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Share Name | Share Symbol | Market | Type |
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(MM) | NASDAQ:CMSB | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 13.25 | 0 | 01:00:00 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant x Filed by a party other than the Registrant ¨
Check the appropriate box:
¨ | Preliminary Proxy Statement |
¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
x | Definitive Proxy Statement |
¨ | Definitive Additional Materials |
¨ | Soliciting Material under §240.14a-12 |
CMS Bancorp, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x | No fee required |
¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 |
(1) | Title of each class of securities to which transaction applies: |
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(2) | Aggregate number of securities to which transaction applies: |
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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(4) | Proposed maximum aggregate value of transaction: |
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(5) | Total fee paid: |
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¨ | Fee paid previously with preliminary materials. |
¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
(1) | Amount Previously Paid: |
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(2) | Form, Schedule or Registration Statement No.: |
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(3) | Filing Party: |
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(4) | Date Filed: |
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January 14, 2009
Dear Shareholder:
You are cordially invited to attend the 2009 Annual Meeting of Shareholders of CMS Bancorp, Inc., the holding company of Community Mutual Savings Bank, which will be held on Thursday, February 19, 2009 at 3:00 p.m., Eastern time, at the Crowne Plaza Hotel, located at 66 Hale Avenue, White Plains, New York 10601.
The attached Notice of Annual Meeting of Shareholders and proxy statement describe the formal business that we will transact at the Annual Meeting. In addition to the formal items of business, management will report on the operations and activities of CMS Bancorp and Community Mutual Savings Bank, and you will have an opportunity to ask questions.
The Board of Directors of CMS Bancorp has determined that an affirmative vote on the matters to be considered at the Annual Meeting is in the best interests of CMS Bancorp and its shareholders and unanimously recommends a vote FOR these matters.
Please complete, sign and return the enclosed proxy card promptly, whether or not you plan to attend the Annual Meeting of Shareholders. Your vote is important regardless of the number of shares you own. Voting by proxy will not prevent you from voting in person at the Annual Meeting, but will assure that your vote is counted if you cannot attend.
On behalf of the Board of Directors and the employees of CMS Bancorp and Community Mutual Savings Bank, we thank you for your continued support and look forward to seeing you at the 2009 Annual Meeting of Shareholders.
Sincerely yours,
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Thomas G. Ferrara | John E. Ritacco | |||
Chairman of the Board of Directors | President and Chief Executive Officer |
CMS BANCORP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: | Thursday, February 19, 2009 | |
Time: | 3:00 p.m., Eastern time | |
Place: |
Crowne Plaza Hotel 66 Hale Avenue White Plains, New York 10601 |
At our 2009 Annual Meeting of Shareholders, we will ask you to:
1. | Elect Susan A. Massaro and Matthew G. McCrosson to serve as directors for a term of office to expire in 2012 or until their successors are elected and qualified; |
2. | Ratify the appointment of Beard Miller Company LLP as CMS Bancorps independent registered public accounting firm for the fiscal year ending September 30, 2009; |
3. | Approve an amendment to CMS Bancorps Certificate of Incorporation to reduce the number of shares of common stock, $0.01 par value, CMS Bancorp is authorized to issue from 14,000,000 shares to 7,000,000 shares; and |
4. | Transact such other business as may properly come before the 2008 Annual Meeting of Shareholders and any adjournment or postponement thereof. Please note that at this time we are not aware of any such business. |
The Board of Directors has fixed January 2, 2009 as the record date for the determination of shareholders entitled to notice of and to vote at the 2009 Annual Meeting of Shareholders and any adjournment or postponement thereof. Only shareholders of record at the close of business on January 2, 2009 will be entitled to notice of and to vote at the 2009 Annual Meeting of Shareholders and any adjournment or postponement thereof.
By Order of the Board of Directors, |
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Stephen Dowd |
Senior Vice President, Chief Financial Officer and Secretary |
White Plains, New York
January 14, 2009
You are cordially invited to attend the 2009 Annual Meeting of Shareholders. It is important that your shares be represented regardless of the number of shares you own. The Board of Directors urges you to sign, date and mark the enclosed proxy card promptly and return it in the enclosed envelope. Returning the proxy card will not prevent you from voting in person if you attend the 2009 Annual Meeting of Shareholders.
CMS BANCORP, INC.
123 Main Street
White Plains, New York 10601
(914) 422-2700
PROXY STATEMENT FOR THE
2009 ANNUAL MEETING OF SHAREHOLDERS
To Be Held on February 19, 2009
INFORMATION ABOUT THE ANNUAL MEETING
General
CMS Bancorp, Inc. (CMS Bancorp), a Delaware corporation, is registered as a savings and loan holding company with the Office of Thrift Supervision and owns all of the capital stock of Community Mutual Savings Bank (Community Mutual). CMS Bancorps common stock is listed on the Nasdaq Capital Market under the symbol CMSB. As used in this proxy statement, we, us and our refer to CMS Bancorp and its subsidiaries, unless the context requires otherwise. The term annual meeting, as used in this proxy statement, includes any adjournment or postponement of such meeting.
We have sent you this proxy statement and enclosed proxy card because the Board of Directors is soliciting your proxy to vote at the annual meeting. This proxy statement summarizes the information you will need to know to cast an informed vote at the annual meeting. You do not need to attend the annual meeting to vote your shares. You may simply complete, sign and return the enclosed proxy card and your votes will be cast for you at the annual meeting. This process is described below in the section entitled Voting Rights.
We began mailing this proxy statement, the Notice of Annual Meeting of Shareholders and the enclosed proxy card on or about January 14, 2009 to all shareholders entitled to vote. If you owned common stock of CMS Bancorp at the close of business on January 2, 2009, the record date, you are entitled to vote at the annual meeting. On the record date, there were 1,924,118 shares of common stock outstanding, each of which is entitled to one vote.
Voting Rights
You are entitled to one vote at the annual meeting for each share of the common stock of CMS Bancorp that you owned at the close of business on January 2, 2009. The number of shares you own (and may vote) is listed on the proxy card.
You may vote your shares at the annual meeting in person or by proxy. To vote in person, you must attend the annual meeting and obtain and submit a ballot, which we will provide to you at the annual meeting. To vote by proxy, you must complete, sign and return the enclosed proxy card. If you properly complete your proxy card and send it to us in time to vote, your proxy (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares FOR the proposals identified in the Notice of Annual Meeting of Shareholders.
If any other matter is presented, your proxy will vote the shares represented by all properly executed proxies on such matters as a majority of the Board of Directors determines. As of the date of this proxy statement, we know of no other matters that may be presented at the annual meeting, other than that listed in the Notice of Annual Meeting of Shareholders.
Quorum
A quorum of shareholders is necessary to hold a valid meeting. If the holders of at least a majority of the total number of the outstanding shares of common stock entitled to vote are represented in person or by proxy at the annual meeting, a quorum will exist. We will include proxies marked as abstentions and broker non-votes to determine the number of shares present at the annual meeting.
Vote Required
Proposal 1: Election of Directors. To be elected, a nominee for director must receive a plurality of the votes cast at the annual meeting. If you do not vote for a nominee, or you indicate withhold authority for a nominee on your proxy card, your vote will not count FOR or AGAINST the nominee. You may not vote your shares cumulatively for the election of the director nominees.
Proposal 2: Ratification of the Appointment of Independent Registered Public Accounting Firm. Approval of Proposal 2 requires the affirmative vote of the majority of shares present in person or represented by proxy at the annual meeting and entitled to vote on the proposal. If you abstain from voting, it will have the same effect as if your vote was not cast with respect to this proposal.
Proposal 3: Reduce the Number of Authorized Shares of the Companys Common Stock, $0.01 par value, from 14,000,000 Shares to 7,000,000 Shares. Approval of Proposal 3 requires the affirmative vote of the majority of shares outstanding and entitled to vote on the proposal. If you abstain from voting, it will have the same effect as if your vote was cast against this proposal.
Effect of Broker Non-Votes
If your broker holds shares that you own in street name, the broker may vote your shares on Proposals 1 and 2 even if the broker does not receive instructions from you. If your broker does not vote on one or more of the proposals, this will constitute a broker non-vote. A broker non-vote will not be counted as having voted in person or by proxy and will have no effect on the outcome of the election of the directors or the ratification of the appointment of our independent registered public accounting firm. A broker non-vote will have the same effect as a vote against Proposal 3, the proposal to decrease the number of shares of common stock we are authorized to issue.
Confidential Voting Policy
CMS Bancorp maintains a policy of keeping shareholder votes confidential. Only the inspector of election and certain employees of our independent tabulating agent examine the voting materials. We will not disclose your vote to management unless it is necessary to meet legal requirements. Our independent tabulating agent will, however, forward any written comments that you may have to management.
Revoking Your Proxy
You may revoke your grant of proxy at any time before it is voted by:
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filing a written revocation of the proxy with the Secretary; |
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submitting a signed proxy card bearing a later date; or |
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attending and voting in person at the annual meeting, at which time you must file a written revocation with the Secretary of the annual meeting prior to voting. |
If your shares are not registered in your own name, you will need appropriate documentation from your shareholder of record to vote personally at the annual meeting. Examples of such documentation include a brokers statement, letter or other document that will confirm your ownership of shares of CMS Bancorp.
Solicitation of Proxies
CMS Bancorp will pay the costs of soliciting proxies from its shareholders. Directors, officers or employees of CMS Bancorp and Community Mutual may solicit proxies by mail, telephone and other forms of communication. We will also reimburse banks, brokers, nominees and other fiduciaries for the expenses they incur in forwarding the proxy materials to you.
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Obtaining an Annual Report on Form 10-KSB
Annual reports on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K and all amendments to those reports are available free of charge from our website, www.cmsbk.com, in the Investor Relations section under SEC Filings. These reports are also available on the Securities and Exchange Commissions website at www.sec.gov.
If you would like a copy of our annual report on Form 10-KSB for the fiscal year ended September 30, 2008, we will send you one (without exhibits) free of charge. Please send a request for a copy of the annual report to us at our principal executive offices: CMS Bancorp, Inc., Attn: Corporate Secretary, 123 Main Street, White Plains, New York 10601.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders of CMS Bancorp
The following table contains common stock ownership information for persons known to CMS Bancorp to beneficially own 5% or more of CMS Bancorps common stock as of January 2, 2009. In general, beneficial ownership includes those shares that a person has the power to vote, sell or otherwise dispose of. Beneficial ownership also includes that number of shares that an individual has the right to acquire within 60 days (such as stock options) after January 2, 2009. Two or more persons may be considered the beneficial owner of the same shares. CMS Bancorp obtained the information provided in the following table from filings with the Securities and Exchange Commission (SEC) and from its corporate records.
Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of
Beneficial Ownership |
Percent | |||||
Common Stock, par value $0.01 per share |
Roger Feldman and Harvey Hanerfeld
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170,188 | (1 ) | 8.8 | % | |||
Common Stock, par value $0.01 per share |
Employee Stock Ownership Plan of
CMS Bancorp, Inc.
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164,413 | (2 ) | 8.5 | % | |||
Common Stock, par value $0.01 per share |
Cross River Capital Management LLP
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128,858 | (3) | 6.7 | % |
(1) | Based on information reported by Roger Feldman and Harvey Hanerfeld on a Schedule 13G filed with the SEC on April 26, 2007 and West Creek Capital, Inc. on a Schedule 13F filed with the SEC on November 7, 2008. The total amount of beneficial ownership includes shares beneficially owned by each of Roger Feldman (1,104 shares) and Harvey Hanerfeld (1,105 shares), each as individuals, and as sole stockholders, directors and executive officers of West Creek Capital, Inc., a Delaware corporation that is the general partner of West Creek Capital, L.P., a Delaware limited partnership that is the investment adviser to (i) West Creek Partners Fund L.P., a Delaware limited partnership, and (ii) WC Select L.P., a Delaware limited partnership, which reported shared voting power with respect to 167,979 shares. |
(2) |
The Employee Stock Ownership Plan of CMS Bancorp, Inc. (the ESOP) is a tax qualified employee stock ownership plan under the Employee Retirement Income Security Act of 1974, as amended (ERISA), with individual accounts for the accrued benefits of participating employees and their beneficiaries. The ESOPs assets are held in trust by First Bankers Trust Services, Inc., as plan trustee (the Plan Trustee). The number of shares listed as beneficially owned represents the entire number of shares of CMS Bancorp common stock held by the Plan Trustee as of January 2, 2009. As of January 2, 2009, 10,961 shares of CMS Bancorp common stock had been allocated to individual accounts established for participating employees and their beneficiaries, and 153,452 of such shares were held, unallocated, for allocation in future years. In general, |
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participating employees and their beneficiaries have the power and authority to direct the voting of shares of CMS Bancorp common stock allocated to their individual accounts. The ESOP, through the Plan Trustee, has shared voting power over unallocated CMS Bancorp common stock. Any unallocated CMS Bancorp common stock is generally required to be voted by the Plan Trustee in the same proportion as CMS Bancorp common stock which has been allocated to Participants is directed to be voted. The ESOP, through the Plan Trustee shares dispositive power over all unallocated CMS Bancorp common stock held by the ESOP. The ESOP, acting through the Plan Trustee shares dispositive power over allocated CMS Bancorp common stock with participating employees and their beneficiaries, who have the right to determine whether CMS Bancorp common stock allocated to their respective accounts will be tendered in response to a tender offer but otherwise have no dispositive power. Any unallocated CMS Bancorp common stock is generally required to be tendered by the Plan Trustee in the same proportion as CMS Bancorp common stock which has been allocated to Participants is directed to be tendered. In limited circumstances, ERISA may confer upon the Plan Trustee the power and duty to control the voting and tendering of CMS Bancorp common stock allocated to the accounts of participating employees and beneficiaries who fail to exercise their voting and/or tender rights. The ESOP disclaims voting power with respect to such allocated CMS Bancorp common stock. |
(3) | Based on information reported by Cross River Capital Management LLP, Cross River Partners LP and Richard Murphy on a Schedule 13D/A filed with the SEC on July 3, 2008, which reported shared voting power with respect to 128,858 shares. |
Security Ownership of Management
The following table shows the number of shares of CMS Bancorps common stock beneficially owned by each director, each executive officer appearing in the Summary Compensation Table, and all directors and executive officers of CMS Bancorp as a group, as of January 2, 2009. In general, beneficial ownership includes those shares that a person has the power to vote, sell or otherwise dispose of. Beneficial ownership also includes that number of shares that an individual has the right to acquire (such as upon the exercise of stock options) within 60 days after January 2, 2009. Except as otherwise indicated, each person and each group shown in the table has sole voting and investment power with respect to the shares of common stock listed next to his or her name.
Name of Beneficial Owner |
Position with
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Amount and Nature of
Beneficial Ownership (1) (2) |
Percent of
Common Stock Outstanding |
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William V. Cuddy, Jr. |
Director |
28,200 | ( 3 ) | 1.5 | % | |||
Stephen Dowd |
Senior Vice President and Chief Financial Officer |
16,900 | ( 4 ) | * | ||||
Thomas G. Ferrarra |
Chairman |
27,367 | ( 5 ) | 1.4 | % | |||
Susan A. Massaro |
Director |
8,200 | * | |||||
Cheri R. Mazza |
Director |
7,200 | * | |||||
Matthew G. McCrosson |
Director |
7,600 | * | |||||
John E. Ritacco |
President, Chief Executive Officer and Director |
41,867 | ( 6 ) | 2.2 | % | |||
AnneMarie V. Romagnoli |
Director |
3,909 | * | |||||
Christopher Strauss |
Senior Vice President and Senior Lending Officer |
15,630 | ( 7 ) | * | ||||
All Executive Officers and Directors as a Group
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156,873 | 8.0 | % |
* | Less than 1.0% of the total outstanding shares of common stock. |
(1) | Based on a total of 1,924,118 shares of CMS Bancorps common stock outstanding (outstanding shares, before deducting shares held for the CMS Bancorp, Inc. 2007 Recognition and Retention Plan (the RRP) by the trustee) as of January 2, 2009. |
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(2) | Includes unvested shares of restricted stock awards held in trust as part of the RRP, with respect to which the beneficial owner has voting but not investment power as follows: Mr. Cuddy1,600 shares; Mr. Dowd8,000 shares; Mr. Ferrara3,280 shares; Ms. Massaro1,600 shares; Ms. Mazza1,600 shares; Mr. McCrosson1,600 shares; Mr. Ritacco16,441 shares; Ms. Romagnoli1,600 shares; and Mr. Strauss8,000 shares. |
Includes vested options to purchase shares of common stock at $10.12 per share as part of the CMS Bancorp, Inc. 2007 Stock Option Plan as follows: Mr. Cuddy1,200 shares; Mr. Dowd4,400 shares; Mr. Ferrara2,055 shares; Ms. Massaro1,200 shares; Ms. Mazza1,200 shares; Mr. McCrosson1,200 shares; Mr. Ritacco10,276 shares; Ms. Romagnoli1,200 shares; and Mr. Strauss4,400 shares |
(3) | Includes 10,000 shares held in the name of Mr. Cuddys spouse. |
(4) | Includes 2,000 shares held in an individual retirement account (IRA) for the benefit of Mr. Dowd. |
(5) | Includes 2,852 shares held by Future Value Associates, Ltd., 18,200 shares held in an IRA for the benefit of Mr. Ferrara, and 50 shares held in the name of each of Mr. Ferraras three daughters (150 shares total). |
(6) | Includes 10,325 shares held in an IRA for the benefit of Mr. Ritacco, 390 shares held in an IRA for the benefit of Mr. Ritaccos spouse, 225 shares held in the name of Mr. Ritaccos daughter and 100 shares held in the name of Mr. Ritaccos son. 4,110 vested shares awarded under the RRP are pledged as collateral for a margin loan. |
(7) | Includes 1,230 shares held in an IRA for the benefit of Mr. Strauss. |
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PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
Nominees |
Term to Expire | |
Susan A. Massaro |
2012 | |
Matthew G. McCrosson |
2012 |
Directors Massaro and McCrosson are currently serving on our Board of Directors. If elected, Directors Massaro and McCrosson will hold office until the annual meeting in 2012 or until their successors have been elected and qualified. Each of the nominees has consented to being named in this proxy statement, and to serve if elected.
If, for any reason, any of the nominees proves unable or unwilling to stand for election, the Board of Directors will nominate alternates or reduce the size of the Board of Directors to eliminate the vacancy and, if any of the nominees is unable to serve, your proxy may vote for another nominee proposed by the Board of Directors. The Board of Directors has no reason to believe that any of its nominees would prove unable to serve if elected.
Nominees and Continuing Directors
Nominees |
Age (1) |
Position with CMS
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Director Since (2) |
Term
|
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Susan A. Massaro |
52 | Director | 1998 | 2009 | ||||
Matthew G. McCrosson |
58 | Director | 2005 | 2009 | ||||
Continuing Directors |
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William V. Cuddy, Jr. |
49 | Director | 1994 | 2011 | ||||
Thomas G. Ferrara |
53 | Chairman | 1993 | 2010 | ||||
Cheri R. Mazza |
50 | Director | 2006 | 2010 | ||||
John E. Ritacco |
54 |
President, Chief Executive Officer and Director |
2005 | 2010 | ||||
Annemarie V. Romagnoli |
73 | Director | 1996 | 2011 |
(1) | As of September 30, 2008. |
(2) | Includes service as a trustee of Community Mutual prior to the formation of CMS Bancorp in 2007. |
DIRECTOR AND OFFICER BIOGRAPHICAL INFORMATION
The principal occupation and business experience of each director are set forth below. Unless otherwise indicated, each of the following persons has held his or her present position for the last five years.
