MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This Form 10-Q may include,
and from time to time the Company may disclose, certain forward-looking statements based on current management expectations. The Companys actual results could differ materially from those management expectations. Factors that could cause
future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment
portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Companys operations, markets, products, services and prices. (See Part II - Item
1A: Risk Factors.) Additional factors are discussed in the Companys Annual Report on Form 10-K for the year ended March 31, 2013 under Part I - Item 1A. Risk Factors. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking
statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future
results or trends.
Overview of Financial Condition and Results of Operations
The Companys results of operations depend primarily on its net interest income, which is a direct result of the prevailing interest rate environment. Net
interest income is the difference between the interest income earned on interest-earning assets and the interest paid on interest-bearing liabilities. It is a function of the average balances of loans and securities versus deposits and borrowed
funds outstanding in any one period and the yields earned on those loans and securities and the cost of those deposits and borrowed funds.
Interest-earning assets consist primarily of investment and mortgage-backed securities and net loans which comprised 42.1% and 51.2%, respectively, of total
assets at September 30, 2013, as compared to 47.1% and 45.0%, respectively, of total assets at March 31, 2013. Cash and cash equivalents decreased to 1.4% of total assets at September 30, 2013, as compared to 2.5% at March 31,
2013. The Companys mortgage-backed securities portfolio at September 30, 2013 consists solely of U.S. government-sponsored or guaranteed enterprises and the investment portfolio consists of approximately 64% U.S. government-sponsored or
guaranteed enterprises and 36% corporate bonds.
Interest-bearing liabilities consist of deposits and borrowings from the Federal Home Loan Bank of New
York (the FHLB). Interest bearing deposits increased $24.8 million, or 3.3%, and non-interest bearing deposits increased $2.9 million, or 21.6%, between March 31, 2013 and September 30, 2013 and borrowed funds increased $40.0
million, or 76.2%, during the period. The increase in interest bearing deposits was mainly due to the promotional rates offered on a bonus passbook account at the Banks two newest branches. The balance in borrowed funds was $92.5 million at
September 30, 2013 as compared to $52.5 million at March 31, 2013. During the six months ended September 30, 2013, we incurred $15.0 million in short-term borrowings with a rate of 0.48% and $25.0 million in long-term borrowings with
a rate of 0.65% and no borrowings were repaid. Borrowings were needed to fund increased loan origination and purchase volumes.
Net interest income
decreased $80,000, or 1.4%, during the three months ended September 30, 2013, when compared with the same 2012 period. This decrease in net interest income was due to a $630,000 decrease in total interest income partially offset by a decrease
in total interest expense of $550,000. Average interest-earning assets increased $6.0 million, or 0.6%, during the three months ended September 30, 2013, while average interest-bearing liabilities increased $12.7 million, or 1.5%, when compared
with the same 2012 period. The $6.7 million decrease in average net interest-earning assets was mainly attributable to decreases of $38.3 million in mortgage-backed securities, $4.2 million in investment securities, and $21.0 million in other
interest-earning assets, coupled with an increase $15.2 million in borrowings, partially offset by an increase of $69.5 million in loans, and a decrease of $2.5 million in interest bearing deposits.
- 26 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview of Financial Condition and Results of Operations (Contd)
The net interest rate spread remained unchanged at 2.15% during the three months ended September 30,
2013 and 2012. This was due to a decrease of 28 basis points in the cost of interest-bearing liabilities which was offset by a decrease of 28 basis points in the return on interest-earning assets. Results of operations also depend, to a lesser
extent, on non-interest income generated, any provision for loan losses recorded, and non-interest expenses incurred. During the three months ended September 30, 2013, non-interest income decreased $75,000, or 18.9%, as compared to the
comparable period in 2012. The decrease was mainly due to the 2012 period including a gain on sales of securities of $647,000 partially offset by a loss on the extinguishment of debt of $527,000 resulting from a deleveraging strategy implemented in
July 2012. No such transactions occurred during the three months ended September 30, 2013. Provision for loan losses increased $164,000, or 85.4%, for the three months ended September 30, 2013, and non-interest expense increased $242,000,
or 7.2%, between periods.
Changes in Financial Condition
The Companys assets totaled $1.08 billion at September 30, 2013, which represents an increase of $66.8 million, or 6.6%, as compared with $1.02
billion at March 31, 2013.
Cash and cash equivalents decreased $11.1 million, or 42.8%, to $14.8 million at September 30, 2013 as compared to
$25.9 million at March 31, 2013 as funds were redeployed into higher yielding assets.
