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 December 31, 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
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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)
973-473-2200
- --------------------------------------------------------------------------------
(Registrant's telephone number, 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 February 1, 2005: 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 December 31, 2004 and March 31, 2004 1
Consolidated Statements of Income (Unaudited)- For the Three
And Nine Months Ended December 31, 2004 and 2003 2
Consolidated Statements of Comprehensive Income (Unaudited) - For the
Three and Nine Months Ended December 31, 2004 and 2003 3
Consolidated Statements of Cash Flows (Unaudited) - For the
Nine Months Ended December 31, 2004 and 2003 4
Notes to Consolidated Financial Statements 5
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-13
Item 3: Quantitative and Qualitative Disclosures About Market Risk 14-15
Item 4: Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 17
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3: Defaults Upon Senior Securities 17
Item 4: Submission of Matters to a Vote of Security Holders 17
Item 5: Other Information 18
Item 6: Exhibits 18
SIGNATURES 19
3
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(Unaudited)
December 31, March 31,
ASSETS 2004 2004
- ------ -------------- --------------
Cash and amounts due from depository institutions $ 7,753,530 $ 15,591,119
Interest-bearing deposits in other banks 5,221,285 128,065,913
Federal funds sold 11,000,000 1,000,000
-------------- --------------
Total cash and cash equivalents 23,974,815 144,657,032
Securities available for sale:
Investment 59,298,950 5,027,700
Mortgage-backed 71,517,175 138,113
Securities held to maturity:
Investment, estimated fair value of $140,229,000
and $122,252,000, respectively 140,922,401 120,933,287
Mortgage-backed, estimated fair value of $181,845,000
and $206,654,000, respectively 182,083,445 204,788,321
Loans receivable, net 334,807,446 249,458,785
Premises and equipment, net 9,033,771 8,813,426
Federal Home Loan Bank stock, at cost 4,370,800 3,639,400
Interest receivable 3,407,470 3,067,928
Other assets 2,319,381 1,783,941
-------------- --------------
Total assets $ 831,735,654 $ 742,307,933
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits $ 551,862,410 $ 537,002,097
Advances from Federal Home Loan Bank of New York 71,088,894 -
Advance payments by borrowers for taxes and insurance 3,106,480 2,864,863
Other liabilities and accrued expenses 2,771,500 2,534,374
-------------- --------------
Total liabilities 628,829,284 542,401,334
-------------- --------------
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 133,903,025 133,796,416
Retained earnings - substantially restricted 79,205,688 76,591,010
Common stock acquired by Employee Stock Ownership Plan (10,258,237) (10,807,787)
Accumulated other comprehensive income -
unrealized (loss) gain on securities available for sale (249,411) 21,655
-------------- --------------
Total stockholders' equity 202,906,370 199,906,599
-------------- --------------
Total liabilities and stockholders' equity $ 831,735,654 $ 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 Nine Months Ended
December 31, December 31,
-------------------------------- ----------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
Interest income:
Loans $ 4,347,772 $ 3,042,089 $ 11,861,983 $ 9,234,678
Mortgage-backed securities 2,485,729 1,742,376 6,736,281 5,765,170
Investments securities 1,234,273 1,240,594 3,663,065 3,551,077
Other interest-earning assets 222,604 47,729 492,258 329,072
Total interest income 8,290,378 6,072,788 22,753,587 18,879,997
--------------- --------------- --------------- ---------------
Interest expense:
Deposits 2,814,873 2,876,622 7,928,472 8,808,964
FHLB advances 644,459 - 951,136 -
--------------- --------------- --------------- ---------------
Total interest expense 3,459,332 2,876,622 8,879,608 8,808,964
--------------- --------------- --------------- ---------------
Net interest income 4,831,046 3,196,166 13,873,979 10,071,033
Provision for (recovery of) loan losses 35,000 - 235,000 (100,000)
--------------- --------------- --------------- ---------------
Net interest income after provision
for (recovery of) loan losses 4,796,046 3,196,166 13,638,979 10,171,033
--------------- --------------- --------------- ---------------
Non-interest income:
Fees and service charges 60,252 56,971 185,619 178,227
Loss on sale of mortgage-backed securities
held to maturity (26,322) - (26,322) -
Miscellaneous 105,225 13,816 131,494 41,009
--------------- --------------- --------------- ---------------
Total non-interest income 139,155 70,787 290,791 219,236
--------------- --------------- --------------- ---------------
Non-interest expenses:
Salaries and employee benefits 1,382,847 949,324 4,003,841 2,866,708
Net occupancy expense of premises 238,940 206,838 680,580 556,528
Equipment 226,561 217,164 670,612 607,690
Directors' compensation 140,491 111,705 417,027 351,418
Legal 73,603 6,713 318,967 20,310
Advertising 106,015 97,150 309,184 299,537
