STATE INVESTORS BANCORP, INC. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - STATE INVESTORS BANCORP, INC.	Financial_Report.xls
EX-10.1 - EXHIBIT 10.1 - STATE INVESTORS BANCORP, INC.	ex10-1.htm
EX-32.1 - EXHIBIT 32.1 - STATE INVESTORS BANCORP, INC.	ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - STATE INVESTORS BANCORP, INC.	ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - STATE INVESTORS BANCORP, INC.	ex31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q
(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from			To

Commission file number: 001-35221

State Investors Bancorp, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Louisiana		27-5301129
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1041 Veterans Boulevard Metairie, Louisiana		70005
(Address of Principal Executive Offices)		(Zip Code)

(504) 832-9400
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
			x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
			x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
			o Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 13, 2014, 2,308,019 shares of the Registrant’s common stock were issued and outstanding.

STATE INVESTORS BANCORP, INC.

Form 10-Q

Table of Contents

PART I - FINANCIAL INFORMATION		Page

Item 1 -	Financial Statements	1

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3 -	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4 -	Controls and Procedures	35

PART II - OTHER INFORMATION

Item 1 -	Legal Proceedings	36

Item 1A -	Risk Factors	36

Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3 -	Defaults Upon Senior Securities	36

Item 4 -	Mine Safety Disclosures	36

Item 5 -	Other Information	36

Item 6 -	Exhibits	37

Signatures		38

PART I

ITEM 1. FINANCIAL STATEMENTS

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30, 2014			December 31, 2013
	(Unaudited)			(Audited)

ASSETS

Cash – non-interest bearing	$	3,704		$	5,381
Cash – interest bearing		1,445			2,603
Federal funds sold		--			750
Cash and cash equivalents		5,149			8,734

Investment securities:
Available-for-sale		37,439			37,948
Held-to-maturity		264			319
Loans, net		213,180			199,265
Federal Home Loan Bank Stock		2,868			2,486
Accrued interest receivable		959			961
Premises and equipment, net		8,051			8,224
Other real estate owned, net		150			--
Deferred income taxes		308			269
Other assets		512			479

TOTAL ASSETS	$	268,880		$	258,685

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Deposits	$	157,970		$	159,147
Advances from Federal Home Loan Bank		66,457			55,992
Advance payments by borrowers for taxes and insurance		1,408			1,000
Accrued interest payable		91			91
Other liabilities		1,427			889

TOTAL LIABILITIES		227,353			217,119

Stockholders’ Equity:
Preferred Stock, $.01 par value – 1,000,000 shares authorized; none issued		--			--
Common Stock, $.01 par value – 9,000,000 shares authorized; 2,909,500 issued; 2,308,119 outstanding at September 30, 2014 and 2,390,334 outstanding at December 31, 2013		29			29
Additional Paid-in Capital		28,444			28,341
Treasury stock, 601,381 shares and 519,166 shares at September 30, 2014 and December 31, 2013, respectively, at cost		(8,578	)		(7,279	)
Unallocated ESOP shares		(1,949	)		(2,037	)
Unallocated Recognition and Retention Plan (RRP) shares		(1,205	)		(1,361	)
Retained earnings – substantially restricted		24,251			23,415
Accumulated other comprehensive income		535			458

TOTAL STOCKHOLDERS’ EQUITY		41,527			41,566

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	268,880		$	258,685

The accompanying notes are an integral part of the consolidated financial statements.

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	For the Three Months Ended						For the Nine months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(Unaudited)						(Unaudited)
INTEREST INCOME:
Interest and fees on loans	$	2,831		$	2,373		$	8,194		$	7,126
Interest on investment securities		109			87			334			359
Other interest and dividends		3			2			8			6

TOTAL INTEREST INCOME		2,943			2,462			8,536			7,491

INTEREST EXPENSE:
Interest on deposits		405			413			1,182			1,262
Interest on Federal Home Loan Bank advances		254			231			762			659

TOTAL INTEREST EXPENSE		659			644			1,944			1,921

NET INTEREST INCOME		2,284			1,818			6,592			5,570
PROVISION FOR LOAN LOSSES		50			50			150			156

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		2,234			1,768			6,442			5,414

NON-INTEREST INCOME:
Service charges and fees		57			68			156			171
Net (loss) on sale/write-down of other real estate		(2	)		(4	)		( 4	)		(40	)

TOTAL NON-INTEREST INCOME		55			64			152			131

NON-INTEREST EXPENSES:
Salaries and employee benefits		924			868			2,756			2,626
Occupancy expense		137			124			393			375
Data processing		164			144			428			424
Security		56			51			165			170
Deposit insurance premiums		37			43			116			85
Advertising		16			13			35			51
Professional fees		93			97			313			307
Office supplies and postage		23			25			76			78
Taxes and licenses		62			20			196			185
Service Charges		35			15			73			36
Other		202			214			637			634

TOTAL NON-INTEREST EXPENSES		1,749			1,614			5,188			4,971

INCOME BEFORE INCOME TAXES		540			218			1,406			574
INCOME TAX EXPENSE		196			91			570			245

NET INCOME	$	344		$	127		$	836		$	329
Earnings Per Common Share
Basic	$	0.15		$	0.05		$	0.36		$	0.13
Diluted	$	0.14		$	0.05		$	0.35		$	0.13

The accompanying notes are an integral part of the consolidated financial statements.

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(Unaudited)						(Unaudited)

Net income	$	344		$	127		$	836		$	329

Other Comprehensive Income:

Unrealized gains (losses) on investment securities		(28	)		(246	)		116			(469	)

Income tax effect		10			82			(39	)		159

OTHER COMPREHENSIVE INCOME (LOSS), net of taxes		( 18	)		(164	)		77			(310	)

COMPREHENSIVE INCOME (LOSS)	$	326		$	(37	)	$	913		$	19

The accompanying notes are an integral part of the consolidated financial statements.