Securities available for sale decreased $11.2 million, or
72.9%, to $4.2 million at September 30, 2013 from $15.4 million at March 31, 2013. The decrease during the six months ended September 30, 2013 resulted primarily from calls and repayments totaling $6.4 million, proceeds from sales
totaling $4.7 million and a decrease of $494,000 in the unrealized gain on the portfolio.
Securities held to maturity decreased $10.9 million, or 2.4%,
to $451.8 million at September 30, 2013 from $462.7 million at March 31, 2013. The decrease during the six months ended September 30, 2013 resulted primarily from maturities, calls and repayments totaling $56.7 million, and proceeds
from sale of securities totaling $5.6 million, partially offset by purchases of securities totaling $54.3 million. Certain mortgage-backed securities which had principal balances remaining of less than 15% of the principal balance purchased were
sold during the 2013 period.
Net loans increased $97.6 million, or 21.4%, to $554.5 million at September 30, 2013 when compared with $456.8 million
at March 31, 2013. The increase during the six months ended September 30, 2013 resulted primarily from origination volume and purchases of loans exceeding repayment levels. The largest increase in the loan portfolio was in one- to
four-family real estate loans, which increased $82.0 million, or 19.6%. During 2013, the Bank increased its efforts to increase its one-to four-family residential loan originations. In addition, the Bank continues to supplement its internal
origination volume with purchases of loans from various sources. In late 2012, the Bank established a commercial loan department to expand its multi-family and commercial lending activities. Commercial and multi-family loans increased $13.4 million,
or 46.7%, during the six months ended September 30, 2013.
Total liabilities increased $65.5 million, or 7.9%, to $894.3 million at
September 30, 2013 from $828.8 million at March 31, 2013. Deposits at September 30, 2013 increased $27.7 million, or 3.6%, to $791.4 million when compared with $763.7 million at March 31, 2013 mainly due to the promotional rates
offered at the Banks two newest branches. Borrowed funds increased $40.0 million, or 76.2%, to $92.5 million at September 30, 2013, as compared with $52.5 million at March 31, 2013. At September 30, 2013, the remaining
borrowings of $92.5 million had a weighted average interest rate of 2.27%. Borrowings increased during the six-month period in order to fund the Banks increased lending efforts.
- 27 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition (Contd)
Stockholders equity totaled $188.5 million and $187.3 million at September 30, 2013 and
March 31, 2013, respectively. The increase of $1.19 million, or 0.6%, for the six months ended September 30, 2013, resulted primarily from net income of $3.15 million, employee stock ownership shares committed to be released of $446,000,
$897,000 for the exercise of stock options and related tax benefits, partially offset by a net decrease in unrealized gains on the available for sale securities portfolio, net of income taxes, of $293,000 and cash dividends declared of $3.1 million.
Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012
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.
- 28 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012
(Contd.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Yield/
Cost
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
521,682
|
|
|
$
|
5,150
|
|
|
|
3.95
|
%
|
|
$
|
452,146
|
|
|
$
|
4,939
|
|
|
|
4.37
|
%
|
Mortgage-backed securities
|
|
|
319,670
|
|
|
|
2,546
|
|
|
|
3.19
|
%
|
|
|
357,920
|
|
|
|
3,194
|
|
|
|
3.57
|
%
|
Investment securities
|
|
|
136,191
|
|
|
|
573
|
|
|
|
1.68
|
%
|
|
|
140,384
|
|
|
|
746
|
|
|
|
2.13
|
%
|
Other interest-earning assets
|
|
|
19,459
|
|
|
|
41
|
|
|
|
0.84
|
%
|
|
|
40,507
|
|
|
|
61
|
|
|
|
0.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
997,002
|
|
|
|
8,310
|
|
|
|
3.33
|
%
|
|
|
990,957
|
|
|
|
8,940
|
|
|
|
3.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
70,792
|
|
|
|
|
|
|
|
|
|
|
|
63,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,067,794
|
|
|
|
|
|
|
|
|
|
|
$
|
1,054,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand accounts
|
|
$
|
58,127
|
|
|
|
20
|
|
|
|
0.14
|
%
|
|
$
|
57,060
|
|
|
|
27
|
|
|
|
0.19
|
%
|
Savings and Club accounts
|
|
|
154,660
|
|
|
|
112
|
|
|
|
0.29
|
%
|
|
|
123,611
|
|
|
|
77
|
|
|
|
0.25
|
%
|
