State Investors Bancorp (SIBC) 10-Q 2013 Q3 Quarterly report

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, 2013
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, 2013, 2,423,534 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, 2013			December 31, 2012
	(Unaudited)			(Audited)
ASSETS
Cash – non-interest bearing	$	8,086		$	8,591
Cash – interest bearing		1,563			4,138
Cash and cash equivalents		9,649			12,729
Investment securities:
Available-for-sale		39,718			46,074
Held-to-maturity		339			400
Loans, net		194,101			174,832
Federal Home Loan Bank Stock		2,240			1,774
Accrued interest receivable		998			1,029
Premises and equipment, net		8,092			8,287
Deferred income taxes		320			162
Other real estate, net		116			--
Other assets		537			668
TOTAL ASSETS	$	256,110		$	245,955
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Deposits	$	159,014		$	161,163
Advances from Federal Home Loan Bank		52,197			39,286
Advance payments by borrowers for taxes and insurance		1,387			1,027
Accrued interest payable		81			81
Other liabilities		1,256			896
TOTAL LIABILITIES		213,935			202,453
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; 2,451,952 outstanding at September 30, 2013 and 2,565,992 outstanding at December 31, 2012		29			29
Additional Paid-in Capital		28,264			28,166
Treasury stock, 457,548 shares and 343,508 shares, at cost		(6,323	)		(4,636	)
Unallocated ESOP shares		(2,066	)		(2,153	)
Unallocated Recognition and Retention Plan (RRP) shares		(1,361	)		(1,517	)
Retained earnings		23,236			22,907
Accumulated other comprehensive income		396			706
TOTAL STOCKHOLDERS’ EQUITY		42,175			43,502
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	256,110		$	245,955

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

1

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
	(Unaudited)						(Unaudited)
INTEREST INCOME:
Interest and fees on loans	$	2,373			$	2,428	$	7,126		$	7,247
Interest on investment securities		87				196		359			652
Other interest and dividends		2				2		6			7
TOTAL INTEREST INCOME		2,462				2,626		7,491			7,906
INTEREST EXPENSE:
Interest on deposits		413				462		1,262			1,426
Interest on Federal Home Loan Bank advances		231				215		659			607
TOTAL INTEREST EXPENSE		644				677		1,921			2,033
NET INTEREST INCOME		1,818				1,949		5,570			5,873
PROVISION FOR LOAN LOSSES		50				30		156			92
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		1,768				1,919		5,414			5,781
NON-INTEREST INCOME:
Service charges and fees		68				60		171			188
Net loss on sale/writedown of other real estate		(4	)			--		(40	)		--
TOTAL NON-INTEREST INCOME		64				60		131			188
NON-INTEREST EXPENSES:
Salaries and employee benefits		868				853		2,626			2,516
Occupancy expense		144				208		560			548
Data processing		144				141		424			354
Security		51				60		170			182
Deposit insurance premiums		43				64		85			178
Advertising		13				10		51			34
Professional fees		97				97		307			333
Office supplies and postage		25				30		78			107
Other		229				203		670			687
TOTAL NON-INTEREST EXPENSES		1,614				1,666		4,971			4,939
INCOME BEFORE INCOME TAXES		218				313		574			1,030
INCOME TAX EXPENSE		91		��		105		245			375
NET INCOME	$	127			$	208	$	329		$	655
Earnings Per Common Share
Basic	$	0.05			$	0.07	$	0.13		$	0.23
Diluted	$	0.05			$	0.07	$	0.13		$	0.23

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

2

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,
	2013			2012		2013			2012
	(Unaudited)					(Unaudited)
Net income	$	127		$	208	$	329		$	655
Other Comprehensive Income
Unrealized gains (losses) on investment securities (net of (taxes) benefit of $82, ($131), $159 and $(291),  respectively)		(164	)		256		(310	)		565
COMPREHENSIVE INCOME (LOSS)	$	(37	)	$	464	$	19		$	1,220

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

3

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

																	Accumulated
			Additional			Treasury			Unallocated			Unearned					Other			Total
	Common		Paid In			Stock			ESOP			RRP			Retained		Comprehensive			Stockholders’
	Stock		Capital			At Cost			Shares			Shares			Earnings		Income			Equity
	(Unaudited)
Balance at December 31, 2011	$	29	$	27,910		$	--		$	(2,269	)	$	--		$	22,155	$	146		$	47,971
Comprehensive Income:
Net Income		--		--			--			--			--			655		--			655
Other Comprehensive Income		--		--			--			--			--			--		565			565
Shares purchased for     Recognition and Retention     Plan (RRP)		--		--			--			--			(1,078	)		--		--			(1,078	)
ESOP shares released for allocation		--		19			--			87			--			--		--			106
Share based compensation cost		--		59			--			--			106			--		--			165
Treasury Stock acquired at cost, 35,668 shares		--		--			(466	)		--			--			--		--			(466	)
Balance at September 30, 2012	$	29	$	27,988		$	(466	)	$	(2,182	)	$	(972	)	$	22,810	$	711		$	47,918
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 (loss)		--		--			--			--			--			--		(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, 114,040 shares		--		--			(1,687	)		--			--			--		--			(1,687	)
Balance at September 30, 2013	$	29	$	28,264		$	(6,323	)	$	(2,066	)	$	(1,361	)	$	23,236	$	396		$	42,175