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)


	Common Stock		Additional Paid -In Capital			Treasury Stock At Cost			Unallocated ESOP Shares			Unearned RRP Shares			Retained Earnings		Accumulated Other Comprehensive Income			Total Stockholders’ Equity
	(Unaudited)

Balance at December 31, 2012	$	29	$	28,166		$	(4,636	)	$	(2,153	)	$	(1,517	)	$	22,907	$	706		$	43,502

Comprehensive Income:
Net Income		--		--			--			--			--			329		--			329
Other Comprehensive Income		--		--			--			--			--			--		(310	)		(310	)
RRP shares released for allocation		--		(128	)		--			--			156			--		--			28
ESOP shares released for allocation		--		42			--			87			--			--		--			129
Share based compensation cost		--		184			--			--			--			--		--			184
Treasury Stock acquired at cost, 69,491 shares		--		--			(1,687	)		--			--			--		--			(1,687	)

Balance at September 30, 2013	$	29	$	28,264		$	(6,323	)	$	(2,066	)	$	(1,361	)	$	23,236	$	396		$	42,175

Balance at December 31, 2013	$	29	$	28,341		$	(7,279	)	$	(2,037	)	$	(1,361	)	$	23,415	$	458		$	41,566

Comprehensive Income:
Net Income		--		--			--			--			--			836		--			836
Other Comprehensive Income		--		--			--			--			--			--		77			77
RRP shares released for allocation		--		(62	)		--			--			156			--		--			94
ESOP shares released for allocation		--		68			--			88			--			--		--			156
Share based compensation cost		--		97			--			--			--			--		--			97
Treasury Stock acquired at cost, 82,215 shares		--		--			(1,299	)		--			--			--		--			(1,299	)

Balance at September 30, 2014	$	29	$	28,444		$	(8,578	)	$	(1,949	)	$	(1,205	)	$	24,251	$	535		$	41,527

The accompanying notes are an integral part of the consolidated financial statements.

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Nine Months Ended September 30,
	2014			2013
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	836		$	329
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		150			156
Depreciation and amortization		209			209
Amortization of securities		333			455
Stock dividend on FHLB stock		(7	)		(5	)
Deferred income taxes provision (benefit)		(78	)		1
Non-cash compensation		347			341
Loss on other real estate		76			--
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest receivable		2			31
(Increase) decrease in other assets		(33	)		131
Increase in other liabilities		538			360

NET CASH PROVIDED BY OPERATING ACTIVITIES		2,373			2,008

CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans		(14,291	)		(19,541	)
Proceeds from principal repayments of mortgage-backed securities		6,692			8,375
Purchases of mortgage-backed securities		(6,345	)		(2,882	)
Purchase of FHLB stock		(375	)		(461	)
Purchases of premises and equipment		(36	)		(14	)

NET CASH USED IN INVESTING ACTIVITIES		(14,355	)		(14,523	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposit accounts		(1,177	)		(2,149	)
Increase in advances by borrowers for insurance and taxes		408			360
Advances from FHLB		30,337			24,625
Payments on advances from the FHLB		(19,872	)		(11,714	)
Purchase of Treasury Stock		(1,299	)		(1,687	)

NET CASH PROVIDED BY FINANCING ACTIVITIES		8,397			9,435

DECREASE IN CASH AND CASH EQUIVALENTS		(3,585	)		(3,080	)

CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD		8,734			12,729

CASH AND CASH EQUIVALENTS – END OF PERIOD	$	5,149		$	9,649

SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest on deposits and borrowings	$	1,944		$	1,921

Income taxes	$	411		$	271

Transfer from loans to other real estate	$	226		$	116

Change in unrealized gain on securities available for sale, before tax effect	$	116		$	(469	)

The accompanying notes are an integral part of the consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Basis of Presentation

On July 6, 2011, State-Investors Bank completed its conversion from a federally chartered mutual savings bank to a federally chartered stock savings bank. In connection with the conversion, State-Investors Bank formed State Investors Bancorp, Inc., a Louisiana chartered corporation (the "Company" or "State Investors Bancorp"), which offered and sold 2,909,500 shares of its common stock at a price of $10.00 per share to eligible depositors and borrowers of the Bank. Upon completion of the conversion and the offering, all of State-Investors Bank's stock is owned by State Investors Bancorp. The Company raised proceeds of approximately $27.9 million, net of offering expenses, and contributed approximately 50% of the net proceeds to the Bank. All remaining proceeds were retained by State Investors Bancorp for future capital needs.

The accompanying unaudited consolidated financial statements of the Company were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the nine months ended September 30, 2014, are not necessarily indicative of the results which may be expected for the entire fiscal year. For further information, please review the audited, consolidated financial statements of State Investors Bancorp for the year ended December 31, 2013, included in the Company’s Annual Report on Form 10-K (File No. 001-35221).

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, State-Investors Bank. All significant intercompany balances and transactions between the Company and its wholly-owned subsidiary have been eliminated.

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.

Loans

The Bank 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 fees or costs on originated loans.

Loan origination and commitment fees are deferred and amortized as a yield adjustment over the contractual lives of the related loans using the interest method. Discounts on consumer loans are recognized over the contractual lives of the loans using the interest method.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 1 – Basis of Presentation (Continued)

Loans (Continued)

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 Bank 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 uncollectability 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 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 economic conditions. For loans that are considered 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 1 – Basis of Presentation (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.

Earnings per Share

Amounts reported in earnings per share reflect earnings available to common stockholders’ for the period divided by the weighted average number of shares of common stock outstanding during the period, exclusive of unearned ESOP shares.

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This ASU is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update is not expected to have a significant impact on the Company’s financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 1 – Basis of Presentation (Continued)

Reclassifications

Certain reclassifications have been made to the 2013 financial statements to conform with the 2014 financial statement presentation. Such reclassifications had no effect on net income or retained earnings as previously reported.

Subsequent Events

Management evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued.

Note 2 – Investment Securities

A summary of the amortized cost and fair values of the investment securities is presented below:

Mortgage-backed securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
September 30, 2014
Held-to-maturity:
GNMA Certificates	$	221	$	6	$	--		$	227
FNMA Certificates		34		1		--			35
FHLMC Certificates		9		--		--			9

Total held-to-maturity securities		264		7		--			271

Available-for-sale:
GNMA Certificates		36,628		812		(1	)		37,439

Total securities	$	36,892	$	819	$	(1	)	$	37,710

Mortgage-backed securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
December 31, 2013
Held-to-maturity:
GNMA Certificates	$	256	$	9	$	--		$	265
FNMA Certificates		52		2		--			54
FHLMC Certificates		11		1		--			12

Total held-to-maturity securities		319		12		--			331

Available-for-sale:
GNMA Certificates		37,254		701		(7	)		37,948

Total securities	$	37,573	$	713	$	(7	)	$	38,279

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 2 – Investment Securities (Continued)

The amortized cost and fair values of the securities at September 30, 2014, 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.