Nominees
Susan A. Massaro has been Executive Vice President, Professional Services of Scivantage, Inc., a premier provider of web-based, front- and middle-office brokerage solutions since 2005. In this position, she is responsible for the overall leadership, management and operation of Scivantages information technology professional services. Ms. Massaro brings over 30 years of experience in computer, information technology and professional services businesses to this position. Ms. Massaro came to Scivantage from Nova. Corp., where she
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built and for five years led a nationwide Professional Services Organization with Fortune 500 clients delivering data center, facility, business continuity, relocation and staff augmentation services from 2001 to 2005. Ms. Massaro was previously Senior Vice President of Professional Services with Qwest Communications International, where she managed a national division which developed and delivered managed services complimenting hosting products, e-business solutions, and the implementation of infrastructure for IP environments.
Matthew G. McCrosson has been partner in charge of consulting for OConnor, Davies, Munns & Dobbins LLP, Accountants and Consultants, since January 2006. From July 2000 to December 2005, Mr. McCrosson was principal in charge of consulting for OConnor, Davies, Munns & Dobbins. Prior to that, Mr. McCrosson was with KPMG Consulting, in the firms public services line of business. Earlier in his carrer, Mr. McCrosson served as chief financial officer or chief operating officer of several national and regional not-for-profit organizations.
Continuing Directors
William V. Cuddy, Jr. has been Executive Vice President of CB Richard Ellis Group, Inc., providing commercial real estate brokerage services to clients in Westchester County, New York, and Fairfield County, Connecticut for over five years, where he leads a team of professionals in providing exclusive agency services and tenant representation.
Thomas G. Ferrara has been Chairman of the Board of Trustees of Community Mutual since January 2005. Since 1994, Mr. Ferrara has been President of Future Value Associates, Ltd., a consulting firm for 401(k) plans, benefit plans, estate planning, insurance and variable annuities and mutual funds. He is also currently a registered representative with Park Avenue Securities LLC, an SEC-registered investment advisor and broker-dealer. Mr. Ferrara holds an undergraduate degree in Commerce from Niagara University. He received his Masters of Business Administration from Pace University. He serves on the Boards of Calvary Hospital, in the Bronx, New York, The Fred S. Keller School in Yonkers, New York, The Pound Ridge Library Foundation, Pound Ridge, New York, and The National Corvette Museum in Bowling Green, Kentucky. In addition, Mr. Ferraras civic activities have included coaching girls basketball for the local Catholic Youth Organization, serving on the Parents Executive Council of Loyola College in Maryland, as well as the Inner City School Fund for the Cardinals Committee for the Archdiocese of New York. Mr. Ferrara is also an active alumnus with Niagara University.
Cheri R. Mazza has been an associate professor of accounting at Fordham University since September 2000. Prior to joining Fordham University, Ms. Mazza was a project manager at the Financial Accounting Standards Board. Ms. Mazza is a certified public accountant and a certified management accountant.
John E. Ritacco has been President and Chief Executive Officer of Community Mutual since April 21, 2005. Mr. Ritacco has a diversified background in retail and commercial banking spanning more than 25 years. Prior to joining Community Mutual, Mr. Ritacco served as Senior Vice President, Middle Market Lending for Union State Bank. From 2001 to 2004, Mr. Ritacco served as President and Chief Executive Officer of Reliance Bank, based in White Plains.
Annemarie V. Romagnoli has served as an adjunct professor at the College of New Rochelle graduate school since 1988. Mrs. Romagnoli presently provides seminars at Dominican College in Sparkill, New York for undergraduate and graduate students in the field of elementary, secondary and special education. Mrs. Romagnoli is a retired principal and administrator of the Clarkstown School District in New City, New York. She holds an undergraduate degree in education from Fordham University and masters degrees in special education and administration from the College of New Rochelle.
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Executive Officers Who are Not Directors
Biographical information and the business experience of each non-director executive officer of CMS Bancorp are set forth below.
Stephen Dowd , age 54, has served as Senior Vice President and Chief Financial Officer of Community Mutual since October 2005. Mr. Dowd has extensive experience in finance, having served as the chief financial officer of a technology consulting firm from 1999 to 2005. From 1990 to 1999, Mr. Dowd held various accounting and finance positions at ASARCO, a publicly held international mining company. Prior to that, Mr. Dowd was a senior manager at Ernst and Young, in the New York and White Plains offices, where he served clients in numerous industries, including banking.
Christopher Strauss , age 64, has served as Senior Vice President and Senior Lending Officer, Compliance Officer and BSA Officer of Community Mutual since October 2005. From March 2004 to September 2005, Mr. Strauss was Vice President of Credit Administration at Union State Bank, where he managed the credit underwriting process in the banks Westchester Loan Center originating commercial and industrial and commercial real estate loans. From 2001 to March 2004, Mr. Strauss was Senior Vice President and Senior Lending Officer at Reliance Bank in White Plains, New York, where he managed all aspects of the banks lending, including underwriting and credit decisions on all new and renewing loans, pricing and structuring on new and renewing loans, loan servicing, credit grading, and loan collection. In addition, he acted as Reliance Banks Compliance Officer, managing the banks compliance program to include all lending, branch operations and Bank Secrecy Act requirements.
INFORMATION ABOUT THE BOARD OF DIRECTORS
General
CMS Bancorps Board of Directors currently consists of seven members. CMS Bancorps charter provides that the Board of Directors is divided into three classes, as nearly equal in number as possible. The Board of Directors oversees our business and monitors the performance of our management. In accordance with our corporate governance procedures, the Board of Directors will not involve itself in our day-to-day operations. Our executive officers and management oversee our day-to-day operations. Our directors fulfill their duties and responsibilities by attending monthly meetings of the Board of Directors. Our directors also discuss business and other matters with the Chairman of the Board of Directors, other key executives, and our principal external advisers, including legal counsel, auditors, financial advisors, and other consultants.
Meetings of the Board of Directors
The Board of Directors held a total of 12 regular and special meetings during the fiscal year ended September 30, 2008. Each incumbent director attended at least 75% of the meetings of the Board of Directors held during the time in which they served as director, plus meetings of committees on which that particular director served during this period.
Independent Directors
CMS Bancorp uses the The Nasdaq Stock Markets definition of independence to determine the independence of its directors. The Board of Directors has determined that all of its current members except for Mr. Ritacco are independent directors under The Nasdaq Stock Markets rules.
Consistent with The Nasdaq Stock Markets rules, independent directors meet in regularly scheduled executive sessions without non-independent directors. The independent directors have selected Thomas G. Ferrara to serve as the presiding director at the executive sessions for the 2009 fiscal year. The presiding director will take a lead role in the Boards self-evaluation process.
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The Nasdaq Stock Markets rules, as well as SEC rules, impose additional independence standards for all members of the Audit Committee. CMS Bancorps Board of Directors believes that the current members of the Audit Committee meet these additional standards.
Committees of the Board of Directors
The CMS Bancorp Board of Directors has established the following committees:
Executive Committee. The Executive Committee of our Board of Directors exercises the powers of the Board of Directors between board meetings . Directors Ferrara, Cuddy, Ritacco and Romagnoli serve on the Executive Committee.
Audit Committee. Directors Cuddy, Mazza, McCrosson and Romagnoli serve on the Audit Committee. The Audit Committee oversees and monitors our financial reporting process and internal control system, reviews and evaluates the audit performed by our independent auditors, and reports any substantive issues found during the audit to the Board. The Audit Committee is directly responsible for the appointment, compensation, and oversight of the work of our independent auditors. The Audit Committee reviews and approves all transactions with affiliated parties. The Board of Directors has adopted a written charter for the Audit Committee. Each of Directors Mazza and McCrosson qualifies as an audit committee financial expert, as that term is defined by SEC regulations, and the Board of Directors has designated them as such. A copy of the Audit Committee charter was filed as Appendix A to CMS Bancorps definitive proxy statement on Form 14A filed with the SEC on January 14, 2008. The Committee met seven times in the fiscal year ended September 30, 2008.
Compensation Committee. The Compensation Committee of the Board of Directors assesses the structure of the management team and the overall performance of CMS Bancorp and Community Mutual. The Compensation Committee establishes the compensation of the Chief Executive Officer, approves the compensation of other officers and determines compensation and benefits to be paid to employees of CMS Bancorp and Community Mutual. It also sets directors fees. The Compensation Committee is chaired by Director Ferrara, with Directors Massaro and Romagnoli serving as members. The Compensation Committee does not have any employee members. The Committee met twenty five times in the fiscal year ended September 30, 2008.
The Compensation Committee believes that its processes and oversight should be directed toward attracting, retaining and motivating employees and non-employee directors to promote and advance the interests and strategic goals of the Company. As requested by the Compensation Committee, the CEO will provide information and may participate in discussions regarding compensation for other executive officers.
The Compensation Committee also acts as the Employee Stock Ownership Plan (ESOP) Committee, and meets to review CMS Bancorps ESOP. The Compensation Committee also acts as the Stock Option Plan Committee and the Retention and Recognition Plan Committee in administering the CMS Bancorp, Inc. 2007 Stock Option Plan and the CMS Bancorp, Inc. 2007 Recognition and Retention Plan, respectively. The Compensation Committee utilizes the outside compensation consulting firm of Towers Perrin in determining compensation, but also considers other general industry information and trends, if available. A copy of the Compensation Committee charter was filed as Exhibit 99.1 to CMS Bancorps quarterly report on Form 10-QSB for the period ended March 31, 2008 filed with the SEC on May 13, 2008.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee meets to recommend the nomination of Directors to the full Board of Directors to fill the terms for the upcoming year or to fill vacancies during a term. The Nominating and Corporate Governance Committee will consider recommendations from shareholders if submitted in a timely manner in accordance with the procedures established in the bylaws and will apply the same criteria to all persons being considered. Directors Ferrara, Massaro and Romagnoli serve on the Nominating and Corporate Governance Committee. A current copy of the Nominating and Corporate Governance Committee charter was filed as Appendix B to CMS Bancorps definitive proxy statement on Form 14A filed with the SEC on January 14, 2008.
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Each of CMS Bancorps committees listed above other than the Executive Committee is composed entirely of directors who are independent as such term is defined by Rule 4200(a)(15) of the Financial Industry Regulatory Authority Manual and our audit committee is comprised of directors who are independent in accordance with Rule 10A-3(m) of the Securities Exchange Act of 1934, as amended.
Compensation Committee Interlocks and Insider Participation
During the year ended September 30, 2008, there were no interlocks between members of the Compensation Committee or our executive officers and corporations with respect to which such persons are affiliated.
Directors Compensation
Meeting Fees. Each non-employee director of CMS Bancorp receives a fee of $1,000 for attendance at each board meeting and $400 for attendance at each meeting of a committee of which they are members. Mr. Ritacco, while serving as President and Chief Executive Officer, did not receive any additional compensation for serving as a director.
At a special meeting of the shareholders of the Company held on November 9, 2007, the shareholders approved the CMS Bancorp, Inc. 2007 Stock Option Plan and the CMS Bancorp, Inc. 2007 Recognition and Retention Plan (collectively the Plans). The Plans authorize the award of up to 205,516 stock options and 82,206 shares of restricted stock. On November 28, 2007, non-employee directors received an aggregate of 40,275 stock options with an exercise price of $10.12 (the November 2007 Non-Employee Director Options) and 14,110 shares of restricted stock with a grant date fair value of $10.12 per share (the November 2007 Non-Employee Director Restricted Stock). Of the November 2007 Non-Employee Director Options, each non-employee director except for Mr. Ferrara received options to purchase 6,000 shares of the Companys common stock, and Mr. Ferrara received 10,275 options. The November 2007 Non-Employee Director Options vest in 20% increments over five years beginning on November 28, 2008 and expire on November 28, 2017. Of the November 2007 Non-Employee Director Restricted Stock, each non-employee director except for Mr. Ferrara received 2,000 restricted shares of the Companys common stock, and Mr. Ferrara received 4,110 restricted shares. The November 2007 Non-Employee Director Restricted Stock vests in 20% increments over five years beginning on November 28, 2008. The Company expenses, in accordance with SFAS No. 123(R), the fair value of all options at $2.73 per option, over their five year vesting periods and expenses the fair value of all share-based compensation granted over the requisite five year vesting periods.
The following table sets forth information regarding compensation earned by the non-employee directors of CMS Bancorp during the last fiscal year.
DIRECTOR COMPENSATION TABLE
Name |
Fees
Earned or Paid in Cash ($) (1) |
Stock
Awards ($) (2) |
Option
Awards ($) (3) |
Non-Equity
Incentive Plan Compensation (4) |
Nonqualified
Deferred Compensation Earnings (5) |
All Other
Compensation ($) |
Total
($) |
|||||||
William V. Cuddy, Jr. |
15,600 | 3,373 | 2,730 | | | | 21,703 | |||||||
Thomas G. Ferrara |
28,800 | 6,932 | 4,675 | | | | 40,407 | |||||||
Susan A. Massaro |
26,400 | 3,373 | 2,730 | | | | 32,503 | |||||||
Cheri R. Mazza |
17,600 | 3,373 | 2,730 | | | | 23,703 | |||||||
Matthew G. McCrosson |
18,800 | 3,373 | 2,730 | | | | 24,903 | |||||||
AnneMarie V. Romagnoli |
26,800 | 3,373 | 2,730 | | | | 32,903 |
(1) | Includes retainer payments, meeting fees, and committee and/or chairmanship fees earned during the fiscal year, whether such fees were paid currently or deferred. |
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(2) | The amounts shown in this column represent actual expense recorded during fiscal year 2008, based on the number of shares of restricted stock granted and a per share value of $10.12 per share. Each grant of restricted stock vests over five years. |
(3) | The amounts shown in this column represent the dollar amount recognized for financial statement purposes with respect to fiscal year 2008 in accordance with FAS 123(R). For more information concerning the assumptions used in these calculations, please refer to Note 16 to the audited financial statements included in the 2008 Annual Report. Options vest over five years. |
(4) | In the fiscal year ended September 30, 2008, CMS Bancorp, Inc. did not have any non-equity plans pursuant to which compensation was payable to non-employee directors. |
(5) | In the fiscal year ended September 30, 2008, CMS Bancorp, Inc. did not have any nonqualified deferred compensation plans. |
Executive Compensation
The following table provides information about the compensation paid in fiscal years 2008 and 2007 to CMS Bancorp and Community Mutuals President and Chief Executive Officer, Chief Financial Officer, and Senior Vice President and Senior Lending Officer (collectively, the named executive officers). CMS Bancorp has no other executive officers.
SUMMARY COMPENSATION TABLE
Name and
|
Year |
Salary
(1)
($) |
Bonus
(1)
($) |
Stock
Awards (2) ($) |
Option
Awards (3) ($) |
Non-Equity
Incentive Plan Compensation ($) |
Nonqualified
Deferred Compensation Earnings (5) ($) |
All Other
Compensation (6) ($) |
Total
($) |
||||||||||
John E. Ritacco, President and Chief Executive Officer |
2008 2007 |
292,211
275,000 |
45,000
70,000 |
34,663
|
23,377
|
|
(4)
|
|
18,560
4,442 |
413,811
349,442 |
|||||||||
Stephen Dowd, Senior Vice President and Chief Financial Officer |
2008 2007 |
151,154
150,092 |
25,000 |
16,867
|
10,010
|
|
(4)
|
|
9,386
3,102 |
187,417
178,194 |
|||||||||
Christopher Strauss, Senior Vice President and Senior Lending Officer |
2008 2007 |
153,725
131,404 |
25,000 |
16,867
|
10,010
|
|
(4)
|
|
10,269
6,006 |
190,871
162,410 |
(1) | The figures shown for salary and bonus represent amounts earned for the fiscal year, whether paid as of September 30, of such year, or accrued as of September 30, and paid thereafter. |
(2) | The amounts shown in this column represent actual expense recorded during fiscal year 2008, based on the number of shares of restricted stock granted and a per share value of $10.12 per share. Each grant of restricted stock vests over five years. |
(3) | The amounts shown in this column represent the dollar amount recognized for financial statement purposes with respect to fiscal year 2008 in accordance with FAS 123(R). For more information concerning the assumptions used in these calculations, please refer to Note 16 to the audited financial statements included in the 2008 Annual Report. Options vest over five years. |
(4) | As of January 1, 2008 the Compensation Committee of the Board of directors established a non-equity incentive compensation plan for Mr. Ritacco, Dowd and Strauss, based on achieving certain goals for the calendar year ended December 31, 2008. As of January 2, 2009, the Compensation Committee has not determined whether the applicable performance measures were achieved or the level of non-equity incentive compensation which will be paid under this plan for the calendar year ended December 31, 2008. |
(5) | We did not maintain any nonqualified deferred compensation plans in the fiscal years ended September 30, 2007 or 2008. |
(6) |
For 2008, represents (a) 401(k) contributions made by Community Mutual for Mr. Ritacco, Mr. Dowd and Mr. Strauss in the amounts of $10,500, $3,523, and $5,927, respectively, and (b) the distribution of shares of the Companys common stock under the ESOP to Mr. Ritacco, Mr. Dowd and Mr. Strauss in the amounts of $8,060, $5,863, and $4,342, respectively. For 2007, represents 401(k) contributions made by Community Mutual for each named executive officer. |
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The named executive officers also participate in certain group life, health, disability insurance and medical reimbursement plans, not disclosed in the Summary Compensation Table, that are generally available to salaried employees and do not discriminate in scope, terms and operation. We provide certain non-cash perquisites and personal benefits to each named executive officer that do not exceed $10,000 in the aggregate for any individual, and are not included in the reported figures. |
The following table provides information about the outstanding equity awards to CMS Bancorp and Community Mutuals President and Chief Executive Officer, Chief Financial Officer, and Senior Vice President and Senior Lending Officer (collectively, the named executive officers). CMS Bancorp has no other executive officers.
Outstanding Equity Awards at September 30, 2008
Name |
Grant
|
Number of
securities underlying unexercised options (#) unexercisable |
Option
exercise price ($) |
Option
|
Number of
shares or units of stock that have not vested (#) |
Market value of
shares of units of stock that have not vested ($) |
|||||||
John E. Ritacco |
11/28/07 | 51,379 | $ | 10.12 | 11/28/2017 | 20,551 | 158,654 | ||||||
Stephen Dowd |
11/28/07 | 22,000 | $ | 10.12 | 11/28/2017 | 10,000 | 77,200 | ||||||
Christopher Strauss |
11/28/07 | 22,000 | $ | 10.12 | 11/28/2017 | 10,000 | 77,200 |
Pension Benefits
Tax Qualified Pension Plan . Community Mutual maintains a tax-qualified pension plan that covers substantially all employees who are age 18 or older and have at least one year of service. The following table shows the estimated aggregate benefits payable under the tax-qualified pension plan upon retirement at age 65 with various years of service and average compensation combinations.
Years of Benefit Service | |||||||||||
Average
|
10 | 15 | 20 | 25 | 30 | ||||||
$ | 125,000 | 41,667 | 62,500 | 62,500 | 62,500 | 62,500 | |||||
150,000 | 50,000 | 75,000 | 75,000 | 75,000 | 75,000 | ||||||
175,000 | 58,333 | 87,500 | 87,500 | 87,500 | 87,500 | ||||||
200,000 | 66,667 | 100,000 | 100,000 | 100,000 | 100,000 | ||||||
225,000 | 68,333 | 102,500 | 102,500 | 102,500 | 102,500 | ||||||
250,000 | 68,333 | 102,500 | 102,500 | 102,500 | 102,500 |
(1) | Average compensation is average base salary, as reported in the Salary column of the Summary Compensation Table, for the highest three consecutive years of employment within the final 10 years of employment. Tax laws impose a limit ($230,000 for individuals retiring in 2008) on the average compensation that may be counted in computing benefits under the tax-qualified pension plan. |
The benefits shown in the preceding table are annual benefits payable in the form of a single life annuity and are not subject to any deduction for Social Security benefits or other offset amounts.
401(k) Plan . Community Mutual maintains a tax-qualified 401(k) defined contribution plan for employees who have attained age 18 and have at least one year of service. Eligible employees may make pre-tax contributions to the plan through salary reduction elections from annual compensation, subject to limitations of the Internal Revenue Code (the Code) (for 2008, the annual limit was $15,500 for participants under the age of 50). Community Mutual may make a discretionary matching contribution to the plan equal to a fixed percentage of annual compensation contributed to the plan on a pre-tax basis by the eligible employee.
