-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A2GR2U/H5GCVUW9O7oAK1y91MKPjuWCMI/gVW41buozIazIBzipTbO9SsHBNVfnm WClEd0jadphYEy19iufObA== 0000909654-08-001073.txt : 20080613 0000909654-08-001073.hdr.sgml : 20080613 20080613152046 ACCESSION NUMBER: 0000909654-08-001073 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080613 DATE AS OF CHANGE: 20080613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLIFTON SAVINGS BANCORP INC CENTRAL INDEX KEY: 0001240581 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341983738 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-50358 FILM NUMBER: 08898195 MAIL ADDRESS: STREET 1: C/O CLIFTON SAVINGS BANCORP INC STREET 2: 1433 VAN HOUTEN AVE CITY: CLIFTON STATE: NJ ZIP: 07015 10-K 1 clifton10kjune09-08.txt 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2008 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 (I.R.S. Employer Incorporation or Organization) Identification No.) 1433 VAN HOUTEN AVENUE, CLIFTON, NEW JERSEY 07015 - ------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (973) 473-2200 --------------
Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered --------------------------------------- ----------------------------------------- Common Stock, par value $0.01 per share Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes /_/ No /X/ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes /_/ No /X/ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No /_/ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /_/ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the 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 /_/ Smaller Reporting Company /_/ (Do not check if a 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/ As of September 28, 2007, the aggregate market value of the voting and non-voting common equity held by non-affiliates was $122,351,030, based upon the closing price of $11.83 as quoted on the Nasdaq Global Select Market. The number of shares outstanding of the registrant's common stock as of April 30, 2008 was 27,307,385. Of such shares outstanding, 16,791,758 shares were held by Clifton MHC. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE 2008 ANNUAL REPORT TO STOCKHOLDERS AND OF THE PROXY STATEMENT FOR THE 2008 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE IN PARTS II AND III, RESPECTIVELY, OF THIS FORM 10-K. 2
CLIFTON SAVINGS BANCORP, INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS Page PART I Item 1. Business..........................................................................................1 Item 1A. Risk Factors.....................................................................................15 Item 1B. Unresolved Staff Comments........................................................................16 Item 2. Properties.......................................................................................17 Item 3. Legal Proceedings................................................................................17 Item 4. Submission of Matters to a Vote of Security Holders..............................................17 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.............................................................................18 Item 6. Selected Financial Data..........................................................................18 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.............18 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......................................18 Item 8. Financial Statements and Supplementary Data......................................................18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............18 Item 9A. Controls and Procedures..........................................................................18 Item 9B. Other Information................................................................................19 PART III Item 10. Directors, Executive Officers and Corporate Governance...........................................19 Item 11. Executive Compensation...........................................................................20 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..............................................................................20 Item 13. Certain Relationships and Related Transactions, and Director Independence........................21 Item 14. Principal Accountant Fees and Services...........................................................21 PART IV Item 15. Exhibits, Financial Statement Schedules..........................................................21
3 NOTE ON FORWARD-LOOKING STATEMENTS THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. THESE STATEMENTS ARE NOT HISTORICAL FACTS, BUT, RATHER ARE STATEMENTS BASED ON CLIFTON SAVINGS BANCORP, INC.'S CURRENT EXPECTATIONS REGARDING ITS BUSINESS STRATEGIES, INTENDED RESULTS AND FUTURE PERFORMANCE. FORWARD-LOOKING STATEMENTS ARE PRECEDED BY TERMS SUCH AS "EXPECTS," "BELIEVES," "ANTICIPATES," "INTENDS" AND SIMILAR EXPRESSIONS. MANAGEMENT'S ABILITY TO PREDICT RESULTS OR THE EFFECT OF FUTURE PLANS OR STRATEGIES IS INHERENTLY UNCERTAIN. FACTORS WHICH COULD AFFECT ACTUAL RESULTS INCLUDE INTEREST RATE TRENDS, THE GENERAL ECONOMIC CLIMATE IN THE MARKET AREA IN WHICH CLIFTON SAVINGS BANCORP OPERATES, AS WELL AS NATIONWIDE, CLIFTON SAVINGS BANCORP'S ABILITY TO CONTROL COSTS AND EXPENSES, COMPETITIVE PRODUCTS AND PRICING, LOAN DELINQUENCY RATES AND CHANGES IN FEDERAL AND STATE LEGISLATION AND REGULATION. THESE FACTORS SHOULD BE CONSIDERED IN EVALUATING THE FORWARD-LOOKING STATEMENTS AND UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH STATEMENTS. CLIFTON SAVINGS BANCORP ASSUMES NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS. PART I ITEM 1. BUSINESS -------- GENERAL Clifton Savings Bancorp, Inc. was organized as a federal corporation at the direction of Clifton Savings Bank (formerly known as Clifton Savings Bank, S.L.A. and referred to herein as "Clifton Savings") in connection with the mutual holding company reorganization of Clifton Savings. The reorganization was completed on March 3, 2004. In the reorganization, Clifton Savings Bancorp sold 45% of its outstanding shares of common stock to the public and issued 55% of its outstanding shares of common stock to Clifton MHC, the mutual holding company parent of Clifton Savings. So long as Clifton MHC exists, it will own at least a majority of Clifton Savings Bancorp's common stock. Clifton Savings Bancorp's business activity is the ownership of the outstanding capital stock of Clifton Savings and management of the investment of offering proceeds retained from the reorganization. Clifton Savings Bancorp neither owns nor leases any property but instead uses the premises, equipment and other property of Clifton Savings with the payment of appropriate rental fees, as required by applicable law and regulations. In the future, Clifton Savings Bancorp may acquire or organize other operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so. Clifton Savings Bancorp has no significant assets, other than all of the outstanding shares of Clifton Savings, and no significant liabilities. Accordingly, the information set forth in this report, including the consolidated financial statements and related financial data, relates primarily to Clifton Savings. Clifton Savings has served its customers in New Jersey since 1928. On September 12, 2007, Clifton Savings converted from a New Jersey chartered savings and loan association to a federally chartered savings bank. In connection with the charter conversion, Clifton Savings changed its name to "Clifton Savings Bank." We operate as a community-oriented financial institution offering traditional financial services to consumers and businesses in our market area. We attract deposits from the general public and use those funds to originate one- to four-family, multi-family and commercial real estate, and consumer loans, which we hold for investment. SUBSIDIARY ACTIVITIES Clifton Savings Bancorp's sole subsidiary is Clifton Savings. Clifton Savings has one wholly owned subsidiary, Botany Inc., a New Jersey corporation that was formed in December 2004. Botany Inc. is treated under New Jersey tax law as a New Jersey investment company. At March 31, 2008, Botany Inc. held assets totaling $179.8 million. AVAILABLE INFORMATION Clifton Savings Bancorp's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the 1 4 Securities Exchange Act of 1934, as amended, are made available free of charge on our website, www.cliftonsavings.com, as soon as reasonably practicable after ---------------------- such reports are electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our website shall not be considered as incorporated by reference into this Form 10-K. MARKET AREA We are headquartered in Clifton, New Jersey, which is located in northeast New Jersey and situated approximately 20 miles west of New York City. In addition to our main office located in Passaic County, we operate nine branch offices in Bergen and Passaic Counties, which, along with Essex, Morris, Hudson and Union Counties, comprise our primary market area. The economy in our market area is primarily oriented to the service, manufacturing, medical and retail industries. The area is also home to commuters working in the greater New York City metropolitan area. COMPETITION We face significant competition for the attraction of deposits and origination of loans. DEPOSITS. There are more competitors for deposits than ever before. We no longer compete exclusively with local area commercial banks and savings institutions. Today we also face competition from the stock market and in particular money market funds and other corporate and government securities which tend to attract investors' funds away from deposit accounts when the public perceives that the market is strong. In addition, locally we face direct competition for funds from foreign, national and state commercial banks and savings institutions, as well as credit unions, who are exempt from paying federal and state income taxes. We also compete with large money center and regional banks with out-of-state headquarters that now operate branch offices in New Jersey. These larger regional banks often have significantly greater resources, more sophisticated marketing tools and more technologically advanced services relating to various deposit products. At June 30, 2007, which is the most recent date for which data is available from the Federal Deposit Insurance Corporation, we held approximately 1.43% of the deposits in our market area, which was the 19th largest market share out of the 57 institutions with offices in our market area. LOANS. Local financial institutions, which historically originated most mortgage loans, now face significant competition from other financial service providers. National real estate brokers now are typically affiliated with a mortgage broker who is often located in the real estate broker's office. Other competitors include credit unions and mortgage brokers who keep overhead costs down, and therefore the mortgage rates they offer down, by selling the loans and not holding or servicing them. INCREASING COMPETITION. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing immediate access to services and rates over the Internet, as opposed to relying on newspaper, radio and billboard advertising, and made it possible for non-depository institutions to offer products and services that traditionally have been provided by banks. Changes in federal law permit affiliation among banks, securities firms and insurance companies, which promotes a competitive environment in the financial services industry. Competition for deposits and the origination of loans have been intense and could limit our growth in the future. LENDING ACTIVITIES GENERAL. Our loan portfolio consists primarily of one- to four-family mortgage loans. To a much lesser extent, our loan portfolio includes multi-family and commercial real estate loans, construction and consumer loans. Clifton Savings historically and currently only originates loans for investment purposes. At March 31, 2008, Clifton Savings had no loans that were held for sale. 2 5 ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. Our primary lending activity is the origination of mortgage loans to enable borrowers to purchase or refinance existing homes or to construct new residential dwellings. We offer fixed-rate and adjustable-rate mortgage loans with terms up to 30 years. Borrower demand for adjustable-rate loans versus fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, the difference between the interest rates and loan fees offered for fixed-rate mortgage loans and the initial period interest rates and loan fees for adjustable-rate loans. The relative amount of fixed-rate mortgage loans and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment and the effect each has on our interest rate risk. The loan fees charged, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions. We offer fixed rate loans with terms of either 15, 20 or 30 years. Our adjustable-rate mortgage loans are based on a 30 year amortization schedule and interest rates and payments on our adjustable-rate mortgage loans adjust annually after a one, five, seven or ten year initial fixed period. In addition, we offer adjustable-rate mortgage loans that adjust every three years after a three year initial fixed period. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate typically equal to 2.75% above either the one- or three-year constant maturity Treasury index. The maximum amount by which the interest rate may be increased or decreased is generally 2% per adjustment period and the lifetime interest rate cap is generally 6% over the initial interest rate of the loan. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, the increased mortgage payments required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans help make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits. While one- to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans. We generally do not make conventional loans with loan-to-value ratios exceeding 95% and generally make loans with a loan-to-value ratio in excess of 80% only when secured by first liens on owner-occupied one- to four-family residences. Loans with loan-to-value ratios in excess of 80% generally require private mortgage insurance or additional collateral. We require all properties securing mortgage loans to be appraised by a board-approved appraiser. We require title insurance on all first mortgage loans. Borrowers must obtain hazard insurance (and flood insurance for loans on property located in a flood zone) prior to closing the loan. In an effort to provide financing for low and moderate income first-time buyers, we offer a first-time home buyers program. We offer residential mortgage loans through this program to qualified individuals and originate the loans using modified underwriting guidelines. All of these loans have private mortgage insurance on the portion of the principal amount that exceeds 80% of the appraised value of the property. MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. We offer fixed and adjustable-rate mortgage loans secured by multi-family and commercial real estate. Our multi-family and commercial real estate loans are generally secured by mixed-use properties with residential units as well as retail space. We intend to continue to grow this segment of our loan portfolio. We originate fixed rate multi-family and commercial real estate loans for terms up to 15 years, and adjustable-rate multi-family and commercial real estate loans for terms up to 25 years. Interest rates and payments on our adjustable-rate mortgage loans adjust every five years after a five year initial fixed period, or every year after a ten year initial fixed period. Interest rates and payment on our adjustable rate loans generally are adjusted to a rate typically equal to 3.00% above the five-year, or one-year, constant maturity treasury index. There is a 2.50% 3 6 adjustment period rate cap. There are no lifetime interest rate caps. Loan amounts generally do not exceed 75% of the appraised value. Loans secured by multi-family and commercial real estate generally involve a greater degree of risk than one- to four-family residential mortgage loans. Of primary concern in multi-family and commercial real estate lending is the borrower's creditworthiness and the feasibility and cash flow potential of the project. Payments on loans secured by income properties are often dependent on successful operation or management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. In order to monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements and rent rolls on multi-family and commercial real estate loans. We also perform annual reviews and prepare write-ups on all loans where the loan is secured by commercial or multi-family real estate. At March 31, 2008, we had four loans with principal balances in excess of $500,000. These loans included one loan secured by a mixed-use building that includes retail stores and two apartments totaling $517,000, or 3.2% of multi-family and commercial real estate loans and one loan secured by a mixed-use building that includes a retail space and three office units totaling $716,000, or 4.5% of multi-family and commercial real estate loans. In addition, we had two loans secured by multi-family properties totaling $3.1 million, or 19.6% of multi-family and commercial real estate loans. At March 31, 2008, all of these loans were performing in accordance with their terms. RESIDENTIAL CONSTRUCTION LOANS. To a much lesser extent, we originate loans to finance the construction of residential dwellings. Construction/permanent loans generally provide for interest-only payments at fixed-rates of interest and have construction terms of six to twelve months. At the end of the construction period, the loan generally converts into a permanent loan. Construction loans generally provide for interest-only payments at variable rates of interest and have terms of twelve months. At the end of the construction period, the loan is generally due and payable in full. Construction loans generally may be considered for loan-to-value ratios of up to 70%. Loan proceeds are disbursed in increments as construction progresses and as inspections warrant. We generally use independent fee appraisers for construction disbursement purposes. Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. As a result of the foregoing, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest. If we are forced to foreclose on a project prior to or at completion due to a default, there can be no assurance that we will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs. CONSUMER LOANS. We offer a variety of consumer loans, including second mortgage loans, loans secured by passbook or certificate accounts, and home equity lines of credit. The procedures for underwriting consumer loans include an assessment of the applicant's payment history on other debts and ability to meet existing obligations and payments on the proposed loans. Although the applicant's creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral to the proposed loan amount. Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans that are unsecured or secured by assets that depreciate rapidly. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to 4 7 be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. LOAN ORIGINATIONS AND PURCHASES. Loan originations come from a number of sources. The customary sources of loan originations include internet mortgage loan marketers, local mortgage brokers, advertising, referrals from customers, and personal contacts by our staff. We generally retain for our portfolio all of the loans that we originate. We occasionally purchase participation interests in real estate loans in our market area. We occasionally purchase real estate loans to supplement our own originations on properties located primarily within the state of New Jersey and to a lesser extent loans on properties located within fifteen states on the Eastern Seaboard. LOAN APPROVAL PROCEDURES AND AUTHORITY. Our policies and loan approval limits are established and approved by the Board of Directors. All residential mortgage loans and all consumer loans require the approval of senior management and are ratified by the Loan Committee of Board of Directors. All other loans require the approval of the Loan Committee of the Board of Directors. The Loan Committee usually meets weekly to review mortgage loans. LOANS TO ONE BORROWER. The maximum amount that we may lend to one borrower and the borrower's related entities is limited by regulation. At March 31, 2008, our regulatory limit on loans to one borrower was $22.1 million. At that date, our largest lending relationship was $2.6 million and included one loan, which was performing according to the original repayment terms at March 31, 2008. DELINQUENCIES. When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. The following describes our general collection procedures. We mail a late charge notice when the loan becomes 15 days past due. We make initial contact with the borrower when the loan becomes 30 days past due. If payment is not then received by the 45th day of delinquency, additional letters and phone calls generally are made. When the loan becomes 90 days past due, we send a letter notifying the borrower that we will commence foreclosure proceedings if the loan is not brought current within 30 days. When the loan becomes 120 days past due, we will commence foreclosure proceedings against any real property that secures the loan or attempt to repossess any personal property that secures a consumer loan. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. We may consider loan workout arrangements with certain borrowers under certain circumstances. INVESTMENT ACTIVITIES We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various federal agencies and of state and municipal governments, mortgage-backed securities, deposits at the Federal Home Loan Bank of New York and certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in corporate securities. We also are required to maintain an investment in Federal Home Loan Bank of New York stock. While we maintain the authority under applicable law and our investment policies to invest in derivative securities, we had no such investments at March 31, 2008. At March 31, 2008, our investment portfolio consisted of Federal agency debt securities with maturities of 4 years or less and mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae with stated final maturities of 30 years or less. During the year, we primarily purchased longer term mortgage-backed securities in an effort to increase yield and provide an additional source of liquidity. Changes in general interest rates and market conditions may alter the prepayment rates of these type of securities, which might cause actual maturities to differ from contractual maturities. Our investment objectives are to provide and maintain liquidity, to maintain a balance of high quality, diversified investments to minimize risk, to provide collateral for pledging requirements, to establish an acceptable level of interest rate risk, to provide an alternate source of low-risk investments when demand for loans is weak, and to generate a favorable return. Clifton Savings' Board of Directors has the overall responsibility for Clifton 5 8 Savings' investment portfolio, including approval of Clifton Savings' investment policy and appointment of Clifton Savings' Investment Committee. The Investment Committee is responsible for approval of investment strategies and monitoring of the investment performance of Clifton Savings. Clifton Savings' President is the designated investment officer and, in conjunction with the Chief Financial Officer, is responsible for the daily investment activities and is authorized to make investment decisions consistent with Clifton Savings' investment policy. The Investment Committee meets regularly with the President and Chief Financial Officer in order to review and determine investment strategies and transactions. DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS GENERAL. Deposits and loan repayments are the major sources of our funds for lending and other investment purposes. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions. DEPOSIT ACCOUNTS. Substantially all of our depositors are residents of the State of New Jersey. Deposits are attracted from within our primary market area through the offering of a broad selection of liquid and term deposit instruments. These instruments consist of free checking accounts, business checking, NOW accounts which includes high yield (Crystal) checking, money market accounts, passbook and statement savings accounts, club and certificates of deposit. We do not utilize brokered funds. Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, profitability to us, matching deposit and loan products and customer preferences and concerns. We review our deposit flows, mix and pricing weekly. Our current strategy is to attract and retain deposits by offering competitive rates, and occasionally offering a premium rate on selected account types depending on our cash flow needs. We have also altered our marketing strategy to link selected premium rate certificates to the establishment of a transaction account in keeping with our goal of shifting our deposit mix toward a larger transaction type base. BORROWINGS. Historically, we have not relied upon advances from the Federal Home Loan Bank of New York to supplement our supply of lendable funds or to meet deposit withdrawal requirements; however, as part of our leveraging strategy implemented during the year ended March 31, 2005, we began to borrow from the Federal Home Loan Bank. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank of New York and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution's net worth or on the Federal Home Loan Bank's assessment of the institution's creditworthiness. Under its current credit policies, the Federal Home Loan Bank generally limits advances to 25% of a member's assets, and short-term borrowings of less than one year may not exceed 10% of the institution's assets. The Federal Home Loan Bank determines specific lines of credit for each member institution. PERSONNEL As of March 31, 2008, we had 80 full-time employees and 15 part-time employees, none of whom is represented by a collective bargaining unit. We believe our relationship with our employees is good. 6 9 REGULATION AND SUPERVISION GENERAL As a federal mutual holding company, Clifton MHC is required by federal law to report to, and otherwise comply with the rules and regulations of, the Office of Thrift Supervision. Clifton Savings Bancorp, as a federally chartered corporation, is also subject to reporting to and regulation by the Office of Thrift Supervision. Clifton Savings, as an insured federal savings association, is subject to extensive regulation, examination and supervision by the Office of Thrift Supervision, as its primary federal regulator, and the Federal Deposit Insurance Corporation, as the deposit insurer. Clifton Savings is a member of the Federal Home Loan Bank System and, with respect to deposit insurance, of the Deposit Insurance Fund managed by the Federal Deposit Insurance Corporation. Clifton Savings must file reports with the Office of Thrift Supervision and the Federal Deposit Insurance Corporation concerning its activities and financial condition in addition to obtaining regulatory approvals prior to entering into certain transactions such as mergers with, or acquisitions of, other savings associations. The Office of Thrift Supervision and/or the Federal Deposit Insurance Corporation conduct periodic examinations to test Clifton Savings' safety and soundness and compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Office of Thrift Supervision, the Federal Deposit Insurance Corporation or Congress, could have a material adverse impact on Clifton MHC, Clifton Savings Bancorp, Clifton Savings and their operations. Certain regulatory requirements applicable to Clifton Savings, Clifton Savings Bancorp and Clifton MHC are referred to below or elsewhere herein. The description of statutory provisions and regulations applicable to savings associations and their holding companies set forth below and elsewhere in this document does not purport to be a complete description of such statutes and regulations and their effects on Clifton Savings, Clifton Savings Bancorp and Clifton MHC and is qualified in its entirety by reference to the actual statutes and regulations. HOLDING COMPANY REGULATION GENERAL. Clifton Savings Bancorp is a savings and loan holding company within the meaning of federal law. As such, Clifton Savings Bancorp is registered with the Office of Thrift Supervision and subject to Office of Thrift Supervision regulations, examinations, supervision and reporting requirements. In addition, the Office of Thrift Supervision has enforcement authority over Clifton Savings Bancorp and its non-savings association subsidiaries. Among other things, this authority permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association. ACTIVITIES RESTRICTIONS APPLICABLE TO MUTUAL HOLDING COMPANIES. Pursuant to federal law and Office of Thrift Supervision regulations, a mutual holding company, such as Clifton MHC, may engage in the following activities: (i) investing in the stock of a savings association; (ii) acquiring a mutual association through the merger of such association into a savings association subsidiary of such holding company or an interim savings association subsidiary of such holding company; (iii) merging with or acquiring another holding company, one of whose subsidiaries is a savings association; (iv) investing in a corporation, the capital stock of which is available for purchase by a savings association under federal law or under the law of any state where the subsidiary savings association or associations share their home offices; (v) furnishing or performing management services for a savings association subsidiary of such company; (vi) holding, managing or liquidating assets owned or acquired from a savings subsidiary of such company; (vii) holding or managing properties used or occupied by a savings association subsidiary of such company properties used or occupied by a savings association subsidiary of such company; (viii) acting as trustee under deeds of trust; (ix) any other activity (A) that the Federal Reserve Board, by regulation, has determined to be permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act, 7 10 unless the Office of Thrift Supervision, by regulation, prohibits or limits any such activity for savings and loan holding companies; or (B) in which multiple savings and loan holding companies were authorized (by regulation) to directly engage on March 5, 1987; and (x) purchasing, holding, or disposing of stock acquired in connection with a qualified stock issuance if the purchase of such stock by such savings and loan holding company is approved by the Office of Thrift Supervision. The Gramm-Leach Bliley Act of 1999 was designed to modernize the regulation of the financial services industry by expanding the ability of bank holding companies to affiliate with other types of financial services companies such as insurance companies and investment banking companies. The legislation also expanded the activities permitted for mutual savings and loan holding companies to also include any activity permitted a "financial holding company" under the legislation, including a broad array of insurance and securities activities. Federal law prohibits a savings and loan holding company, including a federal mutual holding company, from, directly or indirectly or through one or more subsidiaries, acquiring more than 5% of the voting stock of another savings association, or savings and loan holding company thereof, without prior written approval of the Office of Thrift Supervision from acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary holding company or savings association. A savings and loan holding company is also prohibited from acquiring more than 5% of a company engaged in activities other than those authorized by federal law or acquiring or retaining control of a depository institution that is not insured by the Federal Deposit Insurance Corporation. In evaluating applications by holding companies to acquire savings associations, the Office of Thrift Supervision must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community and competitive factors. The Office of Thrift Supervision is prohibited from approving any acquisition that would result in a multiple savings and loan holding company controlling savings associations in more than one state, except: (i) the approval of interstate supervisory acquisitions by savings and loan holding companies; and (ii) the acquisition of a savings association in another state if the laws of the state of the target savings association specifically permit such acquisitions. The states vary in the extent to which they permit interstate savings and loan holding company acquisitions. Although savings and loan holding companies are not currently subject to regulatory capital requirements or specific restrictions on the payment of dividends or other capital distributions, federal regulations do prescribe such restrictions on subsidiary savings associations. Clifton Savings must notify the Office of Thrift Supervision 30 days before declaring any dividend and comply with the additional restrictions described below. In addition, the financial impact of a holding company on its subsidiary institution is a matter that is evaluated by the Office of Thrift Supervision and the agency has authority to order cessation of activities or divestiture of subsidiaries deemed to pose a threat to the safety and soundness of the institution. STOCK HOLDING COMPANY SUBSIDIARY REGULATION. The Office of Thrift Supervision has adopted regulations governing the two-tier mutual holding company form of organization and mid-tier stock holding companies that are controlled by mutual holding companies. Under the rules, the stock holding company subsidiary holds all the shares of the mutual holding company's savings association subsidiary and issues at least a majority of its own shares to the mutual holding company parent. The stock holding company subsidiary is permitted to engage in activities that are permitted for its mutual holding company parent subject to the same terms and conditions. Office of Thrift Supervision regulations specify that the stock holding company subsidiary must be federally chartered for supervisory reasons. WAIVERS OF DIVIDENDS. Office of Thrift Supervision regulations require mutual holding companies to notify the agency if they propose to waive receipt of dividends from their stock holding company subsidiary. The Office of Thrift Supervision reviews dividend waiver notices on a case-by-case basis and, in general, does not object to a waiver if: (i) the waiver would not be detrimental to the safe and sound operation of the savings association; and (ii) the mutual holding company's board of directors determines that their waiver is consistent with such directors' fiduciary duties to the mutual holding company's members. Clifton MHC anticipates that it will continue to waive dividends that Clifton Savings Bancorp pays, if any. 8 11 CONVERSION TO STOCK FORM. Office of Thrift Supervision regulations permit Clifton MHC to convert from the mutual form of organization to the capital stock form of organization. There can be no assurance when, if ever, a conversion transaction will occur and the Board of Directors has no present intention or plan to undertake a conversion transaction. In a conversion transaction, a new holding company would be formed as the successor to Clifton MHC and Clifton Savings Bancorp, Clifton MHC's corporate existence would end and certain depositors in Clifton Savings would receive a right to subscribe for shares of a new holding company. In a conversion transaction, each share of common stock of Clifton Savings Bancorp held by stockholders other than Clifton MHC would be automatically converted into a number of shares of common stock of the new holding company based on an exchange ratio designed to ensure that stockholders other than Clifton MHC own the same percentage of common stock in the new holding company as they owned in Clifton Savings Bancorp immediately before conversion. The total number of shares held by stockholders other than Clifton MHC after a conversion transaction would be increased by any purchases by such stockholders in the stock offering conducted as part of the conversion transaction. ACQUISITION OF THE COMPANY. Under the Federal Change in Control Act, a notice must be submitted to the Office of Thrift Supervision if any person (including a company), or group acting in concert, seeks to acquire direct or indirect "control" of a savings and loan holding company or savings association. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the outstanding voting stock of the company or institution, unless the Office of Thrift Supervision has found that the acquisition will not result in a change of control of Clifton MHC. Under the Change in Control Act, the Office of Thrift Supervision generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the anti-trust effects of the acquisition. Any company that acquires control would then be subject to regulation as a savings and loan holding company. FEDERAL SAVINGS ASSOCIATION REGULATION BUSINESS ACTIVITIES. The activities of federal savings banks are governed by federal law and regulations. Those laws and regulations delineate the nature and extent of the business activities in which federal savings bank may engage. In particular, certain lending authority for federal savings banks, e.g., commercial, non-residential real property loans and consumer loans, is limited to a specified percentage of the institution's capital or assets. CAPITAL REQUIREMENTS. The Office of Thrift Supervision capital regulations require savings associations to meet three minimum capital standards: a 1.5% tangible capital to total assets ratio; a 4% Tier 1 capital to total assets leverage ratio (3% for institutions receiving the highest rating on the CAMELS examination rating system); and an 8% risk-based capital ratio. In addition, the prompt corrective action standards discussed below also establish, in effect, a minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving the highest rating on the CAMELS system) and, together with the risk-based capital standard itself, a 4% Tier 1 risk-based capital standard. The Office of Thrift Supervision regulations also require that, in meeting the tangible, leverage and risk-based capital standards, institutions must generally deduct investments in and loans to subsidiaries engaged in activities as principal that are not permissible for a national bank. The risk-based capital standard for savings associations requires the maintenance of Tier 1 (core) and total capital (which is defined as core capital and supplementary capital, less certain specified deductions from total capital such as reciprocal holdings of depository institution capital, instruments and equity investments) to risk-weighted assets of at least 4% and 8%, respectively. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet activities, recourse obligations, residual interests and direct credit substitutes, are multiplied by a risk-weight factor of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation based on the risks believed inherent in the type of asset. Core (Tier 1) capital is generally defined as common stockholders' equity (including retained earnings), certain non-cumulative perpetual preferred stock and related surplus, and minority interests in equity accounts of consolidated subsidiaries less intangibles other than certain mortgage servicing rights and credit card relationships. The components of supplementary capital (Tier 2 capital) currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, the allowance for loan and lease losses, limited to a maximum of 1.25% of risk-weighted assets, and up to 45% of unrealized gains on available-for-sale equity securities with readily 9 12 determinable fair market values. Overall, the amount of supplementary capital included as part of total capital cannot exceed 100% of core capital. The Office of Thrift Supervision also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution's capital level is or may become inadequate in light of the particular circumstances. At March 31, 2008, Clifton Savings met each of its capital requirements. PROMPT CORRECTIVE REGULATORY ACTION. The Office of Thrift Supervision is required to take certain supervisory actions against undercapitalized institutions, the severity of which depends upon the institution's degree of undercapitalization. Generally, a savings association that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a ratio of core capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to be "undercapitalized." A savings association that has a total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is considered to be "significantly undercapitalized" and a savings association that has a tangible capital to assets ratio equal to or less than 2% is deemed to be "critically undercapitalized." Subject to a narrow exception, the Office of Thrift Supervision is required to appoint a receiver or conservator within specified time frames for an institution that is "critically undercapitalized." The regulation also provides that a capital restoration plan must be filed with the Office of Thrift Supervision within 45 days of the date a savings association is deemed to have received notice that it is "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." Compliance with the plan must be guaranteed by any parent holding company in an amount of up to the lesser of 5% of the savings association's total assets when it was deemed to be undercapitalized or the amount necessary to achieve compliance with applicable capital regulations. In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution, including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion. The Office of Thrift Supervision could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors. Significantly and undercapitalized institutions are subject to additional mandatory and discretionary restrictions. INSURANCE OF DEPOSIT ACCOUNTS. Clifton Savings' deposits are insured up to applicable limits by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation. The Deposit Insurance Fund is the successor to the Bank Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006. The Federal Deposit Insurance Corporation recently amended its risk-based assessment system for 2007 to implement authority granted by the Federal Deposit Insurance Reform Act of 2005 ("Reform Act"). Under the revised system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution's assessment rate depends upon the category to which it is assigned. Risk category I, which contains the least risky depository institutions, is expected to include more than 90% of all institutions. Unlike the other categories, Risk Category I contains further risk differentiation based on the Federal Deposit Insurance Corporation's analysis of financial ratios, examination component ratings and other information. Assessment rates are determined by the Federal Deposit Insurance Corporation and currently range from five to seven basis points for the healthiest institutions (Risk Category I) to 43 basis points of assessable deposits for the riskiest (Risk Category IV). The Federal Deposit Insurance Corporation may adjust rates uniformly from one quarter to the next, except that no single adjustment can exceed three basis points. No institution may pay a dividend if in default of its Federal Deposit Insurance Corporation assessment. The Reform Act also provided for a one-time credit for eligible institutions based on their assessment base as of December 31, 1996. Subject to certain limitations, credits could be used beginning in 2007 to offset assessments until exhausted. Clifton Savings' one-time credit approximated $504,000. The Reform Act also provided for the possibility that the Federal Deposit Insurance Corporation may pay dividends to insured institutions once the Deposit Insurance fund reserve ratio equals or exceeds 1.35% of estimated insured deposits. In addition to the assessment for deposit insurance, institutions are required to make payments on bonds issued in the late 1980s by the Financing Corporation to recapitalize a predecessor deposit insurance fund. That payment is established quarterly and during the calendar year ending December 31, 2007 averaged 1.18 basis points of assessable deposits. 10 13 The Reform Act provided the Federal Deposit Insurance Corporation with authority to adjust the Deposit Insurance Fund ratio to insured deposits within a range of 1.15% and 1.50%, in contrast to the prior statutorily fixed ratio of 1.25%. The ratio, which is viewed by the Federal Deposit Insurance Corporation as the level that the fund should achieve, was established by the agency at 1.25% for 2008, which is unchanged from 2007. The Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the operating expenses and results of operations of Clifton Savings. Management cannot predict what insurance assessment rates will be in the future. Insurance of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the Federal Deposit Insurance Corporation or the Office of Thrift Supervision. The management of Clifton Savings does not know of any practice, condition or violation that might lead to termination of deposit insurance. LOANS TO ONE BORROWER. Federal law provides that savings associations are generally subject to the limits on loans to one borrower applicable to national banks. Generally, subject to certain exceptions, a savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by specified readily-marketable collateral. We have made no loan nor have we extended credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. QTL TEST. Federal law requires savings associations to meet a qualified thrift lender test. Under the test, a savings association is required to either qualify as a "domestic building and loan association" under the Internal Revenue Code or maintain at least 65% of its "portfolio assets" (total assets less: (i) specified liquid assets up to 20% of total assets; (ii) intangibles, including goodwill; and (iii) the value of property used to conduct business) in certain "qualified thrift investments" (primarily residential mortgages and related investments, including certain mortgage-backed securities but also defined to include education, credit card and small business loans) in at least 9 months out of each 12 month period. Recent legislation has expanded the extent to which education loans, credit card loans and small business loans may be considered "qualified thrift investments." A savings association that fails the qualified thrift lender test is subject to certain operating restrictions and may be required to convert to a bank charter. As of March 31, 2008, Clifton Savings maintained 96% of its portfolio assets in qualified thrift investments and, therefore, met the qualified thrift lender test. LIMITATION ON CAPITAL DISTRIBUTIONS. Office of Thrift Supervision regulations impose limitations upon all capital distributions by a savings association, including cash dividends, payments to repurchase its shares and payments to shareholders of another institution in a cash-out merger. Under the regulations, an application to and prior approval of the Office of Thrift Supervision is required prior to any capital distribution if the institution does not meet the criteria for "expedited treatment" of applications under Office of Thrift Supervision regulations (i.e., generally, examination and Community Reinvestment Act ratings in the two top categories), the total capital distributions for the calendar year exceed net income for that year plus the amount of retained net income for the preceding two years, the institution would be undercapitalized following the distribution or the distribution would otherwise be contrary to a statute, regulation or agreement with the Office of Thrift Supervision. If an application is not required, the institution must still provide prior notice to the Office of Thrift Supervision of the capital distribution if, like Clifton Savings, it is a subsidiary of a holding company. In the event Clifton Savings' capital fell below its regulatory requirements or the Office of Thrift Supervision notified it that it was in need of increased supervision, Clifton Savings' ability to make capital distributions could be restricted. In addition, the Office of Thrift Supervision could prohibit a proposed capital distribution by any institution, which would otherwise be permitted by the regulation, if the Office of Thrift Supervision determines that such distribution would constitute an unsafe or unsound practice. STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have adopted Interagency Guidelines prescribing Standards for Safety and Soundness in various areas such as internal controls and information systems, internal audit, loan documentation and credit underwriting, interest rate exposure, asset growth and quality, earnings and compensation, fees and benefits. The guidelines set forth the safety and soundness 11 14 standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the Office of Thrift Supervision determines that a savings association fails to meet any standard prescribed by the guidelines, the Office of Thrift Supervision may require the institution to submit an acceptable plan to achieve compliance with the standard. TRANSACTIONS WITH RELATED PARTIES. Clifton Savings' authority to engage in transactions with "affiliates" (e.g., any entity that controls or is under common control with an institution, including the Company and its other subsidiaries) is limited by federal law. The aggregate amount of covered transactions with any individual affiliate is limited to 10% of the capital and surplus of the savings association. The aggregate amount of covered transactions with all affiliates is limited to 20% of the savings association's capital and surplus. Certain transactions with affiliates are required to be secured by collateral in an amount and of a type specified by federal law. The purchase of low quality assets from affiliates is generally prohibited. The transactions with affiliates must be on terms and under circumstances that are at least as favorable to the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings associations are prohibited from lending to any affiliate that is engaged in activities that are not permissible for bank holding companies and no savings association may purchase the securities of any affiliate other than a subsidiary. The Sarbanes-Oxley Act of 2002 generally prohibits loans by Clifton Savings to its executive officers and directors. However, the law contains a specific exception for loans by a depository institution to its executive officers and directors in compliance with federal banking laws. Under such laws, Clifton Savings' authority to extend credit to executive officers, directors and 10% shareholders ("insiders"), as well as entities such persons control, is limited. The laws limit both the individual and aggregate amount of loans that Clifton Savings may make to insiders based, in part, on Clifton Savings' capital level and requires that certain board approval procedures be followed. Such loans are required to be made on terms substantially the same as those offered to unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for loans made pursuant to a benefit or compensation program that is widely available to all employees of the institution and does not give preference to insiders over other employees. Loans to executive officers are subject to additional restrictions based on the type of loan involved. ENFORCEMENT. The Office of Thrift Supervision has primary enforcement responsibility over savings associations and has the authority to bring actions against the institution and all institution-affiliated parties, including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution. Formal enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors to institution of receivership, conservatorship or termination of deposit insurance. Civil penalties cover a wide range of violations and can amount to $25,000 per day, or even $1 million per day in especially egregious cases. The Federal Deposit Insurance Corporation has the authority to recommend to the Director of the Office of Thrift Supervision that enforcement action to be taken with respect to a particular savings association. If action is not taken by the Director, the Federal Deposit Insurance Corporation has authority to take such action under certain circumstances. Federal law also establishes criminal penalties for certain violations. ASSESSMENTS. Savings associations are required to pay assessments to the Office of Thrift Supervision to fund the agency's operations. The general assessments, paid on a semi-annual basis, are computed based upon the savings association's (including consolidated subsidiaries) total assets, condition and complexity of portfolio. The Office of Thrift Supervision assessments paid by Clifton Savings for the fiscal year ended March 31, 2008 totaled $68,000. FEDERAL HOME LOAN BANK SYSTEM Clifton Savings is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a central credit facility primarily for member institutions. Clifton Savings, as a member of the Federal Home Loan Bank of New York, is required to acquire and hold shares of capital stock in that Federal Home Loan Bank. Clifton Savings was in compliance with this requirement with an investment in Federal Home Loan Bank of New York stock of $7.5 million at March 31, 2008. 12 15 The Federal Home Loan Banks are required to provide funds for the resolution of insolvent thrifts in the late 1980s and to contribute funds for affordable housing programs. These requirements could reduce the amount of dividends that the Federal Home Loan Banks pay to their members and could also result in the Federal Home Loan Banks imposing a higher rate of interest on advances to their members. If dividends were reduced, or interest on future Federal Home Loan Bank advances increased, Clifton Savings' net interest income would likely also be reduced. FEDERAL RESERVE SYSTEM The Federal Reserve Board regulations require savings associations to maintain non-interest earning reserves against their transaction accounts (primarily Negotiable Order of Withdrawal (NOW) and regular checking accounts). The regulations generally provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and including $43.9 million; a 10% reserve ratio is applied above $43.9 million. The first $9.3 million of otherwise reservable balances (subject to adjustments by the Federal Reserve Board) are exempted from the reserve requirements. The amounts are adjusted annually. Clifton Savings complies with the foregoing requirements. FEDERAL AND STATE TAXATION FEDERAL INCOME TAXATION GENERAL. We report our income on a calendar year basis using the accrual method of accounting. The federal income tax laws apply to us in the same manner as to other corporations with some exceptions, including particularly our reserve for bad debts discussed below. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to us. Our federal income tax returns have been either audited or closed under the statute of limitations through tax year 2004. For its 2008 fiscal year, Clifton Savings' maximum federal income tax rate was 34%. BAD DEBT RESERVES. For fiscal years beginning before June 30, 1996, thrift institutions that qualified under certain definitional tests and other conditions of the Internal Revenue Code were permitted to use certain favorable provisions to calculate their deductions from taxable income for annual additions to their bad debt reserve. A reserve could be established for bad debts on qualifying real property loans, generally secured by interests in real property improved or to be improved, under the percentage of taxable income method or the experience method. The reserve for nonqualifying loans was computed using the experience method. Federal legislation enacted in 1996 repealed the reserve method of accounting for bad debts and the percentage of taxable income method for tax years beginning after 1995 and requires savings institutions to recapture or take into income certain portions of their accumulated bad debt reserves. Approximately $6.4 million of our accumulated bad debt reserves would not be recaptured into taxable income unless Clifton Savings makes a "non-dividend distribution" to Clifton Savings Bancorp as described below. DISTRIBUTIONS. If Clifton Savings makes "non-dividend distributions" to Clifton Savings Bancorp, the distributions will be considered to have been made from Clifton Savings' unrecaptured tax bad debt reserves, including the balance of its reserves as of December 31, 1987, to the extent of the "non-dividend distributions," and then from Clifton Savings' supplemental reserve for losses on loans, to the extent of those reserves, and an amount based on the amount distributed, but not more than the amount of those reserves, will be included in Clifton Savings' taxable income. Non-dividend distributions include distributions in excess of Clifton Savings' current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. Dividends paid out of Clifton Savings' current or accumulated earnings and profits will not be so included in Clifton Savings' taxable income. The amount of additional taxable income triggered by a non-dividend is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution. Therefore, if Clifton Savings makes a non-dividend distribution to Clifton Savings Bancorp, approximately one and one-half times the amount of the distribution not in excess of the amount of the reserves would be includable in income for federal income tax 13 16 purposes, assuming a 34% federal corporate income tax rate. Clifton Savings does not intend to pay dividends that would result in a recapture of any portion of its bad debt reserves. STATE TAXATION NEW JERSEY TAXATION. Clifton Savings, Clifton Savings Bancorp and Clifton MHC are subject to New Jersey's Corporation Business Tax at the rate of 9.0% on their taxable income, before net operating loss deductions and special deductions for federal income tax purposes. For this purpose, "taxable income" generally means federal taxable income subject to certain adjustments (including addition of interest income on state and municipal obligations). Botany Inc. is eligible to be taxed as a New Jersey Investment Company at a rate of 3.6%. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of Clifton Savings Bancorp, Clifton MHC, Clifton Savings, and Botany Inc. are elected annually by their respective Boards of Directors and serve at the Board's discretion. The executive officers of Clifton Savings Bancorp, Clifton MHC, Clifton Savings, and Botany Inc. are:
NAME POSITION - ------------ -------------- John A. Celentano, Jr.................. Chairman of the Board and Chief Executive Officer of Clifton Savings Bancorp and Clifton MHC and Chairman of the Board of Clifton Savings Walter Celuch.......................... President and Corporate Secretary of Clifton Savings Bancorp, President of Clifton MHC, Chief Executive Officer and Secretary of Clifton Savings, and Director and Investment Officer of Botany Inc. Bart D'Ambra........................... Executive Vice President and Chief Operating Officer of Clifton Savings, Corporate Secretary of Clifton MHC and President and Chief Executive Officer of Botany Inc. Stephen A. Hoogerhyde.................. Executive Vice President and Chief Lending Officer of Clifton Savings Christine R. Piano, CPA................ Chief Financial Officer and Treasurer of Clifton Savings Bancorp and Clifton MHC , Executive Vice President and Chief Financial Officer of Clifton Savings and Director, Chief Financial Officer, Treasurer and Secretary of Botany Inc.
Below is information regarding the executive officers of Clifton Savings Bancorp and Clifton Savings who are not also directors. Unless otherwise stated, each executive officer has held his or her current position for at least the last five years. Ages presented are as of March 31, 2008. WALTER CELUCH has been President and Corporate Secretary of Clifton Savings Bancorp since 2004 and has been President and Chief Executive Officer of Clifton Savings since January 1999. Mr. Celuch served as Corporate Secretary of Clifton MHC from 2004 to 2006. Prior to January 1999, Mr. Celuch served as the Senior Vice President and Chief Financial Officer of Clifton Savings. Mr. Celuch has served with Clifton Savings for over 20 years. Mr. Celuch has been Director and Investment Officer of Botany Inc. since inception in December 2004. Age 60. BART D'AMBRA has been Executive Vice President and Chief Operating Officer of Clifton Savings since March 2003 and Corporate Secretary of Clifton MHC since 2006. Mr. D'Ambra served as Senior Vice President of Clifton Savings from April 2002 until March 2003. Prior to April 2002, Mr. D'Ambra served Clifton Savings as a 14 17 Vice President. Mr. D'Ambra has served with Clifton Savings for over 15 years. Mr. D'Ambra has been President and Chief Executive Officer of Botany Inc. since inception in December 2004. Age 59. STEPHEN A. HOOGERHYDE has been Executive Vice President and Chief Lending Officer of Clifton Savings since March 2003 and April 2002, respectively. Mr. Hoogerhyde served as Senior Vice President from April 2002 until March 2003. Prior to April 2002, Mr. Hoogerhyde served Clifton Savings as Vice President and Mortgage Officer. Mr. Hoogerhyde has served with Clifton Savings for over 21 years. Age 53. CHRISTINE R. PIANO, a certified public accountant, has been Chief Financial Officer and Treasurer of Clifton Savings Bancorp and Clifton MHC since 2004 and has been Executive Vice President and Chief Financial Officer of Clifton Savings since April 2003 and March 1999, respectively. Ms. Piano served as Vice President from March 2000 to April 2003. Ms. Piano has served with Clifton Savings for over 9 years. Ms. Piano has been Director, Chief Financial Officer, Treasurer and Secretary of Botany Inc. since inception in December 2004. Age 44. ITEM 1A. RISK FACTORS ------------ AN INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES VARIOUS RISKS. BEFORE DECIDING TO INVEST IN OUR COMMON STOCK, YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW IN CONJUNCTION WITH THE OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-K AND INFORMATION INCORPORATED BY REFERENCE INTO THIS ANNUAL REPORT ON FORM 10-K, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE HARMED BY ANY OF THE FOLLOWING RISKS OR BY OTHER RISKS THAT HAVE NOT BEEN IDENTIFIED OR THAT WE MAY BELIEVE ARE IMMATERIAL OR UNLIKELY. THE VALUE OR MARKET PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. THE RISKS DISCUSSED BELOW ALSO INCLUDE FORWARD-LOOKING STATEMENTS AND OUR ACTUAL RESULTS MAY DIFFER SUBSTANTIALLY FROM THOSE DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. CHANGES IN INTEREST RATES MAY HURT OUR PROFITS AND ASSET VALUE. Short-term market interest rates (which we use as a guide to price our deposits) have until recently risen from historically low levels, while longer-term market interest rates (which we use as a guide to price our longer-term loans) have not. This "flattening" of the market yield curve has had a negative impact on our interest rate spread and net interest margin, which has reduced our profitability. For the years ended March 31, 2008 and 2007, respectively, our interest rate spread was 1.09% compared to 1.23%. If short-term interest rates rise, and if rates on our deposits reprice upwards faster than the rates on our long-term loans and investments, we would experience compression of our interest rate spread and net interest margin, which would have a negative effect on our profitability. Recently, however, the U.S. Federal Reserve decreased its target for the federal funds rate from 5.25% to 2.25%. Decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or securities proceeds into lower-yielding assets, which might also negatively impact our income. STRONG COMPETITION WITHIN OUR MARKET AREA COULD HURT OUR PROFITS AND SLOW GROWTH. Although we consider ourselves competitive in Bergen and Passaic Counties, New Jersey, which we consider our core market area, we face intense competition both in making loans and attracting deposits. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. Some of the institutions with which we compete have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area. 15 18 CLIFTON MHC'S MAJORITY CONTROL OF OUR COMMON STOCK ENABLES IT TO EXERCISE VOTING CONTROL OVER MOST MATTERS PUT TO A VOTE OF STOCKHOLDERS, INCLUDING PREVENTING SALE OR MERGER TRANSACTIONS YOU MAY LIKE OR A SECOND-STEP CONVERSION BY CLIFTON MHC. Clifton MHC owns a majority of our common stock and, through its Board of Directors, is able to exercise voting control over most matters put to a vote of stockholders. The same directors and officers manage Clifton Savings Bancorp, Clifton Savings and Clifton MHC. As a federally chartered mutual holding company, the Board of Directors of Clifton MHC must ensure that the interests of depositors of Clifton Savings are represented and considered in matters put to a vote of stockholders of Clifton Savings Bancorp. Therefore, the votes cast by Clifton MHC may not be in your personal best interests as a stockholder. For example, Clifton MHC may exercise its voting control to defeat a stockholder nominee for election to the board of directors of Clifton Savings Bancorp. In addition, stockholders will not be able to force a merger or second-step conversion transaction without the consent of Clifton MHC. Some stockholders may desire a sale or merger transaction, since stockholders typically receive a premium for their shares, or a second-step conversion transaction, since fully converted institutions tend to trade at higher multiples than mutual holding companies. THE OFFICE OF THRIFT SUPERVISION'S POLICY ON REMUTUALIZATION TRANSACTIONS COULD PROHIBIT THE MERGER OR AN ACQUISITION OF US, WHICH MAY LOWER OUR STOCK PRICE. Current Office of Thrift Supervision regulations permit a mutual holding company to be acquired by a mutual institution in a remutualization transaction. However, the Office of Thrift Supervision has issued a policy statement indicating that it views remutualization transactions as raising significant issues concerning disparate treatment of minority stockholders and mutual members of the target entity and as raising issues concerning the effect on the mutual members of the acquiring entity. Under certain circumstances, the Office of Thrift Supervision intends to give these issues special scrutiny and reject applications for the remutualization of a mutual holding company unless the applicant can clearly demonstrate that the Office of Thrift Supervision's concerns are not warranted in the particular case. Should the Office of Thrift Supervision prohibit or otherwise restrict these transactions in the future, our stock price may be adversely affected. WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND WE MAY BE ADVERSELY AFFECTED BY CHANGES IN LAWS AND REGULATIONS. We are subject to extensive government regulation, supervision and examination. Such regulation, supervision and examination govern the activities in which we may engage, and is intended primarily for the protection of the deposit insurance fund and our depositors. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations. ITEM 1B. UNRESOLVED STAFF COMMENTS ------------------------- None. 16 19 ITEM 2. PROPERTIES ---------- We conduct our business through our main office and branch offices. The following table sets forth certain information relating to these facilities as of March 31, 2008.
