1
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, 2004
------------------------------------------------
OR
- ---------
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 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 November 1, 2004:
$.01 par value common stock - 30,530,470 shares outstanding
----------
2
CLIFTON SAVINGS BANCORP, INC.
AND SUBSIDIARY
INDEX
Page
PART I - FINANCIAL INFORMATION Number
-----------
Item 1: Financial Statements
Consolidated Statements of Financial Condition (Unaudited)-
at September 30, 2004 and March 31, 2004 1
Consolidated Statements of Income (Unaudited)- For the Three
And Six Months Ended September 30, 2004 and 2003 2
Consolidated Statements of Comprehensive Income (Unaudited) - For the
Three and Six Months Ended September 30, 2004 and 2003 3
Consolidated Statements of Cash Flows (Unaudited) - For the
Six Months Ended September 30, 2004 and 2003 4
Notes to Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 6 - 11
Item 3: Quantitative and Qualitative Disclosure About Market Risk 12 - 13
Item 4: Controls and Procedures 14
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 15
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 15
Item 3: Defaults Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 15 - 16
Item 5: Other Information 16
Item 6: Exhibits 16
SIGNATURES 17
3
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
-----------
September 30, March 31,
ASSETS 2004 2004
- ------ ------------------ ------------------
Cash and amounts due from depository institutions $ 7,935,526 $ 15,591,119
Interest-bearing deposits in other banks 34,798,723 128,065,913
Federal funds sold 10,825,000 1,000,000
------------------ ------------------
Total cash and cash equivalents 53,559,249 144,657,032
Securities available for sale:
Investment 49,531,250 5,027,700
Mortgage-backed 23,827,862 138,113
Securities held to maturity:
Investment, estimated fair value of $110,742,000
and $122,252,000, respectively 110,918,671 120,933,287
Mortgage-backed, estimated fair value of $196,043,000
and $206,654,000, respectively 196,276,995 204,788,321
Loans receivable, net 321,230,525 249,458,785
Premises and equipment, net 9,097,250 8,813,426
Federal Home Loan Bank stock, at cost 4,370,800 3,639,400
Interest receivable 3,800,393 3,067,928
Other assets 2,049,779 1,783,941
------------------ ------------------
Total assets $774,662,774 $742,307,933
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $545,283,303 $537,002,097
Advances from Federal Home Loan Bank of New York 21,618,738 -
Advance payments by borrowers for taxes and insurance 3,114,140 2,864,863
Other liabilities and accrued expenses 2,767,276 2,534,374
------------------ ------------------
Total liabilities 572,783,457 542,401,334
------------------ ------------------
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 133,866,270 133,796,416
Retained earnings - substantially restricted 78,165,885 76,591,010
Common stock acquired by Employee Stock Ownership Plan (10,441,421) (10,807,787)
Accumulated other comprehensive income -
unrealized (loss) gain on securities available for sale (16,722) 21,655
------------------ ------------------
Total stockholders' equity 201,879,317 199,906,599
------------------ ------------------
Total liabilities and stockholders' equity $774,662,774 $742,307,933
================== ==================
See notes to consolidated financial statements.