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Employee Stock Ownership Plan (ESOP). This plan is a tax-qualified plan that covers substantially all employees who have at least one year of service and have attained age 18. Although contributions to this plan are discretionary, Community Mutual intends to contribute enough money each year to make the required principal and interest payments on the loan from CMS Bancorp. The loan is for a term of up to 30 years and calls for level annual payments of principal plus interest. The plan initially pledged the shares it purchases as collateral for the loan and holds them in a suspense account.
The employee stock ownership plan does not distribute the pledged shares right away. Instead, it releases a portion of the pledged shares annually. The employee stock ownership plan allocates the shares released each year among the accounts of participants in proportion to their salary for the year. For example, if a participants salary for a year represents 1.0% of the total salaries of all participants for the year, the plan allocates to that participant 1.0% of the shares released for the year. Participants direct the voting of shares allocated to their accounts. Shares in the suspense account will usually be voted in a way that mirrors the votes which participants cast for shares in their individual accounts.
The employee stock ownership plan may purchase additional shares in the future, and may do so using borrowed funds, cash dividends, periodic employer contributions or other cash flow.
Non-Equity Incentive Compensation Plans
CMS Bancorp, Inc. 2008 Non-Equity Incentive Compensation Plan. In 2008, The Compensation Committee developed a non-equity incentive compensation plan for executive management of CMS Bancorp and Community Mutual Savings Bank. Targets under the non-equity incentive compensation plan were established using a formula for each executive and are based on meeting a combination of goals on a calendar year basis, including growth in interest and non-interest income, growth in loans, control over non-interest expense, and achieving personal goals. Actual awards will be determined by the Compensation Committee, after considering the achievement of the goals described above, overall compensation compared to a peer group, and other factors.
Equity Compensation Plans
CMS Bancorp, Inc. 2007 Stock Option Plan. CMS Bancorp has a Stock Option Plan in effect that was approved by the shareholders and became effective on November 9, 2007. The purpose of the Stock Option Plan is to encourage the retention of key employees and directors by facilitating their purchase of a stock interest in CMS Bancorp. The Stock Option Plan is not subject to ERISA and is not a tax-qualified plan. CMS Bancorp has reserved an aggregate of 205,516 shares of common stock for issuance upon the exercise of stock options granted under the Plan. Such shares may be unissued shares or shares previously issued and subsequently reacquired by CMS Bancorp. Any shares subject to grants under the plan which expire or are terminated, forfeited or canceled without having been exercised or vested in full shall be available for new option grants. During the fiscal year ended September 30, 2008, stock options to purchase an aggregate of 152,154 shares of common stock were granted to directors and officers of Community Mutual Savings Bank, and 53,362 options remain available for future grant. Options are granted based on the conclusions of the Compensation Committee, after considering factors including, but not limited to the persons individual performance, level of achievement of personal goals, contribution to corporate performance and achievement of corporate goals, overall compensation compared to a peer group and other factors.
CMS Bancorp, Inc. 2007 Recognition and Retention Plan. CMS Bancorps Recognition and Retention Plan was approved by shareholders and became effective on November 9, 2007. Like the Stock Option Plan, the Recognition and Retention Plan functions as a long-term incentive compensation program for eligible officers, employees and outside directors of CMS Bancorp and Community Mutual. The Recognition and Retention Plan is not subject to ERISA and is not a tax-qualified plan. The members of the Board of Directors Compensation Committee administer the Recognition and Retention Plan. CMS Bancorp pays all costs and expenses of administering the Recognition and Retention Plan. During the year ended September 30, 2008, 61,701 shares of restricted stock were granted to directors and officers of Community Mutual Savings Bank, and 20,505 shares remain available for future grants. CMS Bancorp has established a trust and contributed $856,001 to the trust during
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the year ended September 30, 2008, enabling the trust to purchase 82,206 shares of common stock authorized under the Recognition and Retention Plan. No contributions by participants will be permitted. Stock is granted based on the conclusions of the Compensation Committee, after considering factors including, but not limited to the persons individual performance, level of achievement of personal goals, contribution to corporate performance and achievement of corporate goals, overall compensation compared to a peer group and other factors.
Termination and Change in Control Benefits
Employment Agreement. On July 30, 2008, Community Mutual entered into an amended and restated employment agreement with Mr. Ritacco, effective January 1, 2008. The agreement has an initial term of three years, ending December 31, 2010, and will be reviewed on the one-year anniversary of the agreement, upon such time the Board may extend the agreement for one additional year. Upon termination for Good Reason, without Cause, or upon a Change of Control (as each term is defined in the employment agreement), Mr. Ritacco would be entitled to: (1) the unpaid portion of any compensation earned up until the date of termination; (2) any benefits to which he is entitled to as a former employee benefit plans and programs maintained by Community Mutual; (3) continued health and welfare benefits until the earliest date he becomes eligible for such benefits maintained by a subsequent employer or the date of the remaining unexpired employment period; (4) a lump sum payment equal to the greater of his annual salary at the rate in effect immediately prior to his termination of employment, or the the salary that he would have earned through the Remaining Unexpired Employment Term (as defined in the employment agreement); and (5) an amount equal to the value of annual bonus he would have earned if he continued working for Community Mutual through the Remaining Unexpired Employment Term of the employment agreement at the highest annual rate achieved during the three years preceding the year of termination. The employment agreement with Community Mutual does not provide for 280G indemnification.
On July 30, 2008, CMS Bancorp, Inc. entered into a parallel and amended and restated employment agreement with Mr. Ritacco with terms substantially identical to the employment agreement between Community Mutual and Mr. Ritacco. However, under the employment agreement with CMS Bancorp, Inc., the Remaining Unexpired Employment Term shall be deemed to equal three (3) years for the purpose of determining the severance payments that would be payable to Mr. Ritacco upon a termination of employment following a Change in Control. Additionally, if upon a Change in Control Mr. Ritacco receives any severance payments under the employment agreement that would constitute an excess parachute payment within the meaning of Section 280G of the Code, then CMS Bancorp, Inc. will provide him with an additional payment to make him whole for any excise taxes that may be imposed under that Code Section.
Change of Control Agreements. Community Mutual has entered into two-year change of control agreements with Mr. Ritacco, Mr. Dowd, Mr. Strauss, Diane Cocozzo and Laura Caruolo. Mr. Ritacco, Mr. Dowd and Mr. Strauss are officers of CMS Bancorp and officers of the bank, while Ms. Cocozzo and Ms. Caruolo are officers of only the bank. These agreements are guaranteed by CMS Bancorp, Inc. The term of these agreements is perpetual until Community Mutual gives notice of non-extension, at which time the term is fixed for two years.
Generally, Community Mutual may terminate the employment of any officer covered by these agreements, with or without cause, at any time prior to a change of control without obligation for severance benefits. However, if CMS Bancorp or Community Mutual sign a merger or other business combination agreement, or if a third party makes a tender offer or initiates a proxy contest, it could not terminate an officers employment without cause without liability for severance benefits. The severance benefits would generally be equal to the value of the cash compensation and fringe benefits that the officer would have received if he or she had continued working for an additional two years. Community Mutual would pay the same severance benefits if the officer resigns after a change of control following a loss of title or office, material reduction in duties, functions, compensation or responsibilities, involuntary relocation of his or her principal place of employment to a location over 35 miles from Community Mutuals principal office on the day before the change of control and over 35 miles from the officers principal residence or other material breach of contract which is not cured within 30 days. These agreements also provide uninsured death and disability benefits.
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If CMS Bancorp and Community Mutual experience a change in ownership, a change in effective ownership or control or a change in the ownership of a substantial portion of their assets as contemplated by section 280G of the Code, a portion of any severance payments under the change of control agreements might constitute an excess parachute payment under current federal tax laws. Under the change in control agreements, any severance payments made which are subject to section 280G of the Code would be reduced to the extent necessary to avoid the imposition of an excise tax and related non-deductibility under section 280G of the Code.
Shareholder Communications with Our Board of Directors
Shareholders may contact our Board of Directors or our non-management directors as a group by contacting Stephen Dowd, Senior Vice President, Chief Financial Officer & Secretary, CMS Bancorp, Inc., 123 Main Street, White Plains, New York 10601. All comments will be forwarded directly to the Board of Directors, or to the non-management directors as a group, as appropriate.
Code of Ethics
CMS Bancorp has adopted a Code of Ethics that is applicable to all officers, directors and employees of CMS Bancorp and its affiliates. The Code of Ethics is available on our website, www.cmsbk.com , under the Management Team tab. You may also send a request for a free copy of the Code of Ethics to our principal executive offices: CMS Bancorp, Inc., Attn: Corporate Secretary, 123 Main Street, White Plains, New York 10601.
Annual Meeting Attendance Policy
The 2009 Annual Meeting of Shareholders is the second annual meeting held by CMS Bancorp following the conversion and stock offering completed on April 4, 2007. It is the policy of CMS Bancorp that all directors and nominees should attend the annual meeting. All directors and nominees attended the 2008 Annual Meeting of Shareholders.
PRINCIPAL ACCOUNTING FEES AND SERVICES
During the fiscal years ended September 30, 2008 and 2007, CMS Bancorp retained Beard Miller Company LLP to provide audit and other services and incurred fees as follows:
2008 | 2007 | |||||
Audit fees (1) |
$ | 65,500 | $ | 127,967 | ||
Audit related fees |
| | ||||
Tax fees (2) |
8,500 | 5,000 | ||||
All other fees |
| | ||||
Total |
$ | 74,000 | $ | 132,967 |
(1) | Includes professional services rendered for the audit of CMS Bancorps annual financial statements and review of financial statements included in Forms 10-QSB, or services provided annually in connection with statutory and regulatory filings (filing of Form 10-KSB. 10QSB and Form S-8 with related provision of comfort letters), including out-of-pocket expenses. The fees for 2007 include $72,920 related to CMS Bancorps initial public offering. |
(2) | Tax fees consisted of fees related to the preparation of CMS Bancorps income tax returns. |
Preapproval Policies and Procedures
The Audit Committee, or a designated member of the Audit Committee, shall pre-approve all auditing services and permitted non-audit services (including the fees and terms) to be performed for CMS Bancorp by its
15
independent auditor, subject to the de minimis exceptions for non-audit services that are approved by the Audit Committee prior to completion of the audit, provided that: (1) the aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by CMS Bancorp to its auditor during the fiscal year in which the services are provided; (2) such services were not recognized by CMS Bancorp at the time of the engagement to be non-audit services; and (3) such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the Board of Directors to whom authority to grant such approvals has been delegated by the Audit Committee. Of the services set forth in the table above, all were pre-approved by the Audit Committee.
AUDIT COMMITTEE REPORT
CMS Bancorps Audit Committee has reviewed and discussed the audited financial statements of CMS Bancorp for the fiscal year ended September 30, 2008 with management and Beard Miller Company LLP, CMS Bancorps independent registered public accounting firm. CMS Bancorps Audit Committee has discussed the matters required by Statement on Auditing Standards No. 61 (Communication with Audit Committee) with Beard Miller Company LLP.
The Audit Committee has received the written disclosures and the letter from Beard Miller Company LLP required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), as may be modified or supplemented, and has discussed Beard Miller Company LLPs independence with respect to CMS Bancorp with Beard Miller Company LLP.
Based on the review and discussions referred to in this Audit Committee Report, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in CMS Bancorps Annual Report on Form 10-KSB for the year ended September 30, 2008 for filing with the SEC.
Audit Committee of CMS Bancorp, Inc.
Cheri R. Mazza, Chairperson
William V. Cuddy, Jr.
Matthew G. McCrosson
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE AND TRANSACTIONS WITH CERTAIN RELATED PERSONS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires CMS Bancorps directors and executive officers, and persons who own more than 10% of CMS Bancorps common stock, to report to the SEC their initial ownership of CMS Bancorps common stock, on Form 3, and any subsequent changes in that ownership, on Form 4. Reports on Form 3 must be filed within 10 days of becoming a beneficial owner, director or officer. Reports on Form 4 must be filed before the end of the second business day following the day on which the transaction effecting a change in ownership occurred. CMS Bancorp is required to disclose in this annual report any late filings or failures to file.
To CMS Bancorps knowledge, based solely on its review of the copies of such reports furnished to CMS Bancorp and written representations that no other reports were required during the fiscal year ended September 30, 2008, all Section 16(a) filing requirements applicable to CMS Bancorps executive officers and directors during fiscal year 2008 were met.
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Transactions with Certain Related Persons
CMS Bancorp did not have any outstanding loans to directors and officers at September 30, 2008, however, we do have outstanding loans to members of certain of these individuals families, as well as to certain employees. These loans are made in the ordinary course of our business and are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans to customers who do not have a personal or familial relationship with us. Such loans do not involve more than the normal risk of collectibility or present other unfavorable features.
Thomas G. Ferrara, the Chairman of the Board of Directors of CMS Bancorp, is the President of Future Value Associates, Ltd., a consulting firm for 401(k) plans, benefit plans, estate planning, insurance and variable annuities and mutual funds. Mr. Ferrara owns 51% of the equity interests in Future Value Associates, Ltd. Sarah Becker, the Executive Vice President of Future Value Associates, LTD., who is a registered representative of Park Avenue Securities and a field representative for The Guardian Life Insurance Company of America, holds 49% of Future Value Associates, Ltd. Ms. Becker is a consultant for Community Mutual with respect to its benefit plans. Community Mutual does not compensate this agent directly for her involvement; she makes commissions from Park Avenue and Guardian due to products purchased by Community Mutual Savings Bank for its benefits plans. For the fiscal year ended September 30, 2008, Ms. Becker received aggregate compensation from CMS Bancorp, directly and indirectly of $13,530.53. None of this compensation was paid to Mr. Ferrara or Future Value Associates, Ltd. The fees received by Ms. Becker for professional services rendered to Community Mutual during the year ended September 30, 2008 did not exceed 5% of the firms gross revenues.
The Board of Directors unanimously recommends a vote FOR the all of the nominees for election as directors of CMS Bancorp, Inc.
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PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Our independent registered public accounting firm for the fiscal year ended September 30, 2008 was Beard Miller Company LLP. The Audit Committee has appointed Beard Miller Company LLP to act as our independent registered public accounting firm for the fiscal year ending September 30, 2009, and we are asking shareholders to ratify the appointment.
Representatives of Beard Miller Company LLP are expected to be present at the annual meeting to answer questions concerning the financial statements and to make a statement at the meeting if they so desire.
The affirmative vote of the majority of shares present in person or represented by proxy at the annual meeting and entitled to vote on the proposal is required for ratification.
The Board of Directors unanimously recommends a vote FOR the ratification of the appointment of Beard Miller Company LLP as the independent registered public accounting firm for CMS Bancorp, Inc. for the 2009 fiscal year.
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PROPOSAL 3
AN AMENDMENT TO CMS B ANCORP S C ERTIFICATE OF
I NCORPORATION TO REDUCE THE NUMBER OF SHARES OF
COMMON STOCK , $0.01 PAR VALUE , CMS B ANCORP IS
AUTHORIZED TO ISSUE FROM 14,000,000 SHARES TO 7,000,000.
On December 23, 2008 the Board of Directors unanimously approved, subject to shareholder approval, a proposal to amend Section 1 of Article IV of the CMS Bancorps Certificate of Incorporation (the Amendment), to reduce the number of shares of common stock we are authorized to issue to 7,000,000 shares. Currently, CMS Bancorp is authorized to issue up to 1,000,000 shares of preferred stock and up to 14,000,000 shares of common stock. The proposed text of the revised Section 1, Article IV appears as Appendix C to this proxy statement.
As of January 2, 2009, no preferred shares had been issued or were outstanding, a total of 1,924,118 shares of common stock were issued and outstanding and a total of up to 205,516 shares of common stock were reserved for possible future issuance on exercise of outstanding stock options or for future grants of options or other equity incentives under CMS Bancorps outstanding stock incentive plans. Therefore, if the proposed Amendment is approved by the shareholders at the Annual Meeting, we would still have available for future issuance, by Board action alone, a total of 1,000,000 shares of preferred stock and a total of 4,870,366 shares of common stock. The Board of Directors believes that these available shares will be adequate to meet CMS Bancorps needs for the foreseeable future.
Purpose of the Reduction in Authorized Shares
The purpose of the reduction in the number of authorized shares of common stock is to reduce our Delaware franchise tax liability. A reduction in the number of authorized shares will not affect any shareholders interest or ownership in CMS Bancorp. The amendment will not affect the par value of the common stock, which would remain $0.01 per share. Currently, CMS Bancorp incurs an annual Delaware franchise tax liability of approximately $45,000, based on the number of CMS Bancorps authorized shares of common stock and preferred stock. By reducing the number of shares of common stock that CMS Bancorp is authorized to issue to 7,000,000 shares, CMS Bancorp will be able to reduce its annual Delaware franchise tax liability to approximately $22,500, resulting in annual savings to CMS Bancorp of approximately $22,500.
The Board of Directors has determined that it is in the best interest of CMS Bancorp and its shareholders to reduce the number of authorized shares of common stock as described herein because, in its business judgment, the reduced number of authorized shares will still provide adequate flexibility to CMS Bancorp in engaging in future capital raising transactions, acquisitions or other transactions which might require the issuance of common stock or preferred stock, while allowing CMS Bancorp to reduce its Delaware franchise tax liability.
Vote Required to Reduce the Authorized Number of Shares of Preferred Stock and Common Stock
The approval of the proposal described above to amend CMS Bancorps Certificate of Incorporation to reduce the authorized number of shares of CMS Bancorps common stock requires the affirmative vote of a majority of the outstanding shares of our common stock entitled to vote at the Annual Meeting. Proxies solicited by the Board of Directors for which no specific instruction is given with respect to this Proposal in any proxy will be voted FOR the Amendment to reduce the authorized number of shares of CMS Bancorps common stock. Abstentions and broker non-votes will have the same effect as a vote against this Proposal.
The Board of Directors unanimously recommends a vote FOR the authorization to amend CMS Bancorps Certificate of Incorporation to reduce the number of authorized shares of common stock from 14,000,000 to 7,000,000 shares.
19
ADDITIONAL INFORMATION
Information About Shareholder Proposals
If you wish to submit proposals to be included in our proxy statement for the 2010 Annual Meeting of Shareholders, we must receive them on or before September 16, 2009, pursuant to the proxy soliciting regulations of the SEC. SEC rules contain standards as to what shareholder proposals are required to be in the proxy statement. All shareholder proposals for inclusion in our proxy materials shall be subject to the requirements of the proxy rules adopted under the Securities Exchange Act of 1934, as amended, and as with any shareholder proposal (regardless of whether it is included in our proxy materials), our Certificate of Incorporation and bylaws, and Delaware law.
By Order of the Board of Directors, |
|
Stephen Dowd |
Senior Vice President, Chief Financial Officer and Secretary |
White Plains, New York
January 14, 2009
To assure that your shares are represented at the annual meeting, please complete, sign, date and promptly return the accompanying proxy card in the postage-paid envelope provided.
20
Appendix A
Proposal 3Approve an amendment to CMS Bancorps Certificate of Incorporation to reduce the number of shares of common stock, $0.01 par value, CMS Bancorp is authorized to issue from 14,000,000 to 7,000,000. Text of Revised Article IV, Section 1:
Section 1. Shares, Classes and Series Authorized. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is eight million (8,000,000) shares, of which one million (1,000,000) shares shall be preferred stock, par value one cent ($.01) per share (the Preferred Stock), and seven million (7,000,000) shares shall be common stock, par value one cent ($.01) per share (the Common Stock). The Preferred Stock and Common Stock are sometimes hereinafter, collectively, referred to as the Capital Stock.
A-1
2008 Annual Report
CMS Bancorp, Inc.
