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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 011 (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 011(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 15, 2010
Dear Shareholder:
You are cordially invited to attend the 2010 Annual Meeting of Shareholders of CMS Bancorp, Inc., the holding company of Community Mutual Savings Bank, which will be held on Thursday, February 25, 2010 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 2010 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 25, 2010 | |
Time: | 3:00 p.m., Eastern time | |
Place: |
Crowne Plaza Hotel 66 Hale Avenue White Plains, New York 10601 |
You are invited to attend the meeting in person and if you do, you may cast your vote in person at the meeting. At our 2010 Annual Meeting of Shareholders, we will ask you to:
1. | Elect Thomas G. Ferrara, Cheri R. Mazza and John E. Ritacco to serve as directors for a term of office to expire in 2013 or until their successors are elected and qualified; and |
2. | Ratify the appointment of ParenteBeard LLC as CMS Bancorps independent registered public accounting firm for the fiscal year ending September 30, 2010; and |
3. | 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 4, 2010 as the record date for the determination of shareholders entitled to notice of and to vote at the 2010 Annual Meeting of Shareholders and any adjournment or postponement thereof. Only shareholders of record at the close of business on January 4, 2010 will be entitled to notice of and to vote at the 2010 Annual Meeting of Shareholders and any adjournment or postponement thereof. |
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on February 25, 2010:
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The attached Proxy Statement and the CMS Bancorp, Inc. Annual Report for the fiscal year ended September 30, 2009 are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=15310. |
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CMS Bancorp also makes available on its internet website (www.cmsbk.com) its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, all of its other filings with the Securities and Exchange Commission, any Statements of Changes of Beneficial Ownership (Form 4 Reports) filed by its directors and executive officers, the charters of each Committee of the Board of Directors, its Corporate Governance Principles and its Code of Ethics. Information contained on CMS Bancorps website should not be deemed filed with, and is not incorporated by reference into, this proxy statement or any of CMS Bancorps other filings under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as amended, except to the extent that CMS Bancorp specifically so provides. |
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 15, 2010
You are cordially invited to attend the 2010 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 2010 Annual Meeting of Shareholders.
CMS BANCORP, INC.
123 Main Street
White Plains, New York 10601
(914) 422-2700
PROXY STATEMENT FOR THE
2010 ANNUAL MEETING OF SHAREHOLDERS
To Be Held on February 25, 2010
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 15, 2010 to all shareholders entitled to vote. If you owned common stock of CMS Bancorp at the close of business on January 4, 2010, the record date, you are entitled to vote at the annual meeting. On the record date, there were 1,862,803 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 4, 2010.
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.
Effect of Broker Non-Votes
If your broker holds shares that you own in street name, the broker may not vote your shares on Proposal 1 without receiving receive instructions from you. The broker may vote your shares on Proposal 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.
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.
Obtaining an Annual Report on Form 10-K
Annual reports on Form 10-K, quarterly reports on Form 10-Q, 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.
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If you would like a copy of our annual report on Form 10-K for the fiscal year ended September 30, 2009, 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 4, 2010. 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 4, 2010. 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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169,084 | (1 ) | 9.1 | % | |||
Common Stock, par value $0.01 per share |
Employee Stock Ownership Plan of
CMS Bancorp, Inc.
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164,413 | (2 ) | 8.8 | % | |||
Common Stock, par value $0.01 per share |
Cross River Capital Management LLP
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128,858 | (3) | 6.9 | % |
(1) | Based on information reported by Roger Feldman and Harvey Hanerfeld on a Schedule 13G/A filed with the SEC on February 13, 2009. As of December 31, 2008, Roger Feldman was the beneficial owner of 169,083 shares of Common Stock, constituting 8.75% of the issued and outstanding shares of Common Stock and Harvey Hanerfeld is the beneficial owner of 169,084 shares of Common Stock, constituting 8.75% of the issued and outstanding shares of Common Stock. Roger Feldman has the sole power to vote or direct the voting of and to dispose and to direct the disposition of the 1,104 shares beneficially owned by him as an individual. Harvey Hanerfeld has the sole power to vote or direct the voting of and to dispose and to direct the disposition of the 1,105 shares beneficially owned by him as an individual. As sole owners and managing members of West Creek Capital, LLC, a Delaware limited liability company (formerly 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 (Partners Fund), and (ii) WC Select L.P., a Delaware limited partnership (Select), Mr. Feldman and Mr. Hanerfeld may be deemed to have the shared power to direct the voting and disposition of the 53,680 shares of Common Stock owned by Partners Fund, and the 114,299 shares of Common Stock owned by Select. |
(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 4, 2010. As of January 4, 2010 16,441 shares of CMS Bancorp common stock had been allocated to individual accounts established for participating employees and their beneficiaries, and 147,972 of such shares were held, unallocated, for allocation in future years. In general, participating employees and their beneficiaries have the power and authority to direct the voting of |
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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 reporting person, 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 Directors and 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 4, 2010. 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 4, 2010. 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 |
38,400 | (3) | 2.1 | % | |||
Stephen Dowd |
Senior Vice President and Chief Financial Officer |
22,550 | (4) | 1.2 | % | |||
Thomas G. Ferrara |
Chairman |
31,147 | (5) | 1.7 | % | |||
William P. Harrington |
Director |
1,000 | * | |||||
Susan A. Massaro |
Director |
9,400 | * | |||||
Cheri R. Mazza |
Director |
8,400 | * | |||||
Matthew G. McCrosson |
Director |
9,200 | * | |||||
John E. Ritacco |
President, Chief Executive Officer and Director |
52,443 | (6 ) | 2.8 | % | |||
AnneMarie V. Romagnoli |
Director |
5,109 | * | |||||
Christopher Strauss |
Senior Vice President and Senior Lending Officer |
21,280 | (7 ) | 1.1 | % | |||
All Executive Officers and Directors as a Group (10 Persons) |
198,929 | 10.4 | % |
* | Less than 1.0% of the total outstanding shares of common stock. |
(1) | Based on a total of 1,862,803 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 4, 2010. |
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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. Cuddy1,200 shares; Mr. Dowd7,250 shares; Mr. Ferrara2,466 shares; Ms. Massaro1,200 shares; Ms. Mazza1,200 shares; Mr. McCrosson1,200 shares; Mr. Ritacco12,331 shares; Ms. Romagnoli1,400 shares; and Mr. Strauss7,250 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. Cuddy2,400 shares; Mr. Dowd8,800 shares; Mr. Ferrara4,110 shares; Ms. Massaro2,400 shares; Ms. Mazza2,400 shares; Mr. McCrosson2,400 shares; Mr. Ritacco20,552 shares; Ms. Romagnoli2,400 shares; and Mr. Strauss8,800 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. 8,220 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 | |
Thomas G. Ferrara |
2013 | |
Cheri R. Mazza |
2013 | |
John E. Ritacco |
2013 |
Ms. Mazza and Messrs. Ferrara and Ritacco are currently serving on our Board of Directors. If elected, each of them will continue to hold office until the annual meeting in 2013 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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Thomas G. Ferrara |
54 | Chairman |
1993 |
2010 |
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Cheri R. Mazza |
51 | Director |
2006 |
2010 |
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John E. Ritacco |
55 | President, Chief Executive Officer and Director |
2005 |
2010 |
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Continuing Directors |
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William V. Cuddy, Jr. |
50 | Director |
1994 |
2011 |
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William P. Harrington |
52 | Director |
2009 |
2012 |
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Susan A. Massaro |
53 | Director |
1998 |
2012 |
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Matthew G. McCrosson |
59 | Director |
2005 |
2012 |
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Annemarie V. Romagnoli |
74 | Director |
1996 |
2011 |
(1) | As of September 30, 2009. |
(2) | Includes service as a trustee of Community Mutual prior to the formation of CMS Bancorp in 2007. if applicable. |
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
Thomas G. Ferrara has been Chairman of the Board of Directors 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
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Master 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, The Westchester Neuroscience Foundation 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.
Continuing Directors
William V. Cuddy, Jr. serves as Executive Vice President of CB Richard Ellis Group, Inc., providing commercial real estate brokerage and consulting services to regional and national clients for over twenty-five years, where he leads a team of professionals in providing corporate services, property agency advocacy and tenant representation.
William P. Harrington, is a Partner with Bleakley Platt & Schmidt, LLP, a full service law firm with offices in White Plains and Greenwich, Connecticut. He is a member of the firms Managing Committee, the head of the Litigation and Toxic Tort/Complex Litigation Practice Groups and a member of the Environmental Practice Group. Mr. Harrington serves on the boards of numerous civic and community organizations and is also a member of the Board of Directors of TBS International, Ltd (TBSI), a Nasdaq listed company, and serves as TBSIs Lead Independent Director and the Chair of its Governance Committee.
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 has over 30 years of experience in computer, information technology and professional services businesses. Ms. Massaro came to Scivantage from Nova. Corp., where she 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 career, Mr. McCrosson served as chief financial officer or chief operating officer of several national and regional not-for-profit organizations.
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 Sparkhill, New York for undergraduate and graduate students in the field of Elementary, Secondary and Special Education.
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Mrs. Romagnoli is a retired principal and administrator of the Clarkstown School District in New City, New York. She holds a Bachelor of Science Degree in Education from Fordham University and two Master Degrees from the College of New Rochelle. One Master Degree is in Special Education and the second is in Administration.
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 55, 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 65, 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 10 regular meetings during the fiscal year ended September 30, 2009. 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. William P. Harrington was elected as a Director on April 3, 2009.
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
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Mr. Ritacco are independent directors under The Nasdaq Stock Markets rules. In making determinations regarding director independence, the Board of Directors considers the relationships and transactions disclosed under Transactions with Certain Related Persons below.
Consistent with The Nasdaq Stock Markets rules, independent directors meet in regularly scheduled executive sessions without Mr. Ritacco. 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.
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, Massaro, Mazza, Ritacco and Romagnoli serve on the Executive Committee.
Audit Committee. Directors Ferrara, Mazza (chair), 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 four times in the fiscal year ended September 30, 2009.
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 Romagnoli, with Directors Ferrara, Massaro and Harrington serving as members. In addition, Mr. Ritacco advises the Compensation Committee with respect to executive compensation matters other than his compensation as Chief Executive Officer. Mr. Ritacco does not participate in the Compensation Committees deliberations regarding executive compensation nor does he serve on the Compensation Committee. The Committee met four times in the fiscal year ended September 30, 2009.
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 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.
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The Compensation Committee acts as the 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.
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 stockholders 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 (chair), Cuddy, Harrington, Massaro, McCrosson 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.
Each of CMS Bancorps committees listed above other than the Executive Committee is composed entirely of directors who are independent as that term is defined by Nasdaqs corporate governance listing standards. In addition, all of the members of our audit committee meet the independence standard established by 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, 2009, 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. Effective October 1, 2009, the Chairman of the Board of Directors, Director Ferrara, also receives an annual retainer of $25,000. Mr. Ritacco, while serving as President and Chief Executive Officer, will not receive any additional compensation for serving as a director.
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 (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 $2.73 per option, over their five year vesting periods and expenses the fair value of all share-based compensation granted over the requisite five year vesting periods.
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The following table sets forth information regarding compensation earned by the non-employee directors of CMS Bancorp during the last fiscal year.
DIRECTOR COMPENSATION TABLE
|
Fees
Earned or Paid in Cash ($) (1) |
Stock
Awards ($) (2) |
Option
Awards ($) (3) |
Total
($) |
||||
William V. Cuddy, Jr. |
16,400 | 4,048 | 3,276 | 23,724 | ||||
Thomas G. Ferrara |
19,600 | 8,319 | 5,610 | 33,529 | ||||
William P. Harrington |
5,400 | | | 5,400 | ||||
Susan A. Massaro |
17,600 | 4,048 | 3,276 | 24,924 | ||||
Cheri R. Mazza |
14,800 | 4,048 | 3,276 | 22,124 | ||||
Matthew G. McCrosson |
17,600 | 4,048 | 3,276 | 24,924 | ||||
AnneMarie V. Romagnoli |
14,800 | 4,048 | 3,276 | 22,124 |
(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. |
(2) | The amounts shown in this column represent actual expense recorded during fiscal year 2009, based on the number of shares of restricted stock granted and a per share value of $10.12 per share. Each grant of restricted stock vests over five years. |
(3) | The amounts shown in this column represent the dollar amount recognized for financial statement purposes with respect to fiscal year 2009 in accordance with FASB guidance. For more information concerning the assumptions used in these calculations, please refer to Note 16 to the audited financial statements included in the 2009 Annual Report. Options vest over five years. |
Executive Compensation
The following table provides information about the compensation paid in fiscal years 2009 and 2008 to CMS Bancorp and Community Mutuals President and Chief Executive Officer, Chief Financial Officer, and Senior Vice President and Senior Lending Officer (collectively, the named executive officers). CMS Bancorp has no other executive officers.
