1
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 June 30, 2004
--------------------------------------------------
OR
- ---------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --------- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-50358
CLIFTON SAVINGS BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
UNITED STATES 34-1983738
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1433 Van Houten Avenue, Clifton, New Jersey 07015
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 973-473-2200
including area code
--------------------------------------------------
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. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes No X
----- -----
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date August 1, 2004.
$.01 par value common stock - 30,530,470 shares outstanding
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2
CLIFTON SAVINGS BANCORP, INC.
AND SUBSIDIARY
INDEX
Page
PART I - FINANCIAL INFORMATION Number
-------------
Item 1: Financial Statements
Consolidated Statements of Financial Condition
at June 30, 2004 and March 31, 2004 (Unaudited) 1
Consolidated Statements of Income for the Three Months
Ended June 30, 2004 and 2003 (Unaudited) 2
Consolidated Statements of Comprehensive Income for the Three
Months Ended June 30, 2004 and 2003 (Unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 2004 and 2003 (Unaudited) 4
Notes to Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 10
Item 3: Quantitative and Qualitative Disclosure About Market Risk 11 - 12
Item 4: Controls and Procedures 13
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 14
Item 2: Changes in Securities, Use of Proceeds and Issuer Purchases
Of Equity Securities 14
Item 3: Defaults Upon Senior Securities 14
Item 4: Submission of Matters to a Vote of Security Holders 14
Item 5: Exhibits and Reports on Form 8-K 15
SIGNATURES 16
3
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
June 30, March 31,
ASSETS 2004 2004
- ------ ------------------ ------------------
Cash and amounts due from depository institutions $ 12,570,607 $ 15,591,119
Interest-bearing deposits in other banks 19,418,934 128,065,913
Federal funds sold 11,900,000 1,000,000
------------------ ------------------
Total cash and cash equivalents 43,889,541 144,657,032
Securities available for sale:
Investment 49,213,100 5,027,700
Mortgage-backed 24,871,715 138,113
Securities held to maturity:
Investment, estimated fair value of $124,831,000
and $122,252,000, respectively 125,915,026 120,933,287
Mortgage-backed, estimated fair value of $210,704,000
and $206,654,000, respectively 213,268,078 204,788,321
Loans receivable, net 284,582,634 249,458,785
Premises and equipment 9,124,907 8,813,426
Federal Home Loan Bank stock, at cost 4,370,800 3,639,400
Interest receivable 3,114,868 3,067,928
Other assets 2,064,475 1,783,941
------------------ ------------------
Total assets $ 760,415,144 $ 742,307,933
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 528,680,437 $ 537,002,097
Advances from Federal Home Loan Bank of New York 25,000,000 -
Advance payments by borrowers for taxes and insurance 3,168,996 2,864,863
Other liabilities and accrued expenses 3,249,886 2,534,374
------------------ ------------------
Total liabilities 560,099,319 542,401,334
------------------ ------------------
Stockholders' equity:
Preferred stock; par value $.01; authorized 1,000,000
shares; issued and outstanding - none - -
Common stock; par value $.01; authorized 75,000,000
shares; 30,530,470 shares issued and outstanding 305,305 305,305
Additional paid-in capital 133,837,143 133,796,416
Retained earnings - substantially restricted 77,202,736 76,591,010
Common stock acquired by Employee Stock Ownership Plan (10,624,604) (10,807,787)
Accumulated other comprehensive income -
unrealized (loss) gain on securities available for sale (404,755) 21,655
------------------ ------------------
Total stockholders' equity 200,315,825 199,906,599
------------------ ------------------
Total liabilities and stockholders' equity $ 760,415,144 $ 742,307,933
================== ==================
See notes to consolidated financial statements.