Dear Stockholders:
In 2008, we made significant progress towards transforming our 121 year old savings bank into a modern, strong and growing financial institution while positioning it to increase shareholder value in the near term.
Since September 30, 2005, our total assets have grown from $114.3 million to $203.9 million at September 30, 2008, an increase of $89.6 million, or 78.4%. Net interest income grew from $4.3 million in 2005 to $5.5 million for the year ended September 30, 2008, an increase of $1.2 million, during one of the most difficult interest rate environments and volatile financial market conditions in many years.
Throughout the year, our management team remained focused on achieving our strategic plan and vision. We redesigned the look and feel of our retail branch network, providing better and more convenient locations; strengthened our loan officer sales staff and created a sales culture in our residential mortgage and commercial loan business units; and, added knowledgeable staff to our operations and compliance areas teams. We are pleased to say that much progress has been made on this segment of our plan during the year. In 2008 we made a significant investment in the banks product offerings and technology. We have completed the implementation of a modern technology platform which will help us to provide customers with better products, more services and a greener business environment. Additionally, through Remote Capture and Internet Banking with Bill Pay products, we have made banking easier and more convenient for our retail consumer and small business clients.
We have been focused on improving our in-branch customer experience and successfully relocated our Eastchester, White Plains and Greenburgh offices to new and more convenient locations, which, we believe, will provide a much improved retail banking experience for our customers.
In 2009, we plan to expand our geographic reach by opening a new branch office in Mount Kisco, New York. This will be our fifth branch and will help to grow our deposit and loan portfolios. We will continue to look for other expansion opportunities, through new branches and acquisitions. We believe that we have established a new and exciting business environment from which the bank will be able to reach a higher level of growth and profitability.
We would like to thank our customers, the Board of Directors, officers and employees for their efforts and performance during 2008 and thank you, our stockholders, for your continued support.
|
|
|||
Thomas G. Ferrara, Chairman of the Board | John E. Ritacco, President and CEO |
1
CMS Bancorp, Inc.
Selected Consolidated Financial Information and Other Data
The following information is derived from the audited consolidated financial statements of CMS Bancorp, Inc., (the Company). For additional information about the Company and Community Mutual Savings Bank, (the Bank) please see the detailed presentation contained in Managements Discussion and Analysis and Plan of Operation and the consolidated financial statements and footnotes of the Company which are included in this Annual Report.
Selected Financial Condition Data
At September 30, | ||||||
(in thousands) | 2008 | 2007 | ||||
Total assets |
$ | 203,930 | $ | 173,506 | ||
Loans receivable, net |
181,133 | 146,701 | ||||
Investment securities |
10,370 | 4,565 | ||||
Cash and cash equivalents |
5,402 | 17,540 | ||||
Deposits |
128,757 | 117,500 | ||||
FHLB Advances |
50,767 | 30,000 | ||||
Stockholders equity |
21,709 | 24,354 |
Selected Operating Data
Years Ended
September 30, |
||||||||
(in thousands, except per share data) | 2008 | 2007 | ||||||
Interest income |
$ | 10,291 | $ | 7,505 | ||||
Interest expense |
4,574 | 3,011 | ||||||
Net interest income |
5,717 | 4,494 | ||||||
Provision for loan losses |
248 | 60 | ||||||
Non-interest income |
322 | 279 | ||||||
Non-interest expense |
7,044 | 5,509 | ||||||
Income tax (benefit) expense |
(396 | ) | 7 | |||||
Net (loss) |
$ | (857 | ) | $ | (803 | ) | ||
Net (loss) per share |
$ | (0.46 | ) | $ | (0.38 | ) |
Selected Financial Ratios and Other Data
At or for the Years
Ended September 30, |
||||||
2008 | 2007 | |||||
Performance Ratios |
||||||
Return on average assets |
(0.47 | )% | (0.58 | )% | ||
Return on average equity |
(3.69 | )% | (4.93 | )% | ||
Yield on average interest-earning assets |
5.83 | % | 5.61 | % | ||
Net interest rate spread |
2.68 | % | 2.78 | % | ||
Net interest margin |
3.24 | % | 3.36 | % | ||
Average interest-earning assets to average interest-bearing liabilities |
1.21 | 1.26 | ||||
Capital Ratios |
||||||
Average stockholders equity to average assets |
12.84 | % | 11.79 | % | ||
Tier 1 core ratio |
7.23 | % | 8.99 | % | ||
Total risk based capital ratio |
14.28 | % | 17.34 | % | ||
Asset Quality Ratios |
||||||
Allowance for loan losses to gross loans |
0.28 | % | 0.18 | % | ||
Non-performing loans to total assets |
0.00 | % | 0.00 | % |
2
CMS Bancorp, Inc.
Managements Discussion and Analysis or Plan of Operation
Forward-Looking Statements
This Annual Report contains forward-looking statements, which may be identified by the use of such words as believe, expect, anticipate, should, planned, estimated, potential and similar expressions that are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, estimates with respect to our financial condition, results of operations and business that are subject to various factors including those set forth in Part 1, Item 1Description of BusinessRisk Factors of our Form 10-KSB filed with the Securities and Exchange Commission which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:
|
changes in interest rates; |
|
our allowance for loan losses may not be sufficient to cover actual loan losses; |
|
the risk of loss associated with our loan portfolio; |
|
lower demand for real estate loans; |
|
changes in our asset quality; |
|
changes in the real estate market or local economy; |
|
our ability to successfully implement our future plans for growth; |
|
our ability to retain our executive officers and other key personnel; |
|
competition in our primary market area; |
|
changes in laws and regulations to which we are subject; |
|
recent developments affecting the financial markets; |
|
changes in the Federal Reserves monetary or fiscal policies; |
|
our ability to maintain effective internal controls over financial reporting; |
|
the inclusion of certain anti-takeover provisions in our organizational documents; and |
|
the low trading volume in our stock. |
Any or all of our forward-looking statements in this Report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events.
General
The Companys results of operations depend primarily on its net interest income, which is the difference between the interest income it earns on its loans, investments and other interest-earning assets and the interest it pays on its deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on these balances. The Companys operations are also affected by non-interest income, such as service fees, the provision for loan losses and non-interest expenses such as salaries and employee benefits, occupancy costs, and other general and administrative expenses. In general, financial institutions such as the Company are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government.
3
CMS Bancorp, Inc.
Lending activities are influenced by the demand for and supply of housing, competition among lenders, interest rate conditions, and funds availability. The Companys operations and lending activities are principally concentrated in Westchester County, New York, and its operations and earnings are influenced by the economics of the area in which it operates. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in the Companys primary market area.
The Companys net interest income may be affected by market interest rate changes. During portions of the last two years, increases in short-term interest rates without a corresponding increase in long-term interest rates, resulted in an increase in interest expense and reduction in net interest income. The effect of a flat or inverted interest rate yield curve did, and could in the future continue to decrease the Companys ability to reinvest proceeds from loan and investment repayments at higher interest rates. During portions of fiscal year 2007 and 2008, the Companys cost of funds increased faster than its yield on loans and investments, due to the longer-term nature of its interest-earning assets and the yield curve environment.
In order to grow and diversify, the Company seeks to continue to increase its multi-family, non-residential, construction, home equity and commercial loans by targeting these markets in Westchester County and surrounding areas as a means to increase the yield on and diversify its loan portfolio, build transactional deposit account relationships and, depending on market conditions, sell a portion of the fixed-rate residential real estate loans to a third party in order to diversify its loan portfolio, increase fee income and reduce interest rate risk.
To the extent the Company increases its investment in construction or development, consumer and commercial loans, which are considered greater risks than one- to four-family residential loans, the Companys provision for loan losses may increase to reflect this increased risk, which could cause a reduction in the Companys income.
Overview
The Company seeks to differentiate itself from its competition by providing superior, highly personalized and prompt service with competitive fees and rates to its customers. Historically, the Bank has been a community- oriented retail savings bank offering residential mortgage loans and traditional deposit products and, to a lesser extent, commercial real estate, small business and consumer loans in Westchester County, New York, and surrounding areas. The Company has adopted a strategic plan that focuses on growth in the loan portfolio into higher yield multi-family, non-residential, construction and commercial loan markets. The Companys strategic plan also calls for increasing deposit relationships and broadening its product lines and services. The Company believes that this business strategy is best for its long term success and viability, and complements its existing commitment to high quality customer service.
Recent Developments Affecting the Financial Markets
Recent developments affecting the financial markets presently have an unknown effect on our business.
In response to the recent crises affecting the financial markets, the federal government has taken unprecedented steps in an attempt to stabilize and provide liquidity to the U.S. financial markets. Under the Emergency Economic Stabilization Act of 2008 (EESA) and the Troubled Asset Relief Program Capital Purchase Program (CPP), the U.S. Treasury will make $250 billion of capital available to U.S. financial institutions and potentially other financial and commercial firms by purchasing preferred stock in these institutions. The program is voluntary and requires an institution to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and declaration of dividends. The CPP provides for a minimum investment of 1% of Total Risk-Weighted Assets, with a maximum investment
4
CMS Bancorp, Inc.
equal to the lesser of 3% of Total Risk-Weighted Assets or $25 billion. In conjunction with the purchase of preferred stock, the U.S. Treasury will receive warrants to purchase common stock having an aggregate market price equal to 15% of the preferred stock purchased. We submitted an application to the U.S. Treasury by the November 14, 2008 deadline and are still evaluating whether to participate in the CPP.
In addition, the FDIC announced the creation of the Temporary Liquidity Guarantee Program (TLGP) as part of a larger government effort to strengthen confidence and encourage liquidity in the nations banking system. All eligible institutions are automatically enrolled in the TLGP for the first 30 days at no cost. Organizations that do not wish to participate in the TLGP were required to opt out by December 5, 2008. After that time, participating entities will be charged fees. The TLGP has two components. The FDIC will provide a complete guarantee of newly issued senior unsecured debt of the participating organizations, within a certain limit, issued between October 14, 2008 and June 30, 2009. For such debts maturing beyond June 30, 2009, the guarantee will remain in effect until June 30, 2012. An annualized fee of 75 basis points multiplied by the amount of debt issued from October 14, 2008 (and still outstanding on December 6, 2008), through June 30, 2009 will be charged. The other component provides full FDIC insurance coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount until December 31, 2009. An annualized 10 basis point assessment on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 will be assessed on a quarterly basis to insured depository institutions that have not opted out of the TLGP. We have elected to participate in the TLGP component which allows us to provide full FDIC insurance coverage for non-interest bearing transaction accounts as well as the component relating to the complete guarantee of newly issued senior unsecured debt.
It is not clear at this time whether our decision to participate or not participate in the CPP or our decision to participate in the TLGP will have an effect on our business or financial condition. In addition, there is no assurance that these government actions will achieve their purpose. The failure of the financial markets to stabilize, or a continuation or worsening of the current financial market conditions, could have a material adverse affect on our business, our financial condition, the financial condition of our customers, our common stock trading price, as well as our ability to access credit. It could also cause declines in our investment portfolio which could result in an other-than-temporary impairment charge.
Critical Accounting Policies
It is managements opinion that accounting estimates covering certain aspects of the Companys business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity required in making these estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the assessment of whether deferred taxes are more likely than not to be realized. Management believes that the allowance for loan losses represents its best estimate of losses known and inherent in the loan portfolio that are both probable and reasonable to estimate. 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 market and economic conditions in the Companys market area. Managements assessment as to the amount of deferred taxes more likely than not to be realized is based upon future taxable income, which is subject to revision upon updated information.
These critical policies and their application have been and will continue to be reviewed periodically by the Audit Committee and the Board of Directors. All accounting policies are important, and as such, we encourage you to review each of the policies included in Note 2 to the Companys Consolidated Financial Statements to obtain a better understanding of how its financial performance is reported.
5
CMS Bancorp, Inc.
Average Balances, Interest and Average Yields
The following table sets forth certain information relating to the Companys average balance sheets and reflects the average annual yield on interest-earning assets and average annual cost of interest-bearing liabilities, interest earned and interest paid for the periods indicated. Such yields and costs are derived by dividing annualized income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for loan losses.
At September 30,
2008 |
For the Year Ended
September 30, 2008 |
For the Year Ended
September 30, 2007 |
||||||||||||||||||||||||
Actual
Balance |
Yield/
Rate |
Average
Balance |
Interest
Income Expense |
Yield/
Rate |
Average
Balance |
Interest
Income Expense |
Yield/
Rate |
|||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||
Interest-earning assets |
||||||||||||||||||||||||||
Loans receivable (1) |
$ | 181,133 | 6.03 | % | $ | 160,965 | $ | 9,659 | 6.00 | % | $ | 111,089 | $ | 6,521 | 5.87 | % | ||||||||||
Securities (2) |
10,370 | 4.32 | % | 5,992 | 259 | 4.32 | % | 12,142 | 452 | 3.72 | % | |||||||||||||||
Federal funds sold |
| | 5,191 | 179 | 3.45 | % | 7,723 | 403 | 5.22 | % | ||||||||||||||||
Other interest-earning assets (3) |
6,719 | 3.29 | % | 4,309 | 194 | 4.50 | % | 2,733 | 129 | 4.72 | % | |||||||||||||||
Total interest-earning assets |
198,222 | 5.85 | % | 176,457 | 10,291 | 5.83 | % | 133,687 | 7,505 | 5.61 | % | |||||||||||||||
Non-interest earning assets |
5,708 | 4,332 | 4,480 | |||||||||||||||||||||||
Total Assets |
$ | 203,930 | $ | 180,789 | $ | 138,167 | ||||||||||||||||||||
Interest bearing-liabilities |
||||||||||||||||||||||||||
Demand deposits |
$ | 10,092 | 1.86 | % | $ | 10,442 | 283 | 2.71 | % | $ | 6,433 | 238 | 3.70 | % | ||||||||||||
Savings and club accounts |
37,933 | 0.40 | % | 40,161 | 160 | 0.40 | % | 44,529 | 178 | 0.40 | % | |||||||||||||||
Certificates of deposit |
70,371 | 3.50 | % | 57,710 | 2,397 | 4.15 | % | 48,736 | 2,268 | 4.65 | % | |||||||||||||||
Borrowed money (4) |
51,768 | 3.78 | % | 36,996 | 1,734 | 4.69 | % | 6,577 | 327 | 4.97 | % | |||||||||||||||
Total interest-bearing liabilities |
170,164 | 2.80 | % | 145,309 | 4,574 | 3.15 | % | 106,275 | 3,011 | 2.83 | % | |||||||||||||||
Non-interest bearing liabilities |
||||||||||||||||||||||||||
Non-interest bearing deposits |
10,361 | 11,194 | 14,963 | |||||||||||||||||||||||
Other |
1,696 | 1,073 | 638 | |||||||||||||||||||||||
Total non-interest bearing liabilities |
12,057 | 12,267 | 15,601 | |||||||||||||||||||||||
Total liabilities |
182,221 | 157,576 | 121,873 | |||||||||||||||||||||||
Total equity |
21,709 | 23,213 | 16,291 | |||||||||||||||||||||||
Total liabilities and equity |
$ | 203,930 | $ | 180,789 | $ | 138,167 | ||||||||||||||||||||
Interest rate spread |
$ | 5,717 | 2.68 | % | $ | 4,494 | 2.78 | % | ||||||||||||||||||
Net interest-earning assets/net interest margin |
$ | 31,148 | 3.24 | % | $ | 27,412 | 3.36 | % | ||||||||||||||||||
Ratio of interest-earning assets to interest-bearing liabilities |
1.21 | x | 1.26 | x |
(1) | Net of allowance for loan losses and net deferred costs and fees. |
(2) | Held to maturity securities included at amortized cost and available for sale securities included at fair value. |
(3) | Includes stock of Federal Home Loan Bank of New York. |
(4) | Includes mortgage escrow funds and securities sold under agreements to repurchase. |
6
CMS Bancorp, Inc.
Rate/Volume Analysis. The following table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It shows the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates. The effect of a change in volume is measured by applying the average rate during the first period to the volume change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the absolute value of the change due to volume and the change due to rate.
Year Ended
September 30, 2008 Compared to 2007 |
||||||||||||
Volume | Rate | Net | ||||||||||
(In thousands) | ||||||||||||
Interest-earning assets |
||||||||||||
Loans receivable |
$ | 2,990 | $ | 148 | $ | 3,138 | ||||||
Securities |
(202 | ) | 9 | (193 | ) | |||||||
Federal funds sold |
(111 | ) | (113 | ) | (224 | ) | ||||||
Other interest-earning assets |
66 | (1 | ) | 65 | ||||||||
Total interest-earning assets |
2,743 | 43 | 2,786 | |||||||||
Interest bearing liabilities |
||||||||||||
Demand deposits |
76 | (31 | ) | 45 | ||||||||
Savings and club accounts |
(18 | ) | | (18 | ) | |||||||
Certificates of deposit |
235 | (106 | ) | 129 | ||||||||
Borrowed money |
1,408 | (1 | ) | 1,407 | ||||||||
Total interest-bearing liabilities |
1,701 | (138 | ) | 1,563 | ||||||||
Net interest income |
$ | 1,042 | $ | 181 | $ | 1,223 | ||||||
Comparison of Financial Condition at September 30, 2008 to September 30, 2007
Total assets increased by $30.4 million, or 17.5%, to $203.9 million at September 30, 2008 from $173.5 million at September 30, 2007. Cash and cash equivalents, maturities of held to maturity securities, deposit growth and borrowing from the Federal Home Loan Bank of N.Y. (FHLB) were used to fund loan growth and purchase available for sale securities.
In the year ended September 30, 2008, cash and cash equivalents declined by $12.1 million, or 69.2% to $5.4 million as of September 30, 2008 from $17.6 million at September 30, 2007 and were used primarily to fund loan growth and investments in available for sale securities.
In the year ended September 30, 2008, securities available for sale increased by $8.1 million as maturities of held to maturity investments and Federal Funds sold were invested in available for sale securities to improve the yield on these investments and provide for liquidity. Available for sale securities consist of bonds and mortgage backed securities of Fannie Mae and Freddie Mac.
Loans receivable were $181.1 million and $146.7 million at September 30, 2008 and 2007, respectively, representing an increase of $34.4 million, or 23.5%. The increase in loans resulted principally from originations of one-to-four family mortgage loans, non-residential real estate loans, multi-family housing loans and residential construction loans. While the banking industry has seen increases in loan delinquencies and defaults over the past year, particularly in the subprime sector, the Company has not experienced losses in its loan portfolio due
7
CMS Bancorp, Inc.
primarily to its conservative underwriting policies. As of September 30, 2008 and 2007, the Company had no non-performing loans and the allowance for loan losses was 0.28% and 0.18% of loans outstanding, respectively. There were $1,000 and $7,000 of loans charged off in the years ended September 30, 2008 and 2007, respectively and no recoveries in the years ended September 30, 2008 or 2007. Despite a weakening economy nationally as well as in our primary market area, there was no material shift in the loan portfolio, delinquency levels, loss experience, or other factors affecting the Bank. Loans grew by $34.4 million during the year ended September 30, 2008 and as a result of loan growth and the deterioration of economic conditions in the Companys primary market area, $248,000 was added to the allowance for loan losses.
Additions to premises and equipment related principally to the leasehold and furniture and equipment costs of the new Eastchester and Greenburgh branches which opened in 2008.
Purchases of Federal Home Loan Bank of New York (FHLB) stock resulted from additional borrowings, which are required by FHLB.
Deposits increased by $11.3 million, or 9.6%, from $117.5 million as of September 30, 2007 to $128.8 million as of September 30, 2008. The increase in deposits resulted from offering more competitive interest rates on money market accounts and short-term certificates of deposit, offset in part by decreases in savings balances as customers shifted savings into higher yielding certificates of deposit. Deposits as of September 30, 2008 also include $4.0 million of brokered deposits which were used to improve liquidity during a period of tight credit and economic uncertainty.
Advances from the FHLB increased to $50.8 million as of September 30, 2008 from $30.0 million as of September 30, 2007 and were used to fund loan demand.