Certificates of deposit
|
|
|
562,805
|
|
|
|
1,868
|
|
|
|
1.33
|
%
|
|
|
597,420
|
|
|
|
2,369
|
|
|
|
1.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
|
775,592
|
|
|
|
2,000
|
|
|
|
1.03
|
%
|
|
|
778,091
|
|
|
|
2,473
|
|
|
|
1.27
|
%
|
Borrowed funds
|
|
|
75,000
|
|
|
|
514
|
|
|
|
2.74
|
%
|
|
|
59,825
|
|
|
|
591
|
|
|
|
3.95
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
850,592
|
|
|
|
2,514
|
|
|
|
1.18
|
%
|
|
|
837,916
|
|
|
|
3,064
|
|
|
|
1.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
15,219
|
|
|
|
|
|
|
|
|
|
|
|
9,324
|
|
|
|
|
|
|
|
|
|
Other noninterest-bearing liabilities
|
|
|
13,988
|
|
|
|
|
|
|
|
|
|
|
|
20,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
|
|
29,207
|
|
|
|
|
|
|
|
|
|
|
|
29,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
879,799
|
|
|
|
|
|
|
|
|
|
|
|
867,739
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
187,995
|
|
|
|
|
|
|
|
|
|
|
|
186,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,067,794
|
|
|
|
|
|
|
|
|
|
|
$
|
1,054,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
5,796
|
|
|
|
|
|
|
|
|
|
|
$
|
5,876
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.15
|
%
|
|
|
|
|
|
|
|
|
|
|
2.15
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
2.33
|
%
|
|
|
|
|
|
|
|
|
|
|
2.37
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
1.17
|
x
|
|
|
|
|
|
|
|
|
|
|
1.18
|
x
|
|
|
|
|
|
|
|
|
Net income decreased $343,000, or 19.6%, to $1.41 million for the three months ended September 30, 2013 compared with $1.75
million for the same 2012 period. The decrease in net income during the 2013 period resulted primarily from an increase of $242,000, or 7.2%, in noninterest expenses and an increase of $164,000, or 85.4%, in the provision for loan losses, coupled
with a decrease of $80,000, or 1.4%, in net interest income, and a decrease of $75,000, or 18.9%, in noninterest income, partially offset by a decrease of $218,000, or 22.9%, in income taxes.
- 29 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012
(Contd.)
Interest income on loans increased by $211,000, or 4.3%, to $5.15 million during the three months ended
September 30, 2013, when compared with $4.94 million for the same 2012 period. The increase during the 2013 period mainly resulted from an increase of $69.5 million, or 15.4%, in the average balance when compared to the same period in 2012,
partially offset by a decrease of 42 basis points on the yield earned on the loan portfolio to 3.95% from 4.37%. Interest income on mortgage-backed securities decreased $648,000, or 20.3%, to $2.55 million during the three months ended
September 30, 2013, when compared with $3.19 million for the same 2012 period. The decrease during the 2013 period resulted from a decrease of 38 basis points in the yield earned on mortgage-backed securities to 3.19% from 3.57%, coupled with a
decrease of $38.3 million, or 10.7%, in the average balance of mortgage-backed securities outstanding. Interest earned on investment securities decreased by $173,000, or 23.2%, to $573,000 during the three months ended September 30, 2013, when
compared to $746,000 during the same 2012 period, due to a decrease in the average balance of $4.2 million, or 3.0%, coupled with a 45 basis point decrease in yield to 1.68% from 2.13%. Interest earned on other interest-earning assets decreased by
$20,000, or 32.8%, to $41,000 during the three months ended September 30, 2013, when compared to $61,000 during the same 2012 period primarily due to a decrease of $21.0 million, or 52.0%, in the average balance, partially offset by a 24 basis
point increase in the yield to 0.84% from 0.60%. The decrease in balances and corresponding decreases in income on mortgage-backed securities, investment securities and other interest-earning assets resulted from most funds being redeployed into
higher yielding loans. The decrease in the yield on most interest-earning assets was the result of overall lower market interest rates.
Interest expense
on deposits decreased $473,000, or 19.1%, to $2.00 million during the three months ended September 30, 2013, when compared to $2.47 million during the same 2012 period. The decrease was primarily attributable to a decrease of 24 basis points in
the cost of interest-bearing deposits to 1.03% from 1.27%, coupled with a decrease of $2.5 million, or 0.3%, in the average balance of interest-bearing deposits. The decrease in the average cost of deposits reflected lower market interest rates.