Federal insurance premium 19,221 19,309 62,317 58,717
Miscellaneous 358,532 313,837 1,147,998 882,555
--------------- --------------- --------------- ---------------
Total non-interest expenses 2,546,210 1,922,040 7,610,526 5,643,463
--------------- --------------- --------------- ---------------
Income before income taxes 2,388,991 1,344,913 6,319,244 4,746,806
Income taxes 970,000 537,000 2,567,000 1,895,000
--------------- --------------- --------------- ---------------
Net income $ 1,418,991 $ 807,913 $ 3,752,244 $ 2,851,806
=============== =============== =============== ===============
Net income per common share:
Basic/diluted $ 0.05 N/A (1) $ 0.13 N/A (1)
=============== =============== =============== ===============
Dividends per common share $ 0.03 N/A (1) $ 0.09 N/A (1)
=============== =============== =============== ===============
Weighted average number of common shares and common stock equivalents
outstanding:
Basic/diluted 29,495,487 N/A (1) 29,477,168 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 Nine Months Ended
December 31, December 31,
--------------------------------- -----------------------------------
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Net income $ 1,418,991 $ 807,913 $ 3,752,244 $ 2,851,806
---------------- ---------------- ---------------- ----------------
Other comprehensive (loss) income, net of income taxes:
Gross unrealized holding (loss) gain on
securities available for sale (387,428) 22,901 (451,326) 6,632
Deferred income taxes 154,739 (9,139) 180,260 (2,631)
---------------- ---------------- ---------------- ----------------
Other comprehensive (loss) gain (232,689) 13,762 (271,066) 4,001
---------------- ---------------- ---------------- ----------------
Comprehensive income $ 1,186,302 $ 821,675 $ 3,481,178 $ 2,855,807
================ ================ ================ ================
See notes to consolidated financial statements.
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6
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Nine Months Ended December 31,
--------------------------------------
2004 2003
------------------ -----------------
Cash flows from operating activities:
Net income $ 3,752,244 $ 2,851,806
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment 467,614 331,099
Net amortization of deferred fees, premiums and discounts (151,185) 387,445
Provision for loan losses 235,000 100,000
Loss on sale of mortgage-backed securities held to maturity 26,322 -
Gain on sale of premises and equipment, net (92,834) -
(Increase) decrease in interest receivable (339,542) 63,385
Deferred income taxes (89,737) (185,878)
(Increase) in other assets (265,443) (2,140,074)
Increase (decrease) in accrued interest payable 210,301 (19,420)
Increase (decrease) in other liabilities 26,825 (128,928)
ESOP shares committed to be released 656,159 -
------------------ -----------------
Net cash provided by operating activities 4,435,724 1,259,435
------------------ -----------------
Cash flows from investing activities:
Proceeds of sale of mortgage-backed securities held to maturity 2,357,517 -
Proceeds of calls, maturities and repayments of:
Investment securities available for sale - 5,000,000
Mortgage-backed securities available for sale 3,707,790 83,674
Investment securities held to maturity 50,000,000 74,000,000
Mortgage-backed securities held to maturity 52,313,049 66,244,947
Premises and equipment, net 209,625 -
Purchases of:
Investment securities available for sale (54,985,000) (5,000,000)
Mortgage-backed securities available for sale (74,819,627) -
Investment securities held to maturity (69,978,125) (95,000,000)
Mortgage-backed securities held to maturity (32,486,996) (129,132,662)
Loans receivable (32,735,547) (4,628,268)
Premises and equipment, net (804,750) (2,157,097)
Federal Home Loan Bank of New York stock (731,400) (256,500)
Net change in loans receivable (52,217,735) (16,804,749)
------------------ -----------------
Net cash (used in) investing activities (210,171,199) (107,650,655)
------------------ -----------------
Cash flows from financing activities:
Net increase in deposits 14,860,313 57,797,418
Proceeds from borrowed funds 75,000,000 -
Principal payments on borrowed funds (3,911,106) -
Dividends paid (1,137,566) -
Net increase (decrease) in payments by borrowers for taxes and insurance 241,617 (63,023)
------------------ -----------------
Net cash provided by financing activities 85,053,258 57,734,395
------------------ -----------------
Net (decrease) in cash and cash equivalents (120,682,217) (48,656,825)
Cash and cash equivalents - beginning 144,657,032 76,251,063
------------------ -----------------
Cash and cash equivalents - ending $ 23,974,815 $ 27,594,238
================== =================
Supplemental information:
Cash paid during the period for:
Interest on deposits and borrowings $ 8,669,307 $ 8,828,385
================== =================
Income taxes $ 2,891,469 $ 3,315,000
================== =================
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 and nine month periods ended December 31,
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
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.
