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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File No. 0-50358

 

 

CLIFTON SAVINGS BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

United States   34-1983738

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

1433 Van Houten Avenue, Clifton, New Jersey   07015
(Address of Principal Executive Offices)   (Zip Code)

(973) 473-2200

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large Accelerated Filer   ¨    Accelerated Filer   x
Non-Accelerated Filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares outstanding of each of the issuer’s classes of common stock, as of November 2, 2011: 26,138,138 shares outstanding.

 

 

 


Table of Contents

CLIFTON SAVINGS BANCORP, INC.

AND SUBSIDIARIES

INDEX

 

     Page
Number

PART I - FINANCIAL INFORMATION

  

Item 1:

  

Financial Statements

  
  

Consolidated Statements of Financial Condition (Unaudited) at September 30, 2011 and March 31, 2011

   1
  

Consolidated Statements of Income (Unaudited) For the Three And Six Months Ended September 30, 2011 and 2010

   2
  

Consolidated Statements of Comprehensive Income (Unaudited) For the Three and Six Months Ended September 30, 2011 and 2010

   3
  

Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended September 30, 2011 and 2010

   4 - 5
  

Notes to Consolidated Financial Statements

   6 - 26

Item 2:

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   27 - 39

Item 3:

  

Quantitative and Qualitative Disclosures About Market Risk

   40 - 41

Item 4:

  

Controls and Procedures

   42

PART II - OTHER INFORMATION

  

Item 1:

  

Legal Proceedings

   43

Item 1A:

  

Risk Factors

   43

Item 2:

  

Unregistered Sales of Equity Securities and Use of Proceeds

   43

Item 3:

  

Defaults Upon Senior Securities

   43

Item 4:

  

(Removed and Reserved)

   43

Item 5:

  

Other Information

   43

Item 6:

  

Exhibits

   44

SIGNATURES

   45


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Share and Per Share Data, Unaudited)

 

     September 30,
2011
    March 31,
2011
 

ASSETS

    

Cash and due from banks

   $ 24,561      $ 34,719   

Interest-bearing deposits in other banks

     33,419        23,350   
  

 

 

   

 

 

 

Cash and Cash Equivalents

     57,980        58,069   

Securities available for sale, at fair value:

    

Investment

     45,213        10,002   

Mortgage-backed

     29,689        27,937   

Securities held to maturity, at cost:

    

Investment, fair value of $195,260 and $228,707, respectively

     194,680        233,428   

Mortgage-backed, fair value of $324,627 and $308,961, respectively

     305,097        299,692   

Loans receivable

     442,087        443,626   

Allowance for loan losses

     (1,940     (1,880
  

 

 

   

 

 

 

Net Loans

     440,147        441,746   

Bank owned life insurance

     27,145        26,715   

Premises and equipment

     8,211        8,275   

Federal Home Loan Bank of New York stock

     5,725        5,974   

Interest receivable

     4,333        4,551   

Real estate owned

     —          136   

Other assets

     5,454        6,108   
  

 

 

   

 

 

 

Total Assets

   $ 1,123,674      $ 1,122,633   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Liabilities

    

Deposits:

    

Non-interest bearing

   $ 7,868      $ 8,249   

Interest bearing

     831,546        829,136   
  

 

 

   

 

 

 

Total Deposits

     839,414        837,385   

Advances from Federal Home Loan Bank of New York

     91,972        95,668   

Advance payments by borrowers for taxes and insurance

     4,968        5,023   

Other liabilities and accrued expenses

     3,780        4,591   
  

 

 

   

 

 

 

Total Liabilities

     940,134        942,667   
  

 

 

   

 

 

 

Commitments and Contingencies

     —          —     
  

 

 

   

 

 

 

Stockholders’ Equity

    

Preferred stock ($.01 par value), 1,000,000 shares authorized; shares issued or outstanding - none

     —          —     

Common stock ($.01 par value), 75,000,000 shares authorized; 30,530,470 shares issued, 26,138,138 shares outstanding at September 30, 2011; 26,137,248 shares outstanding at March 31, 2011

     305        305   

Paid-in capital

     135,876        135,752   

Deferred compensation obligation under Rabbi Trust

     263        252   

Retained earnings

     98,875        96,067   

Treasury stock, at cost; 4,392,332 shares at September 30, 2011; 4,393,222 shares at March 31, 2011

     (47,363     (47,372

Common stock acquired by Employee Stock Ownership Plan (“ESOP”)

     (5,312     (5,678

Accumulated other comprehensive income

     1,124        850   

Stock held by Rabbi Trust

     (228     (210
  

 

 

   

 

 

 

Total Stockholders’ Equity

     183,540        179,966   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 1,123,674      $ 1,122,633   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

- 1 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Share and Per Share Data, Unaudited)

 

     Three Months
Ended September 30,
     Six Months
Ended September 30,
 
     2011     2010      2011     2010  

Interest Income:

         

Loans

   $ 5,252      $ 5,800       $ 10,609      $ 11,786   

Mortgage-backed securities

     3,571        4,046         7,171        8,177   

Investments securities

     1,453        1,404         3,074        2,659   

Other interest-earning assets

     69        87         143        169   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Interest Income

     10,345        11,337         20,997        22,791   
  

 

 

   

 

 

    

 

 

   

 

 

 

Interest Expense:

         

Deposits

     3,259        3,893         6,559        7,714   

Advances

     895        1,184         1,808        2,372   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Interest Expense

     4,154        5,077         8,367        10,086   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Interest Income

     6,191        6,260         12,630        12,705   

Provision for Loan Losses

     —          160         60        160   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Interest Income after Provision for Loan Losses

     6,191        6,100         12,570        12,545   
  

 

 

   

 

 

    

 

 

   

 

 

 

Non-Interest Income:

         

Fees and service charges

     53        57         107        105   

Bank owned life insurance

     218        226         430        444   

Net (loss) gain on sale/disposal of premises and equipment

     (9     329         (9     329   

Other

     1        6         2        13   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Non-Interest Income

     263        618         530        891   
  

 

 

   

 

 

    

 

 

   

 

 

 

Non-Interest Expenses:

         

Salaries and employee benefits

     1,756        1,670         3,549        3,376   

Occupancy expense of premises

     354        408         709        861   

Equipment

     269        254         535        508   

Directors’ compensation

     176        197         368        365   

Advertising

     62        86         139        162   

Legal

     80        96         467        130   

Federal deposit insurance premium

     117        222         264        437   

Other

     432        411         1,079        850   
  

 

 

   

 

 

    

 

 

   

 

 

 

Total Non-Interest Expenses

     3,246        3,344         7,110        6,689   
  

 

 

   

 

 

    

 

 

   

 

 

 

Income before Income Taxes

     3,208        3,374         5,990        6,747   

Income Taxes

     1,139        1,191         2,130        2,394   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Income

   $ 2,069      $ 2,183       $ 3,860      $ 4,353   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net Income per Common Share:

         

Basic

   $ 0.08      $ 0.09       $ 0.15      $ 0.17   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

   $ 0.08      $ 0.09       $ 0.15      $ 0.17   
  

 

 

   

 

 

    

 

 

   

 

 

 

Dividends per common share

   $ —        $ 0.06       $ 0.12      $ 0.12   
  

 

 

   

 

 

    

 

 

   

 

 

 

Weighted Average Number of Common Shares and Common Stock Equivalents Outstanding:

         

Basic

     25,597,754        25,523,522         25,588,817        25,608,144   
  

 

 

   

 

 

    

 

 

   

 

 

 

Diluted

     25,604,598        25,523,522         25,637,703        25,608,144   
  

 

 

   

 

 

    

 

 

   

 

 

 

See notes to consolidated financial statements.

 

- 2 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Unaudited)

 

     Three Months
Ended September 30,
    Six Months
Ended September 30,
 
     2011      2010     2011      2010  

Net income

   $ 2,069       $ 2,183      $ 3,860       $ 4,353   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss):

          

Gross unrealized holding gain (loss) on securities available for sale, net of income taxes (benefit) of $110 and ($269), $209 and ($46), respectively

     117         (404     264         (69

Benefit plans, net of income taxes of $3 and $3, $6 and $6, respectively

     5         5        10         10   
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss)

     122         (399     274         (59
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive income

   $ 2,191       $ 1,784      $ 4,134       $ 4,294   
  

 

 

    

 

 

   

 

 

    

 

 

 

See notes to consolidated financial statements.

 

- 3 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)

 

     Six Months Ended
September 30,
 
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 3,860      $ 4,353   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization of premises and equipment

     275        253   

Net (accretion) of deferred fees and costs, premiums and discounts

     (109     (120

Amortization of component of net periodic pension cost

     16        16   

Provision for loan losses

     60        160   

Net loss (gain) on sale and disposal of premises and equipment

     9        (329

Decrease in interest receivable

     218        100   

Deferred income tax (benefit)

     (257     (71

Decrease in other assets

     696        224   

(Decrease) in accrued interest payable

     (8     (14

(Decrease) increase in other liabilities

     (803     8,818   

(Increase) in cash surrender value of bank owned life insurance

     (430     (444

ESOP shares committed to be released

     384        327   

Loss on sale of real estate owned

     1        —     

Restricted stock expense

     31        21   

Stock option expense

     71        66   

Increase in deferred compensation obligation under Rabbi Trust

     11        8   
  

 

 

   

 

 

 

Net cash provided by operating activities

     4,025        13,368   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Proceeds from calls, maturities and repayments of:

    

Investment securities available for sale

     20,000        10,000   

Mortgage-backed securities available for sale

     3,514        9,438   

Investment securities held to maturity

     83,875        90,025   

Mortgage-backed securities held to maturity

     24,630        31,742   

Redemptions of Federal Home Loan Bank of New York stock

     249        168   

Proceeds from sale of premises and equipment

     —          493   

Purchases of:

    

Investment securities available for sale

     (54,990     (10,000

Mortgage-backed securities available for sale

     (5,014     —     

Investment securities held to maturity

     (45,063     (139,707

Mortgage-backed securities held to maturity

     (30,013     (48,614

Loans receivable

     (8,371     —     

Bank owned life insurance

     —          (3,000

Premises and equipment

     (220     (385

Federal Home Loan Bank of New York stock

     —          (80

Net decrease in loans receivable

     9,932        17,622   

Proceeds from sale of real estate owned

     135        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (1,336     (42,298
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

- 4 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT’D)

(In Thousands, Unaudited)

 

     Six Months Ended
September 30,
 
     2011     2010  

Cash flows from financing activities:

    

Net increase in deposits

   $ 2,029      $ 62,780   

Principal payments on advances from Federal Home Loan Bank of New York

     (3,696     (3,745

Net (decrease) in payments by borrowers for taxes and insurance

     (55     (355

Minority dividends paid

     (1,052     (1,058

Purchase of treasury stock

     (11     (2,707

Income tax benefit from stock based compensation

     7        1   
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (2,778     54,916   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (89     25,986   

Cash and cash equivalents - beginning

     58,069        33,461   
  

 

 

   

 

 

 

Cash and cash equivalents - ending

   $ 57,980      $ 59,447   
  

 

 

   

 

 

 

Supplemental information:

    

Cash paid during the period for:

    

Interest on deposits and borrowings

   $ 8,375      $ 10,100   
  

 

 

   

 

 

 

Income taxes paid

   $ 3,400      $ 3,733   
  

 

 

   

 

 

 

Non cash activities:

    

Reclass property from premises and equipment to land held for sale

   $ —        $ 1,157   
  

 

 

   

 

 

 

See notes to consolidated financial statements.