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4
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------------------------
(Unaudited)
Three Months Ended
June 30,
--------------------------------
2004 2003
--------------- ---------------
Interest income:
Loans $ 3,474,848 $ 3,231,735
Mortgage-backed securities 2,091,409 1,969,881
Investments securities 1,167,978 1,165,035
Other interest-earning assets 162,145 171,062
--------------- ---------------
Total interest income 6,896,380 6,537,713
--------------- ---------------
Interest expense:
Deposits 2,474,454 3,055,754
FHLB advances 101,506 -
--------------- ---------------
Total interest expense 2,575,960 3,055,754
--------------- ---------------
Net interest income 4,320,420 3,481,959
Provision for (recovery of) loan losses 75,000 (100,000)
--------------- ---------------
Net interest income after provision for (recovery of) loan losses 4,245,420 3,581,959
--------------- ---------------
Non-interest income:
Fees and service charges 63,697 62,357
Miscellaneous 14,440 13,387
--------------- ---------------
Total non-interest income 78,137 75,744
--------------- ---------------
Non-interest expenses:
Salaries and employee benefits 1,317,912 946,035
Net occupancy expense of premises 205,144 173,307
Equipment 221,936 188,630
Directors' compensation 137,492 127,064
Legal 250,296 6,885
Advertising 120,468 133,222
Federal insurance premium 21,267 19,603
Miscellaneous 370,128 256,206
--------------- ---------------
Total non-interest expenses 2,644,643 1,850,952
--------------- ---------------
Income before income taxes 1,678,914 1,806,751
Income taxes 688,000 720,000
--------------- ---------------
Net income $ 990,914 $ 1,086,751
=============== ===============
Net income per common share:
Basic/diluted $ 0.03 N/A (1)
=============== ===============
Dividends per common share $ 0.03 N/A (1)
=============== ===============
Weighted average number of common shares and common stock equivalents
outstanding:
Basic/diluted 29,458,850 N/A (1)
=============== ===============
(1) Converted to stock form on March 3, 2004.
See notes to consolidated financial statements.
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5
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Unaudited)
Three Months Ended
June 30,
--------------------------------
2004 2003
--------------- ---------------
Net income $ 990,914 $ 1,086,751
--------------- ---------------
Other comprehensive (loss) income, net of income taxes:
Gross unrealized holding (loss) on
securities available for sale (709,974) (13,961)
Deferred income taxes 283,564 5,585
--------------- ---------------
Other comprehensive (loss) (426,410) (8,376)
--------------- ---------------
Comprehensive income $ 564,504 $ 1,078,375
=============== ===============
See notes to consolidated financial statements.
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6
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Three Months Ended
June 30,
-------------------------------------
2004 2003
----------------- -----------------
Cash flows from operating activities:
Net income $ 990,914 $ 1,086,751
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of premises and equipment 146,240 39,828
Net amortization of deferred fees, premiums and discounts 58,832 77,922
Provision for (recovery of) loan losses 75,000 (100,000)
(Increase) decrease in interest receivable (46,940) 83,131
Deferred income taxes 138,313 (98,088)
(Increase) in other assets (102,310) (282,437)
Increase (decrease) in accrued interest payable 68,422 (7,311)
Increase (decrease) in other liabilities 234,929 (947,901)
ESOP shares committed to be released 223,910 -
----------------- -----------------
Net cash provided by (used in) operating activities 1,787,310 (148,105)
----------------- -----------------
Cash flows from investing activities:
Proceeds of calls, maturites and repayments of:
Investment securities available for sale - 5,000,000
Mortgage-backed securities available for sale 332,484 27,181
Investment securities held to maturity 25,000,000 30,000,000
Mortgage-backed securities held to maturity 21,126,438 20,693,098
Purchases of:
Investment securities available for sale (45,000,000) -
Mortgage-backed securities available for sale (24,960,626) -
Investment securities held to maturity (29,978,125) (60,000,000)
Mortgage-backed securities held to maturity (29,758,462) (73,135,595)
Loans receivable (17,113,928) -
Premises and equipment (457,721) (611,597)
Federal Home Loan Bank of New York stock (731,400) (256,500)
Net change in loans receivable (17,995,934) 14,662,509
----------------- -----------------
Net cash (used in) investing activities (119,537,274) (63,620,904)
----------------- -----------------
Cash flows from financing activities:
Net (decrease) increase in deposits (8,321,660) 13,062,899
Net increase in advances from Federal Home Loan Bank of New York 25,000,000 -
Net increase (decrease) in payments by borrowers for taxes and insurance 304,133 (28,122)
----------------- -----------------
Net cash provided by financing activities 16,982,473 13,034,777
----------------- -----------------
Net (decrease) in cash and cash equivalents (100,767,491) (50,734,232)
Cash and cash equivalents - beginning 144,657,032 76,251,063
----------------- -----------------
Cash and cash equivalents - ending $ 43,889,541 $ 25,516,831
================= =================
Supplemental information:
Cash paid during the period for:
Interest on deposits and borrowings $ 2,507,538 $ 3,063,065
================= =================
Income taxes $ 956,769 $ 1,745,000
================= =================
See notes to consolidated financial statements.