NET BOOK VALUE YEAR AS OF SQUARE OWNED/ LOCATION OPENED MARCH 31, 2008 FOOTAGE LEASED ----------- ------------ -------------- -------- -------- (DOLLARS IN THOUSANDS) MAIN OFFICE: 1433 Van Houten Avenue 1981 $2,394 10,460 Owned BRANCHES: CLIFTON: 1055 Clifton Avenue 1956 679 2,484 Owned 1 Village Square West 1928 169 1,550 Owned 319 Lakeview Avenue 1970 450 3,311 Owned 646 Van Houten Avenue 1968 334 1,081 Owned 387 Valley Road 1971 6 995 Leased(1) GARFIELD: 247 Palisade Avenue(2) 2004 1,069 3,130 Owned 369 Lanza Avenue 1977 985 2,174 Owned WALLINGTON: 55 Union Boulevard 2004 1,270 2,806 Owned WAYNE: 1158 Hamburg Turnpike 2003 0 1,617 Leased(3)
- --------------------------- (1) The lease expires in May 2011. (2) This branch replaced a previously leased facility which was opened in 1975. (3) The current lease expires in January 2013 with an option for an additional 5 years. ITEM 3. LEGAL PROCEEDINGS ----------------- Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. 17 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ---------------------------------------------------------------------- ISSUER PURCHASES OF EQUITY SECURITIES ------------------------------------- The information regarding the market for Clifton Savings Bancorp's common equity and related stockholder matters is incorporated herein by reference to the section captioned "Investor and Corporate Information" in Clifton Savings Bancorp's 2008 Annual Report to Stockholders. Clifton Savings Bancorp's ability to pay dividends is dependent on dividends received from Clifton Savings, which is subject to a variety of limitations under the regulations of the Office of Thrift Supervision on the payment of dividends. For a discussion of restrictions on the payment of cash dividends by Clifton Savings, see Part I, Item 1, "BUSINESS--REGULATION AND SUPERVISION--FEDERAL SAVINGS ASSOCIATION REGULATION--LIMITATION ON CAPITAL DISTRIBUTIONS" in this Annual Report on Form 10-K. The Company did not repurchase any of its common stock during the quarter ended March 31, 2008. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The information required by this item is incorporated herein by reference to the section captioned "Selected Consolidated Financial and Other Data" in the 2008 Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATION ------------ The information required by this item is incorporated herein by reference to the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2008 Annual Report to Stockholders. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- The information required by this item is incorporated herein by reference to the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2008 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA ------------------------------------------ The information regarding financial statements is incorporated herein by reference to the section captioned "Consolidated Financial Statements" in the 2008 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. ITEM 9A. CONTROLS AND PROCEDURES ----------------------- (a) 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 for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the "SEC") (1) is 18 21 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. (b) Internal Controls Over Financial Reporting Management's annual report on internal control over financial reporting and the attestation report of the registered public accounting firm are incorporated herein by reference to the sections captioned "Management's Report on Internal Control Over Financial Reporting" and "Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting," respectively, in the 2008 Annual Report to Stockholders. (c) Changes to Internal Control Over Financial Reporting There were no changes in the Company's internal control over financial reporting during the three months ended March 31, 2008 that have materially affected, or are reasonable likely to materially affect, the Company's internal control over financial reporting. ITEM 9B. OTHER INFORMATION ----------------- None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE OF THE ------------------------------------------------------------- REGISTRANT ---------- DIRECTORS The information relating to the directors and officers of Clifton Savings Bancorp is incorporated herein by reference to the section captioned "ITEMS TO BE VOTED ON BY STOCKHOLDERS -- ITEM 1 -- ELECTION OF DIRECTORS" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. EXECUTIVE OFFICERS The information relating to the executive officers of Clifton Savings Bancorp in Part I, Item 1, "BUSINESS -- EXECUTIVE OFFICERS OF THE REGISTRANT" in this Annual Report on Form 10-K is incorporated herein by reference. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The information regarding compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section captioned "OTHER INFORMATION RELATING TO DIRECTORS AND EXECUTIVE OFFICERS -- SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. DISCLOSURE OF CODE OF ETHICS Clifton Savings Bancorp has adopted a Code of Ethics and Business Conduct. See Exhibit 14.1 to this Annual Report on Form 10-K. CORPORATE GOVERNANCE For information regarding the Audit Committee and its composition and the audit committee financial expert, the section captioned "CORPORATE GOVERNANCE--COMMITTEES OF THE BOARD OF DIRECTORS--AUDIT/COMPLIANCE 19 22 COMMITTEE" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information regarding executive and director compensation is incorporated herein by reference to the sections captioned "DIRECTOR COMPENSATION," "EXECUTIVE COMPENSATION," "COMPENSATION DISCUSSION AND ANALYSIS" AND "COMPENSATION COMMITTEE REPORT," respectively, in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND ------------------------------------------------------------------ RELATED STOCKHOLDER MATTERS --------------------------- (a) Security Ownership of Certain Beneficial Owners Information required by this item is incorporated herein by reference to the section captioned "STOCK OWNERSHIP" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. (b) Security Ownership of Management Information required by this item is incorporated herein by reference to the section captioned "STOCK OWNERSHIP" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. (c) Changes in Control Management of Clifton Savings Bancorp knows of no arrangements, including any pledge by any person or securities of Clifton Savings Bancorp, the operation of which may at a subsequent date result in a change in control of the registrant. (d) Equity Compensation Plan Information The following table sets forth information as of March 31, 2008 about Company common stock that may be issued under the Clifton Savings Bancorp, Inc. 2005 Equity Incentive Plan. The plan was approved by the Company's stockholders. NUMBER OF SECURITIES REMAINING AVAILABLE FOR FUTURE ISSUANCE NUMBER OF SECURITIES UNDER EQUITY TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS THE EXERCISE OF EXERCISE PRICE OF (EXCLUDING SECURITIES OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN THE FIRST PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN) ------------------------------------ -------------------- --------------------- ---------------------- Equity compensation plans approved by security holders 1,327,940 $10.24 165,661 Equity compensation plans not approved by security holders N/A N/A N/A -------------------- --------------------- ---------------------- Total 1,327,940 $10.24 165,661
20 23 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR ------------------------------------------------------------ INDEPENDENCE ------------ The information relating to certain relationships and related transactions is incorporated herein by reference to the section captioned "OTHER INFORMATION RELATING TO DIRECTOR AND EXECUTIVE OFFICERS -- TRANSACTIONS WITH RELATED PERSONS" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. The information regarding director independence is incorporated herein by reference to the section captioned "CORPORATE GOVERNANCE -- DIRECTOR INDEPENDENCE" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES -------------------------------------- The information relating to the principal accountant fees and expenses is incorporated herein by reference to the section captioned "PROPOSAL 2 -- RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" in Clifton Savings Bancorp's Proxy Statement for the 2008 Annual Meeting of Stockholders. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES --------------------------------------- (a) (1) The following are filed as a part of this report by means of incorporation of Clifton Savings Bancorp's 2008 Annual Report to Stockholders: o Report of Independent Registered Public Accounting Firm o Consolidated Statements of Financial Condition as of March 31, 2008 and 2007 o Consolidated Statements of Income for Each of the Years in the Three-Year Period Ended March 31, 2008 o Consolidated Statements of Changes in Stockholders' Equity for Each of the Years in the Three-Year Period Ended March 31, 2008 o Consolidated Statements of Cash Flows for Each of the Years in the Three-Year Period Ended March 31, 2008 o Notes to Consolidated Financial Statements (2) All schedules are omitted as required information is either not applicable, or is presented in the consolidated financial statements. (3) Exhibits 3.1 Charter of Clifton Savings Bancorp, Inc. (1) 3.2 Bylaws of Clifton Savings Bancorp, Inc. (2) 4.1 Specimen Stock Certificate of Clifton Savings Bancorp, Inc. (1) 10.1 Clifton Savings Bank, S.L.A. Employee Stock Ownership Plan and Trust (1)* 10.2 ESOP Loan Commitment Letter and ESOP Loan Documents (1)* 10.3 Employment Agreement between Clifton Savings Bancorp, Inc. and John A. Celentano, Jr. (1)* 10.4 Employment Agreement between Clifton Savings Bancorp, Inc. and Walter Celuch (1)* 10.5 Employment Agreement between Clifton Savings Bank, S.L.A. and John A. Celentano, Jr. (1)* 10.6 Employment Agreement between Clifton Savings Bank, S.L.A. and Walter Celuch (1)* 10.7 Change in Control Agreement between Clifton Savings Bank, S.L.A. and Bart D'Ambra (1)* 21 24 10.8 Change in Control Agreement between Clifton Savings Bank, S.L.A. and Stephen A. Hoogerhyde (1)* 10.9 Change in Control Agreement between Clifton Savings Bank, S.L.A. and Christine R. Piano (1)* 10.10 Clifton Savings Bank, S.L.A. Directors' Retirement Plan (1)* 10.11 Clifton Savings Bank, S.L.A. 401(k) Savings Plan ((3)) 10.12 Clifton Savings Bank, S.L.A. Supplemental Executive Retirement Plan (1) 10.13 Clifton Savings Bancorp, Inc. 2005 Equity Incentive Plan (4) 13.0 Annual Report to Stockholders 14.1 Code of Ethics and Business Conduct (1) 21.0 List of Subsidiaries 23.0 Consent of Beard Miller Company LLP 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 32.0 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer - ------------------------- * Management contract or compensation plan arrangement. (1) Incorporated by reference to the Company's 2004 Annual Report on Form 10-K filed on June 29, 2004. (2) Incorporated by reference to the Company's Current Report on Form 8-K filed on October 26, 2007. (3) Incorporated by reference to the Registration Statement on Form S-8 (No. 333-113302) filed on March 5, 2004. (4) Incorporated by reference to the Company's Proxy Statement filed on June 10, 2005. 22 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CLIFTON SAVINGS BANCORP, INC. Date: June 11, 2008 By: /s/ John A. Celentano, Jr. ------------------------------- John A. Celentano, Jr. Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name Title Date ---- ----- ---- /s/ John A. Celentano, Jr. Chairman of the Board and June 11, 2008 - --------------------------- Chief Executive Officer John A. Celentano, Jr. (principal executive officer) /s/ Christine R. Piano Chief Financial Officer and June 11, 2008 - --------------------------- Treasurer (principal financial and Christine R. Piano accounting officer) /s/ Thomas A. Miller Director June 11, 2008 - --------------------------- Thomas A. Miller /s/ Cynthia Sisco Parachini Director June 11, 2008 - --------------------------- Cynthia Sisco Parachini /s/ John H. Peto Director June 11, 2008 - --------------------------- John H. Peto /s/ Charles J. Pivirotto Director June 11, 2008 - --------------------------- Charles J. Pivirotto /s/ Joseph C. Smith Director June 11, 2008 - --------------------------- Joseph C. Smith /s/ John Stokes Director June 11, 2008 - --------------------------- John Stokes
EX-13 2 cliftonexb13june09-08.txt 1
Selected Consolidated Financial and Other Data The following table sets forth certain consolidated summary historical financial information concerning the financial position of Clifton Savings Bancorp, Inc. including its subsidiaries, Clifton Savings Bank and Botany Inc., for the dates indicated. The financial data is derived in part from, and should be read in conjunction with, the consolidated financial statements and related notes of Clifton Savings Bancorp, Inc. appearing later in this annual report. At March 31, ------------------------------------------------------------- 2008 2007 2006 2005 2004 --------- --------- --------- --------- --------- (Dollars in thousands) FINANCIAL CONDITION DATA: Total assets............................ $899,056 $805,042 $834,880 $841,877 $742,308 Loans receivable, net................... 420,619 418,616 403,682 354,162 249,459 Cash and cash equivalents............... 52,231 41,105 22,623 31,121 144,657 Securities.............................. 380,878 305,860 387,850 435,854 330,887 Deposits................................ 576,722 567,459 571,962 556,453 537,002 FHLB advances........................... 142,306 45,346 57,874 75,263 - Total equity............................ 172,355 184,598 197,748 203,173 199,907 Year Ended March 31, ------------------------------------------------------------- 2008 2007 2006 2005 2004 --------- --------- --------- --------- --------- (Dollars in thousands, except per share data) OPERATING DATA: Interest income......................... $ 38,570 $ 37,520 $ 35,352 $ 31,369 $ 25,698 Interest expense........................ 24,485 21,600 17,572 12,397 11,716 --------- --------- --------- --------- --------- Net interest income..................... 14,085 15,920 17,780 18,972 13,982 90 90 160 260 (100) --------- --------- --------- --------- --------- Provision for (recovery of) loan losses. Net interest income after provision for (recovery of) loan losses 13,995 15,830 17,620 18,712 14,082 Noninterest income...................... 1,138 373 265 361 291 Noninterest expense..................... 12,125 12,380 12,094 10,279 8,183 --------- --------- --------- --------- --------- Earnings before income taxes............ 3,008 3,823 5,791 8,794 6,190 Total income taxes...................... 636 1,351 2,124 3,514 2,501 --------- --------- --------- --------- --------- Net earnings............................ $ 2,372 $ 2,472 $ 3,667 $ 5,280 $ 3,689 ========= ========= ========= ======== ========= Basic and diluted earnings per share .. $ 0.09 $ 0.09 $ 0.13 $ 0.18 $ 0.13 ========= ========= ========= ======== =========
2
At or For the Year Ended March 31, --------------------------------------------------------------------------- 2008 2007 2006 2005 2004 -------------- --------------- ------------- ------------- -------------- PERFORMANCE RATIOS: Return on average assets................ 0.29% 0.30% 0.43% 0.67% 0.57% Return on average equity................ 1.34% 1.29% 1.83% 2.62% 4.37% Interest rate spread (1)................ 1.09% 1.23% 1.52% 1.96% 2.01% Net interest margin (2)................. 1.82% 2.01% 2.16% 2.48% 2.23% Noninterest expense to average assets... 1.49% 1.51% 1.43% 1.30% 1.25% Efficiency ratio (3).................... 79.65% 75.98% 67.02% 53.35% 57.33% Average interest-earning assets to average interest-bearing liabilities. 1.23x 1.29x 1.30x 1.32x 1.11x Average equity to average assets........ 21.65% 23.49% 23.76% 25.48% 12.94% Earnings per share...................... $0.09 $0.09 $0.13 $0.18 $0.13 Dividends per share..................... $0.20 $0.20 $0.20 $0.14 N/A Dividend payout ratio (4)............... 86.97% 96.48% 67.96% 33.52% N/A CAPITAL RATIOS (5): Tangible capital........................ 16.71% 18.27% 17.28% 17.52% 17.83% Core capital............................ 16.71% 18.27% 17.34% 17.56% 17.90% Risk-based capital...................... 45.02% 46.70% 47.02% 50.83% 57.71% ASSET QUALITY RATIOS: Allowance for loan losses as a percent of total gross loans.................... 0.34% 0.32% 0.31% 0.31% 0.34% Allowance for loan losses as a percent of nonperforming loans.................. 543.40% 523.26% 12600.00% 110000.00% 688.52% Net charge-offs to average outstanding loans during the period.............. 0.00% 0.00% 0.00% 0.00% 0.00% Nonperforming loans as a percent of total loans.......................... 0.06% 0.06% 0.00% 0.00% 0.05% Nonperforming assets as a percent of total assets......................... 0.03% 0.03% 0.00% 0.00% 0.02% OTHER DATA: Number of: Real estate loans outstanding........ 2,250 2,284 2,266 2,173 1,886 Deposit accounts..................... 32,633 34,410 35,658 34,709 34,916 Full service customer service facilities...................... 10 10 10 10 10
- ------------------------------------ (1) Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of interest-bearing liabilities. (2) Represents net interest income as a percent of average interest-earning assets. (3) Represents noninterest expense divided by the sum of net interest income and noninterest income, excluding gains or losses on the sale of assets. (4) Clifton Savings operated as a mutual institution prior to March 3, 2004 and did not pay any dividends as a public company through March 31, 2004. (5) Bank only. 4 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The objective of this section is to help you understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear later in this annual report. This section contains certain "forward-looking statements" within the meaning of the federal securities laws. These statements are not historical facts, but, rather are statements based on Clifton Savings Bancorp, Inc.'s current expectations regarding its business strategies, intended results and future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions. Management's ability to predict results or the effect of future plans or strategies is inherently uncertain. Factors which could affect actual results include interest rate trends, the general economic climate in the market area in which Clifton Savings Bancorp operates, as well as nationwide, Clifton Savings Bancorp's ability to control costs and expenses, competitive products and pricing, loan delinquency rates and changes in federal and state legislation and regulation. These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Clifton Savings Bancorp assumes no obligation to update any forward-looking statements. OVERVIEW INCOME. We have two primary sources of pre-tax income. The first is net interest income. Net interest income is the difference between interest income (which is the income that we earn on our loans and investments) and interest expense (which is the interest that we pay on our deposits and borrowings). To a much lesser extent, we also recognize pre-tax income from fee and service charge income - the compensation we receive from providing products and services, and the increase in the cash surrender value of bank owned life insurance. Most of our fee and service charge income comes from service charges on deposit accounts and fees for late loan payments. We also earn fee and service charge income from ATM charges and other fees and charges. The cash surrender value of bank owned life insurance is recorded in the consolidated statement of financial condition as an asset and the change in cash surrender value is recorded as non-interest income. EXPENSES. The expenses we incur in operating our business consist of salary and employee benefits expenses, occupancy expenses, equipment expenses, directors' compensation, advertising expenses, legal expenses, federal insurance premiums, and other miscellaneous expenses. Salary and employee benefits expenses consist primarily of the salaries and wages paid to our employees, payroll taxes and expenses for retirement and other employee benefits. Occupancy expenses, which are the fixed and variable costs of building and equipment, consist primarily of lease payments, real estate taxes, depreciation charges, maintenance and costs of utilities. Equipment expenses include fees paid to our third-party data processing service, telephone expense and expenses and depreciation charges related to office and banking equipment. Depreciation of premises and equipment is computed using the straight-line method based on the useful lives of the related assets. Estimated lives are five to 40 years for building and improvements, five to 20 years for land improvements and two to 10 years for furniture and equipment. Leasehold improvements are amortized over the shorter of the useful life of the asset or term of the lease. Directors' compensation expense includes stock option and restricted stock expense, retirement benefits and directors' fees. Advertising expenses include costs relating to marketing, promotional items and related expenses. 5 4 Legal expenses include attorneys' fees related to litigation, corporate, securities, regulatory and other legal matters. Federal insurance premiums are payments we make to the Federal Deposit Insurance Corporation for insurance of our deposit accounts. Other expenses include expenses for accountants and consultants, charitable contributions, insurance, office supplies, printing, postage and other miscellaneous operating expenses. CRITICAL ACCOUNTING POLICIES We consider accounting policies involving significant judgments and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses, the assessment of prepayment risks associated with mortgage-backed securities, and the determination of the amount of deferred tax assets which are more likely than not to be realized. ALLOWANCE FOR LOAN LOSSES. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a monthly basis and establishes the provision for loan losses based on the composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors related to the collectability of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future additions to the allowance may be necessary based on estimates that are susceptible to change as a result of changes in economic conditions and other factors. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. MORTGAGE-BACKED SECURITIES. Assessments of prepayment risks related to mortgage-backed securities are based upon current market conditions, which are subject to frequent change. We believe that the prepayment risks associated with mortgage-backed securities are properly recognized. DEFERRED INCOME TAXES. We use the asset and liability method of accounting for income taxes as prescribed in Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance would result in additional income tax expense in the period, which would negatively affect earnings. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. Effective April 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109. The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company's evaluation of the 6 5 implementation of FIN 48, no significant income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the year ended March 31, 2008. OTHER-THAN-TEMPORARY IMPAIRMENT. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and Staff Accounting Bulletin 59, "Noncurrent Marketable Equity Securities," require companies to perform periodic reviews of individual securities in their investment portfolios to determine whether decline in the value of a security is other than temporary. A review of other-than-temporary impairment requires companies to make certain judgments regarding the materiality of the decline, its effect on the financial statements and the probability, extent and timing of a valuation recovery and the company's intent and ability to hold the security. Pursuant to these requirements, we assess valuation declines to determine the extent to which such changes are attributable to (1) fundamental factors specific to the issuer, such as financial condition, business prospects or other factors or (2) market-related factors, such as interest rates or equity market declines of a short-term nature. OPERATING STRATEGY Our mission is to continue to operate and grow a profitable community-oriented financial institution serving primarily retail customers in our market area. We plan to achieve this by: o operating as an independent community-oriented financial institution; o pursuing opportunities to increase our loan portfolio by purchasing New Jersey and out-of-state loans; o continuing to use conservative underwriting practices to maintain the high quality of our loan ortfolio; o managing our investment and borrowing portfolios; and o increasing deposits. OPERATING AS AN INDEPENDENT COMMUNITY-ORIENTED FINANCIAL INSTITUTION We have a long tradition of focusing on the needs of consumers in our community and being an active corporate citizen. Unlike some large banks, our decisions are made locally, we have many long time branch employees, and customers have access to senior management. In recent years, we have expanded our customer service initiatives. In addition to standard conveniences such as ATMs, we offer extended hours and telephone banking. We deliver personalized service and respond with flexibility to customer needs. We believe our community orientation is attractive to our customers and distinguishes us from the large regional banks that operate in our market area, and we intend to maintain this focus as we grow. PURSUING OPPORTUNITIES TO INCREASE OUR LOAN PORTFOLIO BY PURCHASING NEW JERSEY AND OUT-OF-STATE LOANS We will pursue the purchase of New Jersey and out-of-state (in particular states on the Eastern Seaboard) loans originated by third parties while continuing to originate any such loans in accordance with our conservative underwriting guidelines. Purchased loan packages are subject to the same guidelines established for our own origination process. By purchasing loans we supplement loan demand in our lending areas while minimizing overhead costs. CONTINUING TO USE CONSERVATIVE UNDERWRITING PRACTICES TO MAINTAIN THE HIGH QUALITY OF OUR LOAN PORTFOLIO We believe that high asset quality is a key to long-term financial success. We have sought to maintain a high level of asset quality and moderate credit risk by using underwriting standards which we believe are conservative. At March 31, 2008, our nonperforming loans (loans which are 90 or more days delinquent) were 0.06% of our total loan portfolio and 0.03% of our total assets. We intend to continue our philosophy of managing large loan exposures on all loan types through our conservative approach to lending. 7 6 MANAGING OUR INVESTMENT AND BORROWING PORTFOLIOS Our liquidity, income and interest rate risk are affected by the management of our investment and borrowings portfolios. During the year ended March 31, 2008, we purchased mortgage-backed securities in an effort to increase yield while managing our interest rate sensitivity. The majority of these securities generally range from fifteen years to thirty years but have substantially higher yields than agency securities. We will continue to monitor market conditions to determine the best method of generating a favorable return without incurring additional risk. During the year, we reimplemented our leverage strategy and we will continue to look for additional leveraging opportunities as market conditions improve. INCREASING DEPOSITS Our primary source of funds is our deposit accounts. Deposits increased $9.2 million, or 1.6%, since March 31, 2007 even though local competition has significantly increased. We intend to increase our future deposits by continuing to offer exceptional customer service, as well as enhancing and expanding products and services offered to our customers. During the year, we introduced an overdraft privilege program to enhance the range of products and flexibility we offer our customers as well as increase fee income. RESULTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 2008, 2007 AND 2006 OVERVIEW.
% CHANGE % CHANGE 2008 2007 2006 2008/2007 2007/2006 --------- -------- --------- ---------- ---------- (DOLLARS IN THOUSANDS) Net earnings....................... $2,372 $2,472 $3,667 (4.05)% (32.59)% Return on average assets........... 0.29% 0.30% 0.43% (3.33)% (30.23)% Return on average equity........... 1.34% 1.29% 1.83% 3.88% (29.51)%
2008 V. 2007. Net earnings decreased primarily due to the continued increase in interest expense as a result of the competitive pricing environment for deposits, coupled with the unfavorable yield curve experienced throughout much of the period. 2007 V. 2006. Net earnings decreased primarily due to the continuing effects of the flat yield curve on our net interest margin and spread. NET INTEREST INCOME. 2008 V. 2007. Net interest income decreased $1.8 million, or 11.3%, to $14.1 million for 2008. The decrease in net interest income for 2008 was attributable to a 14 basis point decrease in the net interest spread which was due to an increase in cost of interest-bearing liabilities in excess of the increase in yield of interest-earning assets. Total interest income increased $1.1 million, or 2.9%, to $38.6 million for 2008, resulting from an increase in the rate earned on average interest-earning assets. During 2008, the average yield on interest-earning assets increased 26 basis points to 4.99%, partially offset by a decrease of $21.4 million, or 2.7%, in the balance of average interest-earning assets to $772.6 million. The composition of interest-earning assets generally consists of loans, securities and interest-earning deposits. The decrease in average interest-earning assets was primarily due to a decrease of $54.1 million in investment securities, partially offset by increases of $2.6 million in loans, $20.1 million in mortgage-backed securities and $10.0 million in other interest-earning assets. Interest on loans, mortgage-backed securities and other interest-earning assets increased by 7.4% due to redeployment of calls and maturities in investments into higher yielding assets. Interest on investment securities decreased by 15.3% due to the significant decrease in balance. Total interest expense increased $2.9 million, or 13.4%, to $ 24.5 million for 2008 due primarily to the increase in yield on average interest-bearing liabilities, and to a lesser extent, the increase in balance. Overall, the average interest rate paid on interest-bearing liabilities increased 40 basis points to 3.90%, while the average balance increased $11.5 million, or only 1.9%. 8 7 2007 V. 2006. Net interest income decreased $1.9 million, or 10.7%, to $15.9 million for 2007. The decrease in net interest income for 2007 was attributable to a 29 basis points decrease in the net interest spread which was due to a substantial increase in the cost of interest-bearing liabilities. Total interest income increased $2.2 million, or 6.1%, to $37.5 million for 2007, resulting from an increase in the rate earned on average interest-earning assets. During 2007, the average yield on interest-earning assets increased 44 basis points to 4.73%, partially offset by a decrease of $29.1 million, or 3.5%, in the balance of average interest-earning assets to $794.0 million. The composition of interest-earning assets generally consists of loans, securities and interest-earning deposits. The decrease in average interest-earning assets was primarily due to decreases of $51.8 million in mortgage-backed securities and $16.7 million in investment securities, partially offset by increases of $32.0 million in loans and $7.4 million in other interest-earning assets. Interest on loans and other interest-earning assets increased by 11.8% due to redeployment of repayments of mortgage-backed securities and investment securities into higher yielding assets. Interest on investments increased by 18.6% due to the significant increase in yield, partially offset by the decrease in balance. Total interest expense increased $4.0 million, or 22.5%, to $21.6 million for 2007 due primarily to the increase in yield on average interest-bearing liabilities. Overall, the average interest rate paid on interest-bearing liabilities increased 73 basis points to 3.50%, while the average balance decreased $18.3 million, or only 2.9%. 9 8 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.