 

- 5 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Clifton Savings Bancorp, Inc. (the “Company”), the Company’s wholly-owned subsidiary, Clifton Savings Bank (the “Bank”) and the Bank’s wholly-owned subsidiary, Botany Inc. (“Botany”). The Company’s business consists principally of investing in securities and the operations of the Bank. Botany’s business consists solely of holding investment and mortgage-backed securities, and Botany is treated under New Jersey tax law as a New Jersey investment company. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements were prepared in accordance with the instructions for Form 10-Q and Regulation S-X and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, or cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial statements have been included. The results of operations for the six month period ended September 30, 2011 are not necessarily indicative of the results which may be expected for the entire fiscal year or any other period. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended March 31, 2011, which are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on June 9, 2011.

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of September 30, 2011, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

2. EARNINGS PER SHARE (EPS)

Basic EPS is based on the weighted average number of common shares actually outstanding, and is adjusted for Employee Stock Ownership Plan shares not yet committed to be released and deferred compensation obligations required to be settled in shares of Company stock. Unvested restricted stock awards, which contain rights to non-forfeitable dividends, are considered participating securities and the two-class method of computing basic and diluted EPS is applied. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable (such as stock options) or which could be converted into common stock, if dilutive, using the treasury stock method. The calculation of diluted EPS for the three and six months ended September 30, 2011 includes incremental shares related to 6,844 and 48,886 outstanding options, respectively. During the three and six months ended September 30, 2011, the average number of options which were antidilutive

 

- 6 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

2. EARNINGS PER SHARE (EPS) (CONT’D)

 

totaled 1,344,815 and -0-, respectively. The calculation of diluted EPS for the three and six months ended September 30, 2010 does not include incremental shares related to outstanding options due to their antidilutive impact. During the three and six months ended September 30, 2010 the average number of options which were antidilutive totaled 1,492,815 and 1,443,262, respectively, and were therefore excluded from the diluted earnings per share calculation.

3. DIVIDEND WAIVER

During each of the six months ended September 30, 2011 and 2010, Clifton MHC (“MHC”), the federally chartered mutual holding company of the Company, waived its right, upon non-objection from the Board of Governors of the Federal Reserve System (the “FRB”) and the Office of Thrift Supervision (“OTS”), respectively, to receive cash dividends of approximately $2.0 million on the shares of Company common stock it owns. The cumulative amount of dividends waived by the MHC through September 30, 2011 was approximately $25.2 million. The dividends waived are considered as a restriction on the retained earnings of the Company. The cumulative amount of dividends paid to minority shareholders totaled $15.6 million through September 30, 2011, and the cumulative amount of dividends that would have been paid through September 30, 2011 if dividends were not waived by the MHC amounted to $40.8 million.

4. STOCK REPURCHASE PLANS

The Company’s Board of Directors has authorized several stock repurchase plans. The repurchased shares are held as treasury stock for general corporate use. There were no stock repurchases under these plans made during the six months ended September 30, 2011 as all authorized repurchase plans are complete. During the six months ended September 30, 2010, 298,000 shares were repurchased at a total cost of approximately $2.7 million, or $9.08 per share.

Additionally, during the six months ended September 30, 2011 and 2010, 1,061 and -0- shares were repurchased at a total cost of $11,000 or $10.67 per share. These share purchases represent the withholding of shares subject to restricted stock awards under the Clifton Savings Bancorp, Inc. 2005 Equity Incentive Plan for payment of taxes due upon the vesting of restricted stock awards.

 

- 7 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

5. RETIREMENT PLAN-COMPONENTS OF NET PERIODIC PENSION COST

Periodic pension expense for the director’s retirement plan and former President’s post-retirement health care plan were as follows:

 

     Three Months Ended
September 30,
    Six Months Ended
September 30,
 
     2011     2010     2011     2010  
     (In Thousands)  

Service cost

   $ 10      $ 15      $ 20      $ 30   

Interest cost

     38        37        76        74   

Amortization of past service cost

     10        10        20        20   

Amortization of unrecognized net (gain)

     (2     (2     (4     (4
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic benefit cost

   $ 56      $ 60      $ 112      $ 120   
  

 

 

   

 

 

   

 

 

   

 

 

 

6. INVESTMENT SECURITIES

 

     September 30, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 
     (In Thousands)  

Available for sale:

  

Debt securities:

           

Federal Home Loan Mortgage Corporation

   $ 15,000       $ 56       $ —         $ 15,056   

Federal Home Loan Banks

     5,000         25         —           5,025   

Federal National Mortgage Association

     19,992         116         —           20,108   

Federal Farm Credit Bank

     5,000         24         —           5,024   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 44,992       $ 221       $ —         $ 45,213   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

           

Debt securities:

           

Federal Home Loan Mortgage Corporation

   $ 24,929       $ 223       $ —         $ 25,152   

Federal Home Loan Banks

     54,725         315         —           55,040   

Federal National Mortgage Association

     89,964         369         7         90,326   

Federal Farm Credit Bank

     5,000         58         —           5,058   
  

 

 

    

 

 

    

 

 

    

 

 

 
     174,618         965         7         175,576   
  

 

 

    

 

 

    

 

 

    

 

 

 

Corporate Bonds

     20,062         —           378         19,684   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 194,680       $ 965       $ 385       $ 195,260   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 8 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

6. INVESTMENT SECURITIES (CONT’D)

 

     March 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 
     (In Thousands)  

Available for sale:

  

Debt securities:

           

Federal National Mortgage Association

   $ 5,000       $ —         $ 4       $ 4,996   

Federal Home Loan Mortgage Corporation

     5,000         6         —           5,006   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 10,000       $ 6       $ 4       $ 10,002   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

           

Debt securities:

           

Federal Home Loan Mortgage Corporation

   $ 39,905       $ 157       $ 804       $ 39,258   

Federal Home Loan Banks

     68,574         130         2,161         66,543   

Federal National Mortgage Association

     114,949         471         2,564         112,856   

Federal Farm Credit Bank

     10,000         50         —           10,050   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 233,428       $ 808       $ 5,529       $ 228,707   
  

 

 

    

 

 

    

 

 

    

 

 

 

Contractual maturity data for investment securities is as follows:

 

     September 30, 2011  
     Amortized
Cost
     Fair
Value
 
     (In Thousands)  

Available for sale:

  

Debt securities:

     

After one through five years

   $ 44,992       $ 45,213   
  

 

 

    

 

 

 
   $ 44,992       $ 45,213   
  

 

 

    

 

 

 

Held to maturity:

     

Debt securities:

     

After one through five years

   $ 64,750       $ 65,348   

After five through ten years

     15,000         15,125   

After ten years

     94,868         95,103   
  

 

 

    

 

 

 
     174,618         175,576   
  

 

 

    

 

 

 

Corporate Bonds

     

After one through five years

     20,062         19,684   
  

 

 

    

 

 

 
   $ 194,680       $ 195,260   
  

 

 

    

 

 

 

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

6. INVESTMENT SECURITIES (CONT’D)

 

The age of gross unrealized losses and the fair value of related investment securities at September 30 and March 31, 2011 were as follows:

 

     Less Than 12 Months      12 Months or More      Total  
September 30, 2011:    Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
 
     (In Thousands)  

Held to maturity:

  

Debt securities:

                 

Federal National Mortgage Association

   $ 4,993       $ 7       $ —         $ —         $ 4,993       $ 7   

Corporate Bonds

     19,684         378         —           —           19,684         378   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 24,677       $ 385       $ —         $ —         $ 24,677       $ 385   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
March 31, 2011:                                          

Available for sale:

                 

Debt securities:

                 

Federal National Mortgage Association

   $ 4,996       $ 4       $ —         $ —         $ 4,996       $ 4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

                 

Debt securities:

                 

Federal Home Loan Mortgage Corporation

   $ 34,102       $ 804         —           —           34,102         804   

Federal National Mortgage Association

     72,385         2,564         —           —           72,385         2,564   

Federal Home Loan Banks

     46,663         2,161         —           —           46,663         2,161   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 153,150       $ 5,529       $ —         $ —         $ 153,150       $ 5,529   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Management does not believe that any of the unrealized losses at September 30, 2011 (one FNMA bond and four corporate bond investment securities) represent an other-than-temporary impairment as they are primarily related to market interest rates and not related to the underlying credit quality of the issuers of the securities. Additionally, the Company and subsidiaries have the ability, and management has the intent, to hold such securities for the time necessary to recover amortized cost and does not have the intent to sell the securities, and it is more likely than not that it will not have to sell the securities before recovery of their amortized cost.

There were no sales of investment securities available for sale or held to maturity during the periods ended September 30, 2011 and 2010.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7. MORTGAGE-BACKED SECURITIES

 

     September 30, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 
     (In Thousands)  

Available for sale:

           

Federal Home Loan Mortgage Corporation

   $ 8,444       $ 708       $ —         $ 9,152   

Federal National Mortgage Association

     19,274         1,263         —           20,537   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 27,718       $ 1,971       $ —         $ 29,689   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

           

Federal Home Loan Mortgage Corporation

   $ 118,531       $ 7,642       $ 3       $ 126,170   

Federal National Mortgage Association

     141,461         8,603         5         150,059   

Governmental National Mortgage Association

     45,105         3,293         —           48,398   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 305,097       $ 19,538       $ 8       $ 324,627   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     March 31, 2011  
     Amortized
Cost
     Gross
Unrealized
Gains
     Gross
Unrealized
Losses
     Fair
Value
 
     (In Thousands)  

Available for sale:

           

Federal Home Loan Mortgage Corporation

   $ 10,151       $ 678       $ —         $ 10,829   

Federal National Mortgage Association

     16,069         1,039         —           17,108   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 26,220       $ 1,717       $ —         $ 27,937   
  

 

 

    

 

 

    

 

 

    

 

 

 

Held to maturity:

           

Federal Home Loan Mortgage Corporation

   $ 130,980       $ 4,909       $ 830       $ 135,059   

Federal National Mortgage Association

     120,439         3,685         147       $ 123,977   

Governmental National Mortgage Association

     48,273         1,652         —           49,925   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 299,692       $ 10,246       $ 977       $ 308,961   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

- 11 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7. MORTGAGE-BACKED SECURITIES (CONT’D)

 

Contractual maturity data for mortgage-backed securities is as follows:

 

     September 30, 2011  
     Amortized
Cost
     Fair
Value
 
     (In Thousands)  

Available for sale:

     

Due after five through ten years

   $ 8,621       $ 9,299   

Due after ten years

     19,097         20,390   
  

 

 

    

 

 

 
   $ 27,718       $ 29,689   
  

 

 

    

 

 

 

Held to maturity:

     

Due less than one year

   $ 5       $ 6   

Due after one through five years

     100         110   

Due after five through ten years

     11,106         11,892   

Due after ten years

     293,886         312,619   
  

 

 

    

 

 

 
   $ 305,097       $ 324,627   
  

 

 

    

 

 

 

The amortized cost and carrying values shown above are by contractual final maturity. Actual maturities will differ from contractual final maturities due to scheduled monthly payments related to mortgage-backed securities and due to the borrowers having the right to prepay obligations with or without prepayment penalties.