	Held-to-Maturity				Available-for-Sale
Mortgage-backed securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
September 30, 2014
Amounts maturing in:
One year or less	$	2	$	2	$	--	$	--
After one year through five years		262		269		33,034		33,735
After five years through ten years		--		--		2,352		2,434
After ten years		--		--		1,242		1,270
	$	264	$	271	$	36,628	$	37,439

There were no sales or calls of available-for-sale securities during the nine months ended September 30, 2014 or 2013.

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.

Gross unrealized losses in investment securities at September 30, 2014, existing for continuous periods of less than 12 months and for continuous periods of 12 months or more are as follows. Due to the nature of the investment and current market prices, these unrealized losses are considered a temporary impairment of these securities.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 2 – Investment Securities (Continued)

September 30, 2014	Less than 12 Months					12 Months or More		Totals
Security Description	Fair Value		Gross Unrealized (Loss)			Fair Value	Gross Unrealized (Loss)	Fair Value		Gross Unrealized (Loss)
	(In thousands)
Mortgage-backed securities:
GNMA certificates (1 security)	$	772	$	(1	)	$	$	$	772	$	(1	)

December 31, 2013	Less than 12 Months					12 Months or More				Totals
Security Description	Fair Value		Gross Unrealized (Loss)			Fair Value		Gross Unrealized (Loss)		Fair Value		Gross Unrealized (Loss)
	(In thousands)
Mortgage-backed securities:
GNMA certificates (3 securities)	$	1,417	$	(7	)	$	--	$	--	$	1,417	$	(7	)

Note 3 - Loans and the Allowance for Loan Losses

Loans receivable at September 30, 2014 and December 31, 2013, are summarized as follows:

	September 30, 2014			December 31, 2013
	(In thousands)
Real estate loans:
One-to-four family residential	$	133,726		$	130,422
Commercial real estate		56,574			52,979
Multi-family residential		7,638			5,462
Land		3,357			3,441
Residential construction		8,741			4,464

Total real estate loans		210,036			196,768
Other loans:
Home equity lines of credit		3,178			2,241
Consumer non-real estate loans		1,064			1,210
Commercial business loans		615			660

Total other loans		4,857			4,111

Total loans		214,893			200,879
Less:
Deferred loan fees		( 366	)		(263	)
Allowance for loan losses		(1,347	)		(1,351	)

Net loans	$	213,180		$	199,265

Management segregates the loan portfolio into portfolio segments which are 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 3 - Loans and the Allowance for Loan Losses (Continued)

The following tables set forth, for the nine months ended September 30, 2014 and year ended December 31, 2013, 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 Nine Months Ended September 30, 2014 and Year Ended December 31, 2013.

	Mortgage- Permanent- 1 to 4 Family			Mortgage- Permanent- Other			Mortgage- Construction		Commercial		Consumer			Total
	(In thousands)
September 30, 2014
Allowance for credit losses:
Beginning balance	$	548		$	770		$	14	$	4	$	15		$	1,351
Charge-offs		(78	)		(76	)		--		--		--			(154	)
Recoveries		--			--			--		--		--			--
Provision		74			73			6		--		(3	)		150
Ending balance	$	544		$	767		$	20	$	4	$	12		$	1,347

Ending balance evaluated for impairment:
Individually	$	16		$	--		$	--	$	--	$	--		$	16
Collectively	$	528		$	767		$	20	$	4	$	12		$	1,331

Loans receivable:
Ending balance	$	136,904		$	67,569		$	8,741	$	615	$	1,064		$	214,893

Ending balance evaluated for impairment:
Individually	$	1,430		$	1,993		$	--	$	--	$	--		$	3,423
Collectively	$	135,474		$	65,576		$	8,741	$	615	$	1,064		$	211,470

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 3 - Loans and the Allowance for Loan Losses (Continued)

	Mortgage- Permanent- 1 to 4 Family			Mortgage- Permanent- Other			Mortgage-Construction		Commercial		Consumer			Total
	(In thousands)
December 31, 2013
Allowance for credit losses:
Beginning balance	$	578		$	844		$	9	$	--	$	5		$	1,436
Charge-offs		(104	)		(322	)		--		--		(10	)		(436	)
Recoveries		91			104			--		--		--			195
Provision		(17	)		144			5		4		20			156
Ending balance	$	548		$	770		$	14	$	4	$	15		$	1,351

Ending balance evaluated for impairment:
Individually	$	30		$	--		$	--	$	--	$	--		$	30
Collectively	$	518		$	770		$	14	$	4	$	15		$	1,321

Loans receivable:
Ending balance	$	132,663		$	61,882		$	4,464	$	660	$	1,210		$	200,879

Ending balance evaluated for impairment:
Individually	$	1,655		$	1,578		$	--	$	--	$	--		$	3,233
Collectively	$	131,008		$	60,304		$	4,464	$	660	$	1,210		$	197,646

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.

At September 30, 2014 and December 31, 2013, the credit quality indicators, disaggregated by class of loan, are presented in the following tables.

	September 30, 2014
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
1 to 4 family residential	$	128,716	$	974	$	4,036	$	--	$	133,726
Commercial real estate		55,495		245		834		--		56,574
Multi-family residential		6,089		--		1,549		--		7,638
Land		3,356		--		1		--		3,357
Residential construction		8,741		--		--		--		8,741
Home equity lines of credit		3,143		35		--		--		3,178
Consumer non-real estate loans		1,064		--		--		--		1,064
Commercial business loans		615		--		--		--		615
Total Loans	$	207,219	$	1,254	$	6,420	$	--	$	214,893

	December 31, 2013
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
One-to-four family residential	$	125,155	$	1,004	$	4,263	$	--	$	130,422
Commercial real estate		51,917		253		809		--		52,979
Multi-family residential		4,290		--		1,172		--		5,462
Land		3,441		--		--		--		3,441
Residential construction		4,464		--		--		--		4,464
Home equity lines of credit		2,206		35		--		--		2,241
Consumer non-real estate loans		1,201		--		9		--		1,210
Commercial business loans		660		--		--		--		660
Total Loans	$	193,334	$	1,292	$	6,253	$	--	$	200,879

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 3 - Loans and the Allowance for Loan Losses (Continued)

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 September 30, 2014.