- 1 -
4
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------ -------------------------------
Interest income: 2004 2003 2004 2003
-------------- -------------- --------------- --------------
Loans $ 4,039,364 $ 2,960,854 $ 7,514,211 $ 6,192,589
Mortgage-backed securities 2,159,142 2,052,913 4,250,552 4,022,794
Investments securities 1,260,814 1,145,449 2,428,792 2,310,484
Other interest-earning assets 107,509 110,281 269,654 281,343
-------------- -------------- --------------- --------------
Total interest income 7,566,829 6,269,497 14,463,209 12,807,210
-------------- -------------- --------------- --------------
Interest expense:
Deposits 2,639,145 2,876,588 5,113,599 5,932,342
FHLB advances 205,170 - 306,677 -
-------------- -------------- --------------- --------------
Total interest expense 2,844,315 2,876,588 5,420,276 5,932,342
-------------- -------------- --------------- --------------
Net interest income 4,722,514 3,392,909 9,042,933 6,874,868
Provision for (recovery of) loan losses 125,000 - 200,000 (100,000)
-------------- -------------- --------------- --------------
Net interest income after provision
for (recovery of) loan losses 4,597,514 3,392,909 8,842,933 6,974,868
-------------- -------------- --------------- --------------
Non-interest income:
Fees and service charges 61,669 58,899 125,367 121,256
Miscellaneous 11,829 13,805 26,269 27,192
-------------- -------------- --------------- --------------
Total non-interest income 73,498 72,704 151,636 148,448
-------------- -------------- --------------- --------------
Non-interest expenses:
Salaries and employee benefits 1,303,082 971,348 2,620,994 1,917,383
Net occupancy expense of premises 236,496 176,383 441,640 349,690
Equipment 222,115 201,897 444,051 390,526
Directors' compensation 139,045 112,648 276,536 239,713
Legal (4,931) 6,713 245,365 13,598
Advertising 82,700 69,165 203,168 202,387
Federal insurance premium 21,829 19,806 43,096 39,408
Miscellaneous 419,338 312,511 789,466 568,717
-------------- -------------- --------------- --------------
Total non-interest expenses 2,419,674 1,870,471 5,064,316 3,721,422
-------------- -------------- --------------- --------------
Income before income taxes 2,251,338 1,595,142 3,930,253 3,401,894
Income taxes 909,000 638,000 1,597,000 1,358,000
-------------- -------------- --------------- --------------
Net income $ 1,342,338 $ 957,142 $ 2,333,253 $ 2,043,894
============== ============== =============== ==============
Net income per common share:
Basic/diluted $ 0.05 N/A (1) $ 0.08 N/A (1)
============== ============== =============== ==============
Dividends per common share $ 0.03 N/A (1) $ 0.06 N/A (1)
============== ============== =============== ==============
Weighted average number of common shares and
common stock equivalents outstanding:
Basic/diluted 29,477,168 N/A (1) 29,468,009 N/A (1)
============== ============== =============== ==============
(1) Converted to stock form on March 3, 2004.
See notes to consolidated financial statements.
- 2 -
5
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
------------------------------ -------------------------------
2004 2003 2004 2003
-------------- -------------- --------------- --------------
Net income $ 1,342,338 $ 957,142 $ 2,333,253 $ 2,043,894
-------------- -------------- --------------- --------------
Other comprehensive (loss) income, net of income taxes:
Gross unrealized holding (loss) on
securities available for sale (646,076) (2,307) (63,898) (16,268)
Deferred income taxes 258,043 923 25,521 6,507
-------------- -------------- --------------- --------------
Other comprehensive (loss) (388,033) (1,384) (38,377) (9,761)
-------------- -------------- --------------- --------------
Comprehensive income $ 954,305 $ 955,758 $ 2,294,876 $ 2,034,133
============== ============== =============== ==============
See notes to consolidated financial statements.