Interest expense on borrowed money decreased $77,000, or 13.0%, to $514,000 during the three months ended September 30, 2013 when compared with $591,000 during the same 2012 period. The decrease was primarily attributable to a decrease of 121
basis points in the cost of borrowings to 2.74% from 3.95%, partially offset by an increase of $15.2 million, or 25.4%, in the average balance of borrowings. The $12.7 million increase in average interest-bearing liabilities was due to an increase
of $15.2 million in borrowings, partially offset by a decrease of $2.5 million in interest-bearing deposits. Net interest income decreased $80,000, or 1.4%, during the three months ended September 30, 2013, to $5.80 million when compared to
$5.88 million for the same 2012 period. The net interest rate spread remained unchanged at 2.15% for the 2013 and 2012 periods.
- 30 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012
(Contd.)
The provision for loan losses increased $164,000, or 85.4%, to $356,000 for the three months ended
September 30, 2013 as compared to $192,000 for the same period in 2012. The allowance for loan losses is based on managements qualitative analysis which includes an evaluation of economic and other factors. The Bank continually evaluates
the need for a provision for loan losses based on its periodic review of the loan portfolio and general market conditions. At September 30, 2013 and 2012, the Banks non-accrual loans totaled $4.7 million and $4.2 million, respectively,
representing 0.85% and 0.91%, respectively, of total gross loans. At March 31, 2013, nonaccrual loans totaled $5.9 million, or 1.29% of total gross loans. During the three months ended September 30, 2013, the Bank recorded a $46,000 charge
off on a one-to four-family loan. At September 30, 2013, non-accrual loans consisted of twenty-six loans secured by one- to four-family residential real estate, one loan secured by commercial real estate, and four second mortgage loans secured
by one- to four-family residential real estate, while at September 30, 2012, non-accrual loans consisted of twenty-three loans secured by one- to four-family residential real estate, three second mortgage loans secured by one- to four-family
residential real estate, and one second mortgage loan secured by commercial real estate. Included in non-accrual loans at September 30, 2013 are fourteen loans totaling $1.8 million that are current or less than ninety days delinquent. At
September 30, 2012, there were seven loans totaling $787,000 that were current or less than ninety days delinquent included in non-accrual loans. At March 31, 2013, there were thirteen loans totaling $2.2 million that were current or less
than ninety days delinquent included in non-accrual loans. All non-accrual loans included above are secured by properties located in the state of New Jersey. Impaired loans totaled $566,000, $779,000 and $783,000 at September 30,
2013, March 31, 2013 and September 30, 2012, respectively. The allowance for loan losses amounted to $2.95 million, $2.50 million, and $2.30 million, respectively, at September 30, 2013, March 31, 2013, and
September 30, 2012, representing 0.53%, 0.55%, and 0.50% of total gross loans at September 30, 2013, March 31, 2013 and September 30, 2012, respectively.
Non-interest income decreased $75,000, or 18.9%, to $321,000 for the three months ended September 30, 2013 compared to $396,000 for the three months
ended September 30, 2012. The decrease was primarily due to the 2012 period including a $647,000 gain on sale of securities partially offset by a loss on the extinguishment of debt of $527,000 resulting from a deleveraging strategy implemented
in July 2012. No such transactions occurred during the three months ended September 30, 2013.
Non-interest expense increased $242,000, or 7.2%, to
$3.62 million for the three months ended September 30, 2013 as compared to $3.38 million for the three months ended September 30, 2012. The increase was primarily the result of increases of $190,000, or 10.3%, in salaries and employee
benefits, $29,000, or 15.9%, in directors compensation, and $30,000, or 8.2%, in occupancy expense of premises. The increase in salaries and employee benefits was mainly due to an increase in costs associated with the hiring of two commercial
loan officers in December 2012 and April 2013, along with normal annual salary increases. The increase in directors compensation was due to an increase in directors fees in 2013, and the resulting increase in the directors
retirement plan expense. Occupancy expense of premises increased due to normal annual increases as well as the additional expense associated with the Banks loan department being moved to a new leased location in September 2012.
Income taxes totaled $732,000 and $950,000 during the three months ended September 30, 2013 and 2012, respectively. The decrease of $218,000, or 22.9%,
during the 2013 period resulted from a decrease in pre-tax income, coupled with a decrease in the overall effective income tax rate which was 34.3% in the 2013 period compared with 35.2% for the 2012 period.
- 31 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Six Months Ended September 30, 2013 and 2012
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.