The following tables reflect certain information with respect to the loan portfolio delinquencies by loan class and amount as of September 30, 2014 and December 31, 2013:

Aged Analysis of Past Due Loans Receivable as of September 30, 2014

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment Over 90 Days Past Due and Still Accruing
					(In thousands)
September 30, 2014
Mortgage Loans:
Permanent:
1 to 4 family	$	1,388	$	1,188	$	579	$	3,155	$	133,749	$	136,904	$	544
Multifamily		416		--		--		416		7,222		7,638		--
Commercial RE		355		--		--		355		56,219		56,574		--
Other		--		1		--		1		3,356		3,357		--
Construction-Residential		--		--		--		--		8,741		8,741		--
Nonmortgage Loans:
Commercial		--		13		244		257		358		615		244
Consumer		--		--		--		--		1,064		1,064		--
Total	$	2,159	$	1,202	$	823	$	4,184	$	210,708	$	214,893	$	788

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 3 - Loans and the Allowance for Loan Losses (Continued)

Aged Analysis of Past Due Loans Receivable as of December 31, 2013

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment Over 90 Days Past Due and Still Accruing
	(In thousands)
December 31, 2013
Mortgage Loans:
Permanent:
1 to 4 Family	$	2,969	$	1,571	$	1,359	$	5,899	$	126,764	$	132,663	$	1,148
Multifamily		--		--		--		--		5,462		5,462		--
Commercial RE		633		--		--		633		52,346		52,979		--
Other		14		65		--		79		3,362		3,441		--
Construction-Residential		--		--		--		--		4,464		4,464		--
Nonmortgage Loans:
Commercial		--		--		--		--		660		660		--
Consumer		6		--		--		6		1,204		1,210		--
Total	$	3,622	$	1,636	$	1,359	$	6,617	$	194,262	$	200,879	$	1,148

Loans Receivable on Nonaccrual Status

	September 30, 2014		December 31, 2013
	(In thousands)
Mortgage Loans:
Permanent, Secured by
1 to 4 family	$	35	$	337
Multifamily		--		1,172
Total Loans on Nonaccrual Status	$	35	$	1,509

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 3 - Loans and the Allowance for Loan Losses (Continued)

A summary of the impaired loans by class of loans as of and for the nine months ended September 30, 2014 and year ended December 31, 2013, is as follows:

Impaired Loans as of and for the Nine Months Ended September 30, 2014.


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
September 30, 2014
With an allowance recorded:
Mortgage Loans:
Permanent, Secured by:
1 to 4 family	$	51	$	51	$	16	$	43	$	--
Multifamily		--		--		--		--		--
Commercial RE		--		--		--		--		--
Other		--		--		--		--		--
Construction – Residential		--		--		--		--		--
Nonmortgage Loans:
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	51	$	51	$	16	$	43	$	--
With no allowance recorded:
Mortgage Loans:
Permanent, Secured by:
1 to 4 family	$	1,379	$	1,379	$	--	$	1,379	$	51
Multifamily		1,549		1,549		--		1,549		45
Commercial RE		444		444		--		444		14
Other		--		--		--		--		--
Construction – Residential		--		--		--		--		--
Nonmortgage Loans:
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	3,372	$	3,372	$	--	$	3,372	$	110
Total Impaired Loans:
Mortgage Loans:
Permanent	$	3,423	$	3,423	$	16	$	3,415	$	110
Construction		--		--		--		--		--
Nonmortgage Loans:
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	3,423	$	3,423	$	16	$	3,415	$	110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 3 - Loans and the Allowance for Loan Losses (Continued)

Impaired Loans For the Year Ended December 31, 2013

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(In thousands)
December 31, 2013
With an allowance recorded:
Mortgage Loans
Permanent, Secured by
1-4 Family	$	126	$	126	$	30	$	126	$	6
Multifamily		--		--		--		--		--
Commercial RE		--		--		--		--		--
Other		--		--		--		--		--
Construction - Residential		--		--		--		--		--
Nonmortgage Loans
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	126	$	126	$	30	$	126	$	6

With no allowance recorded:
Mortgage Loans
Permanent, Secured by
1-4 Family	$	1,529	$	1,529	$	--	$	1,529	$	69
Multifamily		1,172		1,172		--		1,172		--
Commercial RE		406		406		--		406		18
Other		--		--		--		--		--
Construction - Residential
Nonmortgage Loans
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	3,107	$	3,107	$	--	$	3,107	$	87
Total Impaired Loans:
Mortgage Loans
Permanent	$	3,233	$	3,233	$	30	$	3,233	$	93
Construction		--		--		--		--		--
Nonmortgage Loans
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	3,233	$	3,233	$	30	$	3,233	$	93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 3 - Loans and the Allowance for Loan Losses (Continued)

The following tables summarize information relative to the loan modifications as of September 30, 2014 and December 31, 2013. All of these loans are included in impaired loans as of September 30, 2014 and December 31, 2013.

Modifications as of September 30, 2014

			Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	Contracts		Investment		Investment
	(Dollars in thousands)
Troubled Debt Restructurings
Mortgage Loans:
Permanent		6	$	2,882	$	2,886
Construction		--		--		--
Nonmortgage Loans:
Commercial		--		--		--
Consumer		--		--		--
Total Loans		6	$	2,882	$	2,886

Modifications as of December 31, 2013


			Pre-Modification		Post-Modification
	Number		Outstanding		Outstanding
	of		Recorded		Recorded
	Contracts		Investment		Investment
	(Dollars in thousands)
Troubled Debt Restructurings
Mortgage Loans:
Permanent		7	$	3,114	$	2,747
Construction		--		--		--
Nonmortgage Loans:
Commercial		--		--		--
Consumer		--		--		--
Total Loans		7	$	3,114	$	2,747

None of the troubled debt restructurings defaulted subsequent to the restructuring through the date the financial statements were issued.

Note 4 – Deposits

Deposit account balances at September 30, 2014 and December 31, 2013 are summarized as follows:


	September 30, 2014		December 31, 2013
	(In thousands)
NOW accounts
Interest bearing	$	15,765	$	18,264
Non-interest bearing		10,823		8,863
Money Market funds		10,419		10,601
Savings		27,883		27,784
Certificates of deposit		93,080		93,635
	$	157,970	$	159,147

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 5 - 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.

●

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 September 30, 2014 and December 31, 2013. The Company did not record any liabilities at fair value for which measurement of the fair value was made on a recurring basis.


