Exhibit 13.1

2010 Annual Report

LOGO



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CMS Bancorp, Inc.

Dear Stockholders:

In 2005, the Board of Directors embarked on a vision to change
the direction, culture, operations and business strategy of Community Mutual Savings Bank (the Bank). The Boards vision recognized that a small, community oriented savings bank in a large and highly competitive banking market would
not survive in the industry unless it developed products, services and a customer centric strategy which would allow the organization to compete effectively.

The Bank focused on hiring a new and experienced management team of professionals to rebuild its infrastructure and technology platform to support robust growth plans. Policies, procedures and internal
controls were developed and put in place. New state of the art systems and computers were installed to allow the Bank to become more customer centric.

Both a mission and core values statement were developed and presented to each new and existing employee reminding them of our commitment to each other and our customers. Employees were also provided with
a higher level of core competency training programs ranging from compliance to new business development techniques and sales. The Bank began to create a brand and image in the community, while beginning the process of growing its loan and deposit
base.

In April 2007, the Bank changed from a mutual to a stock-based company, and raised over $16 million of capital under
the holding company, CMS Bancorp, Inc.

From April 2007 to today, the Company has taken major strides towards modernizing the
branch network and growing the assets of the Bank. Change has come at a fast and furious pace since the initial 2005 Board vision. Our White Plains branch was merged into the Greenburgh branch, the old Eastchester and Greenburgh branches were
relocated to newer, more attractive and customer welcoming locations with better access, night depository for commercial customers, and vastly improved parking. In 2009, the Bank added the new Mount Kisco office in northern Westchester at a key
geographic crossroad, which broadened the Banks reach in the county. Our branch network now spans from southern to northern Westchester. Finally, we have favorably renegotiated our West Harrison branch office lease and as a result will be
expanding that location by 1,180 sq feet and completing a renovation project in late 2011 to match the current look of our other branch locations.

We have continued to improve our products and services offerings, adding Telephone Banking, On-line Residential Mortgage Origination Applications, CDARS, On-line Banking including Bill Pay, and On-line
Business Banking options with a suite of business cash management related services.

We have continued to raise local deposits
and put the funds to work in our expanding loan portfolio and investments. Since September 30, 2005, our loans have more than doubled to the current $179.1 million and our total assets have grown from $114.3 million to $247.4 million. We have
been able to achieve this growth, despite the unusual yield curve environment, the liquidity crisis of some of the major money center banks, the Wall Street melt down and one of the worst economic downturns since the Great Depression. While our loan
portfolio has suffered from the effects of unemployment and lower housing prices, our non-performing loans continue to be well below that of our peers.

Fiscal 2010 was a first step toward profitability for the Company, despite the poor economy. We believe that the past five years have laid the foundation and positioned the Company toward a path of
continued growth and prosperity. We would like to thank our customers, the Board of Directors, officers and employees for their efforts and performance during the 2010 fiscal year and thank you, our stockholders, for your continued support during
this journey.

|                                         |  |  |  |                                   
|---------------------------------------- |  |  |  | ----------------------------------
|                                         |  | 
|LOGO                                     |  |  |  | LOGO                              
|Thomas G. Ferrara, Chairman of the Board |  |  |  | John E. Ritacco, President and CEO



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Selected Consolidated Financial Information and Other Data

The following information is derived from the audited consolidated financial statements of CMS Bancorp, Inc., (the Company).
For additional information about the Company and Community Mutual Savings Bank (the Bank), please see the detailed presentation contained in Managements Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and footnotes of the Company which are included in this Annual Report.



|                                                                        |  |                                         |         |   |      |   |         |      |  |   |         |   
|----------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | --
|Selected Financial Condition Data                                       |  | At September 30,                        |        
|(in thousands)                                                          |  | 2010                                    |         |   | 2009 |   |         | 2008 | 
|Total assets                                                            |  | $                                       | 247,385 |   |      | $ | 243,164 |      |  | $ | 203,930 |   
|Loans receivable, net                                                   |  |                                         | 179,066 |   |      |   | 169,293 |      |  |   | 181,133 |   
|Investment securities                                                   |  |                                         | 56,336  |   |      |   | 58,643  |      |  |   | 10,370  |   
|Cash and cash equivalents                                               |  |                                         | 3,434   |   |      |   | 7,304   |      |  |   | 5,402   |   
|Deposits                                                                |  |                                         | 188,306 |   |      |   | 184,387 |      |  |   | 128,757 |   
|FHLB Advances                                                           |  |                                         | 34,578  |   |      |   | 34,726  |      |  |   | 50,767  |   
|Stockholders equity                                                    |  |                                         | 21,756  |   |      |   | 20,913  |      |  |   | 21,709  |   
|                                                                        | 
|Selected Operating Data                                                 |  | Years Ended September 30,               |        
|(in thousands, except per share data)                                   |  | 2010                                    |         |   | 2009 |   |         | 2008 | 
|Interest income                                                         |  | $                                       | 11,426  |   |      | $ | 11,405  |      |  | $ | 10,291  |   
|Interest expense                                                        |  |                                         | 3,764   |   |      |   | 5,013   |      |  |   | 4,574   |   
|                                                                        |  |                                         |         |   |      |   |         |      |  |   |         |   
|Net interest income                                                     |  |                                         | 7,662   |   |      |   | 6,392   |      |  |   | 5,717   |   
|Provision for loan losses                                               |  |                                         | 366     |   |      |   | 230     |      |  |   | 248     |   
|Non-interest income                                                     |  |                                         | 1,029   |   |      |   | 498     |      |  |   | 322     |   
|Non-interest expense                                                    |  |                                         | 8,020   |   |      |   | 7,328   |      |  |   | 7,044   |   
|Income tax expense (benefit)                                            |  |                                         | 139     |   |      |   | (229    | )    |  |   | (396    | ) 
|                                                                        |  |                                         |         |   |      |   |         |      |  |   |         |   
|Net income (loss)                                                       |  | $                                       | 166     |   |      | $ | (439    | )    |  | $ | (857    | ) 
|                                                                        |  |                                         |         |   |      |   |         |      |  |   |         |   
|Net income (loss) per share                                             |  | $                                       | 0.10    |   |      | $ | (0.25   | )    |  | $ | (0.46   | ) 
|                                                                        |  |                                         |         |   |      |   |         |      |  |   |         |   
|                                                                        | 
|                                                                        |  | At or for the Years Ended September 30, |        
|Selected Financial Ratios and Other Data                                |  | 2010                                    |         |   | 2009 |   |         | 2008 | 
|Performance Ratios:                                                     |  |                                         |         |   |      |   |         |      |  |   |         |   
|Return on average assets                                                |  |                                         | 0.07    | % |      |   | (0.20   | )%   |  |   | (0.47   | )%
|Return on average equity                                                |  |                                         | 0.80    | % |      |   | (2.06   | )%   |  |   | (3.69   | )%
|Yield on average interest-earning assets                                |  |                                         | 5.01    | % |      |   | 5.36    | %    |  |   | 5.83    | % 
|Net interest rate spread                                                |  |                                         | 3.10    | % |      |   | 2.63    | %    |  |   | 2.68    | % 
|Net interest margin                                                     |  |                                         | 3.36    | % |      |   | 3.00    | %    |  |   | 3.24    | % 
|Average interest-earning assets to average interest-bearing liabilities |  |                                         | 1.16    |   |      |   | 1.16    |      |  |   | 1.21    |   
|                                                                        |  |                                         |        
|Capital Ratios:                                                         |  |                                         |         |   |      |   |         |      |  |   |         |   
|Average stockholders equity to average assets                          |  |                                         | 8.85    | % |      |   | 9.70    | %    |  |   | 12.84   | % 
|Tier 1 core ratio                                                       |  |                                         | 7.60    | % |      |   | 7.10    | %    |  |   | 7.23    | % 
|Total risk based capital ratio                                          |  |                                         | 17.13   | % |      |   | 16.16   | %    |  |   | 14.28   | % 
|                                                                        |  |                                         |        
|Asset Quality Ratios:                                                   |  |                                         |         |   |      |   |         |      |  |   |         |   
|Allowance for loan losses to gross loans                                |  |                                         | 0.62    | % |      |   | 0.44    | %    |  |   | 0.28    | % 
|Non-performing loans to total assets                                    |  |                                         | 1.20    | % |      |   | 0.69    | %    |  |   | 0.00    | % 