SUMMARY COMPENSATION TABLE
Name and Principal Positions |
Year |
Salary
(1)
($) |
Bonus
(1)
($) |
Stock
Awards (2) ($) |
Option
Awards (3) ($) |
Non-Equity
Incentive Plan Compensation (4) ($) |
All Other
Compensation ( 5 ) ($) |
Total
($) |
||||||||
John E. Ritacco, |
2009 | 290,000 | 45,000 | 41,959 | 28,053 | 51,125 | 8,747 | 464,884 | ||||||||
President and Chief Executive Officer |
2008 | 292,211 | 45,000 | 34,663 | 23,377 | | 18,560 | 413,811 | ||||||||
Stephen Dowd, |
2009 | 150,000 | | 20,240 | 12,012 | 22,500 | 3,610 | 208,362 | ||||||||
Senior Vice President and Chief Financial Officer |
2008 | 151,154 | | 16,867 | 10,010 | | 9,386 | 187,417 | ||||||||
Christopher Strauss, |
2009 | 152,571 | | 20,240 | 12,012 | 22,500 | 6,643 | 213,966 | ||||||||
Senior Vice President and Senior Lending Officer |
2008 | 153,725 | | 16,867 | 10,010 | | 10,269 | 190,871 |
(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 years 2009 and 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. |
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(3) | The amounts shown in this column represent the dollar amount recognized for financial statement purposes with respect to fiscal years 2009 and 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 2009 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. Amounts represent amounts paid for achieving certain revenue, expense and personal goals for the year ended December 31, 2008. For the year ended December 31, 2009, it is not currently contemplated that any non-equity incentive compensation will be paid to Messrs. Ritacco, Dowd or Strauss. See the discussion of the Companys Non-Equity Incentive Compensation Plan below. |
(5) | For 2009 represents (a) 401(k) contributions made by Community Mutual for Mr. Ritacco, Mr. Dowd and Mr. Strauss in the amounts of $4,683, $692, and $3,706, 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 $4,064, $2,918, and $2,937, respectively. 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. 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 $10,000 in the aggregate for any individual, and are not included in the reported figures. |
The following table provides information about the outstanding equity awards held by the named executive officers as of September 30, 2009.
Outstanding Equity Awards at September 30, 2009
Name |
Grant
Date of Award |
Number of
securities underlying unexercised options (#) unexercisable |
Option
exercise price ($) |
Option
expiration date |
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 | 16,441 | 116,731 | ||||||
Stephen Dowd |
11/28/07 | 22,000 | $ | 10.12 | 11/28/2017 | 8,000 | 56,800 | ||||||
Christopher Strauss |
11/28/07 | 22,000 | $ | 10.12 | 11/28/2017 | 8,000 | 56,800 |
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 |
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(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 ($245,000 for individuals retiring in 2009) 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 2009, the annual limit was $16,500 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.
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. 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 for calendar year 2008 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. During fiscal year 2009, the Compensation Committee determined that the relevant performance measures established for calendar year 2008 were satisfied, and CMS Bancorp paid, awards of $51,125 to Mr. Ritacco and $22,500 to each of Messrs. Dowd and Strauss under this plan in recognition of their achievement of these goals.
The non-equity incentive compensation plan for calendar year 2009 was suspended due to anticipated losses and the Compensation Committee currently does not anticipate making awards under this plan during fiscal year 2010.
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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 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. In November 2009, stock options to purchase an aggregate of 8,300 shares of common stock were granted to officers of Community Mutual Savings Bank, and 45,062 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. In November 2009, 4,150 shares of restricted stock were granted to officers of Community Mutual Savings Bank, and 16,355 shares remain available for future grants. CMS Bancorp has established a trust and contributed $856,001 to the trust during 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 21, 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 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.
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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.
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.
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Annual Meeting Attendance Policy
The 2010 Annual Meeting of Shareholders is the third 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 of the then directors and nominees attended the 2009 Annual Meeting of Shareholders, except for William V. Cuddy, Jr.
PRINCIPAL ACCOUNTING FEES AND SERVICES
During the fiscal years ended September 30, 2009 and 2008, CMS Bancorp retained ParenteBeard LLC (f/k/a Beard Miller Company LLP) to provide audit and other services and incurred fees as follows:
2009 | 2008 | |||||
Audit fees (1) |
$ | 83,500 | $ | 79,750 | ||
Audit related fees |
| | ||||
Tax fees (2) |
8,500 | 7,500 | ||||
All other fees |
| |||||
Total |
$ | 92,000 | $ | 87,250 |
(1) | Includes (a) professional services rendered for the audit of CMS Bancorps annual financial statements and review of financial statements included in Forms 10-Q and (b) services provided annually in connection with statutory and regulatory filings, including filing of Forms 10-K, 10Q, and Form S-8 with related provision of comfort letters. Also includes out-of-pocket expenses. |
(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 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.
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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, 2009 with management and ParenteBeard LLC, 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 ParenteBeard LLC.
The Audit Committee has received the written disclosures and the letter from ParenteBeard LLC 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 ParenteBeard LLCs independence with respect to CMS Bancorp with ParenteBeard LLC.
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-K for the year ended September 30, 2009 for filing with the SEC.
Audit Committee of CMS Bancorp, Inc.
Cheri R. Mazza, Chairperson
Thomas G. Ferrara
Matthew G. McCrosson
Annemarie V. Romagnoli
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, 2009, all Section 16(a) filing requirements applicable to CMS Bancorps executive officers and directors during fiscal year 2009 were met.
Transactions with Certain Related Persons
CMS Bancorp did not have any outstanding loans to directors and officers at September 30, 2009, 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
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Becker, the Executive Vice President of Future Value Associates, LTD., who is a registered representative of Park Avenue Securities, 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 Securities, Guardian, and Health Net due to products purchased by Community Mutual Savings Bank for its benefits plans. For the fiscal year ended September 30, 2009, Ms. Becker received aggregate compensation from CMS Bancorp, directly and indirectly of $15,559.72. 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, 2009 did not exceed 5% of the firms gross revenues.
William P. Harrington, who became a Director on April 3, 2009, is a partner with Bleakley Platt & Schmidt, LLP (Bleakley Platt), a law firm which provides legal services to Community Mutual from time to time, principally involving employment and transactional matters. For the fiscal year ended September 30, 2009, Bleakley Platt received $61,800 for legal services it rendered to Community Mutual. Of this amount, $39,301 was reimbursed either by CMS Bancorps insurance company and its defined benefit plan.
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 principal accountant during fiscal years 2007 and 2008 was Beard Miller Company LLP (Beard). On October 1, 2009, we were notified that the audit practice of Beard was combined with ParenteBeard LLC (ParenteBeard) in a transaction pursuant to which Beard combined its operations with ParenteBeard and certain of the professional staff and partners of Beard joined ParenteBeard either as employees or partners of ParenteBeard. On October 1, 2009, Beard resigned as the auditors of the Company and with the approval of the Audit Committee of the Companys Board of Directors, ParenteBeard was engaged as its independent registered public accounting firm.
Prior to engaging ParenteBeard, the Company did not consult with ParenteBeard regarding the application of accounting principles to a specific completed or contemplated transaction or regarding the type of audit opinions that might be rendered by ParenteBeard on the Companys financial statements, and ParenteBeard did not provide any written or oral advice that was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.
The report of independent registered public accounting firm of Beard regarding the Companys financial statements for the fiscal years ended September 30, 2008 and 2007 did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the years ended September 30, 2008 and 2007, and during the interim period from the end of the most recently completed fiscal year through October 1, 2009, the date of resignation, there were no disagreements with Beard on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Beard would have caused it to make reference to such disagreement in its reports.
None of the reportable events described in Item 304(a)(1)(v) of Regulation S-K occurred during the years ended September 30, 2009 and 2008.
The Audit Committee has appointed ParenteBeard LLC to act as our independent registered public accounting firm for the fiscal year ending September 30, 2010, and we are asking shareholders to ratify the appointment.
Representatives of ParenteBeard LLC 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 ParenteBeard LLC as the independent registered public accounting firm for CMS Bancorp, Inc. for the 2010 fiscal year.
19
ADDITIONAL INFORMATION
Information About Shareholder Proposals
If you wish to submit proposals to be included in our proxy statement for the 2011 Annual Meeting of Shareholders, we must receive them on or before September 17, 2010, 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 15, 2010
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
2009 Annual Report
CMS Bancorp, Inc.
Dear Stockholders:
While some financial institutions have continued to struggle to regain their footing during these difficult economic times, Community Mutual has continued to focus on its core business and has made major strides in implementing our business plan in each of our branch markets. During fiscal year 2009, we continued to work towards preserving our capital position, growing our deposits, increasing our non-interest income with the development of our residential mortgage secondary market sales and strengthening our commercial lending team. Despite a moderate increase in past due and non-performing loans, we have maintained our asset quality and we successfully opened a new branch office in Mount Kisco, N.Y.
We believe that depositors and borrowers are looking to reestablish local community relationships and prefer working with community banks rather than dealing with the large commercial institutions. In response to this belief, we have focused on improving our commercial lending team and the in-branch customer experience through an enhanced technology platform and successful relocation of our branch offices to new and more convenient locations, which, we believe, has provided a much improved retail banking experience for our customers.
As reflected below, in the past four years, we have grown the bank dramatically and believe we are positioned for a strong future, with profitable operations and growth in shareholder value.
At or for the Years Ended September, 30 | |||||||||||||||
2006 | 2007 | 2008 | 2009 | ||||||||||||
(in thousands) | |||||||||||||||
Securities |
$ | 15,618 | $ | 4,565 | $ | 10,370 | $ | 58,643 | |||||||
Loans, net |
96,732 | 146,701 | 181,133 | 169,293 | |||||||||||
Deposits |
108,784 | 117,500 | 128,757 | 184,387 | |||||||||||
FHLB advances |
| 30,000 | 50,767 | 34,726 | |||||||||||
Equity |
8,307 | 24,354 | 21,709 | 20,913 | |||||||||||
Total assets |
122,528 | 173,506 | 203,930 | 243,164 | |||||||||||
Interest income |
5,720 | 7,505 | 10,291 | 11,405 | |||||||||||
Net interest income |
4,006 | 4,494 | 5,517 | 6,392 | |||||||||||
Non-interest income |
422 | 279 | 322 | 498 | |||||||||||
Non-interest expense |
4,336 | 5,509 | 7,044 | 7,328 | |||||||||||
Net income (loss) |
52 | (803 | ) | (857 | ) | (439 | ) |
As we move on to 2010, we will focus on building out our current banking franchise and look at expansion opportunities to extend our geographic reach. We would like to thank our customers, the Board of Directors, officers and employees for their efforts and performance during the 2009 fiscal year 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 of Financial Condition and Results of Operations 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) | 2009 | 2008 | 2007 | ||||||
Total assets |
$ | 243,164 | $ | 203,930 | $ | 173,506 | |||
Loans receivable, net |
169,293 | 181,133 | 146,701 | ||||||
Investment securities |
58,643 | 10,370 | 4,565 | ||||||
Cash and cash equivalents |
7,304 | 5,402 | 17,540 | ||||||
Deposits |
184,387 | 128,757 | 117,500 | ||||||
FHLB Advances |
34,726 | 50,767 | 30,000 | ||||||
Stockholders equity |
20,913 | 21,709 | 24,354 |
Selected Operating Data
Years Ended September 30, | ||||||||||||
(in thousands, except per share data) | 2009 | 2008 | 2007 | |||||||||
Interest income |
$ | 11,405 | $ | 10,291 | $ | 7,505 | ||||||
Interest expense |
5,013 | 4,574 | 3,011 | |||||||||
Net interest income |
6,392 | 5,717 | 4,494 | |||||||||
Provision for loan losses |
230 | 248 | 60 | |||||||||
Non-interest income |
498 | 322 | 279 | |||||||||
Non-interest expense |
7,328 | 7,044 | 5,509 | |||||||||
Income tax (benefit) expense |
(229 | ) | (396 | ) | 7 | |||||||
Net loss |
$ | (470 | ) | $ | (857 | ) | $ | (803 | ) | |||
Net loss per share |
$ | (0.25 | ) | $ | (0.46 | ) | $ | (0.38 | ) | |||
Selected Financial Ratios and Other Data
At or for the Years
Ended September 30, |
|||||||||
2009 | 2008 | 2007 | |||||||
Performance Ratios: |
|||||||||
Return on average assets |
(0.20 | )% | (0.47 | )% | (0.58 | )% | |||
Return on average equity |
(2.06 | )% | (3.69 | )% | (4.93 | )% | |||
Yield on average interest-earning assets |
5.36 | % | 5.83 | % | 5.61 | % | |||
Net interest rate spread |
2.63 | % | 2.68 | % | 2.78 | % | |||
Net interest margin |
3.00 | % | 3.24 | % | 3.36 | % | |||
Average interest-earning assets to average interest-bearing liabilities |
1.16 | 1.21 | 1.26 | ||||||
Capital Ratios: |
|||||||||
Average stockholders equity to average assets |
9.70 | % | 12.84 | % | 11.79 | % | |||
Tier 1 core ratio |
7.10 | % | 7.23 | % | 8.99 | % | |||
Total risk based capital ratio |
16.16 | % | 14.28 | % | 17.34 | % | |||
Asset Quality Ratios: |
|||||||||
Allowance for loan losses to gross loans |
0.44 | % | 0.28 | % | 0.18 | % | |||
Non-performing loans to total assets |
0.69 | % | 0.00 | % | 0.00 | % |
2
CMS Bancorp, Inc.