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

4

STATE INVESTORS BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2013			2012
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	329		$	655
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		156			92
Depreciation and amortization		209			226
Amortization of securities		455			351
Stock dividend on FHLB stock		(5	)		(6	)
Deferred income taxes provision (benefit)		1			(124	)
Non-cash compensation		341			271
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable		31			(87	)
Decrease in other assets		131			279
Decrease in accrued interest payable		--			(10	)
Increase in other liabilities		360			391
NET CASH PROVIDED BY OPERATING ACTIVITIES		2,008			2,038
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans		(19,541	)		(4,188	)
Proceeds from principal repayments of mortgage-backed securities		8,375			5,051
Purchases of mortgage-backed securities		(2,882	)		--
Redemption of FHLB stock		--			785
Purchase of FHLB stock		(461	)		(434	)
Purchases of premises and equipment		(14	)		(10	)
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(14,523	)		1,204
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposit accounts		(2,149	)		(501	)
Increase in advances by borrowers for insurance and taxes		360			457
Advances from FHLB		24,625			60,000
Payments on advances from the FHLB		(11,714	)		(60,265	)
Stock purchased for Recognition and Retention Plan		--			(1,078	)
Purchase of Treasury Stock		(1,687	)		(466	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		9,435			(1,853	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,080	)		1,389
CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD		12,729			7,700
CASH AND CASH EQUIVALENTS – END OF PERIOD	$	9,649		$	9,089
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest on deposits and borrowings	$	1,921		$	2,042
Income taxes	$	271		$	368
Transfer from loans to other real estate	$	116		$	--

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

5

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, 2013, 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, 2012, 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.

6

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.

7

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 April 2011, the FASB issued ASU 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.  ASU 2011-02 provided additional clarification for creditors in determining whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for purposes of determining whether a restructuring constituted a troubled debt restructuring.  ASU 2011-02 is effective for annual periods ending on or after December 15, 2012.  The disclosure requirements contained in ASU 2011-02 are presented in the financial statements in the Loans and Allowance for Loan Losses footnote as of September 30, 2013 and December 31, 2012.

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income.  ASU 2011-05 required entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate consecutive statements.  The effective date for ASU 2011-05 is for the first interim or annual period beginning on or after December 15, 2011.  The adoption of ASU 2011-05 did not have a material impact on the Company’s results of operations or financial position.  It did require a change in presentation of stockholders’ equity, as the Company previously presented comprehensive income in its consolidated statement of changes in stockholders’ equity.

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  The objective of ASU 2013-02 is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendments included in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in financial statements.  However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. For public entities, the amendments are effective prospectively for reporting periods beginning after December 15, 2012.  As the adoption of ASU 2013-02 amends only disclosure requirements, the adoption had no impact on the Company’s results of operations or financial position.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 1 – Basis of Presentation (Continued)

Reclassifications

Certain reclassifications have been made to the 2012 financial statements to conform with the 2013 financial statement presentation. Such reclassifications had no effect on net income or retained earnings as previously reported.

Subsequent Events

The Company evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements.

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, 2013
Held-to-maturity:
GNMA Certificates	$	271	$	11	$	--		$	282
FNMA Certificates		56		2		--			58
FHLMC Certificates		12		1		--			13
Total held-to-maturity securities		339		14		--			353
Available-for-sale:
GNMA Certificates		39,117		620		(19	)		39,718
Total securities	$	39,456	$	634	$	(19	)	$	40,071

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 2 – Investment Securities (Continued)

Mortgage-backed securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
			(In thousands)
December 31, 2012
Held-to-maturity:
GNMA Certificates	$	310	$	13	$	--	$	323
FNMA Certificates		74		3		--		77
FHLMC Certificates		16		--		--		16
Total held-to-maturity securities		400		16		--		416
Available-for-sale:
GNMA Certificates		45,003		1,071		--		46,074
Total securities	$	45,403	$	1,087	$	--	$	46,490

The amortized cost and fair values of the securities at September 30, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Held-to-Maturity				Available-for-Sale
Mortgage-backed securities	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
September 30, 2013
Amounts maturing in:
One year or less	$	5	$	5	$	--	$	--
After one year through five years		334		348		35,417		35,867
After five years through ten  years		--		--		3,022		3,145
After ten years		--		--		678		706
	$	339	$	353	$	39,117	$	39,718

There were no sales or calls of available for sale securities during the nine months ended September 30, 2013 or 2012.

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.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 2 – Investment Securities (Continued)

Gross unrealized losses in investment securities at September 30, 2013, 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.

	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)
GNMA certificates    (2 securities)	$	1,863	$	(19	)	$	--	$	--	$	1,863	$	(19	)
Totals	$	1,863	$	(19	)	$	--	$	--	$	1,863	$	(19	)

At December 31, 2012, there were no unrealized losses in investment securities.

Note 3 - Loans and the Allowance for Loan Losses

Loans receivable at September 30, 2013 and December 31, 2012, are summarized as follows:

	September 30, 2013			December 31, 2012
	(In thousands)
Real estate loans:
1 to 4 family residential	$	129,455		$	121,595
Commercial real estate		50,447			37,284
Multi-family residential		5,526			5,421
Land		3,379			2,916
Residential construction		2,858			2,309
Total real estate loans		191,665			169,525
Other loans:
Home equity lines of credit		1,876			4,641
Consumer non-real estate loans		1,281			1,560
Commercial business loans		669			675
Total other loans		3,826			6,876
Total loans		195,491			176,401
Less:
Deferred loan fees		(234	)		(133	)
Allowance for loan losses		(1,156	)		(1,436	)
Net loans	$	194,101		$	174,832

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.