- 32 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Six Months Ended September 30, 2013 and 2012
(Contd.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended September 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Yield/
Cost
|
|
|
Average
Balance
|
|
|
Interest
and
Dividends
|
|
|
Yield/
Cost
|
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable
|
|
$
|
497,604
|
|
|
$
|
9,962
|
|
|
|
4.00
|
%
|
|
$
|
446,300
|
|
|
$
|
9,878
|
|
|
|
4.43
|
%
|
Mortgage-backed securities
|
|
|
330,413
|
|
|
|
5,330
|
|
|
|
3.23
|
%
|
|
|
358,381
|
|
|
|
6,662
|
|
|
|
3.72
|
%
|
Investment securities
|
|
|
132,076
|
|
|
|
1,123
|
|
|
|
1.70
|
%
|
|
|
170,149
|
|
|
|
1,865
|
|
|
|
2.19
|
%
|
Other interest-earning assets
|
|
|
18,528
|
|
|
|
82
|
|
|
|
0.89
|
%
|
|
|
37,219
|
|
|
|
125
|
|
|
|
0.67
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
978,621
|
|
|
|
16,497
|
|
|
|
3.37
|
%
|
|
|
1,012,049
|
|
|
|
18,530
|
|
|
|
3.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets
|
|
|
71,294
|
|
|
|
|
|
|
|
|
|
|
|
60,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,049,915
|
|
|
|
|
|
|
|
|
|
|
$
|
1,072,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand accounts
|
|
$
|
57,865
|
|
|
|
43
|
|
|
|
0.15
|
%
|
|
$
|
57,065
|
|
|
|
65
|
|
|
|
0.23
|
%
|
Savings and Club accounts
|
|
|
146,688
|
|
|
|
203
|
|
|
|
0.28
|
%
|
|
|
123,454
|
|
|
|
185
|
|
|
|
0.30
|
%
|
Certificates of deposit
|
|
|
564,993
|
|
|
|
3,796
|
|
|
|
1.34
|
%
|
|
|
610,272
|
|
|
|
4,920
|
|
|
|
1.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
769,546
|
|
|
|
4,042
|
|
|
|
1.05
|
%
|
|
|
790,791
|
|
|
|
5,170
|
|
|
|
1.31
|
%
|
Advances from the FHLB
|
|
|
65,357
|
|
|
|
986
|
|
|
|
3.02
|
%
|
|
|
67,731
|
|
|
|
1,330
|
|
|
|
3.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
834,903
|
|
|
|
5,028
|
|
|
|
1.20
|
%
|
|
|
858,522
|
|
|
|
6,500
|
|
|
|
1.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
14,415
|
|
|
|
|
|
|
|
|
|
|
|
8,792
|
|
|
|
|
|
|
|
|
|
Other noninterest-bearing liabilities
|
|
|
12,701
|
|
|
|
|
|
|
|
|
|
|
|
18,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest-bearing liabilities
|
|
|
27,116
|
|
|
|
|
|
|
|
|
|
|
|
27,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
862,019
|
|
|
|
|
|
|
|
|
|
|
|
885,885
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
187,896
|
|
|
|
|
|
|
|
|
|
|
|
186,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,049,915
|
|
|
|
|
|
|
|
|
|
|
$
|
1,072,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
11,469
|
|
|
|
|
|
|
|
|
|
|
$
|
12,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread
|
|
|
|
|
|
|
|
|
|
|
2.17
|
%
|
|
|
|
|
|
|
|
|
|
|
2.15
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
2.34
|
%
|
|
|
|
|
|
|
|
|
|
|
2.38
|
%
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
1.17
|
x
|
|
|
|
|
|
|
|
|
|
|
1.18
|
x
|
|
|
|
|
|
|
|
|
Net income decreased $415,000, or 11.6%, to $3.15 million for the six months ended September 30, 2013 compared with $3.57
million for the same 2012 period. The decrease in net income during the 2013 period resulted primarily from a decrease in net interest income of $561,000, or 4.7%, an increase of $494,000, or 7.3%, in noninterest expense and an increase in provision
for loan losses of $244,000, or 83.6%, partially offset by an increase of $637,000, or 112.4%, in noninterest income and a decrease of $247,000, or 12.8%, in income taxes.
- 33 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Six Months Ended September 30, 2013 and 2012 (Contd.)