Managements Discussion and Analysis of Financial Condition and Results of Operations
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-K for the year ended September 30, 2009, 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 loans; |
|
changes in our asset quality; |
|
other-than-temporary impairment charges for investments; |
|
the soundness of other financial institutions; |
|
the potential for additional regulation; |
|
changes in liquidity; |
|
changes in the Companys reputation; |
|
higher FDIC insurance premiums; |
|
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; |
|
public health issues such as the H1N1 flu outbreak; |
|
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.
3
CMS Bancorp, Inc.
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, 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. 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. Local market conditions and liquidity needs of other financial institutions can have a dramatic impact on the interest rates offered to attract deposits. During portions of the last two fiscal years, changes in short-term interest rates did not result in corresponding changes in long-term interest rates, and local market conditions resulted in relatively high certificate of deposit interest rates and lower interest rates on loans. The effect of this interest rate environment did, and could in the future, continue to decrease the Companys ability to invest deposits and reinvest proceeds from loan and investment repayments at higher interest rates. During portions of the past two fiscal years, the Companys cost of funds did not change proportionally to its yield on loans and investments, due to the longer-term nature of its interest-earning assets, the yield curve environment and higher interest rates on deposits resulting from liquidity needs of other financial institutions.
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, N.Y., and the 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 the fixed-rate residential real estate loan originations to a third party in order to diversify its loan portfolio, increase non-interest 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.
Business Strategy
The Company seeks to differentiate itself from its competition by providing superior, highly personalized and prompt service, local decision making and 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 and the 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.
4
CMS Bancorp, Inc.
Critical Accounting Policies
The consolidated financial statements included in this report 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 relating to 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, the potential impairment of Federal Home Loan Bank of New York (FHLB) stock, the determination of other-than-temporary impairment on securities, 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 determination of whether investments, including FHLB stock, are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. 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 tables set 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,
2009 |
For the Year Ended
September 30, 2009 |
||||||||||||||
Actual
Balance |
Yield/
Rate |
Average
Balance |
Interest
Income Expense |
Yield/
Rate |
|||||||||||
(Dollars in thousands) | |||||||||||||||
Interest-earning assets: |
|||||||||||||||
Loans receivable (1) |
$ | 169,293 | 6.01 | % | $ | 177,239 | $ | 10,396 | 5.87 | % | |||||
Securities (2) |
58,643 | 2.61 | % | 27,290 | 905 | 3.32 | % | ||||||||
Federal funds sold |
| | | | | % | |||||||||
Other interest-earning assets (3) |
8,234 | 1.49 | % | 8,192 | 104 | 1.27 | % | ||||||||
Total interest-earning assets |
236,170 | 5.01 | % | 212,721 | 11,405 | 5.36 | % | ||||||||
Non-interest earning assets |
6,994 | 6,757 | |||||||||||||
Total Assets |
$ | 243,164 | $ | 219,478 | |||||||||||
Interest bearing-liabilities: |
|||||||||||||||
Demand deposits |
$ | 24,232 | 1.02 | % | $ | 15,095 | 226 | 1.50 | % | ||||||
Savings and club accounts |
42,046 | 0.40 | % | 38,271 | 150 | 0.40 | % | ||||||||
Certificates of deposit |
101,502 | 2.53 | % | 93,228 | 2,905 | 3.11 | % | ||||||||
Borrowed money (4) |
35,394 | 4.75 | % | 37,333 | 1,732 | 4.64 | % | ||||||||
Total interest-bearing liabilities |
203,174 | 2.30 | % | 183,927 | 5,013 | 2.73 | % | ||||||||
Non-interest bearing liabilities: |
|||||||||||||||
Non-interest bearing deposits |
16,607 | 12,210 | |||||||||||||
Other |
2,470 | 2,062 | |||||||||||||
Total non-interest bearing liabilities |
19,077 | 14,272 | |||||||||||||
Total liabilities |
222,372 | 198,199 | |||||||||||||
Total equity |
20,913 | 21,279 | |||||||||||||
Total liabilities and equity |
$ | 243,164 | $ | 219,478 | |||||||||||
Interest rate spread |
$ | 6,392 | 2.63 | % | |||||||||||
Net interest-earning assets/net interest margin |
$ | 28,794 | 3.00 | % | |||||||||||
Ratio of interest-earning assets to interest-bearing liabilities |
1.16x |
(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 and loans held for sale, which are held for a short period of time. |
(4) | Includes mortgage escrow funds and securities sold under agreements to repurchase. |
6
CMS Bancorp, Inc.
For the Year Ended
September 30, 2008 |
For the Year Ended
September 30, 2007 |
|||||||||||||||||
Average
Balance |
Interest
Income Expense |
Yield/
Rate |
Average
Balance |
Interest
Income Expense |
Yield/
Rate |
|||||||||||||
(Dollars in thousands) | ||||||||||||||||||
Interest-earning assets |
||||||||||||||||||
Loans receivable (1) |
$ | 160,965 | $ | 9,659 | 6.00 | % | $ | 111,089 | $ | 6,521 | 5.87 | % | ||||||
Securities (2) |
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) |
4,309 | 194 | 4.50 | % | 2,733 | 129 | 4.72 | % | ||||||||||
Total interest-earning assets |
176,457 | 10,291 | 5.83 | % | 133,687 | 7,505 | 5.61 | % | ||||||||||
Non-interest earning assets |
4,332 | 4,480 | ||||||||||||||||
Total Assets |
$ | 180,789 | $ | 138,167 | ||||||||||||||
Interest bearing-liabilities |
||||||||||||||||||
Demand deposits |
$ | 10,442 | 283 | 2.71 | % | $ | 6,433 | 238 | 3.70 | % | ||||||||
Savings and club accounts |
40,161 | 160 | 0.40 | % | 44,529 | 178 | 0.40 | % | ||||||||||
Certificates of deposit |
57,710 | 2,397 | 4.15 | % | 48,736 | 2,268 | 4.65 | % | ||||||||||
Borrowed money (4) |
36,996 | 1,734 | 4.69 | % | 6,577 | 327 | 4.97 | % | ||||||||||
Total interest-bearing liabilities |
145,309 | 4,574 | 3.15 | % | 106,275 | 3,011 | 2.83 | % | ||||||||||
Non-interest bearing liabilities: |
||||||||||||||||||
Non-interest bearing deposits |
11,194 | 14,963 | ||||||||||||||||
Other |
1,073 | 638 | ||||||||||||||||
Total non-interest bearing liabilities |
12,267 | 15,601 | ||||||||||||||||
Total liabilities |
157,576 | 121,876 | ||||||||||||||||
Total equity |
23,213 | 16,291 | ||||||||||||||||
Total liabilities and equity |
$ | 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 |
1.21x | 1.26x |
(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. |
7
CMS Bancorp, Inc.
Rate/Volume Analysis. The following tables analyze 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, 2009 Compared to 2008 |
||||||||||||
Volume | Rate | Net | ||||||||||
(In thousands) | ||||||||||||
Interest-earning assets: |
||||||||||||
Loans receivable |
$ | 779 | $ | (42 | ) | $ | 737 | |||||
Securities |
663 | (17 | ) | 646 | ||||||||
Federal funds sold |
(179 | ) | | (179 | ) | |||||||
Other interest-earning assets |
27 | (117 | ) | (90 | ) | |||||||
Total interest-earning assets |
1,290 | (176 | ) | 1,114 | ||||||||
Interest-bearing liabilities: |
||||||||||||
Demand deposits |
33 | (90 | ) | (57 | ) | |||||||
Savings and club accounts |
(10 | ) | | (10 | ) | |||||||
Certificates of deposit |
789 | (281 | ) | 508 | ||||||||
Borrowed money |
8 | (10 | ) | (2 | ) | |||||||
Total interest-bearing liabilities |
820 | (381 | ) | 439 | ||||||||
Net interest income |
$ | 470 | $ | 205 | $ | 675 | ||||||
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 | ||||||
8
CMS Bancorp, Inc.
Comparison of Financial Condition at September 30, 2009 to September 30, 2008
Total assets increased by $39.2 million, or 19.2%, to $243.2 million at September 30, 2009 from $203.9 million at September 30, 2008. Deposit growth and amortization and prepayments of loans were used to repay borrowing from the Federal Home Loan Bank of New York (FHLB) and to purchase available for sale securities.
At September 30, 2009, cash and cash equivalents increased by $1.9 million, or 35.2% to $7.3 million as of September 30, 2009 from $5.4 million at September 30, 2008 as a result of deposit increases which were invested in other interest-earning assets.
At September 30, 2009, securities available for sale increased by $48.3 million as deposit increases and loan repayments were invested in available for sale securities to improve the yield on these investments and provide for liquidity. Available for sale securities consist principally of notes, bonds and mortgage-backed securities of the U.S. Government and U.S. Government Agencies.
Loans receivable were $169.3 million and $181.1 million at September 30, 2009 and 2008, respectively, representing a decrease of $11.8 million, or 6.5%. The decrease in loans resulted principally from higher pre-payments of one-to-four-family mortgage loans and the decision to sell one-to-four-family loan originations, net of increases in non-residential mortgage real estate loans. One-to-four family loan originations were sold as a result of the comparatively low interest rates in the market, to increase non-interest income and to reduce the average life of the loan portfolio in order to reduce long term-interest rate risk.
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 significant losses in its loan portfolio due primarily to its conservative underwriting policies. As of September 30, 2009, the Company had $1.7 million of non-performing loans which are in process of foreclosure, and are considered impaired and have been placed on non-accrual status. The Company had no impaired loans as of September 30, 2008. The increase in impaired loans resulted from general economic conditions, increased unemployment and the declines in the local real estate market. As of September 30, 2009 and 2008, the allowance for loan losses was 0.44% and 0.28% of loans outstanding, respectively. There were $1,000 of loans charged off in the year ended September 30, 2008 and $3,000 of recoveries in the year ended September 30, 2009. Despite a weakening economy nationally as well as in our primary market area, there was no material shift in the loan portfolio, loss experience, or other factors affecting the Bank. As a result of the deterioration of economic conditions in the Companys primary market area and a modest increase in delinquencies $230,000 and $248,000 was added to the allowance for loan losses in the years ended September 30, 2009 and 2008, respectively.
Additions to premises and equipment related principally to the leasehold and furniture and equipment costs of the new Mount Kisco branch which opened in April 2009.
Redemption of FHLB stock resulted from the repayment of borrowings.
Deposits increased by $55.6 million, or 43.2%, from $128.8 million as of September 30, 2008 to $184.4 million as of September 30, 2009. The increase in deposits resulted from promotional short-term certificate of deposit rates offered in conjunction with the opening of the Mount Kisco branch and more competitive interest rates on money market accounts. Deposit increases also include higher non-interest-bearing demand deposits resulting from additional focus on growth in these deposits and from the introduction of on-line banking in fiscal 2009. Deposits as of September 30, 2008 included $4.0 million of brokered deposits which were used to improve liquidity during a period of tight credit and economic uncertainty, which have since been repaid.
Advances from the FHLB decreased to $34.7 million as of September 30, 2009 from $50.8 million as of September 30, 2008 as a result of the increase in deposits which were used to repay short-term borrowings.
9
CMS Bancorp, Inc.
Stockholders equity decreased from $21.7 million at September 30, 2008 to $20.9 million at September 30, 2009 as a result of the net loss of $439,000 incurred during the period and the purchase of the Companys common stock pursuant to the stock repurchase program for $661,000, offset in part by additions to equity resulting from accounting for stock based compensation and the employee stock ownership plan, or ESOP.
Comparison of Operating Results for the Year Ended September 30, 2009 and 2008
General. The Company incurred a net loss of $439,000 for the year ended September 30, 2009, compared to a net loss of $857,000 for the year ended September 30, 2008. The decrease in the net loss resulted primarily from an increase in total interest income and non-interest income, offset in part by increases in deposit interest expense and non-interest expense, including the FDIC special assessment and higher premiums of $331,000 in the year ended September 30, 2009.
In April 2009, the Company opened a new branch in Mount Kisco, New York. This new branch caused operating expenses to increase for the portion of fiscal 2009 that it was open and will cause operating expenses to increase in future periods. Until deposits and the investment of these deposits in interest-earning assets at this new branch reach a sufficient level, this new branch is likely to have a negative impact on earnings. For the year ended September 30, 2009, direct operating expenses of the Mount Kisco branch were $339,000.
