Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Simplicity Bancorp, Inc. (1412109) 10-Q published on Feb 09, 2015 at 1:30 pm
Reporting Period: Dec 30, 2014
Our success depends primarily on the general economic conditions in the California counties of Los Angeles, Orange, San Diego, San Bernardino, Riverside, Santa Clara and Alameda, as nearly all of our loans are to customers in this market area. There have been positive developments in current economic conditions in our market area since the end of the recession. Improving financial conditions, increasing credit availability, accommodative monetary policy, and healthier labor and housing markets all support the economic growth in our market area. According to the Beige Book published by the Federal Reserve in January 2015, economic activity in the U.S. continued to expand at a modest to moderate pace from mid-November 2014 to late-December 2014. In the Twelfth Federal Reserve District (San Francisco), activity in real estate markets advanced, mainly in the commercial construction sector. The pace of new single-family home construction increased modestly with relatively more activity in urban areas than in rural areas. Multifamily residential real estate construction activity was strong; retail, office, industrial, or infrastructure projects also were widespread. Lending activity was mixed and the increase in loan demand was mostly in the construction segment. Overall loan demand remained somewhat weak. Stiff competition for high-quality borrowers exerted downward pressure on loan interest rates, and declines in net interest margins were widespread in our market area. Compressed margins contributed to increased acquisitions as smaller banks combined in order to reduce operating costs. Future growth opportunities will be influenced by the stability of the nation and the regional economy and other trends within California, including unemployment rates and housing market conditions.
Provision for Loan Losses. Provision for loan losses reversal of $400,000 was recorded for the three months ended December 31, 2014 as compared to a $300,000 provision for loan losses reversal for the same period last year. The improvement in the provision during the current period was primarily a result of a lower level of classified and criticized loans and a decline in net charge-offs and loss factors on loans collectively evaluated for impairment. Annualized net charge-offs decreased to 0.01% of average outstanding loans for the three months ended December 31, 2014 as compared to 0.08% of average outstanding loans for the same period last year. Non-performing assets decreased to $7.8 million, or 0.90% of total assets at December 31, 2014 as compared to $7.9 million, or 0.90% of total assets at June 30, 2014. Delinquent loans 60 days or more past due were $1.2 million or 0.18% of total loans at December 31, 2014 as compared to $1.1 million or 0.16% of total loans at June 30, 2014. Loans 30 to 59 days delinquent totaled $1.7 million, or 0.25% of total loans at December 31, 2014, as compared to $3.3 million, or 0.47% of total loans at June 30, 2014. Loans 30 to 59 days delinquent were either criticized or classified assets. Some loans 30 to 59 days delinquent were individually evaluated for impairment and others were collectively evaluated for impairment with additional qualitative adjustments factored in due to loan classification.
The reversal of provision for loan losses for the three months ended December 31, 2014 was comprised of a $217,000 reduction in provision on one-to-four family loans, a $145,000 reduction in provision on multi-family loans, a $153,000 reduction in provision on commercial real estate loans, a $50,000 provision on automobile loans, and a $65,000 provision on other loans. The decrease in provision on one-to-four family residential loans was primarily due to a decline in the overall historical loss factors on one-to-four family loans collectively evaluated for impairment and a decrease in the one-to-four family residential loan balance collectively evaluated for impairment. The decrease in provision on multi-family loans was primarily due to a lower level of criticized and classified multi-family loans as well as a decline in the overall historical loss factors and balance of multi-family loans collectively evaluated for impairment. The reduction in provision on commercial real estate loans was primarily due to a lower level of criticized and classified commercial real estate loans, a decline in the overall historical loss factors and a reduction in the balance of commercial real estate loans collectively evaluated for impairment.
The increase in provision on automobile loans and other loans was primarily caused by an increase in loss factors and higher balance of unsecured loans collectively evaluated for impairment. The provision reflects management’s continuing assessment of the credit quality of the Company’s loan portfolio, which is affected by various trends, including current economic conditions.
During the three and six months ended December 31, 2014, a $400,000 and $750,000 reversal of provision for loan losses was recorded as compared to a $300,000 reversal of provision for loan losses for the three and six months ended December 31, 2013. The improvement in the provision during the current period was primarily a result of a lower level of criticized and classified loans and a decline in net charge-offs and loss factors on loans collectively evaluated for impairment. Net recoveries of $84,000 recorded during the six months ended December 31, 2014 resulted in annualized net recoveries of 0.02% of average outstanding loans for the six months ended December 31, 2014 as compared to annualized net charge-offs of 0.09% of average outstanding loans for the same period last year. Non-performing assets decreased to $7.8 million, or 0.90% of total assets at December 31, 2014 as compared to $7.9 million, or 0.90% of total assets at June 30, 2014. Delinquent loans 60 days or more past due was $1.2 million or 0.18% of total loans at December 31, 2014 as compared to $1.1 million or 0.16% of total loans at June 30, 2014. The allowance for loan losses to non-performing loans was 50.19% at December 31, 2014 as compared to 59.88% at June 30, 2014. The decrease in the allowance for loan losses to non-performing loans was primarily a result of a decrease in the allowance for loan losses for the six months ended December 31, 2014. The provision reflected management’s continuing assessment of the credit quality of the Company’s loan portfolio, which is affected by various trends, including current economic conditions.
On January 8, 2015, the Company, the individual director defendants of the Company and HomeStreet entered into a Memorandum of Understanding (the “MOU”) with the Plaintiff regarding the settlement of the lawsuit. Pursuant to the MOU, the Company agreed to provide additional information to Simplicity stockholders in its definitive proxy statement filed with the SEC on January 6, 2015. The Company, HomeStreet and the other defendants deny all of the allegations in the lawsuit. The Company and the individual director defendants of the Company believe the disclosures in the preliminary proxy statement of the Company filed with the SEC on December 10, 2014 were adequate under the law. Nevertheless, the Company, HomeStreet and the other defendants agreed to additional disclosures in the Company’s definitive proxy statement to settle the lawsuit in order to avoid the costs, disruption, and distraction of further litigation.