The age of gross unrealized losses and the fair value of related mortgage-backed securities at September 30 and March 31, 2011 were as follows:

 

     Less Than 12 Months      12 Months or More      Total  
     Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
 
September 30, 2011:    (In Thousands)  

Held to maturity:

                 

Federal Home Loan Mortgage Corporation

   $ 282       $ 3       $ —         $ —         $ 282       $ 3   

Federal National Mortgage Association

     418         4         20         1         438         5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 700       $ 7       $ 20       $ 1       $ 720       $ 8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
March 31, 2011:                                          

Held to maturity:

                 

Federal Home Loan Mortgage Corporation

   $ 40,565       $ 830       $ —         $ —         $ 40,565       $ 830   

Federal National Mortgage Association

     15,712         146         21         1         15,733         147   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 56,277       $ 976       $ 21       $ 1       $ 56,298       $ 977   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Management does not believe that any of the unrealized losses at September 30, 2011 (two FHLMC and five FNMA mortgage-backed securities of which one has been in an unrealized loss position for twelve months or more) represent an other-than-temporary impairment as they are primarily related to market interest rates and not related to the underlying credit quality of the issuers of the securities. Additionally, the Company and its subsidiaries have the ability, and management has the intent, to hold such securities for the time necessary to recover amortized cost and does not have the intent to sell the securities, and it is more likely than not that it will not have to sell the securities before recovery of their amortized cost.

 

- 12 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

7. MORTGAGE-BACKED SECURITIES (CONT’D)

 

There were no sales of mortgage-backed securities available for sale or held to maturity during the three or six months ended September 30, 2011 and 2010.

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

The following is a summary of loans by segment and the classes within those segments:

 

     September 30,     March 31,  
     2011     2011  
     (In Thousands)  

Real estate:

    

One- to four-family

   $ 403,151      $ 405,595   

Multi-family

     14,322        12,708   

Commercial

     12,466        12,126   

Construction

     2,058        2,454   
  

 

 

   

 

 

 
     431,997        432,883   

Consumer:

    

Second mortgage

     8,134        8,602   

Passbook or certificate

     849        967   

Equity lines of credit

     2,034        1,949   
  

 

 

   

 

 

 
     11,017        11,518   

Other loans

     555        555   
  

 

 

   

 

 

 

Total Loans

     443,569        444,956   

Less:

    

Loans in process

     (1,226     (931

Net purchase premiums, discounts, and deferred loan costs

     (256     (399
  

 

 

   

 

 

 
     (1,482     (1,330
  

 

 

   

 

 

 
   $ 442,087      $ 443,626   
  

 

 

   

 

 

 

The allowance for loan losses consists of specific, general and unallocated components. The specific component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers pools of loans by loan class not considered impaired, as well as smaller balance homogeneous loans, such as one-to-four family real estate, construction real estate, second mortgage loans, home equity lines of credit and passbook loans. These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors. These qualitative risk factors include:

 

- 13 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

1. Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

 

2. National, regional, and local economic and business conditions, including the value of underlying collateral for collateral dependent loans.

 

3. Nature and volume of the portfolio and terms of loans.

 

4. Experience, ability, and depth of lending management and staff and the quality of the Bank’s loan review system.

 

5. Volume and severity of past due, classified and nonaccrual loans.

 

6. Existence and effect of any concentrations of credit and changes in the level of such concentrations.

 

7. Effect of external factors, such as competition and legal and regulatory requirements.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation. Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The evaluation of the adequacy of the allowance is based on an analysis which categorizes the entire loan portfolio by certain risk characteristics. The loan portfolio is segmented into the following loan classes, where the risk level for each type is analyzed when determining the allowance for loan losses.

Real Estate:

1. One-to Four-Family Loans - consists of loans secured by first liens on either owned occupied or investment properties. These loans can be affected by economic conditions and the value of the underlying properties. The risk is considered relatively low as the Bank has always had conservative underwriting standards and does not have sub-prime loans in its loan portfolio.

2. Multi-Family Loans - consists of loans secured by multi-family real estate which generally involve a greater degree of risk than one- to four-family residential mortgage loans. These loans can be affected by economic conditions and the value of the underlying properties. The Bank has always had conservative underwriting standards. These loans are affected by economic conditions.

3. Commercial Loans - consists of loans secured by commercial real estate which generally involve a greater degree of risk than one- to four-family residential mortgage loans. These loans can be affected by economic conditions and the value of the underlying properties. The Bank has always had conservative underwriting standards. These loans are affected by economic conditions.

4. Construction Loans - consists primarily of the financing of construction of one- to four family properties or construction/permanent loans for the construction of one-to four-family homes to be occupied by the borrower. Construction loans generally are considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate due to uncertainty of construction costs. Independent inspections are performed prior to disbursement of loan proceeds as construction progresses to mitigate these risks. These loans are also affected by economic conditions.

 

- 14 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

Consumer and Other:

1. Second Mortgage and Equity Lines of Credit - consists of one-to four-family loans secured by first, second or third liens (when the Bank has the two other lien positions) or, in one instance, a commercial property. These loans are affected by the borrower’s continuing financial stability, and therefore are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. The credit risk is considered slightly higher than one-to four-family first lien loans as these loans are also dependent on the value of underlying properties.

2. Passbook or Certificate and Other Loans - consists of loans secured by passbook accounts and certificates of deposits and unsecured loans. The passbook or certificate loans have low credit risk as they are fully secured by their collateral. Unsecured loans, included in other loans, are between the Company and its parent company, Clifton MHC, so they also are considered a low credit risk.

The allowance calculation methodology includes further segregation of loan classes into risk rating categories. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments. Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss. Loans classified as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses. Loans are rated pass-watch if the Bank is waiting for documents required for a complete file or if the loan is to be monitored due to previous delinquent status. Loans not classified are rated pass.

The change in the allowance for loan losses for the periods ended September 30, 2011 is as follows:

 

     One-to-Four
Family

Real  Estate
     Multi-Family
Real Estate
     Commercial
Real Estate
    Real Estate
Construction
    Second
Mortgage and
Equity Lines
of Credit
     Passbook or
Certificate
and Other
Loans
     Unallocated      Total  
     (In Thousands)  

At June 30, 2011:

                     

Total allowance for loan losses

   $ 1,661       $ 113       $ 97      $ 8      $ 48       $ 2       $ 11       $ 1,940   

Charge offs

     —           —           —          —          —           —           —           —     

Recoveries

     —           —           —          —          —           —           —           —     

Provision charged to operations

     9         5         (13     (2     —           —           1         —     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2011:

                     

Total allowance for loan losses

   $ 1,670       $ 118       $ 84      $ 6      $ 48       $ 2       $ 12       $ 1,940   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

- 15 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

 

     One-to-Four
Family
Real Estate
     Multi-Family
Real Estate
     Commercial
Real Estate
    Real Estate
Construction
    Second
Mortgage and
Equity Lines
of Credit
     Passbook or
Certificate
and Other
Loans
    Unallocated     Total  
     (In Thousands)  

At March 31, 2011:

                   

Total allowance for loan losses

   $ 1,601       $ 103       $ 93      $ 11      $ 46       $ 3      $ 23      $ 1,880   

Charge offs

     —           —           —          —          —           —          —          —     

Recoveries

     —           —           —          —          —           —          —          —     

Provision charged to operations

     69         15         (9     (5     2         (1     (11     60   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

At September 30, 2011:

                   

Total allowance for loan losses

   $ 1,670       $ 118       $ 84      $ 6      $ 48       $ 2      $ 12      $ 1,940   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

The following table presents the allocation of the allowance for loan losses by loan class at September 30 and March 31, 2011.

 

September 30, 2011

   One-to-Four
Family
Real Estate
     Multi-Family
Real Estate
     Commercial
Real Estate
     Real Estate
Construction
     Second
Mortgage and
Equity Lines
of Credit
     Passbook or
Certificate
and Other
Loans
     Unallocated      Total  
     (In Thousands)  

Allowance for loan losses:

                       

Individually evaluated for impairment

   $ —         $ —         $ —         $ —         $ —         $ —         $ —         $ —     

Collectively evaluated for impairment

     1,670         118         84         6         48         2         12         1,940   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,670       $ 118       $ 84       $ 6       $ 48       $ 2       $ 12       $ 1,940   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                       

Individually evaluated for impairment

   $ 1,244       $ —         $ 385       $ —         $ —         $ —         $ —         $ 1,629   

Collectively evaluated for impairment

     401,907         14,322         12,081         2,058         10,168         1,404         —           441,940   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 403,151       $ 14,322       $ 12,466       $ 2,058       $ 10,168       $ 1,404       $ —         $ 443,569   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

- 16 -


Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

March 31, 2011

   One-to-Four
Family

Real  Estate
     Multi-Family
Real Estate
     Commercial
Real Estate
     Real Estate
Construction
     Second
Mortgage and
Equity Lines
of Credit
     Passbook or
Certificate
and Other
Loans
     Unallocated      Total  
     (In Thousands)  

Allowance for loan losses:

                       

Individually evaluated for impairment

   $ —         $ —         $ —         $ —         $ —         $ —         $ —         $ —     

Collectively evaluated for impairment

     1,601         103         93         11         46         3         23         1,880   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,601       $ 103       $ 93       $ 11       $ 46       $ 3       $ 23       $ 1,880   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans:

                       

Individually evaluated for impairment

   $ 1,175       $ —         $ 385       $ —         $ —         $ —         $ —         $ 1,560   

Collectively evaluated for impairment

     404,420         12,708         11,741         2,454         10,551         1,522         —           443,396   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 405,595       $ 12,708       $ 12,126       $ 2,454       $ 10,551       $ 1,522       $ —         $ 444,956   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The aggregate amount of our classified loan balances are as follows at September 30 and March 31, 2011:

 

September 30, 2011

   One-to-Four
Family

Real  Estate
     Multi-Family
Real Estate
     Commercial
Real Estate
     Real Estate
Construction
     Second
Mortgage and
Equity Lines
of Credit
     Passbook or
Certificate
and Other
Loans
     Total  
     (In Thousands)  

Pass

   $ 389,558       $ 13,742       $ 11,477       $ 1,350       $ 9,822       $ 1,404       $ 427,353   

Pass-watch

     10,095         580         346         708         201         —           11,930   

Special mention

     892         —           258         —           67         —           1,217   

Substandard

     2,606         —           385         —           78         —           3,069   

Doubtful

     —           —           —           —           —           —           —     

Loss

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total classified loans

   $ 403,151       $ 14,322       $ 12,466       $ 2,058       $ 10,168       $ 1,404       $ 443,569   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

March 31, 2011

   One-to-Four
Family

Real  Estate
     Multi-Family
Real Estate
     Commercial
Real Estate
     Real Estate
Construction
     Second
Mortgage and
Equity Lines
of Credit
     Passbook or
Certificate
and Other
Loans
     Total
Loans
 
     (In Thousands)  

Pass

   $ 394,475       $ 12,708       $ 10,804       $ 1,792       $ 10,361       $ 1,522       $ 431,662   

Pass-watch

     7,455         —           676         662         33         —           8,826   

Special mention

     863         —           261         —           133         —           1,257   

Substandard

     2,802         —           385         —           24         —           3,211   

Doubtful

     —           —           —           —           —           —           —     

Loss

     —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total classified loans

   $ 405,595       $ 12,708       $ 12,126       $ 2,454       $ 10,551       $ 1,522       $ 444,956   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

The following table provides information with respect to our nonaccrual loans at the date indicated.