Interest Income. Total interest income increased $1.1 million, or 10.8%, to $11.4 million for the year ended September 30, 2009 from $10.3 million for the year ended September 30, 2008. The increase in interest income was due to increases of $737,000 in interest income from loans and $646,000 in interest from securities, offset in part by a decrease of $269,000 in interest income from Federal funds sold and other interest-earning assets. Higher interest-earning asset balances contributed $1.3 million to the increase in total interest income, offset in part by the impact of lower yields on interest-earning assets of $176,000.
Interest income from loans increased by $737,000, or 7.6%, to $10.4 million for the year ended September 30, 2009 from $9.7 million for the year ended September 30, 2008. The increase was due to a $16.3 million, or 10.1%, increase in the average balance of loans to $177.2 million in the year ended September 30, 2009 from $161.0 million in the year ended September 30, 2008, net of a decrease in the associated average yields to 5.87% in the 2009 fiscal year from 6.00% in the 2008 fiscal year, reflecting lower market rates, decreases in interest rates on adjustable rate loans and the write-off of deferred loan origination costs on loans that were pre-paid, which were higher in the year ended September 30, 2009 compared to the year ended September 30, 2008. The $16.3 million increase in average loan balances in the year ended September 30, 2009 was principally from originations of conventional one-to-four-family residential mortgages, and 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. Higher balances contributed $779,000 to the $737,000 increase in interest income from loans, offset in part by the impact of lower yields of $42,000.
Interest income from securities increased by $646,000 to $905,000 for the year ended September 30, 2009 from $259,000 for the year ended September 30, 2008. The increase in interest income from securities was due to purchases of short to intermediate-term available-for-sale securities, principally notes, bonds and mortgage-backed securities of the U.S. Government and U.S. Government Agencies which caused the average balance of securities to increase by $21.3 million in the year ended September 30, 2009 compared to 2008. The impact of higher investment balances was partially offset by a decrease in the average yield on securities to 3.32% for the year ended September 30, 2009 compared to 4.32% for the year ended September 30, 2008. Higher balances contributed $663,000 to the $646,000 increase in interest income from investments, offset in part by the impact of lower yields of $17,000.
The Company had no investments in Federal funds sold during the year ended September 30, 2009 and had $179,000 of interest income from investments in Federal funds sold in the year ended September 30, 2008.
10
CMS Bancorp, Inc.
Interest income from other interest-earning assets declined by $90,000 for the year ended September 30, 2009, due to lower interest rates, which decreased interest income by $117,000, offset in part by the impact of higher average balances, which increased interest income by $27,000. Deposit inflows during the year ended September 30, 2009 were invested in overnight investments until the Bank could invest these funds in short to intermediate-term available for sale securities.
Interest Expense. Total interest expense increased by $439,000, or 9.6%, to $5.0 million in the year ended September 30, 2009 compared to $4.6 million in 2008. Interest on demand deposits decreased $57,000 as a result of lower interest rates, offset in part by the impact of higher average balances in the 2009 fiscal year. Interest on savings and clubs declined by $10,000 as a result of the average balances decreasing from $40.2 million in the year ended September 30, 2008 to $38.3 in 2009. Promotional interest rates on certificates of deposit in connection with the opening of the Mount Kisco branch and more competitive market rates offered on certificates of deposit in the 2009 period resulted in an increase in the average balance of $35.6 million, to $93.2 million for the year ended September 30, 2009 compared to $57.7 million for the year ended September 30, 2008. Interest expense on certificates of deposit was $508,000 higher in the year ended September 30, 2009 compared to 2008, primarily as a result of higher average balances causing an increase of $789,000, partially offset by the impact of lower interest rates of $281,000.
Overall declines in market interest rates reduced the average interest rate on interest-bearing liabilities from 3.15% in the year ended September 30, 2008 to 2.73% in 2009. Of the $439,000 increase in interest expense, growth in volume of interest-bearing liabilities caused the expense to increase by $820,000, which was partially offset by a decrease in interest expense caused by lower interest rates of $381,000 in the year ended September 30, 2009 compared to 2008.
Net Interest Income. Net interest income increased $675,000, or 11.8%, to $6.4 million for the year ended September 30, 2009 from $5.7 million for the year ended September 30, 2008. Increases in average interest-earning assets, net of a lower yield on those assets in the year ended September 30, 2009 as compared to 2008 were partially offset by increases in the volume of interest-bearing liabilities, net of the benefit of lower interest rates on those liabilities.
Provision for Loan Losses. The allowance for loan losses was $749,000, or 0.44%, of gross loans outstanding at September 30, 2009 compared to $516,000, or 0.28%, of gross loans outstanding at September 30, 2008. 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 and payment status, and the corresponding allowance allocation percentages. As of September 30, 2009 the Company had $1.7 million of non-performing loans which were in process of foreclosure, and were considered impaired and have been placed on non-accrual status. As a result of the deterioration of economic conditions in the Companys primary market area during fiscal year 2009 and a modest increase in delinquencies, $230,000 and $248,000 was added to the allowance for loan losses in the years ended September 30, 2009 and 2008, respectively. 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 $498,000 in the year ended September 30, 2009 was higher than the non-interest income of $322,000 in the comparable 2008 fiscal year as a result of $270,000 of net gains on loans originated for sale in the 2009 fiscal year, net of a $43,000 decrease in fees and service charges in the 2009 fiscal year and $60,000 of fees earned in the 2008 fiscal year from referring a commercial loan to another lender.
11
CMS Bancorp, Inc.
Non-interest Expenses. Non-interest expenses were $7.3 million and $7.0 million for the years ended September 30, 2009 and 2008, respectively, representing an increase of $284,000, or 4.0%. Higher salaries and benefits of $260,000 resulted from additions to staff in branches, including the new Mount Kisco branch and the lending department and from higher benefit costs, including medical insurance, stock based compensation costs and pension expense, net of lower executive incentive compensation.
Net occupancy costs decreased by $125,000 in the year ended September 30, 2009 as a result of writing off costs relating to two older branches in the 2008 fiscal year which were relocated and no longer used, partially offset by the lease costs of the new Mount Kisco branch in 2009. Equipment costs increased by $94,000 in the year ended September 30, 2009 principally from the new Eastchester, Greenburgh and Mount Kisco branch locations.
Professional fees were $485,000 in the year ended September 30, 2009 and $757,000 in the year ended September 30, 2008. The $272,000 decrease resulted from cost control programs instituted in 2009 and the reimbursement of legal fees from the insurance carrier in connection with the insurance company settlement of the suit brought by two former employees and, the reimbursement of legal fees by the defined benefit pension plan. Professional fees in the year ended September 30, 2008 included costs associated with the proxy statement and the special shareholders meeting, the cost of preparing and filing the first annual report and Form 10-K, the cost of the Registration Statement on Form S-8 for the stock option and management recognition programs and other costs associated with operating as a public company. In addition, 2008 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 $47,000 higher in the 2009 fiscal year as a result of increased retail advertising and promotion of the new Mount Kisco Branch. FDIC insurance premiums in the year ended September 30, 2009 include the special FDIC assessment of $110,000, higher regular assessment rates and the impact of higher deposit balances. The decrease in directors fees of $19,000 in the year ended September 30, 2009 reflects fewer committee meetings, net of the impact of having a full year of stock based compensation costs in 2009. Other non-interest expense was $50,000 lower in the year ended September 30, 2009 as a result of lower Delaware franchise taxes caused by the reduction in authorized shares.
Income Tax Benefit. The income tax benefit was $229,000 in the year ended September 30, 2009 compared to a benefit of $396,000 in 2008. The tax benefit is recorded based on pretax 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, 2009 and 2008 was different than the statutory rate as a result of providing for New York State minimum taxes and certain non-deductible expenses.
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, N. Y., is subject to the risks associated with the economic conditions prevailing in its market area.
12
CMS Bancorp, Inc.
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, 2009, that would result from various basis point changes in interest rates over a twelve month period.
Change in Interest Rates In Basis Points (Rate Shock) |
Net Interest Income | |||||||||
Amount |
Dollar
Change |
Percent
Change |
||||||||
(Dollars in thousands) | ||||||||||
300 |
$ | 6,917 | $ | (422 | ) | -5.8 | % | |||
200 |
7,133 | (206 | ) | -2.8 | % | |||||
100 |
7,240 | (99 | ) | -1.3 | % | |||||
0 |
7,339 | | 0.0 | % | ||||||
-100 |
7,422 | 83 | 1.1 | % |
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, the Certificate of Deposit Account Registry Service, or CDARS network, brokered certificates of deposit, amortization and prepayments of loans, FHLB advances, repayments and maturities of investment securities and funds provided from operations. While scheduled loan
13
CMS Bancorp, Inc.
and mortgage-backed securities amortization and maturing investment securities are a relatively predictable source of funds, deposit flow and loan and mortgage-backed securities repayments 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, CDARS deposits and borrowing agreements which exist with the FHLB and the Federal Reserve which provide an additional source of funds. At September 30, 2009 and 2008, the Company had $34.7 million and $50.8 million of advances from the FHLB, respectively, and no CDARS deposits. As of September 30, 2008, the Company had $4.0 million in brokered deposits which had been repaid as of September 30, 2009.
In the year ended September 30, 2009, net cash used by operating activities was $28,000, compared to net cash provided by operating activities of $55,000 in 2008. In the year ended September 30, 2009, the net loss of $439,000 included non-cash expenses of $1.3 million. Loans originated for resale in the 2009 fiscal year used $635,000 of cash and other operating activity items used $309,000 of cash.
In the year ended September 30, 2009, investing activities used $36.7 million of cash, compared to $43.0 million in 2008. In the year ended September 30, 2009, investments in securities, net of maturities and repayments used $47.8 million of cash, net loan decreases provided $11.4 million of cash, additions to premises and equipment used $957,000 of cash and the redemption of FHLB stock provided $649,000 of cash. In the year ended September 30, 2008, investments in securities, net of maturities and repayments used cash of $5.8 million of cash, loan growth used $34.7 million and additions to premises and equipment and the purchase of FHLB stock used $2.4 million of cash.
Net cash provided by financing activities was $38.6 million and $30.8 million in the years ended September 30, 2009 and 2008, respectively. In the 2009 fiscal year, increases in retail deposits provided $59.6 million of cash while the repayment of brokered certificates of deposit used $4.0 million of cash. Repayment of borrowings from FHLB used $16.0 million of cash and purchases of stock under the buyback program used $661,000 of cash. In the 2008 fiscal year, 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, and purchases of stock under the buyback program and to fund the management recognition plan used $1.9 million of cash.
The $110,000 FDIC special assessment in June 2009 increased the Companys non-interest expenses for the year ended September 30, 2009. Additional FDIC special assessments, the FDICs new rule requiring the prepayment of three years of assessments in advance (as described below) and other regulatory changes impacting the financial services industry could negatively affect the Companys liquidity and financial results in future periods.
On November 12, 2009, the FDIC adopted a final rule that requires insured depository institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012, on December 30, 2009, along with each institutions risk-based deposit insurance assessment for the third quarter of 2009. For purposes of calculating the prepaid amount, the base assessment rate in effect at September 30, 2009 will be used for 2010. That rate will be increased by an annualized 3 basis points for 2011 and 2012 assessments. The prepayment calculation also assumes a 5 percent annual growth rate, increased quarterly, through the end of 2012. Under the final rule, an institution will account for the prepayment by recording the entire amount of its prepaid assessment as a prepaid expense (an asset) as of December 30, 2009. Subsequently, each institution will record an expense (charge to earnings) for its regular quarterly assessment and an offsetting credit to the prepaid
14
CMS Bancorp, Inc.
assessment until the asset is exhausted. Once the asset is exhausted, the institution will resume paying and accounting for quarterly deposit insurance assessments as they do currently. The FDIC will notify any institution that the FDIC exempts, on its own initiative, from the prepaid assessment no later than November 23, 2009. In addition, an insured institution may apply before December 1, 2009, to the FDIC for an exemption from the prepayment requirement if the prepayment would significantly impair the institutions liquidity, or otherwise create extraordinary hardship. The Bank does not plan to apply for an exemption nor does it anticipate that the FDIC will provide an exemption on its own initiative. Under the final rule, the FDIC stated that its requirement for prepaid assessments does not preclude the FDIC from changing assessment rates or from further revising the risk-based assessment system during 2009, 2010, 2011, 2012, or thereafter, pursuant to notice-and-comment rulemaking procedures provided by statute, and therefore, continued actions by the FDIC could significantly increase the Banks noninterest expense in fiscal 2010 and for the foreseeable future.
The Company anticipates that it will have sufficient funds available to meet its current loan and other commitments. As of September 30, 2009, the Company had cash and cash equivalents of $7.3 million and securities of $58.6 million. At September 30, 2009, the Company has outstanding commitments to originate loans of $10.0 million and $10.0 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, 2009, totaled $88.3 million. Historically, the Companys deposit flow history has been that a significant portion of such deposits remain with the Company. A portion of the retail deposit increase of $59.6 million in the year ended September 30, 2009 occurred from promotional certificate of deposit rates offered in connection with the Mount Kisco branch opening, and the retention rate for these certificates of deposit has been lower than the Companys historical retention rates. Through December 15, 2009, approximately $22.2 million of the promotional rate certificates had been withdrawn from the Bank and such withdrawals were funded from loan amortization and prepayments, available cash balances, from securities and overnight borrowings from the FHLB.