Stockholders equity decreased from $24.4 million at September 30, 2007 to $21.7 million at September 30, 2008 as a result of the net loss incurred during the period and the purchase for $856,000, of 82,206 shares of the Companys common stock to fund the Management Recognition Plan (MRP) by the plans independent trustee and the purchase of 98,647 shares of the Companys common stock under the previously announced stock buy back program for $999,000.
Comparison of Operating Results for the Year Ended September 30, 2008 and 2007
General. The Company incurred a net loss of $857,000 for the year ended September 30, 2008, compared to a net loss of $803,000 for the year ended September 30, 2007. The increase in the net loss resulted primarily from an increase in total interest expense, provision for loan losses and non-interest expense, offset by increases in total interest income and non-interest income. Non-interest expense increased in the year ended September 30, 2008 as compared to 2007 as a result of higher salaries and benefits, higher occupancy costs, professional fees and other expenses, partially offset by the fact that there was no contribution to the Community Mutual Charitable Foundation in 2008.
Interest Income. Total interest income increased $2.8 million, or 37.1%, to $10.3 million for the year ended September 30, 2008 from $7.5 million for the year ended September 30, 2007. The increase in interest income was due to increases of $3.1 million in interest income from loans, offset by a decrease of $352,000 in interest income from securities, Federal funds sold and other interest-earning assets.
Interest income from loans increased by $3.1 million, or 48.1%, to $9.7 million for the year ended September 30, 2008 from $6.5 million for the year ended September 30, 2007. The increase was due to a $49.9 million, or 44.9%, increase in the average balance of loans to $161.0 million in the year ended September 30, 2008 from $111.1 million in the year ended September 30, 2007 and an increase in the associated average yields to 6.00% for 2008 from 5.87% for 2007, as additions to the loan portfolio were made at interest rates that were
8
CMS Bancorp, Inc.
higher than the interest rate on the overall portfolio. The $49.9 million increase in average loan balances in the year ended September 30, 2008 was principally from originations of conventional one-to-four-family residential mortgages, and to a lesser degree from originations and higher usage of home equity lines as well as originations of non-residential real estate loans, multi-family housing loans and residential construction loans. The higher balances contributed $3.0 million of the $3.1 million increase in interest income from loans and the higher interest rates contributed the balance of such increase.
Interest income from securities decreased by $193,000 to $259,000 for the year ended September 30, 2008 from $452,000 for the year ended September 30, 2007. The decrease in interest income from securities was due to maturities of U.S. Government Agency bonds which, net of reinvestments, caused the average balance to decrease by $6.2 million in the year ended September 30, 2008 compared to 2007. The impact of the bond maturities was partially offset by an increase in the average yield on securities to 4.32% for the year ended September 30, 2008 compared to 3.72% for the year ended September 30, 2007, as the result of maturities of bonds with lower yields and reinvestment of maturities into securities with higher yields. Interest income on Federal Funds sold decreased by $224,000 to $179,000 in the year ended September 30, 2008 from $403,000 in 2007 as a result of lower average balances invested and lower interest rates earned. Interest income on other interest-earning assets increased by $65,000 to $194,000 in the year ended September 30, 2008 from $129,000 in 2007 as a result of higher average balances invested, offset by lower interest rates earned.
Interest Expense. Total interest expense increased by $1.6 million, or 51.9%, to $4.6 million in the year ended September 30, 2008 compared to $3.0 million in 2007. More competitive pricing of interest bearing demand deposit accounts resulted in an increase in the average balance of $4.0 million, from $6.4 million in the year ended September 30, 2007 to $10.4 million in 2008, offset by a decrease in the average interest rate on interest bearing demand deposits from 3.70% in the year ended September 30, 2007 to 2.71% in 2008. The decrease in the average interest rate on these deposits resulted from decreases in market interest rates following reductions in the Federal Funds rate, which was 4.75% as of September 30, 2007 and 2.00% as of September 30, 2008. Interest on savings and clubs accounts declined by $18,000 as a result of the average balances declining from $44.5 million in the year ended September 30, 2007 to $40.2 million in 2008. More competitive market rates offered on certificates of deposit resulted in an increase in the average balance of $9.0 million, to $57.7 million for the year ended September 30, 2008. Interest expense on certificates of deposit increased by $129,000 in the year ended September 30, 2008 compared to 2007, which was comprised of a $235,000 increase due to higher volume and a $106,000 decrease due to lower interest rates. The average balance of borrowed money, which was used to fund loan demand, increased to $37.0 million in the year ended September 30, 2008 compared to $6.6 million in 2007, at an average interest rate on these borrowings of 4.69% in the year ended September 30, 2008 compared to 4.97% in 2007.
Net Interest Income. Net interest income increased $1.2 million, or 27.2%, to $5.7 million for the year ended September 30, 2008 from $4.5 million for the year ended September 30, 2007. Increases in both average interest-earning assets and the yield on those assets in the year ended September 30, 2008 as compared to 2007 were offset by increases in the cost of interest-bearing liabilities and increases in average demand deposit, certificate of deposit and borrowing balances. The average rate on interest-bearing liabilities rose in response to higher average balances of borrowed money, which carries a higher interest rate.
Provision for Loan Losses. The allowance for loan losses was $516,000, or 0.28%, of gross loans outstanding at September 30, 2008 compared to $269,000, or 0.18%, of gross loans outstanding at September 30, 2007. The level of the allowance for loan losses is based on estimates and ultimate losses may vary from these estimates. Management reviews the level of the allowance for loan losses on a quarterly basis, at a minimum, 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 collectibility of the loan portfolio. Management regularly evaluates various risk factors related to the loan portfolio, such as type of loan, underlying collateral
9
CMS Bancorp, Inc.
and payment status, and the corresponding allowance allocation percentages. Despite a weakening economy nationally as well as in our primary market area, there was no material change in the delinquency levels, loss experience, or other factors affecting the Bank. Loans grew by $34.4 million during the year ended September 30, 2008, including additions in non-residential mortgages and multifamily construction mortgages, and, as a result of loan growth and the deterioration of economic conditions in the Companys primary market area, $248,000 was added to the allowance for loan losses in the year ended September 30, 2008. The Bank has allocated the allowance for loan losses among categories of loan types as well as classification status at each period end date.
Non-interest Income. Non-interest income of $322,000 in the year ended September 30, 2008 was higher than the comparable 2007 amount of $279,000 as a result of fees earned from referring a loan which was outside the Banks lending parameters to another lender and loans originated for other lenders, offset in part by decreases in other service charges.
Non-interest Expenses. Non-interest expenses were $7.0 million and $5.5 million for the year ended September 30, 2008 and 2007, respectively, representing an increase of $1.5 million, or 27.9%. Higher salaries and benefits ($1.0 million) resulted from additions to staff in branches, lending, compliance and operations, as well as raises and incentive compensation, and higher benefit costs, including the cost of the employee stock ownership plan and stock based compensation. Higher net occupancy costs ($444,000) and equipment costs ($89,000) resulted principally from the leases on the new Eastchester and Greenburgh branch locations. In addition, occupancy and equipment costs in the year ended September 30, 2008 include $237,000 of costs relating to two older branches which have been relocated and will no longer be used. Professional fees were $757,000 in the year ended September 30, 2008 and $388,000 in the year ended September 30, 2007. The increase resulted from costs associated with the proxy statements and the special shareholders meeting and annual shareholders meeting, the cost of preparing and filing the first annual report and Form 10-KSB and the cost of the Registration Statement on Form S-8 for the stock option and management recognition programs, legal fees associated with a suit by two former employees and other costs associated with operating as a public company. In addition, professional fees were higher due to the Compensation Committees engagement of outside compensation consultants and attorneys to review employment contracts and to a lesser degree, costs of documenting internal controls as required by the Sarbanes-Oxley Act. Advertising costs were $139,000 and $64,000 in the year ended September 30, 2008 and 2007, respectively. The increase of $75,000 resulted from advertising for new branches and general retail advertising. Directors fees increased by $55,000 in the year ended September 30, 2008 as a result of additional board committee meetings and stock based compensation. Contributions in the year ended September 30, 2007 included the contribution to The Community Mutual Charitable Foundation made in conjunction with the public offering of the Companys common stock. No such contributions were made in 2008. Other non-interest expense increased by $274,000 in the year ended September 30, 2008 principally as a result of costs associated with operating as a public company, including Delaware state franchise taxes, the cost of proxy solicitation and printing the proxy statement and an insurance deductible on a check cashing fraud.
Income Tax Expense (Benefit). The income tax benefit was $396,000 in the year ended September 30, 2008 compared to an expense of $7,000 in 2007. The tax provision (benefit) is recorded based on pretax income (loss), at the statutory rate for federal tax purposes and the higher of the statutory rate or minimum tax rate for state purposes. The effective tax rate in the year ended September 30, 2008 and 2007 was different than the statutory rate as a result of providing for New York State minimum taxes. The tax benefit in the year ended September 30, 2007 was different than the benefit which would be expected from applying the statutory rate because deductions for contributions are limited to 10% of pre-tax income before the contribution and any unused charitable contribution can be carried forward for five years. The ability to realize sufficient future profits to utilize the contribution carryforward cannot be assured and as a result, the tax benefit of the contribution carryforward was not recognized by the Company by providing for a valuation allowance.
10
CMS Bancorp, Inc.
Management of Market Risk
As a financial institution, the Companys primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a significant portion of its assets and liabilities. Fluctuations in interest rates will also affect the market value of interest-earning assets and liabilities, other than those which possess a short-term maturity. Interest rates are highly sensitive to factors that are beyond the Companys control, including general economic conditions, inflation, changes in the slope of the interest rate yield curve, monetary and fiscal policies of the federal government and the regulatory policies of government authorities. Due to the nature of the Companys operations, it is not subject to foreign currency exchange or commodity price risk. Instead, the Companys loan portfolio, concentrated in Westchester County, New York, is subject to the risks associated with the economic conditions prevailing in its market area.
The primary goals of the Companys interest rate management strategy are to determine the appropriate level of risk given the business strategy and then manage that risk so as to reduce the exposure of the Companys net interest income to fluctuations in interest rates. Historically, the Companys lending activities have been dominated by one- to four-family real estate mortgage loans. The primary source of funds has been deposits and FHLB borrowings which have substantially shorter terms to maturity than the loan portfolio. As a result, the Company has employed certain strategies to manage the interest rate risk inherent in the asset/liability mix, including but not limited to limiting terms of fixed rate one- to four-family mortgage loan originations which are retained in the Companys portfolio, emphasizing investments with short- and intermediate-term maturities of less than five years and borrowing term funds from FHLB.
In addition, the actual amount of time before mortgage loans are repaid can be significantly impacted by changes in mortgage prepayment rates and market interest rates. Mortgage prepayment rates will vary due to a number of factors, including the regional economy in the area where the underlying mortgages were originated, seasonal factors, demographic variables and the assumability of the underlying mortgages. However, the major factors affecting prepayment rates are prevailing interest rates, related mortgage refinancing opportunities and competition. The Company monitors interest rate sensitivity so that it can make adjustments to its asset and liability mix on a timely basis.
Interest Rate Risk
The Company uses a simulation model to monitor interest rate risk. This model reports the net interest income and net economic value at risk under different interest rate environments. Specifically, an analysis is performed of changes in net interest income assuming changes in interest rates, both up and down, from current rates over the three-year period following the current financial statements. The changes in interest income and interest expense due to changes in interest rates reflect the interest sensitivity of the Companys interest-earning assets and interest-bearing liabilities.
The table below sets forth the latest available estimated changes in net interest income, as of June 30, 2008 that would result from various basis point changes in interest rates over a twelve-month period.
Net Interest Income | ||||||||||
Change in Interest Rates
|
Amount |
Dollar
Change |
Percent
Change |
|||||||
(Dollars in thousands) | ||||||||||
300 |
$ | 5,750 | $ | (413 | ) | -6.7 | % | |||
200 |
5,896 | (267 | ) | -4.3 | % | |||||
100 |
6,033 | (130 | ) | -2.1 | % | |||||
0 |
6,163 | | 0.0 | % | ||||||
-100 |
6,276 | 113 | 1.8 | % | ||||||
-200 |
6,303 | 140 | 2.3 | % |
11
CMS Bancorp, Inc.
Liquidity and Capital Resources
The Company is required to maintain levels of liquid assets sufficient to ensure the Companys safe and sound operation. Liquidity is the ability to meet current and future financial obligations of a short-term nature. 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 and loan funding commitments. The Company also adjusts its liquidity level as appropriate to meet its asset/liability objectives.
The Companys primary sources of funds are deposits, brokered certificates of deposit, amortization and prepayments of loans, FHLB advances and loans, maturities of investment securities and funds provided from operations. While scheduled loan and mortgage-backed securities amortization and maturing investment securities are a relatively predictable source of funds, deposit flow and loan and mortgage-backed securities prepayments are greatly influenced by market interest rates, economic conditions and competition. The Companys liquidity, represented by cash and cash equivalents and investment securities, is a product of its operating, investing and financing activities. Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments, such as Federal Funds and other interest-earning assets. If the Company requires funds beyond its ability to generate them internally, the Company can acquire brokered certificates of deposit and borrowing agreements exist with the FHLB which provide an additional source of funds. At September 30, 2008 and 2007, the Company had $50.8 million and $30.0 million of advances from the Federal Home Loan Bank of New York, respectively. In addition, we submitted an application to the U.S. Treasury and are still evaluating whether to participate in the CPP. If we are approved and elect to participate in the CPP, we could receive up to $3.2 million upon issuance of preferred stock and warrants to the U.S. Treasury.
In the year ended September 30, 2008, net cash provided by operating activities was $55,000, compared to $155,000 in 2007. In the year ended September 30, 2008, the net loss of $857,000 was offset by non-cash expenses of $396,000.
In the year ended September 30, 2008, investing activities used $43.0 million of cash, compared to $37.3 million in 2007. In the year ended September 30, 2008, net investments in securities used $5.8 million of cash, loan growth used $34.7 million of cash and additions to premises and equipment used $1.4 million of cash. In the year ended September 30, 2007, maturities and repayments of securities provided cash of $14.8 million of cash and loan growth used $50.1 million.
Net cash provided by financing activities was $30.8 million and $51.6 million in the years ended September 30, 2008 and 2007, respectively. In 2008, increases in retail deposits provided $7.3 million of cash, brokered certificates of deposit provided $4.0 million and net borrowings from FHLB provided $20.8 million of cash, while purchases of stock under the buyback program and to fund the management recognition plan used $1.9 million of cash. In 2007, higher deposits provided cash of $8.7 million, and net proceeds from the sale of common stock of the Company provided cash of $17.0 million while net FHLB borrowing provided $25.8 million of cash.
The Company anticipates that it will have sufficient funds available to meet its current loan and other commitments. As of September 30, 2008, the Company had cash and cash equivalents of $5.4 million and securities of $10.4 million. At September 30, 2008, the Company has outstanding commitments to originate loans of $3.6 million and $7.8 million of undisbursed funds from approved lines of credit, principally under a homeowners equity line of credit lending program. Certificates of deposit scheduled to mature in one year or less at September 30, 2008, totaled $59.0 million. Management believes that, based upon its experience and the Companys deposit flow history, a significant portion of such deposits will remain with the Company.
12
CMS Bancorp, Inc.
During the year ended September 30, 2008, an independent trustee purchased 82,206 shares of the Companys common stock to fund the MRP, for $856,000. These shares are recorded as a reduction of additional paid in capital at September 30, 2008.
On April 17, 2008, the Companys Board of Directors approved a stock buy back plan that authorized the Company to buy back up to 98,647 shares of the outstanding stock of the Company. The buy back was administered as a 10(b)5-1 plan by Stifel Nicolaus, the Companys investment banker. Through September 30, 2008, 98,647 shares of the Companys common stock had been purchased for $999,000 or an average price of $10.13 per share.
On September 25, 2008, the Companys Board of Directors approved an additional stock buy back plan that authorizes the Company to buy back up to 93,715 shares of the outstanding stock of the Company. The buy back is being administered as a 10(b)5-1 plan by Stifel Nicolaus, the Companys investment banker.
The Company has an overnight line of credit and a one month overnight repricing line of credit commitment with the Federal Home Loan Bank of New York totaling $18.6 million, which expire on July 31, 2009, of which $15.9 million was in use at September 30, 2008. The Company can borrow up to 50% of its assets from the Federal Home Loan Bank, limited to 30% of its assets based on qualifying mortgages pledged as collateral and 20% of its assets based on investment securities pledged as collateral.
The following table sets forth the Banks capital position at September 30, 2008, compared to the minimum regulatory capital requirements:
Actual |
For Capital
Adequacy Purposes |
To be Well
Capitalized under Prompt Corrective Action Provisions |
||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||
(Dollars in thousands) | ||||||||||||||||||
Total capital (to risk-weighted assets) |
$ | 15,127 | 14.28 | % | $ | ³ 8,471 | ³ 8.00 | % | $ | ³ 10,589 | ³ 10.00 | % | ||||||
Core (Tier 1) capital (to risk-weighted assets) |
14,611 | 13.80 | | | ³ 6,354 | ³ 6.00 | ||||||||||||
Core (Tier 1) capital (to total assets) |
14,611 | 7.23 | ³ 8,079 | ³ 4.00 | ³ 10,099 | ³ 5.00 | ||||||||||||
Tangible capital (to total assets) |
14,611 | 7.23 | ³ 3,030 | ³ 1.50 | | |
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Companys financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement 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. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The Company does not expect the adoption of SFAS No. 157 will have a material impact on its consolidated financial position, results of operations and cash flows.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to
13
CMS Bancorp, Inc.
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 the 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, as long as certain additional conditions are met. The Company decided not to adopt SFAS No. 159.
In February 2008, the FASB issued a FASB Staff Position (FSP) FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. This FSP addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one linked transaction. The FSP includes a rebuttable presumption that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The FSP will be effective for fiscal years beginning after November 15, 2008 and will apply only to original transfers made after that date; early adoption will not be allowed. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
In February 2008, 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 Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entitys 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 Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. 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 May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to our financial statements on September 30, 2008. The application of the provisions of FSP 157-3 did not materially affect our results of operations or financial condition.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of the Company have been prepared in accordance with generally accepted accounting principles (GAAP). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Companys operations. Unlike industrial companies, the Companys assets and liabilities are primarily monetary in nature. As a result, the effect of changes in interest rates will have a more significant impact on the Companys performance than will the effect of changing prices and inflation in general.
14
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
CMS Bancorp, Inc.
White Plains, New York
We have audited the accompanying consolidated statements of financial condition of CMS Bancorp, Inc. and subsidiary (the Company) as of September 30, 2008 and 2007, and the related statements of operations, changes in stockholders equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. 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 the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 CMS Bancorp, Inc. and subsidiary as of September 30, 2008 and 2007, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2, the Company changed its method of accounting for the Defined Benefit Pension Plan in 2007.
|
Beard Miller Company LLP
Clark, New Jersey
December 15, 2008
15
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,
2008 |
September 30,
2007 |
|||||||
(Dollars in thousands,
except per share data) |
||||||||
ASSETS |
||||||||
Cash and amounts due from depository institutions |
$ | 1,270 | $ | 1,164 | ||||
Interest-bearing deposits |
4,132 | 3,276 | ||||||
Federal funds sold |
| 13,100 | ||||||
Total cash and cash equivalents |
5.402 | 17,540 | ||||||
Securities available for sale |
10,179 | 2,116 | ||||||
Securities held to maturity, estimated fair value of $209 and $2,463, respectively |
191 | 2,449 | ||||||
Loans receivable, net of allowance for loan losses of $516 and $269, respectively |
181,133 | 146,701 | ||||||
Premises and equipment |
2,494 | 1,326 | ||||||
Federal Home Loan Bank of New York stock |
2,587 | 1,550 | ||||||
Accrued interest receivable |
781 | 795 | ||||||
Other assets |
1,163 | 1,029 | ||||||
Total assets |
$ | 203,930 | $ | 173,506 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Liabilities |
||||||||
Deposits |
$ | 128,757 | $ | 117,500 | ||||
Securities sold under repurchase agreements |
614 | | ||||||
Advances from Federal Home Loan Bank of New York |
50,767 | 30,000 | ||||||
Advance payments by borrowers for taxes and insurance |
387 | 366 | ||||||
Other liabilities |
1,696 | 1,286 | ||||||
Total liabilities |
182,221 | 149,152 | ||||||
Stockholders equity |
||||||||
Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding |
| | ||||||
Common stock, $.01 par value, 14,000,000 shares authorized, 2,055,165 shares issued; 1,956,518 (2008) and 2,055,165 (2007) shares outstanding, respectively |
21 | 21 | ||||||
Additional paid in capital |
17,852 | 18,535 | ||||||
Retained earnings |
6,784 | 7,641 | ||||||
Treasury stock, 98,647 shares (2008) |
(999 | ) | | |||||
Unearned Employee Stock Ownership Plan (ESOP) shares |
(1,562 | ) | (1,617 | ) | ||||
Accumulated other comprehensive (loss) |
(387 | ) | (226 | ) | ||||
Total stockholders equity |
21,709 | 24,354 | ||||||
Total liabilities and stockholders equity |
$ | 203,930 | $ | 173,506 | ||||
See notes to consolidated financial statements.