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Managements Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Annual Report contains forward-looking statements, which may be identified by the use of such words as believe, expect, anticipate, should,
planned, estimated, potential and similar expressions that are intended to identify forward-looking statements. Examples of forward-looking statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to various factors including those set forth in Part 1, Item 1Description of BusinessRisk Factors of our Form 10-K for the year ended September 30, 2010,
which could cause actual results to differ materially from these estimates. These factors include, but are not limited to:



| |  |  | changes in interest rates;
| | - |  | --------------------------



| |  |  | our allowance for loan losses may not be sufficient to cover actual loan losses;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the risk of loss associated with our loan portfolio;
| | - |  | ----------------------------------------------------



| |  |  | lower demand for loans;
| | - |  | -----------------------



| |  |  | changes in our asset quality;
| | - |  | -----------------------------



| |  |  | other-than-temporary impairment charges for investments;
| | - |  | --------------------------------------------------------



| |  |  | the soundness of other financial institutions;
| | - |  | ----------------------------------------------



| |  |  | changes in liquidity;
| | - |  | ---------------------



| |  |  | changes in the Companys reputation;
| | - |  | ------------------------------------



| |  |  | higher FDIC insurance premiums;
| | - |  | -------------------------------



| |  |  | changes in the real estate market or local economy;
| | - |  | ---------------------------------------------------



| |  |  | our ability to successfully implement our future plans for growth;
| | - |  | ------------------------------------------------------------------



| |  |  | natural and man made disasters and public health issues such as the H1N1 flu outbreak;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | our ability to retain our executive officers and other key personnel;
| | - |  | ---------------------------------------------------------------------



| |  |  | competition in our primary market area;
| | - |  | ---------------------------------------



| |  |  | changes in laws and regulations to which we are subject;
| | - |  | --------------------------------------------------------



| |  |  | the effects of new laws and regulations, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | recent developments affecting the financial markets;
| | - |  | ----------------------------------------------------



| |  |  | changes in the Federal Reserves monetary or fiscal policies;
| | - |  | -------------------------------------------------------------



| |  |  | our ability to maintain effective internal controls over financial reporting;
| | - |  | -----------------------------------------------------------------------------



| |  |  | the inclusion of certain anti-takeover provisions in our organizational documents; and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the low trading volume in our stock.
| | - |  | ------------------------------------

Any or all of our forward-looking statements in this Report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or
unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. We disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements, or
to reflect the occurrence of anticipated or unanticipated events.



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General

The Companys results of operations depend primarily on its net interest income, which is the difference between the interest income it earns on its loans, investments and other interest-earning
assets and the interest it pays on its deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates earned or
paid on these balances. The Companys 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 Companys operations and lending activities are principally concentrated in Westchester County, New York, and its operations and earnings are
influenced by the economics of the area in which it operates. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in the
Companys primary market area.

The Companys 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 years, changes in short-term interest rates did not result in corresponding changes
in long-term interest rates, and local market conditions resulted in relatively high certificate of deposit interest rates and lower interest rates on loans. The effect of this interest rate environment did, and could in the future, continue to
decrease the Companys ability to invest deposits and reinvest proceeds from loan and investment repayments at higher interest rates. During portions of the past two fiscal years, the Companys cost of funds did not change proportionally
to its yield on loans and investments, due to the longer-term nature of its interest-earning assets, the yield curve environment and higher interest rates on deposits resulting from liquidity needs of other financial institutions.

In order to grow and diversify, the Company seeks to continue to increase its multi-family, non-residential, construction, home equity
and commercial loans by targeting these markets in Westchester County and the surrounding areas as a means to increase the yield on and diversify its loan portfolio, build transactional deposit account relationships and, depending on market
conditions, sell the fixed-rate residential real estate loan originations to a third party in order to diversify its loan portfolio, increase non-interest income and reduce interest rate risk.

To the extent the Company increases its investment in construction or development, consumer and commercial loans, which are considered
greater risks than one-to-four-family residential loans, the Companys provision for loan losses may increase to reflect this increased risk, which could cause a reduction in the Companys income.

Business Strategy

The
Company seeks to differentiate itself from its competition by providing superior, highly personalized and prompt service, local decision making and competitive fees and rates to its customers. Historically, the Bank has been a community-oriented
retail savings bank offering residential mortgage loans and traditional deposit products and, to a lesser extent, commercial real estate, small business and consumer loans in Westchester County and the surrounding areas. The Company has adopted a
strategic plan that focuses on growth in the loan portfolio into higher yield multi-family, non-residential, construction and commercial loan markets. The Companys strategic plan also calls for increasing deposit relationships and broadening
its product lines and services. The Company believes that this business strategy is best for its long-term success and viability, and complements its existing commitment to high quality customer service.