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, 2009.
On April 17, 2008 and September 25, 2008, the Companys Board of Directors approved stock buy back plans that authorized the Company to buy back up to 98,647 and 93,715 shares of the outstanding stock of the Company, respectively. The buy backs were administered as 10(b)5-1 plans by Stifel Nicolaus, the Companys investment banker. Through September 30, 2009, 98,647 shares of the Companys common stock had been purchased for $999,000 under the first plan and 93,715 shares of common stock had been repurchased for $661,000 under the second plan.
The Company has an overnight line of credit and a one month overnight repricing line of credit commitment with the FHLB totaling $28.5 million, which expire on August 10, 2010, of which none was in use at September 30, 2009. The Companys overall credit exposure at the FHLB cannot exceed 50% of its total assets, subject to certain limitations based on the underlying loan and securities pledged as collateral.
15
CMS Bancorp, Inc.
The following table sets forth the Banks capital position at September 30, 2009, 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) |
$ | 17,890 | 16.16 | % | $ | ³ 8,857 | ³ | 8.00 | % | $ | ³ 11,071 | ³ | 10.00 | % | ||||||
Core (Tier 1) capital (to risk-weighted assets) |
17,141 | 15.48 | | | ³ 6,643 | ³ 6.00 | ||||||||||||||
Core (Tier 1) capital (to total assets) |
17,141 | 7.10 | ³ 9,660 | ³ | 4.00 | ³ 12,075 | ³ 5.00 | |||||||||||||
Tangible capital (to total assets) |
17,141 | 7.10 | ³ 3,622 | 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 February 2008, the FASB issued guidance concerning accounting for transfers of financial assets and repurchase financing transactions. This guidance addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one linked transaction. The guidance includes a rebuttable presumption that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The guidance is effective for fiscal years beginning after November 15, 2008 and applies only to original transfers made after that date; early adoption will not be allowed. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In March 2008, the FASB issued guidance concerning disclosures about derivative instruments and hedging activities, an amendment to previous guidance on the topic. This guidance requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. This guidance also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of the previous guidance has been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. The guidance is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In April 2008, the FASB issued guidance concerning determination of the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under guidance concerning goodwill and other intangible assets. The intent of this guidance is to improve the consistency between the useful life of a recognized intangible asset under guidance concerning goodwill and other intangible assets and the period of expected cash flows used to measure the fair value of the asset under guidance concerning business combinations, and other generally accepted accounting principles (GAAP). This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
16
CMS Bancorp, Inc.
In June 2009, the FASB issued guidance concerning accounting for transfers of financial assets, an amendment to previous guidance on the topic. This statement prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferors continuing involvement in transferred financial assets. Specifically, among other aspects, this guidance amends previous guidance concerning accounting for transfers and servicing of financial assets and extinguishments of liabilities by removing the concept of a qualifying special-purpose entity from previous guidance on transfers and servicing and removes the exception from applying previous guidance on transfers and servicing to variable interest entities that are qualifying special-purpose entities. It also modifies the financial-components approach used in previous guidance. This guidance is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
In June 2009, the FASB issued guidance requiring an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entitys economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This guidance also amends previous guidance to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This guidance is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
In June 2009, the FASB issued guidance concerning the FASB accounting standards codification and the hierarchy of GAAP. This guidance is a replacement of previous guidance concerning the hierarchy of GAAP and is designed to establish the FASB accounting standards codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with GAAP in the United States. This guidance is effective for interim and annual periods ending after September 15, 2009. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (IASB). Under the proposed roadmap, the Company may be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of the Company have been prepared in accordance with GAAP which 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.
17
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, 2009 and 2008, and the related statements of operations, changes in stockholders equity and cash flows for the years then ended. CMS Bancorp, Inc.s management is responsible for the consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, 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, 2009 and 2008, 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.
Clark, New Jersey
December 15, 2009
18
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, | ||||||||
2009 | 2008 | |||||||
(Dollars in thousands,
except per share data) |
||||||||
ASSETS |
||||||||
Cash and amounts due from depository institutions |
$ | 1,008 | $ | 1,270 | ||||
Interest-bearing deposits |
6,296 | 4,132 | ||||||
Total cash and cash equivalents |
7,304 | 5,402 | ||||||
Securities available for sale |
58,487 | 10,179 | ||||||
Securities held to maturity, estimated fair value of $172 and $209, respectively |
156 | 191 | ||||||
Loans held for sale |
635 | | ||||||
Loans receivable, net of allowance for loan losses of $749 and $516, respectively |
169,293 | 181,133 | ||||||
Premises and equipment |
3,119 | 2,494 | ||||||
Federal Home Loan Bank of New York stock |
1,938 | 2,587 | ||||||
Interest receivable |
976 | 781 | ||||||
Other assets |
1,256 | 1,163 | ||||||
Total assets |
$ | 243,164 | $ | 203,930 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Liabilities: |
||||||||
Deposits |
$ | 184,387 | $ | 128,757 | ||||
Securities sold under repurchase agreements |
| 614 | ||||||
Advances from Federal Home Loan Bank of New York |
34,726 | 50,767 | ||||||
Advance payments by borrowers for taxes and insurance |
668 | 387 | ||||||
Other liabilities |
2,470 | 1,696 | ||||||
Total liabilities |
222,251 | 182,221 | ||||||
Stockholders equity: |
||||||||
Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding |
| | ||||||
Common stock, $.01 par value, authorized shares: 7,000,000 at September 30, 2009 and 14,000,000 at September 30, 2008; shares issued: 2,055,165; shares outstanding: 1,862,803 at September 30, 2009 and 1,956,518 at September 30, 2008 |
21 | 21 | ||||||
Additional paid in capital |
18,045 | 17,852 | ||||||
Retained earnings |
6,345 | 6,784 | ||||||
Treasury stock, 192,362 shares at September 30, 2009 and 98,647 shares at September 30, 2008 |
(1,660 | ) | (999 | ) | ||||
Unearned Employee Stock Ownership Plan (ESOP) shares |
(1,507 | ) | (1,562 | ) | ||||
Accumulated other comprehensive loss |
(331 | ) | (387 | ) | ||||
Total stockholders equity |
20,913 | 21,709 | ||||||
Total liabilities and stockholders equity |
$ | 243,164 | $ | 203,930 | ||||
See notes to consolidated financial statements.
19
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended
September 30, |
||||||||
2009 | 2008 | |||||||
(Dollars in thousands, except per share data) |
||||||||
Interest income: |
||||||||
Loans, including fees |
$ | 10,396 | $ | 9,659 | ||||
Securities, taxable |
905 | 259 | ||||||
Federal funds sold |
| 179 | ||||||
Other interest-earning assets |
104 | 194 | ||||||
Total interest income |
11,405 | 10,291 | ||||||
Interest expense: |
||||||||
Deposits |
3,281 | 2,840 | ||||||
Mortgage escrow funds |
21 | 16 | ||||||
Borrowings, short-term |
13 | 53 | ||||||
Borrowings, long-term |
1,698 | 1,665 | ||||||
Total interest expense |
5,013 | 4,574 | ||||||
Net interest income |
6,392 | 5,717 | ||||||
Provision for loan losses |
230 | 248 | ||||||
Net interest income after provision for loan losses |
6,162 | 5,469 | ||||||
Non-interest income: |
||||||||
Fees and service charges |
214 | 243 | ||||||
Net gain on sale of loans |
270 | 14 | ||||||
Other |
14 | 65 | ||||||
Total non-interest income |
498 | 322 | ||||||
Non-interest expenses: |
||||||||
Salaries and employee benefits |
3,878 | 3,618 | ||||||
Net occupancy |
942 | 1,067 | ||||||
Equipment |
633 | 539 | ||||||
Professional fees |
485 | 757 | ||||||
Advertising |
186 | 139 | ||||||
Federal insurance premium |
346 | 15 | ||||||
Directors fees |
161 | 180 | ||||||
Other insurance |
68 | 63 | ||||||
Bank charges |
87 | 74 | ||||||
Other |
542 | 592 | ||||||
Total non-interest expenses |
7,328 | 7,044 | ||||||
Loss before income tax benefit |
(668 | ) | (1,253 | ) | ||||
Income tax benefit |
(229 | ) | (396 | ) | ||||
Net loss |
$ | (439 | ) | $ | (857 | ) | ||
Net (loss) per common share |
||||||||
Basic and diluted |
$ | (0.25 | ) | $ | (0.46 | ) | ||
Weighted average number of common shares outstanding |
||||||||
Basic and diluted |
1,732,422 | 1,855,846 | ||||||
See notes to consolidated financial statements.
20
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Years Ended September 30, 2009 and 2008
(Dollars in thousands)
Common
Stock |
Additional
Paid-in Capital |
Retained
Earnings |
Treasury
Stock |
Unearned
ESOP Shares |
Accumulated
Other Comprehensive Loss |
Total | |||||||||||||||||||||
Balance October 1, 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 | |||||||||||||||||
Net loss |
(439 | ) | (439 | ) | |||||||||||||||||||||||
Other comprehensive income |
56 | 56 | |||||||||||||||||||||||||
Total comprehensive loss |
(314 | ) | |||||||||||||||||||||||||
ESOP shares committed for release |
(15 | ) | 55 | 40 | |||||||||||||||||||||||
Stock option expense |
83 | 83 | |||||||||||||||||||||||||
Restricted stock award expense |
125 | 125 | |||||||||||||||||||||||||
Treasury stock purchased(93,715 shares) |
(661 | ) | (661 | ) | |||||||||||||||||||||||
Balance September 30, 2009 |
$ | 21 | $ | 18,045 | $ | 6,345 | $ | (1,660 | ) | $ | (1,507 | ) | $ | (331 | ) | $ | 20,913 | ||||||||||
See notes to consolidated financial statements.
21
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended
September 30, |
||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (439 | ) | $ | (857 | ) | ||
Adjustments to reconcile net loss to net cash (used by) provided by operating activities: |
||||||||
Depreciation of premises and equipment |
332 | 224 | ||||||
Amortization and accretion, net |
313 | 45 | ||||||
Provision for loan losses |
230 | 248 | ||||||
Deferred income taxes |
(165 | ) | (349 | ) | ||||
ESOP expense |
40 | 54 | ||||||
Stock option expense |
83 | 70 | ||||||
Restricted stock award expense |
125 | 104 | ||||||
Net gain on sale of loans |
(270 | ) | (14 | ) | ||||
Loans originated for resale |
(12,527 | ) | (1,386 | ) | ||||
Proceeds from loans sold |
12,162 | 1,400 | ||||||
(Increase) decrease in interest receivable |
(195 | ) | 14 | |||||
(Increase) decrease in other assets |
34 | 321 | ||||||
Increase (decrease) in accrued interest payable |
286 | (49 | ) | |||||
(Decrease) increase in other liabilities |
(37 | ) | 230 | |||||
Net cash (used by) provided by operating activities |
(28 | ) | 55 | |||||
Cash flows from investing activities: |
||||||||
Proceeds from maturities and calls of securities available for sale |
2,500 | 2,046 | ||||||
Proceeds from maturities of securities held to maturity |
| 2,200 | ||||||
Purchases of securities available for sale |
(54,723 | ) | (10,792 | ) | ||||
Principal repayments on securities available for sale |
4,439 | 645 | ||||||
Principal repayments on securities held to maturity |
35 | 58 | ||||||
Net decrease (increase) in loans receivable |
11,392 | (34,725 | ) | |||||
Additions to premises and equipment |
(957 | ) | (1,392 | ) | ||||
Redemption (purchase) of FHLB stock |
649 | (1,037 | ) | |||||
Net cash (used by) investing activities |
(36,665 | ) | (42,997 | ) | ||||
Cash flows from financing activities: |
||||||||
Net increase in deposits |
55,630 | 11,257 | ||||||
Net (decrease) increase in securities sold under repurchase agreements |
(614 | ) | 614 | |||||
Advances from Federal Home Loan Bank of N.Y. |
| 20,900 | ||||||
Repayment of advances from Federal Home Loan Bank of N.Y. |
(16,041 | ) | (133 | ) | ||||
Net increase in payments by borrowers for taxes and insurance |
281 | 21 | ||||||
Funding of restricted stock awards |
| (856 | ) | |||||
Purchase of treasury stock |
(661 | ) | (999 | ) | ||||
Net cash provided by financing activities |
38,595 | 30,804 | ||||||
Net increase (decrease) in cash and cash equivalents |
1,902 | (12,138 | ) | |||||
Cash and cash equivalentsbeginning |
5,402 | 17,540 | ||||||
Cash and cash equivalentsending |
$ | 7,304 | $ | 5,402 | ||||
Supplemental information |
||||||||
Cash paid during the period for |
||||||||
Interest |
$ | 4,727 | $ | 4,623 | ||||
Income taxes |
$ | 3 | $ | | ||||
See notes to consolidated financial statements.