Interest income on loans increased by $84,000, or 0.9%, to $9.96 million during the six months ended
September 30, 2013, when compared with $9.88 million for the same 2012 period. The increase during the 2013 period mainly resulted from an increase of $51.3 million, or 11.5%, in the average balance of loans when compared to the same period in
2012, partially offset by a decrease of 43 basis points on the yield earned on the loan portfolio to 4.00% from 4.43%. Interest income on mortgage-backed securities decreased $1.3 million, or 20.0%, to $5.33 million during the six months ended
September 30, 2013, when compared with $6.66 million for the same 2012 period. The decrease during the 2013 period resulted from a decrease of 49 basis points in the yield earned on mortgage-backed securities to 3.23% from 3.72%, coupled with a
decrease of $28.0 million, or 7.8% in the average balance of mortgage-backed securities outstanding. Interest earned on investment securities decreased by $742,000, or 39.8%, to $1.12 million during the six months ended September 30, 2013, when
compared to $1.87 million during the same 2012 period, due to a decrease in the average balance of $38.1 million, or 22.4%, and a decrease of 49 basis points in yield to 1.70% from 2.19%. Interest earned on other interest-earning assets decreased by
$43,000, or 34.4% to $82,000 during the six months ended September 30, 2013, when compared to $125,000 during the same 2012 period primarily due to a decrease of $18.7 million, or 50.2%, in the average balance, partially offset by an increase
of 22 basis points in yield to 0.89% from 0.67%. The decrease in balances and corresponding decreases in income on mortgage-backed securities, investment securities and other interest-earning assets resulted from most funds being redeployed into
higher yielding loans. The decrease in the yield on most interest-earning assets was the result of overall lower market interest rates.
Interest expense
on deposits decreased $1.13 million, or 21.8%, to $4.04 million during the six months ended September 30, 2013, when compared to $5.17 million during the same 2012 period. The decrease was primarily attributable to a decrease of 26 basis points
in the cost of interest-bearing deposits to 1.05% from 1.31%, coupled with a decrease of $21.2 million, or 2.7% in the average balance of interest-bearing deposits. The decrease in the average cost of deposits reflected lower market interest rates.
The decrease in the balance was the result of the Banks continued strategy of pricing deposits to allow for controlled outflow of non-core deposits to maintain the net interest margin and spread in the current economic environment. Interest
expense on borrowed money decreased approximately $344,000, or 25.9%, to $986,000 during the six months ended September 30, 2013 when compared with $1.33 million during the same 2012 period. The decrease was primarily attributable to a decrease
of $2.4 million, or 3.5%, in the average balance of borrowings, coupled with a decrease of 91 basis points in the cost of borrowings to 3.02% from 3.93%. Net interest income decreased $561,000, or 4.7% during the six months ended September 30,
2013, to $11.47 million when compared to $12.03 million for the same 2012 period. The $23.6 million decrease in average interest-bearing liabilities was primarily due to a decrease of $21.2 million in interest-bearing deposits and a decrease of $2.4
million in borrowings. The net interest rate spread increased 2 basis points due to a 31 basis point decrease in the average cost of interest-bearing liabilities, partially offset by a decrease of 29 basis points in the average yield earned on
interest-earning assets.
- 34 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of Operating Results for the Six Months Ended September 30, 2013 and 2012 (Contd.)
The provision for loan losses increased $244,000, or 83.6%, to $536,000 during the six months ended
September 30, 2013 as compared to $292,000 for the same period in 2012. The allowance for loan losses is based on managements qualitative analysis which includes an evaluation of economic and other factors. The Bank continually evaluates
the need for a provision for loan losses based on its periodic review of the loan portfolio and general market conditions. See Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012 for a discussion
of non-performing and impaired loans as of September 30, 2013, March 31, 2013 and September 30, 2013.
Non-interest income increased
$637,000, or 112.4%, to $1.2 million for the six months ended September 30, 2013, as compared to $567,000 for the comparable period in 2012, mainly due to the 2012 period including a $527,000 loss on debt extinguishment and a $99,000 write-down
of land held for sale. Gain on sales of securities totaled $566,000 and $647,000, respectively, for the six months ended September 30, 2013 and 2012. The gains on the sales of securities in the 2013 period resulted primarily from the sale of
certain mortgage-backed securities which had principal balances remaining of less than 15% of the principal balance purchased. In the 2012 period, advances totaling $16.2 million which had a weighted average rate of 3.67% were extinguished. This was
funded by the sale of $8.2 million of mortgage-backed securities and by cash and resulted in the recording of a $527,000 loss. No such transactions occurred during the six months ended September 30, 2013. The write-down of land held for sale
was on a property which was sold in July 2012. There were no such write-downs for the six months ended September 30, 2013.
