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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2005
[ ] 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 Identification No.)
incorporation or organization)
1433 VAN HOUTEN AVENUE, CLIFTON, NEW JERSEY 07015
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 473-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
Yes X No
----- ----
The aggregate market value of the voting and non-voting common equity
held by non-affiliates as of September 30, 2004, was $156,449,263 based upon the
closing price of $11.66 as quoted on the Nasdaq National Market.
The number of shares outstanding of the registrant's common stock as of
April 30, 2005 was 30,530,470. Of such shares outstanding, 16,791,758 shares
were held by Clifton MHC.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE 2005 ANNUAL REPORT TO STOCKHOLDERS AND OF THE PROXY STATEMENT
FOR THE 2005 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE IN
PARTS II AND III, RESPECTIVELY, OF THIS FORM 10-K.
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INDEX
Part I
Page
Item 1. Business......................................................................................... 1
Item 2. Properties.......................................................................................20
Item 3. Legal Proceedings................................................................................20
Item 4. Submission of Matters to a Vote of Securities Holders............................................20
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities................................................................................20
Item 6. Selected Financial Data..........................................................................21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................21
Item 8. Financial Statements and Supplementary Data......................................................21
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ............21
Item 9A. Controls and Procedures..........................................................................21
Item 9B. Other Information................................................................................21
Part III
Item 10. Directors and Executive Officers of the Registrant...............................................21
Item 11. Executive Compensation...........................................................................21
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters............................................................................22
Item 13. Certain Relationships and Related Transactions...................................................22
Item 14. Principal Accountant Fees and Services...........................................................22
Part IV
Item 15. Exhibits and Financial Statement Schedules.......................................................22
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THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. THESE STATEMENTS ARE NOT HISTORICAL
FACTS, RATHER STATEMENTS BASED ON CLIFTON SAVINGS BANCORP, INC.'S CURRENT
EXPECTATIONS REGARDING ITS BUSINESS STRATEGIES, INTENDED RESULTS AND FUTURE
PERFORMANCE. FORWARD-LOOKING STATEMENTS ARE PRECEDED BY TERMS SUCH AS "EXPECTS,"
"BELIEVES," "ANTICIPATES," "INTENDS" AND SIMILAR EXPRESSIONS.
MANAGEMENT'S ABILITY TO PREDICT RESULTS OR THE EFFECT OF FUTURE
PLANS OR STRATEGIES IS INHERENTLY UNCERTAIN. FACTORS WHICH COULD AFFECT ACTUAL
RESULTS INCLUDE INTEREST RATE TRENDS, THE GENERAL ECONOMIC CLIMATE IN THE MARKET
AREA IN WHICH CLIFTON SAVINGS BANCORP OPERATES, AS WELL AS NATIONWIDE, CLIFTON
SAVINGS BANCORP'S ABILITY TO CONTROL COSTS AND EXPENSES, COMPETITIVE PRODUCTS
AND PRICING, LOAN DELINQUENCY RATES AND CHANGES IN FEDERAL AND STATE LEGISLATION
AND REGULATION. THESE FACTORS SHOULD BE CONSIDERED IN EVALUATING THE
FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH
STATEMENTS. CLIFTON SAVINGS BANCORP ASSUMES NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
GENERAL
Clifton Savings Bancorp, Inc. was organized as a federal corporation at
the direction of Clifton Savings Bank, S.L.A. in connection with the mutual
holding company reorganization of Clifton Savings. The reorganization was
completed on March 3, 2004. In the reorganization, Clifton Savings Bancorp sold
45% of its outstanding shares of common stock to the public and issued 55% of
its outstanding shares of common stock to Clifton MHC, the mutual holding
company parent of Clifton Savings. So long as Clifton MHC exists, it will own at
least a majority of Clifton Savings Bancorp's common stock. Clifton Savings
Bancorp's business activity is the ownership of the outstanding capital stock of
Clifton Savings and management of the investment of offering proceeds retained
from the reorganization. Clifton Savings Bancorp neither owns nor leases any
property but instead uses the premises, equipment and other property of Clifton
Savings with the payment of appropriate rental fees, as required by applicable
law and regulations. In the future, Clifton Savings Bancorp may acquire or
organize other operating subsidiaries; however, there are no current plans,
arrangements, agreements or understandings, written or oral, to do so. Clifton
Savings Bancorp has no significant assets, other than all of the outstanding
shares of Clifton Savings, and no significant liabilities. Accordingly, the
information set forth in this report, including the consolidated financial
statements and related financial data, relates primarily to Clifton Savings.
Clifton Savings is a New Jersey state chartered savings and loan
association, and has served its customers in New Jersey since 1928. We operate
as a community-oriented financial institution offering traditional financial
services to consumers and businesses in our market area. We attract deposits
from the general public and use those funds to originate one- to four-family,
multi-family and commercial real estate, and consumer loans, which we hold for
investment.
SUBSIDIARY ACTIVITIES
Clifton Savings Bancorp's sole subsidiary is Clifton Savings. Clifton
Savings has one wholly owned subsidiary, Botany Inc., a New Jersey corporation
that was formed in December 2004. Botany Inc. is treated under New Jersey tax
law as a New Jersey investment company. At March 31, 2005, Botany Inc. held
assets totaling $166.5 million.
AVAILABLE INFORMATION
Clifton Savings Bancorp's annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and any amendments to such reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended, are made available free of charge on our website,
www.cliftonsavings.com, as soon as reasonably practicable after such reports are
electronically filed with, or furnished to, the Securities and Exchange
Commission. The information on our website shall not be considered as
incorporated by reference into this Form 10-K.
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MARKET AREA
We are headquartered in Clifton, New Jersey, which is located in
northeast New Jersey and situated approximately 20 miles west of New York City.
In addition to our main office located in Passaic County, we operate nine branch
offices in Bergen and Passaic Counties, which, along with Essex, Morris, Hudson
and Union Counties, we consider our primary market area. The economy in our
market area is primarily oriented to the service, manufacturing, medical and
retail industries. The area is also home to commuters working in the greater New
York City metropolitan area.
COMPETITION
We face significant competition for the attraction of deposits and
origination of loans.
DEPOSITS. There are more competitors for deposits than ever before. We
no longer compete exclusively with local area commercial banks and savings
institutions. Today we also face competition from the stock market and in
particular money market funds and other corporate and government securities
which tend to attract investors' funds away from deposit accounts when the
public perceives that the market is strong.
In addition, locally we face direct competition for funds from national
and state commercial banks and savings institutions, as well as credit unions.
We also compete with regional banks with out-of-state headquarters that now
operate branch offices in New Jersey. These larger regional banks often have
significantly greater resources, more sophisticated marketing tools and newer
deposit products.
LOANS. Local financial institutions, which historically originated
most mortgage loans, now face significant competition from other financial
service providers. National real estate brokers now are typically affiliated
with a mortgage broker who is often located in the real estate broker's office.
Other competitors include credit unions and mortgage brokers who keep overhead
costs down, and therefore the mortgage rates they offer down, by selling the
loans and not holding or servicing them.
INCREASING COMPETITION. We expect competition to increase in the future
as a result of legislative, regulatory and technological changes and the
continuing trend of consolidation in the financial services industry.
Technological advances, for example, have lowered barriers to entry, allowed
banks to expand their geographic reach by providing immediate access to services
and rates over the Internet, as opposed to relying on newspaper, radio and
billboard advertising, and made it possible for non-depository institutions to
offer products and services that traditionally have been provided by banks.
Changes in federal law permit affiliation among banks, securities firms and
insurance companies, which promotes a competitive environment in the financial
services industry. Competition for deposits and the origination of loans have
been intense and could limit our growth in the future.
LENDING ACTIVITIES
GENERAL. Our loan portfolio consists primarily of one- to four-family
mortgage loans. To a much lesser extent, our loan portfolio includes
multi-family and commercial real estate loans, construction and consumer loans.
Clifton Savings historically and currently only originates loans for investment
purposes. At March 31, 2005, Clifton Savings had no loans that were held for
sale.
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. Our primary lending activity is
the origination of mortgage loans to enable borrowers to purchase or refinance
existing homes or to construct new residential dwellings. We offer fixed-rate
and adjustable-rate mortgage loans with terms up to 30 years. Borrower demand
for adjustable-rate loans versus fixed-rate loans is a function of the level of
interest rates, the expectations of changes in the level of interest rates, the
difference between the interest rates and loan fees offered for fixed-rate
mortgage loans and the initial period interest rates and loan fees for
adjustable-rate loans. The relative amount of fixed-rate mortgage loans and
adjustable-rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive environment and the effect
each has on our interest rate risk. The loan fees charged, interest rates and
other provisions of mortgage loans are determined by us on the basis of our own
pricing criteria and competitive market conditions.