22
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements
Note 1Principles of Consolidation
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. Certain prior period amounts have been reclassified in the consolidated financial statements to conform to the current presentation.
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 (GAAP). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the 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, the potential impairment of Federal Home Loan Bank of New York (FHLB) stock, the determination of other-than-temporary impairment on securities, 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 determination of whether investments, including FHLB stock, are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. 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.
Effective April 1, 2009, the Company adopted the Financial Accounting Standards Board (FASB) guidance on subsequent events, which establishes general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. The guidance sets forth the period after the balance sheet date during which management of the reporting entity, should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosure that should be made about events or transactions that occur after the balance sheet date. In preparing these consolidated financial statements, the Company evaluated the events that occurred between October 1, 2009 and December 15, 2009, the date these consolidated financial statements were issued.
23
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
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.
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.
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, or the security call date.
Gains or losses on sales of securities are recognized on the specific identification method.
Individual securities are considered impaired when the fair value of such security is less than its amortized cost. The Company evaluates all securities with unrealized losses quarterly to determine if such impairments are temporary or other-than-temporary in accordance with applicable accounting guidance. The Company accounts for temporary impairments based upon security classification as either available for sale or held to maturity. Temporary impairments on available for sale securities are recognized on a tax-effected basis, through other comprehensive income (loss) with offsetting entries adjusting the carrying value of the securities and the balance of deferred income taxes. Temporary impairments of held to maturity securities are not recognized in the consolidated financial statements; however information concerning the amount and duration of impairments on held to maturity securities is disclosed in the notes to the consolidated financial statements.
Other-than-temporary impairments on securities that the Company has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level to, or exceeding amortized cost are recognized in earnings. Otherwise, the other-than-temporary impairment is bifurcated into credit related and noncredit-related components. The credit related impairment generally represents the amount by which the present value of the cash flows expected to be collected on a debt security falls below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit related other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred income taxes, in other comprehensive income (loss).
The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the cost, and the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company also assesses its intent with regard to selling or holding each security as well as any conditions which may require it to sell the security prior to the recovery of fair value to a level which equals or exceeds amortized cost.
24
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
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. Unamortized net fees and costs are written off if the loan is repaid before its stated maturity.
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 loan should be classified as non-accrual. 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 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.
Federal Home Loan Bank of New York Stock
The Companys required investment in the common stock of the FHLB is carried at cost as of September 30, 2009 and 2008.
25
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Management evaluates this common stock for impairment in accordance with the FASB guidance on Accounting by Certain Entities That Lend to or Finance the Activities of Others. Managements determination of whether this investment is impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment charge was necessary related to the FHLB stock as of September 30, 2009.
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 the Company, (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) the Company does 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 Westchester County, N. Y. 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 |
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.
26
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
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.
Effective July 1, 2007, the Company adopted the FASBs guidance regarding accounting for uncertainty in income taxes. This guidance provides clarification on accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Companys evaluation of the implementation of this guidance, no significant income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the years ended September 30, 2009 and 2008. The Companys policy is to recognize interest and penalties on unrecognized tax benefits in income taxes expense in the consolidated statement of income. The Company did not recognize any interest and penalties for the years ended September 30, 2009 and 2008. The tax years subject to examination by the taxing authorities are the years ended December 31, 2008, 2007 and 2006.
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 accordance with FASBs guidance regarding accounting for defined benefit and other postretirement plans, which the Company adopted as of September 30, 2007, the Company recognizes 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.
Net 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. Outstanding stock options were antidilutive and were therefore excluded from
27
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
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
Securities available for sale as of September 30, 2009 and 2008 were as follows:
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||
(In thousands) | ||||||||||||
September 30, 2009 |
||||||||||||
U.S. Government Agencies: |
||||||||||||
Due after one but within five years |
$ | 18,415 | $ | 174 | $ | | $ | 18,589 | ||||
Due after five years |
5,861 | | 22 | 5,839 | ||||||||
Mortgage-backed securities |
33,628 | 464 | 33 | 34,059 | ||||||||
$ | 57,904 | $ | 638 | $ | 55 | $ | 58,487 | |||||
September 30, 2008 |
||||||||||||
U.S. Government Agencies: |
||||||||||||
Due within one year |
$ | 2,000 | $ | | $ | 1 | $ | 1,999 | ||||
Mortgage-backed securities |
8,213 | 20 | 53 | 8,180 | ||||||||
$ | 10,213 | $ | 20 | $ | 54 | $ | 10,179 | |||||
The age of unrealized losses and fair value of related securities available for sale at September 30, 2009 and 2008 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, 2009 |
||||||||||||||||||
U.S. Government Agencies |
$ | 5,839 | $ | 22 | $ | | $ | | $ | 5,839 | $ | 22 | ||||||
Mortgage-backed securities |
12,212 | 33 | | | 12,212 | 33 | ||||||||||||
$ | 18,051 | $ | 55 | $ | | $ | | $ | 18,051 | $ | 55 | |||||||
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 | |||||||
28
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
When the fair value of security is below its amortized cost, and depending on the length of time the condition exists, additional analysis is performed to determine whether an other-than-temporary impairment condition exists. Securities are analyzed quarterly for possible other-than-temporary impairment. The analysis considers (i) whether the Company has the intent to sell the securities prior to recovery and/or maturity and (ii) whether it is more likely than not that the Company will have to sell the securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on the Companys consolidated financial statements.
Management does not believe that any of the individual unrealized losses at September 30, 2009 and 2008, represent other-than-temporary impairment. The unrealized losses reported on securities at September 30, 2009 relate to two securities issued by U.S. Government Agencies and seven mortgage-backed securities. These unrealized losses are due to changes in interest rates. The Company does not intend to sell these securities and it is not more-likely-than-not that the Company would be required to sell these securities prior to full recovery of fair value to a level which equals or exceeds amortized cost.
All mortgage-backed securities are U.S. Government Agencies backed and collateralized by residential mortgages.
There were no sales of securities available for sale during the years ended September 30, 2009 or 2008.
Note 4Securities Held to Maturity
Amortized
Cost |
Gross
Unrealized Gains |
Gross
Unrealized Losses |
Fair
Value |
|||||||||
(In thousands) | ||||||||||||
September 30, 2009 |
||||||||||||
Mortgage-backed securities, due after ten years |
$ | 156 | $ | 16 | $ | | $ | 172 | ||||
$ | 156 | $ | 16 | $ | | $ | 172 | |||||
September 30, 2008 |
||||||||||||
Mortgage-backed securities, due after ten years |
$ | 191 | $ | 18 | $ | | $ | 209 | ||||
$ | 191 | $ | 18 | $ | | $ | 209 | |||||
There were no sales of securities held to maturity during the years ended September 30, 2009 and 2008.
29
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 5Loans Receivable
September 30, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Real estate: |
||||||||
One-to-four-family |
$ | 135,580 | $ | 156,519 | ||||
Multi-family |
2,401 | 2,435 | ||||||
Non-residential |
19,831 | 9,819 | ||||||
Construction |
667 | 2,409 | ||||||
Equity and second mortgages |
9,245 | 8,147 | ||||||
167,724 | 179,329 | |||||||
Commercial |
944 | 600 | ||||||
Consumer: |
||||||||
Passbook and other |
301 | 371 | ||||||
Student |
15 | 17 | ||||||
Checking overdraft |
17 | 18 | ||||||
333 | 406 | |||||||
Total Loans |
169,001 | 180,335 | ||||||
Allowance for loan losses |
(749 | ) | (516 | ) | ||||
Net deferred loan origination costs |
1,041 | 1,314 | ||||||
$ | 169,293 | $ | 181,133 | |||||
The following is an analysis of the allowance for loan losses: | ||||||||
Years Ended
September 30, |
||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Balancebeginning of year |
$ | 516 | $ | 269 | ||||
Provision charged to operations |
230 | 248 | ||||||
Loans recovered |
3 | | ||||||
Loans charged off |
| (1 | ) | |||||
Balanceend of year |
$ | 749 | $ | 516 | ||||
At September 30, 2009, the Company had loans in the amount of $1.7 million that were considered to be impaired. At September 30, 2008, the Company had no loans that were considered to be impaired. At September 30, 2009, none of the loans deemed impaired were subject to specific loss reserves. The average balances of impaired loans outstanding during the year ended September 30, 2009 was $139,000. Interest income recorded on impaired loans during the year ended September 30, 2009 was $44,000. Loans on which the accrual of interest has been discontinued amounted to $1.7 million at September 30, 2009. During the year ended September 30, 2009, $44,000 of interest was collected and recognized on these loans and had all such loans been performing in accordance with their original terms, additional interest income of $49,000 would have been recognized. The Company is not committed to lend additional funds on these non-accrual loans. At September 30, 2009, the Company had student loans which were ninety days or more delinquent and still accruing interest of $4,000 and such loans were guaranteed by New York State.
30
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 6Premises and Equipment
September 30, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Land |
$ | 179 | $ | 179 | ||||
Buildings and improvements |
1,190 | 1,156 | ||||||
Accumulated depreciation |
(490 | ) | (461 | ) | ||||
700 | 695 | |||||||
Leasehold improvements |
1,889 | 1,167 | ||||||
Accumulated amortization |
(384 | ) | (267 | ) | ||||
1,505 | 900 | |||||||
Furnishings and equipment |
2,097 | 1,886 | ||||||
Accumulated depreciation |
(1,362 | ) | (1,166 | ) | ||||
735 | 720 | |||||||
$ | 3,119 | $ | 2,494 | |||||
Note 7Accrued Interest Receivable
September 30, | ||||||
2009 | 2008 | |||||
(In thousands) | ||||||
Loans |
$ | 706 | $ | 731 | ||
Securities |
270 | 50 | ||||
$ | 976 | $ | 781 | |||
Note 8Deposits
September 30, | ||||||||||||
2009 | 2008 | |||||||||||
Amount |
Weighted
Average Rate |
Amount |
Weighted
Average Rate |
|||||||||
(Dollars in thousands) | ||||||||||||
Demand deposits: |
||||||||||||
Non-interest bearing deposits |
$ | 16,607 | | $ | 10,361 | | ||||||
Interest bearing deposits |
24,232 | 1.02 | % | 10,092 | 1.86 | % | ||||||
40,839 | 0.61 | % | 20,453 | 0.92 | % | |||||||
Savings and club deposits |
42,046 | 0.40 | % | 37,933 | 0.40 | % | ||||||
Certificates of deposit |
101,502 | 2.53 | % | 70,371 | 3.50 | % | ||||||
$ | 184,387 | 1.61 | % | $ | 128,757 | 2.17 | % | |||||
31
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The scheduled maturities of certificates of deposit are as follows:
Years Ending September 30, (In thousands) |
|||
2010 |
$ | 88,323 | |
2011 |
6,715 | ||
2012 |
4,841 | ||
2013 |
768 | ||
2014 |
855 | ||
$ | 101,502 | ||
The aggregate amount of certificates of deposit with balances of $100,000 or more totaled approximately $45,950,000 and $26,530,000 at September 30, 2009 and 2008, respectively. Deposits in excess of $250,000 are generally not insured by FDIC.
Interest expense on deposits consists of the following:
Years Ended
September 30, |
||||||
2009 | 2008 | |||||
(In thousands) | ||||||
Demand deposits |
$ | 226 | $ | 283 | ||
Savings and club deposits |
150 | 160 | ||||
Certificates of deposit |
2,905 | 2,397 | ||||
$ | 3,281 | $ | 2,840 | |||
Note 9Securities Sold Under Agreements to Repurchase
At September 30, 2008, the Company had securities sold under agreements to repurchase totaling $614,000 which bore 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 FHLB
September 30, | ||||||
2009 | 2008 | |||||
(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, 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 | 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 |
9,726 | 9,867 | ||||
Total |
$ | 34,726 | $ | 50,767 | ||
32
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
A schedule of the Companys annual principal obligations to the FHLB is as follows:
Year Ending September 30, (In thousands) |
|||
2010 |
$ | 149 | |
2011 |
157 | ||
2012 |
20,166 | ||
2013 |
176 | ||
2014 |
14,078 | ||
$ | 34,726 | ||
These FHLB advances are secured by stock of the FHLB in the amount of $1,938,000 and $2,587,000 at September 30, 2009 and 2008, 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 FHLB totaling $28.6 million, which expire on August 10, 2010, of which none was in use at September 30, 2009. The Companys overall credit exposure at the FHLB cannot exceed 50% of its total assets, subject to certain limitations based on the underlying loan and securities pledged as collateral.
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 non-cancellable operating leases with initial or remaining terms of one year or more, consisted of the following at September 30, 2009 (in thousands):
Years ending September 30, |
|||
2010 |
$ | 592 | |
2011 |
514 | ||
2012 |
521 | ||
2013 |
555 | ||
2014 |
570 | ||
Thereafter |
2,756 | ||
$ | 5,508 | ||
The total rental expense and related charges for all leases for the years ended September 30, 2009 and 2008 was $581,000 and $821,000, respectively. Rental expense in 2008 includes $210,000 relating to two older branches which have been relocated and are no longer 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.
