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CSBK > SEC Filings for CSBK > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for CLIFTON SAVINGS BANCORP INC

Form 10-Q for CLIFTON SAVINGS BANCORP INC


8-Nov-2012

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Form 10-Q may include, and from time to time the Company may disclose, certain forward-looking statements based on current management expectations. The Company's actual results could differ materially from those management expectations. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of loan and investment portfolios, changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. (See Part II - "Item 1A: Risk Factors.") Additional factors are discussed in the Company's Annual Report on Form 10-K for the year ended March 31, 2012 under Part I - "Item 1A. Risk Factors". These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Forward-looking statements speak only as of the date they are made and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements or to reflect the occurrence of unanticipated events. Accordingly, past results and trends should not be used by investors to anticipate future results or trends.

Overview of Financial Condition and Results of Operations

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

Interest-earning assets consist primarily of investment and mortgage-backed securities and loans which comprised 47.5% and 43.9%, respectively, of total assets at September 30, 2012, as compared to 52.1% and 39.7%, respectively, of total assets at March 31, 2012. Cash and cash equivalents increased to 3.8% of total assets at September 30, 2012, as compared to 3.7% at March 31, 2012. The Company's investment and mortgage-backed securities portfolios consist of mostly U.S. government-sponsored or guaranteed enterprises.

Interest-bearing liabilities consist of deposits and borrowings from the Federal Home Loan Bank of New York (the "FHLB"). Deposits decreased $43.6 million, or 5.3%, between March 31, 2012 and September 30, 2012, and borrowed funds decreased by $23.3 million, or 29.6%, during this period. The decrease in deposits was due to the Bank's continued strategy of pricing deposits to allow for controlled outflow of non-core deposits to maintain the net interest margin and spread in this current economic environment. The balance in borrowed funds was $55.4 million at September 30, 2012 as compared to $78.7 million at March 31, 2012. During the six months ended September 30, 2012, $16.2 million of long-term borrowings were paid off in advance of their maturity and $7.1 million were repaid in accordance with their original terms.

Net interest income decreased $315,000, or 5.1%, during the three months ended September 30, 2012, when compared with the same 2011 period. This decrease in net interest income was due to a $1.4 million decrease in total interest income partially offset by a decrease in total interest expense of $1.1 million. Average interest-earning assets decreased $71.9 million, or 6.8%, during the three months ended September 30, 2012, while average interest-bearing liabilities decreased $86.8 million, or 9.4%, when compared with the same 2011 period. The $14.9 million decrease in average

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

net interest-earning assets was mainly attributable to a decrease of $110.7 million in investment securities offset by increases of $13.2 million in loans, $21.2 million in mortgage-backed securities, and $4.4 million in other interest- earning assets and decreases in deposits of $53.8 million and borrowings of $33.0 million. The net interest rate spread increased 6 basis points during the three months ended September 30, 2012, to 2.15% from 2.09% during the three months ended September 30, 2011. This was due to a decrease of 34 basis points in the cost of interest-bearing liabilities which was partially 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, 2012, non-interest income increased $133,000, or 50.6%, as compared to the comparable period in 2011 as the result of a $647,000 gain on sale of securities partially offset by a $527,000 loss on extinguishment of debt. Provision for loan losses increased $192,000 for the three months ended September 30, 2012, and non-interest expenses increased $136,000, or 4.2%, between periods.

Changes in Financial Condition

The Company's assets at September 30, 2012 totaled $1.04 billion, which represents a decrease of $65.2 million or 5.9% as compared with $1.10 billion at March 31, 2012.

Cash and cash equivalents decreased $449,000, or 1.1% to $39.8 million at September 30, 2012 as compared to $40.3 million at March 31, 2012.

Securities available for sale at September 30, 2012 decreased $37.0 million, or 52.6% to $33.2 million from $70.2 million at March 31, 2012. The decrease during the six months ended September 30, 2012 resulted primarily from maturities, calls, and repayments, totaling $43.0 million, proceeds from sales totaling $8.8 million and a decrease of $777,000 in the unrealized gain on the portfolio, partially offset by purchases of $15.0 million in securities.