			Fair Value at Reporting Date Using
	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2014
Available-for-sale:
Mortgage Backed Securities	$	37,439	$	--	$	37,439	$	--

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 5 - Fair Values of Financial Instruments (Continued)

Fair Value Disclosures (Continued)


			Fair Value at Reporting Date Using
	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2013
Available-for-sale:
Mortgage Backed Securities	$	37,948	$	--	$	37,948	$	--

Nonrecurring Basis

The Company 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 Company 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 Company records repossessed assets as Level 2.


			Fair Value at Reporting Date Using
	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
September 30, 2014
Assets
Impaired Loans	$	3,407	$	--	$	3,407	$	--

Other Real Estate	$	150	$	--	$	150	$	--


			Fair Value at Reporting Date Using
	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
December 31, 2013
Assets
Impaired Loans	$	3,203	$	--	$	3,203	$	--

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 5 – Fair Values of Financial Instruments (Continued)

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.

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 accounts, 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 in the market 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 5 – Fair Values of Financial Instruments (Continued)

Financial Instruments (Continued)

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect the premium or discount on any particular financial instrument that could result from the sale of the Company’s entire holdings. Fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

The following table presents estimated fair values of the Company’s financial instruments as of the dates indicated.


	Fair Value Measurements at September 30, 2014
	Carrying Amount		Total		Level 1		Level 2		Level 3
	(in thousands)
Financial Assets:

Cash and Short-Term Investments	$	5,149	$	5,149	$	5,149	$	--	$	--
Investment Securities
Available-for-sale		37,439		37,439		--		37,439		--
Investment Securities
Held-to-maturity		264		271		--		271		--
Loans – Net		213,180		217,000		--		--		217,000

Financial Liabilities:
Deposits	$	157,970	$	149,000	$	--	$	--	$	149,000
FHLB Borrowings		66,457		67,000		--		67,000		--


	Fair Value Measurements at December 31, 2013
	Carrying Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:

Cash and Short-Term Investments	$	8,734	$	8,734	$	8,734	$	--	$	--
Investment Securities
Available-for-sale		37,948		37,948		--		37,948		--
Investment Securities
Held-to-maturity		319		331		--		331		--
Loans – Net		199,265		201,000		--		--		201,000

Financial Liabilities:
Deposits	$	159,147	$	150,000	$	--	$	--	$	150,000
FHLB Borrowings		55,992		57,000		--		57,000		--

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 6 – Stock Compensation Plans

Employee Stock Ownership Plan

In connection with the mutual to stock conversion completed in the third quarter of fiscal 2011, effective July 1, 2011, the Company instituted an employee stock ownership plan. The State-Investors Bank Employee Stock Ownership Plan (“ESOP”) enables all eligible employees of the Bank to share in the growth of the Company through the acquisition of stock. Employees are generally eligible to participate in the ESOP after completion of one year of service and attaining the age of 21.

The ESOP purchased the statutory limit of eight percent of the shares sold in the initial public offering of the Company on July 6, 2011. This purchase was facilitated by a loan from the Company to the ESOP in the amount of $2.3 million. The loan is secured by a pledge of the ESOP shares. The shares pledged as collateral are reported as unearned ESOP shares in the consolidated balance sheets. The corresponding note is being repaid in 80 quarterly debt service payments of $40,000 on the last business day of each quarter, beginning September 30, 2011, at the rate of 3.25%.

The Company, at its discretion, may contribute to the ESOP, in the form of debt service. Cash dividends on the Company’s stock shall be used to either repay the loan, be distributed to the participants in the ESOP, or retained in the ESOP and reinvested in Company stock. Shares are released for allocation to ESOP participants based on principal and interest payments of the note. Compensation expense is recognized based on the number of shares allocated to ESOP participants each period and the average market price of the stock for the period.

ESOP compensation expense for the nine month periods ended September 30, 2014 and 2013, was $138,000 and $129,000, respectively.

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.

A summary of the status of the shares under the RRP as of September 30, 2014 and changes during the nine months ended September 30, 2014, is as follows:


	September 30, 2014
	Number of Shares			Weighted Average Grant Date Fair Value

Balance at the beginning of the year		69,231		$	11.82
Granted		--			--
Forfeited		465			11.82
Released		(13,628	)		11.82
Balance at the end of the period		56,068		$	11.82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 6 – Stock Compensation Plans (Continued)

Recognition and Retention Plan (Continued)

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 nine month periods ended September 30, 2014 and 2013, $123,000 and $136,000 in compensation expense was recognized, respectively. As of September 30, 2014, approximately $530,000 in additional compensation expense will be recognized over the remaining average service period of approximately 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 Compensation Committee of the Board of Directors 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. On January 24, 2014, the Compensation Committee granted 20,000 options to certain officers at an exercise price of $15.99 per share. The remaining 54,195 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.

A summary of option activity under the Company’s Option Plan as of September 30, 2014 and changes during the nine months ended September 30, 2014 is as follows:


	September 30, 2014
	Number of Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value

Outstanding at the beginning of the year		216,173		$	11.82	$	3.11
Granted		20,000			15.99		5.22
Exercised		(4,156	)		16.06		3.11
Forfeited		--			--		--
Outstanding at the end of the period		232,017			12.10		3.29
Exercisable at the end of the period		87,642			11.95		3.17

During the nine month periods ended September 30, 2014 and 2013, $83,268 and $76,288 in compensation expense was recognized, respectively. As of September 30, 2014, approximately $455,000 in additional compensation expense will be recognized over the remaining average service period of approximately 4 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 7 – Earning Per Share

Earnings per common share was computed based on the following:


	Nine months ended September 30,
	2014		2013
	(in thousands, except per share data)

Numerator
Income applicable to common shares	$	836	$	329
Denominator
Weighted average common shares outstanding		2,334		2,513
Effect of dilutive securities		82		60
Weighted average common shares outstanding – assuming dilution		2,416		2,573
Earnings per common share	$	0.36	$	0.13
Earnings per common share - assuming dilution	$	0.35	$	0.13

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

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of State Investors Bancorp, Inc. (“State Investors Bancorp” or the “Company”) from December 31, 2013 to September 30, 2014 and on its results of operations during the quarter and nine months ended September 30, 2014 and 2013. This discussion and analysis is intended to highlight and supplement information presented elsewhere in this quarterly report on Form 10-Q, particularly the financial statements and related notes appearing in Item 1.