 

     September 30,
2011
     March 31,
2011
 
     (In Thousands)  

Nonaccrual loans:

     

Real estate loans:

     

One-to four-family

   $ 2,606       $ 2,802   

Multi-family

     —           —     

Commercial

     385         385   

Consumer and other loans:

     

Second mortgage

     78         24   
  

 

 

    

 

 

 

Total nonaccrual loans

   $ 3,069       $ 3,211   
  

 

 

    

 

 

 

The following table provides information about delinquencies in our loan portfolio at September 30 and March 31, 2011.

 

September 30, 2011

   30-59
Days
Past Due
     60-89
Days
Past Due
     >90
Days
Past Due
     Total
Past Due
     Current      Total
Gross
Loans
 
                   (In Thousands)                

Real estate loans:

                 

One-to four-family

   $ 1,872       $ 1,174       $ 2,606       $ 5,652       $ 397,499       $ 403,151   

Multi-family

     —           —           —           —           14,322         14,322   

Commercial

     —           —           385         385         12,081         12,466   

Construction

     —           —           —           —           2,058         2,058   

Consumer and other loans:

                 

Second mortgage and equity lines of credit

     70         39         78         187         9,981         10,168   

Passbook or certificate and other loans

     80         —           —           80         1,324         1,404   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,022       $ 1,213       $ 3,069       $ 6,304       $ 437,265       $ 443,569   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

March 31, 2011

   30-59
Days
Past Due
     60-89
Days
Past Due
     >90
Days
Past Due
     Total
Past Due
     Current      Total
Gross
Loans
 
     (In Thousands)  

Real estate loans:

                 

One-to four-family

   $ 2,250       $ 74       $ 2,802       $ 5,126       $ 400,469       $ 405,595   

Multi-family

     —           —           —           —           12,708         12,708   

Commercial

     261         63         385         709         11,417         12,126   

Construction

     —           —           —           —           2,454         2,454   

Consumer and other loans:

                 

Second mortgage and equity lines of credit

     103         —           24         127         10,424         10,551   

Passbook or certificate and other loans

     36         —           —           36         1,486         1,522   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 2,650       $ 137       $ 3,211       $ 5,998       $ 438,958       $ 444,956   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A loan is defined as impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due under the contractual terms of the loan agreement. The Company considers one- to four-family mortgage loans and consumer installment loans to be homogeneous and, therefore, does not separately evaluate them for impairment, unless they are considered troubled debt restructurings. All other loans are evaluated for impairment on an individual basis.

Impaired loans, none of which had a related allowance at or for the periods ending September 30 and March 31, 2011, were as follows:

 

At or For The Six Months Ended September 30, 2011

   Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (In Thousands)  

With no related allowance recorded:

              

Real estate loans:

              

One-to four-family

   $ 1,061       $ 1,244       $ —         $ 1,197       $ 29   

Multi-family

     —           —           —           —           —     

Commercial

     385         385         —           385         —     

Consumer and other loans:

              

Second mortgage

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 1,446       $ 1,629       $ —         $ 1,582       $ 29   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

At or For The Three Months Ended September 30, 2011

   Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (In Thousands)  

With no related allowance recorded:

              

Real estate loans:

              

One-to four-family

   $ 1,061       $ 1,244       $ —         $ 1,223       $ 16   

Multi-family

     —           —           —           —           —     

Commercial

     385         385         —           385         —     

Consumer and other loans:

              

Second mortgage

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 1,446       $ 1,629       $ —         $ 1,608       $ 16   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

At or For The Year Ended March 31, 2011

   Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
     Average
Recorded
Investment
     Interest
Income
Recognized
 
     (In Thousands)  

With no related allowance recorded:

              

Real estate loans:

              

One-to four-family

   $ 990       $ 1,175       $ —         $ 1,222       $ 58   

Multi-family

     —           —           —           229         —     

Commercial

     385         385         —           261         —     

Consumer and other loans:

              

Second mortgage

     —           —           —           53         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 1,375       $ 1,560       $ —         $ 1,765       $ 61   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company adopted Accounting Standards Update (“ASU”) No. 2011-02 on April 1, 2011 which provides additional guidance to creditors for evaluating whether a modification or restructuring of a receivable is a troubled debt restructuring. In evaluating whether a restructuring constitutes a troubled debt restructuring, ASU No. 2011-02 requires that a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties. As a result of our adoption of ASU No. 2011-02, we determined that no loans were troubled debt restructurings other than those previously considered as such.

The recorded investment in loans modified in a troubled debt restructuring totaled $1.1 million at September 30, 2011, of which $36,000 was 60-89 days past due and $10,000 was 90 days or more past due. The remaining loans modified were current at the time of the restructuring and have complied with the terms of their restructure agreements. The recorded investment at March 31, 2011 of loans modified in a troubled debt restructuring totaled $1.0 million, of which $10,000 was 60-89 days past due and $37,000 was 90 days or more past due. The remaining loans modified were current at the time of their restructuring and were in compliance with the terms of their restructure agreement at March 31, 2011.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

8. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONT’D)

 

Loans that were modified in a troubled debt restructuring represent borrowers experiencing financial difficulties. The Company works with these borrowers to modify existing loan terms usually by extending maturities or reducing interest rates. The Company records an impairment loss, if any, based on the present value of expected future cash flows discounted at the original loan’s effective interest rate. Subsequently, these loans are individually evaluated for impairment. As a result of our initial impairment evaluations, we charged-off $112,000 during the year ended March 31, 2011. We had no charge-offs for the six months ended September 30, 2011.

The following table is a comparison of our troubled debt restructuring by class as of the dates indicated.

 

     Number of
Loans
     Pre-restructring
Outstanding
Recorded
Investment
     Post-restructring
Outstanding
Recorded
Investment
 

September 30, 2011

        

One-to Four-Family Real Estate

     7       $ 1,152       $ 1,061   

March 31, 2011

        

One-to Four-Family Real Estate

     6       $ 1,103       $ 990   

9. FAIR VALUE

Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

Basis of Fair Value Measurement:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Price or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

9. FAIR VALUE (CONT’D)

 

For assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30 and March 31, 2011 are as follows:

 

Description

   Carrying
Value
     (Level 1)
Quoted Prices
in Active
Markets for
Identical Assets
     (Level 2)
Significant
Other
Observable
Inputs
     (Level 3)
Significant
Unobservable
Inputs
 
     (In Thousands)  

September 30, 2011:

           

Securities available for sale:

           

Mortgage-backed securities:

           

Federal Home Loan Mortgage Corporation

   $ 9,152       $ —         $ 9,152       $ —     

Federal National Mortgage Association

     20,537         —           20,537         —     

U.S. Government agencies:

           

Federal Home Loan Mortgage Corporation

     15,056         —           15,056         —     

Federal National Mortgage Association

     20,108         —           20,108         —     

Federal Home Loan Banks

     5,025         —           5,025         —     

Federal Farm Credit Bank

     5,024         —           5,024         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 74,902       $ —         $ 74,902       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

March 31, 2011:

           

Securities available for sale:

           

Mortgage-backed securities:

           

Federal Home Loan Mortgage Corporation

   $ 10,829       $ —         $ 10,829       $ —     

Federal National Mortgage Association

     17,108         —           17,108         —     

U.S. Government agencies:

           

Federal Home Loan Mortgage Corporation

     5,006         —           5,006         —     

Federal National Mortgage Association

     4,996         —           4,996         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available for sale

   $ 37,939       $ —         $ 37,939       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no assets measured at fair value on a non-recurring basis at September 30, 2011 and there were no liabilities measured at fair value on a recurring or non-recurring basis at September 30 and March 31, 2011. For assets measured at fair value on a non-recurring basis, the fair value measurements by level within the fair value hierarchy used at March 31, 2011 are as follows:

 

Description

   Carrying
Value
     (Level 1)
Quoted Prices
in Active
Markets for
Identical Assets
     (Level 2)
Significant
Other
Observable
Inputs
     (Level 3)
Significant
Unobservable
Inputs
 
     (In Thousands)  

March 31, 2011:

           

Real estate owned

   $ 136       $ —         $ —         $ 136   

The following information should not be interpreted as an estimate of the fair value of the Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

9. FAIR VALUE (CONT’D)

 

The following methods and assumptions were used to estimate the fair values of certain of the Company’s assets and liabilities at September 30 and March 31, 2011.

Cash and Cash Equivalents, Interest Receivable and Interest Payable (Carried at Cost)

The carrying amounts reported in the consolidated statements of financial condition for cash and cash equivalents, interest receivable and interest payable approximate their fair values.

Securities

The fair value of all securities, whether classified as available for sale (carried at fair value) or held to maturity (carried at cost), is determined by reference to quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Securities that we measure on a recurring basis are limited to our available-for-sale portfolio. The fair values of these securities are obtained from quotes received from an independent broker. The Company’s broker provides it with prices which are categorized as Level 2 since quoted prices in active markets for identical assets are generally not available.

Loans Receivable (Carried at Cost)

Fair value is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, of such loans.