- 3 -
6
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------
(Unaudited)
Six Months Ended September 30,
----------------------------------
2004 2003
--------------- ----------------
Cash flows from operating activities:
Net income $ 2,333,253 $ 2,043,894
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 304,546 200,329
Net amortization of deferred fees, premiums and discounts (6,117) 158,418
Provision for (recovery of) loan losses 200,000 (100,000)
(Increase) decrease in interest receivable (732,465) 193,583
Deferred income taxes (306,711) (185,878)
Decrease (increase) in other assets 66,394 (1,058,231)
Increase (decrease) in accrued interest payable 63,404 (4,234)
Increase (decrease) in other liabilities 169,498 (562,969)
ESOP shares committed to be released 436,220 -
--------------- ----------------
Net cash provided by operating activities 2,528,022 684,912
--------------- ----------------
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 1,706,522 55,176
Investment securities held to maturity 40,000,000 64,000,000
Mortgage-backed securities held to maturity 37,925,340 48,506,550
Purchases of:
Investment securities available for sale (45,000,000) -
Mortgage-backed securities available for sale (24,960,626) (103,154,839)
Investment securities held to maturity (29,978,125) (80,000,000)
Mortgage-backed securities held to maturity (29,758,462) -
Loans receivable (19,620,332) -
Premises and equipment (588,370) (1,418,385)
Federal Home Loan Bank of New York stock (731,400) (256,500)
Net change in loans receivable (52,011,195) 13,772,522
--------------- ----------------
Net cash (used in) investing activities (123,016,648) (53,495,476)
--------------- ----------------
Cash flows from financing activities:
Net increase in deposits 8,281,206 32,876,361
Proceeds from borrowed funds 25,000,000 -
Principal payments on borrowed funds (3,381,262) -
Dividends paid (758,378) -
Net increase (decrease) in payments by borrowers for taxes and insurance 249,277 (287,971)
--------------- ----------------
Net cash provided by financing activities 29,390,843 32,588,390
--------------- ----------------
Net (decrease) in cash and cash equivalents (91,097,783) (20,222,174)
Cash and cash equivalents - beginning 144,657,032 76,251,063
--------------- ----------------
Cash and cash equivalents - ending $ 53,559,249 $ 56,028,889
=============== ================
Supplemental information:
Cash paid during the period for:
Interest on deposits and borrowings $ 5,356,872 $ 5,936,576
=============== ================
Income taxes $ 1,881,469 $ 2,555,000
=============== ================
See notes to consolidated financial statements.
- 4 -
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 and six month periods ended September 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.
- 5 -
8
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
ITEM 2:
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 September 30, 2004, totaled $774.7 million, which
represents an increase of $32.4 million or 4.4% as compared with $742.3 million
at March 31, 2004.
Cash and cash equivalents at September 30, 2004, totaled $53.6 million, which
represents a decrease of $91.1 million or 63.0% as compared with $144.7 million
at March 31, 2004. Cash and cash equivalents at March 31, 2004 included funds
received in our initial public stock offering in March 2004. The majority of
these funds have since been redeployed into our loan and securities portfolios,
which increased significantly as noted below.
Securities available for sale at September 30, 2004, increased $68.2 million or
1,320.0% to $73.4 million when compared with $5.2 million at March 31, 2004. The
increase during the six months ended September 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 $1.7 million and
$64,000 in net unrealized losses. The increase in securities available for sale
was funded by the deployment of cash proceeds from the offering and by $25.0
million in Federal Home Loan Bank of New York ("FHLB") borrowings.
Securities held to maturity at September 30, 2004, decreased $18.5 million or
5.7% to $307.2 million when compared with $325.7 million at March 31, 2004. The
decrease during the six months ended September 30, 2004, resulted primarily from
$59.7 million in purchases of securities held to maturity, which was more than
offset by maturities, calls and repayments totaling $77.9 million.
Net loans at September 30, 2004, increased $71.7 million or 28.7 % to $321.2
million when compared with $249.5 million at March 31, 2004. The increase during
the six months ended September 30, 2004, resulted primarily from continued
strong origination volume and $19.6 million in loans purchased, which outpaced
repayments. The increase in loans receivable was funded by the deployment of
cash proceeds from the offering.
Deposits at September 30, 2004, increased $8.3 million or 1.5% to $545.3 million
when compared with $537.0 million at March 31, 2004. Advances from the Federal
Home Loan Bank ("FHLB") totaled $21.6 million at September 30, 2004, as compared
to no outstanding borrowings at March 31, 2004.
- 6 -
9
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
CHANGES IN FINANCIAL CONDITION (CONT'D.)