OVERVIEW OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Clifton Savings Bancorp, Inc.'s results of operations depend primarily on its
net interest income, which is a direct result of the interest rate environment.
Net interest income is the difference between the interest income earned on
interest-earning assets and the interest paid on interest-bearing liabilities.
It is a function of the average balances of loans and investments versus
deposits and borrowed funds outstanding in any one period and the yields earned
on those loans and investments and the cost of those deposits and borrowed
funds.
Interest-earning assets consist primarily of investment and mortgage-backed
securities, and loans which comprised 54.6% and 40.3%, respectively, of total
assets at December 31, 2004, as compared to 44.6% and 33.6%, respectively, at
March 31, 2004. The largest change in interest-earning assets between March 31,
2004 and December 31, 2004 was a $120.7 million or 83.4% decrease in cash and
cash equivalents due to the redeployment of funds received in our initial public
offering into higher yielding securities and loans.
Interest-bearing liabilities consist of deposits and borrowings from the Federal
Home Loan Bank of New York("FHLB"). The largest change in interest-bearing
liabilities between March 31, 2004 and December 31, 2004 was a $71.1 million
increase in borrowings. FHLB advances increased in order to fund the purchase of
securities as part of an overall income enhancement strategy.
Net interest income increased $3.8 million or 37.8% during the nine months ended
December 31, 2004, when compared with the same 2003 period. Such increase was
due to an increase in total interest income of $3.9 million which was partially
offset by a $71,000 increase in total interest expense. Average interest-earning
assets increased $179.7 million or 31.2% while average interest-bearing
liabilities increased $52.8 million or 10.1%. The $127.0 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 1.95% from 2.12%. The decrease in the interest rate
spread resulted from a decrease of thirty-six basis points in the yield earned
on interest-earning assets, sufficient to offset a nineteen basis point decrease
in the cost of interest-bearing liabilities.
- 6 -
9
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
OVERVIEW OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
Results of operations also depend, to a lesser extent, on non-interest income
generated and provision for loan losses recorded as well as non-interest
expense. During the nine months ended December 31, 2004, non-interest income
increased $72,000 or 32.6%, offset by an increase of $335,000 in provision for
loan losses along with an increase of $1.97 million or 34.9% in non-interest
expense. The components of non-interest expense which experienced significant
change were salaries and employees benefits, legal fees and miscellaneous
expense, which increased $1.14 million, $299,000 and $265,000, respectively. The
increase in salaries and employee benefits was attributable to $690,000 in
expenses related to the stock-based compensation plans implemented upon the
Company's initial public stock offering, along with the addition of personnel
needed to staff new and expanded branch locations and the addition of controller
and internal auditor positions. Legal fees increased to $319,000 for the nine
months ended December 31, 2004, as compared to $20,000 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 reflects both the growth of the Company and additional
costs associated with being a public company.