Real Estate Owned

Real estate owned, acquired through foreclosure or deed-in-lieu of foreclosure, is carried at the lower of cost or fair value less estimated selling costs. Fair value is estimated through current appraisals by a licensed appraiser and, as such, foreclosed real estate properties are classified as Level 3. The Company had no real estate owned at September 30, 2011. At March 31, 2011, real estate owned consisted of one multi-family property with a balance of $136,000. During the year ended March 31, 2011, the loan was transferred to real estate owned at a balance of $186,000 followed by a subsequent write down of $50,000 which was charged to non-interest expense. The property was sold in April 2011.

Federal Home Loan Bank of New York Stock (Carried at Cost)

Fair value approximates cost basis as these instruments are redeemable only with the issuing agency at face value.

Deposits (Carried at Cost)

The fair value of non-interest-bearing demand, Crystal Checking, NOW, Super NOW, Money Market and Savings and Club accounts is the amount payable on demand at the reporting date. For fixed-maturity certificates of deposit, fair value is estimated by discounting future cash flows using the rates currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank of New York (Carried at Cost)

The fair value is estimated by discounting future cash flows using rates currently offered for liabilities of similar remaining maturities, or when available, quoted market prices.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

9. FAIR VALUE (CONT’D)

 

Commitments to Extend Credit

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.

As of September 30 and March 31, 2011, the fair value of the commitments to extend credit were not considered to be material.

The carrying amounts and fair values of financial instruments are as follows:

 

     September 30, 2011      March 31, 2011  
     Carrying
Value
     Estimated
Fair Value
     Carrying
Value
     Estimated
Fair Value
 
     (In Thousands)  

Financial assets:

           

Cash and cash equivalents

   $ 57,980       $ 57,980       $ 58,069       $ 58,069   

Securities available for sale:

           

Investment

     45,213         45,213         10,002         10,002   

Mortgage-backed

     29,689         29,689         27,937         27,937   

Securities held to maturity:

           

Investment

     194,680         195,260         233,428         228,707   

Mortgage-backed

     305,097         324,627         299,692         308,961   

Net loans receivable

     440,147         468,171         441,746         455,132   

Federal Home Loan Bank of New York stock

     5,725         5,725         5,974         5,974   

Interest receivable

     4,333         4,333         4,551         4,551   

Financial liabilities:

           

Deposits

     839,414         848,085         837,385         842,960   

FHLB advances

     91,972         102,610         95,668         106,436   

Interest payable

     341         341         349         349   

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

10. RECENT ACCOUNTING PRONOUNCEMENTS

In April 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. The ASU clarifies guidance on a creditor’s evaluation of whether or not a concession has been granted, with an emphasis on evaluating all aspects of the modification rather than a focus on specific criteria, such as the effective interest rate test, to determine a concession. The ASU goes on to provide guidance on specific types of modifications such as changes in the interest rate of the borrowing, and insignificant delays in payments, as well as guidance on the creditor’s evaluation of whether or not a debtor is experiencing financial difficulties. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year of adoption. The adoption of the guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB, together with the International Accounting Standards Board (“IASB”), (the “Board’s”) issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board’s do not intend for the amendments in this update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. For public entities, the new guideline is effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The Company does not expect that the guidance effective in future periods will have a material impact on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05 “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” which changes how other comprehensive income (“OCI”) is presented. Under the new presentation rules, the Company will have the option to present OCI either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both scenarios, the Company will be required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. In the two-statement approach, the income statement will be followed immediately by the statement of OCI, and then the amount for total comprehensive income will be reported. For public entities, the new guidance is effective for interim and annual periods beginning after December 31, 2011 and should be applied retrospectively. The Company does not expect that the guidance will have a material impact to its consolidated financial statements.

11. WITHDRAWAL OF APPLICATION OF PLAN OF CONVERSION AND REORGANIZATION

On November 8, 2010, the Company, the Bank and the MHC adopted a Plan of Conversion and Reorganization (the “Plan of Conversion”) pursuant to which the Bank planned to reorganize from the two-tier mutual holding company structure to the stock holding company structure. Pursuant to the Plan of Conversion: (1) the MHC would have merged with and into the Company, with the Company being the surviving entity (the “MHC Merger”); (2) the Company would have merged with and into a newly formed corporation named Clifton Savings Bancorp, Inc. (the “Holding Company”); (3) the shares of common stock of the Company held by persons other than the MHC (whose shares would have been canceled)

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

11. WITHDRAWAL OF APPLICATION OF PLAN OF CONVERSION AND REORGANIZATION (CONT’D)

 

would have been converted into shares of common stock of the Holding Company pursuant to an exchange ratio designed to preserve the percentage ownership interests of such persons; and (4) the Holding Company would have offered and sold shares of its common stock to certain depositors and borrowers of the Bank and others in the manner and subject to the priorities set forth in the Plan of Conversion.

The transactions contemplated by the Plan of Conversion were subject to approval by the shareholders of the Company, the members of Clifton MHC and the Company’s primary federal regulator.

On February 7, 2011, the Company announced the postponement of the conversion and offering following the issuance by the OTS of a “Needs to Improve” rating to the Bank as a result of its recent Community Reinvestment Act examination. On June 22, 2011, the Company announced that it had withdrawn its application for conversion that has been pending before the OTS. As a result of the postponement and withdrawal of the application for conversion, the Company expensed approximately $946,000 in conversion and offering costs, which represents all of the costs associated with the conversion and offering. For the year ended March 31, 2011 and the six months ended September 30, 2011, $419,000 and $527,000 in conversion costs were expensed, respectively. The conversion costs incurred consisted of legal expense of $248,000 and $302,000, other non-interest expenses of $141,000 and $225,000, and occupancy expense of premises of $30,000 and $-0-, respectively, for the year ended March 31, 2011 and six months ended September 30, 2011. The OTS merged with the Office of the Comptroller of the Currency (the “OCC”) and ceased to exist as of July 21, 2011. The Company remains committed to the completion of its conversion and offering and intends to file a conversion application with the OCC once the OCC confirms that the Company may proceed with the conversion application.

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-Q may include, and from time to time the Company may disclose, certain forward-looking statements based on current management expectations. The Company’s actual results could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices. (See Part II - “Item 1A: Risk Factors.”) Additional factors are discussed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2011 under Part I - “Item 1A. Risk Factors”. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.

Overview of Financial Condition and Results of Operations

The Company’s results of operations depend primarily on its net interest income, which is a direct result of the interest rate environment. Net interest income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities. It is a function of the average balances of loans and securities versus deposits and borrowed funds outstanding in any one period and the yields earned on those loans and securities and the cost of those deposits and borrowed funds.

Interest-earning assets consist primarily of investment and mortgage-backed securities and loans which comprised 51.1% and 39.2%, respectively, of total assets at September 30, 2011, as compared to 50.9% and 39.3%, respectively, at March 31, 2011. Cash and cash equivalents remained at 5.2% of total assets at September 30, 2011, as compared to 5.2% at March 31, 2011. The Company’s investment and mortgage-backed securities portfolios consist mainly of U.S. government-sponsored or guaranteed enterprises.

Interest-bearing liabilities consist of deposits and borrowings from the Federal Home Loan Bank of New York (“FHLB”). Deposits increased $2.0 million, or 0.2%, between March 31, 2011 and September 30, 2011, and borrowed funds decreased by $3.7 million, or 3.9%, during this period. The balance in borrowed funds was $92.0 million at September 30, 2011 as compared to $95.7 million at March 31, 2011. During the six months ended September 30, 2011, $3.7 million of long-term borrowings were repaid in accordance with their original terms.

Net interest income decreased $69,000, or 1.1%, during the three months ended September 30, 2011, when compared with the same 2010 period. This decrease in net interest income was due to a $992,000 decrease in total interest income partially offset by a decrease in total interest expense of $923,000. Average interest-earning assets increased $7.9 million, or 0.8%, during the three months ended September 30, 2011, while average interest-bearing liabilities decreased $3.8 million, or 0.4%, when compared with the same 2010 period. The $7.9 million increase in average interest-earning assets was mainly attributable to increases of $35.3 million in investment securities and $7.1 million in other interest

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview of Financial Condition and Results of Operations (Cont’d)

 

-earning assets partially offset by decreases of $8.4 million in mortgage-backed securities and $26.1 million in loans. The net interest rate spread decreased 2 basis point during the three months ended September 30, 2011, to 2.09% from 2.11% for the three months ended September 30, 2010. This was due to a 41 basis point decrease on the yield on interest-earning assets which was partially offset by a decrease of 39 basis points in the cost of interest-bearing liabilities. Results of operations also depend, to a lesser extent, on non-interest income generated, any provision for loan losses recorded, and non-interest expenses incurred. During the three months ended September 30, 2011, non-interest income decreased $355,000, or 57.4%, as compared to the comparable period in 2010 as the prior period included a $329,000 net gain on the sale of the Bank’s Botany branch facility. The provision for loan losses recorded were $-0- and $160,000, respectively, for the three months ended September 30, 2011 and 2010, and non-interest expenses decreased $98,000, or 2.9%, between periods. The decrease in non-interest expenses was primarily the result of a decrease of $105,000 or 47.3%, in federal deposit insurance premiums. The decrease in federal deposit insurance premiums is primarily due to a change in the assessment base for institutions. The Federal Deposit Insurance Corporation adopted a final rule, which became effective on April 1, 2011, which changes the assessment base used to calculate the premium to average consolidated assets minus average tangible equity, rather than the balance of deposits.

Changes in Financial Condition

The Company’s assets at September 30, 2011 totaled $1.124 billion, which represents an increase of $1.0 million or 0.1% as compared with $1.123 billion at March 31, 2011.

Cash and cash equivalents decreased $89,000, or 0.2% to $58.0 million at September 30, 2011 as compared to $58.1 million at March 31, 2011. The decrease resulted primarily from cash being redeployed into higher yielding investment securities.

Securities available for sale at September 30, 2011 increased $37.0 million, or 97.4% to $74.9 million from $37.9 million at March 31, 2011. The increase during the six months ended September 30, 2011 resulted primarily from purchases of $60.0 million in securities, partially offset by maturities, calls, and repayments totaling $23.5 million, and an increase of $473,000 in the unrealized gain on the portfolio.

Securities held to maturity at September 30, 2011 decreased $33.3 million, or 6.3% to $499.8 million from $533.1 million at March 31, 2011. The decrease during the six months ended September 30, 2011 resulted primarily from maturities, calls and repayments totaling $108.5 million partially offset by purchases of securities totaling $75.1 million.

Net loans at September 30, 2011 decreased $1.6 million, or 0.4% to $440.1 million when compared with $441.7 million at March 31, 2011. The decrease during the six months ended September 30, 2011 resulted primarily from repayment levels on loans exceeding origination volume. Declines in home sales resulting from uncertain economic conditions have caused a significant decrease in the need for loan financing. The largest dollar decrease in the loan portfolio was in one-to four family real estate loans which decreased $2.4 million, or 0.6%. The largest percentage decrease was in construction loans, which decreased $396,000, or 16.1%.