11

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, 2013 and year ended December 31, 2012, the balance of the allowance for loan losses by portfolio segment, disaggregated by impairment methodology, which is then further segregated by amounts evaluated for impairment collectively and individually. The allowance for loan losses allocated to each portfolio segment is not necessarily indicative of future losses in any particular portfolio segment and does not restrict the use of the allowance to absorb losses in other portfolio segments.

Allowance for Credit Losses and Recorded Investment in Loans Receivable for the Nine Months Ended September 30, 2013 and Year Ended December 31, 2012

	Mortgage- Permanent- 1 to 4 Family			Mortgage- Permanent- Other			Mortgage- Construction		Commercial		Consumer			Total
	(In thousands)
September 30, 2013
Allowance for credit losses:
Beginning balance	$	578		$	844		$	9	$	--	$	5		$	1,436
Charge-offs		(104	)		(322	)		--		--		(10	)		(436	)
Recoveries		--			--			--		--		--			--
Provision		(3	)		143			4		3		9			156
Ending balance	$	471		$	665		$	13	$	3	$	4		$	1,156
Ending balance:
Individually evaluated for
impairment	$	30		$	--		$	--	$	--	$	--		$	30
Ending balance:
Collectively evaluated for
impairment	$	441		$	665		$	13	$	3	$	4		$	1,126
Loans receivable:
Ending balance	$	131,331		$	59,352		$	2,858	$	669	$	1,281		$	195,491
Ending balance:
Individually evaluated for impairment	$	1,393		$	2,244		$	--	$	--	$	--		$	3,637
Ending balance:
Collectively evaluated for impairment	$	129,938		$	57,108		$	2,858	$	669	$	1,281		$	191,854

12

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, 2012
Allowance for credit losses:
Beginning balance	$	1,168		$	387		$	30		$	--	$	11		$	1,596
Charge-offs		(12	)		(290	)		--			--		--			(302	)
Recoveries		--			--			--			--		--			--
Provision		(578	)		747			(21	)		--		(6	)		142
Ending balance	$	578		$	844		$	9		$	--	$	5		$	1,436
Ending balance:
Individually evaluated for
impairment	$	121		$	--		$	--		$	--	$	--		$	121
Ending balance:
Collectively evaluated for
impairment	$	457		$	844		$	9		$	--	$	5		$	1,315
Loans receivable:
Ending balance	$	126,236		$	45,621		$	2,309		$	675	$	1,560		$	176,401
Ending balance:
Individually evaluated for
impairment	$	1,834		$	2,909		$	--		$	--	$	10		$	4,753
Ending balance:
Collectively evaluated for
impairment	$	124,402		$	42,712		$	2,309		$	675	$	1,550		$	171,648

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.

As of September 30, 2013 and December 31, 2012, loan balances past due more than 90 days and still accruing interest amounted to $­646,000 and $326,000, respectively. As of September 30, 2013 and December 31, 2012, loan balances on non-accrual status amounted to $2.18 million and $2.95 million, respectively. Non-accrued loans at September 30, 2013 include one impaired multi-family loan that is being paid in accordance with its terms and not considered delinquent.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

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

At September 30, 2013 and December 31, 2012, the credit quality indicators, disaggregated by class of loan, are presented in the following tables.

	September 30, 2013
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
1 to 4 family residential	$	124,468	$	1,647	$	3,340	$	--	$	129,455
Commercial real estate		48,287		255		1,905		--		50,447
Multi-family residential		4,326		--		1,200		--		5,526
Land		3,379		--		--		--		3,379
Residential construction		2,858		--		--		--		2,858
Home equity lines of credit		1,841		35		--		--		1,876
Consumer non-real estate loans		1,281		--		--		--		1,281
Commercial business loans		660		--		9		--		669
Total Loans	$	187,100	$	1,937	$	6,454	$	--	$	195,491

	December 31, 2012
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
1 to 4 family residential	$	118,085	$	2,365	$	1,145	$	--	$	121,595
Commercial real estate		35,203		1,145		936		--		37,284
Multi-family residential		3,861		--		1,560		--		5,421
Land		2,916		--		--		--		2,916
Residential construction		2,309		--		--		--		2,309
Home equity lines of credit		4,641		--		--		--		4,641
Consumer non-real estate loans		1,540		--		20		--		1,560
Commercial business loans		675		--		--		--		675
Total Loans	$	169,230	$	3,510	$	3,661	$	--	$	176,401

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, 2013.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

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

The following tables reflect certain information with respect to the loan portfolio delinquencies by loan class and amount as of September 30, 2013 and December 31, 2012:

Aged Analysis of Past Due Loans Receivable as of September 30, 2013 and December 31, 2012

