANK (FHLB)
The FHLB advances consisted of the following obligations at December 31, 2013 and 2012:
Scheduled maturities of FHLB advances at December 31, 2013, are summarized as follows:
At December 31, 2013, the advances are secured by a blanket lien on the Bank’s mortgage loans of approximately $89.6 million, pledge of FHLB stock in the amount of $2.5 million and pledge of mortgage-backed securities with a carrying amount of approximately $37.3 million.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
8. ADVANCES FROM FEDERAL HOME LOAN BANK (FHLB) (Continued)
The Bank has an additional available borrowing capacity of approximately $70.9 million with the FHLB at December 31, 2013.
9. INCOME TAXES
Income tax expense (benefit) for the years ended December 31 is summarized as follows:
Total income tax expense (benefit) differs from the amounts computed by applying the federal statutory rate of 34% to income before income taxes as a result of the following:
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
9. INCOME TAXES (Continued)
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that gave rise to the deferred tax asset or (liability) at December 31 relate to the following:
Retained earnings at December 31, 2013 and 2012, include approximately $2.6 million for which no deferred income tax liability has been recognized. These amounts represent an allocation of income to bad debt deductions for tax purposes only. Reduction of amounts so allocated for purposes other than tax bad debt losses or adjustments arising from carry back of net operating losses would create income for tax purposes only, which would be subject to the then current corporate income tax rate. The unrecorded deferred income tax liability on the above amount is approximately $888,000 at December 31, 2013 and 2012.
10. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by its primary Federal regulator, the Office of the Comptroller of the Currency (OCC). Failure to meet the minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators, which if undertaken, could have a direct material effect on the Bank and the financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act the Board of Governors of the Federal Reserve System as the primary regulator for the Company is authorized to extend leverage capital requirements and risk based capital requirements applicable to depository institutions and bank holding companies to thrift holding companies. However, the Federal Reserve Board has not issued regulations that address the levels of these capital requirements and when they will apply to the Company.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
10. REGULATORY MATTERS (Continued)
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital and Tier 1 capital to risk-weighted assets (as defined in the regulations), Tier 1 capital to adjusted total assets (as defined) and tangible capital to adjusted total assets (as defined). As of December 31, 2013, management believes that the Bank meets all the capital adequacy requirements to which it is subject.
As of December 31, 2013 and 2012, the most recent notification from the OCC, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To remain categorized as adequately capitalized, the Bank would have to maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage and tangible capital ratios as disclosed in the table below. There are no conditions or events since the most recent notification that management believes have changed the Bank’s prompt corrective action category.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
10. REGULATORY MATTERS (Continued)
A reconciliation of the Bank’s capital determined under accounting principles generally accepted in the United States of America to Tier 1 Capital and Total Risk Based Capital as of December 31, 2013, is as follows:
11. EMPLOYEE BENEFIT PLANS
401(k) Plan - The Bank sponsors a 401(k) profit sharing plan for eligible employees. Contributions may be made by eligible employees subject to the limits of the Internal Revenue Service. The Bank makes matching contributions based on a percentage of each participant’s contribution and may also make discretionary contributions to the plan.
Profit Sharing Plan - The Bank maintains a qualified defined contribution profit sharing plan covering substantially all of its employees. Employees must complete one year of service and obtain the age of 21 in order to participate in the plan. Participants are 100% vested upon entry into the plan. Contributions to the plan are based on percentages of the participants’ annual compensation. Contributions are determined annually by the Bank and are not mandatory.
Contributions to the plans charged to income for 2013 and 2012 amounted to $200,000 and $236,000, respectively. Contributions as a percentage of participants’ annual compensation amounted to 7% and 11% for 2013 and 2012, respectively.
Other Retirement Agreements - During 2009, the Bank entered into retirement agreements with the chief executive officer and the non-employee directors of the Bank.
Under the Supplemental Executive Retirement Agreement for the chief executive officer, after ten years in the plan and attaining the age of 72, and following his retirement, the Bank is to provide the chief executive officer an annual benefit of $100,000 for 10 years. (This benefit would be paid to the chief executive officer’s beneficiaries until all 10 installments are paid or in a lump sum upon the chief executive officer’s death if the officer’s death is subsequent to age 72.)
Under the Supplemental Retirement Plan for non-employee directors, the Bank is to provide to each covered non-employee director an annual supplemental retirement benefit equal to $7,500 payable in equal annual installments for ten (10) consecutive years upon retirement, if the covered director is 100% vested. Participants who are not 100% vested would be entitled to receive the accrued amount payable in a lump sum. (This benefit would be paid to the non-employee director’s beneficiaries until all 10 installments are paid or in a lump sum upon the director’s death if the director’s death is during the active service of the Bank.)