Total liabilities decreased $2.6 million, or 0.3% to $940.1 million at September 30, 2011 from $942.7 million at March 31, 2011. Deposits at September 30, 2011 increased $2.0 million, or 0.2% to $839.4 million when compared with $837.4 million at March 31, 2011, as the Bank was able to maintain deposits as it continued to offer competitive rates on its deposit products. Borrowed funds decreased $3.7 million,

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Changes in Financial Condition (Cont’d)

 

or 3.9% to $92.0 million at September 30, 2011, as compared with $95.7 million at March 31, 2011. During the six months ended September 30, 2011, $3.7 million of long-term borrowings were repaid in accordance with their original terms. At September 30, 2011, the remaining borrowings of $92.0 million had a weighted average interest rate of 3.81%.

Stockholders’ equity totaled $183.5 million and $180.0 million at September 30, 2011 and March 31, 2011, respectively. The increase of $3.5 million, or 1.9%, for the six months ended September 30, 2011, resulted primarily from net income of $3.9 million, employee stock ownership plan shares committed to be released of $384,000, $108,000 for stock options and restricted stock awards earned under the Company’s 2005 Equity Incentive Plan and related tax benefits, and a net increase in unrealized gains on the available for sale securities portfolio, net of tax, of $264,000 partially offset by cash dividends of $1.1 million.

Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets and interest expense on average interest-bearing liabilities and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using the average of month-end balances, and nonaccrual loans are included in average balances; however, accrued interest income has been excluded from these loans. Loan fees (costs) are included in interest income on loans and are insignificant. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax equivalent basis are insignificant.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010 (Cont’d.)

 

     Three Months Ended September 30,  
     2011     2010  
     Average
Balance
    Interest
and
Dividends
     Yield/
Cost
    Average
Balance
    Interest
and
Dividends
     Yield/
Cost
 
     (Dollars in thousands)  

Assets:

              

Interest-earning assets:

              

Loans receivable

   $ 438,974      $ 5,252         4.79   $ 465,029      $ 5,800         4.99

Mortgage-backed securities

     336,681        3,571         4.24     345,154        4,046         4.69

Investment securities

     251,065        1,453         2.31     215,750        1,404         2.60

Other interest-earning assets

     36,115        69         0.76     29,023        87         1.20
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-earning assets

     1,062,835        10,345         3.89     1,054,956        11,337         4.30
    

 

 

        

 

 

    

Noninterest-earning assets

     72,029             69,683        
  

 

 

        

 

 

      

Total assets

   $ 1,134,864           $ 1,124,639        
  

 

 

        

 

 

      

Liabilities and stockholders’ equity:

              

Interest-bearing liabilities:

              

Demand accounts

   $ 54,501        48         0.35   $ 54,500        97         0.71

Savings and Club accounts

     120,866        126         0.42     108,535        219         0.81

Certificates of deposit

     656,498        3,085         1.88     644,579        3,577         2.22
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing deposits

     831,865        3,259         1.57     807,614        3,893         1.93

Borrowed funds

     92,850        895         3.86     120,934        1,184         3.92
  

 

 

   

 

 

      

 

 

   

 

 

    

Total interest-bearing liabilities

     924,715        4,154         1.80     928,548        5,077         2.19
    

 

 

        

 

 

    

Noninterest-bearing liabilities:

              

Noninterest-bearing deposits

     7,688             6,318        

Other noninterest-bearing liabilities

     20,109             13,490        
  

 

 

        

 

 

      

Total noninterest-bearing liabilities

     27,797             19,808        

Total liabilities

     952,512             948,356        

Stockholders’ equity

     182,352             176,283        
  

 

 

        

 

 

      

Total liabilities and stockholders’ equity

   $ 1,134,864           $ 1,124,639        
  

 

 

        

 

 

      

Net interest income

     $ 6,191           $ 6,260      
    

 

 

        

 

 

    

Interest rate spread

          2.09          2.11

Net interest margin

          2.33          2.37

Average interest-earning assets to average interest-bearing liabilities

     1.15  x           1.14  x      

Net income decreased $114,000, or 5.2% to $2.07 million for the three months ended September 30, 2011 compared with $2.18 million for the same 2010 period. The decrease in net income during the 2011 period was primarily the result of a decrease in net interest income of $69,000, or 1.1%, and a decrease in the net gain on the sale and disposal of premises and equipment of $338,000, or 102.7%, partially offset by decreases of $160,000, or 100.0%, in provision for loan losses, $98,000, or 2.9%, in noninterest expense, and $52,000 or 4.4% in income taxes.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010 (Cont’d.)

 

Interest income on loans decreased by $548,000, or 9.5% to $5.25 million during the three months ended September 30, 2011, when compared with $5.80 million for the same 2010 period. The decrease during the 2011 period mainly resulted from a decrease in the yield earned on the loan portfolio of 20 basis points, to 4.79% from 4.99%, coupled with a decrease of $26.1 million, or 5.6% in the average balance of loans when compared to the same period in 2010. Interest income on mortgage-backed securities decreased $475,000, or 11.7% to $3.57 million during the three months ended September 30, 2011, when compared with $4.05 million for the same 2010 period. The decrease during the 2011 period resulted from a decrease of $8.4 million, or 2.5% in the average balance of mortgage-backed securities outstanding, coupled with a decrease of 45 basis points in the yield earned on mortgage-backed securities to 4.24% from 4.69%. Interest earned on investment securities increased by $49,000, or 3.5% to $1.45 million during the three months ended September 30, 2011, when compared to $1.40 million for the same 2010 period, due to an increase in the average balance of $35.3 million, or 16.4%, partially offset by a 29 basis point decrease in yield to 2.31% from 2.60%. The balance of investment securities increased as repayments from loans and mortgage-backed securities and an increase in funds from deposits were invested primarily into these type assets. Interest earned on other interest-earning assets decreased by $18,000, or 20.7% to $69,000 during the three months ended September 30, 2011, when compared to $87,000 during the same 2010 period primarily due to a decrease of 42 basis points in yield to 0.78% from 1.20%, partially offset by an increase of $7.1 million, or 24.4%, in the average balance. Other interest-earning assets increased due to the funds received from investment securities called during the end of the quarter not yet being redeployed into higher yielding assets.

Interest expense on deposits decreased $634,000, or 16.3% to $3.26 million during the three months ended September 30, 2011, when compared to $3.89 million during the same 2010 period. Such decrease was primarily attributable to a decrease of 36 basis points in the cost of interest-bearing deposits to 1.57% from 1.93%, partially offset by an increase of $24.3 million, or 3.0% in the average balance of interest-bearing deposits. The decrease in the average cost of deposits reflected lower market interest rates. Interest expense on borrowed money decreased approximately $289,000, or 24.4% to $895,000 during the three months ended September 30, 2011 when compared with $1.18 million during the same 2010 period. The decrease was primarily attributable to a decrease of $28.1 million, or 23.2% in the average balance of borrowings, coupled with a decrease of 6 basis points in the cost of borrowings to 3.86% from 3.92%. Net interest income decreased $69,000, or 1.1% during the three months ended September 30, 2011, to $6.19 million when compared to $6.26 million for the same 2010 period. The average balance of investment securities increased primarily due to redeployment of funds resulting from growth in deposits into these types of assets. Other interest-earning assets increased as the balance of interest-earning deposits increased as some funds received from investment securities called during the quarter had not yet been redeployed into higher yielding assets. Loans decreased as repayment levels were well in excess of origination volume as demand for loan products remains low. Mortgage-backed securities decreased as normal monthly repayments were well in excess of purchases of these types of securities. The $3.8 million decrease in average interest-bearing liabilities was primarily due to a decrease of $28.1 million in borrowings partially offset by an increase of $24.3 million in interest-bearing deposits. The net interest rate spread decreased 2 basis points due to a decrease of 41 basis points in the average yield earned on interest-earning assets partially offset by a 39 basis point decrease in the average cost of interest-bearing liabilities.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010 (Cont’d.)

 

There was no provision for loan losses recorded during the three months ended September 30, 2011 as compared to $160,000 recorded during the same period in 2010. The allowance for loan losses is based on management’s evaluation of the risk inherent in the Bank’s loan portfolio and gives due consideration to the changes in general market conditions and in the nature and volume of the Bank’s loan activity. The Bank intends to continue to evaluate the need for a provision for loan losses based on its periodic review of the loan portfolio and general market conditions. At September 30, 2011 and 2010, the Bank’s non-performing loans, all of which were delinquent ninety days or more, and all of which were in a nonaccrual status, totaled $3.1 million and $2.7 million, respectively, representing 0.69% and 0.58%, respectively, of total gross loans, and 0.27% and 0.24%, respectively, of total assets. At March 31, 2011, nonaccrual loans totaled $3.2 million, or 0.72% and 0.30% of total gross loans and total assets, respectively. During the three months ended September 30, 2011 and 2010, the Bank did not charge off any loans. At September 30, 2011, non-performing loans consisted of fourteen loans secured by one-to four family residential real estate and three loans secured by commercial real estate, one of which is a second mortgage, while at September 30, 2010, non-performing loans consisted of eleven loans secured by one-to-four family residential real estate, one loan secured by commercial real estate and one loan secured by a multi-family dwelling. All non-performing loans included above are secured by properties located in the state of New Jersey. Impaired loans totaled $1.6 million, $1.6 million and $1.9 million at September 30, 2011, March 31, 2011 and September 30, 2010, respectively. There was a $160,000 specific reserve required on one impaired loan as of September 30, 2010. There were no specific reserves required on impaired loans for all other period-ends. The allowance for loan losses amounted to $1.94 million, $1.88 million, and $2.21 million, respectively, at September 30, 2011, March 31, 2011, and September 30, 2010, representing 0.44%, 0.42%, and 0.48% of total gross loans at September 30, 2011, March 31, 2011 and September 30, 2010, respectively.

Non-interest income decreased $355,000, or 57.4%, to $263,000 for the three months ended September 30, 2011 from $618,000 for the three months ended September 30, 2010 as the Bank recorded a net gain on the sale and disposal of premises and equipment of $329,000 in the 2010 period.

Non-interest expense decreased $98,000, or 2.9%, to $3.25 million for the three months ended September 30, 2011 as compared to $3.34 million for the three months ended September 30, 2010. The decrease was primarily the result of a decrease of $105,000 or 47.3%, in federal deposit insurance premiums. The decrease in federal deposit insurance premiums is primarily due to a change in the assessment base for institutions. The Federal Deposit Insurance Corporation adopted a final rule, which became effective on April 1, 2011, which changes the assessment base used to calculate the premium to average consolidated assets minus average tangible equity, rather than the balance of deposits.