	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, 2013
Mortgage Loans:
Permanent:
1 to 4 family	$	2,116	$	1,949	$	863	$	4,928	$	126,403	$	131,331	$	646
Multifamily		--		--		--		--		5,526		5,526		--
Commercial RE		748		--		636		1,384		49,063		50,447		--
Other		--		--		--		--		3,379		3,379		--
Construction-
Residential		--		--		--		--		2,858		2,858		--
Nonmortgage Loans:
Commercial		--		--		--		--		669		669		--
Consumer		--		--		--		--		1,281		1,281		--
Total	$	2,864	$	1,949	$	1,499	$	6,312	$	189,179	$	195,491	$	646

	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, 2012
Mortgage Loans:
Permanent:
1 to 4 family	$	1,919	$	491	$	772	$	3,182	$	123,054	$	126,236	$	326
Multifamily		--		--		1,560		1,560		3,861		5,421		--
Commercial RE		805		116		936		1,857		35,427		37,284		--
Other		59		55		--		114		2,802		2,916		--
Construction-
Residential		--		--		--		--		2,309		2,309		--
Nonmortgage Loans:
Commercial		--		--		--		--		675		675		--
Consumer		--		--		10		10		1,550		1,560		--
Total	$	2,783	$	662	$	3,278	$	6,723	$	169,678	$	176,401	$	326

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

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

Loan Receivables on Nonaccrual Status

	September 30, 2013		December 31, 2012
Mortgage Loans:	(In thousands)
Permanent, Secured by
1 to 4 family	$	345	$	456
Multifamily		1,200		1,560
Commercial RE		636		936
		2,181		2,952
Nonmortgage Loans:
Consumer Loans		--		--
Total  Loans on Nonaccrual Status	$	2,181	$	2,952

A summary of the impaired loans by class of loans as of and for the six months ended September 30, 2013 and year ended December 31, 2012, is as follows:

Impaired Loans as of and for the Nine Months Ended September 30, 2013 and Year Ended December 31, 2012

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2013					(In thousands)
With an allowance recorded:
Mortgage Loans:
Permanent, Secured by:
1 to 4 family	$	127	$	127	$	30	$	127	$	5
Multifamily		--		--		--		--		--
Commercial RE		--		--		--		--		--
Other		--		--		--		--		--
Construction – Residential		--		--		--		--		--
Nonmortgage Loans:
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	127	$	127	$	30	$	127	$	5
With no allowance recorded:
Mortgage Loans:
Permanent, Secured by:
1 to 4 family	$	1,266	$	1,266	$	--	$	1,266	$	47
Multifamily		1,200		1,200		--		1,200		--
Commercial RE		1,043		1,043		--		1,214		15
Other		--		--		--		--		--
Construction – Residential		--		--		--		--		--
Nonmortgage Loans:
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	3,509	$	3,509	$	--	$	3,680	$	62
Total Impaired Loans:
Mortgage Loans:
Permanent	$	3,636	$	3,636	$	30	$	3,807	$	67
Construction		--		--		--		--		--
Nonmortgage Loans:
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	3,636	$	3,636	$30­		$	3,807	$	67

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

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

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2012	(In thousands)
With an allowance recorded:
Mortgage Loans
Permanent, Secured by
1-4 Family	$	227	$	227	$	121	$	227	$	7
Multifamily		--		--		--		--		--
Commercial RE		--		--		--		--		--
Other		--		--		--		--		--
Construction – Residential		--		--		--		--		--
Nonmortgage Loans
Commercial		--		--		--		--		--
Consumer		--		--		--		--		--
	$	227	$	227	$	121	$	227	$	7
With no allowance recorded:
Mortgage Loans
Permanent, Secured by
1-4 Family	$	1,607	$	1,607	$	--	$	1,607	$	77
Multifamily		1,560		1,560		--		1,560		6
Commercial RE		1,349		1,349		--		1,494		22
Other		--		--		--		--		--
Construction – Residential		--		--		--		--		--
Nonmortgage Loans
Commercial		--		--		--		--		--
Consumer		10		10		--		10		--
	$	4,526	$	4,526	$	--	$	4,671	$	105

Total Impaired Loans:
Mortgage Loans
Permanent	$	4,743	$	4,743	$	121	$	4,888	$	112
Construction		--		--		-		--		--
Nonmortgage Loans
Commercial		10		10		--		10		--
Consumer		--		--		--		--		--
	$	4,753	$	4,753	$	121	$	4,898	$	112

17

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, 2013 and December 31, 2012.  All of these loans are included in impaired loans as of September 30, 2013 and December 31, 2012.

Modifications as of September 30, 2013

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructurings
Mortgage Loans:
Permanent		6	$	1,831	$	1,582
Construction		--		--		--
Nonmortgage Loans:
Commercial		--		--		--
Consumer		--		--		--
Total Loans		6	$	1,831	$	1,582

Modifications as of December 31, 2012

	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Troubled Debt Restructurings
Mortgage Loans:
Permanent		6	$	1,831	$	1,604
Construction		--		--		--
Nonmortgage Loans:
Commercial		--		--		--
Consumer		--		--		--
Total Loans		6	$	1,831	$	1,604

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, 2013 and December 31, 2012 are summarized as follows:

	September 30, 2013		December 31, 2012
	(In thousands)
NOW accounts	$	25,456	$	21,793
Money Market funds		9,900		8,015
Passbook savings		27,282		27,106
Certificates of deposit		96,376		104,249
	$	159,014	$	161,163

18

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, 2013 and December 31, 2012. 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, 2013
Available-for-sale:
Mortgage Backed Securities	$	39,718	$	--	$	39,718	$	--

19

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, 2012
Available-for-sale:
Mortgage Backed Securities	$	46,074	$	--	$	46,074	$	--

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, 2013
Assets
Impaired Loans	$	3,606	$	--	$	3,606	$	--
Other Real Estate	$	116	$	--	$	116	$	--

			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, 2012
Assets
Impaired Loans	$	4,632	$	--	$	4,632	$	--

20

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 account, and certain money market deposits is the amount payable at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using discounted cash flow analyses, with interest rates currently offered for deposits of similar remaining maturities.