Securities held to maturity at September 30, 2012 decreased $44.7 million, or 8.9% to $459.3 million from $504.0 million at March 31, 2012. The decrease during the six months ended September 30, 2012 resulted primarily from maturities, calls and repayments totaling $143.3 million, partially offset by purchases of securities totaling $98.6 million.

Net loans at September 30, 2012 increased $18.0 million, or 4.1% to $454.8 million when compared with $436.8 million at March 31, 2012. The increase during the six months ended September 30, 2012 resulted primarily from origination volume and purchases of loans exceeding repayment levels. The Bank continues to supplement its internal origination volume with purchases of loans from various sources. The largest increase in the loan portfolio was in one- to four-family real estate loans, which increased $17.7 million, or 4.4%.

Total liabilities decreased $65.7 million, or 7.2% to $849.3 million at September 30, 2012 from $915.0 million at March 31, 2012. Deposits at September 30, 2012 decreased $43.7 million, or 5.3% to $782.6 million when compared with $826.3 million at March 31, 2012, as the Bank's continued the strategy of pricing deposits to allow for controlled outflow of non-core deposits to maintain the net interest margin and spread in this current economic environment. Borrowed funds decreased $23.3 million, or 29.6% to $55.4 million at September 30, 2012, as compared with $78.7 million at March 31, 2012. During the six months ended September 30, 2012, $16.2 million of long-term borrowings were paid off in advance of their maturity and $7.1 million were repaid in accordance with their original terms. At September 30, 2012, the remaining borrowings of $55.4 million had a weighted average interest rate of 3.83%.

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Changes in Financial Condition (Cont'd)

Stockholders' equity totaled $187.0 million and $186.5 million at September 30, 2012 and March 31, 2012, respectively. The increase of $495,000, or 0.3%, for the six months ended September 30, 2012, resulted primarily from net income of $3.57 million, employee stock ownership shares committed to be released of $371,000, $73,000 for stock options and restricted stock awards earned under the Company's 2005 Equity Incentive Plan 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 $459,000 and cash dividends paid of $3.08 million.

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011

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

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011 (Cont'd.)

                                                                    Three Months Ended September 30,
                                                           2012                                          2011
                                                           Interest                                      Interest
                                           Average            and         Yield/         Average            and         Yield/
                                           Balance         Dividends       Cost          Balance         Dividends       Cost
                                                                         (Dollars in thousands)
Asstes:
Interest-earning assets:
Loans receivable                         $   452,146      $     4,939        4.37 %    $   438,974      $     5,252        4.79 %
Mortgage-backed securities                   357,920            3,194        3.57 %        336,681            3,571        4.24 %
Investment securities                        140,384              746        2.13 %        251,065            1,453        2.31 %
Other interest-earning assets                 40,507               61        0.60 %         36,115               69        0.76 %

Total interest-earning assets                990,957            8,940        3.61 %      1,062,835           10,345        3.89 %

Noninterest-earning assets                    63,644                                        72,029

Total assets                             $ 1,054,601                                   $ 1,134,864

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Demand accounts                          $    57,060               27        0.19 %    $    54,501               48        0.35 %
Savings and Club accounts                    123,611               77        0.25 %        120,866              126        0.42 %
Certificates of deposit                      597,420            2,369        1.59 %        656,498            3,085        1.88 %

Total interest-bearing deposits              778,091            2,473        1.27 %        831,865            3,259        1.57 %
Borrowed funds                                59,825              591        3.95 %         92,850              895        3.86 %

Total interest-bearing liabilities           837,916            3,064        1.46 %        924,715            4,154        1.80 %

Noninterest-bearing liabilities:
Noninterest-bearing deposits                   9,324                                         7,688
Other noninterest-bearing liabilities         20,499                                        20,109

Total noninterest-bearing liabilities         29,823                                        27,797
Total liabilities                            867,739                                       952,512
Stockholders' equity                         186,862                                       182,352

Total liabilities and stockholders'
equity                                   $ 1,054,601                                   $ 1,134,864

Net interest income                                       $     5,876                                   $     6,191

Interest rate spread                                                         2.15 %                                        2.09 %
Net interest margin                                                          2.37 %                                        2.33 %
Average interest-earning assets to
average interest-bearing liabilities            1.18 x                                        1.15 x

Net income decreased $321,000, or 15.5% to $1.75 million for the three months ended September 30, 2012 compared with $2.07 million for the same 2011 period. The decrease in net income during the 2012 period resulted primarily from a decrease of $315,000, or 5.1%, in net interest income, an increase of $192,000 in provision for loan losses, a $527,000 loss from extinguishment of debt, and an increase of $136,000, or 4.2%, in noninterest expenses, partially offset by a gain on sale of securities of $647,000 and a decrease of $189,000, or 16.6% in income taxes.