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We offer fixed rate loans with terms of either 15, 20 or 30 years. Our
adjustable-rate mortgage loans are based on a 30 year amortization schedule and
interest rates and payments on our adjustable-rate mortgage loans adjust
annually after a one, five, seven or ten year initial fixed period. In addition,
we offer adjustable-rate mortgage loans that adjust every three years after a
three year initial fixed period. Interest rates and payments on our
adjustable-rate loans generally are adjusted to a rate typically equal to 2.75%
above either the one- or three-year constant maturity Treasury index. The
maximum amount by which the interest rate may be increased or decreased is
generally 2% per adjustment period and the lifetime interest rate cap is
generally 6% over the initial interest rate of the loan.
While we anticipate that adjustable-rate loans will better offset the
adverse effects of an increase in interest rates as compared to fixed-rate
mortgages, the increased mortgage payments required of adjustable-rate loan
borrowers in a rising interest rate environment could cause an increase in
delinquencies and defaults. The marketability of the underlying property also
may be adversely affected in a high interest rate environment. In addition,
although adjustable-rate mortgage loans help make our asset base more responsive
to changes in interest rates, the extent of this interest sensitivity is limited
by the annual and lifetime interest rate adjustment limits.
While one- to four-family residential real estate loans are normally
originated with up to 30-year terms, such loans typically remain outstanding for
substantially shorter periods because borrowers often prepay their loans in full
upon sale of the property pledged as security or upon refinancing the original
loan. Therefore, average loan maturity is a function of, among other factors,
the level of purchase and sale activity in the real estate market, prevailing
interest rates and the interest rates payable on outstanding loans.
We generally do not make conventional loans with loan-to-value ratios
exceeding 95% and generally make loans with a loan-to-value ratio in excess of
80% only when secured by first liens on owner-occupied one- to four-family
residences. Loans with loan-to-value ratios in excess of 80% generally require
private mortgage insurance or additional collateral. We require all properties
securing mortgage loans to be appraised by a board-approved appraiser. We
require title insurance on all first mortgage loans. Borrowers must obtain
hazard or flood insurance (for loans on property located in a flood zone) prior
to closing the loan.
In an effort to provide financing for moderate income first-time
buyers, we offer a first-time home buyers program. We offer residential mortgage
loans through this program to qualified individuals and originate the loans
using modified underwriting guidelines. All of these loans have private mortgage
insurance on the portion of the principal amount that exceeds 80% of the
appraised value of the property.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. We offer adjustable-rate
mortgage loans secured by multi-family and commercial real estate. Our
multi-family and commercial real estate loans are generally secured by mixed-use
properties with residential units as well as retail space. We intend to continue
to grow this segment of our loan portfolio.
We originate five year adjustable-rate multi-family and commercial real
estate loans for terms up to 25 years. Interest rates and payments on our
adjustable-rate mortgage loans adjust every five years after a five year initial
fixed period. Interest rates and payment on our adjustable rate loans generally
are adjusted to a rate typically equal to 3.25% above the five-year constant
maturity treasury index. There are no adjustment period or lifetime interest
rate caps. Loan amounts generally do not exceed 75% of the appraised value.
Loans secured by multi-family and commercial real estate are generally
larger and involve a greater degree of risk than one- to four-family residential
mortgage loans. Of primary concern in multi-family and commercial real estate
lending is the borrower's creditworthiness and the feasibility and cash flow
potential of the project. Payments on loans secured by income properties are
often dependent on successful operation or management of the properties. As a
result, repayment of such loans may be subject to a greater extent than
residential real estate loans to adverse conditions in the real estate market or
the economy. In order to monitor cash flows on income properties, we require
borrowers and loan guarantors, if any, to provide annual financial statements
and rent rolls on multi-family and commercial real estate loans. We also perform
annual reviews and prepare write-ups on all loans where the loan is secured by
commercial or multi-family real estate.
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At March 31, 2005, we had forty-three loans with principal balances in
excess of $500,000. These loans included one loan secured by a mixed-use
building that includes retail stores and two apartments totaling $602,000, or
5.5% of multi-family and commercial real estate loans. In addition, we had one
loan secured by a multi-family property totaling $603,000, or 5.5% of
multi-family and commercial real estate loans. At March 31, 2005, all of these
loans were performing in accordance with their terms.
RESIDENTIAL CONSTRUCTION LOANS. To a much lesser extent, we originate
loans to finance the construction of residential dwellings. Construction loans
generally provide for interest-only payments at fixed-rates of interest and have
terms of six to twelve months. At the end of the construction period, the loan
generally converts into a permanent loan. Construction loans generally may be
considered for loan-to-value ratios of up to 70%. Loan proceeds are disbursed in
increments as construction progresses and as inspections warrant. We generally
use independent fee appraisers for construction disbursement purposes.
Construction financing is generally considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, we may be required to advance funds beyond the amount originally
committed to permit completion of the development. If the estimate of value
proves to be inaccurate, we may be confronted, at or prior to the maturity of
the loan, with a project having a value which is insufficient to assure full
repayment. As a result of the foregoing, construction lending often involves the
disbursement of substantial funds with repayment dependent, in part, on the
success of the ultimate project rather than the ability of the borrower or
guarantor to repay principal and interest. If we are forced to foreclose on a
project prior to or at completion due to a default, there can be no assurance
that we will be able to recover all of the unpaid balance of, and accrued
interest on, the loan as well as related foreclosure and holding costs.
CONSUMER LOANS. We offer a variety of consumer loans, including second
mortgage loans, loans secured by passbook or certificate accounts, and home
equity lines of credit.
The procedures for underwriting consumer loans include an assessment of
the applicant's payment history on other debts and ability to meet existing
obligations and payments on the proposed loans. Although the applicant's
creditworthiness is a primary consideration, the underwriting process also
includes a comparison of the value of the collateral to the proposed loan
amount.
Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans that are unsecured or secured
by assets that depreciate rapidly. In such cases, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, divorce, illness or
personal bankruptcy. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount which can be recovered on such loans.
LOAN ORIGINATIONS AND PURCHASES. Loan originations come from a number
of sources. The customary sources of loan originations include internet mortgage
loan marketers, local mortgage brokers, advertising, referrals from customers,
and personal contacts by our staff. We generally retain for our portfolio all of
the loans that we originate. We occasionally purchase participation interests in
real estate loans in our market area. We occasionally purchase real estate loans
to supplement our own originations on properties located primarily within the
state of New Jersey; a smaller portion of such purchases may be of loans on
properties located within sixteen states on the Eastern Seaboard.
LOAN APPROVAL PROCEDURES AND AUTHORITY. Our policies and loan approval
limits are established and approved by the Board of Directors. All residential
mortgage loans and all consumer loans require the approval of senior management
and are ratified by the Board of Directors. All other loans require the approval
of our Board of Directors. The Board of Directors meets weekly to review
mortgage loans.
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LOANS TO ONE BORROWER. The maximum amount that we may lend to one
borrower and the borrower's related entities is limited by regulation. At March
31, 2005 our regulatory limit on loans to one borrower was $20.7 million. At
that date, our largest lending relationship was $2.0 million and included eight
loans to one individual, all of which were performing according to the original
repayment terms at March 31, 2005.
LOAN COMMITMENTS. We issue commitments for fixed-rate and
adjustable-rate mortgage loans conditioned upon the occurrence of certain
events. Commitments to originate mortgage loans are legally binding agreements
to lend to our customers and generally expire in 90 days or less.
DELINQUENCIES. When a borrower fails to make a required loan payment,
we take a number of steps to have the borrower cure the delinquency and restore
the loan to current status. The following describes our general collection
procedures. We make initial contact with the borrower when the loan becomes 30
days past due. If payment is not then received by the 45th day of delinquency,
additional letters and phone calls generally are made. When the loan becomes 90
days past due, we send a letter notifying the borrower that we will commence
foreclosure proceedings if the loan is not brought current within 30 days. When
the loan becomes 120 days past due, we will commence foreclosure proceedings
against any real property that secures the loan or attempt to repossess any
personal property that secures a consumer loan. If a foreclosure action is
instituted and the loan is not brought current, paid in full, or refinanced
before the foreclosure sale, the real property securing the loan generally is
sold at foreclosure. We may consider loan workout arrangements with certain
borrowers under certain circumstances.
INVESTMENT ACTIVITIES
We have legal authority to invest in various types of liquid assets,
including U.S. Treasury obligations, securities of various federal agencies and
of state and municipal governments, mortgage-backed securities, deposits at the
Federal Home Loan Bank of New York and certificates of deposit of federally
insured institutions. Within certain regulatory limits, we also may invest a
portion of our assets in corporate securities. We also are required to maintain
an investment in Federal Home Loan Bank of New York stock. While we maintain the
authority under applicable law and our investment policies to invest in
derivative securities, we had no such investments at March 31, 2005.
At March 31, 2005, our investment portfolio consisted of Federal agency
debt securities with maturities of 15 years or less and mortgage-backed
securities issued by Fannie Mae, Freddie Mac and Ginnie Mae with stated final
maturities of 30 years or less. We purchase mortgage-backed securities in an
effort to increase yield, improve liquidity, provide call protection, and
enhance our qualified thrift lender ratio.