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7
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. PRINCIPLES OF CONSOLIDATION
- --------------------------------
The consolidated financial statements include the accounts of Clifton Savings
Bancorp, Inc. (the "Company") and its wholly owned subsidiary, Clifton Savings
Bank, S.L.A. (the "Bank"). The Company's business consists principally of
investing in securities and the operation of the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
2. BASIS OF PRESENTATION
- --------------------------
The accompanying unaudited consolidated financial statements 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 consolidated financial statements have been included. The
results of operations for the three month period ended June 30, 2004, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
3. NET INCOME PER COMMON SHARE
- --------------------------------
Basic net income per common share is based on the weighted average number of
common shares actually outstanding adjusted for unearned Employee Stock
Ownership Plan shares. Diluted net income per share is calculated by adjusting
the weighted average number of shares of common stock outstanding to include the
effect of contracts or securities exercisable or which could be converted into
common stock, if dilutive, using the treasury stock method.
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8
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
FORWARD-LOOKING STATEMENT
This Form 10-Q may include certain forward-looking statements based on current
management expectations. The Company's actual results could differ materially
from those management expectations. Factors that could cause future results to
vary from current management expectations include, but are not limited to,
general economic conditions, legislative and regulatory changes, monetary and
fiscal policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of loan
and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business are
included in the Company's other filings with the Securities and Exchange
Commission.
CHANGES IN FINANCIAL CONDITION
The Company's assets at June 30, 2004, totaled $760.4 million, which represents
an increase of $18.1 million or 2.4% as compared with $742.3 million at March
31, 2004.
Cash and cash equivalents at June 30, 2004, totaled $43.9 million, which
represents a decrease of $100.8 million or 69.7% as compared with $144.7 million
at March 31, 2004. Cash and cash equivalents were unusually high at March 31,
2004, due to the completion of our initial public stock offering in March 2004.
The funds have since been largely redeployed into our loan and securities
portfolios, which increased significantly as noted in the following sections.
Securities available for sale at June 30, 2004, increased $68.9 million or
1325.0% to $74.1 million when compared with $5.2 million at March 31, 2004. The
increase during the three months ended June 30, 2004, resulted primarily from
$70.0 million in purchases of securities available for sale, which was
sufficient to offset maturities, calls and repayments totaling $332,000 and
$679,000 in net unrealized losses. The increase in securities available for sale
was funded by the aforementioned drawdown of cash and cash equivalents and by
$25.0 million in Federal Home Loan Bank of New York ("FHLB") borrowings.
Securities held to maturity at June 30, 2004, increased $13.5 million or 4.1% to
$339.2 million when compared with $325.7 million at March 31, 2004. The increase
during the three months ended June 30, 2004, resulted primarily from $59.7
million in purchases of securities held to maturity, which was sufficient to
offset maturities, calls and repayments totaling $46.1 million.
Net loans at June 30, 2004, increased $35.1 million or 14.1% to $284.6 million
when compared with $249.5 million at March 31, 2004. The increase during the
three months ended June 30, 2004, resulted primarily from continued strong
origination volume which outpaced repayments. The increase in loans receivable
was funded by the aforementioned drawdown of cash and cash equivalents.
Deposits at June 30, 2004, decreased $8.3 million or 1.5% to $528.7 million when
compared with $537.0 million at March 31, 2004.
Advances from the Federal Home Loan Bank ("FHLB") totaled $25.0 million at June
30, 2004, as compared to no outstanding borrowings at March 31, 2004. During May
2004, the Bank borrowed $25,000,000 at a weighted average interest rate of 3.39%
(interest rates ranging from 1.32% to 4.41%) and maturities ranging from three
months to seven years (weighted average of 3.4 years).