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Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, the President signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act)
into law. Among other things, the Dodd-Frank Act dramatically impacts the rules governing the provision of consumer financial products and services, and implementation of the many requirements of the new law will require new mandatory and
discretionary rulemakings by numerous federal regulatory agencies over the next several years. The new law significantly affects the operations of federal savings associations (including the Bank) and their holding companies as, among other things,
the Dodd-Frank Act: (1) abolishes our primary federal regulator, the Office of Thrift Supervision (OTS), effective 90 days after the transfer of the OTSs supervisory and other functions to the Federal Reserve Board
(FRB), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC); (2) creates the Bureau of Consumer Financial Protection, a new independent consumer watchdog
agency housed within the FRB that will have primary rulemaking authority with respect to all federal consumer financial laws; (3) requires that formal capital requirements be imposed on savings and loan holding companies generally commencing
July 2015; (4) codifies the source of strength doctrine for all depository institution holding companies; (5) grants to the U.S. Department of the Treasury, FDIC and the FRB broad new powers to seize, close and wind down
too big to fail financial (including non-bank) institutions in an orderly fashion; (6) establishes a new Financial Stability Oversight Council that is charged with identifying and responding to emerging risks throughout the
financial system, composed primarily of federal financial services regulators and chaired by the Secretary of the Treasury Department; (7) adopts new standards and rules for the mortgage industry; (8) adopts new bank, thrift and holding
company regulation; (9) permanently increases the standard maximum deposit insurance limit to $250,000 per depositor, per institution for each account ownership category; (10) temporarily provides for unlimited deposit insurance coverage
for noninterest-bearing transaction accounts; (11) repeals the long-standing statutory prohibition on the payment of interest on demand deposits including commercial transaction accounts; (12) adopts new federal regulation of
the derivatives market; (13) adopts the so-called Volcker Rule, substantially restricting proprietary trading by depository institutions and their holding companies; (14) imposes requirements for funeral plans by large, complex
financial companies; (15) establishes new regulation of the asset securitization market through skin in the game and enhanced disclosure requirements; (16) establishes new regulation of interchange fees; (17) establishes
new and enhanced compensation and corporate governance oversight for the financial services industry; (18) provides enhanced oversight of municipal securities; (19) provides a specific framework for payment, clearing and settlement
regulation; (20) tasks the federal banking agencies with adopting new and enhanced capital standards for all depository institutions; and (21) significantly narrows the scope of federal preemption for national banks and federal savings
associations.

The Company is currently evaluating the potential impact of the Dodd-Frank Act on our business, financial
condition, results of operations and prospects and expect that some provisions of the new law may have adverse effects on us, such as the cost of complying with the numerous new regulations and reporting requirements mandated by the Dodd-Frank Act.
Additionally, given that the functions of the OTS in regard to the Company and Bank will formally be transferred to the FRB and the OCC respectively on July 21, 2011 (or else by January 21, 2012 if a six-month extension is required), the
Company and Bank may see changes in the way we are supervised and examined sooner, and may experience operational challenges in the course of transition to our new regulators.

Critical Accounting Policies

The consolidated financial statements
included in this report have been prepared in conformity with accounting principles generally accepted in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the dates of the statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.

It is managements opinion that accounting estimates relating to certain aspects of the Companys business have more
significance than others due to the relative importance of those areas to overall performance, or the



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level of subjectivity required in making these estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses,
the potential impairment of Federal Home Loan Bank of New York (FHLB) stock, the determination of other-than-temporary impairment on securities, and the assessment of whether deferred taxes are more likely than not to be realized.
Management believes that the allowance for loan losses represents its best estimate of losses known and inherent in the loan portfolio that are both probable and reasonable to estimate. While management uses available information to recognize losses
on loans, future additions to the allowance for loan losses may be necessary based on changes in market and economic conditions in the Companys market area. In addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Companys 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.

Managements determination of whether investments, including FHLB stock, are impaired is based on
their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. Managements assessment as to the amount of deferred taxes more likely than not to be realized is based upon future taxable
income, which is subject to revision upon updated information.

These critical policies and their application have been and
will continue to be reviewed periodically by the Audit Committee and the Board of Directors. All accounting policies are important, and as such, we encourage you to review each of the policies included in Note 2 to the Companys Consolidated
Financial Statements to obtain a better understanding of how the Companys financial performance is reported.



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Average Balances, Interest and Average Yields

The following tables set forth certain information relating to the Companys 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 expensed for the periods indicated. Such yields and costs are derived by dividing annualized income or expense by the average
balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for loan
losses.