33
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Retained earnings at September 30, 2009 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, |
||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Current income tax expense (benefit): |
||||||||
Federal |
$ | (12 | ) | $ | (67 | ) | ||
State |
(52 | ) | 20 | |||||
(64 | ) | (47 | ) | |||||
Deferred income tax expense (benefit): |
||||||||
Federal |
(182 | ) | (270 | ) | ||||
State |
17 | (79 | ) | |||||
(165 | ) | (349 | ) | |||||
$ | (229 | ) | $ | (396 | ) | |||
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, | ||||||||||||||
2009 |
Percent
of Pretax Loss |
2008 |
Percent
of Pretax Loss |
|||||||||||
(Dollars in thousands) | ||||||||||||||
Federal income taxes (benefit) |
$ | (227 | ) | (34.0 | )% | $ | (426 | ) | (34.0 | )% | ||||
State income taxes, net of federal income tax effect |
(23 | ) | (3.5 | )% | (39 | ) | (3.1 | )% | ||||||
Non-deductible benefit plan |
40 | 6.0 | % | 30 | 2.4 | % | ||||||||
Other items, net |
(19 | ) | (2.8 | )% | 39 | 3.1 | % | |||||||
Effective Income Taxes |
$ | (229 | ) | (34.3 | )% | $ | (396 | ) | (31.6 | )% | ||||
34
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, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Deferred tax assets: |
||||||||
Allowance for loan losses |
$ | 299 | $ | 206 | ||||
Deferred rent |
41 | 115 | ||||||
Net operating loss carryforward |
242 | | ||||||
Contribution carryover |
270 | 270 | ||||||
Benefit plan adjustment |
453 | 244 | ||||||
Accrued pension |
68 | 39 | ||||||
Unrealized loss on securities available for sale |
| 14 | ||||||
Stock based compensation |
108 | 49 | ||||||
Other |
40 | 7 | ||||||
Total Deferred Tax Assets |
1,521 | 944 | ||||||
Deferred tax liabilities: |
||||||||
Depreciation |
219 | 2 | ||||||
Unrealized gain on securities available for sale |
233 | | ||||||
Total Deferred Tax Liabilities |
452 | 2 | ||||||
Valuation allowance |
(270 | ) | (270 | ) | ||||
Net Deferred Tax Assets Included in Other Assets |
$ | 799 | $ | 672 | ||||
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, |
||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Securities available for sale |
||||||||
Net unrealized holding gains (losses) arising during the year, net of income taxes of $(247,000) and $15,000 respectively |
$ | 371 | $ | (24 | ) | |||
Defined benefit plan adjustment, net of income taxes of $209,000 and $92,000 respectively |
(315 | ) | (137 | ) | ||||
$ | 56 | $ | (161 | ) | ||||
35
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, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Net unrealized holding gains (losses) on securities available for sale, net of deferred income tax of $(233,000) and $14,000, respectively |
$ | 350 | $ | (21 | ) | |||
Benefit plan adjustment, net of related deferred taxes of $453,000 and $244,000, respectively |
(681 | ) | (366 | ) | ||||
$ | (331 | ) | $ | (387 | ) | |||
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).
36
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The following table presents a reconciliation of the Banks capital based on GAAP and regulatory capital at the dates presented:
September 30, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
GAAP capital: |
$ | 16,819 | $ | 14,940 | ||||
Disallowed deferred tax asset |
(9 | ) | (672 | ) | ||||
Pension liability, net of deferred taxes |
681 | 366 | ||||||
Unrealized (gain) loss on securities available for sale, net of deferred taxes |
(350 | ) | 21 | |||||
Intangible asset |
| (44 | ) | |||||
Tier I and tangible capital |
17,141 | 14,611 | ||||||
General valuation allowance |
749 | 516 | ||||||
Total Regulatory Capital |
$ | 17,890 | $ | 15,127 | ||||
The following table sets forth the Banks capital position, 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, 2009: |
||||||||||||||||||
Total capital (to risk-weighted assets) |
$ | 17,890 | 16.16 | % | $ | ³ 8,857 | ³ 8.00 | % | $ | ³ 11,071 | ³ 10.00 | % | ||||||
Core (Tier 1) capital (to risk-weighted assets) |
17,141 | 15.48 | | | ³ 6,643 | ³ 6.00 | ||||||||||||
Core (Tier 1) capital (to total adjusted assets) |
17,141 | 7.10 | ³ 9,660 | ³ 4.00 | ³ 12,075 | ³ 5.00 | ||||||||||||
Tangible capital (to total adjusted assets) |
17,141 | 7.10 | ³ 3,622 | ³ 1.50 | | | ||||||||||||
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 adjusted assets) |
14,611 | 7.23 | ³ 8,079 | ³ 4.00 | ³ 10,099 | ³ 5.00 | ||||||||||||
Tangible capital (to total adjusted assets) |
14,611 | 7.23 | ³ 3,030 | 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.
37
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 15Benefit Plans
Pension Plan
The Bank maintains a non-contributory defined benefit pension plan (the Plan) covering all eligible employees hired before July 1, 2008. 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.
The following table sets forth the Plans funded status and components of net periodic pension cost:
September 30, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Change in benefit obligation: |
||||||||
Benefit obligationbeginning of year |
$ | 3,427 | $ | 3,487 | ||||
Service cost |
211 | 228 | ||||||
Interest cost |
234 | 216 | ||||||
Actuarial (gain) loss |
204 | (342 | ) | |||||
Benefits paid |
(158 | ) | (158 | ) | ||||
Benefit obligationend of year |
$ | 3,918 | $ | 3,427 | ||||
Change in plan assets: |
||||||||
Fair value of assetsbeginning of year |
$ | 2,722 | $ | 3,186 | ||||
Actual return on plan assets |
(157 | ) | (372 | ) | ||||
Benefits paid |
(158 | ) | (158 | ) | ||||
Contributions |
207 | 66 | ||||||
Fair value of assetsend of year |
$ | 2,614 | $ | 2,722 | ||||
Reconciliation of funded status: |
||||||||
Accumulated benefit obligation |
$ | 3,452 | $ | 3,044 | ||||
Projected benefit obligation |
$ | (3,918 | ) | $ | (3,427 | ) | ||
Fair value of assets |
2,614 | 2,722 | ||||||
Funded status |
$ | (1,304 | ) | $ | (705 | ) | ||
Accrued pension cost included in other liabilities |
$ | (1,304 | ) | $ | (705 | ) | ||
September 30, | ||||||||
2009 | 2008 | |||||||
Valuation assumptions |
||||||||
Discount rate |
7.00 | % | 7.00 | % | ||||
Rate of compensation increase |
4.00 | % | 4.00 | % |
38
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
September 30, | ||||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Amounts recognized in accumulated other comprehensive loss, pre-tax, consist of: |
||||||||
Net actuarial loss |
$ | (1,114 | ) | $ | (585 | ) | ||
Prior service cost |
(20 | ) | (24 | ) | ||||
$ | (1,134 | ) | $ | (609 | ) | |||
As required for the fiscal year ended September 30, 2010, $64,000 in unrecognized net loss and $4,000 in unrecognized net prior service cost will be recognized as a component of net periodic pension.
Years Ended
September 30, |
||||||||
2009 | 2008 | |||||||
(Dollars in thousands) | ||||||||
Net periodic pension expense |
||||||||
Service cost |
$ | 211 | $ | 228 | ||||
Interest cost |
234 | 216 | ||||||
Expected return on assets |
(192 | ) | (220 | ) | ||||
Amortization of prior service cost |
4 | 4 | ||||||
Amortization of unrecognized net loss |
21 | 13 | ||||||
Total net periodic pension expense |
$ | 278 | $ | 241 | ||||
Valuation assumptions: |
||||||||
Discount rate |
6.00 | % | 6.00 | % | ||||
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, | ||||||
2009 | 2008 | |||||
Equity securities |
53 | % | 54 | % | ||
Guaranteed insurance funds |
47 | % | 46 | % | ||
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 intends 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 2009 and 2008.
39
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
At September 30, 2009, expected benefit payments were as follows (in thousands):
Years ending September 30, |
|||
2010 |
$ | 158 | |
2011 |
158 | ||
2012 |
198 | ||
2013 |
218 | ||
2014 |
254 | ||
2015 to 2019 |
1,552 | ||
$ | 2,538 | ||
The Bank expects to contribute $425,000 to the Plan during the year ended September 30, 2010.
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 25% in 2009 and 50% in 2008 of an employees contribution, up to 8.0% of compensation, subject to certain limitations. The Savings Plan expenses for the years ended September 30, 2009 and 2008, amounted to $26,000 and $52,000, 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, 2009 and 2008, the loan had a balance of $1,584,000 and $1,599,000, respectively.
The ESOP is accounted for in accordance with the guidance issued by FASB. 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 $40,000 and $54,000 for the years ended September 30, 2009 and 2008, respectively.
40
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The ESOP shares are summarized as follows:
September 30, | ||||||
2009 | 2008 | |||||
Unearned shares |
149,343 | 154,823 | ||||
Shares committed to be released |
4,110 | 4,110 | ||||
Shares released |
10,960 | 5,480 | ||||
Total shares |
164,413 | 164,413 | ||||
Fair value of unearned shares |
$ | 1,060,000 | $ | 1,195,000 | ||
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 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 FASB guidance, 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 years ended September 30, 2009 and 2008 the Company recorded an expense of $83,000 and $70,000 respectively relating to stock options and $125,000 and $104,000 respectively relating to the restricted stock. The Company recognized approximately $59,000 and $49,000 of income tax benefits resulting from this expense in the years ended September 30, 2009 and 2008, respectively.
In November 2009, certain officers of the Company and the Bank received an aggregate of 8,300 stock options with an exercise price of $7.25 per share and 4,150 shares of restricted stock with a grant date fair value of $7.25 per share. The Company will expense, in accordance with FASB guidance, the fair value of these options at $2.49 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.
As of September 30, 2009 and 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 October 1, 2007 |
| | ||||
Granted |
61,701 | $ | 10.12 | |||
Non-vested at September 30, 2008 |
61,701 | $ | 10.12 | |||
Vested |
(12,340 | ) | $ | 10.12 | ||
Non-vested at September 30, 2009 |
49,361 | $ | 10.12 | |||
41
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Expected future compensation expense relating to the 49,361 non-vested restricted shares outstanding at September 30, 2009 is $395,000 over a weighted average period of 3.2 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 October 1, 2007, |
| | |||||
Granted |
152,154 | $ | 10.12 | 10.0 years | |||
Balance at September 30, 2008 |
152,154 | $ | 10.12 | 9.2 years | |||
Balance at September 30, 2009 |
152,154 | $ | 10.12 | 8.2 years | |||
Exercisable at September 30, 2009 |
30,431 | $ | 10.12 | |
Shares issued upon exercise of stock options will be issued from treasury stock or from previously unissued shares. As of September 30, 2009 the Company had 192,362 shares of treasury stock. Expected future compensation expense relating to the 152,154 vested and non-vested options outstanding at September 30, 2009 is $263,000 over a weighted average period of 3.2 years.
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, 2009 and 2008, the stock options outstanding and stock options exercisable had no intrinsic value.
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.
On September 25, 2008, the Companys Board of Directors approved an additional stock buy back plan that authorized the Company to buy back up to 93,715 shares of the outstanding stock of the Company. The buy back plan was administered as a 10(b)5-1 plan by Stifel Nicolaus, the Companys investment banker. Through September 30, 2009, 93,715 shares of common stock had been repurchased for $661,000.
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.
42
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
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 | ||||||
2009 | 2008 | |||||
(In thousands) | ||||||
Commitments to originate loans, expiring in three months or less |
$ | 9,967 | $ | 3,645 | ||
Commitments under homeowners equity lending program |
8,835 | 7,761 | ||||
Commitments under overdraft protection and commercial lines of credit |
1,180 | 140 | ||||
Total |
$ | 19,982 | $ | 11,547 | ||
At September 30, 2009, of the $9,967,000 in outstanding commitments to originate loans, $4,646,000 were at fixed rates ranging from 4.625% to 7.840% and $5,321,000 were adjustable rates with initial rates ranging from 4.00% to 6.27%.
At September 30, 2008, of the $3,645,000 in outstanding commitments to originate loans, $2,425,000 were at fixed rates ranging from 6.625% to 7.625% and $1,220,000 were adjustable rates with initial rates ranging from 5.0% to 7.0%.
At September 30, 2009 and 2008, undisbursed funds from approved lines of credit under a homeowners equity lending program totaled $8,835,000 and $7,761,000, respectively. Interest rates are either fixed (ranging from 6.75% to 7.625% at September 30, 2009) or variable, based on the prime rate or prime minus 25 basis points adjusted on a monthly basis (ranging from 3.0% to 6.0% at September 30, 2009). At September 30, 2009 and 2008, unused overdraft protection and commercial lines of credits were $1.2 million and $140,000, 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 not currently a party to litigation, but may in the future become 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.