YEAR ENDED MARCH 31, ------------------------------------------------------------------------------------ 2008 2007 2006 ---------------------------- --------------------------- -------------------------- INTEREST INTEREST INTEREST AVERAGE AND YIELD/ AVERAGE AND YIELD/ AVERAGE AND YIELD/ BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST -------- --------- ------ ------- --------- ----- ------- --------- ----- (DOLLARS IN THOUSANDS) Assets: Interest-earning assets: Loans receivable............... $423,477 $22,148 5.23% $420,924 $21,725 5.16% $388,915 $19,874 5.11% Mortgage-backed securities..... 175,826 8,521 4.85% 155,720 6,851 4.40% 207,500 8,315 4.01% Investment securities.......... 136,912 6,403 4.68% 190,971 7,556 3.96% 207,670 6,370 3.07% Other interest-earning assets.. 36,389 1,498 4.12 26,393 1,388 5.26% 19,023 793 4.12% -------- ------- -------- ------- -------- ------- Total interest-earning...... 772,604 38,570 4.99% 794,008 37,520 4.73% 823,108 35,352 4.29% ------- ------- ------- Noninterest-earning assets........ 42,110 24,110 20,577 -------- -------- -------- Total assets................ $814,714 $818,118 $843,685 ======== ======== ======== Liabilities and equity: Interest-bearing liabilities: Demand accounts................ $ 48,818 1,199 2.46% $ 47,756 1,044 2.19% $ 43,405 708 1.63% Savings and Club accounts...... 94,570 1,076 1.14% 110,860 1,294 1.17% 146,583 1,859 1.27% Certificates of deposit........ 419,967 19,791 4.71% 405,311 17,248 4.26% 376,185 12,505 3.32% -------- ------- -------- ------- -------- ------- Total interest-bearing deposits................ 563,355 22,066 3.92% 563,927 19,586 3.47% 566,173 15,072 2.66% FHLB Advances.................. 64,527 2,419 3.75% 52,429 2,014 3.84% 68,533 2,500 3.65% -------- ------- -------- ------- -------- ------- Total interest-bearing liabilities............. 627,882 24,485 3.90% 616,356 21,600 3.50% 634,706 17,572 2.77% -------- ------- -------- ------- -------- ------- Noninterest-bearing liabilities: Noninterest-bearing deposits... 3,478 2,836 2,142 Other noninterest-bearing liabilities................. 6,947 6,727 6,370 -------- -------- -------- Total noninterest-bearing liabilities............. 10,425 9,563 8,512 -------- -------- -------- Total liabilities............ 638,307 625,919 643,218 Stockholders' equity......... 176,407 192,199 200,467 -------- -------- -------- Total liabilities and stockholders' equity...... $814,714 $818,118 $843,685 ======== ======== ======== Net interest income............. $14,085 $15,920 $17,780 ======= ======= ======= Interest rate spread............ 1.09% 1.23% 1.52% Net interest margin............. 1.82% 2.01% 2.16% Average interest-earning assets to average interest-bearing liabilities.................. 1.23x 1.29x 1.30x
RATE/VOLUME ANALYSIS. The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume. 10 9
2008 COMPARED TO 2007 2007 COMPARED TO 2006 -------------------------------- -------------------------------- INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO -------------------------------- -------------------------------- VOLUME RATE NET VOLUME RATE NET ---------- -------- -------- ------- ------- -------- (IN THOUSANDS) Interest income: Loans receivable.............. $ 130 $ 292 $ 422 $ 1,654 $ 197 $ 1,851 Mortgage-backed securities.... 932 738 1,670 (2,218) 754 (1,464) Investment securities......... (2,376) 1,224 (1,152) (545) 1,731 1,186 Other interest-earning assets. 453 (343) 110 355 240 595 -------- -------- -------- -------- -------- -------- Total interest income.. (861) 1,911 1,050 (754) 2,922 2,168 -------- -------- -------- -------- -------- -------- Interest expense: Demand deposits.............. 24 131 155 76 260 336 Savings and Club accounts.... (186) (32) (218) (427) (138) (565) Certificates of deposit...... 649 1,894 2,543 1,018 3,725 4,743 -------- -------- -------- -------- -------- -------- Total deposit expense..... 487 1,993 2,480 667 3,847 4,514 -------- -------- -------- -------- -------- -------- FHLB advances................ 453 (48) 405 (611) 125 (486) -------- -------- -------- -------- -------- -------- Total interest expense. 940 1,945 2,885 56 3,972 4,028 -------- -------- -------- -------- -------- -------- Net interest income.......... $(1,801) $ (34) $(1,835) $ (810) $(1,050) $(1,860) ======== ======== ======== ======== ======== ========
PROVISION FOR LOAN LOSSES. 2008 V. 2007. We recorded a provision for loan losses of $90,000 during the year ended March 31, 2008, consistent with 2007. The need for this provision was due to an increase in the loan portfolio balance coupled with an increase in delinquent loans. Gross loans increased 0.6% during the period. Non-performing loans increased from $258,000 to $265,000, or 2.7%, from March 31, 2007 to 2008. 2007 V. 2006. We recorded a provision for loan losses of $90,000 during the year ended March 31, 2007. The need for this provision was due to an increase in the loan portfolio balance coupled with an increase in delinquent loans. Gross loans increased 3.4% during the period. Non-performing loans increased from $90,000 to $258,000, or 186.7% from March 31, 2006 to 2007. An analysis of the changes in the allowance for loan losses is presented under "ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY." NON-INTEREST INCOME. The following table shows the components of non-interest income and the percentage changes from 2008 versus 2007 and from 2007 versus 2006.
% CHANGE %CHANGE 2008 2007 2006 2008/2007 2007/2006 -------- -------- -------- ---------- ---------- (DOLLARS IN THOUSANDS) Fees and service charges............... $ 210 $220 $231 (4.55)% (4.76)% Bank owned life insurance.............. 905 129 - 601.55 - Other.................................. 23 24 34 (4.17) (29.41) ------ ----- ----- ------- ------- Total............................. $1,138 $373 $265 205.09% 40.75% ====== ===== ===== ======= =======
2008 V. 2007. Non-interest income increased primarily due to the $776,000 increase in the cash surrender value of bank owned life insurance that was purchased during the year ended March 31, 2007. 2007 V. 2006. Non-interest income increased primarily due to the addition of $129,000 from the increase in the cash surrender value of bank owned life insurance purchased during the year ended March 31, 2007. NON-INTEREST EXPENSE. The following table shows the components of non-interest expense and the percentage changes from 2008 versus 2007 versus and from 2007 versus 2006. 11 10
% CHANGE %CHANGE 2008 2007 2006 2008/2007 2007/2006 ----------- --------- ----------- ---------- ----------- (DOLLARS IN THOUSANDS) Salaries and employee benefits......... $ 6,957 $ 7,132 $ 6,704 (2.45)% 6.38% Net occupancy expense of premises...... 1,032 978 987 5.52 (0.91) Equipment.............................. 886 935 978 (5.24) (4.40) Directors' compensation................ 1,000 1,351 1,021 (25.98) 32.32 Advertising............................ 316 285 335 10.88 (14.93) Legal.................................. 307 243 268 26.34 (9.33) Federal insurance premium.............. 68 73 76 (6.85) (3.95) Other.................................. 1,559 1,383 1,725 12.73 (19.83) ------- ------- ------- ------- ------- Total............................ $12,125 $12,380 $12,094 (2.06)% 2.36% ======= ======= ======= ======= =======
2008 V. 2007. Salaries and employee benefits decreased due to a decrease in stock option, ESOP and health insurance expenses. Directors' compensation decreased mostly due to the immediate vesting and recognition in 2007 of expense of previously granted restricted stock awards and stock options to a Company director, following his resignation due to health problems. Legal fees increased as a result of an increase in litigation costs. The increase in other expenses was primarily attributable to the prior period including a refund of previously expensed costs relating to a potential branch site. 2007 V. 2006. Directors' compensation increased mainly due to the expensing of stock options granted in December 2005. The expense of these options for the year ended March 31, 2007 totaled $254,000 for outside directors. Options were not required to be expensed in the same period for 2006. Expenses related to advertising decreased mainly due to prior year's promotional expenses related to new deposit products. The decrease in other expenses was primarily attributable to the prior period expensing of previously capitalized costs relating to potential branch sites. INCOME TAXES. 2008 V. 2007. Income taxes decreased due to a decrease in pre-tax income coupled with an increase in non-taxable income as a result of income from bank owned life insurance. A decrease in the effective tax rate for 2008 was also attributable to an increase in the percentage of total pre-tax income contributed by our investment company, Botany Inc., which is taxed at a lower state tax rate. The overall effective tax rate for 2008 was 21.2%, compared to 35.3% for 2007. 2007 V. 2006. Income taxes decreased due to a decrease in pre-tax income coupled with an increase in non-taxable income as a result of the purchase of bank owned life insurance. A decrease in the effective tax rate for 2007 was also attributable to an increase in the percentage of total pre-tax income contributed by our investment company, Botany Inc., which is taxed at a lower state tax rate. The overall effective tax rate for 2007 was 35.3%, compared to 36.7% for 2006. BALANCE SHEET LOANS. Our primary lending activity is the origination of loans secured by real estate. We originate real estate loans secured by one- to four-family homes, and to a much lesser extent, multi-family and commercial real estate and construction loans. At March 31, 2008, real estate loans totaled $406.0 million, or 96.3% of total loans compared to $404.5 million, or 96.5% at March 31, 2007, and $395.1 million, or 97.5% of total loans at March 31, 2006. Loans increased in the year ended March 31, 2008 due to continued competitive pricing and consistent loan origination volume, along with the purchase of $10.9 million in loans, which all related to residential real estate properties located within fifteen states on the Eastern Seaboard. Origination and purchase volume slightly offset repayment levels. Loans increased in the year ended March 31, 2007 due to consistent origination volume along with the purchase of $3.9 million in loans, which all related to New Jersey properties, which more than offset repayment levels. 12 11 The largest segment of our mortgage loans is one- to four-family loans. At March 31, 2008, one- to four-family loans totaled $388.4 million and represented 95.7% of real estate loans and 92.2% of total loans. One- to four-family mortgage loans decreased only $225,000, or 0.06%, in the year ended March 31, 2008. One- to four-family mortgage loans increased $10.1 million, or 2.7%, in the year ended March 31, 2007 as a result of consistent origination volume, which more than offset repayment levels. Multi-family and commercial real estate loans are the second largest segment of our mortgage loan portfolio. This portfolio was $16.0 million, and represented 3.8% of total loans as of March 31, 2008. Multi-family and commercial real estate loans increased $2.1 million, or 15.1%, in the year ended March 31, 2008 and increased $1.0 million, or 7.9%, in the year ended March 31, 2007. We also originate consumer loans which include second mortgage loans, loans secured by passbook or certificate accounts and home equity lines of credit. Consumer loans totaled $15.5 million and represented 3.7% of total loans at March 31, 2008, compared to $14.6 million, or 3.5% of total loans, at March 31, 2007. The following table sets forth the composition of our loan portfolio at the dates indicated.
AT MARCH 31, -------------------------------------------------------------------- 2008 2007 2006 -------------------------------------------------------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------- ------- ------- ------ -------- (DOLLARS IN THOUSANDS) Real estate loans: One- to four-family.............. $388,378 92.15% $388,603 92.73% $378,500 93.36% Multi-family and commercial...... 15,993 3.79 13,890 3.31 12,877 3.17 Construction..................... 1,630 0.39 1,994 0.48 3,769 0.93 -------- ------ -------- ------ --------- ------ Total real estate loans.... 406,001 96.33 404,487 96.52 395,146 97.46 -------- ------ -------- ------ --------- ------ Consumer loans: Second mortgage loans............ 13,458 3.19 12,187 2.91 7,567 1.87 Passbook or certificate loans.... 1,110 0.26 1,251 0.30 996 0.25 Equity lines of credit........... 617 0.15 859 0.20 1,430 0.35 Other consumer loans............. 295 0.07 290 0.07 290 0.07 -------- ------ -------- ------ --------- ------ Total consumer loans....... 15,480 3.67 14,587 3.48 10,283 2.54 -------- ------ -------- ------ --------- ------ Total gross loans.......... 421,481 100.00% 419,074 100.00% 405,429 100.00% ====== ====== ====== Loans in process.................... (349) (227) (1,512) Net premiums (discounts) and deferred loan costs (fees)....... 927 1,119 1,025 Allowance for loan losses........... (1,440) (1,350) (1,260) Total loans receivable, net.. $420,619 $418,616 $403,682 ======== ======== ========
13 12
AT MARCH 31, ----------------------------------------------------- 2005 2004 --------------------------- ------------------------- AMOUNT PERCENT AMOUNT PERCENT ---------- ------------- ------------ ------------ (DOLLARS IN THOUSANDS) Real estate loans: One- to four-family.............. $334,902 94.43% $233,977 93.34% Multi-family and commercial...... 10,932 3.08 9,521 3.80 Construction..................... 845 0.24 1,148 0.46 -------- ------ -------- ------ Total real estate loans.... 346,679 97.75 244,646 97.60 -------- ------ -------- ------ Consumer loans: Second mortgage loans............ 4,874 1.38 3,464 1.38 Passbook or certificate loans.... 894 0.25 1,086 0.43 Equity lines of credit........... 1,912 0.54 1,443 0.58 Other consumer loans............. 290 0.08 35 0.01 -------- ------ -------- ------ Total consumer loans....... 7,970 2.25 6,028 2.40 -------- ------ -------- ------ Total gross loans.......... 354,649 100.00% 250,674 100.00% ====== ====== Loans in process.................... (159) (354) Net premiums (discounts) and deferred loan costs (fees)....... 772 (21) Allowance for loan losses........... (1,100) (840) Total loans receivable, net.. $354,162 $249,459 ======== ========
14 13 The following table sets forth certain information at March 31, 2008 regarding the dollar amount of principal repayments becoming due during the periods indicated for loans. The table does not include any estimate of prepayments which significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. Demand loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less.
ONE- TO FOUR- MULTI-FAMILY FAMILY AND COMMERCIAL CONSUMER TOTAL REAL ESTATE REAL ESTATE CONSTRUCTION LOANS LOANS ------------- -------------- ------------ -------- ------- (IN THOUSANDS) Amounts due in: One year or less..................... $ 342 $ -- $ 1,630 $ 1,371 $ 3,343 More than one to three years......... 786 31 -- 196 1,013 More than three to five years........ 1,639 33 -- 656 2,328 More than five to ten years.......... 26,127 161 -- 3,961 30,249 More than ten to fifteen years....... 90,234 3,517 -- 3,704 97,455 More than fifteen years.............. 269,250 12,251 -- 5,592 287,093 -------- ------- ---------- ------- -------- Total............................. $388,378 $15,993 $ 1,630 $15,480 $421,481 ======== ======= ========== ======= ========
The following table sets forth the dollar amount of all loans at March 31, 2008 that are due after March 31, 2009 and have either fixed interest rates or floating or adjustable interest rates. The amounts shown below exclude applicable loans in process and net premiums (discounts) and deferred loan costs (fees), and includes $265,000 of nonperforming loans.
FLOATING OR ADJUSTABLE- FIXED-RATES RATES TOTAL ------------ ------------ -------- (IN THOUSANDS) Real estate loans: One- to four-family.............................. $231,197 $156,839 $388,036 Multi-family and commercial...................... 1,621 14,372 15,993 Construction..................................... -- -- -- Consumer loans...................................... 13,492 617 14,109 -------- -------- -------- Total......................................... $246,310 $171,828 $418,138 ======== ======== ========
15 14 The following table shows loan origination activity during the periods indicated.
YEAR ENDED MARCH 31, ---------------------------------- 2008 2007 2006 -------- -------- -------- (IN THOUSANDS) Total loans at beginning of period............... $419,074 $405,429 $354,649 -------- -------- -------- Loans originated: Real estate................................... 42,108 49,981 92,887 Consumer...................................... 5,118 8,146 5,787 -------- -------- -------- Total loans originated.................. 47,226 58,127 98,674 Principal balance of loans purchased............. 11,091 3,884 5,005 Principal payments: Real estate.................................. (51,686) (44,524) (49,532) Consumer..................................... (4,224) (3,842) (3,367) -------- -------- -------- Total principal payments..................... (55,910) (48,412) (52,912) Transfers to foreclosed real estate.......... - - - -------- -------- -------- Net loan activity................................ 2,407 13,645 50,780 -------- -------- -------- Total gross loans at end of period............... $421,481 $419,074 $405,429 ======== ======== ========
SECURITIES. Our securities portfolio consists primarily of Federal agency debt securities with maturities of five years or less and mortgage-backed securities with stated final maturities of thirty years or less. Securities increased $75.0 million, or 24.5%, in the year ended March 31, 2008 mainly as a result of purchases of mortgage-backed securities with proceeds from maturities and calls of agency debt securities and repayments on existing mortgage-backed securities. In addition, as part of an income enhancement strategy, management implemented a leverage strategy in November 2007, under which funds were borrowed from the Federal Home Loan Bank of New York and simultaneously invested into higher yielding mortgage-backed securities. All of our mortgage-backed securities were issued by either Ginnie Mae, Fannie Mae or Freddie Mac. The following table sets forth the amortized cost and fair value of our securities portfolio at the dates indicated.
AT MARCH 31, --------------------------------------------------------------- 2008 2007 2006 ------------------ ----------------- -------------------- AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE COST VALUE ---------- ------ --------- ----- --------- ------- (IN THOUSANDS) Securities available-for-sale: Federal agency debt securities................... $ -- $ -- $ 4,999 $ 4,981 $ 39,993 $ 39,555 Federal National Mortgage Association (1)......... 49,215 49,940 20,804 20,330 25,475 24,500 Federal Home Loan Mortgage Corporation (1)........ 39,667 40,279 25,978 25,460 30,912 29,901 -------- -------- -------- -------- -------- -------- 88,882 90,219 51,781 50,771 96,380 93,956 -------- -------- -------- -------- -------- -------- Securities held-to-maturity: Federal agency debt securities.................... 109,993 112,086 164,989 164,084 169,985 166,762 Federal National Mortgage Association (1)......... 35,201 35,872 25,127 24,919 36,539 35,958 Federal Home Loan Mortgage Corporation (1)........ 136,366 137,819 52,005 51,100 68,003 65,911 Governmental National Mortgage Association (1).... 9,099 8,995 12,968 12,783 19,367 18,876 -------- -------- -------- -------- -------- -------- 290,659 294,772 255,089 252,886 293,894 287,507 -------- -------- -------- -------- -------- -------- Total.......................... $379,541 $384,991 $306,870 $303,657 $390,274 $381,463 ======== ======== ======== ======== ======== ========
- ----------------------- (1) Mortgage-backed securities. At March 31, 2008, we did not own any securities, other than U.S. Government and agency securities that had an aggregate book value in excess of 10% of our total capital at that date. 16 15 The following table sets forth the contractual maturities and weighted average yields of securities at March 31, 2008. Certain mortgage-backed securities have interest rates that are adjustable and will reprice annually within the various maturity ranges. These repricing schedules are not reflected in the table below. At March 31, 2008, the amortized cost of mortgage-backed securities with adjustable rates totaled $28.4 million. We had no tax-exempt securities at March 31, 2008.
MORE THAN MORE THAN LESS THAN ONE YEAR TO FIVE YEARS TO MORE THAN ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL --------------------- ------------------- ------------------- ------------------- ------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED WEIGHTED AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE AMORTIZED AVERAGE COST YIELD COST YIELD COST YIELD COST YIELD COST YIELD ---------- --------- --------- -------- --------- -------- --------- -------- ---------- -------- (DOLLARS IN THOUSANDS) Securities available for sale: Fannie Mae (1)...... $ -- --% $ -- --% $ -- --% $ 49,215 5.13% $ 49,215 5.13% Freddie Mac (1)..... 1 8.56 -- -- -- -- 39,666 5.29 39,667 5.29 ------- ------ ------ -------- -------- 1 8.56 -- -- -- -- 88,881 5.20 88,882 5.20 ------- ------ ------ -------- -------- Securities held to maturity: Federal agency securities........ 30,000 4.24 79,993 4.91 -- -- -- -- 109,993 4.73 Fannie Mae (1)...... 403 5.29 1,751 4.37 489 6.46 32,558 5.75 35,201 5.68 Freddie Mac (1)..... 78 6.23 1,100 4.83 754 6.43 134,434 5.18 136,366 5.18 Ginnie Mae (1)...... 9 7.50 43 6.25 174 6.38 8,873 4.49 9,099 4.54 ------- ------ ------ -------- -------- 30,490 4.26 82,887 4.90 1,417 6.43 175,865 5.25 290,659 5.05 ------- ------ ------ -------- -------- Total....... $30,491 4.26% $82,887 4.90% $1,417 6.43% $264,746 5.23% $379,541 5.09% ======= ======= ====== ======== ========
- ------------------ (1) Mortgage-backed securities. BANK OWNED LIFE INSURANCE. Bank owned life insurance increased $905,000 in the year ended March 31, 2008 as a result of an increase in the cash surrender value. PREMISES AND EQUIPMENT. Premises and equipment increased approximately $617,000 in the year ended March 31, 2008 primarily due to the purchase, for $1.0 million, of land to be used for future branch expansion partially offset by depreciation of $565,000. OTHER ASSETS. Other assets decreased approximately $111,000 in the year ended March 31, 2008 primarily due to a decrease of $382,000 in deferred taxes partially offset by an increase of $231,000 in accrued and refundable income taxes. DEPOSITS. Our primary source of funds is our deposit accounts. The deposit base is comprised of non-interest-bearing demand, NOW accounts, which include high yield (Crystal) checking, passbook and statement savings, money market and time deposits. These deposits are provided primarily by individuals within our market area. We do not use brokered deposits as a source of funding. Deposits increased $9.2 million, or 1.6%, in the year ended March 31, 2008. 17 16 The following table indicates the amount of jumbo certificates of deposit by time remaining until maturity as of March 31, 2008. Jumbo certificates of deposit require minimum deposits of $100,000. JUMBO CERTIFICATES MATURITY PERIOD OF DEPOSIT -------------------------------------------------------- --------------- (IN THOUSANDS) Three months or less .................................. $19,948 Over three through six months.......................... 15,651 Over six through twelve months......................... 25,791 Over twelve months..................................... 35,633 ------- Total............................................. $97,023 ======= BORROWINGS. To supplement deposits as a source for lending and investment activities, the Bank may borrow funds from the Federal Home Loan Bank of New York. Historically, the cash flows from deposit and other daily activities have been sufficient to meet day-to-day funding obligations, with only the occasional need to borrow on a short term basis from our established lines of credit with the Federal Home Loan Bank. However, as part of our leveraging strategy, which was originally implemented during the year ended March 31, 2005, we again began to borrow from the Federal Home Loan Bank in November 2007 to use those funds to simultaneously invest into higher yielding mortgage-backed securities. The following table presents certain information regarding our Federal Home Loan Bank of New York advances during the periods and at the dates indicated. We had no other borrowing arrangements at March 31, 2008.
YEAR ENDED MARCH 31, ------------------------------------------- 2008 2007 2006 ---------- ---------- ----------- (DOLLARS IN THOUSANDS) Maximum amount of advances outstanding at any month end during the period....................... $142,306 $66,422 $80,617 Average advances outstanding during the period....... 64,527 52,429 68,533 Weighted average interest rate during the period..... 3.75% 3.84% 3.65% Balance outstanding at end of period................. 142,306 45,346 57,874 Weighted average interest rate at end of period...... 3.89% 3.84% 3.74%
EQUITY. Total equity decreased by $12.2 million, or 6.6%, to $172.4 million at March 31, 2008 from $184.6 million at March 31, 2007. The decrease in 2008 resulted from the repurchase of Company stock for $16.5 million and cash dividends paid of $2.1 million, partially offset by net income of $2.4 million, a net decrease in unrealized losses of $1.4 million on the available for sale portfolios, ESOP shares committed to be released of $793,000, and $1.6 million for stock options and awards earned under the Company's 2005 Equity Incentive Plan and related tax benefits. Our average equity to average assets ratio was 21.7% at March 31, 2008, compared to 23.5% at March 31, 2007. ALLOWANCE FOR LOAN LOSSES AND ASSET QUALITY ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a monthly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. Clifton Savings' methodology for assessing the appropriateness of the allowance for loan losses consists of two key elements: specific allowances for identified problem loans and a general valuation allowance on the remainder of the loan portfolio. Specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicate the probability that a loss has been incurred. Clifton Savings identifies loans which may require a specific allowance by reviewing all delinquent loans, significant credits, problem loans as identified by Clifton Savings' internal grading system; loans classified as substandard, 18 17 doubtful, loss, or special mention by Clifton Savings' internal classification system, and other loans which management may have concerns about collectability, such as loans in a particular industry. For individually reviewed loans, a borrower's inability to service a credit according to the contractual terms based on the borrower's cash flow and/or a shortfall in collateral value would result in the recording of a specific allowance. Clifton Savings did not have any specific allowances at March 31, 2008, 2007 and 2006. The general valuation allowance represents a loss allowance which has been established to recognize the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular problem assets. Risk factors are based on our historical loss experience and may be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes in existing general economic and business conditions affecting our primary lending areas, credit quality trends, collateral value, loan volumes and concentrations, seasoning of the loan portfolio, specific industry conditions within portfolio segments, recent loss experience in particular segments of the portfolio, duration of the current business cycle and bank regulatory examination results. The Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. The Office of Thrift Supervision may require us to make additional provisions for loan losses based on judgments different from ours. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles, there can be no assurance that regulators, in reviewing our loan portfolio, will not request us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations. SUMMARY OF LOAN LOSS EXPERIENCE. The following table sets forth an analysis of the allowance for loan losses for the periods indicated. Where specific loan loss allowances have been established, any difference between the loss allowance and the amount of loss realized has been charged or credited to current income.