|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|---------------------------------------------------------------- |  | ---------------------- | ------- |  | ------------------------------------ |  | ---- | -------------- |  | - | --------------------- |  |  | ---------- | ------ |  |  |  | ---- | -
|                                                                 |  | At September 30,2010   |         |  | For the Year EndedSeptember 30, 2010 | 
|                                                                 |  | ActualBalance          |         |  | Yield/Rate                           |  |      | AverageBalance |  |   | InterestIncomeExpense |  |  | Yield/Rate |       
|                                                                 |  | (Dollars in thousands) |        
|Interest-earning assets:                                         |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Loans receivable (1)                                             |  | $                      | 179,066 |  |                                      |  | 6.00 | %              |  | $ | 174,634               |  |  | $          | 10,219 |  |  |  | 5.85 | %
|Securities (2)                                                   |  |                        | 56,336  |  |                                      |  | 1.93 | %              |  |   | 45,564                |  |  |            | 1,044  |  |  |  | 2.29 | %
|Other interest-earning assets (3)                                |  |                        | 5,129   |  |                                      |  | 2.66 | %              |  |   | 8,047                 |  |  |            | 163    |  |  |  | 2.03 | %
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Total interest-earning assets                                    |  |                        | 240,531 |  |                                      |  | 4.98 | %              |  |   | 228,245               |  |  |            | 11,426 |  |  |  | 5.01 | %
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Non-interest earning assets                                      |  |                        | 6,854   |  |                                      |  |      |                |  |   | 6,892                 |  |  |            |        |  |  |  |      |  
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Total Assets                                                     |  | $                      | 247,385 |  |                                      |  |      |                |  | $ | 235,137               |  |  |            |        |  |  |  |      |  
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Interest bearing-liabilities:                                    |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Demand deposits                                                  |  | $                      | 32,761  |  |                                      |  | 0.80 | %              |  | $ | 29,801                |  |  |            | 288    |  |  |  | 0.97 | %
|Savings and club accounts                                        |  |                        | 40,873  |  |                                      |  | 0.40 | %              |  |   | 40,966                |  |  |            | 159    |  |  |  | 0.39 | %
|Certificates of deposit                                          |  |                        | 100,578 |  |                                      |  | 1.71 | %              |  |   | 87,218                |  |  |            | 1,591  |  |  |  | 1.82 | %
|Borrowed money (4)                                               |  |                        | 35,427  |  |                                      |  | 4.76 | %              |  |   | 39,308                |  |  |            | 1,726  |  |  |  | 4.39 | %
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Total interest-bearing liabilities                               |  |                        | 209,639 |  |                                      |  | 1.83 | %              |  |   | 197,293               |  |  |            | 3,764  |  |  |  | 1.91 | %
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Non-interest bearing liabilities:                                |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Non-interest bearing deposits                                    |  |                        | 14,094  |  |                                      |  |      |                |  |   | 13,870                |  |  |            |        |  |  |  |      |  
|Other                                                            |  |                        | 1,896   |  |                                      |  |      |                |  |   | 3,163                 |  |  |            |        |  |  |  |      |  
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Total non-interest bearing liabilities                           |  |                        | 15,990  |  |                                      |  |      |                |  |   | 17,033                |  |  |            |        |  |  |  |      |  
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Total liabilities                                                |  |                        | 225,629 |  |                                      |  |      |                |  |   | 214,326               |  |  |            |        |  |  |  |      |  
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Total equity                                                     |  |                        | 21,756  |  |                                      |  |      |                |  |   | 20,811                |  |  |            |        |  |  |  |      |  
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Total liabilities and equity                                     |  | $                      | 247,385 |  |                                      |  |      |                |  | $ | 235,137               |  |  |            |        |  |  |  |      |  
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Interest rate spread                                             |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  | $          | 7,662  |  |  |  | 3.10 | %
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Net interest-earning assets/net interest margin                  |  |                        |         |  |                                      |  |      |                |  | $ | 30,952                |  |  |            |        |  |  |  | 3.36 | %
|                                                                 |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            |        |  |  |  |      |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                        |         |  |                                      |  |      |                |  |   |                       |  |  |            | 1.16x  |  |  |  |      |  



|(1) | Net of allowance for loan losses and net deferred costs and fees.
|--- | -----------------------------------------------------------------

|(2) | Available for sale securities included at fair value.
|--- | -----------------------------------------------------

|(3) | Includes stock of Federal Home Loan Bank of New York and loans held for sale, which are held for a short period of time.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(4) | Includes mortgage escrow funds and securities sold under agreements to repurchase.
|--- | ----------------------------------------------------------------------------------



7



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|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|---------------------------------------------------------------- |  | ------------------------------------ | ------- |  | ------------------------------------ | - | ------ | ---------- |  |  | -------------- | - |  | --------------------- | ------- |  | ---------- | - | ------ |  |  |  | ---- | -
|                                                                 |  | For the Year EndedSeptember 30, 2009 |         |  | For the Year EndedSeptember 30, 2008 |  
|                                                                 |  | AverageBalance                       |         |  | InterestIncomeExpense                |   |        | Yield/Rate |  |  | AverageBalance |   |  | InterestIncomeExpense |         |  | Yield/Rate |  
|                                                                 |  | (Dollars in thousands)               |        
|Interest-earning assets                                          |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Loans receivable (1)                                             |  | $                                    | 177,239 |  |                                      | $ | 10,396 |            |  |  | 5.87           | % |  | $                     | 160,965 |  |            | $ | 9,659  |  |  |  | 6.00 | %
|Securities (2)                                                   |  |                                      | 27,290  |  |                                      |   | 905    |            |  |  | 3.32           | % |  |                       | 5,992   |  |            |   | 259    |  |  |  | 4.32 | %
|Federal funds sold                                               |  |                                      |        |  |                                      |   |       |            |  |  |               |   |  |                       | 5,191   |  |            |   | 179    |  |  |  | 3.45 | %
|Other interest-earning assets (3)                                |  |                                      | 8,192   |  |                                      |   | 104    |            |  |  | 1.27           | % |  |                       | 4,309   |  |            |   | 194    |  |  |  | 4.50 | %
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Total interest-earning assets                                    |  |                                      | 212,721 |  |                                      |   | 11,405 |            |  |  | 5.36           | % |  |                       | 176,457 |  |            |   | 10,291 |  |  |  | 5.83 | %
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Non-interest earning assets                                      |  |                                      | 6,757   |  |                                      |   |        |            |  |  |                |   |  |                       | 4,332   |  |            |   |        |  |  |  |      |  
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Total Assets                                                     |  | $                                    | 219,478 |  |                                      |   |        |            |  |  |                |   |  | $                     | 180,789 |  |            |   |        |  |  |  |      |  
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Interest bearing-liabilities                                     |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Demand deposits                                                  |  | $                                    | 15,095  |  |                                      |   | 226    |            |  |  | 1.50           | % |  | $                     | 10,442  |  |            |   | 283    |  |  |  | 2.71 | %
|Savings and club accounts                                        |  |                                      | 38,271  |  |                                      |   | 150    |            |  |  | 0.40           | % |  |                       | 40,161  |  |            |   | 160    |  |  |  | 0.40 | %
|Certificates of deposit                                          |  |                                      | 93,228  |  |                                      |   | 2,905  |            |  |  | 3.11           | % |  |                       | 57,710  |  |            |   | 2,397  |  |  |  | 4.15 | %
|Borrowed money (4)                                               |  |                                      | 37,333  |  |                                      |   | 1,732  |            |  |  | 4.64           | % |  |                       | 36,996  |  |            |   | 1,734  |  |  |  | 4.69 | %
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Total interest-bearing liabilities                               |  |                                      | 183,927 |  |                                      |   | 5,013  |            |  |  | 2.73           | % |  |                       | 145,309 |  |            |   | 4,574  |  |  |  | 3.15 | %
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Non-interest bearing liabilities:                                |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Non-interest bearing deposits                                    |  |                                      | 12,210  |  |                                      |   |        |            |  |  |                |   |  |                       | 11,194  |  |            |   |        |  |  |  |      |  
|Other                                                            |  |                                      | 2,062   |  |                                      |   |        |            |  |  |                |   |  |                       | 1,073   |  |            |   |        |  |  |  |      |  
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Total non-interest bearing liabilities                           |  |                                      | 14,272  |  |                                      |   |        |            |  |  |                |   |  |                       | 12,267  |  |            |   |        |  |  |  |      |  
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Total liabilities                                                |  |                                      | 198,199 |  |                                      |   |        |            |  |  |                |   |  |                       | 157,576 |  |            |   |        |  |  |  |      |  
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Total equity                                                     |  |                                      | 21,279  |  |                                      |   |        |            |  |  |                |   |  |                       | 23,213  |  |            |   |        |  |  |  |      |  
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Total liabilities and equity                                     |  | $                                    | 219,478 |  |                                      |   |        |            |  |  |                |   |  | $                     | 180,789 |  |            |   |        |  |  |  |      |  
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Interest rate spread                                             |  |                                      |         |  |                                      | $ | 6,392  |            |  |  | 2.63           | % |  |                       |         |  |            | $ | 5,717  |  |  |  | 2.68 | %
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Net interest-earning assets/net interest margin                  |  | $                                    | 28,794  |  |                                      |   |        |            |  |  | 3.00           | % |  | $                     | 31,148  |  |            |   |        |  |  |  | 3.24 | %
|                                                                 |  |                                      |         |  |                                      |   |        |            |  |  |                |   |  |                       |         |  |            |   |        |  |  |  |      |  
|Ratio of interest-earning assets to interest-bearing liabilities |  |                                      |         |  |                                      |   | 1.16x  |            |  |  |                |   |  |                       |         |  |            |   | 1.21x  |  |  |  |      |  