Borrowings — The fair value of FHLB advances is estimated using the rates currently offered 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.

21

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.

	Carrying		Fair Value Measurements at September 30, 2013
	Amount		Total		Level 1		Level 2		Level 3
	(in thousands)
Financial Assets:
Cash and Short-Term Investments	$	9,649	$	9,649	$	9,649	$	--	$	--
Investment Securities
Available-for-sale		39,718		39,718		--		39,718		--
Investment Securities
Held-to-maturity		339		353		--		353		--
Loans – Net		194,101		196,000		--		--		196,000
Financial Liabilities:
Deposits	$	159,014	$	151,000	$	--	$	--	$	151,000
FHLB Borrowings		52,197		53,000		--		53,000		--

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 5 – Fair Values of Financial Instruments (Continued)

	Fair Value Measurements at December 31, 2012
	Carrying Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and Short-Term Investments	$	12,729	$	12,729	$	12,729	$	--	$	--
Investment Securities
Available-for-sale		46,074		46,074		--		46,074		--
Investment Securities
Held-to-maturity		400		416		--		416		--
Loans – Net		174,832		177,000		--		--		177,000
Financial Liabilities:
Deposits	$	161,163	$	156,000	$	--	$	--	$	156,000
FHLB Borrowings		39,286		41,000		--		41,000		--

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, 2013 and 2012, was $128,907 and $107,041, respectively.

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 6 – Stock Compensation Plans (Continued)

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, 2013, and changes during the nine months ended September 30, 2013 is as follows:

	September 30, 2013
	Number of Shares		Weighted Average Grant Date Fair Value
Balance at the beginning of the year		81,462	$	11.82
Granted		--		--
Forfeited		--		--
Released		12,231		11.82
Balance at the end of the period		69,231	$	11.82

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, 2013 and 2012, $136,395 and $96,418 in compensation expense was recognized, respectively.  As of September 30, 2013, approximately $722,000 in additional compensation expense will be recognized over the remaining average service period of approximately 5.1 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 determined to grant 216,755 stock options on January 24, 2012 to certain officers, employees and directors of the Company at an exercise price of $11.82 per share, equal to the fair market value of the common stock on the grant date.  The remaining 74,195 stock options are available for future grant.  All incentive stock options issued under the Option Plan are intended to comply with the requirements of Section 422 of the Internal Revenue Code.  Options will become vested and exercisable over a five to seven year period and are generally exercisable for a period of ten years after the grant date.

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited)

Note 6 – Stock Compensation Plans (Continued)

Stock Options (Continued)

A summary of option activity under the Company’s Option Plan as of September 30, 2013 and changes during the nine months ended September 30, 2013 is as follows:

	September 30, 2013
	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Outstanding at the beginning of the year		216,755	$	11.82	$	3.11
Granted		--		--
Exercised		--		--
Forfeited		--		--		--
Outstanding at the end of the period		216,755	$	11.82	$	3.11
Exercisable at the end of the period		54,518	$	11.82	$	3.11

During the nine month periods ended September 30, 2013 and 2012, $­76,288 and $67,820 in compensation expense was recognized, respectively.  As of September 30, 2013, approximately $­505,000 in additional compensation expense will be recognized over the remaining average service period of approximately 5.1years.

Note 7 – Earning Per Share

Earnings per common share was computed based on the following:

	Nine Months ended September 30,
	2013		2012
	(in thousands, except per share data)
Numerator
Income applicable to common shares	$	329	$	655
Denominator
Weighted average common shares outstanding		2,513		2,904
Effect of dilutive securities		60		9
Weighted average common shares outstanding –           assuming dilution		2,573		2,913
Earnings per common share	$	0.13	$	0.23
Earnings per common share - assuming dilution	$	0.13	$	0.23

25

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, 2012 to September 30, 2013 and on its results of operations during the quarter and nine months ended September 30, 2013 and 2012. 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.

26

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.

27

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

Comparison of Financial Condition at September 30, 2013 and December 31, 2012

General.  The Company’s total assets increased by $10.2 million, to $256.1 million at September 30, 2013, compared to $246.0 million at December 31, 2012. For the nine months ended September 30, 2013, the increase in our assets was primarily due to increases in net loans receivable of $19.3 million, or 11.0%, partially offset by decreases in cash and cash equivalents of $3.1 million, or 24.2%, and mortgage-backed securities of $6.4 million, or 13.8%, compared to December 31, 2012.

Cash and Cash Equivalents. Cashand cash equivalents decreased $3.1 million, or 24.2%, from $12.7 million at December 31, 2012 to $9.6 million at September 30, 2013, as excess liquidity was used to fund loan growth.