16
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
September 30, |
||||||||
2008 | 2007 | |||||||
(Dollars in thousands,
except per share data) |
||||||||
Interest income |
||||||||
Loans, including fees |
$ | 9,659 | $ | 6,521 | ||||
Securities, taxable |
259 | 452 | ||||||
Federal funds sold |
179 | 403 | ||||||
Other interest-earning assets |
194 | 129 | ||||||
Total interest income |
10,291 | 7,505 | ||||||
Interest expense |
||||||||
Deposits |
2,840 | 2,684 | ||||||
Mortgage escrow funds |
16 | 12 | ||||||
Borrowings, short-term |
53 | 101 | ||||||
Borrowings, long-term |
1,665 | 214 | ||||||
Total interest expense |
4,574 | 3,011 | ||||||
Net interest income |
5,717 | 4,494 | ||||||
Provision for loan losses |
248 | 60 | ||||||
Net interest income after provision for loan losses |
5,469 | 4,434 | ||||||
Non-interest income |
||||||||
Fees and service charges |
257 | 270 | ||||||
Other |
65 | 9 | ||||||
Total non-interest income |
322 | 279 | ||||||
Non-interest expenses |
||||||||
Salaries and employee benefits |
3,665 | 2,635 | ||||||
Net occupancy |
1,067 | 623 | ||||||
Equipment |
539 | 450 | ||||||
Professional fees |
757 | 388 | ||||||
Advertising |
139 | 64 | ||||||
Federal insurance premium |
15 | 13 | ||||||
Directors fees |
180 | 125 | ||||||
Other insurance |
63 | 79 | ||||||
Bank charges |
74 | 66 | ||||||
Contributions |
| 795 | ||||||
Other |
545 | 271 | ||||||
Total non-interest expenses |
7,044 | 5,509 | ||||||
(Loss) before income taxes (benefit) |
(1,253 | ) | (796 | ) | ||||
Income tax (benefit) expense |
(396 | ) | 7 | |||||
Net (loss) |
$ | (857 | ) | $ | (803 | ) | ||
Net (loss) per common share |
||||||||
Basic and diluted |
$ | (0.46 | ) | $ | (0.38 | ) | ||
Weighted average number of common shares outstanding |
||||||||
Basic and diluted |
1,855,846 | 1,892,122 | ||||||
See notes to consolidated financial statements.
17
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years Ended September 30, 2008 and 2007
(Dollars in thousands)
Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings |
Treasury
Stock |
Unearned
ESOP Shares |
Accumulated
Other Comprehensive (Loss) |
Total | |||||||||||||||||||||
Balance September 30, 2006 |
$ | | $ | | $ | 8,444 | $ | | $ | | $ | (137 | ) | $ | 8,307 | ||||||||||||
Net loss |
(803 | ) | (803 | ) | |||||||||||||||||||||||
Other comprehensive income |
13 | 13 | |||||||||||||||||||||||||
Total comprehensive loss |
(790 | ) | |||||||||||||||||||||||||
Adjustment to initially apply FASB Statement No. 158, net of tax of $68 |
(102 | ) | (102 | ) | |||||||||||||||||||||||
Issuance of common stock |
21 | 18,534 | 18,555 | ||||||||||||||||||||||||
Common stock issued to ESOP |
(1,644 | ) | (1,644 | ) | |||||||||||||||||||||||
ESOP shares committed for release |
1 | 27 | 28 | ||||||||||||||||||||||||
Balance September 30, 2007 |
21 | 18,535 | 7,641 | | (1,617 | ) | (226 | ) | 24,354 | ||||||||||||||||||
Net loss |
(857 | ) | (857 | ) | |||||||||||||||||||||||
Other comprehensive loss |
(161 | ) | (161 | ) | |||||||||||||||||||||||
Total comprehensive loss |
(1,018 | ) | |||||||||||||||||||||||||
ESOP shares committed for release |
(1 | ) | 55 | 54 | |||||||||||||||||||||||
Stock Option expense |
70 | 70 | |||||||||||||||||||||||||
Restricted Stock Award expense |
104 | 104 | |||||||||||||||||||||||||
Stock Purchased to Fund Management Recognition Plan |
(856 | ) | (856 | ) | |||||||||||||||||||||||
Treasury stock purchased(98,647 shares) |
(999 | ) | (999 | ) | |||||||||||||||||||||||
Balance September 30, 2008 |
$ | 21 | $ | 17,852 | $ | 6,784 | $ | (999 | ) | $ | (1,562 | ) | $ | (387 | ) | $ | 21,709 | ||||||||||
See notes to consolidated financial statements.
18
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
September 30, |
||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities |
||||||||
Net (loss) |
$ | (857 | ) | $ | (803 | ) | ||
Adjustments to reconcile net (loss) to net cash provided by operating activities |
||||||||
Depreciation of premises and equipment |
224 | 133 | ||||||
Amortization and accretion, net |
45 | 76 | ||||||
Provision for loan losses |
248 | 60 | ||||||
Deferred income taxes |
(349 | ) | (13 | ) | ||||
Stock contributed to The Community Mutual Charitable Foundation |
| 714 | ||||||
ESOP expense |
54 | 28 | ||||||
Stock option expense |
70 | | ||||||
Restricted stock award expense |
104 | | ||||||
(Increase) decrease in interest receivable |
14 | (157 | ) | |||||
(Increase) in other assets |
321 | (12 | ) | |||||
Increase (decrease) in accrued interest payable |
(49 | ) | 383 | |||||
Increase (decrease) in other liabilities |
230 | (254 | ) | |||||
Net cash provided by operating activities |
55 | 155 | ||||||
Cash flows from investing activities |
||||||||
Proceeds from maturities of securities available for sale |
2,046 | 2,000 | ||||||
Proceeds from maturities of securities held to maturity |
2,200 | 12,731 | ||||||
Purchases of securities available for sale |
(10,792 | ) | | |||||
Principal repayments on securities available for sale |
645 | 10 | ||||||
Principal repayments on securities held to maturity |
58 | 31 | ||||||
Net (increase) in loans receivable |
(34,725 | ) | (50,122 | ) | ||||
Additions to premises and equipment |
(1,392 | ) | (773 | ) | ||||
Purchase of Federal Home Loan Bank of N.Y. stock |
(1,037 | ) | (1,199 | ) | ||||
Net cash (used for) investing activities |
(42,997 | ) | (37,322 | ) | ||||
Cash flows from financing activities |
||||||||
Net increase in deposits |
11,257 | 8,716 | ||||||
Net increase in securities sold under repurchase agreements |
614 | | ||||||
Proceeds from issuance of common stock |
| 18,657 | ||||||
Stock issued to ESOP |
| (1,644 | ) | |||||
Advances from Federal Home Loan Bank of N.Y. |
20,900 | 30,000 | ||||||
Repayment of advances from Federal Home Loan Bank of N.Y. |
(133 | ) | (4,204 | ) | ||||
Net increase in payments by borrowers for taxes and insurance |
21 | 121 | ||||||
Purchase of treasury stock |
(999 | ) | | |||||
Funding of restricted stock awards |
(856 | ) | | |||||
Net cash provided by financing activities |
30,804 | 51,646 | ||||||
Net (decrease) increase in cash and cash equivalents |
(12,138 | ) | 14,479 | |||||
Cash and cash equivalentsbeginning |
17,540 | 3,061 | ||||||
Cash and cash equivalentsending |
$ | 5,402 | $ | 17,540 | ||||
Supplemental information |
||||||||
Cash paid during the period for |
||||||||
Interest |
$ | 4,623 | $ | 2,628 | ||||
Income taxes |
$ | | $ | 9 | ||||
See notes to consolidated financial statements.
19
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1Principles of Consolidation, Reorganization and Initial Public Offering
The consolidated financial statements include the accounts of CMS Bancorp, Inc. (the Company) and its wholly owned subsidiary, Community Mutual Savings Bank (the Bank). The Companys business is conducted principally through the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.
On April 3, 2007, the Bank reorganized from a New York State-chartered mutual savings bank to a federally-chartered mutual savings bank and simultaneously converted from a federally-chartered mutual savings bank to a federally-chartered stock savings bank, with the concurrent formation of a stock holding company. After the conversion and offering, all of the Banks stock is owned by the Company. In connection with the conversion and offering, the Company issued an aggregate of 2,055,165 shares of common stock, consisting of 164,413 shares to the Companys Employee Stock Ownership Program (ESOP), 71,415 shares to The Community Mutual Charitable Foundation (the Foundation) and 1,819,337 shares sold to the public at a purchase price of $10.00 per share. The net proceeds from the sale of shares to the public amounted to $16,196,000 ($18,193,000 of proceeds, net of reorganization expenses of $1,997,000). The management and business operations of the Bank continued unchanged after the conversion and offering.
Note 2Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. 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 dates of the statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.
It is managements opinion that accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity required in making these estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the assessment of whether deferred taxes are more likely than not to be realized. Management believes that the allowance for loan losses represents its best estimate of losses known and inherent in the loan portfolio that are both probable and reasonable to estimate. 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 market and economic conditions in the Companys market area. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Companys allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination.
Managements assessment as to the amount of deferred taxes more likely than not to be realized is based upon future taxable income, which is subject to revision upon updated information.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from depository institutions, interest-earning deposits and federal funds sold, all with original maturities of three months or less.
20
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Securities
Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt 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 securities not classified as trading securities or as held-to-maturity securities, are classified as available for sale securities and reported at fair value, with unrealized holding gains and losses, net of applicable income taxes, reported in accumulated other comprehensive income (loss), as a separate component of stockholders equity. The Company has no securities classified as trading securities.
On at least 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.
Premiums and discounts on all debt securities are amortized or accreted to income by use of the interest method over the estimated remaining period to contractual maturity.
Gains or losses on sales of securities are recognized on the specific identification method.
Loans Receivable
Loans receivable are carried at unpaid principal balances and net deferred loan origination costs less the allowance for loan losses.
The Company defers loan origination fees and certain direct loan origination costs and accretes net amounts as an adjustment of yield over the contractual lives of the related loans.
Recognition of interest income is discontinued and existing accrued interest receivable is reversed on loans that are more than ninety days delinquent and where management, through its loan review process, feels such interest is uncollectible. Income is subsequently recognized only to the extent that cash payments are received until, in managements judgment, the borrowers ability to make periodic interest and principal payments is probable, in which case the loan is returned to an accrual status.
Allowance for Loan Losses
An allowance for loan losses is maintained at a level that represents managements best estimate of losses known and inherent in the loan portfolio that are both probable and estimable. The allowance is decreased by loan charge-offs, increased by subsequent recoveries of loans previously charged off, and then adjusted, via either a charge or credit to operations, to an amount determined by management to be necessary. Loans or portions thereof, are charged off when, after collection efforts are exhausted, they are determined to be uncollectible. Management of the Company, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume inherent in its loan activities, along with the general economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general
21
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
valuation allowances on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan losses are determined based upon a combination of factors including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and managements judgment. Although management believes that specific and general loan losses are established in accordance with managements best estimate, actual losses are dependent upon future events and, as such, further additions to the level of loan loss allowances may be necessary.
A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loans effective interest rate or, as a practical expedient, at the loans observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. Payments received on impaired loans are applied first to principal and then to interest receivable.
Federal Home Loan Bank Stock
Federal law requires a member institution of the Federal Home Loan Bank (FHLB) system to hold stock of its district FHLB according to a predetermined formula. The stock is carried at cost.
Transfer of Financial Assets
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from us, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and (3) we do not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Concentration of Risk
The Companys lending activities are concentrated in loans secured by real estate located in the Westchester County, New York and surrounding areas.
Premises and Equipment
Premises and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost less accumulated depreciation and amortization. Depreciation and amortization charges are computed using the straight-line method over the following estimated useful lives:
Years | ||
Buildings and improvements |
1050 | |
Furnishings and equipment |
310 | |
Leasehold improvements |
The lesser of
useful life or term of lease |
22
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Significant renewals and betterments are charged to the property and equipment account. Maintenance and repairs are charged to expense in the year incurred. Rental income is netted against occupancy expenses in the consolidated statements of operations.
Advertising
Advertising expense is recognized as incurred.
Interest-Rate Risk
The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to originate loans secured by real estate and purchase investments and mortgage-backed securities. The potential for interest-rate risk exists when interest-sensitive liabilities reprice at different times and rates than interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing net interest income. Management regularly monitors the maturity structure of the Companys assets and liabilities in order to measure its level of interest-rate risk and plan for projected future volatility.
Income Taxes
The Company and the Bank file a consolidated federal income tax return. Federal income taxes are allocated to the Company and the Bank based upon the contribution of their respective income or loss to the consolidated return. The Company and the Bank file a combined state income tax return.
Federal and state income taxes have been provided on the basis of reported income (loss). The amounts reflected on the income tax returns differ from these provisions due principally to temporary differences in the treatment of certain items for financial statement and income tax reporting purposes. Deferred income taxes have been recorded to recognize such temporary differences. The realization of deferred tax assets is assessed and a valuation allowance is provided, when necessary, for that portion of the asset which more likely than not will not be realized.
Benefit Plans
The Company has a non-contributory defined benefit pension plan covering all eligible employees. The Company also has a 401(k) retirement plan and an ESOP, both of which are defined contribution plans.
The benefits for the pension plan are based on years of service and employees compensation. Prior service costs for the pension plan generally are amortized over the estimated remaining service periods of employees. The Company uses the corridor approach in the valuation of the pension plan which defers all actuarial gains and losses resulting from differences between actual results and economic estimates or actuarial assumptions. For the pension plan, these unrecognized gains and losses are amortized to income when net gains and losses exceed 10% of the greater of the market-value of plan assets or the projected benefit obligation at the beginning of the plan year.
In September 2006, FASB issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of Statement No.s 87, 88, 106 and 132R. SFAS No. 158 requires major changes to accounting for defined benefit and other postretirement plans. SFAS No. 158, which the Company adopted as of September 30, 2007, requires recognition of the over-funded or under-funded status of the benefit plans as an asset or liability in the consolidated statement of financial condition, with the changes in the funded status recorded through other comprehensive income (loss) in the year in which the change occurs.
23
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Net Income (Loss) Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding. Basic net loss per common share for the year ended September 30, 2007 is calculated by utilizing the net loss for the period April 3, 2007, the date the Company completed its public stock offering, through September 30, 2007 ($723,000) and the weighted average number of common outstanding during the same period. The stock options granted during the year ended September 30, 2008, were antidilutive and were therefore excluded from common stock equivalents. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares outstanding for purposes of calculating both basic and diluted net loss per share until they are committed to be released.
Off-Balance Sheet Credit-Related Financial Instruments
In the ordinary course of business, the Company enters into commitments to extend credit, including commitments under lines of credit. Such financial instruments are recorded when they are funded.
Note 3Securities Available for Sale
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||
(In thousands) | ||||||||||||
September 30, 2008 |
||||||||||||
U.S. Government agencies |
||||||||||||
Due after one but within five years |
$ | 2,000 | $ | | $ | 1 | $ | 1,999 | ||||
Mortgage-backed securities |
8,213 | 20 | 53 | 8,180 | ||||||||
$ | 10,213 | $ | 20 | $ | 54 | $ | 10,179 | |||||
September 30, 2007 |
||||||||||||
U.S. Government agencies |
||||||||||||
Due within one year |
$ | 2,042 | $ | | $ | 1 | $ | 2,041 | ||||
Mortgage-backed securities |
71 | 4 | | 75 | ||||||||
$ | 2,113 | $ | 4 | $ | 1 | $ | 2,116 | |||||
The age of unrealized losses and fair value of related securities available for sale at September 30, 2008 and 2007 were as follows:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||
Fair
Value |
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
|||||||||||||
(In thousands) | ||||||||||||||||||
September 30, 2008 |
||||||||||||||||||
U.S. Government agencies |
$ | 1,999 | $ | 1 | $ | | $ | | $ | 1,999 | $ | 1 | ||||||
Mortgage-backed securities |
6,090 | 53 | | | 6,090 | 53 | ||||||||||||
$ | 8,089 | $ | 54 | $ | | $ | | $ | 8,089 | $ | 54 | |||||||
September 30, 2007 |
||||||||||||||||||
U.S. Government agencies |
$ | | $ | | $ | 2,041 | $ | 1 | $ | 2,041 | $ | 1 | ||||||
24
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
At September 30, 2008, management concluded that the unrealized losses above (which related to three securities) are temporary in nature since they are primarily related to market interest rates and not related to the underlying credit quality of the issuer of securities. Additionally, the Company has the intent and ability to hold these investments for a period of time necessary to recover the amortized cost.
There were no sales of securities available for sale during the years ended September 30, 2008 or 2007.
Note 4Securities Held to Maturity
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||
(In thousands) | ||||||||||||
September 30, 2008 |
||||||||||||
Mortgage-backed securities |
||||||||||||
Due after ten years |
$ | 191 | $ | 18 | $ | | $ | 209 | ||||
$ | 191 | $ | 18 | $ | | $ | 209 | |||||
September 30, 2007 |
||||||||||||
U.S. Government agencies |
||||||||||||
Due within one year |
$ | 2,200 | $ | | $ | 4 | $ | 2,196 | ||||
Mortgage-backed securities |
||||||||||||
Due after ten years |
249 | 18 | | 267 | ||||||||
$ | 2,449 | $ | 18 | $ | 4 | $ | 2,463 | |||||
The age of unrealized losses and fair value of related securities held to maturity at September 30, 2007 was as follows:
Less than 12 Months | 12 Months or More | Total | ||||||||||||||||
Fair
Value |
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
|||||||||||||
(In thousands) | ||||||||||||||||||
September 30, 2007 |
||||||||||||||||||
U.S. Government agencies |
$ | | $ | | $ | 2,196 | $ | 4 | $ | 2,196 | $ | 4 | ||||||
As of September 30, 2007, management concluded that the unrealized losses above were temporary in nature since they were primarily related to market interest rates and not related to the underlying credit quality of the issuer of the securities. Additionally, the Company has the intent and ability to hold these investments for a period of time necessary to recover the amortized cost.
There were no sales of securities held to maturity during the years ended September 30, 2008 and 2007.