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
11.
EMPLOYEE BENEFIT PLANS (Continued)
The estimated present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the dates payments are expected to expire. The expense incurred for this plan for the years ended December 31, 2013 and 2012, amounted to $93,000 and $93,000, respectively. The accrued liability recorded for this plan was $836,000 and $742,000 at December 31, 2013 and 2012, respectively.
Employee Stock Ownership Plan - In 2011, the Company established an ESOP for the benefit of all eligible employees of the Company. The leveraged ESOP is accounted for in accordance with the requirements of ASC 718, Compensation - Stock Compensation.
Employees of the Bank who have been employed for one year and who have attained age 21 are eligible to participate in the ESOP. It is anticipated that contributions will be made to the plan in amounts necessary to amortize the debt to the Company over a period of 20 years.
Under ASC 718, unearned ESOP shares are not considered outstanding and are shown as a reduction of shareholders’ equity as unearned compensation. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differ from the cost of such shares, the differential is credited to shareholders’ equity. The Company receives a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability.
Compensation costs related to the ESOP were $174,000 and $146,000 for the years ended December 31, 2013 and 2012, respectively. The fair value of the unearned ESOP shares, using the closing quoted market price per share as of year-end, was approximately $3.1 million and $3 million as of December 31, 2013 and 2012, respectively. A summary of the ESOP share allocation as of December 31, 2013 and 2012, follows.
Recognition and Retention Plan
In January 2012, the shareholders of State Investors Bancorp approved the adoption of the 2012 Recognition and Retention Plan (the “RRP”) and Trust Agreement. In order to fund the RRP, the RRP Trust acquired 116,380 shares of the Company’s stock in the open market at an average price of $12.73 per share. Pursuant to the RRP, 81,462 shares were granted to certain officers, employees and directors of the Company in January 2012, with 34,918 shares remaining available for future grant. The RRP share awards have vesting periods from five to seven years
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
11.
EMPLOYEE BENEFIT PLANS (Continued)
Recognition and Retention Plan - (Continued)
A summary of the status of the shares under the RRP as of December 31, 2013, and changes during the year is as follows:
The weighted average grant date fair value is the last sale price as quoted on the Nasdaq stock market on January 24, 2012. Compensation expense on the RRP shares granted is recognized ratably over the five to seven year vesting period in an amount which is equal to the fair value of the common stock at the date of grant. During the year ended December 31, 2013, $173,000 in compensation expense was recognized. As of December 31, 2013, approximately $686,000 in additional compensation expense will be recognized over the remaining average service period of approximately 4.4 years.
Stock Options
In January 2012, the shareholders of State Investors Bancorp approved the adoption of the 2012 Stock Option Plan (the “Option Plan”). The Option Plan authorizes the grant of stock options to officers, employees and directors of the Company to acquire 290,950 shares of common stock with an exercise price no less than the fair market value on the date of the grant. The Company granted 216,755 stock options on January 24, 2012, to certain officers, employees and directors of the Company at an exercise price of $11.82 per share, equal to the fair market value of the common stock on the grant date. The remaining 74,195 stock options are available for future grant. All incentive stock options issued under the Option Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code. Options will become vested and exercisable over a five to seven year period and are generally exercisable for a period of ten years after the grant date.
The fair value of each option granted is estimated on the grant date using the Black-Scholes option pricing model. This model requires management to make certain assumptions, including the expected life of the option, the risk-free interest rate, expected volatility and the expected dividend yield. The following assumptions were made in estimating 2013 fair values:
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
11.
EMPLOYEE BENEFIT PLANS (Continued)
Stock Options - (Continued)
A summary of option activity under the Company’s Option Plan as of December 31, 2013, and changes during the year is as follows:
During the year ended December 31, 2013, $102,000 in compensation expense was recognized. As of December 31, 2013, approximately $479,000 in additional compensation expense will be recognized over the remaining average service period of approximately 4.4 years.
12. MUTUAL TO STOCK CONVERSION
As disclosed in Note 1, on July 6, 2011, the Bank completed its conversion to a federally chartered stock savings bank and formed State Investors Bancorp, Inc. to serve as the stock holding company for the Bank. In connection with the conversion, the Company sold 2,909,500 shares of its common stock at $10.00 per share. The Company’s ESOP purchased 232,760 shares, financed by a loan from the Company. The net proceeds from the sale of this stock were approximately $27.9 million, and the cost associated with the stock conversion was approximately $1.2 million.