Our investment objectives are to provide and maintain liquidity, to
maintain a balance of high quality, diversified investments to minimize risk, to
provide collateral for pledging requirements, to establish an acceptable level
of interest rate risk, to provide an alternate source of low-risk investments
when demand for loans is weak, and to generate a favorable return. Clifton
Savings' Board of Directors has the overall responsibility for Clifton Savings'
investment portfolio, including approval of Clifton Savings' investment policy
and appointment of Clifton Savings' Investment Committee. The Investment
Committee is responsible for approval of investment strategies and monitoring of
the investment performance of Clifton Savings. Clifton Savings' President is the
designated investment officer and is responsible for the daily investment
activities and is authorized to make investment decisions consistent with
Clifton Savings' investment policy. The Investment Committee meets regularly
with the President in order to review and determine investment strategies and
transactions.
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits and loan repayments are the major sources of our
funds for lending and other investment purposes. Loan repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are significantly influenced by general interest rates and money
market conditions.
DEPOSIT ACCOUNTS. Substantially all of our depositors are residents of
the State of New Jersey. Deposits are attracted from within our primary market
area through the offering of a broad selection of liquid and term deposit
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instruments. These instruments consist of non-interest bearing demand which
includes free checking accounts, NOW accounts which includes high yield
(Crystal) checking, money market accounts, passbook and statement savings
accounts, club and certificates of deposit. We do not utilize brokered funds.
Deposit account terms vary according to the minimum balance required, the time
periods the funds must remain on deposit and the interest rate, among other
factors. In determining the terms of our deposit accounts, we consider the rates
offered by our competition, profitability to us, matching deposit and loan
products and customer preferences and concerns. We review our deposit flows, mix
and pricing weekly. Our current strategy is to attract and retain deposits by
offering competitive rates, and occasionally offering a premium rate on
selective term certificates of deposit depending on our cash flow needs. We have
also altered our marketing strategy to link selected premium rate certificates
to the establishment of a transaction account in keeping with our goal of
shifting our deposit mix toward a larger transaction type base.
BORROWINGS. Historically, we have not relied upon advances from the
Federal Home Loan Bank of New York to supplement our supply of lendable funds or
to meet deposit withdrawal requirements; however, as part of our leveraging
strategy implemented during the year ended March 31, 2005, we began to borrow
from the Federal Home Loan Bank. The Federal Home Loan Bank functions as a
central reserve bank providing credit for member financial institutions. As a
member, we are required to own capital stock in the Federal Home Loan Bank of
New York and are authorized to apply for advances on the security of such stock
and certain of our mortgage loans and other assets (principally securities which
are obligations of, or guaranteed by, the United States), provided certain
standards related to creditworthiness have been met. Advances are made under
several different programs, each having its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of an institution's net worth or on the
Federal Home Loan Bank's assessment of the institution's creditworthiness. Under
its current credit policies, the Federal Home Loan Bank generally limits
advances to 25% of a member's assets, and short-term borrowings of less than one
year may not exceed 10% of the institution's assets. The Federal Home Loan Bank
determines specific lines of credit for each member institution.
Historically, we have not borrowed short-term from correspondent banks
to cover temporary cash needs.
PERSONNEL
As of March 31, 2005, we had 97 full-time employees and 12 part-time
employees, none of whom is represented by a collective bargaining unit. We
believe our relationship with our employees is good.
REGULATION AND SUPERVISION
GENERAL
Clifton Savings is subject to extensive regulation, examination and
supervision by the New Jersey Commissioner of Banking and Insurance and the New
Jersey Department of Banking and Insurance, as its chartering agency, the Office
of Thrift Supervision, as its primary federal regulator, and the Federal Deposit
Insurance Corporation, as its deposits insurer. Clifton Savings is a member of
the Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund managed by the
Federal Deposit Insurance Corporation. Clifton Savings must file reports with
the New Jersey Department of Banking and Insurance, the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining regulatory approvals
prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the New Jersey Department of Banking and Insurance, the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation to evaluate Clifton
Savings' safety and soundness and compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings association can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the New Jersey Department of Banking and
Insurance, the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation or the New Jersey legislature or Congress, could have a material
adverse impact on Clifton Savings Bancorp and Clifton Savings and their
operations.
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Clifton Savings Bancorp and Clifton MHC as savings and loan holding
companies, are also required to file certain reports with, are subject to
examination by, and otherwise comply with the rules and regulations of the New
Jersey Department of Banking and Insurance and the Office of Thrift Supervision.
Clifton Savings Bancorp is also subject to the rules and regulations of the
Securities and Exchange Commission under the federal securities laws.
Certain of the regulatory requirements that are applicable to Clifton
Savings, Clifton Savings Bancorp and Clifton MHC are described below. This
description of statutory provisions and regulations is not intended to be a
complete explanation of such statutes and regulations and their effects on
Clifton Savings, Clifton Savings Bancorp and Clifton MHC and is qualified in its
entirety by reference to the actual statutes and regulations.
REGULATION OF NEW JERSEY SAVINGS ASSOCIATIONS
GENERAL. New Jersey law and the New Jersey Department of Banking and
Insurance regulate, among other things, Clifton Savings' internal corporate
governance procedures as well as its deposits, lending and investment activities
and its ability to declare and pay dividends. The New Jersey Department of
Banking and Insurance must approve changes to a savings association's
certificate of incorporation, the establishment or relocation of branch offices,
mergers and the issuance of additional stock. As primary federal regulator, the
Office of Thrift Supervision also regulates some of these areas and must approve
certain corporate transactions such as mergers.
BUSINESS ACTIVITIES. The activities of New Jersey-chartered, Federal
Deposit Insurance Corporation insured savings associations are governed by the
New Jersey Savings and Loan Act (1963), as amended, the Home Owners' Loan Act,
as amended and, the Federal Deposit Insurance Act and the regulations issued by
the agencies to implement these statutes. These laws and regulations delineate
the nature and extent of the activities in which savings associations may
engage. In particular, under the New Jersey Savings and Loan Act, specific
lending activities of New Jersey savings associations may be limited to a
specified percentage of the association's assets or capital. Also, certain
activities or investments of a state savings association allowable under New
Jersey law may be constrained by federal law or regulation. New Jersey law
contains a "parity" provision which provides state savings associations with
authority that may be exercised by national banks, federally chartered savings
associations, out of state banks or savings banks and bank and financial holding
companies upon approval by the New Jersey Department of Banking and Insurance.
BRANCHING. New Jersey law provides that, upon satisfaction of certain
specified conditions, as determined by the New Jersey Department of Banking and
Insurance, savings associations located in a state which has reciprocal
legislation in effect on substantially the same terms and conditions as New
Jersey law may acquire, or be acquired by, New Jersey savings associations or
holding companies. Further, New Jersey's parity provision would permit
interstate de novo branching by savings associations to the same extent Office
of Thrift Supervision permits interstate branching for federal savings
associations. Office of Thrift Supervision regulations generally authorize
nationwide branching by federal savings association.
ACTIVITIES AND INVESTMENT. The Federal Deposit Insurance Act imposes
certain restrictions on the activities and investments of state savings
associations such as Clifton Savings. No state savings association may engage as
principal in any activity that is not permitted for federally chartered savings
associations unless the association is in compliance with federal regulatory
capital requirements and the Federal Deposit Insurance Corporation has
determined that the activity does not pose a significant risk to the deposit
insurance fund. A state savings association may engage in an activity that is
permissible for a federal savings association, but in a greater amount, only if
the institution is in capital compliance and the Federal Deposit Insurance
Corporation has not determined that engaging in that amount of activity poses a
risk to the affected deposit insurance fund. Also, a state savings association
may not acquire directly an equity investment of a type or in an amount that is
not permissible for federal associations. Generally, service corporations of
state savings associations may not engage in activities not permissible for
service corporations of federal savings associations unless the association is
in capital compliance and the Federal Deposit Insurance Corporation determines
that the activity poses no significant risk to the deposit insurance fund.
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LOANS-TO-ONE BORROWER. Under the Home Owners Loan Act and New Jersey
law, savings associations are subject to limits on loans-to-one borrower.
Generally, this limit is 15% of the association's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include
financial instruments and bullion.
QTL TEST. The Home Owners Loan Act requires all savings associations to
meet a qualified thrift lender test. Under the test, a savings association is
required to maintain at least 65% of its "portfolio assets" (total assets less:
(i) specified liquid assets up to 20% of total assets; (ii) intangibles,
including goodwill; and (iii) the value of property used to conduct business) in
certain "qualified thrift investments" (primarily residential mortgages and
related investments, including mortgage-backed and related securities) in at
least 9 months out of each 12-month period. Recent legislation has expanded the
extent to which education loans, credit card loans and small business loans may
be considered as "qualified thrift investments." A savings association that
fails the qualified thrift lender test must either convert to a commercial bank
charter or operate under certain restrictions. As of March 31, 2005, Clifton
Savings met the qualified thrift lender test.