The Bank formed Botany Inc., a wholly-owned subsidiary, in December 2004. Botany
Inc. is expected to be treated under New Jersey tax law as a New Jersey
investment company and is intended to provide tax savings to the consolidated
Company. Botany Inc. was funded with assets of $165.1 million on January 3,
2005.
CHANGES IN FINANCIAL CONDITION
The Company's assets at December 31, 2004, totaled $831.7 million, which
represents an increase of $89.4 million or 12.0% as compared with $742.3 million
at March 31, 2004.
Cash and cash equivalents at December 31, 2004, totaled $24.0 million, which
represents a decrease of $120.7 million or 83.4% 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. These funds have
since been redeployed into our loan and securities portfolios, which increased
significantly as noted below.
Securities available for sale at December 31, 2004, increased $125.6 million or
2,432.3% to $130.8 million, when compared with $5.2 million at March 31, 2004.
The increase during the nine months ended December 31, 2004, resulted primarily
from $129.7 million in purchases of securities available for sale, which was
sufficient to offset maturities, calls and repayments totaling $3.7 million and
$451,000 in net unrealized losses. The increase in securities available for sale
was funded by the deployment of cash proceeds from the offering and by $75.0
million in FHLB borrowings.
Securities held to maturity at December 31, 2004, decreased $2.7 million or 0.8%
to $323.0 million when compared with $325.7 million at March 31, 2004. The
decrease during the nine months ended December 31, 2004, resulted primarily from
the sale of $2.3 million of mortgage-backed securities. The sale of such
securities, all of which had remaining principal balances of less than 15% of
their original balances, resulted in a $26,000 loss. The $102.4 million in
purchases of securities held to maturity were largely offset by maturities,
calls and repayments totaling $102.3 million.
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10
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
CHANGES IN FINANCIAL CONDITION (CONT'D.)
Net loans at December 31, 2004, increased $85.3 million or 34.2 % to $334.8
million when compared with $249.5 million at March 31, 2004. The increase during
the nine months ended December 31, 2004, resulted primarily from continued
strong origination volume and $32.7 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 December 31, 2004, increased $14.9 million or 2.8% to $551.9 million
when compared with $537.0 million at March 31, 2004. Advances from the FHLB
totaled $71.1 million at December 31, 2004, as compared to no outstanding
borrowings at March 31, 2004.
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 3.7
years. In October 2004, the Bank borrowed an additional $50.0 million from the
FHLB at a weighted average rate of 3.58% and a weighted average maturity of 4.0
years in continuation of this leverage strategy. During the nine months ended
December 31, 2004, $3.9 million in principal has been repaid on those advances.
At December 31, 2004, the remaining borrowings of $71.1 million have an average
interest rate of 3.60%.
Stockholders' equity totaled $202.9 million and $199.9 million at December 31,
2004 and March 31, 2004, respectively. The increase of $3.0 million for the nine
months ended December 31, 2004, resulted primarily from net income of $3.8
million and $656,000 in ESOP shares committed to be released offset by cash
dividends paid of $1.14 million and unrealized losses of $271,000 on the
available for sale securities portfolios.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND
2003
Net income increased $611,000 or 75.6% to $1.42 million for the three months
ended December 31, 2004 compared with $808,000 for the same 2003 period. The
increase in net income during the 2004 period resulted primarily from an
increase in total interest income partially offset by increases in non-interest
expenses, provision for loan losses and income taxes.
Interest income on loans increased by $1.31 million or 42.9% to $4.35 million
during the three months ended December 31, 2004, when compared with $3.04
million for the same 2003 period. The increase during the 2004 period resulted
from an increase of $114.0 million or 52.4% in the average balance of loans
outstanding partially offset by a thirty-four basis point decrease in the yield
earned on the loan portfolio to 5.25% from 5.59%. Interest on mortgage-backed
securities increased $743,000 or 42.7% to $2.49 million during the three months
ended December 31, 2004, when compared with $1.74 million for the same 2003
period. The increase during the 2004 period resulted from an increase of $44.2
million or 21.1% in the average balance of mortgage-backed securities
outstanding along with an increase of sixty basis points in the yield earned on
mortgage-backed securities to 3.93% from 3.33%. Interest earned on investment
securities decreased by $6,000 or 0.5% to $1.23 million during the three months
ended December 31, 2004, when compared to $1.24 million during the same 2003
period due to a $26.0 million or 17.5% decrease in average balance coupled with
a fifty-one basis point decline in yield to 2.84% from 3.35%. Interest earned on
other interest-earning assets increased by $175,000 or 366.4% to $223,000 during
the three months ended December 31, 2004, when compared to $48,000 during the
same 2003 period primarily due to an increase of ninety-nine basis points in
yield to 1.95% from 0.96%, along with a $25.6 million or 128.4% increase in
average balance.