YEAR ENDED MARCH 31, ----------------------------------------------------------------------- 2008 2007 2006 2005 2004 ----------- ---------- --------- --------- ----------- (DOLLARS IN THOUSANDS) Allowance at beginning of period............ $1,350 $1,260 $1,100 $ 840 $ 940 ------ ------ ------ -------- ----- Provision for (recovery of) loan losses..... 90 90 160 260 (100) Recoveries.................................. - - - - - Charge-offs................................. - - - - - ------ ------ ------ -------- ----- Net charge-offs............................. - - - - - ------ ------ ------ -------- ----- Allowance at end of period............... $1,440 $1,350 $1,260 $1,100 $ 840 ====== ====== ====== ====== ===== Allowance to nonperforming loans............ 543.40% 523.26% 12600.00% 110000.00% 688.52% Allowance to total gross loans outstanding at the end of the period..... 0.34% 0.32% 0.31% 0.31% 0.34
19 18 The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated.
AT MARCH 31, ------------------------------------------------------------------------------------------------- 2008 2007 2006 ----------------------------- -------------------------------- ------------------------------- % OF % OF % OF % OF LOANS IN % OF LOANS IN % OF LOANS IN ALLOWANCE CATEGORY ALLOWANCE CATEGORY ALLOWANCE CATEGORY TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS ------- --------- -------- ------ ---------- -------- ------- --------- ------- (DOLLARS IN THOUSANDS) One- to four-family.............. $1,295 89.93% 92.15% $1,185 87.78% 92.73% $1,152 91.43% 93.36% Multi-family and commercial real estate................... 80 5.55 3.79 103 7.63 3.31 61 4.84 3.17 Construction..................... 61 4.24 0.39 5 0.37 0.48 7 0.56 0.93 Consumer......................... 4 0.28 3.67 57 4.22 3.48 40 3.17 2.54 Unallocated...................... - - - - - - - - - ------ ------ ------ ------ ------ ------ ------ ------ ------ Total allowance for loan losses.................... $1,440 100.00% 100.00% $1,350 100.00% 100.00% $1,260 100.00% 100.00% ====== ====== ====== ====== ====== ====== ====== ====== ======
AT MARCH 31, ---------------------------------------------------------------- 2005 2004 ----------------------------- --------------------------------- % OF % OF % OF LOANS IN % OF LOANS IN ALLOWANCE CATEGORY ALLOWANCE CATEGORY TO TOTAL TO TOTAL TO TOTAL TO TOTAL AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS ------- --------- -------- ------ ---------- -------- (DOLLARS IN THOUSANDS) One- to four-family................. $1,007 91.55% 94.43% $764 90.95% 93.34% Multi-family and commercial real estate...................... 56 5.09 3.08 50 5.95 3.80 Construction........................ 2 0.18 0.24 2 0.24 0.46 Consumer............................ 35 3.18 2.25 24 2.86 2.40 Unallocated......................... - - - - - - ------ ------ ------ ---- ------ ------ Total allowance for loan losses.................... $1,100 100.00% 100.00% $840 100.00% 100.00% ====== ====== ====== ==== ====== ======
NONPERFORMING AND CLASSIFIED ASSETS. When a loan becomes 90 days delinquent, the loan is placed on nonaccrual status at which time an allowance for uncollected interest is recorded in the current period for previously accrued and uncollected interest. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to accrual status when interest or principal payments are no longer ninety days or more in arrears on a contractual basis and factors indicating doubtful collectability no longer exist. We consider repossessed assets and loans that are 90 days or more past due to be nonperforming assets. Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned until it is sold. When property is acquired it is recorded at the lower of its cost, which is the unpaid balance of the loan, or fair market value at the date of foreclosure. Holding costs and declines in fair value after acquisition of the property result in charges against income. At March 31, 2008 and 2007, we had no real estate owned. Under current accounting guidelines, 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. We consider one- to four-family mortgage loans and consumer installment loans to be homogeneous and, therefore, do not separately evaluate them for impairment. All other loans are evaluated for impairment on an individual basis. At March 31, 2008 and 2007, we had no loans that were considered impaired. 20 19 The following table provides information with respect to our nonperforming assets at the dates indicated. We did not have any troubled debt restructurings at the dates presented.
AT MARCH 31, ---------------------------------------------------- 2008 2007 2006 2005 2004 ------ ------ ------ ------ -------- (DOLLARS IN THOUSANDS) Nonaccrual loans: Real estate.............................. $265 $258 $ 10 $ 1 $122 ---- ---- ----- ------ ---- Total............................. 265 258 10 1 122 ---- ---- ----- ------ ---- Accruing loans past due 90 days or more: Consumer................................. - - - - ---- ---- ----- ------ ---- Total............................. - - - - - ---- ---- ----- ------ ---- Total of nonaccrual and 90 days or more past due loans......... 265 258 10 1 122 ---- ---- ----- ------ ---- Real estate owned.......................... - - - - - ---- ---- ----- ------ ---- Total nonperforming assets........ $265 $258 $ 10 $ 1 $122 ==== ==== ===== ====== ==== Total nonperforming loans to total loans... 0.06% 0.06% 0.00% 0.00% 0.05% Total nonperforming loans to total assets.. 0.03% 0.03% 0.00% 0.00% 0.02% Total nonperforming assets to total assets............................... 0.03% 0.03% 0.00% 0.00% 0.02%
Interest income that would have been recorded for the years ended March 31, 2008, 2007 and 2006, had nonaccruing loans been current according to their original terms amounted to $15,000, $16,000 and $1,000, respectively. The amount of interest related to these loans included in interest income was $12,000, $12,000 and $1,000, respectively, for the years ended March 31, 2008, 2007 and 2006. Pursuant to federal regulations, we review and classify our assets on a regular basis. In addition, the Office of Thrift Supervision has the authority to identify problem assets and, if appropriate, require them to be classified. There are three classifications for problem assets: substandard, doubtful and loss. "Substandard assets" must have one or more defined weaknesses and are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. "Doubtful assets" have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable, and there is a high possibility of loss. An asset classified "loss" is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted. The regulations also provide for a "special mention" category, described as assets which do not currently expose us to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving our close attention. When we classify an asset as substandard, doubtful, or as a loss, we establish specific allowances, if necessary, for loan losses in the amount of the portion of the asset classified loss or charge off such amount. The following table shows the aggregate amounts of our classified assets at the dates indicated. AT MARCH 31, -------------------- 2008 2007 ------- ------- (IN THOUSANDS) Special mention assets................... $2,776 $2,968 Substandard assets ...................... 276 260 Doubtful assets.......................... - - Loss assets.............................. - - ------ ------ Total classified assets............... $3,052 $3,228 ====== ====== 21 20 At each of the dates in the above table, substandard assets consisted of all nonperforming assets and included negative escrow amounts. At March 31, 2008, we had five current loans totaling $985,000 included in the $2.8 million in special mention assets. DELINQUENCIES. The following table provides information about delinquencies in our loan portfolio at the dates indicated.
AT MARCH 31, ------------------------------------------------ 2008 2007 ---------------------- ----------------------- 30-59 DAYS 60-89 DAYS 30-59 DAYS 60-89 DAYS PAST DUE PAST DUE PAST DUE PAST DUE ---------- ---------- ---------- ---------- (IN THOUSANDS) Real estate loans...................... $1,280 $182 $1,234 $256 Consumer loans......................... 111 138 58 171 ------ ---- ------ ---- Total.............................. $1,391 $320 $1,292 $427 ====== ==== ====== ====
At each of the dates in the above table, delinquent real estate loans consisted solely of loans secured by residential real estate. MARKET RISK ANALYSIS QUALITATIVE ASPECTS OF MARKET RISK. Our most significant form of market risk is interest rate risk. We manage the interest rate sensitivity of our 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 our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Pursuant to this strategy, we originate adjustable-rate mortgage loans for retention in our 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, we offer fixed-rate mortgage loans with maturities of fifteen years or less. This product enables us 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 we have used investment securities with terms of three years or less and adjustable-rate mortgage-backed securities to help manage interest rate risk. We currently do not participate in hedging programs such as interest rate swaps or other activities involving the use of derivative financial instruments. We have a Risk Management Committee to communicate, coordinate and control 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. QUANTITATIVE ASPECTS OF MARKET RISK. We use an interest rate sensitivity analysis prepared by the Office of Thrift Supervision to review our level of interest rate risk. This analysis measures interest rate risk by computing changes in net portfolio value of our cash flows from assets, liabilities and off-balance sheet items in the event of a range of assumed changes in market interest rates. Net portfolio value 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. This analysis assesses the risk of loss in market risk sensitive instruments in the event of a sudden and sustained 50 to 300 basis point increase or 50 to 100 basis point decrease in market interest rates with no effect given to any steps that we might take to counter the effect of that interest rate movement. Because of the low level of market interest rates, this analysis is not performed for decreases of more than 200 basis points. We measure interest rate risk by modeling the changes in net portfolio value over a variety of interest rate scenarios. The following table, which is based on information that we provide to the Office of Thrift Supervision, presents the change in our net portfolio value at March 31, 2008 that would occur in the event of an immediate change in interest rates based on Office of Thrift Supervision assumptions, with no effect given to any steps that we might take to counteract that change. 22 21
NET PORTFOLIO VALUE AS % OF NET PORTFOLIO VALUE PRESENT VALUE OF ASSETS BASIS POINT ("BP") ---------------------------------------- ------------------------- CHANGE IN RATES $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE - ------------------------ ---------- -------- -------- ---------- --------- (DOLLARS IN THOUSANDS) 300 bp $106,341 $(44,225) (29) % 12.69 % (392) bp 200 123,313 (27,254) (18) 14.30 (231) 100 138,672 (11,895) (8) 15.65 (96) 50 145,564 (5,002) (3) 16.22 (38) 0 150,567 -- -- 16.61 -- (50) 153,828 3,261 2 16.82 21 (100) 155,228 4,661 3 16.86 25
The Office of Thrift Supervision uses certain assumptions in assessing the interest rate risk of savings associations. These assumptions relate to interest rates, loan prepayment rates, deposit decay rates, and the market values of certain assets under differing interest rate scenarios, among others. As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. Further, in the event of a change in interest rates, expected rates of prepayments on loans and early withdrawals from certificates could deviate significantly from those assumed in calculating the table. LIQUIDITY AND CAPITAL RESOURCES Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan and mortgage-backed securities amortization and repayments and maturities and calls of investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage and mortgage-backed securities prepayments are greatly influenced by general interest rates, economic conditions and competition. We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, (4) repayment of borrowings and (5) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and intermediate-term U.S. Government agency obligations. Our most liquid assets are cash and cash equivalents and interest-bearing deposits. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2008, cash and cash equivalents totaled $52.2 million, including interest-bearing deposits of $45.7 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $90.2 million at March 31, 2008. On March 31, 2008, we had $142.3 million in Federal Home Loan Bank advances outstanding. In addition, if the Bank requires funds beyond its ability to generate them internally, the Bank can borrow funds up to approximately $78.5 million under an overnight line of credit, and $78.5 million under a one-month overnight repricing line of credit agreement with the Federal Home Loan Bank of New York. At March 31, 2008, we had $10.7 million in loan origination commitments outstanding, and $1.5 million in commitments to purchase participations in loans. In addition to commitments to originate and purchase loans, we had $2.6 million in customers' approved unused equity lines of credit. Certificates of deposit due within one year of March 31, 2008 totaled $307.1 million, or 53.3% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and lines of credit. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before March 31, 2009. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered. 23 22 We have historically remained highly liquid, with our liquidity position remaining stable over the past two fiscal years. We have no material commitments or demands that are likely to affect our liquidity other than set forth below. Consequently, the Board intends to make additional investments in long-term mortgage-backed securities which will decrease liquidity and increase interest income. In the event loan demand were to increase at a pace greater than expected, or any unforeseen demands or commitments were to occur, we would access our line of credit with the Federal Home Loan Bank of New York. The following table presents certain of our contractual obligations as of March 31, 2008.
PAYMENTS DUE BY PERIOD ------------------------------------------------------------- LESS THAN MORE THAN CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS - ----------------------------------------- --------- ------------ ---------- ---------- ---------- (IN THOUSANDS) Operating lease obligations (1).......... $ 339 $ 79 $ 164 $ 96 $ -- Certificates of deposit (2).............. 193,389 70,055 107,895 15,439 -- FHLB advances............................ 142,306 23,034 48,605 33,459 37,208 -------- ------- -------- ------- ------- Total............................. $336,034 $93,168 $156,664 $48,994 $37,208 ======== ======= ======== ======= =======
- -------------------------- (1) Payments are for lease of real property. (2) Includes certificates with original maturities of greater than one year. Our primary investing activities are the origination of loans and the purchase of securities. In fiscal 2008, we originated $47.2 million of loans, purchased $10.9 million of loans, and purchased $175.1 million of securities. In fiscal 2007, we originated $58.1 million of loans, purchased $3.9 million of loans, and purchased $40.0 million of securities. In fiscal 2006, we originated $98.7 million of loans, purchased $5.0 million of loans and purchased $45.0 million of securities. Financing activities consist primarily of activity in deposit accounts and in Federal Home Loan Bank advances. We experienced a net increase in total deposits of $9.2 million for the year ended March 31, 2008, a net decrease in total deposits of $4.5 million for the year ended March 31, 2007 and a net increase in total deposits of $15.5 million for the year ended March 31, 2006. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be highly competitive and to increase core deposit relationships. Occasionally, we introduce new products or offer promotional rates on certain deposit products in order to attract deposits. We experienced a significant increase in Federal Home Loan Bank advances of $97.0 million for the year ended March 31, 2008 as a result of the reimplementation of our leverage strategy. We had $142.3 million and $45.3 million in advances outstanding at March 31, 2008 and 2007, respectively, and $57.9 million in advances outstanding at March 31, 2006. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2008, we exceeded all of our regulatory capital requirements and are considered "well capitalized" under regulatory guidelines. OFF-BALANCE SHEET ARRANGEMENTS In the normal course of operations, we engage in a variety of financial transactions that, in accordance with accounting principles generally accepted in the United States of America, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. See note 16 of the notes to the consolidated financial statements included in this annual report. For the years ended March 31, 2008 and 2007, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our consolidated financial position, results of operations, or cash flows. 24 23 RECENT ACCOUNTING PRONOUNCEMENTS For a discussion of the impact of recent accounting pronouncements, see note 1 of the notes to the consolidated financial statements included in this annual report. EFFECT OF INFLATION AND CHANGING PRICES The consolidated financial statements and related consolidated financial data presented in this report have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services because such prices are affected by inflation to a larger extent than interest rates. 25 24 MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING The management of Clifton Savings Bancorp, Inc. and Subsidiaries (collectively the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control system is a process designed to provide reasonable assurance to the management and board of directors regarding the preparation and fair presentation of published consolidated financial statements. The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on our consolidated financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company's management assessed the effectiveness of internal control over financial reporting as of March 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in INTERNAL CONTROL-INTEGRATED FRAMEWORK. Based on its assessment, management believes that, as of March 31, 2008, the Company's internal control over financial reporting is effective based on those criteria. The Company's independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on the effective operation of the Company's internal control over financial reporting as of March 31, 2008, a copy of which is included in this annual report. 26 25 [BMC LOGO] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders Clifton Savings Bancorp, Inc. and Subsidiaries We have audited Clifton Savings Bancorp, Inc. and Subsidiaries' (collectively the "Company") internal control over financial reporting as of March 31, 2008, based on criteria established in INTERNAL CONTROL - INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 27 26 [BMC LOGO] In our opinion, Clifton Savings Bancorp, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of March 31, 2008, based on criteria established in INTERNAL CONTROL-INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition and the related consolidated statements of income, changes in stockholders' equity, and cash flows of Clifton Savings Bancorp, Inc. and Subsidiaries, and our report dated June 3, 2008, expressed an unqualified opinion. /s/ Beard Miller Company, LLP Beard Miller Company, LLP Pine Brook, New Jersey June 3, 2008 28 27 [BMC LOGO] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Board of Directors and Stockholders Clifton Savings Bancorp, Inc. and Subsidiaries Clifton, New Jersey We have audited the accompanying consolidated statements of financial condition of Clifton Savings Bancorp, Inc. and Subsidiaries (collectively the "Company") as of March 31, 2008 and 2007, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended March 31, 2008. The Company's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clifton Savings Bancorp, Inc. and Subsidiaries as of March 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2008, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1, the Company changed its method of accounting for Defined Benefit Pension and Other Postretirement Plans and its method of accounting for share-based payments in 2007. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Clifton Savings Bancorp, Inc. and Subsidiaries' internal control over financial reporting as of March 31, 2008, based on the criteria established in INTERNAL CONTROL - INTEGRATED FRAMEWORK issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated June 3, 2008 expressed an unqualified opinion. /s/ Beard Miller Company, LLP Beard Miller Company, LLP Pine Brook, New Jersey June 3, 2008 29 28
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION MARCH 31, ------------------------------- 2008 2007 ------------- ------------- ASSETS Cash and due from banks $ 6,499,339 $ 4,332,311 Interest-bearing deposits in other banks 45,731,351 36,772,918 ------------- ------------- Cash and Cash Equivalents 52,230,690 41,105,229 Securities available for sale: Investment - 4,981,250 Mortgage-backed 90,218,624 45,789,515 Securities held to maturity: Investment 109,993,194 164,989,209 Mortgage-backed 180,666,236 90,100,052 Loans receivable: Loans receivable 422,059,272 419,966,120 Allowance for loan losses (1,440,000) (1,350,000) ------------- ------------- Net Loans 420,619,272 418,616,120 ------------- ------------- Bank owned life insurance 21,033,212 20,128,676 Premises and equipment 9,000,367 8,383,499 Federal Home Loan Bank of New York stock 7,536,600 3,217,200 Interest receivable 4,577,398 4,439,300 Other assets 3,180,650 3,291,825 ------------- ------------- TOTAL ASSETS $ 899,056,243 $ 805,041,875 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits $ 576,721,811 $ 567,458,772 Advances from Federal Home Loan Bank of New York 142,306,370 45,346,481 Advance payments by borrowers for taxes and insurance 4,269,117 4,109,109 Other liabilities and accrued expenses 3,404,141 3,529,869 ------------- ------------- TOTAL LIABILITIES 726,701,439 620,444,231 ------------- ------------- 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, 27,307,385 shares outstanding at March 31, 2008; 28,791,491 shares outstanding at March 31, 2007 305,305 305,305 Paid-in capital 133,747,349 132,070,502 Deferred compensation obligation under Rabbi Trust 179,055 145,845 Retained earnings 81,671,543 81,362,878 Treasury stock, at cost; 3,223,085 shares at March 31, 2008; 1,738,979 shares at March 31, 2007 (36,079,647) (19,639,198) Common stock acquired by Employee Stock Ownership Plan ("ESOP") (7,876,858) (8,609,590) Accumulated other comprehensive income (loss) 532,496 (949,509) Stock held by Rabbi Trust (124,439) (88,589) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 172,354,804 184,597,644 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 899,056,243 $ 805,041,875 ============= ============= SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. - ------------------------------------------------------------------------------------------------------------------- 30
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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED MARCH 31 -------------------------------------------------- INTEREST INCOME 2008 2007 2006 --------------- -------------- ---------------- Loans $22,147,547 $21,725,537 $ 19,874,182 Mortgage-backed securities 8,521,018 6,851,196 8,315,185 Investments securities 6,403,280 7,555,878 6,369,469 Other interest-earning assets 1,498,221 1,387,886 793,357 -------------- ------------- -------------- TOTAL INTEREST INCOME 38,570,066 37,520,497 35,352,193 -------------- ------------- -------------- INTEREST EXPENSE Deposits 22,065,744 19,586,646 15,072,441 Advances 2,419,037 2,013,868 2,499,894 -------------- ------------- -------------- TOTAL INTEREST EXPENSE 24,484,781 21,600,514 17,572,335 -------------- ------------- -------------- NET INTEREST INCOME 14,085,285 15,919,983 17,779,858 PROVISION FOR LOAN LOSSES 90,000 90,000 160,000 -------------- ------------- -------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 13,995,285 15,829,983 17,619,858 -------------- ------------- -------------- NON-INTEREST INCOME Fees and service charges 210,498 219,535 231,213 Bank owned life insurance 904,536 128,676 - Other 22,647 24,517 33,817 -------------- ------------- -------------- TOTAL NON-INTEREST INCOME 1,137,681 372,728 265,030 -------------- ------------- -------------- NON-INTEREST EXPENSES Salaries and employee benefits 6,957,098 7,132,251 6,704,259 Net occupancy expense of premises 1,032,058 978,380 987,108 Equipment 886,169 934,715 977,741 Directors' compensation 999,468 1,350,767 1,021,542 Advertising 315,886 284,610 334,932 Legal 307,128 243,290 268,225 Federal insurance premium 68,124 72,544 76,021 Other 1,559,113 1,383,020 1,724,655 -------------- ------------- -------------- TOTAL NON-INTEREST EXPENSES 12,125,044 12,379,577 12,094,483 -------------- ------------- -------------- INCOME BEFORE INCOME TAXES 3,007,922 3,823,134 5,790,405 INCOME TAXES 636,288 1,351,283 2,123,633 -------------- ------------- -------------- NET INCOME $ 2,371,634 $ 2,471,851 $ 3,666,772 ============== ============= ============== NET INCOME PER COMMON SHARE Basic $ 0.09 $ 0.09 $ 0.13 ============== ============= ============== Diluted $ 0.09 $ 0.09 $ 0.13 ============== ============= ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING: Basic 26,824,729 28,284,890 29,151,942 ============== ============= ============== Diluted 26,864,492 28,433,541 29,157,274 ============== ============= ============== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. - ---------------------------------------------------------------------------------------------------------------------------------- 31
30
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 2008, 2007 AND 2006 UNEARNED DEFERRED COMMON STOCK COMPENSATION HELD BY THE COMMON PAID-IN UNDER RABBI RETAINED TREASURY ACQUIRED BY EQUITY STOCK CAPITAL TRUST EARNINGS STOCK ESOP INCENTIVE PLAN ---------- ------------ ------------- ------------ ---------- ------------- -------------- BALANCE - MARCH 31, 2005 $ 305,305 $133,928,604 $ - $ 80,101,378 $ - $ (10,075,054) $ - Comprehensive income: Net income - - - 3,666,772 - - - Unrealized (loss) on securities available for sale, net of income taxes of $245,418 - - - - - - - TOTAL COMPREHENSIVE INCOME ESOP shares committed to be released - 26,280 - - - 732,732 - Purchase of treasury stock 835,696 shares - - - - (8,689,942) - - Funding of Restricted Stock Awards - (104,285) - - 6,085,346 - (5,981,061) Vesting of Restricted Stock Awards - - - - - - 1,594,947 Funding of Supplemental Executive Retirement Plan - 8,982 105,860 - 45,389 - - Cash dividends declared ($0.20 per shares) - - - (2,492,484) - - - ---------- ------------ ------------- ------------ ---------- ------------- -------------- BALANCE - MARCH 31, 2006 305,305 133,859,581 105,860 81,275,666 (2,559,207) (9,342,322) (4,386,114) Comprehensive income: Net income - - - 2,471,851 - - - Unrealized gain on securities available for sale, net of income taxes of $564,895 - - - - - - - TOTAL COMPREHENSIVE INCOME Adoption of SFAS No. 123(R) - (4,386,114) - - - - 4,386,114 Adjustment upon initial adoption of SFAS No. 158, net of income taxes of $228,031 - - - - - - - ESOP shares committed to be released - 97,756 - - - 732,732 - Purchase of treasury stock - 1,477,538 shares - - - - (16,890,512) - - Stock option expense - 784,493 - - - - - Vesting of Restricted Stock Awards - 1,331,569 - - - - - Forfeiture of Restricted Stock Awards - 247,173 - - (247,173) - - Funding of Supplemental Executive Retirement Plan - 1,128 39,985 - 33,090 - - Exercise of stock options - (110) - - 24,604 - - Tax benefit from stock based compensation - 135,026 - - - - - Cash dividends declared ($0.20 per share) - - - (2,384,639) - - - ---------- ------------ ------------- ------------ ---------- ------------- -------------- BALANCE - MARCH 31, 2007 305,305 133,070,502 145,845 81,362,878 (19,639,198) (8,609,590) - Comprehensive income: Net income - - - 2,371,634 - - - Unrealized gain on securities available for sale, net of income taxes of $937,095 - - - - - - - Pension benefits adjustment, net of income taxes of $48,442 - - - - - - - TOTAL COMPREHENSIVE INCOME ESOP shares committed to be released - 60,143 - - - 732,732 - Purchase of treasury stock - 1,486,673 shares - - - - (16,466,079) - - Stock option expense - 499,992 - - - - - Vesting of Restricted Stock Awards - 1,061,453 - - - - - Forfeiture of Restricted Stock Awards - 8,182 - - (8,182) - - Funding of Supplemental Executive Retirement Plan - 2,038 33,210 - 33,812 - - Tax benefit from stock based compensation - 45,039 - - - - - Cash dividends declared ($0.20 per share) - - - (2,062,969) - - - ---------- ------------ ------------- ------------ ---------- ------------- -------------- BALANCE - MARCH 31, 2008 $ 305,305 $133,747,349 $ 179,055 $ 81,671,543 $(36,079,647) $ (7,876,858) $ - ========== ============ ============= ============ ============ ============= ==============