LIMITATION ON CAPITAL DISTRIBUTIONS. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
association, such as cash dividends, payments to repurchase or otherwise acquire
its shares, payments to shareholders of another institution in a cash-out merger
and other distributions charged against capital. Under the regulations,
application to and the prior approval of the Office of Thrift Supervision is
required prior to any capital distribution if the association does not meet the
criteria for "expedited treatment" of applications under Office of Thrift
Supervision regulations (I.E., generally, examination and Community Reinvestment
Act ratings in the two top categories), the total capital distributions for the
calendar year exceed net income for that year plus the amount of retained net
income for the preceding two years, the institution would be undercapitalized
following the distribution or the distribution would otherwise be contrary to a
statute, regulation or agreement with the Office of Thrift Supervision. If an
application is not required, the institution must still provide prior notice to
the Office of Thrift Supervision of the capital distribution if it is a
subsidiary of a holding company. In the event Clifton Savings' capital fell
below its regulatory requirements or the Office of Thrift Supervision notified
it that it was in need of increased supervision, Clifton Savings' ability to
make capital distributions could be restricted. Following the reorganization,
Clifton Savings may not make a distribution that would constitute a return of
capital during the three-year term of the business plan submitted in connection
with the reorganization. Additionally, the Office of Thrift Supervision could
prohibit a proposed capital distribution by any savings association, which would
otherwise be permitted by the regulation, if the Office of Thrift Supervision
determines that such distribution would constitute an unsafe or unsound
practice. No insured depository institution may make a capital distribution if,
after making the distribution, the institution would be undercapitalized.
TRANSACTIONS WITH RELATED PARTIES. Clifton Savings' authority to engage
in transactions with related parties or "affiliates" (I.E., any company that
controls or is under common control with an institution, including Clifton
Savings Bancorp and any non-savings institution subsidiaries that Clifton
Savings Bancorp may establish) is limited by Sections 23A and 23B of the Federal
Reserve Act ("FRA"). Section 23A restricts the aggregate amount of covered
transactions with any individual affiliate to 10% of the capital and surplus of
the savings association and also limits the aggregate amount of transactions
with all affiliates to 20% of the savings association's capital and surplus.
Certain transactions with affiliates are required to be secured by collateral in
an amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B generally requires
that certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. Also, savings associations are prohibited from lending to any
affiliate that is engaged in activities not permitted for bank holding companies
and no savings association may purchase the securities of an affiliate (other
than a subsidiary).
The Sarbanes-Oxley Act generally prohibits loans by a company to its
executive officers and directors. However, that act contains a specific
exception for loans by a depository institution, such as Clifton Savings, to its
executive officers and directors in compliance with federal banking laws. Under
such laws, Clifton Savings' authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is restricted. The law limits both the individual and aggregate amount
of loans that Clifton Savings may make to insiders based, in part, on Clifton
Savings capital position and requires certain board approval procedures to be
followed. Such
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loans are required to be made in terms substantially the same as those offered
to unaffiliated individuals and not involve more than the normal risk of
repayment. There is an exception for loans made pursuant to a benefit or
compensation program that is widely available to all employees of the
institution and does not give preference to insiders over other employees.
STANDARDS FOR SAFETY AND SOUNDNESS. The Federal Deposit Insurance Act
requires each federal banking agency to prescribe for all insured depository
institutions standards relating to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, and compensation, fees and benefits
and such other operational and managerial standards as the agency deems
appropriate. The federal banking agencies have adopted final regulations and
Interagency Guidelines Establishing Standards for Safety and Soundness to
implement these safety and soundness standards. The guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
will require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard.
CAPITAL REQUIREMENTS. Office of Thrift Supervision and New Jersey
Department of Banking and Insurance capital regulations require savings
associations to meet three minimum capital standards: a 1.5% tangible capital to
total assets ratio, a 4% leverage ratio (3% for institutions receiving the
highest rating on the CAMELS examination rating system) which compares Tier 1
capital to total adjusted assets, and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also establish,
in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for
institutions receiving the highest rating on the CAMELS system) and, together
with the risk-based capital standard itself, a 4% Tier 1 risk-based capital
standard. The Office of Thrift Supervision regulations also require that, in
meeting the tangible, leverage and risk-based capital standards, institutions
must generally deduct investments in and loans to subsidiaries engaged in
activities as principal that are not permissible for a national bank.
The risk-based capital standard for savings associations requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, recourse obligations, residual
interests and direct credit substitutes, are multiplied by a risk-weight factor
of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation
based on the risks believed inherent in the type of asset. A savings institution
also must maintain risk-based capital for recourse obligations, direct credit
substitutes and residual interests. The amount of risk-based capital required
for a residual interest generally depends on whether it has been assigned a
credit rating by a nationally recognized statistical rating organization. Core
(Tier 1) capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related surplus,
and minority interests in equity accounts of consolidated subsidiaries less
intangibles other than certain mortgage servicing rights and credit card
relationships. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock, mandatory
convertible securities, subordinated debt and intermediate preferred stock, the
allowance for loan and lease losses limited to a maximum of 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair market values. Overall, the
amount of supplementary capital included as part of total capital cannot exceed
100% of core capital.
The Office of Thrift Supervision and the New Jersey Department of
Banking and Insurance also have authority to establish individual minimum
capital requirements in appropriate cases upon a determination that an
association's capital level is or may become inadequate in light of the
particular circumstances, including where an association has a high degree of
exposure to interest rate risk or is experiencing growth that presents
supervisory problems.
At March 31, 2005, Clifton Savings met each of its capital
requirements.
PROMPT CORRECTIVE REGULATORY ACTION
Under the prompt corrective action statute, the Office of Thrift
Supervision is required to take certain supervisory actions against
undercapitalized savings associations, the severity of which depends upon the
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institution's degree of capitalization. Generally, a savings association that
has total risk-based capital of 10% or more, has a Tier 1 risk-based capital
ratio of 6% or more, has a Tier 1 leverage capital ratio of 5% or more and is
not subject to any order or final capital directive to meet and maintain a
specific capital level for any capital measure is considered to be "well
capitalized." A savings institution that has a total risk-based capital ratio of
8% or more, a Tier 1 risk-based capital ratio of 4% or more and a Tier 1
leverage capital ratio of 4% or more (3% under certain circumstances) and does
not meet the definition of "well capitalized" is considered to be "adequately
capitalized." A savings institution that has a total risk-based capital of less
than 8% or a leverage ratio or a Tier 1 capital or risk-based assets ratio that
is less than 4% is considered to be "undercapitalized." A savings association
that has a total risk-based capital less than 6%, a Tier 1 risk-based capital
ratio of less than 3% or a leverage ratio that is less than 3% is considered to
be "significantly undercapitalized" and a savings association that has a
tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the Office of
Thrift Supervision is required to appoint a receiver or conservator within
specified time frames for an institution that is "critically undercapitalized."
The regulation also provides that a capital restoration plan must be filed with
the Office of Thrift Supervision within 45 days of the date an association
receives notice that it is "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." The Office of Thrift Supervision will not
accept a capital restoration plan unless it determines that the plan contains
all of the required elements, is based on realistic assumptions and is likely to
succeed in restoring the institution's capital, and would not appreciably
increase the risk to which the institution is exposed. Compliance with the plan
must be guaranteed by any parent holding company, which may include a financial
commitment. This guarantee may prevent the holding company from making any
capital distributions to shareholders, repurchasing any of its own stock, or
incurring additional debt. In addition, numerous mandatory supervisory actions
may become immediately applicable to the institution depending upon its
category, including, but not limited to, increased monitoring by regulators,
restrictions on growth and capital distributions and limitations on expansion.
The Office of Thrift Supervision could also take any one of a number of
discretionary supervisory actions, including the issuance of a capital directive
and the replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS
Clifton Savings is a member of the Savings Association Insurance Fund.
The Federal Deposit Insurance Corporation maintains a risk-based assessment
system by which institutions are assigned to one of three categories based on
their capitalization and one of three subcategories based on examination ratings
and other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for Savings Association
Insurance Fund member institutions are determined semi-annually by the Federal
Deposit Insurance Corporation and currently range from zero basis points for the
healthiest institutions to 27 basis points of assessable deposits for the
riskiest. The Federal Deposit Insurance Corporation has authority to increase
insurance assessments. A significant increase in Savings Association Insurance
Fund insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of Clifton Savings. Management cannot predict
what insurance assessment rates will be in the future.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the Savings Association
Insurance Fund. During calendar 2004, FICO payments for Savings Association
Insurance Fund members approximated 1.50 basis points of assessable deposits.
Insurance of deposits may be terminated by the Federal Deposit
Insurance Corporation upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of Clifton Savings does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.
ENFORCEMENT. The New Jersey Department of Banking and Insurance has
extensive enforcement authority over New Jersey savings associations and, under
certain circumstances, affiliated parties, insiders, and agents. This
enforcement authority includes: cease and desist orders, receivership,
conservatorship, restraining orders, removal of officers and directors,
emergency closures, dissolution and liquidation. Fines for violations can range
from $100 to $5,000 per day.