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

Critical Accounting Policies

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

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

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

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

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

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

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

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

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

Comparison of Financial Condition at September 30, 2014 and December 31, 2013

General. The Company’s total assets increased by $10.2 million, to $268.9 million at September 30, 2014, compared to $258.7 million at December 31, 2013. For the nine months ended September 30, 2014, the increase in our assets was primarily due to increases in net loans receivable of $13.9 million, or 7.0%, and an increase in Federal Home Loan Bank Stock of $382,000, or 15.4%, partially offset by decreases in cash and cash equivalents of $3.6 million, or 41.1%, mortgage-backed securities of $564,000, or 1.5%, and premises and equipment, net, of $173,000, or 2.1%, compared to December 31, 2013.

Cash and Cash Equivalents. Cash and cash equivalents decreased $3.6 million, or 41.1%, from $8.7 million at December 31, 2013 to $5.1 million at September 30, 2014, as excess liquidity was used to fund loan growth.

Loans Receivable, Net. Loans receivable, net, increased by $13.9 million, or 7.0%, to $213.2 million at September 30, 2014, compared to $199.3 million at December 31, 2013. During the nine months ended September 30, 2014, our total loan originations and purchases amounted to $37.7 million and loan principal payments were $23.7 million. All of our loans are originated for our portfolio. The increase in loans receivable, net, was primarily due to increases in residential construction loans of $4.3 million, commercial real estate loans of $3.6 million, one-to-four family residential loans of $3.3 million, multi-family residential loans of $2.2 million, and home equity lines of credit of $937,000. These increases were partially offset by decreases of $146,000 in consumer non-real estate loans, $84,000 in land loans, and $45,000 in commercial business loans.

Investment Securities. Investment and mortgage-backed securities amounted to $37.7 million at September 30, 2014 compared to $38.3 million at December 31, 2013, a decrease of $564,000, or 1.5%. The decrease in mortgage-backed securities at September 30, 2014, was due to paydowns received during the nine-month period, offset by unrealized gains on available-for-sale securities.

Premises and Equipment, Net. Premises and equipment, net, decreased $173,000, to $8.1 million at September 30, 2014, compared to $8.2 million at December 31, 2013, primarily due to depreciation of fixed assets.

Other Real Estate Owned, Net. Other real estate owned (OREO) amounted to $150,000 at September 30, 2014, consisted one property, compared to none at December 31, 2013. During the nine months ended September 30, 2014, the Company transferred two properties in the amount of $226,000 to OREO, and sold one property totaling $35,000.

Total liabilities. Total liabilities increased $10.2 million, at September 30, 2014, to $227.4 million compared to $217.1 million at December 31, 2013, primarily due to an increase of $10.5 million in advances from the Federal Home Loan Bank. Deposits decreased $1.2 million, or 0.7%, to $158.0 million at September 30, 2014, compared to $159.1 million at December 31, 2013, primarily due to decreases in interest bearing checking accounts of $2.5 million, or 13.7%, certificates of deposits of $555,000, or 0.6%, and a $182,000, or 1.7% decrease in money market deposit accounts, partially offset by a $2.0 million, or 22.1% increase in non-interest bearing checking accounts, and an increase of $99,000, or 0.4%, in passbook savings accounts. We had $66.5 million of advances from the Federal Home Loan Bank at September 30, 2014 compared to $56.0 million at December 31, 2013, an increase of $10.5 million, or 18.7%. The increase in Federal Home Loan Bank advances was to fund loan originations and cover deposit outflows.

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

Total Stockholders’ Equity. Total stockholders’ equity amounted to $41.5 million at September 30, 2014, compared to $41.6 million at December 31, 2013, a decrease of $39,000, or 0.1%. The reason for the decrease in our total stockholders’ equity was primarily due to the purchase of $1.3 million of treasury stock, under the Company’s stock repurchase programs, partially offset by net income of $836,000 for the nine months ended September 30, 2014, an increase in unrealized gain on securities available -for -sale of $77,000, net of the deferred tax effect and amortization of stock awards and options under our stock compensation plans of $97,000, the release of $156,000 in ESOP shares and release of $94,000 in Recognition and Retention Plan shares.

Comparison of Operating Results for the Three and Nine months Ended September 30, 2014 and 2013

General. The Company’s net income amounted to $344,000 for the three months ended September 30, 2014, an increase of $217,000, compared to net income of $127,000 for the three months ended September 30, 2013. This increase was primarily due to an increase in net interest income of $466,000, or 25.6%, partially offset by an increase in non-interest expense of $135,000, or 8.4%, and an increase of $105,000, or 115.4%, in the provision for income taxes. The increase in net interest income was due to an increase of $481,000, or 19.5%, in total interest income in the third quarter of 2014 primarily as a result of increases in interest earning assets.

The Company’s net income amounted to $836,000 for the nine months ended September 30, 2014, an increase of $507,000, compared to net income of $329,000 for the nine months ended September 30, 2013. This increase was primarily due to an increase in net interest income of $1.0 million, or 18.3%, an increase in non-interest income of $21,000, or 16.0%, and a decrease of $6,000, or 3.9%, in the provision for loan losses. This was partially offset by an increase in the provision for income taxes of $325,000, or 132.7%, and an increase in non-interest expense of $217,000, or 4.4%. The increase in net interest income was due to an increase of $1.1 million, or 14.0%, in total interest income for the nine months ended September 30, 2014 primarily as a result of an overall increase in interest earning assets.

Net Interest Income. Net interest income amounted to $2.3 million for the three months ended September 30, 2014, compared to $1.8 million for the three months ended September 30, 2013. The $466,000, or 25.6%, increase was primarily due to a $481,000 increase in total interest income partially offset by an increase of $15,000, or 2.3% in total interest expense. Interest paid on deposits decreased $8,000, while interest on Federal Home Loan Bank advances increased $23,000 for the three months ended September 30, 2014, compared to the prior year period.

Net interest income amounted to $6.6 million for the nine months ended September 30, 2014 compared to $5.6 million for the nine months ended September 30, 2013. The $1.0 million, or 18.3%, increase was primarily due to an increase in interest income of $1.1 million, and a decrease in interest paid on deposits of $80,000, which partially offset the $103,000 increase in interest paid on Federal Home Loan Bank advances for the nine months ended September 30, 2014, compared to the prior year period.

The average interest rate spread was 3.38% and 2.85% for the three months ended September 30, 2014 and 2013, respectively. Average interest-earning assets to average interest-bearing liabilities decreased from 120.89% for the three months ended September 30, 2013 to 119.85% for the three months ended September 30, 2014. The increase in average interest rate spread reflects the 46 basis point increase in the average yield on interest earning assets from 4.16% for the third quarter of 2013 to 4.63% for the third quarter of 2014 and the 8 basis point decrease in average rate paid on interest-bearing liabilities from 1.32% for the third quarter of 2013 to 1.24% for the third quarter of 2014. Net interest margin increased 51 basis points from 3.07% to 3.59% for the three months ended September 30, 2013 and 2014, respectively.