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9
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Stockholders' equity totaled $200.3 million and $199.9 million at June 30, 2004
and March 31, 2004, respectively. The increase of $409,000 for the three months
ended June 30, 2004, resulted primarily from net income of $991,000 and ESOP
shares committed to be released offset by the cash dividend declared of $412,000
and unrealized losses of $426,000 on the available for sale securities
portfolios.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2004
AND 2003
Net income decreased $96,000 or 8.8% to $991,000 for the three months ended June
30, 2004 compared with $1.1 million for the same 2003 period. The decrease in
net income during the 2004 period resulted from increases in non-interest
expenses and provision for loan losses, which were partially offset by increases
in total interest income and non-interest income and decreases in total interest
expense and income taxes.
Interest income on loans increased by $243,000 or 7.5% to $3.5 million during
the three months ended June 30, 2004, when compared with $3.2 million for the
same 2003 period. The increase during the 2004 period resulted from an increase
of $54.5 million or 26.5% in the average balance of loans outstanding partially
offset by a ninety-four basis point decrease in the yield earned on the loan
portfolio to 5.34% from 6.28%. Interest on mortgage-backed securities increased
$121,000 or 6.1% to $2.1 million during the three months ended June 30, 2004,
when compared with $2.0 million for the same 2003 period. The increase during
the 2004 period resulted from an increase of $44.6 million or 24.8% in the
average balance of mortgage-backed securities outstanding which was sufficient
to offset a decrease of sixty-five basis points in the yield earned on
mortgage-backed securities to 3.73% from 4.38%. Interest earned on investment
securities increased by $3,000 or 0.3% to $1.168 million during the three months
ended June 30, 2004, when compared to $1.165 million during the same 2003 period
as a $28.3 million or 21.4% increase in average balance was largely offset by a
sixty-two basis point decline in yield to 2.91% from 3.53%. Interest earned on
other interest-earning assets decreased by $9,000 or 5.3% to $162,000 during the
three months ended June 30, 2004, when compared to $171,000 during the same 2003
period primarily due to a decrease of eighty-two basis points in yield to 0.87%
from 1.69%, which was partially offset by a $34.1 million or 84.5% increase in
average balance.
Interest expense on deposits decreased $582,000 or 19.0% to $2.5 million during
the three months ended June 30, 2004, when compared to $3.1 million during the
same 2003 period. Such decrease was primarily attributable to a decrease of
fifty-five basis points in the cost of interest-bearing deposits to 1.88% from
2.43%, which was sufficient to offset an increase of $24.9 million or 5.0% in
the average balance of interest-bearing deposits. Interest expense on borrowed
money totaled $102,000 during the three months ended June 30, 2004, when
compared with none during the same 2003 period. During the quarter ended June
30, 2004, the Bank borrowed $25.0 million from the Federal Home Loan Bank of New
York.
Net interest income increased $838,000 or 24.1% during the three months ended
June 30, 2004, when compared with the same 2003 period. Such increase was due to
a decrease in total interest expense of $480,000, along with an increase in
total interest income of $358,000. Average interest-earning assets increased
$161.6 million or 28.9% while average interest-bearing liabilities increased
$37.4 million or 7.4%. The $124.2 million increase in average net
interest-earning assets was attributable to the proceeds of the Company's
initial stock offering and more than offset the effect of a decline in net
interest rate spread to 1.92% from 2.25%. The decrease in the interest rate
spread resulted from a decrease of eighty-five basis points in the yield earned
on interest-earning assets, sufficient to offset a fifty-two basis points
decrease in the cost of interest-bearing liabilities.
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10
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND
2003 (CONT'D.)
During the three months ended June 30, 2004, the Bank provided $75,000 as a
provision for loan losses as compared to a $100,000 recovery during the same
2003 period. The allowance for loan losses is based on management's evaluation
of the risk inherent in its loan portfolio and gives due consideration to the
changes in general market conditions and in the nature and volume of the Bank's
loan activity. The Bank intends to continue to provide for loan losses based on
its periodic review of the loan portfolio and general market conditions. At June
30, 2004, the Bank's non-performing loans, which were delinquent ninety days or
more, totaled $138,000 or 0.02% of total assets, as compared to $122,000 or
0.02% of total assets at March 31, 2004, and $25,000 or less than 0.01% of total
assets at June 30, 2003. During the three months ended June 30, 2004 and 2003,
the Bank did not charge off any loans. The allowance for loan losses amounted to
$915,000 at June 30, 2004, representing 0.32% of total loans and 663.0% of loans
delinquent ninety days or more, as compared to $840,000, representing 0.33% of
total loans and 688.5% of loans delinquent ninety days or more at March 31,
2004, and $840,000, representing 0.42% of total loans and 3,360.0% of loans
delinquent ninety days or more at June 30, 2003.