The Bank began to borrow from the FHLB as part of its strategy to leverage its
strong capital position. In May 2004, the Bank borrowed $25.0 million at a
weighted average interest rate of 3.39% and weighted average maturity of 3.4
years. During the six months ended September 30, 2004, $3.4 million in principal
has been repaid on those advances. In October 2004, the Bank borrowed an
additional $50.0 million from the FHLB in continuation of this leverage
strategy.
Stockholders' equity totaled $201.9 million and $199.9 million at September 30,
2004 and March 31, 2004, respectively. The increase of $2.0 million for the six
months ended September 30, 2004, resulted primarily from net income of $2.3
million and $436,000 in ESOP shares committed to be released offset by the cash
dividends paid of $758,000 and unrealized losses of $38,000 on the available for
sale securities portfolios.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004
AND 2003
Net income increased $385,000 or 40.2% to $1.34 million for the three months
ended September 30, 2004 compared with $957,000 for the same 2003 period. The
increase in net income during the 2004 period resulted from an increase in total
interest income and a decrease in total interest expense partially offset by
increases in non-interest expenses, provision for loan losses, and income taxes.
Interest income on loans increased by $1.08 million or 36.5% to $4.04 million
during the three months ended September 30, 2004, when compared with $2.96
million for the same 2003 period. The increase during the 2004 period resulted
from an increase of $108.9 million or 55.1% in the average balance of loans
outstanding partially offset by a seventy-two basis point decrease in the yield
earned on the loan portfolio to 5.27% from 5.99%. Interest on mortgage-backed
securities increased $106,000 or 5.2% to $2.159 million during the three months
ended September 30, 2004, when compared with $2.053 million for the same 2003
period. The increase during the 2004 period resulted from an increase of $24.6
million or 12.0% in the average balance of mortgage-backed securities
outstanding which was sufficient to offset a decrease of twenty-four basis
points in the yield earned on mortgage-backed securities to 3.77% from 4.01%.
Interest earned on investment securities increased by $115,000 or 10.1% to
$1.260 million during the three months ended September 30, 2004, when compared
to $1.145 million during the same 2003 period as a $31.5 million or 22.5%
increase in average balance was largely offset by a thirty-three basis point
decline in yield to 2.94% from 3.27%. Interest earned on other interest-earning
assets decreased by $3,000 or 2.5% to $107,000 during the three months ended
September 30, 2004, when compared to $110,000 during the same 2003 period
primarily due to a decrease of eighteen basis points in yield to 1.30% from
1.48%, partially offset by a $3.5 million or 11.8% increase in average balance.
Interest expense on deposits decreased $238,000 or 8.3% to $2.639 million during
the three months ended September, 2004, when compared to $2.877 million during
the same 2003 period. Such decrease was primarily attributable to a decrease of
twenty-six basis points in the cost of interest-bearing deposits to 1.97% from
2.23%, which was sufficient to offset an increase of $18.7 million or 3.6% in
the average balance of interest-bearing deposits. Interest expense on borrowed
money totaled $205,000 during the three months ended September30, 2004, when
compared with none during the same 2003 period. In May 2004, the Bank
implemented its leveraging strategy and borrowed $25.0 million from the Federal
Home Loan Bank of New York. During the three months ended September 30, 2004,
$3.3 million in principal was repaid on those advances.
- 7 -
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 SEPTEMBER 30, 2004
AND 2003 (CONT'D.)
Net interest income increased $1.3 million or 39.2% during the three months
ended September, 2004, when compared with the same 2003 period. Such increase
was due to a decrease in total interest expense of $33,000, along with an
increase in total interest income of $1.3 million. Average interest-earning
assets increased $168.4 million or 29.4% while average interest-bearing
liabilities increased $42.0 million or 8.1%. The $126.2 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 2.05% from 2.15%. The decrease in the interest rate
spread resulted from a decrease of twenty-nine basis points in the yield earned
on interest-earning assets, sufficient to offset a nineteen basis points
decrease in the cost of interest-bearing liabilities.