43
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 19Fair Value Measurements and Fair Value of Financial Instruments
Effective July 1, 2008, the Company adopted FASBs guidance on fair value measurement. The guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance does not require any new fair value measurements. The definition of fair value retains the exchange price notion in earlier definitions of fair value. The guidance clarifies that the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market in which the reporting entity would transact for the asset or liability. The definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price). The guidance emphasizes that fair value is a market-based measurement, not an entity-specific measurement.
Additional guidance concerning the effective date of FASBs statement on fair value measurement issued in February 2008, delayed the effective date of the guidance for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in an entitys statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. The implementation of this guidance did not have a material impact on the Companys consolidated financial position or results of operations.
The guidance on fair value measurement describes three levels of inputs that may be used to measure fair value:
Level 1: | Quoted prices in active markets for identical assets or liabilities. | |
Level 2: | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
In addition, the guidance requires the Company to disclose the fair value for financial assets on both a recurring and non-recurring basis.
For financial assets measured at fair value on a recurring and non-recurring basis, the fair value measurements by level within the fair value hierarchy at September 30, 2009 are summarized below:
Description |
Balance |
(Level 1)
Quoted Prices in Active Markets for Identical Assets |
(Level 2)
Significant Other Observable Inputs |
(Level 3)
Significant Unobservable Inputs |
||||||||
(In thousands) | ||||||||||||
Recurring basis: |
||||||||||||
Securities available for sale |
$ | 58,487 | $ | | $ | 58,487 | $ | | ||||
Non-recurring basis: |
||||||||||||
Loans held for sale |
$ | 635 | $ | | $ | | $ | 635 |
44
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The fair values of securities available for sale (carried at fair value) or held to maturity (carried at amortized cost) are primarily determined by obtaining matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs).
Loans held for sale are carried at the lower of cost or estimated fair value in the aggregate.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments at September 30, 2009 and 2008:
Cash and Cash Equivalents, Interest Receivable and Interest Payable . The carrying amounts for cash and cash equivalents, interest receivable and interest 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 (Level 1), if available. If quoted market prices are not available, fair values are based on matrix pricing (Level 2), a mathematical technique used to value debt securities relying upon the benchmark quoted prices.
Loans Receivable . The fair value of loans receivable is estimated by discounting the future cash flows, using the current market rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, of such loans.
Loans held for sale . Loans held for sale are carried at the lower of cost or estimated fair value in the aggregate.
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 is estimated using market rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market.
Securities sold under agreement to repurchase. The fair value of securities sold under agreements to repurchase is equal to their carrying amount because they mature in three months or less.
Advances from FHLB . Fair value is estimated using rates currently offered for advances of similar remaining maturities.
Commitments to extend credits. The fair value of commitments to fund credit lines and originate or participate in loans is 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 loan commitments, fair value also considers the difference between current levels of interest and the committed rates. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, was not considered material at September 30, 2009 or 2008.
45
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
The carrying amounts and estimated fair values of financial instruments are as follows:
September 30, | ||||||||||||
2009 | 2008 | |||||||||||
Carrying
Amount |
Estimated
Fair Value |
Carrying
Amount |
Estimated
Fair Value |
|||||||||
(In thousands) | ||||||||||||
Financial assets |
||||||||||||
Cash and cash equivalents |
$ | 7,304 | $ | 7,304 | $ | 5,402 | $ | 5,402 | ||||
Securities available for sale |
58,487 | 58,487 | 10,179 | 10,179 | ||||||||
Securities held to maturity |
156 | 172 | 191 | 209 | ||||||||
Loans held for sale |
635 | 635 | | | ||||||||
Loans receivable |
169,293 | 181,596 | 181,133 | 176,292 | ||||||||
Accrued interest receivable |
976 | 976 | 781 | 781 | ||||||||
Financial liabilities |
||||||||||||
Deposits |
184,387 | 184,951 | 128,757 | 129,160 | ||||||||
Securities sold under agreements to repurchase |
| | 614 | 614 | ||||||||
FHLB Advances |
34,726 | 37,533 | 50,767 | 51,077 | ||||||||
Accrued interest payable |
649 | 649 | 363 | 363 | ||||||||
Off-balance sheet financial instruments |
| | | |
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 February 2008, the FASB issued guidance concerning accounting for transfers of financial assets and repurchase financing transactions. This guidance addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one linked transaction. The guidance includes a rebuttable
46
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
presumption that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria. The guidance is effective for fiscal years beginning after November 15, 2008 and applies only to original transfers made after that date; early adoption will not be allowed. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In March 2008, the FASB issued guidance concerning disclosures about derivative instruments and hedging activities, an amendment to previous guidance on the topic. This guidance requires entities that utilize derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. This guidance also requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of the previous guidance has been applied, and the impact that hedges have on an entitys financial position, financial performance, and cash flows. The guidance is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In April 2008, the FASB issued guidance concerning determination of the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under guidance concerning goodwill and other intangible assets. The intent of this guidance is to improve the consistency between the useful life of a recognized intangible asset under guidance concerning goodwill and other intangible assets and the period of expected cash flows used to measure the fair value of the asset under guidance concerning business combinations, and other GAAP. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In June 2009, the FASB issued guidance concerning accounting for transfers of financial assets, an amendment to previous guidance on the topic. This statement prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a transferors continuing involvement in transferred financial assets. Specifically, among other aspects, this guidance amends previous guidance concerning accounting for transfers and servicing of financial assets and extinguishments of liabilities by removing the concept of a qualifying special-purpose entity from previous guidance on transfers and servicing and removes the exception from applying previous guidance on transfers and servicing to variable interest entities that are qualifying special-purpose entities. It also modifies the financial-components approach used in previous guidance. This guidance is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
In June 2009, the FASB issued guidance requiring an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entitys economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This guidance also amends previous guidance to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This guidance is effective for fiscal years beginning after November 15, 2009. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.
47
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
In June 2009, the FASB issued guidance concerning the FASB accounting standards codification and the hierarchy of GAAP. This guidance is a replacement of previous guidance concerning the hierarchy of GAAP and is designed to establish the FASB accounting standards codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with GAAP in the United States. This guidance is effective for interim and annual periods ending after September 15, 2009. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.
In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (IFRS). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (IASB). Under the proposed roadmap, the Company may be required to prepare financial statements in accordance with IFRS as early as 2014. The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. The Company is currently assessing the impact that this potential change would have on its consolidated financial statements, and it will continue to monitor the development of the potential implementation of IFRS.
Note 21Parent Only Financial Information
The following are the financial statements of the Company (Parent only) as of and for the years ended September 30, 2009 and 2008.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
September 30, | ||||||
2009 | 2008 | |||||
Assets |
||||||
Cash and cash equivalents |
$ | 863 | $ | 3,511 | ||
Investment in Bank |
16,819 | 14,940 | ||||
Loan receivable |
1,474 | 1,489 | ||||
ESOP loan receivable |
1,584 | 1,599 | ||||
Other assets |
194 | 180 | ||||
Total assets |
$ | 20,934 | $ | 21,719 | ||
Liabilities and stockholders equity |
||||||
Other liabilities |
$ | 21 | $ | 10 | ||
Stockholders equity |
20,913 | 21,709 | ||||
Total liabilities and stockholders equity |
$ | 20,934 | $ | 21,719 | ||
48
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
Years Ended
September 30, |
||||||||
2009 | 2008 | |||||||
Interest income |
$ | 237 | $ | 240 | ||||
Equity in (loss) of Bank |
(425 | ) | (736 | ) | ||||
Total loss |
(188 | ) | (496 | ) | ||||
Other non-interest expenses |
252 | 417 | ||||||
Loss before income tax benefit |
(440 | ) | (913 | ) | ||||
Income tax benefit |
(1 | ) | (56 | ) | ||||
Net loss |
$ | (439 | ) | $ | (857 | ) | ||
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
September 30, |
||||||||
2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) |
$ | (439 | ) | $ | (857 | ) | ||
Equity in loss of Bank |
425 | 736 | ||||||
Increase in other assets |
(14 | ) | (100 | ) | ||||
Increase (decrease) in other liabilities |
11 | (20 | ) | |||||
Net cash used in operating activities |
(17 | ) | (240 | ) | ||||
Cash flows from investing activities: |
||||||||
Net decrease (increase) in loans receivable |
15 | (1,489 | ) | |||||
Decrease in ESOP loan receivable |
15 | 45 | ||||||
Capital contributed to Bank |
(2,000 | ) | | |||||
Net cash used in investing activities |
(1,970 | ) | (1,444 | ) | ||||
Cash flows from financing activities: |
||||||||
Purchase of treasury stock |
(661 | ) | (999 | ) | ||||
Funding of restricted stock awards |
| (856 | ) | |||||
Net cash used in financing activities |
(661 | ) | (1,855 | ) | ||||
Net decrease in cash and cash equivalents |
(2,648 | ) | (3,540 | ) | ||||
Cash and cash equivalentsbeginning of period |
3,511 | 7,051 | ||||||
Cash and cash equivalentsend of period |
$ | 863 | $ | 3,511 | ||||
49
CMS Bancorp, Inc.
Notes to Consolidated Financial Statements(Continued)
Note 22Quarterly Financial Data (Unaudited)
Year Ended September 30, 2009 | |||||||||||||||
Dollars in thousands,
except per share data |
|||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
||||||||||||
Interest income |
$ | 2,863 | $ | 2,826 | $ | 2,858 | $ | 2,858 | |||||||
Interest expense |
1,277 | 1,201 | 1,289 | 1,246 | |||||||||||
Net interest income |
1,586 | 1,625 | 1,569 | 1,612 | |||||||||||
Provision for loan losses |
| 30 | | 200 | |||||||||||
Net interest income after provision for loan losses |
1,586 | 1,595 | 1,569 | 1,412 | |||||||||||
Non-interest income |
78 | 94 | 184 | 142 | |||||||||||
Non-interest expense |
1,652 | 1,655 | 1,918 | 2,103 | |||||||||||
Income (loss) before income taxes |
12 | 34 | (165 | ) | (549 | ) | |||||||||
Income taxes (benefit) |
13 | 19 | (46 | ) | (215 | ) | |||||||||
Net income (loss) |
$ | (1 | ) | $ | 15 | $ | (119 | ) | $ | (334 | ) | ||||
Net income (loss) per common share, basic and diluted |
$ | 0.00 | $ | 0.01 | $ | (0.07 | ) | $ | (0.19 | ) | |||||
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 tax benefit |
(149 | ) | (214 | ) | (259 | ) | (631 | ) | ||||||||
Income tax benefit |
(19 | ) | (65 | ) | (81 | ) | (231 | ) | ||||||||
Net (loss) |
$ | (130 | ) | $ | (149 | ) | $ | (178 | ) | $ | (400 | ) | ||||
Net (loss) per common share, basic and diluted |
$ | (0.07 | ) | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.21 | ) | ||||
Note 23Transactions with Officers and Directors
The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its officers, directors, and their immediate families (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. These persons were indebted to the Bank for loans totaling $902,000 and $1,203,000 at September 30, 2009 and 2008, respectively. During the year ended September 30, 2009, no new loans and $301,000 of repayments were made.
50
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 25, 2010.
The undersigned shareholder of CMS Bancorp, Inc. hereby appoints William V. Cuddy, Jr. and Susan A. Massaro, 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 4, 2010, at the Annual Meeting of Shareholders (the Annual Meeting) to be held on February 25, 2010 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 15, 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 proposal listed in Item 2.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. |
|||||||
¡ |
14475
|
¡ |
ANNUAL MEETING OF SHAREHOLDERS OF
CMS BANCORP, INC.
February 25, 2010
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL :
The Notice of Meeting, Proxy Statement, Proxy Card
are available at http://www.amstock.com/ProxyServices/ViewMaterial.asp?CoNumber=15310
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.
¢ |
20330000000000001000 8 |
022510 |
The Board of Directors unanimously recommends a vote FOR the nominees named in Item 1
and a vote FOR the proposal in Item 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
FOR | AGAINST | ABSTAIN | ||||||||||||||
1. |
Election of the three Directors for a term of office to expire in 2013 or until their successors are elected and qualified. | 2. | Ratify the appointment of ParenteBeard LLC as CMS Bancorp Inc.s independent registered public accounting firm for the fiscal year ending September 30, 2010. | ¨ | ¨ | ¨ | ||||||||||
NOMINEES: | ||||||||||||||||
¨ | FOR ALL NOMINEES |
m Thomas G. Ferraro m Cheri R. Mazza m John E. Ritacco |
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 15, 2010. |
|||||||||||||
¨ | WITHHOLD AUTHORITY | |||||||||||||||
FOR ALL NOMINEES | ||||||||||||||||
¨ | FOR ALL EXCEPT | |||||||||||||||
(See instructions below) | ||||||||||||||||
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: l |
||||||||||||||||
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. |
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