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The Office of Thrift Supervision has primary federal enforcement
responsibility over federally-insured savings associations and has the authority
to bring actions against all "institution-affiliated parties," including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on a
savings association. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers or directors,
receivership or conservatorship. Civil penalties cover a wide range of
violations and can amount to $25,000 per day, or $1 million per day in
especially egregious cases. The Federal Deposit Insurance Corporation has the
authority to recommend to the Office of Thrift Supervision that enforcement
action be taken with respect to a particular savings association. If action is
not taken by the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation has authority to take such action under certain circumstances. The
Federal Deposit Insurance Corporation also has authority to terminate deposit
insurance. Federal and state law also establish criminal penalties for certain
violations.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act, as implemented by Office of
Thrift Supervision regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act requires the Office
of Thrift Supervision, in connection with its examination of a savings
association, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. New Jersey law similarly requires the New
Jersey Department of Banking and Insurance to consider an association's
Community Reinvestment Act rating in connection with evaluating applications.
The Community Reinvestment Act requires public disclosure of an
institution's rating and requires the Office of Thrift Supervision to provide a
written evaluation of an association's Community Reinvestment Act performance
utilizing a four-tiered descriptive rating system. Clifton Savings' latest
Community Reinvestment Act rating, received from the Office of Thrift
Supervision in July 2003, was "Satisfactory."
FEDERAL HOME LOAN BANK SYSTEM
Clifton Savings is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank
provides a central credit facility primarily for member institutions. Clifton
Savings, as a member of the Federal Home Loan Bank, is required to acquire and
hold shares of capital stock in the Federal Home Loan Bank. Clifton Savings was
in compliance with this requirement at March 31, 2005.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of dividends that the
Federal Home Loan Banks pay to their members and could also result in the
Federal Home Loan Banks imposing a higher rate of interest on advances to their
members. If dividends were reduced, Clifton Savings' net interest income would
likely also be reduced. Further, there can be no assurance that the impact of
future legislation on the Federal Home Loan Banks will not also cause a decrease
in the value of the Federal Home Loan Bank stock held by Clifton Savings.
FEDERAL RESERVE SYSTEM
Federal Reserve Board regulations require savings associations to
maintain non-interest-earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.6 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3.0% and for amounts greater than $47.6 million, the
reserve requirement is 10% (subject to adjustment by the Federal Reserve Board
between 8% and 14%). The first $7.0 million of otherwise reservable balances
(subject to adjustment by the Federal Reserve Board) are exempted from the
reserve requirements. Clifton Savings is in compliance with the foregoing
requirements.
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Because required reserves must be maintained in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve Board, the effect of this reserve requirement
is to reduce Clifton Savings' interest-earning assets.
HOLDING COMPANY REGULATION
GENERAL. Clifton Savings Bancorp and Clifton MHC are savings and loan
holding companies within the meaning of federal law. As such, they are
registered with the Office of Thrift Supervision and are subject to Office of
Thrift Supervision regulations, examinations, supervision, reporting
requirements and regulations concerning corporate governance and activities. In
addition, the Office of Thrift Supervision has enforcement authority over
Clifton Savings Bancorp and Clifton MHC and their non-savings institution
subsidiaries. Among other things, this authority permits the Office of Thrift
Supervision to restrict or prohibit activities that are determined to be a
serious risk to Clifton Savings.
New Jersey law provides the New Jersey Department of Banking and
Insurance with authority to examine savings and loan holding companies that
control state associations and to secure certain reports from such companies.
RESTRICTIONS APPLICABLE TO MUTUAL HOLDING COMPANIES. According to
federal law and Office of Thrift Supervision regulations, a mutual holding
company, such as Clifton MHC, may generally engage in the following activities:
(1) investing in the stock of insured depository institutions and acquiring them
by means of a merger or acquisition; (2) investing in a corporation the capital
stock of which may be lawfully purchased by a savings association under federal
law; (3) furnishing or performing management services for a savings association
subsidiary of a savings and loan holding company; (4) conducting an insurance
agency or escrow business; (5) holding, managing or liquidating assets owned or
acquired from a savings association subsidiary of the savings and loan holding
company; (6) holding or managing properties used or occupied by a savings
association subsidiary of the savings and loan holding company; (7) acting as
trustee under deed or trust; (8) any activity permitted for multiple savings and
loan holding companies by Office of Thrift Supervision regulations; (9) any
activity permitted by the Board of Governors of the Federal Reserve System for
bank holding companies and financial holding companies; and (10) any activity
permissive for service corporations. Recent legislation, which authorized mutual
holding companies to engage in activities permitted for financial holding
companies, expanded the authorized activities. Financial holding companies may
engage in a broad array of financial services activities, including insurance
and securities.
Federal law prohibits a savings and loan holding company, including a
federal mutual holding company, from directly or indirectly, or through one or
more subsidiaries, acquiring more than 5% of the voting stock of another savings
institution, or its holding company, without prior written approval of the
Office of Thrift Supervision. Federal law also prohibits a savings and loan
holding company from acquiring or retaining control of a depository institution
that is not insured by the Federal Deposit Insurance Corporation. In evaluating
applications by holding companies to acquire savings institutions, the Office of
Thrift Supervision must consider the financial and managerial resources and
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of the
community and competitive factors.
The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, except: (1) the
approval of interstate supervisory acquisitions by savings and loan holding
companies, and (2) the acquisition of a savings institution in another state if
the laws of the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
If the savings institution subsidiary of a savings and loan holding
company fails to meet the qualified thrift lender test set, the holding company
must register with the Federal Reserve Board as a bank holding company within
one year of the savings institution's failure to so qualify.
STOCK HOLDING COMPANY SUBSIDIARY REGULATION. The Office of Thrift
Supervision has adopted regulations governing the two-tier mutual holding
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company form of organization and subsidiary stock holding companies that are
controlled by mutual holding companies. We have this two-tier form of
organization. Clifton Savings Bancorp is the stock holding company subsidiary of
Clifton MHC. Clifton Savings Bancorp is only permitted to engage in activities
that are permitted for Clifton MHC subject to the same restrictions and
conditions.
WAIVERS OF DIVIDENDS BY CLIFTON MHC. Office of Thrift Supervision
regulations require Clifton MHC to notify the Office of Thrift Supervision if it
proposes to waive receipt of our dividends from Clifton Savings Bancorp. The
Office of Thrift Supervision reviews dividend waiver notices on a case-by-case
basis, and, in general, does not object to any such waiver if: (i) the waiver
would not be detrimental to the safe and sound operation of the savings
association; (ii) the mutual holding company's Board of Directors determines
that such waiver is consistent with such directors' fiduciary duties to the
mutual holding company's members; (iii) for as long as the savings association
subsidiary is controlled by the mutual holding company, the dollar amount of
dividends waived by the mutual holding company is considered as a restriction on
the retained earnings of the savings association, which restriction, if
material, is disclosed in the public financial statements of the savings
association as a note to the financial statements; (iv) the amount of any
dividend waived by the mutual holding company is available for declaration as a
dividend solely to the mutual holding company, and, in accordance with SFAS 5,
where the savings association determines that the payment of such dividend to
the mutual holding company is probable, an appropriate dollar amount is recorded
as a liability; and (v) the amount of any waived dividend is considered as
having been paid by the savings association in evaluating any proposed
subsequent dividend under Office of Thrift Supervision capital distribution
regulations. Clifton MHC has waived all dividends that Clifton Savings Bancorp
has paid through March 31, 2005 and we anticipate that Clifton MHC will continue
to waive dividends that Clifton Savings Bancorp may pay, if any, in the future.
CONVERSION OF CLIFTON MHC TO STOCK FORM. Office of Thrift Supervision
regulations permit Clifton MHC to convert from the mutual form of organization
to the capital stock form of organization. There can be no assurance when, if
ever, a conversion transaction will occur, and the Board of Directors has no
current intention or plan to undertake a conversion transaction. In a conversion
transaction a new holding company would be formed as our successor, Clifton
MHC's corporate existence would end, and certain depositors of Clifton Savings
would receive the right to subscribe for additional shares of the new holding
company. In a conversion transaction, each share of common stock held by
stockholders other than Clifton MHC would be automatically converted into a
number of shares of common stock of the new holding company based on an exchange
ratio determined at the time of conversion that ensures that stockholders other
than Clifton MHC own the same percentage of common stock in the new holding
company as they owned in us immediately before conversion. Under Office of
Thrift Supervision regulations, stockholders other than Clifton MHC would not be
diluted because of any dividends waived by Clifton MHC (and waived dividends
would not be considered in determining an appropriate exchange ratio), in the
event Clifton MHC converts to stock form. The total number of shares held by
stockholders other than Clifton MHC after a conversion transaction also would be
increased by any purchases by stockholders other than Clifton MHC in the stock
offering conducted as part of the conversion transaction.