During the three months ended September, 2004, the Bank provided $125,000 as a
provision for loan losses as compared to no provision 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 evaluate the need for a provision for
loan losses based on its periodic review of the loan portfolio and general
market conditions. At September 30, 2004, the Bank's non-performing loans, which
were delinquent ninety days or more, totaled $251,000 or 0.03% of total assets,
as compared to $122,000 or 0.02% of total assets at March 31, 2004, and $38,000
or less than 0.01% of total assets at September 30, 2003. During the three
months ended September 30, 2004 and 2003, the Bank did not charge off any loans.
The allowance for loan losses amounted to $1,040,000 at September 30, 2004,
representing 0.32% of total loans and 414.3% of loans delinquent ninety days or
more, as compared to $915,000, representing 0.32% of total loans and 663.0% of
loans delinquent ninety days or more at June 30, 2004, $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 2,210.5% of loans
delinquent ninety days or more at September 30, 2003.
Non-interest expenses increased by $550,000 to $2.42 million during the three
months ended September 30, 2004, when compared with $1.87 million during the
same 2003 period. The components of non-interest expenses which experienced
significant change were salaries and employees benefits and miscellaneous
expenses, which increased $332,000 and $107,000, respectively. The increase in
salaries and employee benefits was largely due to the addition of personnel
needed to staff new and expanded branch locations and the addition of a
controller position. 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 $697,000
during the three months ended September 30, 2004, as compared to $587,000 during
the same 2003 period.
Income taxes totaled $909,000 and $638,000 during the three months ended
September 30, 2004 and 2003, respectively. The increase during the 2004 period
resulted from an increase in pre-tax income.
- 8 -
11
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004 AND
2003
Net income increased $289,000 or 14.1% to $2.333 million for the six months
ended September 30, 2004 compared with $2.04 million for the same 2003 period.
The increase in net income during the 2004 period resulted from an increase in
total interest income and a decrease in total interest expense partially offset
by an increase in non-interest expenses, provision for loan losses, and income
taxes.
Interest income on loans increased by $1.32 million or 21.3% to $7.51 million
during the six months ended September 30, 2004, when compared with $6.19 million
for the same 2003 period. The increase during the 2004 period resulted from an
increase of $81.2 million or 40.2% in the average balance of loans outstanding
partially offset by an eighty-three basis point decrease in the yield earned on
the loan portfolio to 5.30% from 6.13%. Interest on mortgage-backed securities
increased $228,000 or 5.7% to $4.25 million during the six months ended
September 30, 2004, when compared with $4.02 million for the same 2003 period.
The increase during the 2004 period resulted from an increase of $33.8 million
or 17.6% in the average balance of mortgage-backed securities outstanding which
was sufficient to offset a decrease of forty-two basis points in the yield
earned on mortgage-backed securities to 3.78% from 4.20%. Interest earned on
investment securities increased by $118,000 or 5.10% to $2.43 million during the
six months ended September 30, 2004, when compared to $2.31 million during the
same 2003 period, as a $30.7 million or 22.9% increase in average balance was
largely offset by a fifty basis point decline in yield to 2.95% from 3.45%.
Interest earned on other interest-earning assets decreased by $11,000 or 3.91%
to $270,000 during the six months ended September 30, 2004, when compared to
$281,000 during the same 2003 period primarily due to a decrease of fifty-five
basis points in yield to 0.95% from 1.50%, which was partially offset by a $19.0
million or 50.8% increase in average balance.
Interest expense on deposits decreased $819,000 or 13.8% to $5.11 million during
the six months ended September, 2004, when compared to $5.93 million during the
same 2003 period. Such decrease was primarily attributable to a decrease of
forty-one basis points in the cost of interest-bearing deposits to 1.92% from
2.33%, which was sufficient to offset an increase of $22.4 million or 4.4% in
the average balance of interest-bearing deposits. Interest expense on borrowed
money totaled $307,000 during the six months ended September, 2004, when
compared with none during the same 2003 period. In May, the Bank borrowed $25.0
million from the Federal Home Loan Bank of New York. During the six months ended
September 30, 2004, $3.4 million in principal was repaid on those advances.