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

The average interest rate spread increased 37 basis points from 2.95% for the nine months ended September 30, 2013 to 3.32% for the nine months ended September 30, 2014, and average interest-earning assets increased from $232.3 million to $249.7 million during the same period. Average interest-earning assets to average interest-bearing liabilities decreased from 122.39% for the nine months ended September 30, 2013 to 119.30% for the nine months ended September 30, 2014. The increase in the average interest rate spread primarily reflects the 26 basis point increase in the average yield on interest earning assets from 4.30% for the nine months ended September 30, 2013 to 4.56% for the nine months ended September 30, 2014. The average rate paid on interest-bearing liabilities decreased 11 basis points from 1.35% for the nine months ended September 30, 2013 to 1.24% for the nine months ended September 30, 2014. Net interest margin increased 32 basis points from 3.20% to 3.52% for the nine months ended September 30, 2013 and 2014, respectively.

Interest income increased $481,000 or 19.5%, to $2.9 million for the three months ended September 30, 2014, compared to $2.5 million for the third quarter of 2013. The increase was primarily due to an $18.0 million increase in average interest earning assets, due to a 34 basis point increase in average yield on mortgage backed securities from 0.85% for the third quarter of 2013 to 1.19% for the third quarter of 2014, and a 31 basis point increase in the average yield on loans receivable from 5.01% for the third quarter of 2013 to 5.32% for the third quarter of 2014.

Interest income increased by $1.1 million, or 14.0%, to $8.5 million for the nine months ended September 30, 2014 compared to $7.5 million for the nine months ended September 30, 2013. The increase was primarily due to a $17.4 million increase in average interest earning assets. In addition, contributing to an increase in interest income was a four basis point increase in average yield on loans receivable from 5.21% for the nine months ended September 30, 2013 to 5.25% for the nine months ended September 30, 2014.

Interest expense increased by $15,000, or 2.3%, to $659,000 for the three months ended September 30, 2014, compared to $644,000 for the three months ended September 30, 2013, primarily as a result of a $16.7 million increase in average interest-bearing liabilities, partially offset by a 29 basis point decrease in the average cost on Federal Home Loan Bank advances. The decrease in average rate of total deposits is due to a decline in cost of certificates of deposit as higher cost certificates of deposit re-priced at a lower rate during the period. The increase in Federal Home Loan Bank advances was to fund loan originations and cover deposit outflows.

Interest expense increased by $23,000, or 1.2%, and totaled $1.9 million for the nine months ended September 30, 2014 and 2013. An increase of $19.5 million in average interest-bearing liabilities, was offset by a 30 basis point decrease in the average cost on Federal Home Loan Bank advances, and a four basis point decrease in the average rate paid on certificates of deposit accounts. The decrease in average rate is due to a decline in cost of certificates of deposit as higher cost certificates of deposit re-priced at a lower rate during the period.

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

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, the average interest rate spread and the net interest margin. As the Company owned no tax-exempt securities during the periods presented, no tax-equivalent yield adjustments were made. All average balances are based on monthly balances. Management does not believe that the monthly averages differ significantly from what the daily averages would be.


	Three Months Ended September 30,
	2014							2013
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
					(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)	$	212,993	$	2,831		5.32	%	$	189,620	$	2,373		5.01	%
Mortgage-backed securities		36,501		109		1.19	%		40,827		87		0.85	%
Other interest-earning assets		5,026		3		0.24	%		6,064		2		0.13	%
Total interest-earning assets		254,520		2,943		4.63	%		236,511		2,462		4.16	%
Non-interest-earning assets		15,427							16,583
Total assets	$	269,947						$	253,094

Interest-bearing liabilities:
Savings, NOW and money market accounts	$	53,393		24		0.18	%	$	48,988		21		0.17	%
Certificates of deposit		93,565		381		1.63	%		96,361		392		1.63	%
Total deposits		146,958		405		1.10	%		145,349		413		1.14	%
FHLB advances		65,410		254		1.55	%		50,296		231		1.84	%
Total interest-bearing liabilities		212,368		659		1.24	%		195,645		644		1.32	%
Non-interest-bearing liabilities		16,074							14,912
Total liabilities		228,442							210,557

Equity		41,505							42,537
Total liabilities and equity	$	269,947						$	253,094

Net interest-earning assets	$	42,152						$	40,866

Net interest income, average interest rate spread			$	2,284		3.38	%			$	1,818		2.85	%

Net interest margin(2)						3.59	%						3.07	%

Average interest earning assets to average interest bearing liabilities						119.85	%						120.89	%

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

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

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

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


	Nine months Ended September 30,
	2014							2013
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
	(Dollars in thousand)
Interest-earning assets:
Loans receivable(1)	$	207,930	$	8,194		5.25	%	$	182,321	$	7,126		5.21	%
Mortgage-backed securities		36,976		334		1.20	%		43,165		359		1.11	%
Other interest-earning assets		4,800		8		0.22	%		6,841		6		0.12	%
Total interest-earning assets		249,706		8,536		4.56	%		232,327		7,491		4.30	%
Non-interest-earning assets		15,154							15,661
Total assets	$	264,860						$	247,988

Interest-bearing liabilities:
Savings, NOW and money market accounts	$	54,113		69		0.17	%	$	46,186		61		0.18	%
Certificates of deposit		93,163		1,113		1.59	%		98,280		1,201		1.63	%
Total deposits		147,276		1,182		1.07	%		144,466		1,262		1.16	%
FHLB advances		62,026		762		1.64	%		45,362		659		1.94	%
Total interest-bearing liabilities		209,302		1,944		1.24	%		189,828		1,921		1.35	%
Non-interest-bearing liabilities		14,250							15,164
Total liabilities		223,552							204,992

Equity		41,308							42,997
Total liabilities and equity	$	264,860						$	247,989

Net interest-earning assets	$	40,404						$	42,499

Net interest income, average interest rate spread			$	6,592		3.32	%			$	5,570		2.95	%

Net interest margin(2)						3.52	%						3.20	%

Average interest earning assets to average interest bearing liabilities						119.30	%						122.39	%

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

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

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

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 nine months ended September 30, 2014, we made a provision of $150,000. 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, and gains or losses or write-downs on other real estate owned, was $55,000 for the three months ended September 30, 2014, a decrease of $9,000 compared to non-interest income of $64,000 for the three months ended September 30, 2013.