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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 THREE MONTHS ENDED DECEMBER 31, 2004 AND
2003 (CONT'D.)
Interest expense on deposits decreased $62,000 or 2.1% to $2.815 million during
the three months ended December 31, 2004, when compared to $2.877 million during
the same 2003 period. Such decrease was primarily attributable to a decrease of
six basis points in the cost of interest-bearing deposits to 2.06% from 2.12%,
which was sufficient to offset an increase of $3.1 million or 0.6% in the
average balance of interest-bearing deposits. Interest expense on borrowed money
totaled $644,000 during the three months ended December 31, 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 FHLB. In October 2004,
the Bank borrowed an additional $50.0 million from the FHLB in continuation of
this leverage strategy. During the three months ended December 31, 2004,
$530,000 in principal has been repaid on those advances.
Net interest income increased $1.6 million or 51.2% during the three months
ended December 31, 2004, when compared with the same 2003 period. Such increase
was due to an increase in total interest income of $2.2 million, partially
offset by an increase in total interest expense of $583,000. Average
interest-earning assets increased $209.6 million or 35.3% while average
interest-bearing liabilities increased $74.5 million or 13.7%. The $135.1
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 1.88% from 1.97%. The decrease in
the interest rate spread resulted from a twelve basis point increase in the cost
of interest-bearing liabilities, which was partially offset by a three basis
point increase in the yield earned on interest-earning assets.
During the three months ended December 2004, the Bank provided $35,000 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 December 31, 2004, the Bank's non-performing loans, which
were delinquent ninety days or more, totaled $7,000, or less than 0.01% of total
assets, as compared to $122,000 or 0.02% of total assets at March 31, 2004, and
$21,000 or less than 0.01% of total assets at December 31, 2003. During the
three months ended December 31, 2004 and 2003, the Bank did not charge off any
loans. The allowance for loan losses amounted to $1,075,000 at December 31,
2004, representing 0.32% of total loans and 15,357.1% 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 0.35% of total loans and 4,000.0% of loans delinquent ninety days
or more at December 31, 2003.
Non-interest income increased by $68,000 to $139,000 during the three months
ended December 31, 2004, when compared to $71,000 during the same 2003 period,
primarily due to asset sales. We sold $2.3 million of mortgage-backed securities
held to maturity, all of which had remaining balances of less than 15% of their
respective original balances, at a $26,000 loss during the 2004 period. In
addition, a parcel of land with a book value of $117,000, which was determined
to be no longer in the Bank's expansion plans, was sold at a $93,000 gain.
- 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 THREE MONTHS ENDED DECEMBER 31, 2004 AND
2003 (CONT'D.)
Non-interest expenses increased by $624,000 to $2.55 million during the three
months ended December 31, 2004, when compared with $1.92 million during the same
2003 period. The components of non-interest expenses which experienced
significant change were salaries and employees benefits, legal and miscellaneous
expenses, which increased $434,000, $67,000 and $45,000, respectively. The
increase in salaries and employee benefits was largely due to $233,000 in
expense related to stock-based compensation plans implemented in conjunction
with the initial public stock offering, along with the addition of personnel
needed to staff new and expanded branch locations and the addition of controller
and internal auditor positions. The increase in legal fees was primarily due to
the increased legal costs associated with being a public company. The increase
in miscellaneous expenses is attributable to the increased size of the Company
and the additional costs of being a public entity. All other elements of
non-interest expenses totaled $731,000 during the three months ended December
31, 2004, as compared to $652,000 during the same 2003 period.