As part of the Conversion, the Bank established a liquidation account in an amount equal to the net worth of the Bank as of the date of the latest consolidated balance sheet distributed in connection with the Conversion. The liquidation account is maintained for the benefit of eligible account holders and supplemental eligible account holders who maintain their accounts at the Bank after the Conversion. The liquidation account will be reduced annually to the extent that such account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an account holder’s interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled to receive balances for accounts then held.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
13. EARNINGS PER SHARE
Earnings per common share was computed based on the following:
14. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various outstanding commitments that are not reflected in the accompanying financial statements. The principal commitments of the Bank are as follows:
Lease Commitment:
At December 31, 2013, the Bank was obligated under a noncancelable operating lease on its location on Harrison Avenue in the city of New Orleans. The lease continues through August 31, 2014, with options to renew for two successive ten-year periods at specified rental amounts. Total rental expense was approximately $30,000 for each of the years ended December 31, 2013 and 2012.
The future minimum rental commitments under the operating lease at December 31, 2013, are as follows:
Loan Commitments:
At December 31, 2013, the Bank had outstanding commitments to originate fixed-rate loans in the amount of $1.9 million. The Bank also had commitments for unused lines of credit of $1.5 million and undisbursed portion of loans in process of $3.9 million at December 31, 2013.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
14. COMMITMENTS AND CONTINGENCIES (Continued)
Borrowings:
At December 31, 2013, the Bank had unused borrowing capacity of approximately $70.9 million with the Federal Home Loan Bank. Additionally, the Bank has a Master Purchase Agreement with First National Bankers’ Bank (FNBB) whereby the Bank may purchase federal funds from FNBB in an amount not to exceed $14 million.
Other:
In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management and counsel, the disposition or ultimate resolution of such proceedings would not have a material adverse effect on the Bank’s financial statements.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the Balance Sheet.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the notional amount which was $1.9 million at December 31, 2013. The Bank uses the same credit policies in making commitments to extend credit as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis and in accordance with established loan underwriting policies.
16. CONCENTRATION OF CREDIT RISK
The Bank maintains amounts on deposit and federal funds sold with correspondent banks which may periodically exceed the federally insured amount.
Most of the Bank’s lending activity is represented by loans secured principally by first mortgages on real estate located primarily in Orleans, Jefferson and St. Tammany and surrounding parishes within Louisiana. Additionally, the substantial portion of the real estate upon which the Bank has extended credit is residential properties.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair Value Disclosures
The Company groups its financial assets and liabilities measured at fair value in three levels. Fair value should be based on the assumptions market participants would use when pricing the asset or liability and establishes a fair value hierarchy that prioritizes the inputs used to develop those assumptions and measure fair value. The hierarchy requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
●
Level 1 - Includes the most reliable sources, and includes quoted prices in active markets for identical assets or liabilities.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
17.
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
●
Level 2 - Includes observable inputs. Observable inputs include inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates) as well as inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).
●
Level 3 - Includes unobservable inputs and should be used only when observable inputs are unavailable.
Recurring Basis
Fair values of investment securities available-for-sale were primarily measured using information from a third-party pricing service. This pricing service provides information by utilizing evaluated pricing models supported with market data information. Standard inputs include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and reference data from market research publications.
The following tables present the balance of assets and liabilities measured on a recurring basis as of December 31, 2013 and 2012. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
17.
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Nonrecurring Basis
The Bank has segregated all financial assets and liabilities that are measured at fair value on a nonrecurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The Bank did not record any liabilities at fair value for which measurement of the fair value was made on a non-recurring basis.
The fair value of the impaired loans is measured at the fair value of the collateral for collateral-dependent loans. Impaired loans are Level 2 assets measured using appraisals from external parties of the collateral less any prior liens. Repossessed assets are initially recorded at fair value less estimated costs to sell. The fair value of repossessed assets is based on property appraisals and an analysis of similar properties available. As such, the Bank records repossessed assets as Level 2.
Financial Instruments
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. In accordance with generally accepted accounting principles, certain financial instruments and all non-financial instruments are excluded from these disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
17.
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:
Cash and Short-Term Investments - For those short-term instruments, the carrying amount is a reasonable estimate of fair value.
Securities - Fair value of securities is based on quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.
Loans - The fair value for loans is estimated using discounted cash flow analyses, with interest rates currently being offered for simi­lar loans to borrowers with similar credit rates. Loans with similar classifications are aggregated for purposes of the calculations. The allowance for loan losses, which was used to measure the credit risk, is subtracted from loans.