Net interest income increased $2.2 or 31.5% during the six months ended
September, 2004, when compared with the same 2003 period. Such increase was due
to an increase in total interest income of $1.7 million along with a $512,000
decrease in total interest expense. Average interest-earning assets increased
$164.7 million or 29.2% while average interest-bearing liabilities increased
$39.3 million or 7.7%. The $125.4 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 1.98% from 2.20%. The decrease in the interest rate
spread resulted from a decrease of fifty-seven basis points in the yield earned
on interest-earning assets, sufficient to offset a thirty-five basis points
decrease in the cost of interest-bearing liabilities.
- 9 -
12
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER, 2004 AND
2003 (CONT'D)
During the six months ended September, 2004, the Bank provided $200,000 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 evaluate the need to provide for
loan losses based on its periodic review of the loan portfolio and general
market conditions. During the six months ended September 30, 2004 and 2003, the
Bank did not charge off any loans.
Non-interest income increased $4,000 or 2.7% to $152,000 during the six months
ended September 30, 2004, from $148,000 during the same 2003 period.
Non-interest expenses increased by $1.34 million to $5.06 million during the six
months ended September 30, 2004, when compared with $3.72 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 $704,000, $231,000 and $221,000,
respectively. The increase in salaries and employee benefits was largely due to
the addition of personnel needed to staff new and expanded branch locations and
the addition of a controller position. Legal fees increased to $245,000 for the
six months ended September 30, 2004, as compared to $14,000 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 $1.41 million during the six months ended
September 30, 2004, as compared to $1.22 during the same 2003 period.
Income taxes totaled $1,597,000 and $1,358,000 during the six months ended
September 30, 2004 and 2003, respectively. The increase during the 2004 period
resulted from an increase 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 $126.9 million or 16.4%
of total assets at September 30, 2004 as compared to $149.8 million or 20.2% of
total assets at March 31, 2004.
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 six months ended September
30, 2004. The primary source of cash was net income. The Company declared its
second cash dividend during the three months ended September 30, 2004. Such
dividend totaled $379,000 and was paid on August 19, 2004. Dividends declared
totaled $758,000 during the six months ended September 30, 2004.
- 10 -
13
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 primary sources of investing activity are lending and the purchases of loans
and securities. Net loans amounted to $321.2 million and $249.5 million at
September 30 and March 31, 2004, respectively. Securities, including available
for sale and held to maturity issues, totaled $380.6 million and $330.9 million
at September 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 September 30, 2004,
advances from the FHLB amounted to $21.6 million.
The Bank anticipates that it will have sufficient funds available to meet its
current commitments. At September 30, 2004, the Bank has outstanding commitments
to originate and purchase loans, and fund approved lines of credit aggregating
$20.5 million. In addition, as of September 30, 2004, the Bank had $44.9 million
in commitments outstanding to purchase mortgage-backed securities. Certificates
of deposit scheduled to mature in one year or less at September 30, 2004,
totaled $232.3 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 September 30,
2004, as compared to the minimum regulatory capital requirements:
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) $ 136,482 54.85% $ 19,905 8.00% $ 24,882 10.00%
-------------- ------------- ------------ ------------ ------------ ------------
Tier 1 Capital
(to risk-weighted assets) 135,442 54.43% 9,953 4.00% 14,929 6.00%
-------------- ------------- ------------ ------------ ------------ ------------
Core (Tier 1) Capital
(to adjusted total assets) 135,442 18.83% 28,769 4.00% 35,961 5.00%
-------------- ------------- ------------ ------------ ------------ ------------
Tangible Capital
(to adjusted total assets) 134,776 18.76% 10,788 1.50% - - %
-------------- ------------- ------------ ------------ ------------ ------------
- 11 -
14
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
ITEM 3:
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 June 30, 2004, the most recent date the Bank's NPV was
calculated by the OTS.