Income taxes totaled $970,000 and $537,000 during the three months ended
December 31, 2004 and 2003, respectively. The increase during the 2004 period
resulted from an increase in pre-tax income. The Company's effective income tax
rate was 40.6% and 39.9% during the three months ended December 31, 2004 and
2003, respectively.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2004 AND
2003
Net income increased $900,000 or 31.6% to $3.75 million for the nine months
ended December 31, 2004 compared with $2.85 million for the same 2003 period.
The increase in net income during the 2004 period resulted primarily from an
increase in total interest income partially offset by increases in non-interest
expenses, provision for loan losses, and income taxes.
Interest income on loans increased by $2.63 million or 28.5% to $11.86 million
during the nine months ended December 31, 2004, when compared with $9.23 million
for the same 2003 period. The increase during the 2004 period resulted from an
increase of $90.4 million or 43.3% in the average balance of loans outstanding
partially offset by a sixty-two basis point decrease in the yield earned on the
loan portfolio to 5.29% from 5.91%. Interest on mortgage-backed securities
increased $971,000 or 16.8% to $6.74 million during the nine months ended
December 31, 2004, when compared with $5.77 million for the same 2003 period.
The increase during the 2004 period resulted from an increase of $38.7 million
or 19.6% in the average balance of mortgage-backed securities outstanding which
was sufficient to offset a decrease of nine basis points in the yield earned on
mortgage-backed securities to 3.80% from 3.89%. Interest earned on investment
securities increased by $112,000 or 3.20% to $3.66 million during the nine
months ended December 31, 2004, when compared to $3.55 million during the same
2003 period, as a $29.5 million or 21.2% increase in average balance was largely
offset by a fifty-one basis point decline in yield to 2.89% from 3.40%. Interest
earned on other interest-earning assets increased by $163,000 or 49.6% to
$492,000 during the nine months ended December 31, 2004, when compared to
$329,000 during the same 2003 period as an increase of $21.2 million or 68.0% in
the average balance was sufficient to offset a decrease of fifteen basis points
in yield to 1.26% from 1.41%.
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13
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2004 AND
2003 (CONT'D)
Interest expense on deposits decreased $880,000 or 10.0% to $7.93 million during
the nine months ended December 31, 2004, when compared to $8.81 million during
the same 2003 period. Such decrease was primarily attributable to a decrease of
twenty-eight basis points in the cost of interest-bearing deposits to 1.97% from
2.25%, which was sufficient to offset an increase of $15.6 million or 3.0% in
the average balance of interest-bearing deposits. Interest expense on borrowed
money totaled $951,000 during the nine months ended December 31, 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. In October 2004, the Bank
borrowed an additional $50.0 million from the FHLB in continuation of this
leverage strategy. During the nine months ended December 31, 2004, $3.9 million
in principal has been repaid on those advances. The $71.1 million in borrowings
outstanding at December 31, 2004 had an average interest rate of 3.60%.
Net interest income increased $3.8 million or 37.8% during the nine months ended
December 31, 2004, when compared with the same 2003 period. Such increase was
due to an increase in total interest income of $3.9 million which was partially
offset by a $71,000 increase in total interest expense. Average interest-earning
assets increased $179.7 million or 31.2% while average interest-bearing
liabilities increased $42.8 million or 10.1%. The $127.0 million increase in
average net interest-earning assets was attributable to the proceeds of the
Company's initial public stock offering and more than offset the effect of a
decline in net interest rate spread to 1.95% from 2.12%. The decrease in the
interest rate spread resulted from a decrease of thirty-six basis points in the
yield earned on interest-earning assets, sufficient to offset a nineteen basis
point decrease in the cost of interest-bearing liabilities.
During the nine months ended December 31, 2004, the Bank provided $235,000 as a
provision for loan losses as compared to a $100,000 recovery during the same
2003 period. The primary reason for the current period provision was the $85.3
million growth in the Bank's loan portfolio. 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 activities. 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 nine months ended
December 31, 2004 and 2003, the Bank did not charge off any loans.
Non-interest income increased $72,000 or 32.6% to $291,000 during the nine
months ended December 31, 2004, from $219,000 during the same 2003 period.
$67,000 of the increase is due to the previously discussed asset sales during
the current quarter.