Loans Receivable, Net.  Loans receivable, net, increased by $19.3 million, or 11.0%, to $194.1 million at September 30, 2013, compared to $174.8 million at December 31, 2012. During the nine months ended September 30, 2013, our total loan originations and purchases amounted to $45.7 million and loan principal payments were $26.6 million. All of our loans are originated for portfolio. The increase in loans receivable, net, was primarily due to increases in commercial real estate loans of $13.2 million, one-to-four family residential loans of $7.9 million, residential construction loans of $549,000, land loans of $463,000, and $105,000 in multi-family residential loans. These increases were partially offset by decreases of $2.8 million in home equity lines of credit, $279,000 in consumer non-real estate loans, and $6,000 in commercial business loans

Investment Securities.  Mortgage-backed securities amounted to $40.1 million at September 30, 2013 compared to $46.5 million at December 31, 2012, a decrease of $6.4 million, or 13.8%. The decrease in mortgage-backed securities at September 30, 2013, 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 $195,000, to $8.1 million at September 30, 2013, compared to $8.3 million at December 31, 2012, primarily due to depreciation of fixed assets.

Other Real Estate, Net.  Other real estate, net (“OREO”) amounted to $116,000 at September 30, 2013, consisting of one single family residence property, compared to no OREO at December 31, 2012.  During the quarter ended September 30, 2013, the Company transferred no additional property into OREO.

Total liabilities.  Total liabilities increased $11.5 million, at September 30, 2013, to $214.0 million compared to $202.5 million at December 31, 2012, primarily due to an increase of $12.9 million in advances from the Federal Home Loan Bank. Deposits decreased $2.1 million, or 1.3%, to $159.0 million at September 30, 2013, compared to $161.2 million at December 31, 2012, primarily due to decreases in certificates of deposit of $7.9 million, or 7.6%, partially offset by a $3.7 million, or 16.8% increase in checking accounts, a $1.9 million, or 23.5%, increase in money market deposit accounts, and an increase of $176,000, or 0.6%, in passbook savings accounts.  We had $52.2 million of advances from the Federal Home Loan Bank at September 30, 2013 compared to $39.3 million at December 31, 2012, an increase of $12.9 million, or 32.9%.  The increase in Federal Home Loan Bank advances was to fund loan originations and cover deposit out flows.

28

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

Total Stockholders’ Equity.  Total stockholders’ equity amounted to $42.2 million at September 30, 2013, compared to $43.5 million at December 31, 2012, a decrease of $1.3 million, or 3.1%. The reason for the decrease in our total stockholders’ equity was primarily due to the purchase of $1.7 million of treasury stock, under the Company’s third stock repurchase program, partially offset by net income of $329,000 for the nine months ended September 30, 2013, a decrease in unrealized gain on securities available for sale of $310,000, net of the deferred tax effect and amortization of stock awards and options under our stock compensation plans of $212,000, and the release of $129,000 in ESOP shares.

Comparison of Operating Results for the Three and Nine Months Ended September 30, 2013 and 2012

General. The Company’s net income amounted to $127,000 for the three months ended September 30, 2013, a decrease of $81,000, or 38.9%, compared to net income of $208,000 for the three months ended September 30, 2012. This decrease was primarily due to a decrease in net interest income of $131,000, or 6.7%, partially offset by a decrease in non-interest expense of $52,000, or 3.1%.  The decrease in net interest income was due to a decrease of $164,000, or 6.2%, in total interest income in the third quarter of 2013 primarily as a result of decreases in the average yield on interest earning assets, partially offset by a decrease of $33,000, or 4.9%, of total interest expense.

The Company’s net income amounted to $329,000 for the nine months ended September 30, 2013, a decrease of $326,000, or 49.8%, compared to net income of $655,000 for the nine months ended September 30, 2012. This decrease was primarily due to a decrease in total interest income of $415,000, or 5.2%, a decrease of $57,000, or 30.3%, in non-interest income, and an increase in non-interest expense of $32,000, or 0.6%. This was partially offset by a decrease in interest expense of $112,000, or 5.5%, and a decrease in the provision for income taxes of $130,000, or 34.7%.  The decrease in net interest income was due to a decrease of $415,000, or 5.2%, in total interest income for the nine months ended September 30, 2013, primarily as a result of decreases in the average yield on interest earning assets.

Net Interest Income. Net interest income amounted to $1.8 million for the three months ended September 30, 2013, compared to $1.9 million for the three months ended September 30, 2012. The $131,000, or 6.7%, decrease was primarily due to a $164,000 decrease in total interest income, partially offset by a $33,000 decrease in total interest expense.  Interest paid on deposits decreased $49,000, while interest on Federal Home Loan Bank advances increased $16,000 for the three months ended September 30, 2013, compared to the prior year period.

Net interest income amounted to $5.6 million for the nine months ended September 30, 2013, compared to $5.9 million for the nine months ended September 30, 2012. The $303,000, or 5.2%, decrease was primarily due to a decrease of interest income of $415,000, and a $52,000 increase in interest paid on Federal Home Loan Bank advances, partially offset by a decrease in interest paid in deposits of $164,000 for the nine months ended September 30, 2013, compared to the prior year period.