ACQUISITION OF CONTROL. Under the federal Change in Bank Control Act, a
notice must be submitted to the Office of Thrift Supervision if any person
(including a company), or group acting in concert, seeks to acquire "control" of
a savings and loan holding company or savings association. An acquisition of
"control" can occur upon the acquisition of 10% or more of the voting stock of a
savings and loan holding company or savings institution or as otherwise defined
by the Office of Thrift Supervision. Under the Change in Bank Control Act, the
Office of Thrift Supervision has 60 days from the filing of a complete notice to
act, taking into consideration certain factors, including the financial and
managerial resources of the acquirer and the anti-trust effects of the
acquisition. Any company that so acquires control would then be subject to
regulation as a savings and loan holding company.
REMUTUALIZATION TRANSACTIONS. Current Office of Thrift Supervision
regulations permit a mutual holding company to be acquired by a mutual
institution in a remutualization transaction. However, the Office of Thrift
Supervision has issued a policy statement indicating that it views
remutualization transactions as raising significant issues concerning disparate
treatment of minority stockholders and mutual members of the target entity and
as raising issues concerning the effect on the mutual members of the acquiring
entity. Under certain circumstances, the Office of Thrift Supervision intends to
give these issues special scrutiny and reject applications for the
remutualization of a mutual holding company unless the applicant can clearly
demonstrate that the Office of Thrift Supervision's concerns are not warranted
in the particular case.
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FEDERAL SECURITIES LAWS
Clifton Savings Bancorp's common stock is registered with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
Clifton Savings Bancorp is subject to the information, proxy solicitation,
insider trading restrictions and other requirements under the Securities
Exchange Act of 1934.
SARBANES-OXLEY ACT OF 2002
The Sarbanes-Oxley Act of 2002 implemented legislative reforms intended
to address corporate and accounting fraud. The Sarbanes-Oxley Act restricts the
scope of services that may be provided by accounting firms to their public
company audit clients and any non-audit services being provided to a public
company audit client will require preapproval by the company's audit committee.
In addition, the Sarbanes-Oxley Act requires chief executive officers and chief
financial officers, or their equivalent, to certify to the accuracy of periodic
reports filed with the Securities and Exchange Commission, subject to civil and
criminal penalties if they knowingly or willingly violate this certification
requirement.
Under the Sarbanes-Oxley Act, bonuses issued to top executives before
restatement of a company's financial statements are now subject to disgorgement
if such restatement was due to corporate misconduct. Executives are also
prohibited from insider trading during retirement plan "blackout" periods, and
loans to company executives (other than loans by financial institutions
permitted by federal rules and regulations) are restricted. The legislation
accelerates the time frame for disclosures by public companies and changes in
ownership in a company's securities by directors and executive officers.
The Sarbanes-Oxley Act also increases the oversight of, and codifies
certain requirements relating to audit committees of public companies and how
they interact with the company's "registered public accounting firm." Among
other requirements, companies must disclose whether at least one member of the
committee is a "financial expert" (as such term is defined by the Securities and
Exchange Commission) and if not, why not.
Although we anticipate that we will incur additional expense in
complying with the provisions of the Sarbanes-Oxley Act and the resulting
regulations, management does not expect that such compliance will have a
material impact on our results of operations or financial condition.
PRIVACY REQUIREMENTS OF THE GLBA
The Gramm-Leach-Bliley Act of 1999 provided for sweeping financial
modernization for commercial banks, savings banks, securities firms, insurance
companies, and other financial institutions operating in the United States.
Among other provisions, the Gramm-Leach-Bliley Act places limitations on the
sharing of consumer financial information with unaffiliated third parties.
Specifically, the Gramm-Leach-Bliley Act requires all financial institutions
offering financial products or services to retail customers to provide such
customers with the financial institution's privacy policy and provide such
customers the opportunity to "opt out" of the sharing of personal financial
information with unaffiliated third parties.
ANTI-MONEY LAUNDERING
The Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 (referred to as the
"USA PATRIOT Act") significantly expands the responsibilities of financial
institutions, including savings and loan associations, in preventing the use of
the U.S. financial system to fund terrorist activities. Title III of the USA
PATRIOT Act provides for a significant overhaul of the U.S. anti-money
laundering regime. Among other provisions, it requires financial institutions
operating in the United States to develop new anti-money laundering compliance
programs, due diligence policies and controls to ensure the detection and
reporting of money laundering. Such required compliance programs are intended to
supplement existing compliance requirements, also applicable to financial
institutions, under the Bank Secrecy Act and the Office of Foreign Assets
Control Regulations. We have established policies and procedures to ensure
compliance with the USA PATRIOT Act's provisions, and the impact of the USA
PATRIOT Act on our operations has not been material.
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OTHER REGULATIONS
Interest and other charges collected or contracted for by Clifton
Savings are subject to state usury laws and federal laws concerning interest
rates. Clifton Savings' loan operations are also subject to federal laws
applicable to credit transactions, such as the:
o Truth-In-Lending Act, governing disclosures of credit terms
to consumer borrowers;
o Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and
public officials to determine whether a financial institution
is fulfilling its obligation to help meet the housing needs of
the community it serves;
o Equal Credit Opportunity Act, prohibiting discrimination on
the basis of race, creed or other prohibited factors in
extending credit;
o Fair Credit Reporting Act of 1978, governing the use and
provision of information to credit reporting agencies;
o Fair Debt Collection Act, governing the manner in which
consumer debts may be collected by collection agencies; and
o rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws.
The deposit operations of Clifton Savings also are subject to the:
o Right to Financial Privacy Act, which imposes a duty to
maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative
subpoenas of financial records;
o Electronic Funds Transfer Act and Regulation E promulgated
thereunder, which governs automatic deposits to and
withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines
and other electronic banking services; and
o Check Clearing for the 21st Century Act (also known as "Check
21"), which gives "substitute checks," such as digital check
images and copies made from that image, the same legal
standing as the original paper check.
FEDERAL AND STATE TAXATION
FEDERAL INCOME TAXATION
GENERAL. We report our income on a fiscal year basis using the accrual
method of accounting. The federal income tax laws apply to us in the same manner
as to other corporations with some exceptions, including particularly our
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to us. Our federal income tax returns
have been either audited or closed under the statute of limitations through tax
year 1995. For its 2005 year, Clifton Savings' maximum federal income tax rate
was 34%.
BAD DEBT RESERVES. For fiscal years beginning before June 30, 1996,
thrift institutions that qualified under certain definitional tests and other
conditions of the Internal Revenue Code were permitted to use certain favorable
provisions to calculate their deductions from taxable income for annual
additions to their bad debt reserve. A reserve could be established for bad
debts on qualifying real property loans, generally secured by interests in real
property improved or to be improved, under the percentage of taxable income
method or the experience method. The reserve for nonqualifying loans was
computed using the experience method. Federal legislation enacted in 1996
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repealed the reserve method of accounting for bad debts and the percentage of
taxable income method for tax years beginning after 1995 and requires savings
institutions to recapture or take into income certain portions of their
accumulated bad debt reserves. Approximately $6.4 million of our accumulated bad
debt reserves would not be recaptured into taxable income unless Clifton Savings
makes a "non-dividend distribution" to Clifton Savings Bancorp as described
below.
DISTRIBUTIONS. If Clifton Savings makes "non-dividend distributions" to
Clifton Savings Bancorp, the distributions will be considered to have been made
from Clifton Savings' unrecaptured tax bad debt reserves, including the balance
of its reserves as of December 31, 1987, to the extent of the "non-dividend
distributions," and then from Clifton Savings' supplemental reserve for losses
on loans, to the extent of those reserves, and an amount based on the amount
distributed, but not more than the amount of those reserves, will be included in
Clifton Savings' taxable income. Non-dividend distributions include
distributions in excess of Clifton Savings' current and accumulated earnings and
profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of Clifton Savings' current or accumulated earnings and
profits will not be so included in Clifton Savings' taxable income.
The amount of additional taxable income triggered by a non-dividend is
an amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Therefore, if Clifton Savings makes a
non-dividend distribution to Clifton Savings Bancorp, approximately one and
one-half times the amount of the distribution not in excess of the amount of the
reserves would be includable in income for federal income tax purposes, assuming
a 34% federal corporate income tax rate. Clifton Savings does not intend to pay
dividends that would result in a recapture of any portion of its bad debt
reserves.
STATE TAXATION
NEW JERSEY TAXATION. Clifton Savings, Clifton Savings Bancorp and
Clifton MHC are subject to New Jersey's Corporation Business Tax at the rate of
9% on their taxable income, before net operating loss deductions and special
deductions for federal income tax purposes. For this purpose, "taxable income"
generally means federal taxable income subject to certain adjustments (including
addition of interest income on state and municipal obligations). Botany Inc. is
eligible to be taxed as a New Jersey Investment Company at a rate of 3.6%.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Clifton Savings Bancorp, Clifton MHC, Clifton
Savings, and Botany Inc. are elected annually by the Board of Directors and
serve at the Board's discretion. The executive officers of Clifton Savings
Bancorp, Clifton MHC, Clifton Savings, and Botany Inc. are:
NAME POSITION
- ------------ --------------
John A. Celentano, Jr.................. Chairman of the Board and Chief Executive Officer
of Clifton Savings Bancorp and Clifton MHC and
Chairman of the Board of Clifton Savings
Walter Celuch.......................... President and Corporate Secretary of Clifton
Savings Bancorp and Clifton MHC, President, Chief
Executive Officer and Secretary of Clifton Savings,
and Director and Investment Officer of Botany Inc.