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011 (Cont'd.)

Interest income on loans decreased by $313,000, or 6.0%, to $4.94 million during the three months ended September 30, 2012, when compared with $5.25 million for the same 2011 period. The decrease during the 2012 period mainly resulted from a decrease in the yield earned on the loan portfolio of 42 basis points, to 4.37% from 4.79%, partially offset by an increase of $13.2 million, or 3.0%, in the average balance when compared to the same period in 2011. Interest income on mortgage-backed securities decreased $377,000, or 10.6%, to $3.19 million during the three months ended September 30, 2012, when compared with $3.57 million for the same 2011 period. The decrease during the 2012 period resulted from a decrease of 67 basis points in the yield earned on mortgage-backed securities to 3.57% from 4.24%, partially offset by an increase of $21.2 million, or 6.3%, in the average balance of mortgage-backed securities outstanding due to purchases exceeding repayments during the period. Interest earned on investment securities decreased by $707,000, or 48.7% to $746,000 during the three months ended September 30, 2012, when compared to $1.45 million during the same 2011 period, due to a decrease in the average balance of $110.7 million, or 44.1%, coupled with an 18 basis point decrease in yield to 2.13% from 2.31%. The balance of investment securities decreased as many securities were called during the period. To a lesser extent, the balance of investment securities decreased due to securities sales. Interest earned on other interest-earning assets decreased by $8,000, or 11.6% to $61,000 during the three months ended September 30, 2012, when compared to $69,000 during the same 2011 period primarily due to a decrease of 18 basis points in the yield to 0.60% from 0.78%, partially offset by an increase of $4.4 million, or 12.2% in the average balance. Other interest-earning assets increased due to the funds received from investment securities called during the quarter not yet being redeployed into higher yielding assets. The decrease in the yields on all interest-earning assets was the result of overall lower market interest rates.

Interest expense on deposits decreased $786,000, or 24.1% to $2.47 million during the three months ended September 30, 2012, when compared to $3.26 million during the same 2011 period. The decrease was primarily attributable to a decrease of 30 basis points in the cost of interest-bearing deposits to 1.27% from 1.57%, coupled with a decrease of $53.8 million, or 6.5% 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 Bank's continued strategy of pricing deposits to allow for controlled outflow of non-core deposits to maintain the net interest margin and spread in this current economic environment. Interest expense on borrowed money decreased approximately $304,000, or 34.0%, to $591,000 during the three months ended September 30, 2012 when compared with $895,000 during the same 2011 period. Such decrease was primarily attributable to a decrease of $33.0 million, or 35.6%, in the average balance of borrowings, partially offset by as increase of 9 basis points in the cost of borrowings to 3.95% from 3.86%. Net interest income decreased $315,000, or 5.1% during the three months ended September 30, 2012, to $5.88 million when compared to $6.19 million for the same 2011 period. The $86.8 million decrease in average interest-bearing liabilities was primarily due to a decrease of $53.8 million in interest-bearing deposits coupled with a decrease of $33.0 million in borrowings. The net interest rate spread increased 6 basis points due to a 34 basis point decrease in the cost of interest-bearing liabilities partially offset by a decrease of 28 basis points in the yield earned on interest-earning assets.

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011 (Cont'd.)