29

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

The average interest rate spread was 2.85% and 3.07% for the three months ended September 30, 2013 and 2012, respectively.  Average interest-earning assets to average interest-bearing liabilities decreased from 123.67% for the three months ended September 30, 2012 to 120.89% for the three months ended September 30, 2013. The decrease in average interest rate spread reflects the twelve basis point decrease in average rate paid on interest-bearing liabilities from 1.44% for the third quarter of 2012 to 1.32% for the third quarter of 2013 and by a 35 basis point decrease in the average yield on interest earning assets from 4.51% for the third quarter of 2012 to 4.16% for the third quarter of 2013. Net interest margin decreased 28 basis points from 3.35% to 3.07% for the three months ended September 30, 2012 and 2013, respectively.

The average interest rate spread decreased 11 basis points from 3.06% for the nine months ended September 30, 2012, to 2.95% for the nine months ended September 30, 2013, and average interest-earning assets decreased from $234.0 million to $232.3 million during the same periods. Average interest-earning assets to average interest-bearing liabilities decreased from 124.82% for the nine months ended September 30, 2012, to 122.39% for the nine months ended September 30, 2013. The decrease in the average interest rate spread primarily reflects the 21 basis point decrease in the average yield on interest earning assets from 4.51% for the nine months ended September 30, 2012, to 4.30% for the nine months ended September 30, 2013.  The average rate paid on interest-bearing liabilities decreased 10 basis points from 1.45% for the nine months ended September 30, 2012, to 1.35% for the nine months ended September 30, 2013.  Net interest margin decreased 15 basis points from 3.35% to 3.20% for the nine months ended September 30, 2012 and 2013, respectively.

Interest income decreased $164,000 or 6.2%, to $2.5 million for the three months ended September 30, 2013, compared to $2.6 million for the third quarter of 2012. The decrease was primarily due to a 74 basis point decrease in the average yield on mortgage-backed securities from 1.59% for the third quarter in 2012 to 0.85% for the third quarter of 2013, and a 47 basis point decrease in the average yield on loans receivable from 5.48% for the third quarter of 2012 to 5.01% for the third quarter in 2013.

Interest income decreased by $415,000 or 5.2%, to $7.5 million for the nine months ended September 30, 2013, compared to $7.9 million for the nine months ended September 30, 2012. The decrease was primarily due to a 60 basis point decrease in the average yield on mortgage-backed securities from 1.71% for the nine months ended September 30, 2012, to 1.11% for the nine months ended September 30, 2013.  In addition, contributing to the decline in interest income was a 22 basis point decrease in average yield on loans receivable from 5.43% for the nine months ended September 30, 2012, to 5.21% for the nine months ended September 30, 2013.

Interest expense decreased by $33,000, or 4.9%, to $644,000 for the three months ended September 30, 2013, compared to $677,000 for the three months ended September 30, 2012, primarily as a result of a 12 basis point decrease in the average rate paid on certificate of deposit accounts, combined with a $4.7 million decrease in average balance of certificates of deposit, partially offset by a $5.3 million increase in the average balance of Federal Home Loan Bank advances, in turn offset by a 7 basis point decrease in the average cost of such 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 repriced at a lower rate during the period. The increase in Federal Home Loan Bank advances was to fund loan originations and cover deposit outflows.

30

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

Interest expense decreased by $112,000, or 5.5%, to $1.9 million for the nine months ended September 30, 2013, compared to $2.0 million for the nine months ended September 30, 2012, primarily as a result of a 17 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 repriced at a lower rate during the period.  In addition, the average balance of Federal Home Loan Bank advances increased $127,000 and had a 15 basis point increase in average cost of such advances.

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,
	2013							2012
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans receivable(1)	$	189,620	$	2,373		5.01	%	$	177,284	$	2,428		5.48	%
Mortgage-backed securities		40,827		87		0.85	%		49,340		196		1.59	%
Other interest-earning assets		6,064		2		0.13	%		6,252		2		0.13	%
Total interest-earning assets		236,511		2,462		4.16	%		232,876		2,626		4.51	%
Non-interest-earning assets		16,583							17,383
Total assets	$	253,094						$	250,259
Interest-bearing liabilities:
Savings, NOW and money market accounts	$	48,988		21		0.17	%	$	42,253		19		0.18	%
Certificates of deposit		96,361		392		1.63	%		101,088		443		1.75	%
Total deposits		145,349		413		1.14	%		143,341		462		1.29	%
FHLB advances		50,296		231		1.84	%		44,961		215		1.91	%
Total interest-bearing liabilities		195,645		644		1.32	%		188,302		677		1.44	%
Non-interest-bearing liabilities		14,912							13,742
Total liabilities		210,557							202,044
Equity		42,537							48,215
Total liabilities and equity	$	253,094						$	250,259
Net interest-earning assets	$	40,866						$	44,574
Net interest income, average interest rate spread			$	1,818		2.85	%			$	1,949		3.07	%
Net interest margin(2)						3.07	%						3.35	%
Average interest earning assets to average    interest bearing liabilities						120.89	%						123.67	%

(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.