Non-interest expense
increased $494,000, or 7.3%, to $7.3 million for the six months ended September 30, 2013 as compared to $6.8 million for the six months ended September 30, 2012. The increase was primarily the result of increases of $377,000, or 10.2%, in
salaries and employee benefits, $68,000, or 18.3%, in directors compensation, $38,000, or 33.6%, in advertising expense, $58,000, or 8.1%, in occupancy expense of premises and $52,000, or 9.3%, in equipment expense, partially offset by a
$67,000, or 6.8 %, decrease in other expense. The increase in salaries and employee benefits was mainly due to an increase in costs associated with the hiring of two commercial loan officers in December 2012 and April 2013, along with normal
annual salary increases. The increase in directors compensation was due to an increase in directors fees in 2013, and the resulting increase in the directors retirement plan expense. The increase in advertising was mostly due to a
campaign associated with increasing deposits at one of the Banks branches. Occupancy expense of premises and equipment expense increased due to normal annual increases as well as the additional expense associated with the Banks loan
department being moved to a new leased location in September 2012. Other expense decreased mainly because of a decrease of $46,000 in real estate owned operating expense.
Income taxes totaled $1.69 million and $1.93 million during the six months ended September 30, 2013 and 2012, respectively. The decrease of $247,000, or
12.8%, during the 2013 period resulted from lower pre-tax income, coupled with an overall decrease in the effective income tax rate which was 34.9% in the 2013 period compared with 35.2% for 2012.
Liquidity and Capital Resources
The Company maintains
levels of liquid assets sufficient to ensure the Banks safe and sound operation. The Company adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow accounts on mortgage loans,
repayment of borrowings, when applicable, and loan funding commitments. The Company also adjusts its liquidity level as appropriate to meet its asset/liability objectives. Liquid assets, which include cash and cash equivalents and securities
available for sale, totaled $19.0 million, or 1.8% of total assets at September 30, 2013, as compared to $41.3 million, or 4.1% of total assets at March 31, 2013.
- 35 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Contd)
The Companys liquidity, represented by cash and cash equivalents and securities available for sale, is
a product of its operating, investing and financing activities.
The Company is a separate legal entity from the Bank and must provide for its own
liquidity. In addition to its operating expenses, the Company on a stand-alone basis is responsible for paying any dividends declared to its shareholders. The Company also may repurchase shares of its common stock. The Companys primary source
of income is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OCC but with prior notice to the OCC, cannot exceed net
income for that year to date plus retained net income (as defined) for the preceding two calendar years. On a stand-alone basis, at September 30, 2013, the Company had liquid assets of $17.0 million.
Cash was generated by operating and financing activities and used by investing activities during the six months ended September 30, 2013. The primary
sources of cash were net income, an increase in deposits, an increase in borrowings, and proceeds from principal repayments, maturities, calls and sales of securities. The primary uses of funds were purchases of securities and loans and net loan
originations. Dividends declared and paid totaled $3.1 million during the six months ended September 30, 2013.
The Companys primary investing
activities are the origination and purchases of loans and the purchases of securities. Net loans amounted to $554.5 million and $456.8 million at September 30, 2013 and March 31, 2013, respectively. Securities, including available for sale
and held to maturity issues, totaled $456.0 million and $478.1 million at September 30, 2013 and March 31, 2013, respectively. In addition to funding new loan production through operating and investing activities, such activities were
funded by principal repayments, maturities, and calls on existing loans and securities, and the sale of securities.
Liquidity management is both a daily
and long-term function of business management. Excess liquidity is generally invested in short to intermediate-term investments. If the Bank requires funds beyond its ability to generate them internally, the Bank can borrow overnight funds from the
FHLB under an overnight advance program up to the Banks maximum borrowing capacity based on its ability to collateralize such borrowings. Members in good standing can borrow up to 50% of their asset size as long as they have qualifying
collateral to support the advance and purchase of FHLB capital stock. At September 30, 2013, advances from the FHLB amounted to $92.5 million at a weighted average rate of 2.27%. Additionally, the Bank has the ability to borrow funds of up to
an aggregate of $88.0 million at two financial institutions under established unsecured overnight lines of credit at a daily adjustable rate.
The Bank
anticipates that it will have sufficient funds available to meet its current commitments. At September 30, 2013, the Bank had outstanding commitments to originate loans totaling approximately $4.1 million for fixed-rate one- to four-family
mortgage loans with interest rates ranging from 2.75% to 4.5%, and $4.2 million for adjustable rate loans with initial rates ranging from 3.00% to 3.75%.