Non-interest income, which includes fees and service charges, and gains or losses or write-downs of other real estate owned, was $152,000 for the nine months ended September 30, 2014, an increase of $21,000 compared to non-interest income of $131,000 for the nine months ended September 30, 2013. The increase was primarily due to a $40,000 loss on other real estate for the nine months ended September 30, 2013 compared to a $4,000 loss for the nine months ended September 30, 2014.

Non-Interest Expense. Non-interest expense increased by $135,000, or 8.4%, to $1.8 million for the three months ended September 30, 2014, from $1.6 million for the three months ended September 30, 2013. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits of $56,000, or 6.5%, as well as an increase of $42,000, or 210.0%, in taxes and licenses, an increase of $20,000, or 13.9%, in data processing expense, an increase of $20,000, or 133.3%, in bank service charge expense, an increase of $13,000, or 10.5%, in occupancy expense, an increase of $5,000, or 9.8%, in security expense, and an increase of $3,000, or 23.1%, in advertising expense, partially offset by decreases of $12,000, or 5.6% in other non-interest expense, $6,000, or 14.0% in deposit insurance premiums, $4,000 or 4.1%, in professional fees, and $2,000, or 8.0% in office supplies and postage expense.

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

Non-interest expense increased by $217,000, or 4.4%, to $5.2 million for the nine months ended September 30, 2014. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits of $130,000, or 5.0%, as well as increases of $37,000, or 102.8%, in bank service charge expense, $31,000, or 36.5%, in deposit insurance premiums, $18,000, or 4.8%, in occupancy expense, $11,000, or 6.0%, in taxes and licenses, $6,000, or 2.0%, in professional fees, $4,000, or 0.9%, in data processing expense, and $3,000, or 0.5%, in other non-interest expense, partially offset by decreases of $16,000, or 31.4%, in advertising expense, $5,000 or 2.9% in security expense, and $2,000, or 2.6%, in office supplies and postage expense.

Income Tax Expense. The income tax expense amounted to $196,000 and $91,000 for the three months ended September 30, 2014 and 2013, respectively. Our effective federal tax rate was 36.3% and 41.7% for the three months ended September 30, 2014 and 2013, respectively.

The income tax expense amounted to $570,000 and $245,000 for the nine months ended September 30, 2014 and 2013, respectively. Our effective federal tax rate was 40.5% and 42.7% for the nine months ended September 30, 2014 and 2013, respectively.

Liquidity and Capital Resources

The Company maintains levels of liquid assets deemed adequate by management. The Company adjusts its liquidity levels to fund deposit outflows, repay its borrowings and to fund loan commitments. The Company also adjusts liquidity as appropriate to meet asset and liability management objectives.

The Company’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. The Company sets the interest rates on its deposits to maintain a desired level of total deposits. In addition, the Company invests excess funds in short-term interest-earning accounts and other assets, which provide liquidity to meet lending requirements.

A significant portion of the Company’s liquidity consists of interest bearing and non-interest earning deposits. The Company’s primary sources of cash are principal repayments on loans and increases in deposit accounts. If the Company requires funds beyond its ability to generate them internally, borrowing agreements exist with the Federal Home Loan Bank of Dallas, which provide an additional source of funds. At September 30, 2014, the Company had $66.5 million of advances from the Federal Home Loan Bank of Dallas and had $64.6 million in additional borrowing capacity. Additionally, at September 30, 2014, State-Investors Bank was a party to a Master Purchase Agreement with First National Bankers Bank whereby State-Investors Bank 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 September 30, 2014.

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

At September 30, 2014, the Company had outstanding loan commitments of $1.1 million to originate loans. At September 30, 2014, certificates of deposit scheduled to mature in less than one year totaled $45.5 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. The Company intends to utilize its liquidity to fund its lending activities.

At September 30, 2014, State-Investors Bank exceeded each of its capital requirements with tier 1 leverage, tier 1 risk-based and total risk-based capital ratios of 14.09%, 23.36% and 24.19%, respectively. As a savings and loan holding company, State Investors Bancorp is not currently subject to any regulatory capital requirements.

Impact of Inflation and Changing Prices

The financial statements and related financial data presented herein regarding the Company 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 the Company’s assets and liabilities are monetary in nature. As a result, interest rates generally have a more significant impact on the Company’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 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4 – CONTROLS AND PROCEDURES.

Our management evaluated, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer 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.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS.

There are no matters required to be reported under this item.

ITEM 1A – RISK FACTORS.

Not applicable.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

Not applicable.

(b)

Not applicable.

(c)

Purchases of Equity Securities

The Company’s repurchases of its common stock made during the quarter ended September 30, 2014 are set forth in the table below:


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs (a)(b)
July 1, 2014 – July 31, 2014		1,000	$	16.80		1,000		40,367
August 1, 2014 – August 31, 2014		--		--		--		40,367
September 1, 2014 – September 30, 2014		11,500		16.25		11,500		28,867
Total		12,500	$	16.36		12,500		28,867

Notes to this table:

(a)

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 issued and outstanding shares of common stock. The repurchase program does not have an expiration date.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES.

There are no matters required to be reported under this item.

ITEM 4 – MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5 – OTHER INFORMATION.

There are no matters required to be reported under this item.

ITEM 6 – EXHIBITS.

List of exhibits: (filed herewith unless otherwise noted)

	No.		Description
	10.1		Employment Agreement between State Investors Bank and Anthony S. Sciortino, Jr.*
	31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer
	31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer
	32.1		Section 1350 Certification
	101.INS		XBRL Instance Document.
	101.SCH		XBRL Taxonomy Extension Schema Document.
	101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
	101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
	101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
	101.DEF		XBRL Taxonomy Extension Definitions Linkbase Document.


	* Denotes a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements 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.


Date: November 14, 2014	By:	/s/ Anthony S. Sciortino
		Anthony S. Sciortino
		President and Chief Executive Officer


Date: November 14, 2014	By:	/s/ Daniel McGowan
		Daniel McGowan
		Chief Financial Officer

STATE INVESTORS BANCORP, INC. - FORM 10-Q - November 14, 2014

Attached files

STATE INVESTORS BANCORP, INC. Reports