31

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,
	2013							2012
	Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate
Interest-earning assets:	(Dollars in thousand)
Loans receivable(1)	$	182,321	$	7,126		5.21	%	$	177,818	$	7,247		5.43	%
Mortgage-backed securities		43,165		359		1.11	%		50,914		652		1.71	%
Other interest-earning assets		6,841		6		0.12	%		5,234		7		0.18	%
Total interest-earning assets		232,328		7,491		4.30	%		233,966		7,906		4.51	%
Non-interest-earning assets		15,661							15,044
Total assets	$	247,988						$	249,010
Interest-bearing liabilities:
Savings, NOW and money market accounts	$	46,186		61		0.18	%	$	40,812		56		0.18	%
Certificates of deposit		98,280		1,201		1.63	%		101,394		1,370		1.80	%
Total deposits		144,466		1,262		1.16	%		142,206		1,426		1.34	%
FHLB advances		45,362		659		1.94	%		45,235		607		1.79	%
Total interest-bearing liabilities		189,828		1,921		1.35	%		187,441		2,033		1.45	%
Non-interest-bearing liabilities		15,164							13,186
Total liabilities		204,992							200,627
Equity		42,996							48,383
Total liabilities and equity	$	247,988						$	249,010
Net interest-earning assets	$	42,499						$	46,525
Net interest income, average interest rate spread				$_5,570		2.95	%			$	5,873		3.06	%
Net interest margin(2)						3.20	%						3.35	%
Average interest earning assets to average    interest bearing liabilities						122.39	%						124.82	%

(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.

32

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, 2013, we made a provision of $156,000. 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 $64,000 for the three months ended September 30, 2013, an increase of $4,000 compared to non-interest income of $60,000 for the three months ended September 30, 2012. The increase was primarily due to an $8,000 increase in loan application fee income and fees associated with late charges on loans, offset by a $4,000 loss on the sale of other real estate owned.

Non-interest income, which includes fees and service charges, and gains or losses or write-downs of other real estate owned, was $131,000 for the nine months ended September 30, 2013, a decrease of $57,000 compared to non-interest income of $188,000 for the nine months ended September 30, 2012.  The decrease was primarily due to a $40,000 loss on the sale of other real estate owned, offset by a $17,000 decrease in loan application fee income and fees associated with late charges on loans.

33

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

Non-Interest Expense. Non-interest expense decreased by $52,000, or 3.1%, to $1.6 million for the three months ended September 30, 2013, from $1.7 million during the prior year period. The decrease was primarily due to a decrease in occupancy expenses of $64,000, or 30.8%, as well as decreases of $21,000, or 32.8%, in deposit insurance premiums, $9,000, or 15.0%, in security expense, and $5,000, or 16.7%, in office supplies and postage expense, partially offset by increases of $26,000, or 12.8%, in other non-interest expenses, $15,000, or 1.8%, in salaries and employee benefits expense, $3,000, or 2.1% in data processing expense, and $3,000, or 30.0%, in advertising expense.

Non-interest expense increased by $32,000, or 0.6%, to $5.0 million for the nine months ended September 30, 2013. The increase was primarily due to increases of $110,000, or 4.4%, in salaries and employee benefits expense, $70,000, or 19.8%, in data processing expense, $17,000, or 50.0%, in advertising, and $12,000, or 2.2%, in occupancy expense, partially offset by decreases of $93,000, or 52.3%, in deposit insurance premiums, $29,000, or 27.1%, in office supplies and postage, $26,000, or 7.8%, in professional fees expense, $17,000, or 2.5%, in other non-interest expenses, and $12,000, or 6.6%, in security expense.

Income Tax Expense. The income tax expense amounted to $91,000 and $105,000 for the three months ended September 30, 2013 and 2012, respectively. Our effective federal tax rate was 41.7% and 33.5% for the three months ended September 30, 2013 and 2012, respectively.

The income tax expense amounted to $245,000 and $375,000 for the nine months ended September 30, 2013 and 2012, respectively. Our effective federal tax rate was 42.7% and 36.4% for the nine months ended September 30, 2013 and 2012, 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, 2013, the Company had $52.2 million of advances from the Federal Home Loan Bank of Dallas and had $73.6 million in additional borrowing capacity. Additionally, at September 30, 2013, 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, 2013.

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

At September 30, 2013, the Company had outstanding loan commitments of $6.4 million to originate loans.  At September 30, 2013, certificates of deposit scheduled to mature in less than one year totaled $46.1 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.

State-Investors Bank is required to maintain regulatory capital sufficient to meet tier 1 leverage, tier 1 risk-based and total risk-based capital ratios of at least 4.0%, 4.0% and 8.0%, respectively. At September 30, 2013, State-Investors Bank exceeded each of its capital requirements with ratios of 14.8%, 25.9% and 26.7%, 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.

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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, 2013 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)
July 1, 2013 – July 31, 2013		1,075	$	14.97		1,075		133,401
August 1, 2013 – August 31, 2013		23,900		15.25		23,900		109,501
September 1, 2013 – September 30, 2013		19,574		15.30		19,574		89,927
Total		44,549	$	15.23		44,549		89,927

Notes to this table:

(a) On November 27, 2012, the Company announced by press release a third repurchase program for up to 262,000 shares, or approximately 10.0% of the Company’s outstanding shares of common stock. The repurchase program does not have an expiration date.

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.

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ITEM 6 – EXHIBITS.

List of exhibits:

No.	Description
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.

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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, 2013	By:	/s/ Anthony S. Sciortino
		Anthony S. Sciortino
		President and Chief Executive Officer

Date:  November 14, 2013	By:	/s/ Daniel McGowan
		Daniel McGowan
		Chief Financial Officer

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