|(1) | Net of allowance for loan losses and net deferred costs and fees.
|--- | -----------------------------------------------------------------

|(2) | Held to maturity securities included at amortized cost and available for sale securities included at fair value.
|--- | ----------------------------------------------------------------------------------------------------------------

|(3) | Includes stock of Federal Home Loan Bank of New York and loans held for sale, which are held for a short period of time.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(4) | Includes mortgage escrow funds and securities sold under agreements to repurchase.
|--- | ----------------------------------------------------------------------------------



8



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Rate/Volume Analysis.The following tables analyze the dollar amount of changes in
interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It shows the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or
changes in interest rates. The effect of a change in volume is measured by applying the average rate during the first period to the volume change between the two periods. The effect of changes in rate is measured by applying the change in rate
between the two periods to the average volume during the first period. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the absolute value of the change due to volume and the change due
to rate.



|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|---------------------------------- |  | --------------------------------------------- | ----- | - | ---- | - | ------ | --- |  | - | ------ | -
|                                   |  | Year Ended September 30, 2010Compared to 2009 |      
|                                   |  | Volume                                        |       |   | Rate |   |        | Net | 
|                                   |  | (In thousands)                                |      
|Interest-earning assets:           |  |                                               |       |   |      |   |        |     |  |   |        |  
|Loans receivable                   |  | $                                             | (144  | ) |      | $ | (33    | )   |  | $ | (177   | )
|Securities                         |  |                                               | 479   |   |      |   | (340   | )   |  |   | 139    |  
|Other interest-earning assets      |  |                                               | (2    | ) |      |   | 61     |     |  |   | 59     |  
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Total interest-earning assets      |  |                                               | 333   |   |      |   | (312   | )   |  |   | 21     |  
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Interest-bearing liabilities:      |  |                                               |       |   |      |   |        |     |  |   |        |  
|Demand deposits                    |  |                                               | 163   |   |      |   | (101   | )   |  |   | 62     |  
|Savings and club accounts          |  |                                               | 10    |   |      |   | (1     | )   |  |   | 9      |  
|Certificates of deposit            |  |                                               | (177  | ) |      |   | (1,137 | )   |  |   | (1,314 | )
|Borrowed money                     |  |                                               | 90    |   |      |   | (96    | )   |  |   | (6     | )
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Total interest-bearing liabilities |  |                                               | 86    |   |      |   | (1,335 | )   |  |   | (1,249 | )
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Net interest income                |  | $                                             | 247   |   |      | $ | 1,023  |     |  | $ | 1,270  |  
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|                                   | 
|                                   |  | Year Ended September 30, 2009Compared to 2008 |      
|                                   |  | Volume                                        |       |   | Rate |   |        | Net | 
|                                   |  | (In thousands)                                |      
|Interest-earning assets:           |  |                                               |       |   |      |   |        |     |  |   |        |  
|Loans receivable                   |  | $                                             | 779   |   |      | $ | (42    | )   |  | $ | 737    |  
|Securities                         |  |                                               | 663   |   |      |   | (17    | )   |  |   | 646    |  
|Federal funds sold                 |  |                                               | (179  | ) |      |   |       |     |  |   | (179   | )
|Other interest-earning assets      |  |                                               | 27    |   |      |   | (117   | )   |  |   | (90    | )
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Total interest-earning assets      |  |                                               | 1,290 |   |      |   | (176   | )   |  |   | 1,114  |  
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Interest-bearing liabilities:      |  |                                               |       |   |      |   |        |     |  |   |        |  
|Demand deposits                    |  |                                               | 33    |   |      |   | (90    | )   |  |   | (57    | )
|Savings and club accounts          |  |                                               | (10   | ) |      |   |       |     |  |   | (10    | )
|Certificates of deposit            |  |                                               | 789   |   |      |   | (281   | )   |  |   | 508    |  
|Borrowed money                     |  |                                               | 8     |   |      |   | (10    | )   |  |   | (2     | )
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Total interest-bearing liabilities |  |                                               | 820   |   |      |   | (381   | )   |  |   | 439    |  
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  
|Net interest income                |  | $                                             | 470   |   |      | $ | 205    |     |  | $ | 675    |  
|                                   |  |                                               |       |   |      |   |        |     |  |   |        |  

Comparison of Financial Condition at September 30, 2010 to September 30, 2009

Total assets increased by $4.2 million, or 1.7%, to $247.4 million at September 30, 2010 from $243.2 million at September 30,
2009. Net loan growth of $9.8 million was funded from cash and cash equivalents, reductions in securities and deposit growth.



9



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Cash and cash equivalents decreased by $3.9 million or 53.0% to $3.4 million as of
September 30, 2010 from $7.3 million at September 30, 2009 as cash equivalents were invested in higher yielding loans.

Securities available for sale decreased by $2.2 million or 3.7% to $56.3 million as of September 30, 2010 from $58.5 million at September 30, 2009 as repayments of these securities were invested
in relatively higher yielding loans. Available for sale securities consist principally of notes, bonds and mortgage-backed securities of the U.S. Government and U.S. Government Agencies.

Loans receivable were $179.1 million and $169.3 million at September 30, 2010 and 2009, respectively, representing an increase of
$9.8 million, or 5.8%. During the year ended September 30, 2010, normal amortization reduced loan balances by $7.5 million and prepayments reduced loan balances by an additional $19.1 million. The increase in loans resulted principally from a
$12.1 million increase in non-residential real estate mortgage loans and net additions to the multi-family portfolio of $6.7 million and secured commercial loan portfolio of $5.3 million, offset in part by normal amortization and prepayments of
one-to-four-family mortgages.

While the banking industry has seen increases in loan delinquencies and defaults over the past
year, particularly in the subprime sector, the Bank has not experienced significant losses in its loan portfolio due primarily to its conservative underwriting policies. As of September 30, 2010 and 2009, the Bank had $2.4 million and $1.7
million of non-performing loans, substantially all of which are in process of foreclosure, and are considered impaired and have been placed on non-accrual status. The increase in impaired loans resulted from general economic conditions, increased
unemployment and the declines in the local real estate market. As of September 30, 2010 and 2009, the allowance for loan losses was 0.62% and 0.44% of loans outstanding, respectively. There were $3,000 of loans charged off in the year ended
September 30, 2010 and $2,000 and $3,000 of recoveries in the years ended September 30, 2010 and 2009, respectively. Despite a weakening economy nationally as well as in our primary market area, there was no material shift in the loan
portfolio, loss experience, or other factors affecting the Bank, other than growth in non-residential real estate and commercial loans. As a result of the deterioration of economic conditions, continued high unemployment, declines in real estate
values in the Banks primary market area, lower commercial real estate cash flows and a modest increase in delinquencies, $366,000 and $230,000 was provided for loan losses in the years ended September 30, 2010 and 2009, respectively.

The $847,000 increase in other assets related principally to the required prepayment of FDIC insurance payments for the three
year period ending December 31, 2012 and the prepayment of three years of corporate insurance premiums.

Deposits
increased by $3.9 million, or 2.1%, from $184.4 million as of September 30, 2009 to $188.3 million as of September 30, 2010. The increase in deposits resulted from an $8.0 million one way buy CDARS deposit during the year ended
September 30, 2010. The Bank participates in the Certificate of Deposit Account Registry Service, or CDARS network. Under this 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 increase in deposits from this CDARS transaction was partially offset by
declines in retail deposits.

Stockholders equity increased from $20.9 million at September 30, 2009 to $21.8
million at September 30, 2010 as a result of the net income of $166,000 and by additions to equity resulting from accounting for stock-based compensation and the employee stock ownership plan, or ESOP and other comprehensive income.



10



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Comparison of Operating Results for the Years Ended September 30, 2010 and 2009

General.The Company had net income of $166,000 for the year ended September 30, 2010, compared to a net loss of $439,000 for
the year ended September 30, 2009. The improvement resulted primarily from a decrease in interest expense and the gain on sale of loans and securities, offset in part by increases in the provision for loan losses and non-interest expense.

In April 2009, the Company opened a new branch in Mount Kisco, New York. This new branch caused operating expenses to
increase for the portion of fiscal 2009 that it was open and for all of the year ended September 30, 2010. For the years ended September 30, 2010 and 2009, direct operating expenses of the Mount Kisco branch were $589,000 and $339,000,
respectively.

Interest Income.Total interest income increased $21,000, or 0.2%, to $11.4 million for the year ended
September 30, 2010 compared to the year ended September 30, 2009. The increase in interest income was due to increases of $139,000 in interest income from securities and $59,000 in interest from other interest-earning assets, offset in
part by a decrease of $177,000 in interest income from loans. Higher interest-earning asset balances contributed $333,000 to the increase in total interest income, offset in part by the impact of lower yields on interest-earning assets of $312,000.

Interest income from loans decreased by $177,000, or 1.7%, to $10.2 million for the year ended September 30, 2010 from
$10.4 million for the year ended September 30, 2009. The decrease was due to a $2.6 million, or 1.5%, decrease in the average balance of loans to $174.6 million in the year ended September 30, 2010 from $177.2 million in the year ended
September 30, 2009, and a decrease in the associated average yields to 5.85% in the 2010 fiscal year from 5.87% in the 2009 fiscal year, reflecting lower market rates, decreases in interest rates on adjustable rate loans and the write-off of
deferred loan origination costs on loans that were pre-paid, which were higher in the year ended September 30, 2010 compared to the year ended September 30, 2009. During the year ended September 30, 2010, normal amortization decreased
loan balances by $7.5 million and prepayments reduced loan balances by an additional $19.1 million. Lower average balances contributed $144,000 to the $177,000 decrease in interest income from loans, while the impact of lower yields reduced interest
on loans by $33,000.

Interest income from securities increased by $139,000 to $1.0 million for the year ended
September 30, 2010 from $905,000 for the year ended September 30, 2009. The increase in interest income from securities was due to purchases of short to intermediate-term available-for-sale securities, principally notes, bonds and
mortgage-backed securities of the U.S. Government and U.S. Government Agencies which caused the average balance of securities to increase by $18.3 million in the year ended September 30, 2010 compared to 2009. The impact of higher investment
balances was partially offset by a decrease in the average yield on securities to 2.29% for the year ended September 30, 2010 compared to 3.32% for the year ended September 30, 2009. Higher investment balances contributed $479,000 to the
$139,000 increase in interest income from investments, offset in part by the impact of lower yields of $340,000.

Interest
income from other interest-earning assets increased by $59,000 for the year ended September 30, 2010, due to higher interest rates, which increased interest income by $61,000, offset in part by the impact of lower average balances, which
decreased interest income by $2,000. The higher interest rates on other interest-earning assets resulted from higher dividends from the FHLB, higher balances of loans originated for resale and lower cash equivalents in the year ended
September 30, 2010 compared to 2009.

Interest Expense. Total interest expense decreased by $1.2 million,
or 24.9%, to $3.8 million in the year ended September 30, 2010 compared to $5.0 million in 2009. Interest on demand deposits increased $62,000 as a result of higher average balances, offset in part by the impact of lower interest rates in the
2010 fiscal year. Interest on savings and club accounts increased by $9,000 as a result of the average balances increasing from $38.3 million in the year ended September 30, 2009 to $41.0 in 2010. Interest expense on certificates of deposit



11



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declined by $1.3 million as a result in the reduction of average balances from $93.2 million in the year ended September 30, 2009 to $87.2 million in 2010 and a reduction in interest rates
on certificates of deposit from 3.11% in the year ended September 30, 2009 to 1.82% in 2010. Promotional interest rates on certificates of deposit in connection with the opening of the Mount Kisco branch and more competitive market rates
offered on certificates of deposit in the 2009 period resulted in deposit increases in the year ended September 30, 2009. As these certificates of deposit matured in late 2009, customers transferred funds into money market and passbook
accounts, and to a lesser degree, withdrew the deposits. The increase in deposits includes an $8.0 million one way buy CDARS deposit during the year ended September 30, 2010. Overall declines in market interest rates reduced the average
interest rate on interest-bearing liabilities from 2.73% in the year ended September 30, 2009 to 1.91% in 2010. Of the $1.2 million decrease in interest expense, lower interest rates caused interest expense to decrease by $1.3 million while
higher average balances of interest-bearing liabilities caused the expense to increase by $86,000.

Net Interest Income.Net interest income increased $1.3 million, or 19.9%, to $7.7 million for the year ended September 30, 2010 from $6.4 million for the year ended September 30, 2009. Increases in average interest-earning assets, net of a lower yield on
those assets in the year ended September 30, 2010 as compared to 2009 were partially offset by increases in the volume of interest-bearing liabilities, net of the benefit of lower interest rates on those liabilities.

Provision for Loan Losses.The allowance for loan losses was $1.1 million, or 0.62% of gross loans outstanding, at
September 30, 2010 compared to $749,000, or 0.44% of gross loans outstanding at September 30, 2009. The level of the allowance for loan losses is based on estimates and ultimate losses may vary from these estimates. Management reviews the
level of the allowance for loan losses on a quarterly basis, at a minimum, and establishes the provision for loan losses based on the composition of the loan portfolio, delinquency levels, loss experience, economic conditions, and other factors
related to the collectibility of the loan portfolio. Management regularly evaluates various risk factors related to the loan portfolio, such as type of loan, underlying collateral and payment status, and the corresponding allowance allocation
percentages. As of September 30, 2010 and 2009, the Company had $2.4 million and $1.7 million, respectively, of non-performing loans, substantially all of which are in the process of foreclosure and are considered impaired and have been placed
on non-accrual status. The increase in impaired loans resulted from general economic conditions, increased unemployment and the declines in the local real estate market. There were $3,000 of loans charged off in the year ended September 30,
2010 and $2,000 and $3,000 of recoveries in the years ended September 30, 2010 and 2009. Despite a weak economy nationally as well as in our primary market area, there was no material shift in the loan portfolio, loss experience, or other
factors affecting the Bank, other than growth in non-residential real estate and commercial loans. As a result of the deterioration of economic conditions, continued high unemployment, declines in real estate values in the Companys primary
market area, lower commercial real estate cash flows, higher commercial loans and a modest increase in delinquencies, $366,000 and $230,000 was provided for loan losses in the years ended September 30, 2010 and 2009, 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 $1.0 million in the year ended September 30, 2010 was higher than the non-interest income of $498,000 in the comparable 2009 fiscal year as a result
of $361,000 of net gains on loans originated for sale in the 2010 fiscal year, compared to $270,000 in fiscal 2009, and $457,000 of gains on the sale of securities in the year ended September 30, 2010 (none in fiscal 2009).

Non-interest Expenses.Non-interest expenses were $8.0 million and $7.3 million for the years ended September 30, 2010 and
2009, respectively, representing an increase of $692,000, or 9.4%. Direct operating costs of the Mount Kisco branch increased non-interest expense by $256,000 in the year ended September 30, 2010, compared to 2009 as the branch was open for
only a portion of the 2009 fiscal year. Salaries and benefits increased by $228,000 as a result of the new Mount Kisco branch being open for only a portion of the 2009 fiscal year (accounting for $102,000 of the increase), higher commissions on a
higher volume of loans originated for resale and higher pension costs and medical insurance premiums.



12



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Net occupancy costs increased by $232,000 in the year ended September 30, 2010 compared
to 2009 as a result of the new Mount Kisco branch being open for only a portion of the 2009 fiscal year (accounting for $139,000 of the increase) and as a result of higher maintenance costs and lower rental income from a building on the Mount Vernon
branch property which was previously rented to a retail business. There were also higher equipment costs of $42,000 in the year ended September 30, 2010 compared to 2009 as a result of the new Mount Kisco branch being open for only a portion of
the 2009 fiscal year.

Professional fees were $485,000 in the year ended September 30, 2009 and $645,000 in the year
ended September 30, 2010, an increase of $160,000. Professional fees in the year ended September 30, 2009 included credits from the reimbursement of legal fees from the insurance carrier in connection with the settlement of the suit
brought by two former employees and the reimbursement of legal fees by the defined benefit pension plan, while professional fees in the year ended September 30, 2010 include higher corporate matter legal fees and higher internal and external
audit fees associated with the Companys compliance with the requirements of the Sarbanes-Oxley Act of 2002.

The special
FDIC assessment of $110,000 in the year ended September 30, 2009, net of higher regular assessment rates and the impact of higher deposit balances in the year ended September 30, 2010 caused Federal insurance premiums to decrease by
$86,000. The increase in directors fees of $84,000 in the year ended September 30, 2010 reflects additional board members, more committee meetings, a newly instituted annual retainer for the Chairman of the Board and accelerated
stock-based compensation expense from the retirement of a director in the 2010 fiscal year.

Income Tax Expense (Benefit).The income tax expense was $139,000 in the year ended September 30, 2010 compared to a benefit of $229,000 in 2009. The tax expense (benefit) is recorded based on pretax income or (loss), at the statutory rate for federal tax purposes and
the higher of the statutory rate or minimum tax rate for state purposes. The effective tax rate in the years ended September 30, 2010 and 2009 was different than the statutory rate as a result of providing for New York State minimum taxes and
certain non-deductible expenses.

Management of Market Risk

As a financial institution, the Companys 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 Companys 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 Companys operations, it is not subject to foreign currency exchange or commodity price risk. Instead, the Companys 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 Companys 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 Companys net interest income to fluctuations
in interest rates. Historically, the Companys lending activities have been dominated by one-to-four family real estate mortgage loans, and in more recent periods, 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 Companys
portfolio, selling substantially all of the one-to-four family mortgage originations in the secondary market and emphasizing investments with short- and intermediate-term maturities and borrowing term funds from the FHLB.