Bart D'Ambra........................... Executive Vice President and Chief Operating
Officer of Clifton Savings and President and Chief
Executive Officer of Botany Inc.
Stephen A. Hoogerhyde.................. Executive Vice President and Chief Lending Officer
of Clifton Savings
Christine R. Piano, C.P.A.............. Chief Financial Officer and Treasurer of Clifton
Savings Bancorp and Clifton MHC , Executive Vice
President and Chief Financial Officer of Clifton
Savings and Director, Chief Financial Officer,
Treasurer and Secretary of Botany Inc.
Below is information regarding the executive officers of Clifton
Savings Bancorp and Clifton Savings who are not also directors. Unless otherwise
stated, each executive officer has held his or her current position for at least
the last five years. Ages presented are as of March 31, 2005.
WALTER CELUCH has been President and Corporate Secretary of Clifton
Savings Bancorp and Clifton MHC since 2004 and has been President and Chief
Executive Officer of Clifton Savings since January 1999. From October 1987 until
December 1998, Mr. Celuch served as the Senior Vice President and Chief
Financial Officer of Clifton Savings. Mr. Celuch has served with Clifton Savings
for over 15 years. Mr. Celuch has been Director and Investment Officer of Botany
Inc. since inception in December 2004. Age 57.
BART D'AMBRA has been Executive Vice President and Chief Operating
Officer of Clifton Savings since March 2003. Mr. D'Ambra served as Senior Vice
President from April 2002 until March 2003. Prior to April 2002, Mr. D'Ambra
served Clifton Savings as a Vice President. Mr. D'Ambra has served with Clifton
Savings for over 10 years. Mr. D'Ambra has been President and Chief Executive
Officer of Botany Inc. since inception in December 2004. Age 56.
STEPHEN A. HOOGERHYDE has been Executive Vice President and Chief
Lending Officer of Clifton Savings since March 2003 and April 2002,
respectively. Mr. Hoogerhyde served as Senior Vice President from April 2002
until March 2003. Prior to April 2002, Mr. Hoogerhyde served Clifton Savings as
Vice President and Mortgage Officer. Mr. Hoogerhyde has served with Clifton
Savings for over 17 years. Age 50.
CHRISTINE R. PIANO, a certified public accountant, has been Chief
Financial Officer and Treasurer of Clifton Savings Bancorp and Clifton MHC since
2004 and has been Executive Vice President and Chief Financial Officer of
Clifton Savings since April 2003 and March 1999, respectively. Ms. Piano served
as Vice President from March 2000 to April 2003 and as Assistant Vice President
from March 1999 to March 2000. Ms. Piano has served with Clifton Savings for
over 5 years. Ms. Piano has been Director, Chief Financial Officer, Treasurer
and Secretary of Botany Inc. since inception in December 2004. Age 41.
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CERTAIN FACTORS THAT MAY AFFECT OUR BUSINESS
A DECLINE IN OUR RETURN ON EQUITY AS A RESULT OF THE CAPITAL WE RAISED IN OUR
MARCH 2004 STOCK OFFERING MAY NEGATIVELY IMPACT OUR STOCK PRICE.
Return on equity, which equals net income divided by average equity, is
a ratio used by many investors to compare the performance of a particular
company with other companies. Our return on average equity for the year ended
March 31, 2005 was 2.62%. Over time, we intend to use the net proceeds from our
March 2004 stock offering to increase earnings per share and book value per
share, without assuming undue risk, with the goal of achieving a return on
equity that is competitive with other publicly held subsidiaries of mutual
holding companies. This goal could take a number of years to achieve, and we
cannot assure you that it will be attained. Consequently, you should not expect
a competitive return on equity in the near future. Failure to achieve a
competitive return on equity might make an investment in our common stock
unattractive to some investors and might cause our common stock to trade at
lower prices than comparable companies with higher returns on equity.
ADDITIONAL EXPENSES FROM OPERATING AS A PUBLIC COMPANY AND FROM NEW STOCK-BASED
BENEFIT PLANS WILL ADVERSELY AFFECT OUR PROFITABILITY.
Our noninterest expenses in fiscal 2006 are likely to increase as a
result of the financial accounting, legal and various other additional expenses
usually associated with operating as a public company. We also will recognize
additional annual employee compensation and benefit expenses stemming from the
shares that may be purchased or granted to employees and executives under new
benefit plans, if implemented. These additional expenses would adversely affect
our profitability. We recognize expenses for our employee stock ownership plan
when shares are committed to be released to participants' accounts and would
recognize expenses for restricted stock awards and stock options over the
vesting period of awards made to recipients.
ISSUANCE OF SHARES FOR BENEFIT PROGRAMS MAY DILUTE YOUR OWNERSHIP INTEREST.
We intend to adopt an equity incentive plan at the 2005 annual meeting
of stockholders. If our stockholders approve the new equity incentive plan, we
intend to issue shares to our officers and directors through this plan. If the
restricted stock awards under the equity incentive plan are funded from
authorized but unissued stock, your ownership interest in shares held by persons
other than Clifton MHC could be diluted by up to approximately 4.17%, based on
share information at March 31, 2005. If the shares issued upon the exercise of
stock options under the equity incentive plan are issued from authorized but
unissued stock, your ownership interest in shares held by persons other than
Clifton MHC could be diluted by up to approximately 9.82%, based on share
information at March 31, 2005.
CLIFTON MHC'S MAJORITY CONTROL OF OUR COMMON STOCK ENABLES IT TO EXERCISE VOTING
CONTROL OVER MOST MATTERS PUT TO A VOTE OF STOCKHOLDERS, INCLUDING PREVENTING
SALE OR MERGER TRANSACTIONS YOU MAY LIKE OR A SECOND-STEP CONVERSION BY
CLIFTON MHC.
Clifton MHC owns a majority of our common stock and, through its Board
of Directors, is able to exercise voting control over most matters put to a vote
of stockholders. The same directors and officers manage Clifton Savings Bancorp,
Clifton Savings and Clifton MHC. As a federally chartered mutual holding
company, the Board of Directors of Clifton MHC must ensure that the interests of
depositors of Clifton Savings are represented and considered in matters put to a
vote of stockholders of Clifton Savings Bancorp. Therefore, the votes cast by
Clifton MHC may not be in your personal best interests as a stockholder. For
example, Clifton MHC may exercise its voting control to defeat a stockholder
nominee for election to the board of directors of Clifton Savings Bancorp. In
addition, stockholders will not be able to force a merger or second-step
conversion transaction without the consent of Clifton MHC. Some stockholders may
desire a sale or merger transaction, since stockholders typically receive a
premium for their shares, or a second-step conversion transaction, since fully
converted institutions tend to trade at higher multiples than mutual holding
companies.
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OFFICE OF THRIFT SUPERVISION POLICY ON REMUTUALIZATION TRANSACTIONS COULD
PROHIBIT THE MERGER OR AN ACQUISITION OF US, WHICH MAY LOWER OUR STOCK PRICE.
Current Office of Thrift Supervision regulations permit a mutual
holding company to be acquired by a mutual institution in a remutualization
transaction. The possibility of a remutualization transaction has recently
resulted in a degree of takeover speculation for mutual holding companies which
is reflected in the stock prices of mutual holding companies. However, the
Office of Thrift Supervision has issued a policy statement indicating that it
views remutualization transactions as raising significant issues concerning
disparate treatment of minority stockholders and mutual members of the target
entity and as raising issues concerning the effect on the mutual members of the
acquiring entity. Under certain circumstances, the Office of Thrift Supervision
intends to give these issues special scrutiny and reject applications for the
remutualization of a mutual holding company unless the applicant can clearly
demonstrate that the Office of Thrift Supervision's concerns are not warranted
in the particular case. Should the Office of Thrift Supervision prohibit or
otherwise restrict these transactions in the future, our stock price may be
adversely affected. We have no current plans to undertake a remutualization
transaction. In addition, Office of Thrift Supervision regulations prohibit, for
three years following the completion of a stock offering by a company such as
Clifton Savings Bancorp, the acquisition of more than 10% of any class of equity
security of the company without the prior approval of the Office of Thrift
Supervision.
RISING INTEREST RATES MAY HURT OUR PROFITS AND ASSET VALUE.
Interest rates were recently at historically low levels. However, since
June 30, 2004, the U.S. Federal Reserve has increased its target for the federal
funds rate eight times to 3.00%. If interest rates continue to rise, and if
rates on our deposits and borrowings reprice upwards faster than the rates on
our loans and investments, we would experience compression of our interest rate
spread and net interest margin, which would have a negative effect on our
profitability.