- 12 -
15
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
NPV as
Change in Percent of Portfolio
Interest Rates Net Portfolio Value Value of Assets
------------------------------------------- -----------------------------
In Basis Points Dollar Percent NPV Change In
(Rate Shock) Amount Change Change Ratio Basis Points
------------------ ------------- ------------- -------------- ------------ ---------------
(Dollars in Thousands)
300 $ 109,878 $(42,886) (28)% 16.39% (474)
------------- ------------- -------------- ------------ ---------------
200 125,214 (27,549) (18) 18.18 (295)
------------- ------------- -------------- ------------ ---------------
100 139,586 (13,178) (9) 19.76 (137)
------------- ------------- -------------- ------------ ---------------
Static 152,764 - - 21.13 -
------------- ------------- -------------- ------------ ---------------
-100 160,953 (8,190) 5 21.90 77
------------- ------------- -------------- ------------ ---------------
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.
- 13 -
16
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
ITEM 4:
CONTROLS AND PROCEDURES
-------------------------------------------------
The Company's management, including the Company's principal executive officer
and principal financial officer, have evaluated the effectiveness of the
Company's "disclosure controls and procedures," as such term is defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act"). Based upon their evaluation, the principal executive
officer and principal financial officer concluded that, as of the end of the
period covered by this report, the Company's disclosure controls and procedures
were effective for the purpose of ensuring that the information required to be
disclosed in the reports that the Company files or submits under the Exchange
Act with the Securities and Exchange Commission (the "SEC") (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and (2) is accumulated and communicated to the Company's
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
- 14 -
17
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 September 30, 2004, legal fees relating to this matter
totaling $32,000, and insurance proceeds of $142,000, were included in
the consolidated statements of income in legal fees. At September 30,
2004, $4,000 has been recorded as an insurance claim receivable and is
included in other assets in the consolidated statements of financial
condition.
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. Unregistered Sales of Equity Securities and Use of Proceeds
-------------------------------------------------------------
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On September 7, 2004, the annual meeting of stockholders was held.
Frank J. Hahofer and John Stokes were elected to serve as directors
with terms expiring in 2007. The directors whose terms continued and
the years their terms expire are as follows: John A. Celentano, Jr.
(2005); Thomas A. Miller (2005); John H. Peto (2006); Raymond L. Sisco
(2006); and Joseph C. Smith (2006). The Company's stockholders also
ratified the appointment of Radics & Co., LLC as the Company's
independent public accountants for the year ending March 31, 2005.
The following are the results of the annual meeting:
- 15 -
18
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
PART II
ITEM 4. Submission of Matters to a Vote of Security Holders (cont'd)
------------------------------------------------------------
ELECTION OF DIRECTORS.
FOR WITHHELD
-------------------------- ------------------------
Nominees for Number Number
Three Year
Terms:
------------------------------------------------ -------------------------- ------------------------
Frank J. Hahofer 24,411,751 3,285,137
-------------------------- ------------------------
John Stokes 24,285,767 3,411,121
-------------------------- ------------------------
RATIFICATION OF INDEPENDENT AUDITORS.
FOR AGAINST ABSTAIN
- -------------------------- ------------------------- ------------------------- -------------------------
27,024,318 344,292 328,278
- -------------------------- ------------------------- ------------------------- -------------------------
ITEM 5. Other Information
-----------------
None.
ITEM 6. Exhibits
--------
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.*
4.1 Specimen Stock Certificate of Clifton Savings Bancorp, Inc. *
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.
- 16 -
19
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: November 1, 2004 By: /s/ John A. Celentano, Jr.
-----------------------------------------
John A. Celentano, Jr.
Chairman of the Board and Chief Executive
Officer
Date: November 1, 2004 By: /s/ Christine R. Piano
-----------------------------------------
Christine R. Piano
Chief Financial Officer and Treasurer
- 17 -