In addition, at September 30, 2013, the Bank had outstanding commitments to originate adjustable rate commercial real estate loans totaling approximately
$7.3 million with initial rates ranging from 4.00% to 4.50% and a $148,000 fixed rate commercial real estate loan with a rate of 4.5%.
At
September 30, 2013 the Bank also had commitments outstanding to purchase $10.9 million in adjustable interest rate one- to four-family mortgage loans with initial interest rates ranging from 2.75% to 3.75%, and $4.7 million in fixed rate one-
to four-family mortgage loans with interest rates ranging from 3.00% to 4.75%.
At September 30, 2013, undisbursed funds from customer approved
unused lines of credit under a homeowners equity lending program amounted to approximately $5.0 million. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective
borrowers on demand. The Bank also had commitments for $162,000 for fixed rate home equity loans with rates ranging from 3.75% to 4.25%.
- 36 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Contd)
Certificates of deposit due within one year at September 30, 2013, totaled $318.7 million, or 57.2% of
our certificates of deposit. Management believes that, based upon its experience and the Banks deposit flow history, a significant portion of such deposits will remain with the Bank. There was one FHLB advance totaling $15.0 million due within
one year at September 30, 2013.
Under applicable federal regulations, three separate measurements of capital adequacy (the Capital Rule)
are required. The Capital Rule requires each savings institution to maintain tangible capital equal of at least 1.5% and core capital equal of at least 4.0% of its adjusted total assets. The Capital Rule further requires each savings institution to
maintain total capital equal of at least 8.0% of its risk-weighted assets.
The following table sets forth the Banks capital position at
September 30 and March 31, 2013, as compared to the minimum regulatory capital requirements:
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Regulatory Capital Requirements
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Actual
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Minimum Capital
Adequacy
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For Classification as
Well-Capitalized
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Amount
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Ratio
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Amount
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Ratio
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Amount
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Ratio
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(Dollars In Thousands)
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As of September 30, 2013:
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Total risk-based capital (to risk-weighted assets)
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$
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168,275
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36.29
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%
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$
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37,091
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8.00
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%
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$
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46,364
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10.00
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%
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Tier 1 capital (to risk-weighted assets)
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165,325
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35.66
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18,546
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4.00
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27,819
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6.00
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Core (tier 1) capital (to adjusted total assets)
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165,325
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15.29
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43,262
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4.00
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54,078
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5.00
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Tier 1 risk-based capital (to adjusted tangible assets)
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165,325
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15.29
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16,223
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1.50
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As of March 31, 2013:
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Total risk-based capital (to risk-weighted assets)
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$
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168,986
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40.52
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%
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$
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33,366
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8.00
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%
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$
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41,708
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10.00
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%
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Tier 1 capital (to risk-weighted assets)
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166,486
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39.92
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16,683
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4.00
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25,025
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6.00
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Core (tier 1) capital (to adjusted total assets)
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166,486
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16.41
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40,591
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4.00
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50,738
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5.00
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Tier 1 risk-based capital (to adjusted tangible assets)
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166,486
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16.41
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15,222
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1.50
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Savings and loan holding companies are not currently subject to specific regulatory capital requirements. The Dodd-Frank Act,
however, required the Federal Reserve Board to promulgate consolidated capital requirements for depository institution holding companies, including savings and loan holding companies, that are no less stringent, both quantitatively and in terms of
components of capital, than those applicable to institutions themselves. In July 2013, the OCC, the Federal Reserve Board and the other federal bank regulatory agencies issued a final rule, which will be effective for Clifton Savings Bancorp and
Clifton Savings Bank on January 1, 2015, that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on
Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes for Clifton Savings Bancorp and Clifton Savings Bank a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets),
increases the minimum Tier 1 capital to risk based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days
- 37 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources (Contd)
past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also requires
unrealized gains and losses on certain available-for-sale securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. Additional constraints will also be imposed on the
inclusion in regulatory capital of mortgage-servicing assets, defined tax assets and minority interests. The rule limits a banking organizations capital distributions and certain discretionary bonus payments if the banking organization does
not hold a capital conservation buffer consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective
for the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. Based on our
capital levels and statement of financial condition composition at September 30, 2013, we believe implementation of the new rule will have no material impact on our capital needs.
- 38 -
CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES
ITEM 3: