UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2014
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
To
Commission File Number: 001-33322
CMS Bancorp,
Inc.
(Exact name of registrant as specified in its charter)
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Delaware |
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20-8137247 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
123 Main Street, White Plains, New York 10601
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code 914-422-2700
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange
Act.
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Large accelerated filer |
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¨ |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company). |
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Smaller reporting company |
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x |
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange
Act). Yes ¨ No x
As of February 11, 2015 there were 1,862,803 shares of the registrants common stock, par value $.01 per share, outstanding.
CMS Bancorp, Inc.
INDEX
2
Part I: Financial Information
Item 1. Financial Statements
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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December 31, 2014 |
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September 30, 2014 |
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(Dollars in thousands,
except per share data) |
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ASSETS |
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Cash and amounts due from depository institutions |
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$ |
755 |
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$ |
1,343 |
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Interest-bearing deposits |
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1,650 |
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1,804 |
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Total cash and cash equivalents |
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2,405 |
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3,147 |
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Securities available for sale |
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39,302 |
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39,365 |
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Loans held for sale |
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349 |
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Loans receivable, net of allowance for loan losses of $660 and $740, respectively |
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218,891 |
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223,786 |
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Other real estate owned |
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183 |
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183 |
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Premises and equipment |
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2,522 |
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2,593 |
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Federal Home Loan Bank of New York stock, at cost |
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1,491 |
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1,150 |
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Accrued interest receivable |
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992 |
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925 |
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Other assets |
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2,046 |
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1,846 |
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Total assets |
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$ |
267,832 |
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$ |
273,344 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Liabilities: |
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Deposits |
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$ |
212,355 |
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$ |
226,782 |
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Advances from Federal Home Loan Bank of New York |
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26,905 |
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18,950 |
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Advance payments by borrowers for taxes and insurance |
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2,200 |
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1,284 |
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Other liabilities |
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2,331 |
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2,452 |
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Total liabilities |
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243,791 |
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249,468 |
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Commitments and Contingencies |
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Stockholders equity: |
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Preferred stock, $.01 par value, 1,000,000 shares authorized, 1,500 shares issued and outstanding (liquidation preference value $1,000
per share) |
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Common stock, $.01 par value, authorized shares: 7,000,000; shares issued: 2,055,165; shares outstanding: 1,862,803 |
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21 |
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21 |
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Additional paid-in capital |
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20,380 |
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20,358 |
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Retained earnings |
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7,619 |
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7,574 |
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Treasury stock, 192,362 shares |
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(1,660 |
) |
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(1,660 |
) |
Unearned Employee Stock Ownership Plan (ESOP) shares |
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(1,219 |
) |
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(1,233 |
) |
Accumulated other comprehensive loss |
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(1,100 |
) |
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(1,184 |
) |
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Total stockholders equity |
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24,041 |
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23,876 |
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Total liabilities and stockholders equity |
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$ |
267,832 |
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$ |
273,344 |
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See notes to consolidated financial statements.
3
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended December 31, |
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2014 |
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2013 |
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(Dollars in thousands,
except per share data) |
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Interest income: |
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Loans |
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$ |
2,608 |
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$ |
2,587 |
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Securities |
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184 |
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182 |
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Other interest-earning assets |
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14 |
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16 |
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Total interest income |
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2,806 |
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2,785 |
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Interest expense: |
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Deposits |
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381 |
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359 |
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Mortgage escrow funds |
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6 |
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10 |
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Borrowings, short term |
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62 |
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5 |
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Borrowings, long term |
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172 |
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Total interest expense |
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449 |
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546 |
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Net interest income |
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2,357 |
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2,239 |
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Provision for loan losses |
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75 |
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100 |
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Net interest income after provision for loan losses |
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2,282 |
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2,139 |
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Non-interest income: |
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Fees and service charges |
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33 |
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41 |
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Net gain on sale of loans |
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30 |
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40 |
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Other |
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3 |
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3 |
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Total non-interest income |
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66 |
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84 |
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Non-interest expense: |
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Salaries and employee benefits |
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1,059 |
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936 |
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Net occupancy |
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322 |
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333 |
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Equipment |
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225 |
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194 |
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Professional fees |
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343 |
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140 |
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Advertising |
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19 |
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14 |
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Federal insurance premiums |
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50 |
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54 |
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Directors fees |
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35 |
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47 |
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Other |
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192 |
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160 |
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Total non-interest expense |
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2,245 |
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1,878 |
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Income before income taxes |
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103 |
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345 |
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Income tax expense |
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35 |
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134 |
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Net income |
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68 |
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211 |
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Preferred stock dividends |
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23 |
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23 |
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Net income attributable to common shareholders |
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$ |
45 |
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$ |
188 |
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Net income per common share: |
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Basic and diluted |
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$ |
0.03 |
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$ |
0.11 |
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Weighted average number of common shares outstanding: |
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Basic |
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1,740,863 |
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1,735,382 |
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Diluted |
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1,783,980 |
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1,736,370 |
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See notes to consolidated financial statements.
4
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
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Three Months Ended December 31, |
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2014 |
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2013 |
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(In thousands) |
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Net income |
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$ |
68 |
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$ |
211 |
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Other comprehensive income (loss) : |
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Gross unrealized holding gains (losses) on securities available for sale, net of deferred income (tax) benefit of $63 and $115,
respectively. |
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97 |
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(176 |
) |
Retirement plan, net of deferred income tax of $9 and $9 (a) |
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(13 |
) |
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(14 |
) |
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Other comprehensive income (loss) |
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84 |
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(190 |
) |
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Comprehensive income |
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$ |
152 |
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$ |
21 |
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(a) |
Retirement plan amortization and related income tax are reflected in the consolidated statements of income within the salaries and benefits and income tax expense lines, respectively. |
See notes to consolidated financial statements.
5
CMS Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three Months Ended December 31, |
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2014 |
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2013 |
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(In thousands) |
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Cash flows from operating activities: |
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Net income |
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$ |
68 |
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$ |
211 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation of premises and equipment |
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98 |
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88 |
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Amortization and accretion, net |
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18 |
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63 |
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Provision for loan losses |
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75 |
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100 |
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Deferred income taxes |
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55 |
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|
100 |
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ESOP expense |
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14 |
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12 |
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Stock option expense |
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10 |
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10 |
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Restricted stock award expense |
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8 |
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9 |
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Net gain on sale of loans |
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(30 |
) |
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(40 |
) |
Loans originated for sale |
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(425 |
) |
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(2,013 |
) |
Proceeds from sales of loans originated for resale |
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|
804 |
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|
2,390 |
|
Increase in accrued interest receivable |
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(67 |
) |
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(48 |
) |
Increase in other assets |
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(328 |
) |
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(33 |
) |
Decrease in accrued interest payable |
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(52 |
) |
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(33 |
) |
Decrease in other liabilities |
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(69 |
) |
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(111 |
) |
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Net cash provided by operating activities |
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179 |
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|
705 |
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Cash flows from investing activities: |
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Principal repayments and calls on securities available for sale |
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206 |
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|
707 |
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Net decrease (increase) in loans receivable |
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4,820 |
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(5,016 |
) |
Additions to premises and equipment |
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(27 |
) |
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(57 |
) |
(Purchase) and redemption of Federal Home Loan Bank of NY stock, net |
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(341 |
) |
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5 |
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Net cash provided by (used by) investing activities |
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4,658 |
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(4,361 |
) |
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Cash flows from financing activities: |
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Net (decrease) increase in deposits |
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(14,427 |
) |
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4,389 |
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Net short-term advances (repayments) from Federal Home Loan Bank of N.Y. |
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12,955 |
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(105 |
) |
Repayment of long-term advance from Federal Home Loan Bank of N.Y |
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(5,000 |
) |
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Net increase in payments by borrowers for taxes and insurance |
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916 |
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|
272 |
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Preferred stock dividends |
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(23 |
) |
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(23 |
) |
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Net cash (used by) provided by financing activities |
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(5,579 |
) |
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4,533 |
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Net (decrease) increase in cash and cash equivalents |
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(742 |
) |
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|
877 |
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Cash and cash equivalents-beginning |
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3,147 |
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|
2,477 |
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Cash and cash equivalents-ending |
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$ |
2,405 |
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$ |
3,354 |
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Supplemental information: |
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Cash paid during the period for: |
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Interest |
|
$ |
501 |
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$ |
579 |
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Income taxes |
|
$ |
185 |
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$ |
186 |
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|
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|
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|
See notes to consolidated financial statements.
6
CMS Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Principles of Consolidation
The consolidated financial statements include the accounts of CMS Bancorp, Inc. (CMS Bancorp or the Company) and its
wholly-owned subsidiary, CMS 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.
2. Description of Business and Nature of Operations
The Bank was originally chartered in 1887 as Community Savings and Loan, a New York State-chartered savings and loan association. In 1980,
it converted to a New York State-chartered savings bank and changed its name to Community Mutual Savings Bank of Southern New York. In 1983, Community Mutual Savings Bank of Southern New York changed its name to Community Mutual Savings Bank. In
2007, the Bank reorganized to a federally-chartered mutual savings bank and simultaneously converted from a federally-chartered mutual savings bank to a federally-chartered stock savings bank, with the concurrent formation of the Company. The
Company, a stock holding company for the Bank, conducted a public offering of its common stock in connection with the conversion. After the 2007 conversion and offering, all of the Banks stock became owned by the Company. In June 2012, the
Bank completed its conversion from a federally-chartered savings bank to a New York state-chartered savings bank after receiving approval from the New York State Department of Financial Services (NYSDFS) and non-objection from the Office
of the Comptroller of the Currency (OCC), and changed its name to CMS Bank. The Company will continue to be regulated as a savings and loan holding company by the Federal Reserve Bank of Philadelphia as long as the Bank continues to meet
the requirements to remain a qualified thrift lender under the Home Owners Loan Act.
The Bank is a community and customer-oriented
retail savings bank offering residential mortgage loans and traditional deposit products and commercial real estate, small business and consumer loans in Westchester County, New York, and the surrounding areas. The Bank also invests in various types
of assets, including securities of various government-sponsored enterprises, corporations, municipalities and mortgage-backed securities. The Banks revenues are derived principally from interest on loans, interest and dividends received from
its investment securities and fees for bank services. The Banks primary sources of funds are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities,
funds provided by operations and borrowings from the Federal Home Loan Bank of New York (FHLB).
In addition to its single class of common
stock, the Company also has outstanding Series A Noncumulative Perpetual Preferred Stock (Series A Preferred Stock) pursuant to the terms of such preferred stock as set forth in the Certificate of Designations establishing the
designations, powers, preferences, limitations, restrictions, and relative rights of the Series A Preferred Stock filed with the Secretary of State of Delaware on May 21, 2013. For additional information on the Series A Preferred Stock, see the
Companys Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on May 24, 2013. Pursuant to the terms of a pending merger agreement with Putnam County Savings Bank as described below, the Company
is required to redeem all outstanding shares of the Series A Preferred Stock immediately prior to closing.
Pending Merger Agreement with Putnam
County Savings Bank
On September 25, 2014, CMS Bancorp and the Bank entered into an Agreement and Plan of Merger dated as of
September 25, 2014 (Merger Agreement) by and among Putnam County Savings Bank, a New York mutual savings bank (Putnam), Putnam County Acquisition Corporation, (Acquisition Corporation), CMS Bancorp and CMS
Bank. Under the terms of the Merger Agreement, and subject to the terms and conditions thereof, Putnam will acquire CMS Bancorp and the Bank through a series of transactions by which the Acquisition Corporation will merge with and into CMS Bancorp,
immediately thereafter followed by the merger of CMS Bancorp with and into Putnam and the merger of the Bank with and into Putnam, with Putnam as the surviving bank (collectively, the Merger). The combined organization will be operated
under the name of Putnam County Savings Bank.
Upon effectiveness of the Merger, each share of CMS Bancorp common stock issued and outstanding
immediately prior to the effective time of the Merger shall be converted into the right to receive a cash payment of $13.25 per share and each option issued and outstanding immediately prior to the effective time of the Merger shall be cancelled and
converted into the right to receive a cash payment in an amount determined in the manner set forth in the Merger Agreement equal to the difference between $13.25 and the exercise price of the option.
7
In accordance with the terms of the Merger Agreement, CMS Bancorp and Bank and their advisors are not permitted
to solicit alternative acquisition proposals from third parties. The Merger Agreement provides that CMS Bancorp is required to pay to Putnam a termination fee equal to one million dollars ($1,000,000) in the event CMS Bancorp terminates the Merger
Agreement to accept an alternative acquisition proposal that is determined to be a Superior Proposal or CMS Bancorps Board otherwise fails to call and hold a shareholders meeting for approval of the Merger Agreement or recommend
that CMS Bancorps shareholders approve the Merger Agreement. In the event that either party commits willful conduct or gross negligence resulting in a breach of a representation or warranty or failure to perform or comply with a covenant or
agreement that leads to the termination of the Merger Agreement, the breaching party is liable to the non-breaching party for up to $350,000 of documented reasonable out-of-pocket costs and expenses.
The Merger Agreement was unanimously approved by CMS Bancorps Board of Directors. The Merger Agreement contains various conditions, and assuming
satisfaction or waiver of such conditions, it is currently expected that the Merger will be completed within the first half of calendar year 2015. The transactions contemplated by the Merger Agreement are subject to, among other things, approval of
the Merger Agreement by the shareholders of the Company, the receipt of requisite bank regulatory approvals, a provision that not more than 10% of CMS Bancorps shareholders express dissent to the Merger terms by invoking applicable state law
with respect to appraisal rights, and other customary conditions. Moreover, as noted above, in accordance with the terms of the Merger Agreement, all outstanding shares of CMS Bancorps preferred stock will be redeemed immediately prior to
closing of the Merger.
Each director and executive officer of CMS Bancorp as of the date of the Merger Agreement has entered into a voting and lockup
agreement with Putnam, pursuant to which each such person has agreed to vote in favor of approval of the Merger Agreement and related transactions, including the Merger, until such time as the Voting Agreement is terminated in accordance with its
terms. For additional information about the Merger Agreement with Putnam, see CMS Bancorps Current Report on Form 8-K filed with the SEC on September 25, 2014. Stockholders of CMS Bancorp will be asked to approve the Merger Agreement at a
special meeting to be held on February 12, 2015, or at any adjournment thereof.
3. Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X
and do not include information or footnotes necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (U.S.
GAAP). However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three months ended
December 31, 2014 are not necessarily indicative of the results which may be expected for the entire fiscal year. These consolidated financial statements should be read in conjunction with the Companys audited consolidated financial
statements and notes thereto which are in the Companys Annual Report for the fiscal year ended September 30, 2014, filed with the SEC on December 22, 2014, as amended in an Annual Report on Form 10-K/A filed with the SEC on
January 27, 2015.
4. Critical Accounting Policies
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. Managements ability to determine material estimates which are susceptible to significant change, relate to the
allowance for loan losses, the determination of other-than-temporary impairment on securities and the fair assessment of whether deferred taxes are more likely than not to be realized.
The Company follows 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. This guidance sets forth the period after the balance sheet date during which management of the reporting entity should evaluate
events or transactions that occur for potential recognition in the financial statements. This guidance 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 after December 31,
2014 and through the date these consolidated financial statements were issued.
5. Net Income per Share
Basic net income per share was computed by dividing the net income available to common stockholders by the weighted average number of shares
of common stock outstanding, adjusted for unearned shares of the Companys employee stock ownership plan, or ESOP. Stock options granted are considered common stock equivalents and are therefore considered in diluted net income per
share calculations, if dilutive, using the treasury stock method. None of the 186,479 stock options outstanding were anti-dilutive and therefore excluded from the computation of diluted net income per share for the three months ended
December 31, 2014. 185,491 of the 186,479 stock options outstanding were anti-dilutive and therefore excluded from the computation of diluted net income per share for the three months ended December 31, 2013. 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 income per share until they are committed to be released.
8
6. Retirement Plan Components of Net Periodic Pension Cost
The components of periodic pension expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(In thousands) |
|
Interest cost |
|
$ |
62 |
|
|
$ |
62 |
|
Expected return on plan assets |
|
|
(73 |
) |
|
|
(73 |
) |
Amortization of unrecognized loss |
|
|
23 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
12 |
|
|
$ |
12 |
|
|
|
|
|
|
|
|
|
|
7. Stock 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. The stock options and
restricted stock awarded under the Plans vest over a five year service period based on the anniversary of the grant date.
The Company recorded
compensation expense with respect to stock options of $10,000 and $10,000 during the three month periods ended December 31, 2014 and 2013, respectively. Unrecognized compensation expense associated with stock option grants as of
December 31, 2014 was $74,000.
The Company recorded compensation expense with respect to restricted stock of $8,000 and $9,000 during the three
month periods ended December 31, 2014 and 2013, respectively. Unrecognized compensation expense associated with grants of restricted stock as of December 31, 2014 was $48,000.
9
8. Securities
Securities available for sale as of December 31, 2014 and September 30, 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within five years |
|
$ |
4,997 |
|
|
$ |
|
|
|
$ |
25 |
|
|
$ |
4,972 |
|
Due after five but within ten years |
|
|
9,995 |
|
|
|
|
|
|
|
223 |
|
|
|
9,772 |
|
Due after ten years but within fifteen years |
|
|
5,000 |
|
|
|
|
|
|
|
40 |
|
|
|
4,960 |
|
Corporate bonds due after five years but within ten years |
|
|
4,359 |
|
|
|
74 |
|
|
|
|
|
|
|
4,433 |
|
Municipal bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after one but within five years |
|
|
1,277 |
|
|
|
9 |
|
|
|
|
|
|
|
1,286 |
|
Due after five years but within ten years |
|
|
2,434 |
|
|
|
59 |
|
|
|
7 |
|
|
|
2,486 |
|
Mortgage-backed securities |
|
|
11,279 |
|
|
|
175 |
|
|
|
61 |
|
|
|
11,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39,341 |
|
|
$ |
317 |
|
|
$ |
356 |
|
|
$ |
39,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within five years |
|
$ |
4,997 |
|
|
$ |
|
|
|
$ |
30 |
|
|
$ |
4,967 |
|
Due after five but within ten years |
|
|
9,995 |
|
|
|
|
|
|
|
241 |
|
|
|
9,754 |
|
Due after ten years but within fifteen years |
|
|
5,000 |
|
|
|
|
|
|
|
148 |
|
|
|
4,852 |
|
Corporate bonds due after five years but within ten years |
|
|
4,364 |
|
|
|
53 |
|
|
|
|
|
|
|
4,417 |
|
Municipal bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due within five years |
|
|
1,281 |
|
|
|
17 |
|
|
|
|
|
|
|
1,298 |
|
Due after five years but within ten years |
|
|
2,436 |
|
|
|
58 |
|
|
|
3 |
|
|
|
2,491 |
|
Mortgage-backed securities |
|
|
11,492 |
|
|
|
178 |
|
|
|
84 |
|
|
|
11,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
39,565 |
|
|
$ |
306 |
|
|
$ |
506 |
|
|
$ |
39,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The age of unrealized losses and fair value of related securities available for sale at December 31, 2014 and
September 30, 2014 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) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
|
$ |
|
|
|
$ |
|
|
|
$ |
19,704 |
|
|
$ |
288 |
|
|
$ |
19,704 |
|
|
$ |
288 |
|
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
1,318 |
|
|
|
7 |
|
|
|
1,318 |
|
|
|
7 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
3,635 |
|
|
|
61 |
|
|
|
3,635 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,657 |
|
|
$ |
356 |
|
|
$ |
24,657 |
|
|
$ |
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
|
$ |
|
|
|
$ |
|
|
|
$ |
19,573 |
|
|
$ |
419 |
|
|
$ |
19,573 |
|
|
$ |
419 |
|
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
1,324 |
|
|
|
3 |
|
|
|
1,324 |
|
|
|
3 |
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
3,743 |
|
|
|
84 |
|
|
|
3,743 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
24,640 |
|
|
$ |
506 |
|
|
$ |
24,640 |
|
|
$ |
506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
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.
The unrealized losses reported on securities at
December 31, 2014 relate to four securities issued by U.S. Government Agencies, one Municipal bond and one Mortgage-backed security. These unrealized losses were due to changes in interest rates. The unrealized losses reported on securities at
September 30, 2014 relate to four securities issued by U.S Government Agencies, one Municipal bond and one Mortgage-backed security. These unrealized losses were due to changes in interest rates.
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 three month periods ended December 31, 2014 or 2013, respectively.
9. Loans
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 date.
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 the obligation has been brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally nine months) and the ultimate
collectability of the total contractual principal and interest is no longer in doubt, in which case the loan is returned to an accrual status. The past due status of all classes of loans receivable is determined based on the contractual due dates
for loan payments.
Loan balances as of December 31, 2014 and September 30, 2014 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
September 30, 2014 |
|
|
|
(In thousands) |
|
Real estate: |
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
88,878 |
|
|
$ |
90,567 |
|
Multi-family |
|
|
28,620 |
|
|
|
28,659 |
|
Non-residential |
|
|
55,673 |
|
|
|
56,076 |
|
Construction |
|
|
292 |
|
|
|
174 |
|
Home equity and second mortgages |
|
|
8,563 |
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182,026 |
|
|
|
184,129 |
|
Commercial & Industrial |
|
|
36,495 |
|
|
|
40,346 |
|
Consumer |
|
|
49 |
|
|
|
55 |
|
Other |
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
|
|
219,568 |
|
|
|
224,530 |
|
Allowance for loan losses |
|
|
(660 |
) |
|
|
(740 |
) |
Net deferred loan origination fees and costs |
|
|
(17 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
218,891 |
|
|
$ |
223,786 |
|
|
|
|
|
|
|
|
|
|
An allowance for loan and lease losses (ALLL) is maintained to absorb losses from the loan portfolio. The
ALLL is based on managements continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and
anticipated loss experience, and the amount of non-performing loans.
The Banks methodology for determining the ALLL is based on the requirements of
the FASBs Accounting Standards Codification (ASC) Sub-Topic 450-20 for loans collectively evaluated for impairment, ASC Section 310-10-35 for loans individually evaluated for impairment, as well as the Interagency Policy
Statement on the Allowance for Loan and Lease Losses, and other bank regulatory guidance. The total of the two components represents the Banks ALLL.
11
Loans that are collectively evaluated for impairment are analyzed with general allowances being made as
appropriate. For general allowances, historical loss trends and Federal Deposit Insurance Corporation (FDIC) Uniform Bank Performance Report (UBPR) loss experience for the Banks Peer Group are used in the
estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.
The classes described below,
which are based on the Consolidated Report of Condition and Income (CALL Report) classifications, provide the starting point for the ALLL analysis. Management tracks the historical net charge-off activity at the reporting class level. A
historical charge-off factor is calculated utilizing one year to five year averages, depending on the trend of losses and other factors. In addition, the UBPR Peer Group charge-off factor is determined. The Bank uses Bank specific charge-off
experience adjusted for recent loss trends and economic conditions as well as Peer Group charge-off experience to establish its historical charge-off factor.
Pass rated credits are segregated from Classified credits for the application of qualitative factors. Management has identified a
number of additional qualitative factors that it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss
experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in
delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type,
industry and/or geographic standpoint.
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 reasonably 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 total of the two
components represents the Banks ALLL. 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, and 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.
The segments of the Banks loan portfolio are disaggregated to a level that allows management to monitor risk and performance. Loans secured by real
estate consist of one-to-four-family, multi-family, non-residential, construction and home equity and second mortgage loans. Substantially all of the commercial loans are secured and consumer loans are principally secured.
Management uses a nine category internal risk rating system to monitor the credit quality of the overall loan portfolio that generally follows bank regulatory
definitions. Pass graded loans are considered to have average or better than average risk characteristics. They demonstrate satisfactory debt service capacity and coverage along with a generally stable financial position. These loans are performing
in accordance with the terms of their loan agreement. The Watch category, a non-bank regulatory category, includes assets that, while performing, demonstrate above average risk through a pattern of declining earnings trends, strained cash flow,
increasing leverage, and/or weakening market fundamentals. The Special Mention category includes assets that are currently protected but exhibit potential credit weakness or a downward trend which, if not checked or corrected, will weaken the
Banks asset or inadequately protect the Banks position. Loans in the Substandard category have a well-defined weakness that jeopardizes the orderly liquidation of the debt. For loans in this category, normal repayment from the
borrower is in jeopardy and there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. All loans greater than 90 days past due are considered Substandard. Loans in the
Doubtful category have weaknesses inherent in those classified Substandard with the added provision that the weakness makes collection of debt in full, on the basis of current existing facts, conditions, and values, highly questionable and
improbable. The portion of any loan that represents a specific allocation of the allowance for loan losses is placed in the special valuation category. Loans that are deemed incapable of repayment where continuance as an active asset of the
Bank is not warranted are charged off as a Loss. The classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off the asset even though partial recovery may
be achieved in the future.
To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as
agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as delinquency,
bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Banks Senior Lending Officer is responsible for the timely and accurate risk rating of the loans in the portfolios at origination and on an
ongoing basis. The Bank has an experienced outsourced Loan Review function that on a quarterly basis, reviews and assesses loans within the portfolio and the adequacy of the Banks allowance for loan losses. Detailed reviews,
including plans for resolution, are performed on loans classified as Substandard or Doubtful on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate
consideration in the determination of the allowance.
12
Management evaluates individual loans in all of the segments for possible impairment if the loan is either in
nonaccrual status, or is risk rated Substandard or Doubtful. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest
payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrowers prior payment record, and the amount of any shortfall in relation to the principal and interest owed.
Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by
comparing the recorded investment in the loan to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loans effective interest rate; (b) the loans
observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need
and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Banks policy for recognizing interest income on impaired loans does not differ from its
overall policy for interest recognition. 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. All loans identified as impaired are evaluated independently. The Company does not aggregate such loans for evaluation purposes. A reserve for losses related to unfunded lending commitments is also maintained. This
reserve represents managements estimate of losses inherent in unfunded credit commitments.
13
The following table summarizes the primary segments of the loan portfolio, including net deferred loan
origination fees and costs, as of December 31, 2014 and September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually Evaluated for Impairment |
|
|
Collectively Evaluated for Impairment |
|
|
Total |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
5,713 |
|
|
$ |
83,158 |
|
|
$ |
88,871 |
|
Multi-family |
|
|
|
|
|
|
28,618 |
|
|
|
28,618 |
|
Non-residential |
|
|
527 |
|
|
|
55,139 |
|
|
|
55,666 |
|
Construction |
|
|
|
|
|
|
291 |
|
|
|
291 |
|
Home equity and second mortgages |
|
|
459 |
|
|
|
8,104 |
|
|
|
8,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,699 |
|
|
|
175,310 |
|
|
|
182,009 |
|
Commercial & Industrial |
|
|
4,976 |
|
|
|
31,519 |
|
|
|
36,495 |
|
Consumer |
|
|
|
|
|
|
49 |
|
|
|
49 |
|
Other |
|
|
|
|
|
|
998 |
|
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,675 |
|
|
$ |
207,876 |
|
|
$ |
219,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually Evaluated for Impairment |
|
|
Collectively Evaluated for Impairment |
|
|
Total |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
5,740 |
|
|
$ |
84,825 |
|
|
$ |
90,565 |
|
Multi-family |
|
|
|
|
|
|
28,658 |
|
|
|
28,658 |
|
Non-residential |
|
|
1,738 |
|
|
|
54,337 |
|
|
|
56,075 |
|
Construction |
|
|
|
|
|
|
174 |
|
|
|
174 |
|
Home equity and second mortgages |
|
|
374 |
|
|
|
8,279 |
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,852 |
|
|
|
176,273 |
|
|
|
184,125 |
|
Commercial & Industrial |
|
|
3,297 |
|
|
|
37,049 |
|
|
|
40,346 |
|
Consumer |
|
|
4 |
|
|
|
51 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
11,153 |
|
|
$ |
213,373 |
|
|
$ |
224,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
The following table presents impaired loans by class, segregated by those for which a specific allowance was
required and those for which a specific allowance was not necessary as of December 31, 2014 and September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans with Specific Allowance |
|
|
Impaired Loans with No Specific Allowance |
|
|
Total Impaired Loans |
|
|
|
Recorded Investment |
|
|
Related Allowance |
|
|
Recorded Investment |
|
|
Recorded Investment |
|
|
Unpaid Principal Balance |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
506 |
|
|
$ |
1 |
|
|
$ |
5,207 |
|
|
$ |
5,713 |
|
|
$ |
5,843 |
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-residential |
|
|
|
|
|
|
|
|
|
|
527 |
|
|
|
527 |
|
|
|
860 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages |
|
|
90 |
|
|
|
5 |
|
|
|
369 |
|
|
|
459 |
|
|
|
459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
596 |
|
|
|
6 |
|
|
|
6,103 |
|
|
|
6,699 |
|
|
|
7,162 |
|
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
4,976 |
|
|
|
4,976 |
|
|
|
4,976 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
596 |
|
|
$ |
6 |
|
|
$ |
11,079 |
|
|
$ |
11,675 |
|
|
$ |
12,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired Loans with Specific Allowance |
|
|
Impaired Loans with No Specific Allowance |
|
|
Total Impaired Loans |
|
|
|
Recorded Investment |
|
|
Related Allowance |
|
|
Recorded Investment |
|
|
Recorded Investment |
|
|
Unpaid Principal Balance |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,740 |
|
|
$ |
5,740 |
|
|
$ |
5,874 |
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-residential |
|
|
|
|
|
|
|
|
|
|
1,738 |
|
|
|
1,738 |
|
|
|
2,071 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity and second mortgages |
|
|
|
|
|
|
|
|
|
|
374 |
|
|
|
374 |
|
|
|
374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,852 |
|
|
|
7,852 |
|
|
|
8,319 |
|
Commercial & Industrial |
|
|
|
|
|
|
|
|
|
|
3,297 |
|
|
|
3,297 |
|
|
|
3,297 |
|
Consumer |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
11,149 |
|
|
$ |
11,153 |
|
|
$ |
11,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the average recorded investment in impaired loans and related interest income recognized for the
three month periods ended December 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to- four- family |
|
|
Home Equity and Second Mortgages |
|
|
Non- residential |
|
|
Commercial & Industrial |
|
|
Consumer |
|
|
Total |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average investment in impaired loans |
|
$ |
6,212 |
|
|
$ |
398 |
|
|
$ |
633 |
|
|
$ |
1,081 |
|
|
$ |
|
|
|
$ |
8,324 |
|
Interest income recognized on an accrual basis on impaired loans |
|
|
32 |
|
|
|
2 |
|
|
|
21 |
|
|
|
55 |
|
|
|
|
|
|
|
110 |
|
Interest income recognized on a cash basis on impaired loans |
|
|
11 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
One-to- four- family |
|
|
Home Equity and Second Mortgages |
|
|
Non- residential |
|
|
Commercial & Industrial |
|
|
Consumer |
|
|
Total |
|
|
|
(In thousands) |
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average investment in impaired loans |
|
$ |
6,579 |
|
|
$ |
433 |
|
|
|
707 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
7,719 |
|
Interest income recognized on an accrual basis on impaired loans |
|
|
21 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24 |
|
Interest income recognized on a cash basis on impaired loans |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
15
The following table presents the classes of the loan portfolio summarized by the aggregate Pass (including loans
graded Watch) and the classified ratings of Special Mention, Substandard and Doubtful within the internal risk rating system as of December 31, 2014 and September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Special Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
86,459 |
|
|
$ |
|
|
|
|
2,412 |
|
|
$ |
|
|
|
$ |
88,871 |
|
Multi-family |
|
|
28,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,618 |
|
Non-residential |
|
|
55,139 |
|
|
|
|
|
|
|
527 |
|
|
|
|
|
|
|
55,666 |
|
Construction |
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291 |
|
Home equity and second mortgages |
|
|
8,328 |
|
|
|
50 |
|
|
|
185 |
|
|
|
|
|
|
|
8,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
178,835 |
|
|
|
50 |
|
|
|
3,124 |
|
|
|
|
|
|
|
182,009 |
|
Commercial & Industrial |
|
|
30,972 |
|
|
|
547 |
|
|
|
4,976 |
|
|
|
|
|
|
|
36,495 |
|
Consumer |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
Other |
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
210,854 |
|
|
$ |
597 |
|
|
$ |
8,100 |
|
|
$ |
|
|
|
$ |
219,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Special Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
87,808 |
|
|
$ |
|
|
|
$ |
2,757 |
|
|
$ |
|
|
|
$ |
90,565 |
|
Multi-family |
|
|
28,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,658 |
|
Non-residential |
|
|
54,337 |
|
|
|
|
|
|
|
1,738 |
|
|
|
|
|
|
|
56,075 |
|
Construction |
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
Home equity and second mortgages |
|
|
8,417 |
|
|
|
139 |
|
|
|
97 |
|
|
|
|
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,394 |
|
|
|
139 |
|
|
|
4,592 |
|
|
|
|
|
|
|
184,125 |
|
Commercial & Industrial |
|
|
35,839 |
|
|
|
1,210 |
|
|
|
3,297 |
|
|
|
|
|
|
|
40,346 |
|
Consumer |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
215,284 |
|
|
$ |
1,349 |
|
|
$ |
7,889 |
|
|
$ |
4 |
|
|
$ |
224,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management further monitors the performance and credit quality of the loan portfolio by analyzing the delinquency aging of the
portfolio as determined by the length of time a recorded payment is past due.
16
The following table presents the classes of the loan portfolio summarized by the aging categories of performing
loans and nonaccrual loans as of December 31, 2014 and September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
30-59 Days Past Due |
|
|
60-89 Days Past Due |
|
|
90 Days or More Past Due and Accruing |
|
|
90 Days or More Past Due and Non- Accrual |
|
|
Total Past Total Due |
|
|
Total |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
86,164 |
|
|
$ |
113 |
|
|
$ |
581 |
|
|
$ |
|
|
|
$ |
2,013 |
|
|
$ |
2,707 |
|
|
$ |
88,871 |
|
Multi-family |
|
|
28,618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,618 |
|
Non-residential |
|
|
55,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,666 |
|
Construction |
|
|
291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
291 |
|
Home equity and second mortgages |
|
|
8,353 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
185 |
|
|
|
210 |
|
|
|
8,563 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,092 |
|
|
|
138 |
|
|
|
581 |
|
|
|
|
|
|
|
2,198 |
|
|
|
2,917 |
|
|
|
182,009 |
|
Commercial & Industrial |
|
|
36,495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,495 |
|
Consumer |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
Other |
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
216,634 |
|
|
$ |
138 |
|
|
$ |
581 |
|
|
$ |
|
|
|
$ |
2,198 |
|
|
$ |
2,917 |
|
|
$ |
219,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
30-59 Days Past Due |
|
|
60-89 Days Past Due |
|
|
90 Days or More Past Due and Accruing |
|
|
90 Days or More Past Due and Non- Accrual |
|
|
Total Past Due |
|
|
Total |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
88,304 |
|
|
$ |
240 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,021 |
|
|
$ |
2,261 |
|
|
$ |
90,565 |
|
Multi-family |
|
|
28,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,658 |
|
Non-residential |
|
|
56,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,075 |
|
Construction |
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
174 |
|
Home equity and second mortgages |
|
|
8,416 |
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
187 |
|
|
|
237 |
|
|
|
8,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
181,627 |
|
|
|
240 |
|
|
|
50 |
|
|
|
|
|
|
|
2,208 |
|
|
|
2,498 |
|
|
|
184,125 |
|
Commercial & Industrial |
|
|
39,678 |
|
|
|
511 |
|
|
|
|
|
|
|
|
|
|
|
157 |
|
|
|
668 |
|
|
|
40,346 |
|
Consumer |
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
4 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
221,356 |
|
|
$ |
751 |
|
|
$ |
50 |
|
|
$ |
4 |
|
|
$ |
2,365 |
|
|
$ |
3,170 |
|
|
$ |
224,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is not committed to lend additional funds on nonaccrual loans at December 31, 2014.
Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments
to the ALLL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL. Management utilizes an internally developed spreadsheet to track and apply the various components
of the allowance.
17
The following table summarizes the primary segments of the ALLL, segregated into the amount required for loans
individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2014 and September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL Balance |
|
|
Collectively Evaluated for Impairment |
|
|
Individually Evaluated for Impairment |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
257 |
|
|
$ |
256 |
|
|
$ |
1 |
|
Multi-family |
|
|
83 |
|
|
|
83 |
|
|
|
|
|
Non-residential |
|
|
189 |
|
|
|
189 |
|
|
|
|
|
Home equity and second mortgages |
|
|
27 |
|
|
|
22 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556 |
|
|
|
550 |
|
|
|
6 |
|
Commercial & Industrial |
|
|
100 |
|
|
|
100 |
|
|
|
|
|
Consumer |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
660 |
|
|
$ |
654 |
|
|
$ |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLL Balance |
|
|
Collectively Evaluated for Impairment |
|
|
Individually Evaluated for Impairment |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
257 |
|
|
$ |
257 |
|
|
$ |
|
|
Multi-family |
|
|
83 |
|
|
|
83 |
|
|
|
|
|
Non-residential |
|
|
266 |
|
|
|
266 |
|
|
|
|
|
Home equity and second mortgages |
|
|
26 |
|
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632 |
|
|
|
632 |
|
|
|
|
|
Commercial & Industrial |
|
|
100 |
|
|
|
100 |
|
|
|
|
|
Consumer |
|
|
8 |
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
740 |
|
|
$ |
736 |
|
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table summarizes activity in the primary segments of the ALLL for the three month periods ended
December 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2014 |
|
|
Charge- offs |
|
|
Recoveries |
|
|
Provision |
|
|
Balance December 31, 2014 |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
257 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
257 |
|
Multi-family |
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83 |
|
Non-residential |
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
(77 |
) |
|
|
189 |
|
Home equity and second mortgages |
|
|
26 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632 |
|
|
|
|
|
|
|
|
|
|
|
(76 |
) |
|
|
556 |
|
Commercial & Industrial |
|
|
100 |
|
|
|
(151 |
) |
|
|
|
|
|
|
151 |
|
|
|
100 |
|
Consumer |
|
|
8 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
740 |
|
|
$ |
(155 |
) |
|
$ |
|
|
|
$ |
75 |
|
|
$ |
660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2013 |
|
|
Charge- offs |
|
|
Recoveries |
|
|
Provision |
|
|
Balance December 31, 2013 |
|
|
|
(In thousands) |
|
December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
$ |
225 |
|
|
$ |
(44 |
) |
|
$ |
|
|
|
$ |
46 |
|
|
$ |
227 |
|
Multi-family |
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
(34 |
) |
|
|
14 |
|
Non-residential |
|
|
374 |
|
|
|
(324 |
) |
|
|
|
|
|
|
212 |
|
|
|
262 |
|
Construction |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
4 |
|
Home equity and second mortgages |
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
736 |
|
|
|
(368 |
) |
|
|
|
|
|
|
220 |
|
|
|
588 |
|
Commercial & Industrial |
|
|
187 |
|
|
|
(9 |
) |
|
|
|
|
|
|
(125 |
) |
|
|
53 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
923 |
|
|
$ |
(377 |
) |
|
$ |
|
|
|
$ |
100 |
|
|
$ |
646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A troubled debt restructuring (TDR) is a loan that has been modified whereby the Bank has agreed to make certain
concessions that would otherwise not be granted to a borrower experiencing or expected to experience financial difficulties in order to maximize the ultimate recovery of a loan. The types of concessions granted generally include, but are not limited
to interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal. In evaluating whether a restructuring constitutes a TDR, a creditor must separately conclude that the restructuring constitutes a
concession and the borrower is experiencing financial difficulties. The concessions granted on these loans consisted of interest rate reductions and/- or extensions of the loan term. The following table summarizes the TDR identified during the
quarter ended December 31, 2014 and 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Loans |
|
Recorded Investment Before Modification |
|
|
Recorded Investment After Modification |
|
|
|
(Dollars in thousands) |
|
Three Months Ended December 31, 2014 |
|
|
|
One-to-four-family |
|
1 |
|
$ |
98 |
|
|
$ |
98 |
|
Three Months Ended December 31, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four-family |
|
1 |
|
$ |
523 |
|
|
$ |
523 |
|
A default on a troubled debt restructured loan for purposes of disclosure occurs when a borrower is 90 days past due or a
foreclosure or repossession of the applicable collateral has occurred. During the three month period ended December 31, 2014, no defaults occurred on troubled debt restructured loans that were modified as a TDR within the previous 12 months.
There was one TDR default for the period ended December 31, 2013.
19
10. Fair Value Measurements and Fair Value of Financial Instruments
U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
are as follows:
|
|
|
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. |
An assets or liabilitys level within the fair value hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are
not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These
adjustments may include amounts to reflect counterparty credit quality and counterparty creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Companys
valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective value or reflective of future values.
While management believes the Companys valuation methodologies are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. 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 basis, the fair value measurements by level within the fair value hierarchy at December 31, 2014 and September 30, 2014
are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Fair Value |
|
|
(Level 1) Quoted Prices in Active Markets for Identical Assets |
|
|
(Level 2) Significant Other Observable Inputs |
|
|
(Level 3) Significant Unobservable Inputs |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
|
$ |
19,704 |
|
|
$ |
|
|
|
$ |
19,704 |
|
|
$ |
|
|
Corporate bonds |
|
|
4,433 |
|
|
|
|
|
|
|
4,433 |
|
|
|
|
|
Municipal bonds |
|
|
3,772 |
|
|
|
|
|
|
|
3,772 |
|
|
|
|
|
Mortgage-backed securities |
|
|
11,393 |
|
|
|
|
|
|
|
11,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Fair Value |
|
|
(Level 1) Quoted Prices in Active Markets for Identical Assets |
|
|
(Level 2) Significant Other Observable Inputs |
|
|
(Level 3) Significant Unobservable Inputs |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Agencies |
|
$ |
19,573 |
|
|
$ |
|
|
|
$ |
19,573 |
|
|
$ |
|
|
Corporate bonds |
|
|
4,417 |
|
|
|
|
|
|
|
4,417 |
|
|
|
|
|
Municipal bonds |
|
|
3,789 |
|
|
|
|
|
|
|
3,789 |
|
|
|
|
|
Mortgage-backed securities |
|
|
11,586 |
|
|
|
|
|
|
|
11,586 |
|
|
|
|
|
20
For financial assets measured at fair value on a non-recurring basis, the fair value measurement by level within
the fair value hierarchy are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
(Level 1) Quoted Prices in Active Markets for Identical Assets |
|
|
(Level 2) Significant Other Observable Inputs |
|
|
(Level 3) Significant Unobservable Inputs |
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
590 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
1,908 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis
and for which Level 3 inputs were used to determine fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value estimate |
|
|
Valuation techniques |
|
Unobservable input |
|
Range |
|
Weighted average |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
590 |
|
|
Appraisals (1) |
|
Liquidation expenses (2) |
|
2.58% to 3.25% |
|
|
2.68 |
% |
|
|
|
|
|
|
|
|
Fair Value estimate |
|
|
Valuation techniques |
|
Unobservable input |
|
Range |
|
Weighted average |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
1,908 |
|
|
Appraisals (1) |
|
Liquidation expenses (2) |
|
4.02% to 5.67% |
|
|
4.84 |
% |
Other real estate owned |
|
|
183 |
|
|
Appraisals (1) |
|
Liquidation expenses (2) |
|
6.0 % |
|
|
6.0 |
% |
(Dollars in thousands)
1) |
Fair value is generally determined through discounted independent appraisals of the underlying collateral less any loan related liquidation expenses. |
2) |
Includes estimated liquidation expenses by borrower. |
The following methods and assumptions were used to
estimate the fair value of each class of financial instruments at December 31, 2014 and September 30, 2014.
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 are based on quoted market prices or dealer prices (Level 1), if available. If quoted market prices are
not available, fair values are 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).
21
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 estimated fair value in the aggregate, determined based on actual amounts subsequently realized
after the balance sheet date, or estimates of amounts to be subsequently realized, based on actual amounts realized for similar loans.
Deposits. The fair value of demand, savings and club accounts is equal to the amount payable on demand at the reporting date. The fair
value of certificates of deposit 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.
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 December 31, 2014 and September 30, 2014.
The carrying amounts and estimated fair values of financial instruments at December 31, 2014 and September 30, 2014 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Carrying Amount |
|
|
Fair Value |
|
|
(Level 1) Quoted Prices in Active Markets for Identical Assets |
|
|
(Level 2) Significant Other Observable Inputs |
|
|
(Level 3) Significant Unobservable Inputs |
|
|
|
(In thousands) |
|
December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
2,405 |
|
|
$ |
2,405 |
|
|
$ |
2,405 |
|
|
$ |
|
|
|
$ |
|
|
Securities available-for-sale |
|
|
39,302 |
|
|
|
39,302 |
|
|
|
|
|
|
|
39,302 |
|
|
|
|
|
Loans receivable |
|
|
218,891 |
|
|
|
220,870 |
|
|
|
|
|
|
|
|
|
|
|
220,870 |
|
Accrued interest receivable |
|
|
992 |
|
|
|
992 |
|
|
|
|
|
|
|
992 |
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
212,355 |
|
|
|
203,232 |
|
|
|
|
|
|
|
203,232 |
|
|
|
|
|
FHLB-NY advances |
|
|
26,905 |
|
|
|
26,909 |
|
|
|
|
|
|
|
26,909 |
|
|
|
|
|
Accrued interest payable |
|
|
57 |
|
|
|
57 |
|
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Carrying Amount |
|
|
Fair Value |
|
|
(Level 1) Quoted Prices in Active Markets for Identical Assets |
|
|
(Level 2) Significant Other Observable Inputs |
|
|
(Level 3) Significant Unobservable Inputs |
|
|
|
(In thousands) |
|
September 30, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,147 |
|
|
$ |
3,147 |
|
|
$ |
3,147 |
|
|
$ |
|
|
|
$ |
|
|
Securities available-for-sale |
|
|
39,365 |
|
|
|
39,365 |
|
|
|
|
|
|
|
39,365 |
|
|
|
|
|
Loans held for sale |
|
|
349 |
|
|
|
349 |
|
|
|
|
|
|
|
349 |
|
|
|
|
|
Loans receivable |
|
|
223,786 |
|
|
|
221,189 |
|
|
|
|
|
|
|
|
|
|
|
221,189 |
|
Accrued interest receivable |
|
|
925 |
|
|
|
925 |
|
|
|
|
|
|
|
925 |
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
226,782 |
|
|
|
217,765 |
|
|
|
|
|
|
|
217,765 |
|
|
|
|
|
FHLB-NY advances |
|
|
18,950 |
|
|
|
20,976 |
|
|
|
|
|
|
|
20,976 |
|
|
|
|
|
Accrued interest payable |
|
|
109 |
|
|
|
109 |
|
|
|
|
|
|
|
109 |
|
|
|
|
|
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
22
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.
11. 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 December 31, 2014 and
September 30, 2014. 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 its assessment of the ultimate recoverability of the investments cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of 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, (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB,
and (4) the liquidity position of the FHLB. Management believes no impairment charge related to the FHLB stock was necessary as of December 31, 2014 and September 30, 2014.
12. Recent Accounting Pronouncements
In January 2014, the FASB issued ASU 2014-04 ReceivablesTroubled Debt Restructurings by Creditors (Subtopic 310-40)
Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in-substance repossession or foreclosure occurs, and a creditor is considered to have received
physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the
borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and
annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the
process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after
December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. Under the modified retrospective transition method, an entity should apply
the amendments in this Update by means of a cumulative-effect adjustment to residential consumer mortgage loans and foreclosed residential real estate properties existing as of the beginning of the annual period for which the amendments are
effective. Assets reclassified from real estate to loans as a result of adopting the amendments in this Update should be measured at the carrying value of the real estate at the date of adoption. Assets reclassified from loans to real estate as a
result of adopting the amendments in this Update should be measured at the lower of the net amount of loan receivable or the real estates fair value less costs to sell at the time of adoption. For prospective transition, an entity should apply
the amendments in this Update to all instances of an entity receiving physical possession of residential real estate property collateralized by consumer mortgage loans that occur after the date of adoption. Early adoption is permitted. This update
is not expected to have a material effect on the financial statements of the Company.
13. Commitments and Contingencies
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of
its customers. These financial instruments primarily include commitments to extend credit. These financial instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of
financial condition. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Companys exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
23
14. Subsequent Events
With respect to the litigation between CMS Bancorp and Customers Bancorp, Inc., as CMS Bancorp announced on January 13, 2015 in a Form
8-K and definitive additional proxy materials filed with the SEC, on January 8, 2015, the parties have resolved the litigation on mutually acceptable terms.
As announced on February 2, 2015 in definitive additional proxy materials filed with the SEC, CMS Bancorp was a party to a settlement agreement in the
form of a Memorandum of Understanding dated January 30, 2015, which resolved a purported class action lawsuit that was filed in the Court of Chancery of the State of Delaware on January 14, 2015.
24
Item 2. - Managements Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
This Form 10-Q 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 1A Risk Factors of our Form 10-K for the year ended
September 30, 2014 which was filed with the SEC on December 22, 2014, which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:
|
|
|
risks relating to the pending merger with Putnam County Savings Bank; |
|
|
|
our allowance for loan losses may not be sufficient to cover actual loan losses; |
|
|
|
changes in interest rates; |
|
|
|
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; |
|
|
|
changes in the real estate market or local economy; |
|
|
|
our ability to retain our executive officers and other key personnel; |
|
|
|
competition in our primary market area; |
|
|
|
risk of noncompliance with laws and regulations, including changes in laws and regulations to which we are subject; |
|
|
|
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; |
|
|
|
the low trading volume in our stock; |
|
|
|
recent developments affecting the financial markets, including the actual and threatened downgrade of U.S. government securities; and |
|
|
|
risks related to use of technology and cybersecurity. |
Forward-looking statements speak only as of the date
they are made. Any or all of our forward-looking statements in this Report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and
uncertainties. Consequently, no forward-looking statement can be guaranteed. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the
occurrence of anticipated or unanticipated events.
General
The results of operations of the Company 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, which are primarily conducted through the Bank, are
principally concentrated in Westchester County, New York, and its operations and earnings are influenced by the economics of the communities 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.
As the Company
announced on January 16, 2015 in a Form 8-K and additional proxy materials filed with the SEC, on January 13, 2015, the Companys Management and Audit Committee received a letter dated January 12, 2015 from the Companys
independent accounting firm, BDO USA, LLP (BDO), which letter concluded that the Company had a material weakness in its internal control over financial reporting related to an audit adjustment of $101,000 in connection with unaccrued
legal fees at September 30, 2014. The unaccrued fees were identified after September 30, 2014 based on bills submitted by the Companys outside legal counsel to the Company during the period covered by this report.
The Company attributed the material weakness in part to the sudden and unexpected death of the Companys former Chief Financial Officer in August 2014,
which management concluded and BDO agreed was an event that led to a loss of institutional knowledge that was a significant obstacle to overcome. The Company recorded the aforementioned $101,000 adjustment and such adjustment
was reflected in our financial statements contained in the Annual Report on Form 10-K for the fiscal year ended September 30, 2014, which we filed with the SEC on December 22, 2014. The Company hired a new Chief Financial Officer in
October 2014 and has implemented enhancements to its internal controls to ensure that the material weakness has been fully remediated.
25
On January 27, 2015, the Company filed an amendment to its Annual Report on Form 10-K for the fiscal year
ended September 30, 2014 to amend Item 9A, Controls and Procedures, by stating that its internal control over financial reporting was not effective at September 30, 2014 as a result of the BDO determination and disclosing
in further detail the steps management has taken to remediate the material weakness. Such changes and remedial actions taken during the period covered by this report and managements evaluation of the effectiveness of its internal control over
financial reporting as of the end of the period covered by this report are addressed below in Part I, Item 4, Controls and Procedures.
Executive Overview
The purpose of this overview is to
provide a summary of the items management focuses on when evaluating the condition of the Company and our success in implementing our business and shareholder value strategies. The Companys business strategy is to operate the Bank as a
well-capitalized, profitable and community-oriented savings bank. The profitability of the Company depends primarily on its level of net interest income, which is the difference between interest earned on the Companys interest-earning assets
and the interest paid on interest-bearing liabilities. 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. In recent periods, interest rates have declined to historically low levels and 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. 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. Despite the challenges of the ever-changing banking and regulatory environment, we have continued to grow our assets
through increases in our local deposits, particularly non-interest bearing commercial demand deposits and higher levels of non-residential loan originations. In order to grow and diversify, the Company seeks to continue to increase its multi-family,
non-residential, construction, home equity and commercial loans by targeting these markets in Westchester County and the surrounding areas as a means to increase the yield on and diversify its loan portfolio as well as build transactional deposit
account relationships. In addition, depending on market conditions, the Company may 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. As a result of these ongoing efforts, we were able to increase our net interest income by maximizing the yield on interest earning assets while minimizing the cost of our interest bearing liabilities through our consistent
in-depth market analysis and constant oversight of our liquidity and cash flow position.
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 earnings.
Pending Merger Agreement with Putnam County Savings Bank
On September 25, 2014, CMS Bancorp and the Bank entered into an Agreement and Plan of Merger dated as of September 25, 2014 (Merger
Agreement) by and among Putnam County Savings Bank, a New York mutual savings bank (Putnam), Putnam County Acquisition Corporation, (Acquisition Corporation), CMS Bancorp and CMS Bank. Under the terms of the Merger
Agreement, and subject to the terms and conditions thereof, Putnam will acquire CMS Bancorp and the Bank through a series of transactions by which the Acquisition Corporation will merge with and into CMS Bancorp, immediately thereafter followed by
the merger of CMS Bancorp with and into Putnam and the merger of the Bank with and into Putnam, with Putnam as the surviving bank (collectively, the Merger). The combined organization will be operated under the name of Putnam
County Savings Bank.
Upon effectiveness of the Merger, each share of CMS Bancorp common stock issued and outstanding immediately prior to the
effective time of the Merger shall be converted into the right to receive a cash payment of $13.25 per share and each option issued and outstanding immediately prior to the effective time of the Merger shall be cancelled and converted into the right
to receive a cash payment in an amount determined in the manner set forth in the Merger Agreement equal to the difference between $13.25 and the exercise price of the option.
In accordance with the terms of the Merger Agreement, CMS Bancorp and Bank and their advisors are not permitted to solicit alternative acquisition proposals
from third parties. The Merger Agreement provides that CMS Bancorp is required to pay to Putnam a termination fee equal to one million dollars ($1,000,000) in the event CMS Bancorp terminates the Merger Agreement to accept an alternative acquisition
proposal that is determined to be a Superior Proposal or CMS Bancorps Board otherwise fails to call and hold a shareholders meeting for approval of the Merger Agreement or recommend that CMS Bancorps shareholders approve the
Merger Agreement. In the event that either party commits willful conduct or gross negligence resulting in a breach of a representation or warranty or failure to perform or comply with a covenant or agreement that leads to the termination of the
Merger Agreement, the breaching party is liable to the non-breaching party for up to $350,000 of documented reasonable out-of-pocket costs and expenses.
The Merger Agreement was unanimously approved by CMS Bancorps Board of Directors. The Merger Agreement contains various conditions, and assuming
satisfaction or waiver of such conditions, it is currently expected that the Merger will be completed within the first half of calendar year 2015. The transactions contemplated by the Merger Agreement are subject to, among other things, approval of
26
the Merger Agreement by the shareholders of the Company, the receipt of requisite bank regulatory approvals, a provision that not more than 10% of CMS Bancorps shareholders express dissent
to the Merger terms by invoking applicable state law with respect to appraisal rights, and other customary conditions. In accordance with the terms of the Merger Agreement, all outstanding shares of CMS Bancorps preferred stock will be
redeemed immediately prior to closing of the Merger.
Each director and executive officer of CMS Bancorp as of the date of the Merger Agreement has
entered into a voting and lock-up agreement with Putnam, pursuant to which each such person has agreed to vote in favor of approval of the Merger Agreement and related transactions, including the Merger, until such time as the Voting Agreement is
terminated in accordance with its terms. For additional information about the Merger Agreement with Putnam, see CMS Bancorps Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (SEC) on
September 25, 2014. Stockholders of CMS Bancorp will be asked to approve the Merger Agreement at a special meeting to be held on February 12, 2015, or at any adjournment thereof.
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 complements its existing commitment to high quality customer service.
Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act)
All financial institutions, including the Company and the Bank, continue to experience the
impact of major financial reform legislation, known as the Dodd-Frank Act, that was signed into law by the President on July 21, 2010. Among other things, the Dodd-Frank Act impacts the rules governing the provision of consumer financial
products and services, and implementation of the many requirements of the legislation requires new mandatory and discretionary rulemakings by numerous federal regulatory agencies over the next several years. Many of the provisions of the Dodd-Frank
Act affecting the Company and Bank have effective dates ranging from immediately upon enactment of the legislation to several years following enactment of the Dodd-Frank Act.
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 (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 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 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 estimates of future taxable income, which is subject to revision upon receipt of updated
information.
Management believes that the allowance for loan losses represents its best estimate of losses known and inherent in the loan portfolio that
are both probable and reasonable to estimate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in market and economic conditions in the
Companys market area. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Companys allowance for loan losses. Such agencies may require the Company to recognize additions to
the allowance for loan losses based on their judgments about information available to them at the time of their examination. Managements assessment as to the amount of deferred tax assets that are more likely than not to be realized is based
upon future taxable income, which is subject to revision upon receipt of updated information.
27
Comparison of Financial Condition at December 31, 2014 to September 30, 2014
Total assets decreased by $5.5 million, or 2.01%, to $267.8 million at December 31, 2014 from $273.3 million at September 30, 2014. Increases in
advances from the FHLB funded decreases in loan balances and decreases in retail and CDARS deposits.
Loans receivable were $218.9 million and $223.8
million at December 31, 2014 and September 30, 2014, respectively, representing a decrease of $4.9 million or 2.19 %. The decline in loans resulted principally from decreases in 1-4 Family first lien loans and Commercial and Industrial
loans. As of December 31, 2014 and September 30, 2014, the Bank had $2.2 million and $2.4 million of non-performing loans, respectively, which have been placed on non-accrual status. At December 31, 2014 and September 30, 2014,
the Bank had $11.7 million and $11.2 million of loans classified as impaired. At December 31, 2014, two impaired loans required specific loss allowances of $6,000. At September 30, 2014, one impaired loan required a specific loss allowance
of $4,000. The impaired loans were primarily the result of difficult general economic conditions, increased unemployment and declines in the local real estate market in prior years. As of December 31, 2014 and September 30, 2014, the
allowance for loan losses was 0.30% and 0.33% of loans outstanding, respectively. The allowance for loan losses contains two components; the specific allowance for impaired loans individually evaluated, and the allowance for loans collectively
evaluated for impairment. The net decrease in the allowance of $80,000 in the three months ended December 31, 2014 was the result of loan write-offs of $155,000 and the addition in the provision for loan losses of $75,000. The allowance
allocation, or loss percentages are based on historical charge-offs, adjusted for the trend of losses, current economic conditions including unemployment, real estate markets and other factors. Allowance allocation percentages can also be adjusted
for trends as evidenced by the FDIC Uniform Bank Performance Report loss experience for the Banks Peer Group. As a result of decreases in actual loan losses in the proceeding periods, changes in the mix and volume of the loan portfolio,
changing economic conditions, unemployment trends, and changing real estate values in the Banks primary market area, the allowance declined from September 30, 2014 to December 31, 2014.
Deposits decreased by $14.4 million, or 6.4%, from $226.8 million as of September 30, 2014 to $212.4 million as of December 31, 2014. The Bank
participates in the Certificate of Deposit Account Registry Service, or CDARS network. Decreases in retail deposits of $5.9 million, net of a decrease in CDARS deposits of $8.5 million, accounted for the change. Decreases in retail
deposits were normal seasonal withdrawals of which 80% or $4.7 million of these deposits were restored by mid-January 2015. Under the CDARS network, the Bank can transfer deposits into the network (a one way sell transaction), request that the
network deposit funds at the Bank (a one way buy transaction), or deposit funds into the network and receive an equal amount of deposits from the network (a reciprocal transfer). The network provides the Bank with an investment vehicle in the case
of a one way sell, a liquidity or funding source in the case of a one way buy and the ability to access additional FDIC insurance for customers in the case of a reciprocal transfer. The Bank had $9.7 million and $18.2 million, respectively, of CDARS
deposits as of December 31, 2014 and September 30, 2014 and otherwise had no brokered deposits as of December 31, 2014 and September 30, 2014.
Stockholders equity increased by $165,000 from September 30, 2014 to December 31, 2014 as a result of net income of $68,000, additions to
equity resulting from accounting for stock-based compensation and the Companys ESOP, and other comprehensive income of $84,000, net of dividends on preferred stock of $23,000. The other comprehensive income in the three months ended
December 31, 2014 resulted primarily from the decrease in unrealized losses on available for sale securities due to changes in market interest rates.
Comparison of Operating Results for the Three Months Ended December 31, 2014 and 2013
General. The Company recorded net income of $68,000 for the three months ended December 31, 2014, compared to net income of $211,000 for the three
months ended December 31, 2013. Net income per common share was $0.03 in the three months ended December 31, 2014 compared to $0.11 in the three months ended December 31, 2013. The change was primarily due to lower gains on loan sales
due to market conditions in the three months ended December 31, 2014 compared to 2013 and an increase in non-interest expenses, primarily in professional fees. Net Income attributable to common shareholders in the three months ended
December 31, 2014 also reflected a dividend on preferred stock of $23,000, same as in the three months ended December 31, 2013.
28
Average Balances, Interest and Average Yields/Costs. The following table sets forth certain information
relating to the Companys average balance sheets and reflects the average annual yield on interest-earning assets and average annual cost of interest-bearing liabilities, interest earned and interest paid for the periods indicated. Such yields
and costs are derived by dividing annualized income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the
periods indicated. The average balances for loans are net of allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
(Dollars in thousands) |
|
|
|
Average Balance |
|
|
Interest |
|
|
Yield/ Cost |
|
|
Average Balance |
|
|
Interest |
|
|
Yield/ Cost |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable(1) |
|
$ |
221,469 |
|
|
|
2,608 |
|
|
|
4.71 |
% |
|
$ |
210,980 |
|
|
$ |
2,587 |
|
|
|
4.90 |
% |
Securities(2) |
|
|
39,269 |
|
|
|
184 |
|
|
|
1.87 |
% |
|
|
40,125 |
|
|
|
182 |
|
|
|
1.81 |
% |
Other interest-earning assets(3) |
|
|
4,069 |
|
|
|
14 |
|
|
|
1.38 |
% |
|
|
2,617 |
|
|
|
16 |
|
|
|
2.45 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
264,807 |
|
|
|
2,806 |
|
|
|
4.24 |
% |
|
|
253,722 |
|
|
|
2,785 |
|
|
|
4.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-earning assets |
|
|
6,615 |
|
|
|
|
|
|
|
|
|
|
|
6,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
271,422 |
|
|
|
|
|
|
|
|
|
|
$ |
259,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
44,501 |
|
|
|
36 |
|
|
|
0.32 |
% |
|
$ |
48,549 |
|
|
|
36 |
|
|
|
0.30 |
% |
Savings and club accounts |
|
|
44,159 |
|
|
|
28 |
|
|
|
0.25 |
% |
|
|
43,620 |
|
|
|
28 |
|
|
|
0.26 |
% |
Certificates of deposit |
|
|
96,283 |
|
|
|
317 |
|
|
|
1.32 |
% |
|
|
92,761 |
|
|
|
295 |
|
|
|
1.27 |
% |
Borrowed money(4) |
|
|
27,707 |
|
|
|
68 |
|
|
|
0.98 |
% |
|
|
23,166 |
|
|
|
187 |
|
|
|
3.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
212,650 |
|
|
|
449 |
|
|
|
0.84 |
% |
|
|
208,096 |
|
|
|
546 |
|
|
|
1.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest-bearing deposits |
|
|
32,784 |
|
|
|
|
|
|
|
|
|
|
|
27,534 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
2,457 |
|
|
|
|
|
|
|
|
|
|
|
1,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
247,891 |
|
|
|
|
|
|
|
|
|
|
|
237,359 |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
23,531 |
|
|
|
|
|
|
|
|
|
|
|
22,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
271,422 |
|
|
|
|
|
|
|
|
|
|
$ |
259,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread |
|
|
|
|
|
$ |
2,357 |
|
|
|
3.40 |
% |
|
|
|
|
|
$ |
2,239 |
|
|
|
3.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets/net interest margin |
|
$ |
52,157 |
|
|
|
|
|
|
|
3.56 |
% |
|
$ |
45,626 |
|
|
|
|
|
|
|
3.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
|
|
1.25x |
|
|
|
|
|
|
|
|
|
|
|
1.22x |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Net of allowance for loan losses and net deferred costs and fees. |
(2) |
Available for sale securities included at fair value. |
(3) |
Includes interest-earning cash equivalents, FHLB-NY stock and loans held for sale, which are held for a short period of time. |
(4) |
Includes mortgage escrow funds and FHLB-NY advances. |
Interest Income. Interest income of $2.8 million
for the three months ended December 31, 2014, was $21,000 higher than the three months ended December 31, 2013 which was also $2.8 million. The increase in interest income was primarily due to an increase of $21,000 in interest from loans.
Interest income from loans increased by $21,000 in the three months ended December 31, 2014 compared to the three months ended December 31,
2013. The increase was due to a $10.5 million, or 5.0%, increase in the average balance of loans from $211.0 million in the three months ended December 31, 2013 to $221.5 million in the three months ended December 31, 2014, partially
offset by a 19 basis point decrease in the average interest rate earned on those loans. The increase in average loan balances includes loans in the multi-family, commercial real estate/nonresidential properties and commercial and industrial loan
categories. The decrease in the average yield resulted principally from lower market interest rates. The Company continues to sell a portion of conventional one-to-four-family residential mortgage originations, although to a far lesser extent than
in prior quarters, due to a decreased demand for the purchase of these loans in the secondary market. Higher loan volume increased interest income by $129,000, while the effect of lower interest rates (decreased) interest income by $108,000.
29
Interest income from securities increased by $2,000 to $184,000 as a result of slightly lower average balances in
the three months ended December 31, 2014 compared to the three months ended December 31, 2013, while yields remained low on the securities portfolio. Other interest-earning assets consist of cash equivalents, FHLB stock and loans
originated for resale. Interest on these assets declined by $2,000 in the three months ended December 31, 2014 compared to the three months ended December 31, 2013, principally due to lower interest.
Overall declines in interest rates reduced the average interest rate on interest-earning assets from 4.39 % in the quarter ended December 31, 2013
to 4.24 % in the quarter ended December 31, 2014. Of the $21,000 increase in interest income in the three months ended December 31, 2014 compared to the three months ended December 31, 2013, higher average balances of
interest-earning assets caused an increase of $134,000 in interest income, while lower interest rates caused a decrease in interest income of $113,000.
Interest Expense. Interest expense decreased by $97,000 in the three months ended December 31, 2014 compared to the three months ended
December 31, 2013. An increase in average balances of interest bearing-liabilities in 2014 was offset by a significant decrease in the cost of FHLB long-term borrowings, which reduced total interest expense by $97,000.
Rate/Volume Analysis. The following table analyzes the dollar amount of changes in interest income and interest expense for major components of
interest-earning assets and interest-bearing liabilities. It shows the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates. The effect of a change in volume is
measured by applying the average rate during the first period to the volume change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first
period. Changes attributable to both rate and volume that cannot be segregated have been allocated proportionately to the absolute value of the change due to volume and the change due to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December, 2014 |
|
|
|
Compared to |
|
|
|
Three Months Ended December, 2013 |
|
|
|
(In thousands) |
|
|
|
Volume |
|
|
Rate |
|
|
Net |
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
129 |
|
|
|
(108 |
) |
|
$ |
21 |
|
Securities |
|
|
(4 |
) |
|
|
6 |
|
|
|
2 |
|
Other interest-earning assets |
|
|
9 |
|
|
|
(11 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
134 |
|
|
|
(113 |
) |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
(3 |
) |
|
|
3 |
|
|
|
|
|
Savings and club accounts |
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
|
11 |
|
|
|
11 |
|
|
|
22 |
|
Borrowed money |
|
|
37 |
|
|
|
(156 |
) |
|
|
(119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
45 |
|
|
|
(142 |
) |
|
|
(97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
$ |
89 |
|
|
$ |
29 |
|
|
$ |
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income. Net interest income increased $118,000, or 5.3 %, to $2.3 million for the three months ended
December 31, 2014 compared to the three months ended December 31, 2013. The increase in net interest income was primarily attributable to higher balances of average interest-earning assets, net of lower yields on those assets, changes in
the mix of interest-bearing liabilities, and lower interest rates on those liabilities.
30
Provision for Loan Losses.
As of December 31, 2014 and September 30, 2014, the Bank had $2.2 million and $2.4 million of non-performing loans, respectively, which have been
placed on non-accrual status. At December 31, 2014 and September 30, 2014, the Bank had $11.7 million and $11.2 million of loans classified as impaired. At December 31, 2014 and September 30, 2014, two loans in the quarter ended
December 31, 2014 and one loan in the quarter ended September 30, 2014 each required a specific loan allowance, the total specific allowance amounts were $6,000 and $4000, for each period respectively. The impaired loans were primarily the
result of difficult general economic conditions and persistent local area unemployment. As of December 31, 2014 and September 30, 2014, the allowance for loan losses was 0.30% and 0.33% of loans outstanding, respectively. The allowance for
loan losses contains two components; the specific allowance for impaired loans individually evaluated, and the allowance for loans collectively evaluated for impairment. As referenced above, specific loan loss allowances were required for loans
individually evaluated for impairment at December 31, 2014 and September 30, 2014, in total amounts of $6,000 and $4,000, respectively. The allowance for loans collectively evaluated for impairment was $654,000 at December 31, 2014
compared to $736,000 at September 30, 2014. The (decrease) of $80,000 was the result of loan principal write -offs of $155,000 in the three months ended December 31, 2014, net of an increase in the provision for loan losses of $75,000. The
allowance allocation, or loss percentages are based on historical charge offs, adjusted for the trend of losses, current economic conditions including unemployment, real estate markets and other factors. Allowance allocation percentages can also be
adjusted for trends as evidenced by the FDIC Uniform Bank Performance Report loss experience for the Banks Peer Group. As a result of changes in the expected recovery of non-performing loans and in the mix and volume of the loan portfolio,
economic conditions, unemployment, changes in real estate values in the Banks primary market area, and an analysis commercial real estate cash flows, $75,000 and $100,000 was provided for loan losses in the three month periods ended
December 31, 2014 and 2013, 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 $66,000 in the three months ended December 31, 2014 was lower than the $84,000 in the comparable 2013
period primarily as a result of lower gains on sale of loans due to market conditions in the three months ended December 31, 2014 compared to the comparable 2013 period.
Non-interest Expenses. Non-interest expenses increased by $367,000 for the three months ended December 31, 2014, compared to the comparable prior
year period. One component of non-interest expense, professional fees related to legal services in connection with pending legal matters and the merger transaction with Putnam County Savings Bank accounted for $203,000 of the increase.
Income Tax Expense. The income tax expense was $35,000 in the three months ended December 31, 2014 compared to $134,000 in the comparable 2013
period. Income tax expense is recorded based on pretax income at the statutory rate for federal tax purposes, less the effect of state income tax provisions and the higher of the effective rate or minimum tax rate for state purposes. The effective
tax rate in the three months ended December 31, 2014 and 2013 was different than the statutory rate as a result of certain non-taxable income and expense items.
Management of Market Risk
As a financial institution,
the Companys primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a significant portion of its assets and liabilities. Fluctuations
in interest rates will also affect the market value of interest-earning assets and liabilities, other than those which possess a short-term maturity. Interest rates are highly sensitive to factors that are beyond the Companys control,
including general economic conditions, inflation, changes in the slope of the interest rate yield curve, monetary and fiscal policies of the federal government and the regulatory policies of government authorities. Due to the nature of the
Companys operations, it is not subject to foreign currency exchange or commodity price risk. Instead, the Companys loan portfolio, concentrated in Westchester County, New York, is subject to the risks associated with the economic
conditions prevailing in its market area.
The primary goals of the Companys interest rate management strategy are to determine the appropriate
level of risk given the business strategy and then manage that risk so as to reduce the exposure of the Companys net interest income to fluctuations in interest rates. Historically, the Companys lending activities have been dominated by
one-to-four family real estate mortgage loans, and in more recent periods, such activities have included increases in non-residential real estate mortgage loans, multi-family and secured commercial loans. The primary source of funds has been
deposits, FHLB borrowings, CDARS transactions and brokered certificates of deposit, 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, selling most of the one-to-four family mortgage
originations in the secondary market and focusing on investments with short and intermediate term maturities and borrowing term funds from the 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.
31
Net Interest Income at 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 related to changes in net interest income by assuming changes in interest rates, both up and down, from current rates over the three year period following the financial statements.
The changes in interest income and interest expense related to changes in interest rates reflect the interest rate 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 December 31, 2014, 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) |
|
400 |
|
$ |
9,574 |
|
|
$ |
(1,041 |
) |
|
|
-9.8 |
% |
300 |
|
|
9,869 |
|
|
|
(746 |
) |
|
|
-7.0 |
% |
200 |
|
|
10,191 |
|
|
|
(424 |
) |
|
|
-4.0 |
% |
100 |
|
|
10,430 |
|
|
|
(185 |
) |
|
|
-1.7 |
% |
0 |
|
|
10,615 |
|
|
|
|
|
|
|
0.0 |
% |
(100) |
|
|
10,264 |
|
|
|
(351 |
) |
|
|
-3.3 |
% |
Liquidity
The Company is
required to maintain levels of liquid assets sufficient to ensure the Companys safe and sound operation. Liquidity is defined as the Companys 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 retail deposits, the 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 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, available-for-sale securities or cash equivalents 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 draw upon existing borrowing agreements with the FHLB and the Federal Reserve which provide an additional source of funds. At December 31, 2014 and September 30, 2014, the Company had
$26.9 million and $19.0 million of advances from the FHLB, respectively, and CDARS deposits of $9.7 million and $18.2 million, respectively and otherwise had no other brokered certificates of deposit as of either date.
The Company anticipates that it will have sufficient funds available to meet its current loan and other commitments. As of December 31, 2014, the Company
had cash and cash equivalents of $2.4 million and available for sale securities of $39.3 million. At December 31, 2014, the Company had outstanding commitments to originate loans of $334 thousand and $9.6 million of undisbursed funds from
approved lines of credit, homeowners equity lines of credit, and secured commercial lines of credit. Retail certificates of deposit scheduled to mature in one year or less at December 31, 2014, totaled $40.2million. Historically, the
Companys deposit flow history has been that a significant portion of such deposits remain with the Company.
32
Cash Flows and Capital Resources
In the three months ended December 31, 2014, net cash provided by operating activities was $ 179,000 compared to $705,000 in the same period in 2013. In
the three months ended December 31, 2014 and 2013, the net income included non-cash expenses (consisting primarily of depreciation, amortization, provision for loan losses, deferred taxes and stock-based compensation) of $ 278,000 and $382,000,
respectively. Net activity from loans originated for sale provided $ 349,000 and $ 337,000 of cash in the three months ended December 31, 2014 and 2013, respectively.
In the three months ended December 31, 2014 and 2013, investing activities provided (used) $4.6 million and $(4.4) million of cash, respectively. In the
three months ended December 31, 2014 and 2013, securities repayments provided $0.2 million and $0.7 million of cash, respectively. Net decrease (increase) in loan balances provided (used by) $4.8 million and $(5.0) million of cash in the three
months ended December 31, 2014 and 2013, respectively.
Net cash provided (used by) financing activities was $(5.6) million in the three months ended
December 31, 2014 compared to net cash provided by financing activities of $4.5 million in the three months ended December 31, 2013. In the three months ended December 31, 2014 and 2013, borrowings of FHLB-NY advances provided $8.0
million and used $0.1 million of cash, respectively, and decreases in deposit balances used $14.4 million in the three months ended December 31, 2014 compared to net cash provided by deposit increases $4.4 million in the three months ended
December 31, 2013.
The Companys overall credit exposure at the FHLB, including borrowings under the Overnight Advance line of credit and other
term borrowings cannot exceed 50% of its total assets, subject to certain limitations based on the underlying loans and securities pledged as collateral. The Company also has a $4.5 million Fed Funds line of credit with Zions Bank, which was not
drawn upon.
The following table sets forth the Banks capital position at December 31, 2014, 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) |
|
$ |
23,926 |
|
|
|
12.79 |
% |
|
³ |
$14,963 |
|
|
³ |
8.00 |
% |
|
³ |
$18,703 |
|
|
³ |
10.00 |
% |
Core (Tier 1) capital (to risk-weighted assets) |
|
|
23,266 |
|
|
|
12.44 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
³ |
11,222 |
|
|
³ |
6.00 |
% |
Core (Tier 1) capital (to total adjusted assets) |
|
|
23,266 |
|
|
|
8.70 |
% |
|
³ |
10,699 |
|
|
³ |
4.00 |
% |
|
³ |
13,374 |
|
|
³ |
5.00 |
% |
Tangible capital (to total adjusted assets) |
|
|
23,266 |
|
|
|
8.70 |
% |
|
³ |
4,012 |
|
|
³ |
1.50 |
% |
|
³ |
N/A |
|
|
|
N/A |
|
33
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to Smaller Reporting Companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As the Company announced on January 16, 2015 in a Form 8-K and additional proxy materials filed with the SEC, on January 13, 2015, the Companys
Management and Audit Committee received a letter dated January 12, 2015 from the Companys independent accounting firm, BDO, which letter concluded that the Company had a material weakness in its internal control over financial reporting
related to an audit adjustment of $101,000 in connection with unaccrued legal fees at September 30, 2014. The unaccrued fees were identified after September 30, 2014 based on bills submitted by the Companys outside legal counsel to
the Company during the period covered by this report.
The Company attributed the material weakness in part to the sudden and unexpected death of the
Companys former Chief Financial Officer in August 2014, which management concluded and BDO agreed was an event that led to a loss of institutional knowledge that was a significant obstacle to overcome. The Company
recorded the aforementioned $101,000 adjustment and such adjustment was reflected in our financial statements contained in the Annual Report on Form 10-K for the fiscal year ended September 30, 2014, which we filed with the SEC on
December 22, 2014. The Company hired a new Chief Financial Officer in October 2014 and has implemented enhancements to its internal controls to ensure that the material weakness has been fully remediated.
On January 27, 2015, the Company filed an amendment to its Annual Report on Form 10-K for the fiscal year ended September 30, 2014 to amend
Item 9A, Controls and Procedures, by stating that its internal control over financial reporting was not effective at September 30, 2014 as a result of the BDO determination and disclosing in further detail the steps management
has taken to remediate the material weakness.
Management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report and in light of the responsive actions taken by management during the period covered by this report to fully remediate the
concerns giving rise to the BDO determination, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, is
(i) recorded, processed, summarized and reported and (ii) accumulated and communicated to the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
As noted, the sudden and unexpected death of CMS Bancorps former Chief Financial Officer in August 2014 was an event that led to a loss of
institutional knowledge that was a significant obstacle to overcome, which contributed to a material weakness finding by BDO. Subsequent to the end of the last fiscal year and during the period covered by this report, management
implemented enhancements to its internal controls to ensure that the material weakness has been fully remediated. Specifically, CMS Bancorp hired a new CFO in October 2014 and is working with the new CFO to implement review and reporting processes
to enhance our controls over analyzing and recording appropriate adjustments to accrued expenses so that they operate in an effective manner.
Part II: Other Information
Item 1. Legal Proceedings
With respect to the litigation between CMS Bancorp and Customers Bancorp, Inc., as CMS Bancorp announced on January 13, 2015 in a Form 8-K and definitive
additional proxy materials filed with the SEC, on January 8, 2015, the parties have resolved the litigation on mutually acceptable terms.
As announced on February 2, 2015 in definitive additional proxy materials filed with the SEC, CMS Bancorp was a party to a settlement agreement in the
form of a Memorandum of Understanding dated January 30, 2015, which resolved a purported class action lawsuit that was filed in the Court of Chancery of the State of Delaware on January 14, 2015.
Item 1A. Risk Factors
There have been no material changes to the risk factors discussed in our Annual Report on Form 10-K for the year ended September 30, 2014.
34
Item 6. Exhibits
|
|
|
Exhibit No. |
|
Description |
|
|
3.1 |
|
Certificate of Incorporation of CMS Bancorp, Inc. (1) |
|
|
3.2 |
|
Certificate of Amendment to Certificate of Incorporation filed with the Delaware Secretary of State on February 20, 2009. (2) |
|
|
3.3 |
|
Amended and Restated Bylaws of CMS Bancorp, Inc. (3) |
|
|
4.1 |
|
Form of Stock Certificate of CMS Bancorp, Inc. (1) |
|
|
4.2 |
|
Form of Option Agreement under the CMS Bancorp, Inc. 2007 Stock Option Plan. (4) |
|
|
4.3 |
|
Form of Restricted Stock Award Agreement under the CMS Bancorp, Inc. 2007 Recognition and Retention Plan. (4) |
|
|
4.4 |
|
Form of Series A Preferred Stock Certificate of CMS Bancorp, Inc. (5) |
|
|
31.1 |
|
Rule 13a-14(a)/15d-14(a) Certification of principal executive officer* |
|
|
31.2 |
|
Rule 13a-14(a)/15d-14(a) Certification of principal financial officer* |
|
|
32.1 |
|
Section 1350 Certification of principal executive officer* |
|
|
32.2 |
|
Section 1350 Certification of principal financial officer* |
|
|
101 |
|
Interactive data files: (i) Consolidated Statements of Financial Condition as of December 31, 2014 and September 30, 2014 (unaudited), (ii) Consolidated Statements of Operations for the Three Months Ended December 31, 2014 and 2013
(unaudited), (iii) Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2014 and 2013 (unaudited), (iv) Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2014 and 2013, and (v)
Notes to Consolidated Financial Statements. |
(1) |
Incorporated by reference to the Registration Statement No. 333-139176 on Form SB-2 filed with the Commission on December 7, 2006, as amended. |
(2) |
Incorporated by reference to the Registrants Form 8-K filed with the Commission on February 23, 2009. |
(3) |
Incorporated by reference to the Registrants Form 8-K filed with the Commission on February 28, 2014. |
(4) |
Incorporated by reference to the Registrants Registration Statement on Form S-8 filed with the Commission on November 30, 2007. |
(5) |
Incorporated by reference to the Registrants Form 8-K filed with the Commission on May 24, 2013. |
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
|
|
|
|
|
|
|
CMS Bancorp, Inc. |
|
|
|
Date: February 11, 2015 |
|
|
|
/s/ JOHN RITACCO |
|
|
|
|
John E. Ritacco |
|
|
|
|
President and Chief Executive Officer |
|
|
|
Date: February 11, 2015 |
|
|
|
/s/ MICHAEL A. VOLPE |
|
|
|
|
Michael A. Volpe |
|
|
|
|
Senior Vice President and Chief Financial Officer |
36
Exhibit 31.1
CERTIFICATION
I, John Ritacco,
certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of CMS Bancorp, Inc. (the Company); |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
Company as of, and for, the period presented in this report; |
|
4. |
The Companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the Company and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and |
|
5. |
The Companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of
Companys board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process,
summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls over financial reporting. |
|
|
|
|
|
Date: February 11, 2015 |
|
|
|
/s/ JOHN RITACCO |
|
|
|
|
John E. Ritacco |
|
|
|
|
President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Michael A.
Volpe, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of CMS Bancorp, Inc. (the Company); |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
Company as of, and for, the period presented in this report; |
|
4. |
The Companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the Company and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting; and |
|
5. |
The Companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of
Companys board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process,
summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls over financial reporting. |
|
|
|
|
|
Date: February 11, 2015 |
|
|
|
/s/ MICHAEL A VOLPE |
|
|
|
|
Michael A. Volpe |
|
|
|
|
Senior Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CMS Bancorp, Inc. (the Company) on Form 10-Q for the period ended December 31, 2014 as filed with
the Securities and Exchange Commission (the Report), I, John Ritacco, President and Chief Executive Officer of CMS Bancorp, Inc. certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, and in connection with this quarterly report on Form 10-Q, that I have reviewed the Form 10-Q and that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CMS
Bancorp, Inc.
|
|
|
|
|
Date: February 11, 2015 |
|
|
|
/s/ JOHN RITACCO |
|
|
|
|
John E. Ritacco |
|
|
|
|
President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CMS Bancorp, Inc. (the Company) on Form 10-Q for the period ended December 31, 2014 as filed with
the Securities and Exchange Commission (the Report), I, Michael Volpe, Chief Financial Officer of CMS Bancorp, Inc. certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, and in connection with this quarterly report on Form 10-Q, that I have reviewed the Form 10-Q and that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CMS
Bancorp, Inc.
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Date: February 11, 2015 |
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/s/ MICHAEL A VOLPE |
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Michael A. Volpe |
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Senior Vice President and Chief Financial Officer |
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