Income taxes totaled $1.14 million and $1.19 million during the three months ended September 30, 2011 and 2010, respectively. The decrease of $52,000, or 4.4% during the 2011 period resulted from lower pre-tax income. The overall effective income tax rate was 35.5% in the 2011 period compared with 35.3% for 2010.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Six Months Ended September 30, 2011 and 2010

Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets and interest expense on average interest-bearing liabilities and the resulting average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using the average of month-end balances, and nonaccrual loans are included in average balances; however, accrued interest income has been excluded from these loans. Loan fees (costs) are included in interest income on loans and are insignificant. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax equivalent basis are insignificant.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Six Months Ended September 30, 2011 and 2010 (Cont’d.)

 

     Six Months Ended September 30,  
     2011     2010  
     Average
Balance
    Interest
and
Dividends
     Yield/
Cost
    Average
Balance
     Interest
and
Dividends
     Yield/
Cost
 
     (Dollars in thousands)  

Assets:

               

Interest-earning assets:

               

Loans receivable

   $ 440,288      $ 10,609         4.82   $ 469,307       $ 11,786         5.02

Mortgage-backed securities

     331,178        7,171         4.33     342,431         8,177         4.78

Investment securities

     251,376        3,074         2.45     199,033         2,659         2.67

Other interest-earning assets

     31,257        143         0.91     25,398         169         1.33
  

 

 

   

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     1,054,099        20,997         3.98     1,036,169         22,791         4.40
    

 

 

         

 

 

    

Noninterest-earning assets

     76,161             67,566         
  

 

 

        

 

 

       

Total assets

   $ 1,130,260           $ 1,103,735         
  

 

 

        

 

 

       

Liabilities and stockholders’ equity:

               

Interest-bearing liabilities:

               

Demand accounts

   $ 55,125        104         0.38   $ 53,996         209         0.77

Savings and Club accounts

     120,671        273         0.45     106,849         449         0.84

Certificates of deposit

     655,542        6,182         1.89     626,793         7,056         2.25
  

 

 

   

 

 

      

 

 

    

 

 

    

Total deposits

     831,338        6,559         1.58     787,638         7,714         1.96

Advances from the FHLB

     93,771        1,808         3.86     121,870         2,372         3.89
  

 

 

   

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     925,109        8,367         1.81     909,508         10,086         2.22
    

 

 

         

 

 

    

Noninterest-bearing liabilities:

               

Noninterest-bearing deposits

     7,718             6,333         

Other noninterest-bearing liabilities

     15,869             11,686         
  

 

 

        

 

 

       

Total non interest-bearing liabilities

     23,587             18,019         

Total liabilities

     948,696             927,527         

Stockholders’ equity

     181,564             176,208         
  

 

 

        

 

 

       

Total liabilities and stockholders’ equity

   $ 1,130,260           $ 1,103,735         
  

 

 

        

 

 

       

Net interest income

     $ 12,630            $ 12,705      
    

 

 

         

 

 

    

Interest rate spread

          2.17           2.18

Net interest margin

          2.40           2.45

Average interest-earning assets to average interest-bearing liabilities

     1.14  x           1.14 x         

Net income decreased $493,000, or 11.3% to $3.86 million for the six months ended September 30, 2011 compared with $4.35 million for the same 2010 period. The decrease in net income during the 2011 period resulted primarily from decreases in net interest income of $75,000, or 0.6%, a decrease in the net gain on the sale and disposal of premises and equipment of $338,000, or 102.7%, and an increase in noninterest expense of $421,000 or 6.3%, partially offset by a decrease of $100,000 or 62.5%, in provision for loan losses, and a decrease of $264,000, or 11.0%, in income taxes.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Six Months Ended September 30, 2011 and 2010 (Cont’d.)

 

Interest income on loans decreased by $1.2 million, or 10.0% to $10.61 million during the six months ended September 30, 2011, when compared with $11.79 million for the same 2010 period. The decrease during the 2011 period mainly resulted from a decrease in the yield earned on the loan portfolio of 20 basis points, to 4.82% from 5.02%, coupled with a decrease of $29.0 million, or 6.2% in the average balance of loans when compared to the same period in 2010. Interest income on mortgage-backed securities decreased $1.0 million, or 12.3% to $7.17 million during the six months ended September 30, 2011, when compared with $8.18 million for the same 2010 period. The decrease during the 2011 period resulted from a decrease of $11.3 million, or 3.3% in the average balance of mortgage-backed securities outstanding, coupled with a decrease of 45 basis points in the yield earned on mortgage-backed securities to 4.33% from 4.78%. Interest earned on investment securities increased by $415,000, or 15.6% to $3.07 million during the six months ended September 30, 2011, when compared to $2.66 million during the same 2010 period, due to an increase in the average balance of $52.3 million, or 26.3%, partially offset by a 22 basis point decrease in yield to 2.45% from 2.67%. The balance of investment securities increased as funds generated from the increase in deposits were invested primarily into these type assets. Interest earned on other interest-earning assets decreased by $26,000, or 15.4% to $143,000 during the six months ended September 30, 2011, when compared to $169,000 during the same 2010 period primarily due to a decrease of 42 basis points in yield to 0.91% from 1.33%, partially offset by an increase of $5.9 million, or 23.1%, in the average balance. Other interest-earning assets increased due to the funds received from investment securities called during the quarter not yet being redeployed into higher yielding assets.

Interest expense on deposits decreased $1.15 million, or 15.0% to $6.56 million during the six months ended September 30, 2011, when compared to $7.71 million during the same 2010 period. Such decrease was primarily attributable to a decrease of 38 basis points in the cost of interest-bearing deposits to 1.58% from 1.96%, partially offset by an increase of $43.7 million, or 5.5% in the average balance of interest-bearing deposits. The decrease in the average cost of deposits reflected lower market interest rates. Interest expense on borrowed money decreased approximately $564,000, or 23.8% to $1.81 million during the six months ended September 30, 2011 when compared with $2.37 million during the same 2010 period. The decrease was primarily attributable to a decrease of $28.1 million, or 23.1% in the average balance of borrowings, coupled with a decrease of 3 basis points in the cost of borrowings to 3.86% from 3.89%. Net interest income decreased $75,000, or 0.6% during the six months ended September 30, 2011, to $12.63 million when compared to $12.71 million for the same 2010 period. The average balance of investment securities increased primarily due to redeployment of funds resulting from growth in deposits into these types of assets. Other interest-earning assets increased as the balance of interest-earning deposits increased as some funds received from investment securities called during the quarter had not yet been redeployed into higher yielding assets. Loans decreased as repayment levels were well in excess of origination volume as demand for loan products remains low. Mortgage-backed securities decreased as normal monthly repayments were well in excess of purchases of these types of securities. The $15.6 million increase in average interest-bearing liabilities was primarily due to an increase of $43.7 million in interest-bearing deposits partially offset by a decrease of $28.1 million in borrowings. The net interest rate spread decreased 1 basis point due to a decrease of 42 basis points in the average yield earned on interest-earning assets partially offset by a 41 basis point decrease in the average cost of interest-bearing liabilities.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Comparison of Operating Results for the Six Months Ended September 30, 2011 and 2010 (Cont’d.)

 

The provision for loan losses decreased $100,000, or 62.5% to $60,000 during the six months ended September 30, 2011 as compared to $160,000 recorded during the same period in 2010. The allowance for loan losses is based on management’s evaluation of the risk inherent in the Bank’s loan portfolio and gives due consideration to the changes in general market conditions and in the nature and volume of the Bank’s loan activity. The Bank intends to continue to evaluate the need for a provision for loan losses based on its periodic review of the loan portfolio and general market conditions. See “Comparison of Operating Results for the Three Months Ended September 30, 2011 and 2010” for a discussion of non-performing and impaired loans as of September 30, 2011, March 31, 2011 and September 30, 2010. During the six months ended September 30, 2011 and 2010, the Bank did not charge off any loans.

Non-interest income decreased $361,000, or 40.5%, from $891,000 for the six months ended September 30, 2010 to $530,000 for the six months ended September 30, 2011, primarily because the 2010 period included a net gain of $339,000 on the sale of the Bank’s Botany branch facility.

Non-interest expense increased $421,000, or 6.3%, to $7.11 million for the six months ended September 30, 2011 as compared to $6.69 million for the six months ended September 30, 2010. The increase was primarily the result of increases of $337,000 or 259.2%, in legal expenses, and $229,000, or 26.9%, in other expenses partially offset by a $173,000, or 39.6%, decrease in federal deposit insurance premiums. The increase in legal expenses was primarily due to the expensing of legal fees totaling $302,000 as a result of the withdrawal of the Bank’s second-step conversion application and the postponement of the Company’s related stock offering which was announced in June 2011. The increase in other expenses was due to accounting, consulting, and regulatory application fee costs and other related costs of $225,000 expensed as a result of the withdrawal of the second-step conversion application. The decrease in federal deposit insurance premiums is primarily due to a change in the assessment base for institutions.

Income taxes totaled $2.13 million and $2.39 million during the six months ended September 30, 2011 and 2010, respectively. The decrease of $264,000, or 11.0%, during the 2011 period resulted from lower pre-tax income. The overall effective income tax rate was 35.6% in the 2011 period compared with 35.5% for 2010.

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Liquidity and Capital Resources

The Company maintains levels of liquid assets sufficient to ensure the Bank’s safe and sound operation. The Company adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans, repayment of borrowings, when applicable, and loan funding commitments. The Company also adjusts its liquidity level as appropriate to meet its asset/liability objectives. Liquid assets, which include cash and cash equivalents and securities available for sale, totaled $132.9 million, or 11.8% of total assets at September 30, 2011 as compared to $96.0 million, or 8.6% of total assets at March 31, 2011.

The Company’s liquidity, represented by cash and cash equivalents and securities available for sale, is a product of its operating, investing and financing activities.

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company on a stand-alone basis is responsible for paying any dividends declared to its shareholders. The Company also has repurchased shares of its common stock. The Company’s primary source of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the FRB but with prior notice to the FRB, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years. On a stand-alone basis, at September 30, 2011, the Company had liquid assets of $9.8 million.

Cash was generated by operating activities during the six months ended September 30, 2011. The primary sources of cash were net income, a net increase in deposits, and a net decrease in loans receivable. Excluding dividends waived by the MHC, the Company paid a cash dividend in July 2011 totaling $526,000 and paid a cash dividend totaling $526,000 in May 2011, resulting in $1.1 million in total dividends being paid during the six months ended September 30, 2011.

The Company’s primary investing activities are the origination of loans and the purchases of securities. Net loans amounted to $440.1 million and $441.7 million at September 30, 2011 and March 31, 2011, respectively. Securities, including available for sale and held to maturity issues, totaled $574.7 million and $571.1 million at September 30, 2011 and March 31, 2011, respectively. In addition to funding new loan production through operating activities, such activities were funded by principal repayments, maturities, and calls on existing loans and securities.