Deposits - The fair value of demand deposits, savings account, and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.
Borrowings - The fair value of FHLB advances is estimated using the rates currently offered for advances of similar maturities.
Commitments to Extend Credit and Standby Letters of Credit - The fair values of commitments to extend credit and standby letters of credit do not differ significantly from the commitment amount and are, therefore, omitted from this disclosure.
The estimated approximate fair values of the Company’s financial in­struments as of December 31, 2013 and 2012, are as follows:
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
17.
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
18.
CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
Condensed financial statements of State Investors Bancorp, Inc. (parent company only) are shown below. The parent company has no significant operating activities. The statements of income and cash flows for the years ended December 31, 2013 and December 31, 2012, are shown.
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
18.
CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
STATE INVESTORS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2013 AND 2012 (Continued)
18.
CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2013 and December 31, 2012
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not Applicable.
Item 9A.
Item 9A. Controls and Procedures.
(a) As of December 31, 2013, our management evaluated, with the participation of our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on such evaluation, our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and are operating in an effective manner.
(b) Management’s Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2013.
(c) No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the fourth fiscal quarter of 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
Not applicable.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
The information required herein is incorporated by reference from the information contained in the sections captioned “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” and “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management - Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s definitive proxy statement for the 2014 Annual Meeting of Stockholders to be held in May, 2014 (the “Proxy Statement”).
The Company has adopted a Code of Conduct and Ethics that applies to its principal executive officer and principal financial officer, as well as other officers and employees of the Company and the Bank. A copy of the Code of Ethics is available on the Company’s website at www.stateinvestors.com.
Item 11.
Item 11. Executive Compensation.
The information required herein is incorporated by reference from the information contained in the sections captioned “Management Compensation” in the Proxy Statement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners and Management. The information required herein is incorporated by reference from the information contained in the section captioned “Beneficial Ownership of Common Stock by Certain Beneficial Owners and Management” in the Proxy Statement.
Equity Compensation Plan Information. The following table provides information as of December 31, 2013 with respect to shares of common stock that may be issued under our existing equity compensation plans, which consist of the 2012 Stock Option Plan and 2012 Recognition and Retention Plan, which were approved by our shareholders.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required herein is incorporated by reference from the information contained in the sections captioned “Management Compensation - Related Party Transactions” and “Information with Respect to Nominees for Director, Continuing Directors and Executive Officers” in the Proxy Statement.
Item 14.
Item 14. Principal Accounting Fees and Services.
The information required herein is incorporated by reference from the information contained in the section captioned “Ratification of Appointment of Independent Registered Public Accounting Firm (Proposal Two) - Audit Fees” in the Proxy Statement.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules.
(a)(1)
The following financial statements are incorporated by reference from Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2013 and 2012
Consolidated Statements of Income for the years ended December 31, 2013 and 2012
Consolidated Statements of Comprehensive Income for the years ended December 31, 2013 and 2012
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2013 and 2012
Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012
Notes to Consolidated Financial Statements
(2)
All schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.
(3)
Exhibits
The following exhibits are filed as part of this Form 10-K and this list includes the Exhibit Index.
*
Denotes a management contract or compensatory plan or arrangement.
(Footnotes continued on following page)
(2)Incorporated by reference to Appendices A and B of the definitive proxy statement, dated December 14, 2011, filed by State Investors Bancorp, Inc. with the SEC on December 14, 2011 (SEC File No. 001-35221).
(b)
The exhibits listed under (a)(3) of this Item 15 are filed herewith.
(c)
Reference is made to (a)(2) of this Item 15.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STATE INVESTORS BANCORP, INC.
March 28, 2014
By:
/s/ Anthony S. Sciortino
Anthony S. Sciortino
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Name
Title
Date
/s/Anthony S. Sciortino
Chairman of the Board, President and Chief Executive Officer (principal executive officer)
March 28, 2014
Anthony S. Sciortino
/s/ Daniel McGowan
Director, Chief Financial Officer
(principal financial and accounting officer)
March 28, 2014
Daniel McGowan
/s/ Jules G. Albert, Jr.
Director
March 28, 2014
Jules G. Albert, Jr.
/s/ Joseph J. Lepow
Director
March 28, 2014
Joseph J. Lepow
/s/ Sanford R. Maslansky
Director
March 28, 2014
Sanford R. Maslansky
/s/ Mahlon L. Oustalet
Director
March 28, 2014
Mahlon L. Oustalet
/s/ Dalton L. Woolverton
Director
March 28, 2014
Dalton L. Woolverton