STRONG COMPETITION WITHIN OUR MARKET AREA COULD HURT OUR PROFITS AND SLOW
GROWTH.
Although we consider ourselves competitive in the Bergen and Passaic
Counties, New Jersey, which we consider our market area, we face intense
competition both in making loans and attracting deposits. Price competition for
loans and deposits might result in us earning less on our loans and paying more
on our deposits, which reduces net interest income. Some of the institutions
with which we compete have substantially greater resources and lending limits
than we have and may offer services that we do not provide. We expect
competition to increase in the future as a result of legislative, regulatory and
technological changes and the continuing trend of consolidation in the financial
services industry. Our profitability depends upon our continued ability to
compete successfully in our market area.
WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND WE MAY BE ADVERSELY AFFECTED
BY CHANGES IN LAWS AND REGULATIONS.
We are subject to extensive government regulation, supervision and
examination. Such regulation, supervision and examination govern the activities
in which we may engage, and is intended primarily for the protection of the
deposit insurance fund and our depositors. Regulatory authorities have extensive
discretion in their supervisory and enforcement activities, including the
imposition of restrictions on our operations, the classification of our assets
and determination of the level of our allowance for loan losses. Any change in
such regulation and oversight, whether in the form of regulatory policy,
regulations, legislation or supervisory action, may have a material impact on
our operations.
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ITEM 2. PROPERTIES
We conduct our business through our main office and branch offices. The
following table sets forth certain information relating to these facilities as
of March 31, 2005.
NET BOOK VALUE
YEAR AS OF SQUARE OWNED/
LOCATION OPENED MARCH 31, 2005 FOOTAGE LEASED
- ------------ ------------ -------------------- -------------------------
(DOLLARS IN THOUSANDS)
MAIN OFFICE:
1433 Van Houten Avenue 1981 $2,638 10,460 Owned
BRANCHES:
CLIFTON:
1055 Clifton Avenue 1956 804 2,484 Owned
1 Village Square West 1928 203 1,550 Owned
319 Lakeview Avenue 1970 54 3,311 Owned
646 Van Houten Avenue 1968 140 1,081 Owned
387 Valley Road 1971 8 995 Leased(1)
GARFIELD:
247 Palisade Avenue(2) 2004 1,202 3,130 Owned
369 Lanza Avenue 1977 1,068 2,174 Owned
WALLINGTON:
55 Union Boulevard 2004 1,397 2,806 Owned
WAYNE:
1158 Hamburg Turnpike 2003 161 1,617 Leased(3)
- ---------------------------------
(1) The current lease expires in 2006 with an option for an additional 5
years.
(2) This branch replaced a previously leased facility which was opened in
1975.
(3) The current lease expires in 2008 with an option for an additional 5
years.
ITEM 3. LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits against us,
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 financial condition, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
The information regarding the market for Clifton Savings Bancorp's
common equity and related stockholder matters is incorporated herein by
reference to Clifton Savings Bancorp's 2005 Annual Report to Stockholders at
"Investor and Corporate Information."
Clifton Savings Bancorp did not repurchase any of its common stock
during the three months ended March 31, 2005.
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ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by
reference to the Section captioned "Selected Consolidated Financial and Other
Data" in the 2005 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information regarding management's discussion and analysis of
financial condition and results of operations is incorporated herein by
reference to Clifton Savings Bancorp's 2005 Annual Report to Stockholders at
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by
reference to the Section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the 2005 Annual Report to
Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The information regarding financial statements is incorporated herein
by reference to Clifton Savings Bancorp's 2005 Annual Report to Stockholders in
the Section captioned "Consolidated Financial Statements."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
The conclusions of the principal executive and principal financial
officers regarding the effectiveness of Clifton Savings Bancorp's disclosure
controls and procedures, management's annual report on internal control over
financial reporting, changes to internal control over financial reporting and
the attestation report of the registered public accounting firm are incorporated
herein by reference to the Section captioned "Consolidated Financial Statements"
in the 2005 Annual Report to Stockholders.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the directors and officers of Clifton
Savings Bancorp and information regarding compliance with Section 16(a) of the
Exchange Act is incorporated herein by reference to Clifton Savings Bancorp's
Proxy Statement for the 2005 Annual Meeting of Stockholders and to Part I, Item
1, "Description of Business -- Executive Officers of the Registrant."
Clifton Savings Bancorp has adopted a Code of Ethics and Business
Conduct. See Exhibit 14.1 to this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is incorporated herein
by reference to Clifton Savings Bancorp's Proxy Statement for the 2005 Annual
Meeting of Stockholders.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS
The information relating to security ownership of certain beneficial
owners and management and the equity compensation plan information is
incorporated herein by reference to Clifton Savings Bancorp's Proxy Statement
for the 2005 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related
transactions is incorporated herein by reference to Clifton Savings Bancorp's
Proxy Statement for the 2005 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND EXPENSES
The information relating to the principal accountant fees and expenses
is incorporated herein by reference to Clifton Savings Bancorp's Proxy Statement
for the 2005 Annual Meeting of Stockholders.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) The following are filed as a part of this report by means of
incorporation to Clifton Savings Bancorp's 2005 Annual Report
to Stockholders:
o Report of Independent Registered Public Accounting Firm
o Consolidated Statements of Financial Condition as of
March 31, 2005 and 2004
o Consolidated Statements of Income for Each of the Years
in the Three- Year Period Ended March 31, 2005
o Consolidated Statements of Changes in Stockholders'
Equity for Each of the Years in the Three-Year Period
Ended March 31, 2005
o Consolidated Statements of Cash Flows for Each of the
Years in the Three-Year Period Ended March 31, 2005
o Notes to Consolidated Financial Statements
(2) All schedules are omitted as required information is either
not applicable, or is presented in the consolidated financial
statements.
(3) Exhibits
3.1 Charter of Clifton Savings Bancorp, Inc. (1)
3.2 Bylaws of Clifton Savings Bancorp, Inc. (1)
4.1 Specimen Stock Certificate of Clifton Savings Bancorp,
Inc. (1)
10.1 Clifton Savings Bank, S.L.A. Employee Stock Ownership
Plan and Trust (1)
10.2 ESOP Loan Commitment Letter and ESOP Loan Documents (1)
10.3 Employment Agreement between Clifton Savings Bancorp,
Inc. and John A. Celentano, Jr. (1)
10.4 Employment Agreement between Clifton Savings Bancorp,
Inc. and Walter Celuch (1)
10.5 Employment Agreement between Clifton Savings Bank,
S.L.A. and John A. Celentano, Jr. (1)
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25
10.6 Employment Agreement between Clifton Savings Bank,
S.L.A. and Walter Celuch (1)
10.7 Change in Control Agreement between Clifton Savings
Bank, S.L.A. and Bart D'Ambra (1)
10.8 Change in Control Agreement between Clifton Savings
Bank, S.L.A. and Stephen A. Hoogerhyde (1)
10.9 Change in Control Agreement between Clifton Savings
Bank, S.L.A. and Christine R. Piano (1)
10.10 Clifton Savings Bank, S.L.A. Directors' Retirement
Plan (1)
10.11 Clifton Savings Bank, S.L.A. 401(k) Savings Plan (2)
10.12 Clifton Savings Bank, S.L.A. Supplemental Executive
Retirement Plan (1)
13.0 Annual Report to Stockholders
14.1 Code of Ethics and Business Conduct (1)
21.0 List of Subsidiaries
23.0 Consent of Beard Miller Company LLP
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
32.0 Section 1350 Certification of Chief Executive Officer
and Chief Financial Officer
- -------------------------
(1) Incorporated by reference to the Company's 2004 Annual Report on Form 10-K
filed on June 29, 2004.
(2) Incorporated by reference to the Registration Statement on Form S-8
(No. 333-113302) filed on March 5, 2004.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CLIFTON SAVINGS BANCORP, INC.
Date: June 8, 2005 By: /s/ John A. Celentano, Jr.
-------------------------------------
John A. Celentano, Jr.
Chairman of the Board and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Name Title Date
---- ----- ----
/s/ John A. Celentano, Jr. Chairman of the Board and June 8, 2005
- ----------------------------- Chief Executive Officer
John A. Celentano, Jr. (principal executive officer)
/s/ Christine R. Piano Chief Financial Officer and June 8, 2005
- ----------------------------- Treasurer (principal financial and
Christine R. Piano accounting officer)
/s/ Frank J. Hahofer Director June 8, 2005
- -----------------------------
Frank J. Hahofer
/s/ Thomas A. Miller Director June 6, 2005
- -----------------------------
Thomas A. Miller
/s/ John H. Peto Director June 8, 2005
- -----------------------------
John H. Peto
/s/ Raymond L. Sisco Director June 8, 2005
- -----------------------------
Raymond L. Sisco
/s/ Joseph C. Smith Director June 8, 2005
- -----------------------------
Joseph C. Smith
/s/ John Stokes Director June 8, 2005
- -----------------------------
John Stokes