Non-interest expenses increased by $1.97 million or 34.9% to $7.61 million
during the nine months ended December 31, 2004, when compared with $5.64 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 $1.14 million, $299,000 and
$265,000, respectively. The increase in salaries and employee benefits was
largely due to $690,000 of expense associated with stock-based compensation
plans implemented in conjunction with the initial public offering, along with
the addition of personnel needed to staff new and expanded branch locations and
the addition of controller and internal auditor positions. Legal fees increased
to $319,000 for the nine months ended December 31, 2004, as compared to $20,000
for the same 2003 period, primarily due to litigation
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14
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 2004 AND
2003 (CONT'D)
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 $2.14 million
during the nine months ended December 31, 2004, as compared to $1.87 million
during the same 2003 period.
Income taxes totaled $2.57 million and $1.90 million during the nine months
ended December 31, 2004 and 2003, respectively. The increase during the 2004
period resulted from an increase in pre-tax income. The Company's effective
income tax rate was 40.6% and 39.9% during the nine months ended December 31,
2004 and 2003, respectively.
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 $154.8 million or 18.6%
of total assets at December 31, 2004 as compared to $149.8 million or 20.2% of
total assets at March 31, 2004.
The Company'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 nine months ended December
31, 2004. The primary source of cash was net income. The Company declared its
third cash dividend during the three months ended December 31, 2004. Such
dividend totaled $379,000 and was paid on November 26, 2004. Dividends declared
totaled $1.14 million during the nine months ended December 31, 2004.
The primary sources of investing activity are lending and the purchases of loans
and securities. Net loans amounted to $334.8 million and $249.5 million at
December 31, 2004 and March 31, 2004, respectively. Securities, including
available for sale and held to maturity issues, totaled $453.8 million and
$330.9 million at December 31, 2004 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 December 31, 2004,
advances from the FHLB amounted to $71.1 million.
- 12 -
15
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 anticipates that it will have sufficient funds available to meet its
current commitments. At December 31, 2004, the Bank has outstanding commitments
to originate and purchase loans, and fund approved lines of credit, aggregating
$11.1 million. Certificates of deposit scheduled to mature in one year or less
at December 31, 2004, totaled $229.0 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 December 31, 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) $ 137,954 52.05% $ 21,203 8.00% $ 26,504 10.00%
-------------- ------------- ------------- ------------- ------------- -------------
Tier 1 Capital
(to risk-weighted assets) 136,879 51.64% 10,602 4.00% 15,903 6.00%
-------------- ------------- ------------- ------------- ------------- -------------
Core (Tier 1) Capital
(to adjusted total assets) 136,879 17.64% 31,032 4.00% 38,790 5.00%
-------------- ------------- ------------- ------------- ------------- -------------
Tangible Capital
(to adjusted total assets) 136,213 17.57% 11,637 1.50% - - %
-------------- ------------- ------------- ------------- ------------- -------------
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16
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 September 30, 2004, the most recent date the Bank's NPV was
calculated by the OTS. The Bank expects that its NPV as of December 31, 2004 is
consistent with the table below.
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 $ 123,182 $(35,045) (22)% 17.87 % (344)
------------- ------------- -------------- ------------ ---------------
200 136,468 (21,759) (14) 19.26 (204)
------------- ------------- -------------- ------------ ---------------
100 148,415 (9,812) (6) 20.43 (88)
------------- ------------- -------------- ------------ ---------------
Static 158,227 - - 21.31 -
------------- ------------- -------------- ------------ ---------------
-100 161,652 3,426 2 21.47 17
------------- ------------- -------------- ------------ ---------------
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17
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
NET PORTFOLIO VALUE (CONT'D.)
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.
- 15 -
18
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.
- 16 -
19
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
PART II
ITEM 1. Legal Proceedings
-----------------
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
---------------------------------------------------
None.
- 17 -
20
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARY
PART II
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.
- 18 -
21
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: February 4, 2005 By: /s/ John A. Celentano, Jr.
-----------------------------------------
John A. Celentano, Jr.
Chairman of the Board and Chief Executive
Officer
(Principal Executive Officer)
Date: February 4, 2005 By: /s/ Christine R. Piano
----------------------------------------
Christine R. Piano
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
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