25
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 5Loans Receivable
September 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Real estate |
||||||||
One-to four-family |
$ | 156,519 | $ | 131,579 | ||||
Multi-family |
2,435 | 1,509 | ||||||
Non-residential |
9,819 | 2,879 | ||||||
Construction |
2,409 | 954 | ||||||
Equity and second mortgages |
8,147 | 7,974 | ||||||
179,329 | 144,895 | |||||||
Commercial |
600 | 500 | ||||||
Consumer |
||||||||
Passbook and other |
371 | 424 | ||||||
Student |
17 | 20 | ||||||
Checking overdraft |
18 | 15 | ||||||
406 | 459 | |||||||
Total Loans |
180,335 | 145,854 | ||||||
Allowance for loan losses |
(516 | ) | (269 | ) | ||||
Net deferred loan origination costs |
1,314 | 1,116 | ||||||
$ | 181,133 | $ | 146,701 | |||||
The following is an analysis of the allowance for loan losses: | ||||||||
Years Ended
September 30, |
||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Balancebeginning of year |
$ | 269 | $ | 216 | ||||
Provision charged to operations |
248 | 60 | ||||||
Loans charged off |
(1 | ) | (7 | ) | ||||
Balanceend of year |
$ | 516 | $ | 269 | ||||
At September 30, 2008 and 2007, and during the years then ended, the Company had no loans which were considered to be impaired or placed on non-accrual status.
At September 30, 2008 and 2007, loans serviced for the benefit of others totaled $151,000 and $550,000, respectively.
26
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 6Premises and Equipment
September 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Land |
$ | 179 | $ | 179 | ||||
Buildings and improvements |
1,156 | 1,150 | ||||||
Accumulated depreciation |
(461 | ) | (433 | ) | ||||
695 | 717 | |||||||
Leasehold improvements |
1,167 | 445 | ||||||
Accumulated amortization |
(267 | ) | (330 | ) | ||||
900 | 115 | |||||||
Furnishings and equipment |
1,886 | 1,899 | ||||||
Accumulated depreciation |
(1,166 | ) | (1,584 | ) | ||||
720 | 315 | |||||||
$ | 2,494 | $ | 1,326 | |||||
Note 7Accrued Interest Receivable
September 30, | ||||||
2008 | 2007 | |||||
(In thousands) | ||||||
Loans |
$ | 731 | $ | 741 | ||
Securities |
50 | 54 | ||||
$ | 781 | $ | 795 | |||
Note 8Deposits
September 30, | ||||||||||||
2008 | 2007 | |||||||||||
Amount |
Weighted
Average Rate |
Amount |
Weighted
Average Rate |
|||||||||
(Dollars in thousands) | ||||||||||||
Demand deposits |
||||||||||||
Non-interest bearing deposits |
$ | 10,361 | | $ | 12,487 | | ||||||
Interest bearing deposits |
10,092 | 1.86 | % | 8,173 | 3.92 | % | ||||||
20,453 | 0.92 | % | 20,660 | 1.55 | % | |||||||
Savings and club deposits |
37,933 | 0.40 | % | 42,026 | 0.40 | % | ||||||
Certificates of deposit |
70,371 | 3.50 | % | 54,814 | 4.78 | % | ||||||
$ | 128,757 | 2.17 | % | $ | 117,500 | 2.65 | % | |||||
27
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The scheduled maturities of certificates of deposit are as follows:
September 30, | ||||||
2008 | 2007 | |||||
(In thousands) | ||||||
One year or less |
$ | 59,018 | $ | 47,141 | ||
After one to two years |
6,781 | 2,636 | ||||
After two to three years |
3,708 | 1,664 | ||||
After three years to four years |
165 | 3,256 | ||||
After four years to five years |
699 | 117 | ||||
$ | 70,371 | $ | 54,814 | |||
The aggregate amount of certificates of deposit with balances of $100,000 or more totaled approximately $26,530,000 and $17,392,000 at September 30, 2008 and 2007, respectively. Deposits in excess of $250,000 are generally not insured by Federal Deposit Insurance Corporation.
Interest expense on deposits consists of the following:
Years Ended
September 30, |
||||||
2008 | 2007 | |||||
(In thousands) | ||||||
Demand deposits |
$ | 283 | $ | 238 | ||
Savings and club deposits |
160 | 178 | ||||
Certificates of deposit |
2,397 | 2,268 | ||||
$ | 2,840 | $ | 2,684 | |||
Note 9Securities Sold Under Agreements to Repurchase
At September 30, 2008, the Company had securities sold under agreements to repurchase totaling $614,000 which bear interest at the federal funds rate, less 125 basis points (0.75% at September 30, 2008). The accounts were secured by the pledge of a Federal Home Loan Mortgage Corp. bond with a fair value of $1,999,000 as of September 30, 2008.
Note 10Advances from Federal Home Loan Bank of New York (FHLB)
September 30, | ||||||
2008 | 2007 | |||||
(In thousands) | ||||||
Overnight borrowings with interest at 1.63% |
$ | 15,900 | $ | | ||
Five year advance, maturing August 15, 2012, convertible on August 15, 2010, with interest payable quarterly at 4.78% |
10,000 | 10,000 | ||||
Five year advance, maturing August 8, 2012, convertible on August 8, 2009, with interest payable quarterly at 4.81% |
10,000 | 10,000 | ||||
Seven year advance, maturing December 29, 2014, convertible on December 29, 2009, with interest payable quarterly at 3.56% |
5,000 | | ||||
Seven year fixed rate advance with interest at 5.57%, payable in monthly installments of principal and interest of $57,000 with a balloon payment of $8,925,000 on August 8, 2014 |
9,867 | 10,000 | ||||
Total |
$ | 50,767 | $ | 30,000 | ||
28
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
A schedule of the Companys annual principal obligations to the FHLB is as follows:
September 30, | ||||||
2008 | 2007 | |||||
(In thousands) | ||||||
2008 |
$ | | $ | 133 | ||
2009 |
16,040 | 140 | ||||
2010 |
149 | 149 | ||||
2011 |
157 | 157 | ||||
2012 |
20,166 | 20,166 | ||||
2013 |
176 | | ||||
Thereafter |
14,079 | 9,255 | ||||
$ | 50,767 | $ | 30,000 | |||
These FHLB advances are secured by stock of the FHLB in the amount of $2,587,000 and $1,550,000 at September 30, 2008 and 2007, respectively, and a blanket assignment of qualifying loans and securities.
The Company has an overnight line of credit and a one month overnight repricing line of credit commitment with the Federal Home Loan Bank of New York totaling $18.6 million, which expires on July 31, 2009, of which $15.9 million was in use at September 30, 2008.
Note 11Lease Commitments and Total Rental Expense
The Company leases six locations under long-term operating leases. Future minimum lease payments by year and in the aggregate, under noncancellable operating leases with initial or remaining terms of one year or more, consisted of the following at September 30, 2008 (in thousands):
Years ended September 30, |
|||
2009 |
$ | 444 | |
2010 |
443 | ||
2011 |
369 | ||
2012 |
370 | ||
2013 |
396 | ||
Thereafter |
1,335 | ||
$ | 3,357 | ||
The total rental expense and related charges for all leases for the years ended September 30, 2008 and 2007 was $821,000 and $470,000, respectively. Rental expense in 2008 includes $210,000 relating to two older branches which have been relocated and will no longer be used.
Note 12Income Taxes
The Company qualifies as a thrift under the provisions of the Internal Revenue Code and, therefore, was permitted, prior to January 1, 1996, to deduct from federal taxable income an allowance for bad debts based on 8% of taxable income before such deduction, less certain adjustments, subject to certain limitations. Beginning January 1, 1996, the Company, for federal income tax purposes, must calculate its tax bad debt deduction using either the experience or specific charge off method. The New York State tax law permits the Company to deduct 32% of its taxable income before bad debt deduction, subject to certain limitations.
29
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Retained earnings at September 30, 2008 include approximately $1,981,000 of such bad debt deduction for which federal income taxes of approximately $612,000 have not been provided. In addition, deferred New York State taxes of approximately $369,000 have not been provided on bad debt deductions in the amount of $4,100,000. If such amount is used for purposes other than for bad debt losses, including distributions in liquidation, it will be subject to income tax at the then current rate.
The components of income taxes (benefit) are as follows:
Years Ended
September 30, |
||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Current income tax expense (benefit) |
||||||||
Federal |
$ | (67 | ) | $ | 5 | |||
State |
20 | 15 | ||||||
(47 | ) | 20 | ||||||
Deferred income tax expense (benefit) |
||||||||
Federal |
(270 | ) | (10 | ) | ||||
State |
(79 | ) | (3 | ) | ||||
(349 | ) | (13 | ) | |||||
$ | (396 | ) | $ | 7 | ||||
The following table reconciles the reported income taxes and the federal income taxes which would be computed by applying the normal federal income tax rate of 34% to income (loss) before income taxes:
Years Ended September 30, | ||||||||||||||
2008 |
Percent
of Pretax Loss |
2007 |
Percent
of Pretax Income |
|||||||||||
(Dollars in thousands) | ||||||||||||||
Federal income taxes (benefit) |
$ | (426 | ) | (34.0 | )% | $ | (271 | ) | (34.0 | )% | ||||
Increases (decreases) in income taxes resulting from: |
||||||||||||||
Valuation Allowance |
| | 270 | 33.6 | ||||||||||
State income taxes, net of federal income tax effect |
(39 | ) | (3.1 | )% | 8 | 1.0 | ||||||||
Non-deductible benefit plan |
30 | 2.4 | % | | | |||||||||
Other items, net |
39 | 31. | % | | | |||||||||
Effective Income Taxes |
$ | (396 | ) | (31.6 | )% | $ | 7 | 0.6 | % | |||||
30
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The tax effects of existing temporary differences that give rise to significant portions of net deferred tax assets and liabilities are as follows:
September 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Deferred tax assets |
||||||||
Allowance for loan losses |
$ | 206 | $ | 108 | ||||
Deferred rent |
115 | 28 | ||||||
Contribution carryover |
270 | 270 | ||||||
SFAS 158 adjustment |
244 | 152 | ||||||
Accrued pension |
39 | | ||||||
Unrealized loss on securities available for sale |
14 | | ||||||
Stock based compensation |
49 | | ||||||
Other |
7 | | ||||||
Total Deferred Tax Assets |
944 | 558 | ||||||
Deferred tax liabilities |
||||||||
Accrued pension |
| 30 | ||||||
Depreciation |
2 | 41 | ||||||
Unrealized gain on securities available for sale |
| 1 | ||||||
Total Deferred Tax Liabilities |
2 | 72 | ||||||
Valuation allowance |
(270 | ) | (270 | ) | ||||
Net Deferred Tax Assets Included in Other Assets |
$ | 672 | $ | 216 | ||||
Note 13Comprehensive Income (Loss)
Total comprehensive income represents the sum of net income and items of other comprehensive income or loss that are reported directly in equity on an after tax basis, such as the net unrealized holding gain or loss on securities available for sale and minimum pension liability adjustments. The Company has reported its total comprehensive income in the statements of changes in stockholders equity.
Other comprehensive income (loss) is summarized as follows:
Years Ended
September 30, |
|||||||
2008 | 2007 | ||||||
(In thousands) | |||||||
Securities available for sale |
|||||||
Net unrealized holding gains (losses) arising during the year, net of income taxes of $15,000 and $(9,000), respectively |
$ | (24 | ) | $ | 13 | ||
Defined benefit plan adjustment, net of income taxes of $92,000 |
(137 | ) | | ||||
$ | (161 | ) | $ | 13 | |||
31
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Accumulated other comprehensive (loss), which is included in stockholders equity, consisted of the following:
September 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Net unrealized holding (losses) gains on securities available for sale, net of deferred income tax of $14,000 and $(1,000), respectively |
$ | (21 | ) | $ | 2 | |||
SFAS 158 adjustment, net of related deferred taxes of $244,000 and $152,000, respectively |
(366 | ) | (228 | ) | ||||
$ | (387 | ) | $ | (226 | ) | |||
Note 14Regulatory Matters
For the purpose of granting eligible account holders a priority in the event of future liquidation, the Bank, at the time of conversion, established a liquidation account in an amount equal to its retained earnings of $8.3 million at September 30, 2006. In the event of a future liquidation of the Bank (and only in such event), an eligible account holder who continues to maintain his or her deposit account shall be entitled to receive a distribution from the special account. The total amount of the special account is decreased (but never increased) in an amount proportionally corresponding to decreases in the deposit account balances of eligible account holders as of each subsequent year end. After conversion, no dividends may be paid to stockholders if such dividends would reduce retained earnings of the converted Bank below the amount required by the special account.
The 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 Company. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and classification 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 Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital to total assets (as defined).
The following tables present a reconciliation of the Banks capital based on generally accepted accounting principles (GAAP) and regulatory capital at the dates presented:
September 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
GAAP capital |
$ | 14,940 | $ | 15,628 | ||||
Disallowed deferred tax asset |
(672 | ) | (216 | ) | ||||
Pension liability, net of deferred taxes |
366 | 228 | ||||||
Unrealized (gain) loss on securities available for sale |
21 | (2 | ) | |||||
Intangible asset |
(44 | ) | (64 | ) | ||||
Tier I and tangible capital |
14,611 | 15,574 | ||||||
General valuation allowance |
516 | 269 | ||||||
Total Regulatory Capital |
$ | 15,127 | $ | 15,843 | ||||
32
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The following table sets forth the Banks capital position at September 30, 2008, compared to the minimum regulatory capital requirements:
Actual |
For Capital
Adequacy Purposes |
To be Well
Capitalized under Prompt Corrective Action Provisions |
||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||
(Dollars in thousands) | ||||||||||||||||||
September 30, 2008 |
||||||||||||||||||
Total capital (to risk-weighted assets) |
$ | 15,127 | 14.28 | % | $ | ³ 8,471 | ³ 8.00 | % | $ | ³ 10,589 | ³ 10.00 | % | ||||||
Core (Tier 1) capital (to risk-weighted assets) |
14,611 | 13.80 | | | ³ 6,354 | ³ 6.00 | ||||||||||||
Core (Tier 1) capital (to total assets) |
14,611 | 7.23 | ³ 8,079 | ³ 4.00 | ³ 10,099 | ³ 5.00 | ||||||||||||
Tangible capital (to total assets) |
14,611 | 7.23 | ³ 3,030 | ³ 1.50 | | | ||||||||||||
September 30, 2007 |
||||||||||||||||||
Total capital (to risk-weighted assets) |
$ | 15,843 | 17.34 | % | $ | ³ 7,309 | ³ 8.00 | % | $ | ³ 9,136 | ³ 10.00 | % | ||||||
Core (Tier 1) capital (to risk-weighted assets) |
15,574 | 17.05 | | | ³ 5,482 | ³ 6.00 | ||||||||||||
Core (Tier 1) capital (to total assets) |
15,574 | 8.99 | ³ 6,960 | ³ 4.00 | ³ 8,662 | ³ 5.00 | ||||||||||||
Tangible capital (to total assets) |
15,574 | 8.99 | ³ 2,599 | ³ 1.50 | | |
As of the most recent notification from the regulatory authorities, the Bank was categorized as well-capitalized 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 Banks regulatory capital categorization.
Note 15Benefit Plans
Pension Plan
The Bank maintains a non-contributory defined benefit pension plan (the Plan) covering all eligible employees. The benefits are based on employees years of service and compensation. The Banks policy is to fund the Plan annually with at least the minimum contribution deductible and/or allowable for federal income tax purposes.
33
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The following table sets forth the Plans funded status and components of net periodic pension cost:
September 30, | ||||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Change in benefit obligation |
||||||||
Benefit obligationbeginning of year |
$ | 3,487 | $ | 3,385 | ||||
Service cost |
228 | 58 | ||||||
Interest cost |
216 | 186 | ||||||
Actuarial (gain) loss |
(342 | ) | 23 | |||||
Benefits paid |
(158 | ) | (165 | ) | ||||
Benefit obligationend of year |
$ | 3,427 | $ | 3,487 | ||||
Change in plan assets |
||||||||
Fair value of assetsbeginning of year |
$ | 3,186 | $ | 2,873 | ||||
Actual return on plan assets |
(372 | ) | 368 | |||||
Benefits paid |
(158 | ) | (165 | ) | ||||
Contributions |
66 | 110 | ||||||
Fair value of assetsend of year |
$ | 2,722 | $ | 3,186 | ||||
Reconciliation of funded status |
||||||||
Accumulated benefit obligation |
$ | 3,044 | $ | 3,197 | ||||
Projected benefit obligation |
$ | (3,427 | ) | $ | (3,487 | ) | ||
Fair value of assets |
2,722 | 3,186 | ||||||
Funded status |
(705 | ) | (301 | ) | ||||
Accrued pension cost included in other liabilities |
$ | (705 | ) | $ | (301 | ) | ||
September 30, | ||||||||
2008 | 2007 | |||||||
(In thousands) | ||||||||
Amounts recognized in accumulated other comprehensive loss, pre-tax, consist of: |
||||||||
Net actuarial loss |
$ | (585 | ) | $ | (351 | ) | ||
Prior service cost |
(24 | ) | (29 | ) | ||||
$ | (609 | ) | $ | (380 | ) | |||
As required by SFAS 158, for the fiscal year ended September 30, 2009 and 2008, $18,000 and $13,000 respectively in unrecognized net loss and $4,000 and $4,000 in unrecognized net prior service cost were, or are expected to be recognized as a component of net periodic pension expense based on the assumptions specified below.
September 30, | ||||||
2008 | 2007 | |||||
Valuation assumptions |
||||||
Discount rate |
7.00 | % | 6.00 | % | ||
Rate of compensation increase |
4.00 | % | 4.00 | % |
34
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Years Ended
September 30, |
||||||||
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
Net periodic pension expense |
||||||||
Service cost |
$ | 228 | $ | 58 | ||||
Interest cost |
216 | 186 | ||||||
Expected return on assets |
(220 | ) | (199 | ) | ||||
Amortization of prior service cost |
4 | 4 | ||||||
Amortization of unrecognized net loss |
13 | 9 | ||||||
Total net periodic pension expense |
$ | 241 | $ | 58 | ||||
Valuation assumptions: |
||||||||
Discount rate |
6.00 | % | 5.75 | % | ||||
Rate of return on long-term assets |
7.00 | % | 7.00 | % | ||||
Salary increase rate |
4.00 | % | 4.00 | % |
The plan assets are invested as follows:
September 30, | ||||||
2008 | 2007 | |||||
Equity securities |
54 | % | 57 | % | ||
Guaranteed insurance funds |
46 | % | 43 | % | ||
100 | % | 100 | % | |||
The long-term rate of return on assets assumption is set based on historical returns earned by equities and fixed income securities, adjusted to reflect expectations of future returns as applied to the Plans actual target allocation of asset classes. Equities and fixed income securities are assumed to earn real rates of return in the ranges of 5.0% to 9.0% and 2.0% to 6.0%, respectively. Additionally, the long-term inflation rate is projected to be 2.5%. When these overall return expectations are applied to the Plans target allocation, the result is an expected return of 8.0% to 10.0%.
The Bank plans to maintain the current asset mix and seek to achieve an optimal risk/reward profile by limiting market exposure to present levels. It is expected to have a 4.0% to 5.0% return from fixed income and a 5.0% to 9.0% rate of return from equities. The overall expected long-term rate of return on Plan assets used was 7.0% for both 2008 and 2007.
At September 30, 2008, expected benefit payments were as follows (in thousands):
Years ending September 30, |
|||
2009 |
$ | 158 | |
2010 |
156 | ||
2011 |
154 | ||
2012 |
152 | ||
2013 |
153 | ||
2013 to 2018 |
930 | ||
$ | 1,703 | ||
The Bank expects to contribute $246,000 to the Plan during the year ended September 30, 2009.
35
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Savings and Investment Plan
The Company has implemented a Savings and Investment Plan (the Savings Plan) pursuant to Section 401(k) of the Internal Revenue Code for all eligible employees. Under the Savings Plan, employees may elect to contribute a percentage of their compensation, subject to limits. The Company makes a matching contribution equal to 50% of an employees contribution, up to 8.0% of compensation, subject to certain limitations. The Savings Plan expenses for the years ended September 30, 2008 and 2007, amounted to $52,000 and $34,000, respectively.