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short to intermediate-term investments. If the Bank requires funds beyond its ability to generate them internally, the Bank can borrow overnight funds from the FHLB under an overnight advance program up to the Bank’s maximum borrowing capacity based on the Bank’s ability to collateralize such borrowings. At September 30, 2011, advances from FHLB amounted to $92.0 million at a weighted average rate of 3.81%. Additionally, at September 30, 2011, the Bank has the ability to borrow funds of up to an aggregate of $88.0 million at two financial institutions under established unsecured overnight lines of credit at a daily adjustable rate.

The Bank anticipates that it will have sufficient funds available to meet its current commitments. At September 30, 2011, the Bank had outstanding commitments to originate loans totaling approximately $7.5 million, which included $5.1 million for fixed-rate one-to-four family mortgage loans with interest rates ranging from 3.375% to 5.00%, a $375,000 adjustable rate commercial mortgage loan with an initial interest rate of 5.50%, $1.7 million in adjustable rate one-to-four family mortgage loans with initial rates

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Liquidity and Capital Resources (Cont’d)

 

of 3.75%, a $100,000 home equity line of credit with an adjustable interest rate at the Prime Rate with a floor of 4.50%, and $210,000 in fixed rate second mortgage loans with interest rate ranging from 4.50% to 4.75%.

At September 30, 2011 the Bank also had commitments outstanding to purchase $2.1 million in adjustable interest rate one-to-four mortgage loans with initial interest rates of 3.75%, and $4.2 million in fixed rate one-to-four family mortgage loans with interest rates ranging from 4.125% to 4.50%.

At September 30, 2011, the Bank had outstanding commitments to purchase: (1) a $500,000 participation in a $1.1 million multi-family mortgage loan at a fixed interest rate of 5.875% through year fifteen, with the loan then adjusting one time at year sixteen to an interest rate of 2.00% over the Federal Home Loan Bank of New York’s ten year regular advance rate, with a floor of 7.375%; (2) a $1.0 million participation in a $5.2 million construction loan with an adjustable interest rate at the Prime Rate with a floor of 6.25%; (3) a $1.0 million participation in a $5.2 million multi-family mortgage loan at a fixed interest rate of 6.50% through year fifteen, with the loan then adjusting every five year using the U.S. Treasury Securities rate adjusted to a constant maturity of 5-years, plus a margin of 2.50%, with a floor of 6.25%; (4) a $750,000 participation in a $12.0 million construction loan with an adjustable interest rate at the Prime Rate with a floor of 6.25%; and (5) a $500,000 participation in a $4.9 million multi-family mortgage loan at a fixed interest rate of 6.50% through year fifteen, with the loan then adjusting every five years using the U.S. Treasury Securities rate adjusted to a constant maturity of 5-years, plus a margin of 2.50%, with a floor of 6.25%.

At September 30, 2011, undisbursed funds from customer approved unused lines of credit under a homeowners’ equity lending program amounted to approximately $4.5 million. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand.

Certificates of deposit due within one year at September 30, 2011, totaled $361.3 million, or 55.0% of our certificates of deposit. Management believes that, based upon its experience and the Bank’s deposit flow history, a significant portion of such deposits will remain with the Bank. FHLB advances due within one year at September 30, 2011 totaled $20.8 million.

Under applicable federal regulations, three separate measurements of capital adequacy (the “Capital Rule”) are required. The Capital Rule requires each savings institution to maintain tangible capital of at least 1.5% and core capital equal of at least 4.0% of its adjusted total assets. The Capital Rule further requires each savings institution to maintain total capital of at least 8.0% of its risk-weighted assets.

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Liquidity and Capital Resources (Cont’d)

 

The following table sets forth the Bank’s capital position at September 30 and March 31, 2011, as compared to the minimum regulatory capital requirements:

 

           Regulatory Capital Requirements  
     Actual     Minimum Capital
Adequacy
    For Classification as
Well-Capitalized
 
     Amount      Ratio     Amount      Ratio     Amount      Ratio  
                  (Dollars In Thousands)               

As of September 30, 2011:

               

Total risk-based capital (to risk-weighted assets)

   $ 164,251         41.32   $ 31,797         8.00   $ 39,747         10.00

Tier 1 capital (to risk-weighted assets)

     162,311         40.84        15,899         4.00        23,848         6.00   

Core (tier 1) capital (to adjusted total assets)

     162,311         14.51        44,741         4.00        55,927         5.00   

Tier 1 risk-based capital (to adjusted tangible assets)

     162,311         14.51        16,778         1.50        —           —     

As of March 31, 2011:

               

Total risk-based capital (to risk-weighted assets)

   $ 159,604         41.86   $ 30,503         8.00   $ 38,129         10.00

Tier 1 capital (to risk-weighted assets)

     157,724         41.37        15,252         4.00        22,878         6.00   

Core (tier 1) capital (to adjusted total assets)

     157,724         14.12        44,692         4.00        55,865         5.00   

Tier 1 risk-based capital (to adjusted tangible assets)

     157,724         14.12        16,759         1.50        —           —     

 

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management of Interest Rate Risk. The ability to maximize net interest income is largely dependent upon the achievement of a positive interest rate spread that can be sustained during fluctuations in prevailing interest rates. Interest rate sensitivity is a measure of the difference between amounts of interest-earning assets and interest-bearing liabilities which either reprice or mature within a given period of time. The difference, or the interest rate repricing “gap”, provides an indication of the extent to which an institution’s interest rate spread will be affected by changes in interest rates. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities, and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. Generally, during a period of rising interest rates, a negative gap within shorter maturities would adversely affect net interest income, while a positive gap within shorter maturities would result in an increase in net interest income, and during a period of falling interest rates, a negative gap within shorter maturities would result in an increase in net interest income while a positive gap within shorter maturities would result in a decrease in net interest income.

Because the Bank’s interest-bearing liabilities which mature or reprice within short periods exceed its interest-earning assets with similar characteristics, material and prolonged increases in interest rates generally would adversely affect net interest income, while material and prolonged decreases in interest rates generally would have a positive effect on net interest income.

The Bank manages the interest rate sensitivity of its interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect the earnings of the Bank while decreases in interest rates may beneficially affect earnings. To reduce the potential volatility of earnings, management seeks to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Pursuant to this strategy, adjustable-rate mortgage loans are originated for retention in the loan portfolio. The ability to originate adjustable-rate loans depends to a great extent on market interest rates and borrowers’ preferences. As an alternative to adjustable-rate mortgage loans, the Bank offers fixed-rate mortgage loans with maturities of fifteen years or less. This product enables the Bank to compete in the fixed-rate mortgage market while maintaining a shorter maturity. Fixed-rate mortgage loans typically have an adverse effect on interest rate sensitivity compared to adjustable-rate loans. In recent years investment securities with terms of three years or less have been used to help manage interest rate risk. The Bank does not participate in hedging programs such as interest rate swaps or other activities involving the use of derivative financial instruments.

The Bank’s Risk Management Committee communicates, coordinates and controls all aspects involving asset/liability management. The committee establishes and monitors the volume and mix of assets and funding sources with the objective of managing assets and funding sources.

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Net Portfolio Value. The Bank uses an internal analysis to quantitively model, measure and monitor its exposure to interest rate risk. The quantitative analysis utilized by management measures interest rate risk from both a capital and earnings perspective. The Bank’s internal interest rate risk analysis calculates sensitivity of its net portfolio value (“NPV”) ratio to movements in interest rates and measures the NPV ratio in a “base case” scenario that assumes no change in interest rates as of the measurement date. NPV represents the market value of portfolio equity and is equal to the market value of assets minus the market value of liabilities, with adjustments made for off-balance sheet items. The model measures the change in the NPV ratio throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up 100, 200 and 300 basis points and down 100 basis points. The model generally requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain “down rate” scenarios during periods of lower market interest rates. The Bank’s interest rate risk policy, as approved by the board of directors, establishes acceptable change levels in the NPV ratio throughout the scenarios modeled.

The following table presents the results of the Bank’s internal NPV analysis as of June 30, 2011, the most recent date the Bank’s NPV was calculated. Given the current economic environment, the Bank expects that its NPV values as of September 30, 2011 do not materially differ from the results presented below. This data is for the Bank and its subsidiary only and does not include any assets of the Company.

 

Basis Point (bp)
Change  in Rates (1)
    Net Portfolio Value     Net Portfolio Value as % of
Present Value of  Assets
 
  $ Amount      $ Change     % Change     NPV Ratio     Change  
      (Dollars in Thousands)              
  300  bp    $ 86,019       $ (91,490     (52 )%      8.44     (697 ) bp 
  200        118,523         (58,987     (33     11.14        (428
  100        150,340         (27,170     (15     13.54        (187
  0        177,509         —          —          15.41        —     
  (100)        186,766         9,257        5        15.91        50   

 

(1) The -200 bp and -300 bp scenarios are not shown due to the low prevailing interest rate environment.

The table above illustrates that the Bank’s NPV would be negatively impacted by an increase in interest rates. Because the Bank’s interest-bearing liabilities which mature or reprice within short periods exceed its interest-earning assets with similar characteristics, material and prolonged increases in interest rates generally would adversely affect net interest income, while material and prolonged decreases in interest rates generally would have a positive effect on net interest income.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV model presented assumes that the composition of the Bank’s interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the NPV measurements and net interest income models provide an indication of the Bank’s interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Bank’s net interest income and will differ from actual results.

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

ITEM 4:

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

PART II

ITEM 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against the Company and Bank, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

ITEM 1A: Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2011 as filed with the Securities and Exchange Commission on June 9, 2011, which could materially affect our business, financial condition or future results. As of September 30, 2011, the risk factors of the Company have not changed materially from those disclosed in our Annual Report on Form 10-K. However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

  (a) Unregistered Sale of Equity Securities. There were no sales of unregistered securities during the quarter ended September 30, 2011.

 

  (b) Use of Proceeds. Not applicable.

 

  (c) Repurchase of Our Equity Securities. There were no repurchases of our equity securities during the quarter ended September 30, 2011.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

None.

 

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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

PART II

ITEM 6. Exhibits

The following Exhibits are filed as part of this report.

 

3.1    Charter of Clifton Savings Bancorp, Inc. (1)
3.2    By-Laws of Clifton Savings Bancorp, Inc. (2)
4.1    Specimen Stock Certificate of Clifton Savings Bancorp, Inc. (1)
31.1    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith).
31.2    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002 (filed herewith).
32.0    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.0*    The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements, tagged as blocks of text.

 

* Furnished, not filed.
(1) Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2004, filed with the Securities and Exchange Commission on June 29, 2004 (File No. 000-50358).
(2) Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 26, 2007.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

      CLIFTON SAVINGS BANCORP, INC.
Date:  

November 8, 2011

    By:  

/s/ John A. Celentano, Jr.

        John A. Celentano, Jr.
        Chairman of the Board and Chief Executive
        Officer
        (Principal Executive Officer)
Date:  

November 8, 2011

    By:  

/s/ Christine R. Piano

        Christine R. Piano
        Chief Financial Officer and Treasurer
        (Principal Financial and Chief Accounting
        Officer)

 

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