ACCUMULATED OTHER STOCK HELD COMPREHENSIVE BY RABBI INCOME (LOSS) TRUST TOTAL ----------------- ------------ ------------- BALANCE - MARCH 31, 2005 $ (1,087,022) $ - $203,173,211 ------------ Comprehensive income: Net income - - 3,666,772 Unrealized (loss) on securities available for sale, net of income taxes of $245,418 (369,050) - ( 369,050) ------------ 3,297,722 TOTAL COMPREHENSIVE INCOME ------------ ESOP shares committed to be released - - 759,012 Purchase of treasury stock 835,696 shares - - (8,689,942) Funding of Restricted Stock Awards - - - Vesting of Restricted Stock Awards - - 1,594,947 Funding of Supplemental Executive Retirement Plan - (54,371) 105,860 Cash dividends declared ($0.20 per shares) - - (2,492,484) ------------ ---------- ------------ BALANCE - MARCH 31, 2006 (1,456,072) (54,371) 197,748,326 ------------ Comprehensive income: Net income - - 2,471,851 Unrealized gain on securities available for sale, net of income taxes of $564,895 849,465 - 849,465 ------------ 3,321,316 TOTAL COMPREHENSIVE INCOME ------------ Adoption of SFAS No. 123(R) - - - Adjustment upon initial adoption of SFAS No. 158, net of income taxes of $228,031 (342,902) - (342,902) ESOP shares committed to be released - - 830,488 Purchase of treasury stock - 1,477,538 shares - - (16,890,512) Stock option expense - - 784,493 Vesting of Restricted Stock Awards - - 1,331,569 Forfeiture of Restricted Stock Awards - - - Funding of Supplemental Executive Retirement Plan - (34,218) 39,9858 Exercise of stock options - - 24,494 Tax benefit from stock based compensation - - 135,026 Cash dividends declared ($0.20 per share) - - (2,384,639) ------------ ---------- ------------ BALANCE - MARCH 31, 2007 949,509 (88,589) 184,597,644 ------------ Comprehensive income: Net income - - 2,371,634 Unrealized gain on securities available for sale, net of income taxes of $937,095 1,409,161 - 1,409,161 Pension benefits adjustment, net of income taxes of $48,442 72,844 - 72,844 ------------ 3,853,639 TOTAL COMPREHENSIVE INCOME ------------ ESOP shares committed to be released - - 792,875 Purchase of treasury stock - 1,486,673 shares - - (16,466,079) Stock option expense - - 499,992 Vesting of Restricted Stock Awards - - 1,061,453 Forfeiture of Restricted Stock Awards - - - Funding of Supplemental Executive Retirement Plan - (35,850) 33,210 Tax benefit from stock based compensation - - 45,039 Cash dividends declared ($0.20 per share) - - (2,062,969) ------------ ---------- ------------ BALANCE - MARCH 31, 2008 $ 532,496 $ (124,439) $172,354,804 ============ ========== ============ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. - -------------------------------------------------------------------------------- 32
31
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, ---------------------------------------------- 2008 2007 2006 ----------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,371,634 $ 2,471,851 $ 3,666,772 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment 565,094 628,637 708,816 Net amortization of deferred fees and costs, premiums and discounts 392,367 518,015 666,159 Amortization of component of net periodic benefit costs 121,286 - - Provision for loan losses 90,000 90,000 160,000 Loss on disposal of premises and equipment - - 7,527 (Increase) decrease in interest receivable (138,098) 84,489 (62,305) Deferred income tax benefit (603,009) (756,540) (419,465) (Increase) decrease in other assets (271,353) 158,307 (35,994) Increase (decrease) in accrued interest payable 385,277 (36,652) (28,210) (Decrease) increase in other liabilities (511,005) 95,990 (66,643) (Increase) in cash surrender value of bank owned life insurance (904,536) (128,676) - ESOP shares committed to be released 792,875 830,488 759,012 Restricted stock expense 1,061,453 1,331,569 1,594,947 Stock option expense 499,992 784,493 - Increase in deferred compensation obligation under Rabbi Trust 33,210 39,985 34,203 ----------- ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,885,187 6,111,956 6,984,819 ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from calls, maturities and repayments of: Investment securities available for sale 5,000,000 35,000,000 20,000,000 Mortgage-backed securities available for sale 7,158,935 9,593,466 12,638,803 Investment securities held to maturity 60,000,000 45,000,000 13,000,000 Mortgage-backed securities held to maturity 29,962,884 33,334,391 46,105,338 Redemptions of Federal Home Loan Bank of New York stock 864,300 1,205,100 2,250,100 Purchases of: Mortgage-backed securities available for sale (49,269,526) - - Investment securities held to maturity (5,000,000) (40,000,000) (45,000,000) Mortgage-backed securities held to maturity (120,850,445) - - Loans receivable (10,934,919) (3,930,382) (5,017,827) Premises and equipment (1,181,962) (183,236) (529,596) Federal Home Loan Bank of New York stock (5,183,700) (642,100) (1,659,500) Bank owned life insurance - (20,000,000) - Net change in loans receivable 8,775,780 (11,136,093) (44,682,021) ----------- ----------- ---------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (80,658,653) 48,241,146 (2,894,703) ----------- ----------- ---------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. - ---------------------------------------------------------------------------------------------------------------------------------- 33
32 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, -------------------------------------------------- 2008 2007 2006 ---------------- ---------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES Net (decrease) increase in deposits $ 9,263,039 $ (4,503,331) $ 15,509,435 Net (decrease) in short-term borrowed funds - - (5,000,000) Proceeds from advances from Federal Home Loan Bank of New York 116,193,754 - - Principal payments on advances from Federal Home Loan Bank of New York (19,233,865) (12,527,737) (12,388,612) Net increase in payments by borrowers for taxes and insurance 160,008 275,798 473,957 Dividends paid (2,062,969) (2,384,639) (2,492,484) Purchase of treasury stock (16,466,079) (16,890,512) (8,689,942) Exercise of stock options - 24,494 - Tax benefit from stock based compensation 45,039 135,026 - ---------------- ---------------- -------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 87,898,927 (35,870,901) (12,587,646) ---------------- ---------------- -------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,125,461 18,482,201 (8,497,530) CASH AND CASH EQUIVALENTS - BEGINNING 41,105,229 22,623,028 31,120,558 ---------------- ---------------- -------------- CASH AND CASH EQUIVALENTS - ENDING $ 52,230,690 $ 41,105,229 $ 22,623,028 ================ ================ ============== SUPPLEMENTARY CASH FLOWS INFORMATION: CASH PAID DURING THE PERIOD FOR: Interest on deposits and borrowings $ 23,708,507 $ 21,637,166 $ 17,600,545 ================ ================ ============== Income taxes paid, net of refunds $ 1,673,607 $ 2,209,607 $ 3,133,133 ================ ================ ============== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. - ------------------------------------------------------------------------------------------------------------------------------------ 34
33 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION The consolidated financial statements include the accounts of the Clifton Savings Bancorp, Inc. (the "Company"), the Company's wholly-owned subsidiary, Clifton Savings Bank (formerly known as "Clifton Savings Bank, S.L.A." and referred to herein as the "Savings Bank") and the Savings Bank's wholly-owned subsidiary, Botany Inc. ("Botany"). All significant intercompany accounts and transactions have been eliminated in consolidation. On September 12, 2007, the Bank converted from a New Jersey chartered savings and loan association to a federally chartered savings bank. In connection with the charter conversion, the Bank changed its name to "Clifton Savings Bank." Clifton MHC, the Company and the Bank will continue to be subject to supervision and examination by the Office of Thrift Supervision ("OTS"). The Bank's deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"). The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the consolidated statement of financial condition dates and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses, the assessment of prepayment risks associated with mortgage-backed securities, and the determination of the amount of deferred tax assets which are more likely than not to be realized. Management believes that the allowance for loan losses is adequate, prepayment risks associated with mortgage-backed securities are properly recognized, and all deferred tax assets are more likely than not to be recognized. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area. Additionally, assessments of prepayment risks related to mortgage-backed securities are based upon current market conditions, which are subject to frequent change. Finally, the determination of the amount of deferred tax assets more likely than not to be realized is dependent on projections of future earnings, which are subject to frequent change. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Savings Bank's allowance for loan losses. Such agencies may require the Savings Bank to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examinations. BUSINESS OF THE COMPANY AND SUBSIDIARIES The Company's primary business is the ownership and operation of the Savings Bank. The Savings Bank is principally engaged in the business of attracting deposits from the general public at its ten locations in northern New Jersey and using these deposits, together with other funds, to invest in securities and to make loans collateralized by residential and commercial real estate and, to a lesser extent, consumer loans. The Savings Bank's subsidiary, Botany, was organized in December 2004 under New Jersey law as a New Jersey Investment Company primarily to hold investment and mortgage-backed securities. - -------------------------------------------------------------------------------- 35 34 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and amounts due from banks and interest-bearing deposits in other banks with original maturities of three months or less. SECURITIES Investments in debt securities over which there exists a positive intent and ability to hold to maturity are classified as held to maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings. Debt and equity securities not classified as trading securities nor as held to maturity securities are classified as available for sale securities and reported at fair value, with unrealized holding gains or losses, net of applicable deferred income taxes, reported in the accumulated other comprehensive income (loss) component of stockholders' equity. On a quarterly basis, the Company makes an assessment to determine whether there have been any events or economic circumstances to indicate that a security on which there is an unrealized loss is impaired on an other-than-temporary basis. The Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; recent events specific to the issuer or industry; and for debt securities, external credit ratings and recent downgrades. Securities on which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss. Discounts and premiums on all securities are accreted or amortized to maturity by use of the level-yield method. Gain or loss on sales of securities is based on the specific identification method. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company, Savings Bank and Botany to concentrations of credit risk consist of cash and cash equivalents, investment and mortgage-backed securities and loans. Cash and cash equivalents include amounts placed with highly rated financial institutions. Investment securities include securities backed by the U.S. Government and other highly rated instruments. The Savings Bank's lending activity is primarily concentrated in loans collateralized by real estate in the State of New Jersey. As a result, credit risk is broadly dependent on the real estate market and general economic conditions in the State. LOANS RECEIVABLE Loans receivable are stated at unpaid principal balances, plus premiums and net deferred loan origination costs. Interest is calculated by use of the simple interest method. Recognition of interest by the accrual method is generally discontinued when interest or principal payments are ninety days or more in arrears, or when other factors indicate that the collection of such amounts is doubtful. At the time a loan is placed on nonaccrual status, an allowance for uncollected interest is recorded in the current period for previously accrued and uncollected interest. Interest on such loans, if appropriate, is recognized as income when payments are received. A loan is returned to accrual status when interest or principal payments are no longer ninety days or more in arrears on a contractual basis and factors indicating doubtful collectability no longer exist. - -------------------------------------------------------------------------------- 36 35 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR LOAN LOSSES An allowance for loan losses is maintained at a level considered necessary to provide for loan losses based upon an evaluation of known and inherent losses in the loan portfolio. Management of the Savings Bank, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the local economic and real estate market conditions. The Savings Bank utilizes a two-tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of a general valuation allowance on the remainder of its loan portfolio. The Savings Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of impaired loans. Such a system takes into consideration, among other things, delinquency status, size of loans, types of collateral and financial condition of borrowers. A loan is deemed to be impaired when, based on current information and events, it is probable that the Savings Bank will be unable to collect all amounts when due according to the contractual terms of the loan agreement. All loans identified as impaired are evaluated individually. The Savings Bank does not aggregate such loans for evaluation purposes. Loan impairment is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Payments received on impaired loans are applied first to accrued interest receivable and then to principal. General loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and management's judgment. Regardless of the extent of the analysis of customer performance, portfolio evaluations, trends or risk management processes established, certain inherent, but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer's financial condition or changes in their condition, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends, and the sensitivity of assumptions utilized to establish allocated allowances for homogeneous groups of loans among other factors. An unallocated allowance is maintained to recognize the existence of these exposures. These other risk factors are continuously reviewed and revised by management where conditions indicate that the estimates initially applied are different from actual results. LOAN ORIGINATION FEES The Savings Bank defers loan origination fees and certain direct loan origination costs and amortizes such amounts, using the interest method, as an adjustment of yield over the contractual lives of the related loans. The Savings Bank anticipates prepayments within its loan portfolio and adjusts the amortization of origination fees and costs accordingly using an annually adjusted prepayment factor. BANK OWNED LIFE INSURANCE Bank owned life insurance ("BOLI") is accounted for in accordance with Financial Accounting Standards Board ("FASB") Technical Bulletin No. 85-4, "Accounting for Purchases of Life Insurance." The cash surrender value of BOLI is recorded on our consolidated statement of financial condition as an asset and the change in the cash surrender value is recorded as non-interest income. - -------------------------------------------------------------------------------- 37 36 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREMISES AND EQUIPMENT Premises and equipment are comprised of land, at cost, and land improvements, buildings and improvements, furnishings and equipment and leasehold improvements, at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed on the straight-line method over the following estimated useful lives: YEARS ----- Land improvements 5 - 20 Buildings and improvements 5 - 40 Furnishings and equipment 2 - 10 Leasehold improvements Shorter of useful life or term of lease (2 - 5) Significant renovations and additions are charged to the premises and equipment account. Maintenance and repairs are charged to operations in the year incurred. INCOME TAXES The Company, Savings Bank and Botany file a consolidated federal income tax return. Income taxes are allocated based on their respective contribution of income or loss to the consolidated federal income tax return. Separate state income tax returns are filed. Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on the Company's and subsidiaries' tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes. Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for the portion of the asset which is not likely to be realized. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets. Effective April 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"("FIN48"). The Interpretation provides clarification on accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognizing, classification, - -------------------------------------------------------------------------------- 38 37 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES (CONTINUED) interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company's evaluation of the implementation of FIN 48, no significant income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the year ended March 31, 2008. Our policy is to recognize interest and penalties on unrecognized tax benefits in income taxes expense in the consolidated statement of income. The Company did not recognize any interest and penalties for the year ended March 31, 2008. The tax years subject to examination by the taxing authorities are the years ended December 31, 2007, 2006, 2005, and 2004. INTEREST RATE RISK The potential for interest-rate risk exists as a result of the generally shorter duration of interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. For this reason, management regularly monitors the maturity structure of assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility. 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 ("ESOP") shares not yet committed to be released, unvested restricted stock awards and deferred compensation obligations required to be settled in shares of Company stock. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as unvested restricted stock awards and 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 awards and options) or which could be converted into common stock, if dilutive, using the treasury stock method. The calculation of diluted EPS for the year ended March 31, 2008, include incremental shares related to outstanding stock options and unvested restricted stock awards of 39,763 and -0-, respectively. The calculation of diluted EPS for the year ended March 31, 2007, include incremental shares related to outstanding stock options and unvested restricted stock awards of 58,539 and 90,112, respectively. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding. STOCK-BASED COMPENSATION At the Company's annual stockholders' meeting held on July 14, 2005, stockholders of the Company approved the Clifton Savings Bancorp, Inc. 2005 Equity Incentive Plan. See Note 13 for additional information regarding grants of stock options and restricted stock under this plan. The Company adopted SFAS No.123 (R) using the modified-prospective transition method, beginning April 1, 2006, and therefore, began to expense the fair value of all outstanding options over their remaining vesting periods to the extent the options were not fully vested as of the date of adoption, and instituted a procedure to expense the fair value of all options granted subsequent to March 31, 2006 over their requisite service periods. Prior to April 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of Accounting Principal Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. No stock-based employee compensation cost was recognized in the consolidated Statement of Income for the year ended March 31, 2006, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. - -------------------------------------------------------------------------------- 39 38 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following table illustrates the effect on net income and earnings per share as if the company had applied the fair value recognition provisions of SFAS No. 123 to options granted under the Company's stock option plans in all periods presented. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing model and amortized to expense over the options' vesting periods.
Year Ended March 31, --------------------- 2006 --------------------- (Dollars In Thousands Except per Share Data) Net income as reported $ 3,667 Add: Expense recognized for the Equity Incentive Plan, net of related tax effect of $637,000 958 Deduct: Equity Incentive Plan expense determined under fair value based method, net of related tax effect of $1,173,000 (2,279) --------------------- PRO FORMA NET INCOME $ 2,346 ===================== BASIC/DILUTED EARNINGS PER SHARE AS REPORTED $ 0.13 ===================== PRO FORMA BASIC/DILUTED EARNINGS PER SHARE $ 0.08 =====================
DEFINED BENEFIT PLANS In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" -an Amendment of FASB Nos. 87, 88, 106 and 132(R). SFAS No. 158 requires two major changes to accounting for defined benefit and postretirement plans, with two different effective dates. The first requirement of SFAS No. 158, which the Company adopted as of March 31, 2007, requires the recognition of the over-funded and under-funded status of a defined benefit postretirement plan as an asset or liability in the consolidated statement of financial condition, with changes in the funded status recorded through other comprehensive income in the year in which those changes occur. The adoption of this requirement had no material impact on the Company's consolidated financial position, results of operations, and cash flows. The second requirement of SFAS No. 158, which is effective for the Company as of April 1, 2008, requires that the funded status be measured as of the entity's fiscal year-end rather than as of an earlier date currently permitted. The Company currently uses a measurement date of January 1 for its defined benefit pension plans. The adoption of this requirement had no material impact on the Company's consolidated financial position, results of operations, and cash flows. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used in estimating the fair value of financial instruments: CASH AND CASH EQUIVALENTS, INTEREST RECEIVABLE AND INTEREST PAYABLE 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. - -------------------------------------------------------------------------------- 40 39 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) SECURITIES The fair value of all securities, whether classified as trading, available for sale or held to maturity, 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. LOANS RECEIVABLE 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. FEDERAL HOME LOAN BANK OF NEW YORK STOCK Fair value approximates cost basis as these instruments are redeemable only with the issuing agency at face value. DEPOSITS 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 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. COMMITMENTS TO EXTEND CREDIT The fair value of commitments 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 March 31, 2008 and 2007, the fair value of the commitments to extend credit were not considered to be material. - -------------------------------------------------------------------------------- 41 40 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECLASSIFICATION Certain amounts for prior periods have been restated to conform to the current year's presentation. RECENT ACCOUNTING PRONOUNCEMENTS In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements", which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. SFAS No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The standard is effective for fiscal years beginning after November 15, 2007, and had no material impact on the Company's consolidated financial position, results of operations, and cash flows when adopted on April 1, 2008. In February 2008, the FASB issued FASB Staff Position (FSP) 157-2, "Effective Date of FASB Statement No. 157," that permits a one-year deferral in applying the measurement provisions of SFAS No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entity's financial statements on a recurring basis (at least annually). Therefore, if the change in fair value of a non-financial item is not required to be recognized or disclosed in the financial statements on an annual basis or more frequently, the effective date of application of SFAS No. 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. This deferral does not apply, however, to an entity that applied SFAS No. 157 in interim or annual financial statements prior to the issuance of FSP 157-2. The Company does not expect the adoption of FSP 157-2 will have a material impact on its consolidated financial position, results of operations and cash flows. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of SFAS No. 115." SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, with the opportunity to early adopt SFAS No. 159 as of the beginning of a fiscal year that begins on or before November 15, 2007. Early adoption was permitted; however, we did not early adopt SFAS No. 159 and, therefore, adopted the standard as of April 1, 2008. Upon adoption, we did not elect the fair value option for eligible items that existed as of April 1, 2008. In March 2007, the FASB ratified EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards." EITF 06-11 requires companies to recognize the income tax benefit realized from dividends or dividend equivalents that are charged to retained earnings and paid to employees for nonvested equity-classified employee share-based payment awards as an increase to additional paid-in capital. EITF 06-11 is effective for fiscal years beginning after September 15, 2007. The adoption of EITF 06-11 did not have a material impact on the Company's consolidated financial position, results of operations and cash flows. In March 2007, the FASB ratified EITF No. 06-10 "Accounting for Collateral Assignment Split-Dollar Life Insurance Agreements". EITF 06-10 provides guidance for determining a liability for the postretirement benefit obligation as well as recognition and measurement of the associated asset on the basis of the terms of the collateral assignment agreement. EITF 06-10 is effective for fiscal years beginning after December 15, 2007. The adoption of EITF 06-10 did not have a material impact on the Company's consolidated financial position, results of operations and cash flows. - -------------------------------------------------------------------------------- 42 41 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECENT ACCOUNTING PRONOUNCEMENTS Staff Accounting Bulletin No. 110 (SAB 110) amends and replaces Question 6 of Section D.2 of Topic 14, "Share-Based Payment," of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the "simplified" method in developing an estimate of the expected term of "plain vanilla" share options and allows usage of the "simplified" method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the "simplified" method for estimating the expected term of "plain vanilla" share option grants after December 31, 2007. SAB 110 was effective January 1, 2008. The adoption of SAB 110 did not have a material impact on the Company's consolidated financial position, results of operations and cash flows. NOTE 2 - STOCK REPURCHASE PROGRAM AND DIVIDEND WAIVER The Company has announced several stock repurchase programs. The repurchased shares are held as treasury stock or for general corporate use. During the years ended March 31, 2008 and 2007, 1,468,313 and 1,459,632 shares were repurchased at an aggregate cost of $16,275,000 and $16,673,000, respectively under these programs. Additionally, during the years ended March 31, 2008 and 2007, 18,360 and 17,906 shares were purchased at a total cost of $191,000 or $10.40 per share, and $218,000 or $12.17 per share, respectively, representing 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. During the years ended March 31, 2008 and 2007, Clifton MHC ("MHC"), the federally chartered mutual holding company of the Company, waived its right, upon non-objection from the Office of Thrift Supervision ("OTS") to receive cash dividends of approximately $3,358,000 on the shares of Company common stock it owns. The cumulative amount of dividends waived by the MHC through March 31, 2008 was $12,426,000. - -------------------------------------------------------------------------------- 43 42