Non-interest income increased $2,000 or 2.6% to $78,000 during the three months
ended June 30, 2004, from $76,000 during the same 2003 period.
Non-interest expenses increased by $794,000 to $2.64 million during the three
months ended June 30, 2004, when compared with $1.85 million during the same
2003 period. The components of non-interest expenses which experienced
significant change were salaries and employees benefits, legal fees and
miscellaneous expenses, which increased $372,000, $243,000 and $114,000,
respectively. The increase in salaries and employee benefits was largely due to
the addition personnel needed to staff new and expanded branch locations and the
addition of a controller position. Legal fees increased to $250,000 for the
three months ended June 30, 2004, as compared to $7,000 for the same 2003
period, primarily due to litigation brought against the Bank in connection with
the Bank's reorganization into the mutual holding company structure and
increased legal services associated with being a public company. The increase in
miscellaneous expenses is attributable to the increased size of the Company and
with the additional costs of being a public entity. All other elements of
non-interest expenses totaled $706,000 during the three months ended June 30,
2004, as compared to $642,000 during the same 2003 period.
Income taxes totaled $688,000 and $720,000 during the three months ended June
30, 2004 and 2003, respectively. The decrease during the 2004 period resulted
from a decrease in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Bank maintains levels of liquid assets sufficient to ensure the Bank's safe
and sound operation. The Bank adjusts its liquidity levels in order to meet
funding needs for deposit outflows, payment of real estate taxes from escrow
accounts on mortgage loans, repayment of borrowings, when applicable, and loan
funding commitments. The Bank also adjusts its liquidity level as appropriate to
meet its asset/liability objectives. Liquid assets, which include cash and cash
equivalents and securities available for sale, totaled $118.0 million or 15.5%
of total assets at June 30, 2004.
The Bank's primary sources of funds are deposits, amortization and prepayments
of loans and mortgage-backed securities principal, FHLB advances, maturities of
investment securities and funds provided from operations. While scheduled loan
and mortgage-backed securities amortization and maturing investment securities
are a relatively predictable source of funds, deposit flow and loan and
mortgage-backed securities prepayments are greatly influenced by market interest
rates, economic conditions and competition.
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11
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONT'D.)
The Bank's liquidity, represented by cash and cash equivalents, is a product of
its operating, investing and financing activities.
Cash was generated by operating activities during the three months ended June
30, 2004. The primary source of cash was net income. The Company declared its
first cash dividend during the three months ended June 30, 2004. Such dividend
totaled $412,000 and was paid on July 15, 2004.
The primary sources of investing activity are lending and the purchase of
securities. Net loans amounted to $284.6 million and $249.5 million at June 30
and March 31, 2004, respectively. Securities, including available for sale and
held to maturity issues, totaled $413.3 million and $330.9 million at June 30
and March 31, 2004, respectively. In addition to funding new loan production and
securities purchases through operating and financing activities, such activities
were funded by principal repayments on existing loans and securities.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments,
such as federal funds and interest-bearing deposits. If the Bank requires funds
beyond its ability to generate them internally, borrowing agreements exist with
the FHLB which provide an additional source of funds. At June 30, 2004, advances
from the FHLB amounted to $25.0 million.
The Bank anticipates that it will have sufficient funds available to meet its
current loan commitments. At June 30, 2004, the Bank has outstanding commitments
to originate loans and fund approved lines of credit aggregating $31.7 million.
Certificates of deposit scheduled to mature in one year or less at June 30,
2004, totaled $218.9 million. Management believes that, based upon its
experience and the Bank's deposit flow history, a significant portion of such
deposits will remain with the Bank.
Under OTS regulations, three separate measurements of capital adequacy (the
"Capital Rule") are required. The Capital Rule requires each savings institution
to maintain tangible capital equal to at least 1.5% and core capital equal to
4.0% of its adjusted total assets. The Capital Rule further requires each
savings institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets
The following table sets forth the Bank's capital position at June 30, 2004, as
compared to the minimum regulatory capital requirements:
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12
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONT'D.)