Employees Stock Ownership Plan (ESOP)
The Company established an ESOP for all eligible employees in connection with the public offering of common stock in April 2007. The ESOP used the proceeds of a $1.6 million, 8.0% term loan from the Company to purchase 164,413 shares of Company common stock. The term loan from the Company to the ESOP is payable in annual installments of principal and interest over 30 years commencing on December 31, 2007. The Company intends to make discretionary contributions to the ESOP which will be equal to principal and interest payments on the term loan to the ESOP from the Company. 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 defined by the ESOP, in the year of allocation. As of September 30, 2008 and 2007, the loan had a balance of $1,599,000 and $1,644,000, respectively.
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 Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations. Dividends on unallocated ESOP shares are recorded as a reduction of debt. ESOP compensation expense was $54,000 and $28,000 for the years ended September 30, 2008 and 2007, respectively.
The ESOP shares are summarized as follows:
September 30, | ||||||
2008 | 2007 | |||||
Unearned shares |
154,823 | 161,673 | ||||
Shares committed to be released |
4,110 | 2,740 | ||||
Shares released |
5,480 | | ||||
Total shares |
164,413 | 164,413 | ||||
Fair value of unearned shares |
$ | 1,195,000 | $ | 1,701,000 | ||
Note 16Stock-Based Compensation
At a special meeting of the stockholders of the Company held on November 9, 2007, the stockholders approved the CMS Bancorp, Inc. 2007 Stock Option Plan and the CMS Bancorp, Inc. 2007 Recognition and Retention Plan (collectively the Plans). The Plans authorize the award of up to 205,516 stock options and 82,206 shares of restricted stock. On November 28, 2007, non-employee directors received an aggregate of 40,275 stock options with an exercise price of $10.12 per share and 14,110 shares of restricted stock with a grant
36
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
date fair value of $10.12 per share. On November 28, 2007, certain officers and employees of the Company and the Bank received an aggregate of 111,879 stock options with an exercise price of $10.12 per share and 47,591 shares of restricted stock with a grant date fair value of $10.12 per share. The Company expenses, in accordance with SFAS No. 123(R), the fair value of all options at $2.73 per option, over their five year vesting periods and expenses the fair value of all share-based compensation granted over the requisite five year vesting periods. In the year ended September 30, 2008 the Company recorded an expense of $70,000 relating to stock options and $104,000 relating to the restricted stock. The Company recognized approximately $49,000 of income tax benefits resulting from this expense in the year ended September 30, 2008.
As of September 30, 2008 there were 53,362 stock options and 20,505 shares of restricted stock remaining available for future awards under the Plans. Stock options and restricted stock awarded under the Plans vest over five years, at the rate of 20% per year.
The following is a summary of the status of the Companys restricted shares:
Restricted
Shares |
Weighted
Average Grant Date Fair Value |
||||
Non-vested at September 30, 2007 |
| | |||
Vesting |
| | |||
Granted |
61,701 | $ | 10.12 | ||
Forfeited |
| | |||
Non-vested at September 30, 2008 |
61,701 | $ | 10.12 | ||
Expected future compensation expense relating to the 61,701 non-vested restricted shares outstanding at September 30, 2008 is $520,000 over a weighted average period of 4.2 years. During the year ended September 30, 2008 an independent trustee purchased 82,206 shares of the Companys common stock for $856,000 to fund the Recognition and Retention plan.
The following is a summary of stock option activity:
Number
of Stock Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term |
|||||
Balance at September 30, 2007 |
| | |||||
Granted |
152,154 | $ | 10.12 | ||||
Exercised |
| | |||||
Forfeited or cancelled |
| | |||||
Balance at September 30, 2008 |
152,154 | $ | 10.12 | 9.2 years | |||
Exercisable at September 30, 2008 |
| | |
Shares issued upon exercise of stock options will be issued from treasury stock or from previously unissued shares. As of September 30, 2008 the Company had 98,647 shares of treasury stock. Expected future compensation expense relating to the 152,154 non-vested options outstanding at September 30, 2008 is $346,000 over a weighted average period of 4.2 years.
37
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The fair value of the options granted on November 28, 2007, as computed using the Black-Scholes option-pricing model, was determined to be $2.73 per option based on the following underlying assumptions: a risk-free interest rate of 4.03%, expected option life of 7 years, expected stock price volatility of 11.3% and no expected dividend.
At September 30, 2008, the intrinsic value of stock options outstanding and stock options exercisable amounted to $0 and $0 respectively.
Note 17Stock Repurchase Programs
On April 17, 2008, the Companys Board of Directors approved a stock buy back plan that authorized the Company to buy back up to 98,647 shares of the outstanding stock of the Company. The buy back was administered as a 10(b)5-1 plan by Stifel Nicolaus, the Companys investment banker. Through September 30, 2008, 98,647 shares of the Companys common stock had been repurchased for $999,000 or an average price of $10.13 per share.
On September 25, 2008, the Companys Board of Directors approved an additional stock buy back plan that authorizes the Company to buy back up to 93,715 shares of the outstanding stock of the Company. The buy back plan is being administered as a 10(b)5-1 plan by Stifel Nicolaus, the Companys investment banker. Through December 15, 2008, 16,500 shares of common stock had been repurchased for $116,000 under this plan.
Note 18Commitments and Contingencies
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments primarily include commitments to extend credit. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The Companys exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
The Company has the following outstanding commitments:
September 30, | ||||||
2008 | 2007 | |||||
(In thousands) | ||||||
Commitments to originate loans, expiring in three months or less |
$ | 3,645 | $ | 17,366 | ||
Commitments under homeowners equity lending program |
7,761 | 9,054 | ||||
Commitments under overdraft protection and commercial lines of credit |
140 | 283 | ||||
Total |
$ | 11,547 | $ | 26,703 | ||
At September 30, 2008 of the $3,645,000 in outstanding commitments to originate loans, $2,425,000 are at fixed rates ranging from 6.625% to 7.625% and $1,220,000 are adjustable rates with initial rates ranging from 5.0% to 7.0%.
At September 30, 2007, of the $17,366,000 in outstanding commitments to originate loans $7,298,000 were at fixed rates ranging from 6.15% to 7.625% and $10,068,000 were adjustable rates with initial rates ranging from 6.625% to 8.75%.
38
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
At September 30, 2008 and 2007, undisbursed funds from approved lines of credit under a homeowners equity lending program totaled $7,761,000 and $9,054,000, respectively. Interest rates are either fixed (ranging from 6.75% to 7.5% at September 30, 2008) or variable, based on the prime rate or prime minus 25 basis points adjusted on a monthly basis (ranging from 4.75% to 5.0% at September 30, 2008). At September 30, 2008 and 2007, unused overdraft protection and commercial lines of credits were $140,000 and $283,000, respectively unless specifically cancelled by notice from the Company, these funds represent firm commitments available to the respective borrowers on demand.
Commitments to extend credit 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 some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements credit evaluation of the counterparty. Collateral held consists primarily of residential real estate, but may include income-producing commercial properties.
The Company also has, in the normal course of business, commitments for services and supplies. Management does not anticipate losses on any of these transactions.
The Company is a party to litigation which arises primarily in the ordinary course of business. In the opinion of management, the ultimate disposition of such litigation should not have a material adverse effect on the financial position or results of operations of the Company.
In addition, the Bank has been identified as a defendant in a lawsuit brought by two former employees, filed on August 2, 2007 in the United States District Court, Southern District of New York. The plaintiffs claim the Bank violated sections of Title VII of the Civil Rights Act of 1964, the New York State Human Rights Law, the New York Executive Law, the Age Discrimination in Employment Act of 1967 and the Fair Labor Relations Act. The plaintiffs are seeking compensatory and punitive damages, liquidated damages, overtime compensation and fees and costs totaling $3.75 million. The plaintiffs previously filed a complaint with the Equal Employment Opportunity Commission (the EEOC) and the EEOC returned a no-cause determination in the Banks favor on April 27, 2007. At this time, management does not believe that the resolution of this action will have a material effect on the consolidated financial statements of the Company.
Note 19Fair Value of Financial Instruments
The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties other than a forced liquidation sale. Significant estimates were used for the purpose of this disclosure. Estimated fair values have been determined using the best available data and estimation methodology suitable for each category of financial instruments. Fair value estimates, methods and assumptions are set forth below for the Companys financial instruments.
Cash and Cash Equivalents and Accrued Interest Receivable and Payable
The carrying amounts for cash and cash equivalents and accrued interest receivable and payable approximate fair value because they mature in three months or less.
Securities
The fair value for debt securities, both available for sale and held to maturity, are based on quoted market prices or dealer prices, if available. If quoted market or dealer prices are not available, fair value is estimated using quoted market or dealer prices for similar securities.
39
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Loans Receivable
The fair value of loans receivable is estimated by discounting 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.
Deposits
The fair value of demand, savings and club accounts is equal to the amount payable on demand at the reporting date. The fair value of certificates of deposit are estimated using rates currently offered for deposits of similar remaining maturities.
Borrowings
The fair value is estimated using interest rates currently offered by the FHLB for advances of similar remaining maturities.
Securities Sold Under Agreements to Repurchase
The fair value of securities sold under agreements to repurchase is equal to the carrying amount because they mature in three months or less.
Commitments to Extend Credit
The fair values of commitments to fund unused lines of credit and to originate or purchase loans are estimated using 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 commitments, fair value also considers the difference between current levels of interest rates and the committed interest rates. At September 30, 2008 and 2007, the fair value of commitments to extend credit was not considered material.
The carrying amounts and estimated fair values of financial instruments are as follows:
September 30, | ||||||||||||
2008 | 2007 | |||||||||||
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
|||||||||
(In thousands) | ||||||||||||
Financial assets |
||||||||||||
Cash and cash equivalents |
$ | 5,402 | $ | 5,402 | $ | 17,540 | $ | 17,540 | ||||
Securities available for sale |
10,179 | 10,179 | 2,116 | 2,116 | ||||||||
Securities held to maturity |
191 | 209 | 2,449 | 2,463 | ||||||||
Loans receivable |
181,133 | 176,292 | 146,701 | 138,919 | ||||||||
Accrued interest receivable |
781 | 781 | 795 | 795 | ||||||||
Financial liabilities |
||||||||||||
Deposits |
128,757 | 129,160 | 117,500 | 117,674 | ||||||||
Securities sold under agreements to repurchase |
614 | 614 | ||||||||||
FHLB Advances |
50,767 | 51,077 | 30,000 | 30,377 | ||||||||
Accrued interest payable |
363 | 363 | 412 | 412 | ||||||||
Off-balance sheet financial instruments |
| | | |
40
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Limitations
The fair value estimates are made at a discrete point in time based on relevant market information about the financial instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that could be realized if all of the financial instruments were offered for sale.
In addition, the fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.
Note 20Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement 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. FASB Statement No. 157 applies to other accounting pronouncements that require or permit fair value measurements. The new guidance is effective for financial statements issued for fiscal years beginning after November 15, 2007, and for interim periods within those fiscal years. The Company does not expect the adoption of SFAS No. 157 will have a material impact on its consolidated financial position, results of operations and cash flows.
In February 2007, FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement 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 the 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, as long as certain additional conditions are met. The Company decided not to adopt SFAS No. 159.
In February 2008, the FASB issued a FASB Staff Position (FSP) FAS 140-3, Accounting for Transfers of Financial Assets and Repurchase Financing Transactions. This FSP addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one linked transaction. The FSP includes a rebuttable presumption that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The FSP will be effective for fiscal years beginning after November 15, 2008 and will apply only to original transfers made after that date; early adoption will not be allowed. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
41
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
In February 2008, 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 Statement No. 157 to non-financial assets and non-financial liabilities (non-financial items) that are not recognized or disclosed at fair value in an entitys 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 Statement 157 to that item is deferred until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. 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 May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. This Statement identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. This Statement is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial Asset When The Market for That Asset Is Not Active (FSP 157-3), to clarify the application of the provisions of SFAS 157 in an inactive market and how an entity would determine fair value in an inactive market. FSP 157-3 is effective immediately and applies to our financial statements on September 30, 2008. The application of the provisions of FSP 157-3 did not materially affect our results of operations or financial condition.
42
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 21Parent Only Financial Information
The following are the financial statements of the Company (Parent only) as of and for the period ended September 30, 2008 and 2007.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, | ||||||
2008 | 2007 | |||||
(In thousands) | ||||||
Assets |
||||||
Cash and cash equivalents |
$ | 3,511 | $ | 7,051 | ||
Investment in Bank |
14,940 | 15,628 | ||||
Loan receivable |
1,489 | | ||||
ESOP loan receivable |
1,599 | 1,644 | ||||
Other assets |
180 | 80 | ||||
Total assets |
$ | 21,719 | $ | 24,403 | ||
Liabilities and stockholders equity |
||||||
Other liabilities |
$ | 10 | $ | 49 | ||
Stockholders equity |
21,709 | 24,354 | ||||
Total liabilities and stockholders equity |
$ | 21,719 | $ | 24,403 | ||
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
Year Ended
September 30, 2008 |
Inception
(April 2007) to September 30, 2007 |
|||||||
Interest income |
$ | 240 | $ | 75 | ||||
Equity in (loss) earnings of Bank |
(736 | ) | 105 | |||||
Total (loss) income |
(496 | ) | 180 | |||||
Contribution to Foundation |
| 774 | ||||||
Other non-interest expense |
417 | 138 | ||||||
Total expense |
417 | 912 | ||||||
(Loss) before income taxes (benefit) |
(913 | ) | (732 | ) | ||||
Income tax (benefit) |
(56 | ) | (9 | ) | ||||
Net (loss) |
$ | (857 | ) | $ | (723 | ) | ||
43
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
September 30, 2008 |
Inception
(April 2007) to September 30, 2007 |
|||||||
Cash flows from operating activities |
||||||||
Net (loss) |
$ | (857 | ) | $ | (723 | ) | ||
Equity in loss (earnings) of Bank |
736 | (106 | ) | |||||
Stock contributed to Foundation |
| 714 | ||||||
Other, net |
(75 | ) | (31 | ) | ||||
Net cash (used in) operating activities |
(196 | ) | (146 | ) | ||||
Cash flows from investing activities |
||||||||
Net increase in loan receivable |
(1,489 | ) | | |||||
Capital contribution to Bank |
| (9,000 | ) | |||||
Net cash (used in) investing activities |
(1,489 | ) | (9,000 | ) | ||||
Cash flows from financing activities |
||||||||
Purchase of treasury stock |
(999 | ) | | |||||
Funding of restricted stock awards |
(856 | ) | | |||||
Proceeds from issuance of common stock |
| 17,841 | ||||||
Purchase of ESOP shares |
| (1,644 | ) | |||||
Net cash (used in) provided from financing activities |
(1,855 | ) | 16,197 | |||||
Net (decrease) increase in cash and cash equivalents |
(3,540 | ) | 7,051 | |||||
Cash and cash equivalentsbeginning of period |
7,051 | | ||||||
Cash and cash equivalentsend of period |
$ | 3,511 | $ | 7,051 | ||||
Supplemental disclosure of non-cash activities |
||||||||
Equity of Bank at inception |
$ | | $ | 8,223 | ||||
Note 22Quarterly Financial Data (Unaudited)
Year Ended September 30, 2008
Dollars in thousands, except per share data |
||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Interest income |
$ | 2,457 | $ | 2,507 | $ | 2,567 | $ | 2,760 | ||||||||
Interest expense |
1,155 | 1,158 | 1,143 | 1,118 | ||||||||||||
Net interest income |
1,302 | 1,349 | 1,424 | 1,642 | ||||||||||||
Provision for loan losses |
15 | 35 | 65 | 133 | ||||||||||||
Net interest income after provision for loan losses |
1,287 | 1,314 | 1,359 | 1,509 | ||||||||||||
Non-interest income |
129 | 66 | 74 | 53 | ||||||||||||
Non-interest expense |
1,565 | 1,594 | 1,692 | 2,193 | ||||||||||||
(Loss) before income taxes (benefit) |
(149 | ) | (214 | ) | (259 | ) | (631 | ) | ||||||||
Income taxes (benefit) |
(19 | ) | (65 | ) | (81 | ) | (231 | ) | ||||||||
Net (loss) |
$ | (130 | ) | $ | (149 | ) | $ | (178 | ) | $ | (400 | ) | ||||
Net (loss) per common share |
$ | (0.07 | ) | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.21 | ) |
44
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Year Ended September 30, 2007
Dollars in thousands, except per share data |
|||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||||
Interest income |
$ | 1,598 | $ | 1,684 | $ | 1,960 | $ | 2,263 | |||||||
Interest expense |
648 | 675 | 715 | 973 | |||||||||||
Net interest income |
950 | 1,009 | 1,245 | 1,290 | |||||||||||
Provision for loan losses |
| | 30 | 30 | |||||||||||
Net interest income after provision for loan losses |
950 | 1,009 | 1,215 | 1,260 | |||||||||||
Non-interest income |
80 | 68 | 64 | 67 | |||||||||||
Non-interest expense |
1,046 | 1,176 | 1,985 | 1,302 | |||||||||||
Income (loss) before income taxes |
(16 | ) | (99 | ) | (706 | ) | 25 | ||||||||
Income taxes (benefit) |
(3 | ) | (32 | ) | 27 | 15 | |||||||||
Net income (loss) |
$ | (13 | ) | $ | (67 | ) | $ | (733 | ) | $ | 10 | ||||
Net income (loss) per common share, basic |
N/A | (1) | N/A | (1) | $ | (0.39 | ) | $ | 0.01 |
(1) | The Company completed its initial public offering on April 3, 2007. |
45
ANNUAL MEETING OF SHAREHOLDERS OF
CMS BANCORP, INC.
February 19, 2009
Please sign, date and mail your proxy card in the envelope provided as soon as possible.
Please detach along perforated line and mail in the envelope provided.
20230300000000001000 3
021909
The Board of Directors unanimously recommends a vote FOR the nominees named in Item 1 and a vote FOR the proposals in Items 2 and 3.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
1. Election of the two Directors for a term of office to expire in 2012 or until their successors are elected and qualified.
FOR ALL NOMINEES
WITHHOLD FOR ALL NOMINEES AUTHORITY
(See FOR ALL instructions EXCEPT below)
NOMINEES:
O Susan A. Massaro O Matthew G. McCrosson
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and fill in the circle next to each nominee you wish to withhold, as shown here:
2. Ratify the appointment of Beard Miller Company LLP as CMS Bancorp Inc.s independent registered public accounting firm for the fiscal year ending September 30, 2009.
FOR AGAINST ABSTAIN
3. Approve the amendment to CMS Bancorp Inc.s Certificate of Incorporation to reduce the number of shares of common stock, $0.01 par value, CMS Bancorp Inc. is authorized to issue from 14,000,000 shares to 7,000,000 shares.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and the Proxy Statement for the Annual Meeting of Shareholders dated January 14, 2009.
I Will Attend Annual Meeting.
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
Signature of Shareholder
Date:
Signature of Shareholder
Date:
Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
0
CMS BANCORP, INC.
This Proxy is solicited on behalf of the Board of Directors of CMS Bancorp, Inc. for the Annual Meeting of Shareholders to be held on February 19, 2009.
The undersigned shareholder of CMS Bancorp, Inc. hereby appoints Thomas G. Ferrara and John E. Ritacco, and each of them, with full powers of substitution, to represent and to vote as proxy, as designated, all shares of common stock of CMS Bancorp, Inc. held of record by the undersigned on January 2, 2009, at the Annual Meeting of Shareholders (the Annual Meeting) to be held on February 19, 2009 at 3:00 p.m., Eastern time, at the Crowne Plaza Hotel, located at 66 Hale Avenue, White Plains, New York 10601, or at any adjournment or postponement thereof, upon the matters described in the accompanying Notice of the Annual Meeting of Shareholders and Proxy Statement, dated January 14, 2009, and upon such other matters as may properly come before the Annual Meeting. The undersigned hereby revokes all prior proxies.
This Proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is given, this Proxy will be voted FOR the election of all nominees listed in Item 1 and FOR the proposals listed in Items 2 and 3.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
14475
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