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3- INVESTMENT SECURITIES MARCH 31, 2008 ---------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------------- -------------- --------------- ---------------- HELD TO MATURITY: Debt securities: U.S. Government (including agencies) maturing: Within one year $ 30,000,000 $ 307,650 $ - $ 30,307,650 After one but within five years 79,993,194 1,784,806 - 81,778,000 ------------ ----------- ----------- ------------ $109,993,194 $2,092,456 $ - $112,085,650 ============ =========== =========== ============ MARCH 31, 2007 ---------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------------- -------------- --------------- ---------------- AVAILABLE FOR SALE: Debt securities: U.S. Government (including agencies) maturing: Within one year $ 4,998,733 $ - $ 17,483 $ 4,981,250 ------------ ----------- ----------- ------------ $ 4,998,733 $ - $ 17,483 $ 4,981,250 ============ =========== =========== ============ HELD TO MATURITY: Debt securities: U.S. Government (including agencies) maturing: Within one year $ 45,000,000 $ - $ 206,050 $ 44,793,950 After one but within five years 119,989,209 189,100 888,609 119,289,700 ------------ ----------- ----------- ------------ $164,989,209 $ 189,100 $1,094,659 $164,083,650 ============ =========== =========== ============
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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - -------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - INVESTMENT SECURITIES (CONTINUED) There were no unrealized losses for investment securities at March 31, 2008. The age of unrealized losses and the fair value of related investment securities at March 31, 2007 were as follows: LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL --------------------------- ---------------------------- -------------------------- GROSS GROSS GROSS UNREALIZED UNREALIZED UNREALIZED FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES ------------ ----------- ---------- ---------- ----------- ----------- MARCH 31, 2007: U.S. Government (including agencies): Available for sale $ - $ - $ 4,981,250 $ 17,483 $ 4,981,250 $ 17,483 Held to maturity 19,970,000 30,000 103,924,550 1,064,659 123,894,550 1,094,659 ------------ -------- ------------ ---------- ------------ ---------- $ 19,970,000 $ 30,000 $108,905,800 $ 1,082,142 $128,875,800 $1,112,142 ============ ======== ============ =========== ============ ==========
There were no sales of investment securities available for sale or held to maturity during the years ended March 31, 2008, 2007, and 2006. - -------------------------------------------------------------------------------- 45 44
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - MORTGAGE-BACKED SECURITIES MARCH 31, 2008 -------------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------------- ------------- ------------- ------------- AVAILABLE FOR SALE: Federal Home Loan Mortgage Corporation $ 39,666,795 $ 611,899 $ - $ 40,278,694 Federal National Mortgage Association 49,215,575 731,734 7,379 49,939,930 -------------- ------------- ------------- ------------- $ 88,882,370 $ 1,343,633 $ 7,379 $ 90,218,624 ============== ============= ============= ============= HELD TO MATURITY: Federal Home Loan Mortgage Corporation $ 136,366,153 $ 1,756,940 $ 303,867 $137,819,226 Federal National Mortgage Association 35,201,481 695,313 25,181 35,871,613 Governmental National Mortgage Association 9,098,602 9,295 112,828 8,995,069 -------------- ------------- ------------- ------------- $ 180,666,236 $ 2,461,548 $ 441,876 $182,685,908 ============== ============= ============= ============= MARCH 31, 2007 -------------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR AVAILABLE FOR SALE: COST GAINS LOSSES VALUE -------------- ------------- ------------- ------------- Federal Home Loan Mortgage Corporation $ 25,977,609 $ 267 $ 518,217 $25,459,659 Federal National Mortgage Association 20,804,426 - 474,570 20,329,856 -------------- ------------- ------------- ------------- $ 46,782,035 $ 267 $ 992,787 $ 45,789,515 ============== ============= ============= ============= HELD TO MATURITY: Federal Home Loan Mortgage Corporation $ 52,005,605 $ 108,167 $ 1,013,838 $ 51,099,934 Federal National Mortgage Association 25,126,607 96,351 303,582 24,919,376 Governmental National Mortgage Association 12,967,840 8,411 193,672 12,782,579 -------------- ------------- ------------- ------------- $ 90,100,052 $ 212,929 $ 1,511,092 $ 88,801,889 ============== ============= ============= =============
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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - MORTGAGE-BACKED SECURITIES (CONTINUED) Contractual maturity data for mortgage-backed securities is as follows: MARCH 31, -------------------------------------------------------------- 2008 2007 ---------------------------- -------------------------------- AMORTIZED ESTIMATED AMORTIZED ESTIMATED COST FAIR VALUE COST FAIR VALUE ----------- ---------- ---------- ----------- (IN THOUSANDS) AVAILABLE FOR SALE: Due within one year $ 1 $ 1 $ 11 $ 11 Due after ten years 88,881 90,218 46,771 45,779 ----------- ---------- ---------- ---------- $ 88,882 $ 90,219 $ 46,782 $ 45,790 ============ ========== ========== ========== HELD TO MATURITY: Due within one year $ 490 $ 494 $ 58 $ 58 Due after one through five years 2,894 2,896 4,598 4,517 Due after five through ten years 1,417 1,465 646 664 Due after ten years 175,865 177,831 84,798 83,563 ------------ ---------- ---------- ---------- $ 180,666 $ 182,686 $ 90,100 $ 88,802 ============ ========== ========== ========== 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 were as follows: LESS THAN 12 MONTHS 12 MONTHS OR MORE TOTAL -------------------------------- --------------------------------- -------------------------------- GROSS GROSS GROSS UNREALIZED UNREALIZED UNREALIZED FAIR VALUE LOSSES FAIR VALUE LOSSES FAIR VALUE LOSSES ---------------- --------------- ----------------- --------------- --------------- ---------------- MARCH 31, 2008: Available for sale $ 8,214,856 $ 7,379 $ - $ - $ 8,214,856 $ 7,379 Held to maturity 39,749,443 274,490 15,091,871 167,386 54,841,314 441,876 ---------------- --------------- ----------------- --------------- --------------- ---------------- $ 47,964,299 $ 281,869 $ 15,091,871 $ 167,386 $ 63,056,170 $ 449,255 ================ =============== ================= =============== =============== ================ MARCH 31, 2007: Available for sale $ - $ - $ 45,778,432 $ 992,787 $ 45,778,432 $ 992,787 Held to maturity 9,577,236 69,289 68,285,892 1,441,803 77,863,128 1,511,092 ---------------- --------------- ----------------- --------------- --------------- ---------------- $ 9,577,236 $ 69,289 $114,064,324 $ 2,434,590 $123,641,560 $ 2,503,879 ================ =============== ================= =============== =============== ================
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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - MORTGAGE-BACKED SECURITIES (CONTINUED) Management does not believe that any of the unrealized losses at March 31, 2008 (forty-four mortgage-backed 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. There were no sales of mortgage-backed securities available for sale or held to maturity during the years ended March 31, 2008, 2007 and 2006. NOTE 5 - LOANS RECEIVABLE The following is a summary of loans by type: MARCH 31, ------------------------------------- 2008 2007 ---------------- --------------- Real estate mortgage: One- to four-family $388,378,474 $388,603,395 Multi-family and commercial 15,992,909 13,890,087 -------------- ------------- 404,371,383 402,493,482 -------------- ------------- Real estate construction 1,629,648 1,994,015 -------------- ------------- Consumer: Second mortgage 13,458,090 12,186,604 Passbook or certificate 1,109,877 1,251,073 Equity line of credit 617,120 859,311 Other 295,000 290,000 -------------- ------------- 15,480,087 14,586,988 -------------- ------------- TOTAL LOANS 421,481,118 419,074,485 Less: Loans in process (348,970) (227,270) Net premiums and deferred loan costs 927,124 1,118,905 -------------- ------------- 578,154 891,635 -------------- ------------- $422,059,272 $419,966,120 ============== ==============
- -------------------------------------------------------------------------------- 48 47 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - LOANS RECEIVABLE (CONTINUED) At March 31, 2008, 2007, and 2006, nonaccrual loans for which interest has been discontinued totaled approximately $265,000, $258,000, and $10,000, respectively. During the years ended March 31, 2008, 2007, and 2006, interest income of approximately $12,000, $12,000, and $1,000, respectively, was recognized on these loans. Interest income that would have been recorded, had the loans been on accrual status and performing in accordance with the original terms of the contracts, amounted to approximately $15,000, $16,000, and $1,000, for the years ended March 31, 2008, 2007, and 2006, respectively. There are no loans greater than ninety days past due that are still accruing interest. As of March 31, 2008 and 2007, and during each of the years in the three-year period ended March 31, 2008, there were no impaired loans as defined by SFAS No. 114. The Savings Bank has granted loans to certain officers and directors of the Company and Savings Bank and to their associates. The activity with respect to loans to directors, officers and associates of such persons, is as follows:
YEARS ENDED MARCH 31, ------------------------------------- 2008 2007 --------------- ------------- Balance, beginning $ 738,000 $ 1,057,000 Loans originated - 60,000 Loans to newly associated parties - 125,000 Persons no longer associated - (187,000) Collection of principal (72,000) (317,000) --------------- ------------- Balance, ending $ 666,000 $ 738,000 =============== ============= The following is an analysis of the allowance for loan losses: YEARS ENDED MARCH 31, --------------------------------------------------------- 2008 2007 2006 ------------- ------------- ------------- Balance - beginning $ 1,350,000 $ 1,260,000 $ 1,100,000 Provision charged to operations 90,000 90,000 160,000 ------------- ------------- ------------- Balance - ending $ 1,440,000 $ 1,350,000 $ 1,260,000 ============= ============= =============
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CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - PREMISES AND EQUIPMENT MARCH 31, ----------------------------------- 2008 2007 ----------------- ---------------- Land and land improvements $ 4,288,567 $ 3,248,705 Buildings and improvements 6,947,084 6,940,691 Furnishings and equipment 2,261,753 2,183,692 Leasehold improvements 270,781 270,781 Construction in process 43,773 - ----------------- ---------------- 13,811,958 12,643,869 Accumulated depreciation and amortization (4,811,591) (4,260,370) ----------------- ---------------- $ 9,000,367 $ 8,383,499 ================= ================
Included in land and land improvements at March 31, 2008 and 2007 is $1,039,000 and $ -0- of land which is being held for future branch expansion. Rental expenses related to the occupancy of leased premises totaled approximately $78,000, $75,000 and $77,000 for the years ended March 31, 2008, 2007 and 2006, respectively. The minimum obligation under the lease agreements, which expire through January 31, 2013, for each of the years ended March 31 is as follows: AMOUNT ------------- 2009 $79,000 2010 81,000 2011 83,000 2012 61,000 2013 35,000 Thereafter - ----------- $339,000 =========== NOTE 7 - INTEREST RECEIVABLE
MARCH 31, ----------------------------- 2008 2007 ----------- ----------- Loans $ 1,904,684 $ 1,901,590 Mortgage-backed securities 1,216,983 611,290 Investment securities 1,461,076 1,930,548 ----------- ----------- 4,582,743 4,443,428 Allowance for uncollected interest on loans (5,345) (4,128) ----------- ----------- $ 4,577,398 $ 4,439,300 =========== ===========
- -------------------------------------------------------------------------------- 50 49 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - DEPOSITS
MARCH 31, -------------------------------------------------------------------------- 2008 2007 ------------------------------------ ----------------------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE RATE AMOUNT PERCENT RATE AMOUNT PERCENT --------- -------------- --------- --------- ------------- --------- Demand accounts: Non-interest bearing 0.00 % $ 4,528,978 0.79 % 0.00 % $ 3,744,659 0.66 % Crystal Checking 3.25 13,626,525 2.36 2.68 7,751,031 1.37 NOW 0.75 17,085,781 2.96 0.74 19,421,221 3.42 Super NOW 0.75 185,476 0.03 0.74 177,900 0.03 Money Market 2.76 20,176,191 3.50 3.39 20,966,657 3.69 ------------ -------- ------------ ------- 2.03 55,602,951 9.64 2.04 52,061,468 9.17 Savings and club accounts 1.10 90,640,312 15.72 1.12 100,666,359 17.74 Certificates of deposit 4.46 430,478,548 74.64 4.58 414,730,945 73.09 ------------ -------- ------------ ------- TOTAL DEPOSITS 3.70 % $576,721,811 100.00 % 3.73 % $567,458,772 100.00 % ============ ======== ============ ======= Certificates of deposit with balances of $100,000 or more at March 31, 2008 and 2007 totaled approximately $97,023,000 and $83,805,000, respectively. The scheduled maturities of certificates of deposit are as follows: MARCH 31, ----------------------- 2008 2007 -------- -------- (In Thousands) One year or less $307,145 $329,668 After one to two years 79,931 53,308 After two to three years 27,964 18,210 After three to four years 11,916 12,049 After four years to five years 3,523 1,496 -------- -------- $430,479 $414,731 ======== ========
- -------------------------------------------------------------------------------- 51 50 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - DEPOSITS (CONTINUED) Interest expense on deposits consists of the following:
YEARS ENDED MARCH 31, --------------------------------------------- 2008 2007 2006 -------------- -------------- ------------- Demand $ 1,199,382 $ 1,044,257 $ 708,164 Savings and club 1,076,468 1,293,873 1,858,750 Certificates of deposits 19,789,894 17,248,516 12,505,527 -------------- -------------- ------------- $22,065,744 $19,586,646 $15,072,441 ============== ============== =============
NOTE 9 - ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK ("FHLB")
The maturities and weighted average fixed interest rates of FHLB advances were as follows: MARCH 31, --------------------------------------------------------------------- 2008 2007 --------------------------------- -------------------------------- WEIGHTED WEIGHTED MATURING DURING AVERAGE AVERAGE YEAR ENDING BALANCE INTEREST RATE BALANCE INTEREST RATE ------------------------------ ------------------ ----------- --------------- ------------- 2008 $ - - % $18,672,590 3.64 % 2009 23,033,941 3.99 18,823,405 3.94 2010 20,535,014 3.80 3,144,518 4.09 2011 28,069,606 4.03 2,991,416 4.11 2012 16,988,504 3.80 1,714,552 4.05 2013 16,471,031 3.85 - - Thereafter 37,208,274 3.83 - - ------------------ ----------- --------------- ----------- $ 142,306,370 3.89 % $45,346,481 3.84 % ================== =========== =============== ===========
The carrying value of collateral pledged for the above advances was as follows: MARCH 31, ------------------------ 2008 2007 --------- ------- U.S. Government Agency bonds: (IN THOUSANDS) Held to maturity $ 5,000 $ 5,000 --------- ------- 5,000 5,000 --------- ------- Mortgage-backed securities: Available for sale 90,218 42,640 Held to maturity 53,965 - --------- ------- 144,183 42,640 --------- ------- $ 149,183 $47,640 ========= ======= - -------------------------------------------------------------------------------- 52 51 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK ("FHLB") (CONTINUED) At March 31, 2008, the Company also had available to it $78.5 million under a revolving overnight line of credit, and $78.5 million under a one-month overnight repricing line of credit agreement with the FHLB. These credits expire on July 31, 2008. At March 31, 2007, the Company had available to it $79.4 million under a revolving overnight line of credit, and $79.4 million under a one-month overnight repricing line of credit agreement with the FHLB which expired on July 31, 2007. NOTE 10 - REGULATORY CAPITAL The Savings Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Savings Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Savings Bank must meet specific capital guidelines that involve quantitative measures of the Savings Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting principals. The Savings Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Savings Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined by regulations) to risk-weighted assets (as defined), and of Tier 1 and tangible capital to adjusted total assets (as defined). Management believes, as of March 31, 2008 and 2007, that the Savings Bank met all capital adequacy requirements to which it was subject. The following table presents a reconciliation of the Savings Bank's capital per GAAP to regulatory capital:
MARCH 31, --------------------------- 2008 2007 -------- -------- (IN THOUSANDS) GAAP capital $148,910 $142,603 Net unrealized (gain) loss on securities available for sale (803) 607 Net benefit plan change 270 343 -------- -------- Tier 1 capital 148,377 143,553 General valuation allowance 1,440 1,350 -------- -------- TOTAL RISK-BASED CAPITAL $149,817 $144,903 ======== ========
- -------------------------------------------------------------------------------- 53 52 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - REGULATORY CAPITAL (CONTINUED) The following table sets forth the Savings Bank's capital position at March 31, 2008 and 2007 as compared to minimum regulatory capital requirements:
OTS Requirements ------------------------------------------- MINIMUM CAPITAL FOR CLASSIFICATION AS ACTUAL ADEQUACY WELL-CAPITALIZED ------------------ ------------------ --------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- ------- -------- ------- -------- ------- (DOLLARS IN THOUSANDS) AS OF MARCH 31, 2008: Total capital (to risk-weighted assets) $149,817 45.02 % $26,624 8.00 % $33,280 10.00 % Tier 1 capital (to risk-weighted assets) 148,377 44.58 13,312 4.00 19,968 6.00 Core (tier 1) capital (to adjusted total 148,377 16.71 35,517 4.00 44,396 5.00 Tangible capital (to adjusted tangible assets) 148,377 16.71 13,319 1.50 - - AS OF MARCH 31, 2007: Total capital (to risk-weighted assets) $144,903 46.70 % $24,822 8.00 % $31,027 10.00 % Tier 1 capital (to risk-weighted assets) 143,553 46.27 12,411 4.00 18,616 6.00 Core (tier 1) capital (to adjusted total assets) 143,553 18.27 31,435 4.00 39,293 5.00 Tangible capital (to adjusted tangible assets) 143,553 18.27 11,788 1.50 - -
On March 27, 2007, the most recent notification from the OTS, the Savings Bank was categorized as well capitalized as of December 31, 2006, under the regulatory framework for prompt corrective action. There are no conditions existing or events which have occurred since notification that management believes have changed the Savings Bank's category. NOTE 11 - INCOME TAXES The components of income taxes are summarized as follows:
YEARS ENDED MARCH 31, ------------------------------------------------------- 2008 2007 2006 ----------------- ----------------- ----------------- Current tax expense: Federal income $ 911,714 $1,719,377 $2,236,829 State income 327,583 388,446 306,269 ----------------- ----------------- ----------------- TOTAL CURRENT INCOME TAXES 1,239,297 2,107,823 2,543,098 ----------------- ----------------- ----------------- Deferred tax (benefit): Federal income (68,465) (372,286) (325,702) State income (534,544) (384,254) (93,763) ----------------- ----------------- ----------------- TOTAL DEFERRED INCOME TAX (BENEFIT) (603,009) (756,540) (419,465) ----------------- ----------------- ----------------- $ 636,288 $1,351,283 $2,123,633 ================= ================= =================
- -------------------------------------------------------------------------------- 54 53 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - INCOME TAXES (CONTINUED) The following table presents a reconciliation between the reported income tax expense and the income tax expense which would be computed by applying the normal federal income tax rate of 34% to income before income taxes:
YEARS ENDED MARCH 31, -------------------------------------------------- 2008 2007 2006 ------------ ----------- ----------- Federal income tax at the statutory rate $ 1,022,693 $1,299,866 $1,968,738 Increase (decrease) in income taxes resulting from: New Jersey income tax, net of federal income tax effect (136,594) 2,767 140,254 Bank owned life insurance income (307,542) (43,750) - Incentive stock option expense 51,921 71,049 - Other, net 5,810 21,351 14,641 ------------ ----------- ----------- TOTAL INCOME TAX EXPENSE $ 636,288 $1,351,283 $2,123,633 ============ =========== =========== Effective income tax rate 21.2% 35.3% 36.7% ============ =========== =========== Deferred tax assets and liabilities consisted of the following: MARCH 31, ------------------------------- 2008 2007 ------------ ------------ Deferred income tax assets: Net unrealized loss on securities available for sale $ - $ 403,395 Pension costs 718,957 654,097 Allowance for loan losses 575,136 539,190 Benefit plans 141,424 215,027 Depreciation 186,644 90,706 Post-retirement benefit obligation 179,589 228,031 Non-qualified benefit plans 368,568 229,864 Loan fees 2,213 3,292 Employee Stock Ownership Plan 245,449 199,560 Supplemental Executive Retirement Plan 81,426 65,420 NJ net operating loss carryforwards 433,374 134,829 NJ AMA carryover 33,258 33,257 Other 15,359 14,355 ------------ ------------ TOTAL DEFERRED TAX ASSETS 2,981,397 2,811,023 Deferred income tax liabilities: Net unrealized gain on securities available for sale (533,700) - Other (19,202) - ------------ ------------ TOTAL DEFERRED TAX LIABILITIES (552,902) - ------------ ------------ NET DEFERRED TAX ASSET INCLUDED IN OTHER ASSETS $2,428,495 $2,811,023 ============ ============
- -------------------------------------------------------------------------------- 55 54 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11 - INCOME TAXES (CONTINUED) The Savings Bank has New Jersey net operating loss carryforwards in the amount of approximately $7,296,000, which expire through 2015. Retained earnings at March 31, 2008 and 2007, includes approximately $6,378,000 of tax bad debt deductions for which no provision for income tax has been made. Reduction of such amount for purposes other than bad debt losses will result in income for tax purposes only, and will be subject to income tax at the then current rate. NOTE 12 - EMPLOYEE BENEFIT PLANS ESOP Effective upon the consummation of the Savings Bank's reorganization in March 2004, an ESOP was established for all eligible employees who had completed a twelve-month period of employment with the Savings Bank and at least 1,000 hours of service and had attained the age of 21. The ESOP used $10,990,970 in proceeds from a term loan obtained from the Company to purchase 1,099,097 shares of Company common stock. The term loan principal is payable over fifteen equal annual installments through December 31, 2018. Interest on the term loan is fixed at a rate of 4.00%. Each year, the Savings Bank intends to make discretionary contributions to the ESOP which will be equal to principal and interest payments required on the term loan. The loan is further paid down by the amount of dividends paid, if any, on the common stock owned by the ESOP. Shares purchased with the loan proceeds are initially pledged as collateral for the term loan and are held in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the suspense account will be allocated among the participants on the basis of compensation, as described by the Plan, in the year of allocation. The ESOP is accounted for in accordance with Statement of Position 93-6 "Accounting for Employee Stock Ownership Plans," which was issued by the American Institute of Certified Public Accountants. Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As shares are committed to be released from collateral, the Savings Bank reports compensation expense equal to the current market price of the shares, and the shares become outstanding for basic net income per common share computations. ESOP compensation expense was approximately $750,000, $802,000 and $759,000 for the years ended March 31, 2008, 2007 and 2006, respectively. The ESOP shares were as follows: MARCH 31, ------------------------------ 2008 2007 ----------- ------------ Allocated shares 287,039 218,622 Shares committed to be released 9,428 9,791 Unearned shares 787,689 860,962 ----------- ------------ TOTAL ESOP SHARES 1,084,156 1,089,375 =========== ============ Fair value of unearned shares $ 7,939,905 $ 10,279,886 =========== ============ - -------------------------------------------------------------------------------- 56 55 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12 - EMPLOYEE BENEFIT PLANS (CONTINUED) SECTION 401(K) PLAN The Savings Bank sponsors a Plan pursuant to Section 401(k) of the Internal Revenue Code ("IRC"), for all eligible (attainment of age 21 and one year of service) employees. Employees may elect to save up to 25% of their compensation, subject to IRC limits. For each dollar up to 4.5% of compensation, the Savings Bank will match 50% of the employee's contribution. The Plan expense for the years ended March 31, 2008, 2007, and 2006, was approximately $66,000, $63,000 and $63,000, respectively. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP") Effective upon the consummation of the Savings Bank's reorganization in March 2004, a SERP was established. The plan provides participating executives with benefits otherwise limited by certain provisions of the Internal Revenue Code or the terms of the employee stock ownership plan loan. Specifically, the plan provides benefits to eligible officers (those designated by the Board of Directors of the Savings Bank) that cannot be provided under the Section 401(k) plan or the ESOP as a result of limitations imposed by the Internal Revenue Code, but that would have been provided under the plans, but for these Internal Revenue Code limitations. In addition to providing for benefits lost under tax-qualified plans as a result of the Internal Revenue Code limitations, the SERP also provides supplemental benefits upon a change of control prior to the scheduled repayment of the ESOP loan. Generally, upon a change in control, the SERP provides participants with a benefit equal to what they would have received under the ESOP, had they remained employed throughout the term of the loan, less the benefits actually provided under the plan on the participant's behalf. A participant's benefits generally become payable upon a change in control of the Savings Bank and the Company. The SERP expense for the years ended March 31, 2008, 2007, and 2006, was approximately $40,000, $46,000 and $39,000, respectively. At March 31, 2008 and 2007, the accrued SERP liability was $204,000 and $164,000, respectively. NOTE 13 - STOCK-BASED COMPENSATION At the Company's annual stockholders' meeting held on July 14, 2005, stockholders of the Company approved the Clifton Savings Bancorp, Inc. 2005 Equity Incentive Plan. Under this plan, the Company may grant options to purchase up to 1,495,993 shares of Company common stock and may grant up to 598,397 shares of common stock as restricted stock awards. At March 31, 2008, there were 165,661 shares remaining for future option grants, and 34,950 shares remaining available for future restricted stock awards under the plan. On December 7, 2005, 585,231 shares of restricted stock were awarded. The restricted shares awarded had a grant date fair value of $10.22 per share. 20% of the shares awarded were immediately vested, with an additional 20% becoming vested annually thereafter. During the years ended March 31, 2008, 2007 and 2006, approximately $1,061,000, $1,332,000 and $1,595,000, respectively, in expense was recognized in regard to these restricted stock awards. The Company recognized approximately $424,000, $532,000 and $637,000 of income tax benefits resulting from this expense for the years ended March 31, 2008, 2007 and 2006, respectively. The total fair value of stock awards vested during the years ended March 31, 2008, 2007 and 2006 were approximately $1,081,000, $1,640,000 and $1,196,000, respectively. - -------------------------------------------------------------------------------- 57 56 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - STOCK-BASED COMPENSATION (CONTINUED) The following is a summary of the status of the Company's restricted shares: Weighted Average Restricted Grant Date Shares Fair Value ---------- ---------------- Non-vested at March 31, 2006 468,185 $10.22 Vesting (134,579) 10.22 Granted - - Forfeited (21,065) 10.22 ---------- -------- Non-vested at March 31, 2007 312,541 10.22 Vesting (103,942) 10.22 Granted - - Forfeited (719) 10.22 ---------- -------- Non-vested at March 31, 2008 207,880 $10.22 ========== ======== Expected future compensation expense relating to the 208,000 non-vested restricted shares outstanding at March 31, 2008 is $1,770,000 over a weighted average period of 1.7 years. On August 31, 2005, options to purchase 1,483,510 shares of common stock at $10.24 per share were awarded and will expire no later than ten years following the grant date. Immediately upon grant, 20% of the options awarded were vested, with an additional 20% becoming vested annually thereafter. In February 2006, the Company's Board of Directors approved the acceleration of the second 20% of the option grants so that those options became fully vested as of March 31, 2006. During the years ended March 31, 2008, 2007 and 2006, approximately $500,000, $784,000 and $-0-, respectively, in stock option expense, was recorded net of income tax benefits of $139,000, $230,000 and $-0-, respectively. - -------------------------------------------------------------------------------- 58 57 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13 - STOCK-BASED COMPENSATION (CONTINUED) A summary of stock option activity follows:
Weighted Average Aggregate Number of Weighted Average Remaining Intrinsic Stock Options Exercise Price Contractual Term Value -------------- ----------------- ----------------- ------------- Balance at March 31, 2006 1,483,510 $10.24 Exercised (2,392) 10.24 $ 742 Forfeited or cancelled (48,465) 10.24 ------------- -------------- Outstanding at March 31, 2007 1,432,653 10.24 Expired (104,713) 10.24 ------------- -------------- Outstanding at March 31, 2008 1,327,940 $10.24 7.42 Years - ============= ============== Exercisable at March 31, 2008 796,764 $10.24 7.42 Years - ============= ==============
Shares issued upon the exercise of stock options are issued from treasury stock. The Company has an adequate number of treasury shares available for future stock option exercises. Expected future compensation expense relating to the 531,000 non-vested options outstanding at March 31, 2008 is $311,000 over a weighted average period of 1.4 years. The fair value of the options granted on August 31, 2005, as computed using the Black-Scholes option-pricing model, was determined to be $2.38 per option based upon the following underlying assumptions: a risk-free interest rate, expected option life, expected stock price volatility, and dividend yield of 4.11%, 6.0 years, 21.56%, and 1.95%, respectively. NOTE 14 - DEFINED BENEFIT PLANS DIRECTORS' RETIREMENT PLAN The Directors' Retirement Plan is a nonqualified, unfunded pension plan with benefits based on fees paid to directors while still active. The funding policy is to pay directors on a pay-as-you-go basis. The measurement dates used to value the plan were January 1, 2008 and 2007, respectively. The following table sets forth the funded status for the Directors' Retirement Plan and amounts recognized in the consolidated statements of financial condition. - -------------------------------------------------------------------------------- 59 58 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - DEFINED BENEFIT PLANS (CONTINUED) DIRECTORS' RETIREMENT PLAN (CONTINUED)
March 31, --------------------------------- 2008 2007 ---------------- ---------------- Change in projected benefit obligations: Benefit obligation - beginning $ 2,078,491 $ 2,210,149 Service cost 81,012 19,124 Interest cost 127,428 128,240 Actuarial (gain) loss (45,847) (257,606) Benefits paid (89,000) (21,416) ---------------- ---------------- Benefit obligation - ending 2,152,084 2,078,491 ---------------- ---------------- Change in plan assets: Fair value of plan assets - beginning - - Employer contribution 89,000 21,416 Benefits paid (89,000) (21,416) ---------------- ---------------- Fair value of plan assets - ending - - ---------------- ---------------- Funded status and accrued pension cost included in other liabilities $ (2,152,084) $ (2,078,491) ================ ================ Assumptions: Discount rate 6.50% 6.25% Rate of increase in compensation 4.50% 4.00%
- -------------------------------------------------------------------------------- 60 59 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - DEFINED BENEFIT PLANS (CONTINUED) DIRECTORS' RETIREMENT PLAN (CONTINUED) The Savings Bank expects to make contributions to the plan during the year ending March 31, 2009, totaling approximately $92,000. At March 31, 2008, benefit payments expected to be paid under the plan are as follows (in thousands): Years ending March 31: 2009 $ 92 2010 99 2011 123 2012 146 2013 158 2014-2018 1,014 ------- $ 1,632 ======= Net periodic pension cost for the plan included the following components:
YEARS ENDED MARCH 31, ------------------------------------------------- 2008 2007 2006 ----------- ---------- ----------- Service cost $ 81,012 $ 19,124 $ 15,492 Interest cost 127,428 128,240 102,368 Net amortization and deferral 86,052 108,836 88,264 ----------- ---------- ----------- NET PERIODIC PENSION COST INCLUDED IN DIRECTORS' COMPENSATION $ 294,492 $ 256,200 $ 206,124 ========= ========== ========== Assumptions: Discount rate 6.250% 5.875% 6.125% Rate of increase in compensation 4.000% 4.000% 4.000%
At March 31, 2008, unrecognized net loss of $141,165 and unrecognized prior service cost of $407,604 were included in accumulated other comprehensive income in accordance with SFAS No. 158. As required under SFAS No. 158, for the fiscal year ending March 31, 2009, $86,052 of prior service cost is expected to be recognized as a component of net periodic pension cost. - -------------------------------------------------------------------------------- 61 60 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - DEFINED BENEFIT PLANS (CONTINUED) FORMER PRESIDENT'S RETIREMENT PLAN The Former President's Retirement Plan is a nonqualified, unfunded pension plan with the only participant the former president of the Savings Bank. The plan was established on July 24, 1996, with a commencement date of January 1, 1999. The funding policy is to pay the former president $35,000 annually for his life or for a ten year minimum payment period commencing October 1, 1998, to his surviving spouse. Due to the death of the former president in February 2005, his surviving spouse has begun and will continue to receive annual payments of $35,000 through December 31, 2008. The plan shall also provide coverage under a health insurance plan for the former president's spouse for life. The annual costs associated with these benefits are accrued on the basis of actuarial assumptions and included in salaries and employee benefits. The measurement dates used to value the plan were January 1, 2008 and 2007, respectively. The following table sets forth the funded status for the Former President's Retirement Plan and amounts recognized in the consolidated statements of financial condition:
MARCH 31, ------------------------------- 2008 2007 -------------- --------------- Change in projected benefit obligations: Benefit obligation - beginning $ 130,141 $ 161,885 Interest cost 7,500 8,924 Actuarial loss (gain) 425 (548) Benefits paid (40,410) (40,120) -------------- --------------- Benefit obligation - ending 97,656 130,141 -------------- --------------- Change in plan assets: Fair value of plan assets - beginning - - Employer contribution 40,410 40,120 Benefits paid (40,410) (40,120) -------------- --------------- Fair value of plan assets - ending - - -------------- --------------- Funded status and accrued pension cost included in other liabilities $ (97,656) $ (130,141) ============== =============== Assumed discount rate 6.50% 6.25% ============== ===============
- -------------------------------------------------------------------------------- 62 61 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14 - DEFINED BENEFIT PLANS (CONTINUED) FORMER PRESIDENT'S RETIREMENT PLAN (CONTINUED) The Savings Bank expects to make contributions to the Plan during the year ending March 31, 2009, totaling approximately $32,000. At March 31, 2008, benefit payments expected to be paid under the Plan are as follows (in thousands): Years ending March 31: 2009 $ 32 2010 6 2011 6 2012 6 2013 6 2014-2018 32 ------- $ 88 ======= Net periodic pension cost for the Plan included the following components:
YEARS ENDED MARCH 31, -------------------------------------------- 2008 2007 2006 ----------- ----------- ----------- Interest cost $ 7,500 $ 8,924 $ 11,024 Net amortization and deferral (10,188) (11,360) (12,796) ----------- ----------- ----------- NET PERIODIC (BENEFIT) $ (2,688) $ (2,436) $ (1,772) =========== =========== =========== Assumed discount rate 6.250% 5.875% 6.125% =========== =========== ===========
At March 31, 2008, unrecognized net gain of $99,122 was included in accumulated other comprehensive income in accordance with SFAS No. 158. As required under SFAS No. 158, for the fiscal year ending March 31, 2009, $8,388 of the net gain is expected to be recognized as a component of net periodic pension benefit. - -------------------------------------------------------------------------------- 63 62 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and fair values of financial instruments are as follows:
MARCH 31, -------------------------------------------------------- 2008 2007 -------------------------------------------------------- CARRYING CARRYING VALUE FAIR VALUE VALUE FAIR VALUE ---------- ------------ ---------- ----------- (IN THOUSANDS) Financial assets: Cash and cash equivalents $ 52,231 $ 52,231 $ 41,105 $41,105 Securities available for sale: Investment - - 4,981 4,981 Mortgage-backed 90,219 90,219 45,790 45,790 Securities held to maturity: Investment 109,993 112,086 164,989 164,084 Mortgage-backed 180,666 182,686 90,100 88,802 Loans receivable 420,619 416,321 418,616 409,976 Federal Home Loan Bank of New York stock 7,537 7,537 3,217 3,217 Interest receivable 4,577 4,577 4,439 4,439 Financial liabilities: Deposits 567,722 581,920 567,459 569,003 FHLB advances 142,306 145,039 45,346 44,634 Interest payable 581 581 195 195
NOTE 16 - COMMITMENTS AND CONTINGENCIES The Company, Savings Bank and Botany are parties to financial instruments with off-balance-sheet risk in the normal course of business to meet investment needs and the financing needs of the Savings Bank's customers. These financial instruments primarily include commitments to originate and purchase loans. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements of financial condition. The contract or notional amounts of those instruments reflect the extent of involvement in particular classes of financial statements. Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Savings Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Savings Bank, upon extension of credit, is based on management's credit evaluation of the counterparty. The Savings Bank, at March 31, 2008, had outstanding commitments to originate loans totaling approximately $10,737,000, which included $8,280,000 for fixed-rate mortgage loans with interest rates ranging from 5.25% to 5.75%, $1,982,000 for adjustable rate commercial mortgage loans with initial rate ranging from 5.50% to 6.00%, and $475,000 for fixed rate second mortgage loans with an interest rates of 6.375%. Outstanding loan commitments at March 31, 2007 totaled $3,819,000. These commitments generally expire in three months or less. - -------------------------------------------------------------------------------- 64 63 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED) At March 31, 2008, the Savings Bank had outstanding commitments to purchase a $750,000 participation in a $5.8 million construction loan, and a $750,000 participation in a $7.3 million construction loan with adjustable interest rates of 3.00% and 2.50%, respectively, over the one month London Interbank Offering Rate. The commitments outstanding at March 31, 2007 were to purchase both a $117,000 construction loan and $5,598,000 of mortgage loans. At March 31, 2008 and 2007, undisbursed funds from customer approved unused lines of credit under a homeowners' equity lending program amounted to approximately $2,559,000 and $2,505,000, respectively. Unless they are specifically cancelled by notice from the Savings Bank, these funds represent firm commitments available to the respective borrowers on demand. Management does not anticipate losses on any of the foregoing transactions. Periodically, there have been various claims and lawsuits against the Company and Savings 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. NOTE 17 - COMPREHENSIVE INCOME The components of accumulated other comprehensive gain (loss) included in stockholders' equity are as follows:
MARCH 31, ------------------------------- 2008 2007 ------------ ------------- Net unrealized gain (loss) on securities available for sale $1,336,254 $(1,010,002) Tax effect (533,700) 403,395 ------------ ------------- Net of tax amount 802,554 (606,607) ------------ ------------- Benefit plan adjustments (449,647) (570,933) Tax effect 179,589 228,031 ------------ ------------- Net of tax amount (270,058) (342,902) ------------ ------------- Accumulated other comprehensive income (loss) $ 532,496 $ (949,509) ============ =============
- -------------------------------------------------------------------------------- 65 64 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17 - COMPREHENSIVE INCOME (CONTINUED) The components of other comprehensive income (loss) and related tax effects are presented in the following table:
YEARS ENDED MARCH 31, -------------------------------------------------- 2008 2007 2006 ------------ ------------ ------------ Unrealized holding gain (loss) on securities available for sale: Unrealized holding gain (loss) arising during the year $ 2,346,256 $ 1,414,360 $ (614,468) ------------ ------------ ------------ Defined benefit pension plan: Pension losses 35,234 - - Prior service cost 86,052 - - ------------ ------------ ------------ Net change in defined benefit pension plan accrued expense 121,286 - - ------------ ------------ ------------ Other comprehensive income (loss) before taxes 2,467,542 1,414,360 (614,468) Tax effect (985,537) (564,895) 245,418 ------------ ------------ ------------ Other comprehensive income (loss) $ 1,482,005 $ 849,465 $ (369,050) ============ ============ ===========
- -------------------------------------------------------------------------------- 66 65 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - PARENT ONLY FINANCIAL INFORMATION The following are the condensed financial statements for Clifton Savings Bancorp, Inc. (Parent company only) as of March 31, 2008 and 2007 and for the three years ended March 31, 2008.
STATEMENTS OF CONDITION MARCH 31, ---------------------------------- 2008 2007 ------------- ------------- ASSETS Cash and due from banks $ 4,469,330 $ 12,727,888 Investment securities held to maturity 9,993,194 19,989,209 Loan receivable from Savings Bank 8,741,402 9,359,240 Investment in subsidiary 148,909,981 142,603,213 Interest receivable 248,779 372,084 Other assets 67,981 71,663 ------------- ------------- TOTAL ASSETS $ 172,430,667 $ 185,123,297 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Other liabilities $ 75,863 $ 525,653 Stockholders' equity 172,354,804 184,597,644 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 172,430,667 $ 185,123,297 ============= =============
- -------------------------------------------------------------------------------- 67 66 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF INCOME YEARS ENDED MARCH 31, ----------------------------------------------------- 2008 2007 2006 -------------- ------------ ------------ Interest income: Loans $ 359,207 $ 382,273 $ 405,348 Securities 445,218 826,989 1,171,977 Other 48 41,149 191,184 -------------- ------------ ------------ TOTAL INTEREST INCOME 804,473 1,250,411 1,768,509 Non-interest expenses 589,037 536,965 597,455 -------------- ------------ ------------ INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 215,436 713,446 1,171,054 Income taxes 87,475 286,802 466,813 -------------- ------------ ------------ INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 127,961 426,644 704,241 Equity in undistributed earnings of subsidiary 2,243,673 2,045,207 2,962,531 -------------- ------------ ------------ NET INCOME $ 2,371,634 $ 2,471,851 $ 3,666,772 ============= ============ =============
- -------------------------------------------------------------------------------- 68 67 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18 - PARENT ONLY FINANCIAL INFORMATION (CONTINUED)
STATEMENTS OF CASH FLOW YEARS ENDED MARCH 31, ---------------------------------------------------- 2008 2007 2006 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,371,634 $ 2,471,851 $ 3,666,772 Adjustments to reconcile net income to net cash provided by operating activities: Accretion of discounts (3,985) (3,819) (3,658) Decrease in interest receivable 123,305 157,507 62,003 Decrease in other assets 3,682 5,114 6,454 (Decrease) increase in other liabilities (449,790) 247,312 21,821 Increase in deferred compensation obligation under Rabbi Trust 33,812 33,090 45,389 Equity in undistributed earnings of subsidiary (2,243,673) (2,045,207) (2,962,531) ------------ ------------ ------------ NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (165,015) 865,848 836,250 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from maturities of investment securities available for sale - 15,000,000 10,000,000 Proceeds from maturities of investment securities held to maturity 10,000,000 - - Repayment of loan receivable from Savings Bank 617,838 594,076 571,226 Cash dividends paid on unallocated ESOP shares used to repay loan receivable from Savings Bank (174,151) (188,878) (203,605) ------------ ------------ ------------ NET CASH PROVIDED BY INVESTING ACTIVITIES 10,443,687 15,405,198 10,367,621 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Cash dividends paid (2,062,969) (2,384,639) (2,492,484) Purchase of treasury stock (16,466,079) (16,890,512) (8,689,942) Sale of treasury stock to Savings Bank to fund restricted stock awards - - 5,981,060 Exercise of stock options - 24,494 - Purchase of forfeited restricted stock awards (8,182) (247,173) - ------------ ------------ ------------ NET CASH (USED IN) FINANCING ACTIVITIES (18,537,230) (19,497,830) (5,201,366) ------------ ------------ ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,258,558) (3,226,784) 6,002,505 CASH AND CASH EQUIVALENTS - BEGINNING 12,727,888 15,954,672 9,952,167 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS - ENDING $ 4,469,330 $ 12,727,888 $ 15,954,672 ============ ============ ============
- -------------------------------------------------------------------------------- 69 68 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED -------------------------------------------------------- JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 2007 2007 2007 2008 ---------- ---------- ---------- ----------- (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Interest income $ 9,359 $ 9,447 $ 9,647 $ 10,117 Interest expense 5,796 6,001 6,173 6,515 ---------- ---------- ---------- ----------- NET INTEREST INCOME 3,563 3,446 3,474 3,602 Provision for loan losses 0 90 0 0 Non-interest income 272 286 285 295 Non-interest expenses 3,095 3,049 2,870 3,111 Income taxes 178 103 192 163 ---------- ---------- ---------- ----------- NET INCOME $ 562 $ 490 $ 697 $ 623 ========== ========== ========== ========== Net income per common share - basic and diluted $ 0.02 $ 0.02 $ 0.03 $ 0.02 ========== ========== ========== ========== Dividends per common share $ 0.05 $ 0.05 $ 0.05 $ 0.05 ========== ========== ========== ========== Weighted average number of common shares and common stock equivalents outstanding: Basic 27,427 27,062 26,505 26,304 ========== ========== ========== ========== Diluted 27,645 27,189 26,616 26,323 ========== ========== ========== ==========
- -------------------------------------------------------------------------------- 70 69 CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
QUARTER ENDED ------------------------------------------------------------ JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 2006 2006 2006 2007 ---------- --------- --------- -------- (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Interest income $ 9,195 $ 9,398 $ 9,513 $ 9,414 Interest expense 4,917 5,299 5,688 5,696 ---------- --------- --------- -------- NET INTEREST INCOME 4,278 4,099 3,825 3,718 Provision for loan losses 50 20 10 10 Non-interest income 64 69 54 186 Non-interest expenses 3,061 3,061 2,985 3,273 Income taxes 460 401 325 165 ---------- --------- --------- -------- NET INCOME $ 771 $ 686 $ 559 $ 456 ========== ========= ========= ======== Net Income per common share - basic and diluted $ 0.03 $ 0.02 $ 0.02 $ 0.02 ========== ========= ========= ======== Dividends per common share $ 0.05 $ 0.05 $ 0.05 $ 0.05 ========== ========= ========= ======== Weighted average number of common shares and common stock equivalents outstanding: Basic 28,663 28,374 28,200 27,902 ========== ========= ========= ======== Diluted 28,700 28,460 28,430 28,111 ========== ========= ========= ========
- -------------------------------------------------------------------------------- 71 70 STOCK PERFORMANCE GRAPH [STOCK PERFORMANCE GRAPH APPEARS HERE]
PERIOD ENDING --------------------------------------------------------------------------------------------- INDEX 03/04/04 03/31/05 09/30/05 03/31/06 09/30/06 03/31/07 09/30/07 03/31/08 - ---------------------------------------------------------------------------------------------------------------------------- Clifton Savings Bancorp, Inc. 100.00 92.54 85.94 90.06 95.40 102.36 102.34 88.03 NASDAQ Composite 100.00 97.28 104.70 113.85 109.89 117.84 131.45 110.90 SNL Thrift Index 100.00 97.34 99.34 109.64 115.63 115.92 105.53 70.65 SNL MHC Thrift Index 100.00 100.94 103.83 115.83 131.89 142.76 141.81 136.59
72 71 INVESTOR AND CORPORATE INFORMATION ANNUAL MEETING The annual meeting of stockholders will be held at 9:00 a.m., on August 14, 2008 at the Valley Regency located at 1129 Valley Road, Clifton, NJ 07013. STOCK LISTING Clifton Savings Bancorp, Inc.'s common stock is listed on the Nasdaq Global Select Market under the symbol "CSBK."
PRICE RANGE OF COMMON STOCK 2008 2007 ------------------------------ -------------------------------- DIVIDEND DIVIDEND QUARTER ENDED HIGH LOW DECLARED HIGH LOW DECLARED - ------------- ---- --- -------- ---- --- -------- June 30 $12.14 $10.84 $0.05 $10.83 $10.26 $0.05 September 30 $11.92 $8.94 $0.05 11.35 10.58 0.05 December 31 $11.92 $9.54 $0.05 12.23 11.20 0.05 March 31 $10.33 $9.10 $0.05 12.33 11.15 0.05
At May 30, 2008 there were 1,532 holders of record of Clifton Savings Bancorp common stock. STOCKHOLDERS AND GENERAL INQUIRIES Bart D'Ambra Clifton Savings Bancorp, Inc. 1433 Van Houten Avenue Clifton, New Jersey 07015 (973) 473-2200 ANNUAL AND OTHER REPORTS A copy of the Clifton Savings Bancorp Annual Report on Form 10-K without exhibits for the year ended March 31, 2008, as filed with the Securities and Exchange Commission, may be obtained without charge by contacting Bart D'Ambra, Clifton Savings Bancorp, Inc., 1433 Van Houten Avenue, Clifton, New Jersey 07015. INDEPENDENT AUDITORS Beard Miller Company LLP 55 U.S. Highway 46 Pine Brook, New Jersey 07058 CORPORATE COUNSEL Kilpatrick Stockton LLP Suite 900 607 14th Street, NW Washington, DC 20005 TRANSFER AGENT Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016 73 72
DIRECTORS AND OFFICERS DIRECTORS OF CLIFTON SAVINGS BANCORP, INC., EXECUTIVE OFFICERS OF CLIFTON MHC AND CLIFTON SAVINGS BANCORP, INC. OFFICERS OF CLIFTON SAVINGS BANK AND CLIFTON MHC CLIFTON SAVINGS BANK - ------------------------------------- ---------------------------------- -------------------------------------- JOHN A. CELENTANO, JR. JOHN A. CELENTANO, JR. JOHN A. CELENTANO, JR. CHAIRMAN OF THE BOARD AND CHAIRMAN OF THE BOARD AND CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER - CHIEF EXECUTIVE OFFICER CLIFTON SAVINGS BANCORP, INC. WALTER CELUCH AND CLIFTON MHC WALTER CELUCH PRESIDENT, CHIEF EXECUTIVE CHAIRMAN OF THE BOARD - PRESIDENT- CLIFTON SAVINGS OFFICER AND SECRETARY CLIFTON SAVINGS BANK BANCORP, INC. AND CLIFTON MHC AND CORPORATE SECRETARY (CLIFTON SAVINGS BANCORP, INC.) THOMAS A. MILLER CHRISTINE R. PIANO, CPA BART D'AMBRA OWNER - THE T.A. MILLER & CHIEF FINANCIAL OFFICER AND EXECUTIVE VICE PRESIDENT AND CO., INC. TREASURER CHIEF OPERATING OFFICER CYNTHIA SISCO PARACHINI BART D'AMBRA STEPHEN A. HOOGERHYDE PROPERTY MANAGEMENT CORPORATE SECRETARY- EXECUTIVE VICE PRESIDENT AND CLIFTON MHC CHIEF LENDING OFFICER JOHN H. PETO CHRISTINE R. PIANO, CPA REAL ESTATE INVESTOR EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER CHARLES J. PIVIROTTO SUSAN L. HORANT MANAGING SHAREHOLDER- VICE PRESIDENT AND SECURITY PIVIROTTO & OFFICER FOSTER, CPA'S PA ELEANOR BAKELAAR-MENNITI JOSEPH C. SMITH VICE PRESIDENT AND N.O.W. PRESIDENT - SMITH-SONDY ADMINISTRATOR ASPHALT CONSTRUCTION CO. JOSEPHINE T. SCAVONE JOHN STOKES VICE PRESIDENT AND HUMAN GENERAL PARTNER - O.I.R. RESOURCE ADMINISTRATOR REALTY CO. LINDA FISHER VICE PRESIDENT AND LOAN OFFICER COLEEN KELLEY VICE PRESIDENT AND IRA ADMINISTRATOR TED MUNLEY VICE PRESIDENT AND BRANCH COORDINATOR NANCY NA VICE PRESIDENT AND CONTROLLER BERNADETTE MCDONALD VICE PRESIDENT AND TREASURER CLAIRE GIANCOLA VICE PRESIDENT AND TRAINING MANAGER
74 73 OFFICE LOCATIONS MAIN OFFICE - ----------- MONTCLAIR HEIGHTS 1433 Van Houten Avenue Clifton, New Jersey 07015 (973) 473-2200 / (973) 473-2020 BRANCH OFFICES - -------------- RICHFIELD PALISADE AVENUE 1055 Clifton Avenue 247 Palisade Avenue Clifton, New Jersey 07013 Garfield, New Jersey 07026 (973) 473-2323 (973) 478-5050 BOTANY VILLAGE LANZA AVENUE 1 Village Square West 369 Lanza Avenue Clifton, New Jersey 07011 Garfield, New Jersey 07026 (973) 546-3320 (973) 478-1200 LAKEVIEW AVENUE WALLINGTON 319 Lakeview Avenue 55 Union Boulevard Clifton, New Jersey 07011 Wallington, New Jersey 07057 (973) 478-1260 (973) 779-7306 ATHENIA WAYNE 646 Van Houten Avenue 1158 Hamburg Turnpike Clifton, New Jersey 07013 Wayne, New Jersey 07470 (973) 473-0025 (973) 628-1611 VALLEY ROAD 387 Valley Road Clifton, New Jersey 07013 (973) 279-1505 EX-21.0 3 cliftonexb210june09-08.txt 1 EXHIBIT 21.0 LIST OF SUBSIDIARIES 2 EXHIBIT 21.0 LIST OF SUBSIDIARIES Registrant Clifton Savings Bancorp, Inc. Percentage Jurisdiction or Subsidiaries Ownership State of Incorporation - --------------------------- --------------------- -------------------------- Clifton Savings Bank 100% United States Botany Inc. (1) 100% New Jersey - ---------------------------------------------------- (1) Wholly owned subsidiary of Clifton Savings Bank. EX-23.0 4 cliftonexb23june09-08.txt 1 EXHIBIT 23.0 CONSENT OF BEARD MILLER COMPANY LLP 2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Clifton Savings Bancorp, Inc. Clifton, New Jersey We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-126611 and 333-113302) of Clifton Savings Bancorp, Inc. of our reports dated June 3, 2008, relating to the consolidated financial statements, and the effectiveness of Clifton Savings Bancorp, Inc.'s internal control over financial reporting, which appear in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. /s/ Beard Miller Company LLP Beard Miller Company LLP Pine Brook, New Jersey June 12, 2008 EX-31.1 5 cliftonexb31june09-08.txt 1 EXHIBIT 31.1 RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER 2 CERTIFICATION I, John A. Celentano, Jr. Chairman of the Board and Chief Executive Officer of Clifton Savings Bancorp, Inc. certify that: 1. I have reviewed this annual report of Clifton Savings Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15)(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 11, 2008 /s/ John A. Celentano, Jr. ------------------------------------- John A. Celentano, Jr. Chairman of the Board and Chief Executive Officer (principal executive officer) EX-31.2 6 cliftonexb312june09-08.txt 1 EXHIBIT 31.2 RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER 2 CERTIFICATION I, Christine R. Piano, Chief Financial Officer and Treasurer of Clifton Savings Bancorp, Inc., certify that: 1. I have reviewed this annual report of Clifton Savings Bancorp, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15)(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 11, 2008 /s/ Christine R. Piano ------------------------------------- Christine R. Piano Chief Financial Officer and Treasurer (principal financial and accounting officer) EX-32.0 7 cliftonexb320june09-08.txt 1 EXHIBIT 32.0 SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER 2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADDED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Clifton Savings Bancorp, Inc. (the "Company") on Form 10-K for the period ended March 31, 2008 as filed with the Securities and Exchange Commission (the "Report"), the undersigned hereby certify, pursuant to 18 U.S.C. ss.1350, as added by ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. /s/ John A. Celentano, Jr. ------------------------------------- John A. Celentano, Jr. Chairman of the Board and Chief Executive Officer /s/ Christine R. Piano ------------------------------------- Christine R. Piano Chief Financial Officer and Treasurer Dated: June 11, 2008 -----END PRIVACY-ENHANCED MESSAGE-----