The provision for loan losses increased to $192,000 for the three months ended September 30, 2012 as compared to $-0- for the same period in 2011. The allowance for loan losses is based on management's qualitative analysis which includes an evaluation of economic and other factors to determine the adequacy of the allowance for loan loss balance. The Bank intends to continue to evaluate the need for a provision for loan losses based on its periodic review of the loan portfolio and general market conditions. At September 30, 2012 and 2011, the Bank's non-accrual loans totaled $4.2 million and $3.1 million, respectively, representing 0.91% and 0.69%, respectively, of total gross loans, and 0.40% and 0.27%, respectively, of total assets. At March 31, 2012, nonaccrual loans totaled $3.8 million, or 0.86% and 0.34% of total gross loans and total assets, respectively. During the three months ended September 30, 2012, the Bank recorded an $82,000 charge off on a one-to four-family loan. During the three months ended September 30, 2011 the Bank did not charge off any loans. 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, while at September 30, 2011, non-accrual loans consisted of fourteen loans secured by one- to four-family residential real estate loans, and three loans secured by commercial real estate, one of which is a second mortgage. Included in these non-accrual loans at September 30, 2012 are seven loans totaling $787,000 that are current or less than ninety days delinquent. At September 30, 2011, no loans less than ninety days delinquent were included in non-accrual loans. In December 2011, the Bank amended its non-accrual policy to expand the classification of non-accrual loans to include loans that were previously ninety days or more delinquent until there is a sustained period of repayment performance (generally six months) by the borrower in accordance with the contractual terms of the loan. All non-accrual loans included above are secured by properties located in the state of New Jersey. Impaired loans totaled $783,000, $1.2 million and $1.6 million at September 30, 2012, March 31, 2012 and September 30, 2011, respectively. The allowance for loan losses amounted to $2.30 million, $2.09 million, and $1.94 million, respectively, at September 30, 2012, March 31, 2012, and September 30, 2011, representing 0.50%, 0.48%, and 0.44% of total gross loans at September 30, 2012, March 31, 2012 and September 30, 2011, respectively.

Non-interest income increased $133,000, or 50.6%, during the three months ended September 30, 2012, as compared to the comparable period in 2011 as the result of a $647,000 gain on sale of securities partially offset by a $527,000 loss on extinguishment of debt. The loss of extinguishment of debt and gain on sale of securities resulted from a deleveraging strategy implemented in July 2012. 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. No such transactions occurred during the three months ended September 30, 2011.

Non-interest expense increased $136,000, or 4.2%, to $3.38 million for the three months ended September 30, 2012 as compared to $3.25 million for the three months ended September 30, 2011. The increase was primarily the result of increases of $94,000, or 5.4%, in salary and employee benefit expenses, and $34,000, or 7.9%, in other expenses.

Income taxes totaled $950,000 and $1.14 million during the three months ended September 30, 2012 and 2011, respectively. The decrease of $189,000, or 16.6% during the 2012 period resulted from a decrease in pre-tax income. The overall effective income tax rate was 35.2% in the 2012 period compared with 35.5% for the 2011 period.

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Operating Results for the Six Months Ended September 30, 2012 and 2011

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

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Table of Contents

CLIFTON SAVINGS BANCORP, INC. AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Comparison of Operating Results for the Six Months Ended September 30, 2012 and 2011 (Cont'd.)

                                                                     Six Months Ended September 30,
                                                           2012                                          2011
                                                           Interest                                      Interest
                                           Average            and         Yield/         Average            and         Yield/
                                           Balance         Dividends       Cost          Balance         Dividends       Cost
                                                                         (Dollars in thousands)
Asstes:
Interest-earning assets:
Loans receivable                         $   446,300      $     9,878        4.43 %    $   440,288      $    10,609        4.82 %
Mortgage-backed securities                   358,381            6,662        3.72 %        331,178            7,171        4.33 %
Investment securities                        170,149            1,865        2.19 %        251,376            3,074        2.45 %
Other interest-earning assets                 37,219              125        0.67 %         31,257              143        0.91 %

Total interest-earning assets              1,012,049           18,530        3.66 %      1,054,099           20,997        3.98 %

Noninterest-earning assets                    60,608                                        76,161

Total assets                             $ 1,072,657                                   $ 1,130,260

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Demand accounts                          $    57,065               65        0.23 %    $    55,125              104        0.38 %
Savings and Club accounts                    123,454              185        0.30 %        120,671              273        0.45 %
Certificates of deposit                      610,272            4,920        1.61 %        655,542            6,182        1.89 %
. . .
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