To Be Well
Capitalized
Under Prompt
Minimum Capital Corrective
Actual Requirements Actions Provisions
----------------------------- ---------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ------------- ------------- ------------- ------------- -------------
Total Capital
(to risk-weighted assets) $ 134,892 57.66% $ 18,715 8.00% $ 23,394 10.00%
-------------- ------------- ------------- ------------- ------------- -------------
Tier 1 Capital
(to risk-weighted assets) 133,977 57.27% 9,357 4.00% 14,036 6.00%
-------------- ------------- ------------- ------------- ------------- -------------
Core (Tier 1) Capital
(to adjusted total assets) 133,977 19.01% 28,165 4.00% 35,206 5.00%
-------------- ------------- ------------- ------------- ------------- -------------
Tangible Capital
(to adjusted total assets) 133,311 18.93% 10,562 1.50% - - %
-------------- ------------- ------------- ------------- ------------- -------------
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13
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
MANAGEMENT OF INTEREST RATE RISK. The ability to maximize net interest income is
largely dependent upon the achievement of a positive interest rate spread that
can be sustained during fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-earning
assets and interest-bearing liabilities which either reprice or mature within a
given period of time. The difference, or the interest rate repricing "gap",
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities, and is considered negative when the amount
of interest rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect net interest
income, while a positive gap within shorter maturities would result in an
increase in net interest income, and during a period of falling interest rates,
a negative gap within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities would result in a
decrease in net interest income.
Because the Bank's interest-bearing liabilities which mature or reprice within
short periods exceed its interest-earning assets with similar characteristics,
material and prolonged increases in interest rates generally would adversely
affect net interest income, while material and prolonged decreases in interest
rates generally would have a positive effect on net interest income.
The Bank's current investment strategy is to maintain an overall securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. Securities classified as available for sale provide management
with the flexibility to make adjustments to the portfolio given changes in the
economic or interest rate environment, to fulfill unanticipated liquidity needs,
or to take advantage of alternative investment opportunities.
NET PORTFOLIO VALUE. The Bank's interest rate sensitivity is monitored by
management through the use of the OTS model which estimates the change in the
Bank's net portfolio value ("NPV") over a range of interest rate scenarios. NPV
is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. The OTS produces its analysis based upon data submitted on the
Bank's quarterly Thrift Financial Reports. The following table sets forth the
Bank's NPV as of March 31, 2004, the most recent date the Bank's NPV was
calculated by the OTS.
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14
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
----------------------------------------------------------
NPV as
Percent of Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates ------------------------------------------- -----------------------------
In Basis Points Dollar Percent NPV Change In
(Rate Shock) Amount Change Change Ratio Basis Points
------------------ ------------- ------------- -------------- ------------ ---------------
(Dollars in Thousands)
300 $ 135,951 $(23,926) (15)% 18.41 % (228)
------------- ------------- -------------- ------------ ---------------
200 145,790 (14,087) (9) 19.40 (129)
------------- ------------- -------------- ------------ ---------------
100 153,971 (5,905) (4) 20.18 (52)
------------- ------------- -------------- ------------ ---------------
Static 159,877 - - 20.70 -
------------- ------------- -------------- ------------ ---------------
-100 159,021 (856) (1) 20.51 (19)
------------- ------------- -------------- ------------ ---------------
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require the making of certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV model
presented assumes that the composition of the Bank's interest sensitive assets
and liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing of specific assets and liabilities. Accordingly,
although the NPV measurements and net interest income models provide an
indication of the Bank's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Bank's net
interest income and will differ from actual results.
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15
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONTROLS AND PROCEDURES
------------------------------------------------------------
As of a date within 90 days of filing date of this report, based on an
evaluation of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15e under the Securities and Exchange Act of 1934), each
of the Chief Executive Officer and the Chief Financial Officer of the Company
has concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
its Exchange Act reports is recorded, processed, summarized and reported within
the applicable time periods specified by the SEC's rules and forms.
There were no significant changes in the Company's internal controls or in any
other factors that could significantly affect those controls subsequent to the
date of the most recent evaluation of the Company's internal controls by the
Company, including any corrective actions with regard to any significant
deficiencies or material weaknesses.
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16
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
PART II
ITEM 1. Legal Proceedings
-----------------
On May 24, 2004, the U.S. District Court (District of New Jersey)
"administratively terminated" the action filed on January 14, 2004, as
well as all additional complaints, by Lawrence B. Seidman, a depositor
at the Bank. The Order of Termination is without prejudice to the
rights of the parties to reopen the proceedings for good cause to
obtain a final determination of the litigation. The District Court took
this action because Mr. Seidman's concurrent appeal of the New Jersey
Banking and Insurance Commissioner's determinations: (1) approving the
Bank's application to convert from a New Jersey state chartered mutual
savings association to a capital stock savings association; and (2)
denying Mr. Seidman's application to communicate with the Bank's
members, may simplify or clarify some of the issues in this case. The
Bank remains confident that it will prevail on any and all claims
brought by Mr. Seidman in any venue.
The Bank filed a claim under its Directors and Officers liability
coverage, which includes a $100,000 deductible, to recover certain
costs incurred in the defense against Mr. Seidman's claims. During the
quarter ended June 30, 2004, legal fees relating to this matter
totaling $197,000 were expensed and are included in the consolidated
statements of income in legal fees. At June 30, 2004, $25,000 has been
recorded as an insurance claim receivable and is included in other
assets in the consolidated statements of financial condition. The
actual amount which will be recovered through the insurance claim is
not yet determinable and will likely differ from the aforementioned
estimate.
Periodically, there have been various claims and lawsuits against the
Company and Bank, such as claims to enforce liens, condemnation
proceedings on properties in which we hold security interests, claims
involving the making and servicing of real property loans and other
issues incident to our business. We are not a party to any pending
legal proceedings that we believe would have a material adverse effect
on our consolidated financial condition, results of operations or cash
flows.
ITEM 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
---------------------------------------------------------------------
Securities
----------
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
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17
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
PART II
ITEM 5. Exhibits and Reports on Form 8-K
--------------------------------
(a) The following Exhibits are filed as part of this report.
3.1 Certificate of Incorporation of Clifton Savings Bancorp, Inc.*
3.2 By-Laws of Clifton Savings Bancorp, Inc.*
10.1 Clifton Savings Bank, S.L.A. Employee Stock Ownership Plan and Trust*
10.2 ESOP Loan Commitment Letter and ESOP Loan Documents*
10.3 Employment Agreement between Clifton Savings Bancorp, Inc. and John A. Celentano, Jr.*
10.4 Employment Agreement between Clifton Savings Bancorp, Inc. and Walter Celuch*
10.5 Employment Agreement between Clifton Savings Bank, S.L.A. and John A. Celentano, Jr.*
10.6 Employment Agreement between Clifton Savings Bank, S.L.A. and Walter Celuch*
10.7 Change in Control Agreement between Clifton Savings Bank, S.L.A. and Bart D'Ambra*
10.8 Change in Control Agreement between Clifton Savings Bank, S.L.A. and Stephen A. Hoogerhyde*
10.9 Change in Control Agreement between Clifton Savings Bank, S.L.A. and Christine R. Piano*
10.10 Clifton Savings Bank, S.L.A. Directors' Retirement Plan*
10.11 Clifton Savings Bank, S.L.A. 401(k) Savings Plan**
10.12 Clifton Savings Bank, S.L.A. Supplemental Executive Retirement Plan*
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
* Incorporated herein by reference to 10-K Annual Report for the fiscal year
ended March 31, 2004, filed with the Securities and Exchange Commission
on June 29, 2004, Commission File No. 000-50358.
** Incorporated herein by reference to the Registration Statement on Form S-8
(No.333-113302) filed on March 5, 2004.
(b) Reports on Form 8-K
On May 7, 2004, the Company furnished a report on Form 8-K to the
Securities and Exchange Commission announcing its financial results
for the quarter and the year ended March 31, 2004.
- 15 -
18
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.
CLIFTON SAVINGS BANCORP, INC.
Date: August 11, 2004 By: /s/ John A. Celentano, Jr.
--------------------------- ----------------------------------
John A. Celentano, Jr.
Chairman of the Board and Chief
Executive Officer
Date: August 11, 2004 By: /s/ Christine R. Piano
--------------------------- ----------------------------------
Christine R. Piano
Chief Financial Officer and
Treasurer
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