13



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In addition, the actual amount of time before mortgage loans are repaid can be significantly
impacted by changes in mortgage prepayment rates and market interest rates. Mortgage prepayment rates will vary due to a number of factors, including the regional economy in the area where the underlying mortgages were originated, seasonal factors,
demographic variables and the assumability of the underlying mortgages. However, the major factors affecting prepayment rates are prevailing interest rates, related mortgage refinancing opportunities and competition. The Company monitors interest
rate sensitivity so that it can make adjustments to its asset and liability mix on a timely basis.

Interest Rate Risk

The Company uses a simulation model to monitor interest rate risk. This model reports the net interest income and net economic value at
risk under different interest rate environments. Specifically, an analysis is performed of changes in net interest income assuming changes in interest rates, both up and down, from current rates over the three year period following the current
financial statements. The changes in interest income and interest expense due to changes in interest rates reflect the interest rate sensitivity of the Companys interest-earning assets and interest-bearing liabilities.

The table below sets forth the latest available estimated changes in net interest income, as of June 30, 2010, 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 |                        | DollarChange |        | PercentChange
|                                                      |        | (Dollars in thousands)
|300                                                   |        | $7,983                 |              | $(154) |               | -1.9%
|200                                                   |        | 8,179                  |              | 42     |               | 0.5% 
|100                                                   |        | 8,109                  |              | (28)   |               | -0.3%
|0                                                     |        | 8,137                  |              |       |               | 0.0% 
|-100                                                  |        | 7,889                  |              | (248)  |               | -3.0%

Liquidity and Capital Resources

The Company is required to maintain levels of liquid assets sufficient to ensure the Companys safe and sound
operation. Liquidity is the ability to meet current and future financial obligations of a short-term nature. The Company adjusts its liquidity levels in order to meet funding needs for deposit outflows, payment of real estate taxes from escrow
accounts on mortgage loans, repayment of borrowings and loan funding commitments. The Company also adjusts its liquidity level as appropriate to meet its asset/liability objectives.

The Companys primary sources of funds are deposits, the Certificate of Deposit Account Registry Service, or CDARS
network, brokered certificates of deposit, amortization and prepayments of loans, FHLB advances, repayments and maturities of investment securities and funds provided from operations. While scheduled loan 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 Companys
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 September 30, 2010 and 2009, the Company had $34.6
million and $34.7 million of advances from the FHLB, respectively, CDARS deposits of $8.0 million as of September 30, 2010 (none as of September 30, 2009) and no brokered deposits as of September 30, 2009 and 2010.



14



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In the year ended September 30, 2010, net cash provided by operating activities was
$61,000, compared to net cash used by operating activities of $28,000 in 2009. In the years ended September 30, 2010 and 2009, net income of $166,000 in 2010 and the net loss of $439,000 in 2009 included non-cash expenses of $936,000 and
$958,000, respectively. Loans originated for resale in the 2010 and 2009 fiscal years provided $78,000 of cash in 2010 and used $635,000 of cash in 2009. The increase in other assets in the year ended September 30, 2010 resulted principally
from the required prepayment of FDIC insurance premiums for the three year period ending December 31, 2012 and the prepayment of three years of corporate insurance premiums.

In the year ended September 30, 2010, investing activities used $7.9 million of cash, compared to $36.7 million in 2009. In the year
ended September 30, 2010, net securities investment activities provided $2.6 million of cash compared to a net use of cash of $47.7 million in 2009. Net loan activities used $10.3 million of cash in the year ended September 30, 2010
compared to 2009 where net loan activities provided $11.4 million of cash. During the year ended September 30, 2010, normal amortization decreased loan balances by $7.5 million and prepayments reduced loan balances by an additional $19.1
million. Additions to premises and equipment used $177,000 and $957,000 of cash in the years ended September 30, 2010 and 2009, respectively, and the purchase or redemption of FHLB stock used $18,000 of cash in 2010 and provided $649,000 of
cash in 2009.

Net cash provided by financing activities was $4.0 million and $38.6 million in the years ended
September 30, 2010 and 2009, respectively. In the 2010 fiscal year, increases in CDARS deposits, net of decreases in retail deposits, provided $3.9 million of cash while increases in retail deposits in the 2009 fiscal year provided $55.6
million of cash. Net repayment of borrowings from the FHLB used $148,000 and $16.0 million of cash in the years ended September 30, 2010 and 2009, respectively, and purchases of stock under the buyback program used $661,000 of cash in the year
ended September 30, 2009.

The $110,000 FDIC special assessment in June 2009 increased the Companys non-interest
expenses for the year ended September 30, 2009. Additional FDIC special assessments, increased deposit insurance assessments, or other regulatory changes impacting the financial services industry could negatively affect the Companys
liquidity and financial results in future periods.

On November 12, 2009, the FDIC Board adopted a final rule that
required insured depository institutions to prepay their quarterly risk-based assessments for the fourth quarter of 2009, and for all of 2010, 2011, and 2012, on December 30, 2009, along with each institutions risk-based deposit insurance
assessment for the third quarter of 2009. For purposes of calculating the prepaid amount, the base assessment rate in effect at September 30, 2009 was used for 2010. That rate was increased by an annualized 3 basis points for 2011 and 2012
assessments. The prepayment calculation also assumes a 5 percent annual deposit growth rate, increased quarterly, through the end of 2012. Under the final rule, an institution accounts for the prepayment by recording the entire amount of its prepaid
assessment as a prepaid expense (an asset) as of December 30, 2009. Subsequently, each institution will record an expense (charge to earnings) for its regular quarterly assessment and an offsetting credit to the prepaid assessment until the
asset is exhausted. Once the asset is exhausted, the institution will resume paying and accounting for quarterly deposit insurance assessments as they do currently. Under the final rule, the FDIC stated that its requirement for prepaid assessments
does not preclude the FDIC from changing assessment rates or from further revising the risk-based assessment system during 2010, 2011, 2012, or thereafter, pursuant to notice-and-comment rulemaking procedures provided by statute, and therefore,
continued actions by the FDIC could significantly increase the Banks noninterest expense in fiscal 2011 and for the foreseeable future.

On November 9, 2010, the FDIC Board issued a proposed rule to change the deposit insurance assessment base from adjusted domestic deposits to a banks average consolidated total assets minus
average tangible equity, as required by the Dodd-Frank Act. The proposal defines tangible equity as Tier 1 capital. Since the new base would be larger than the current base, the FDIC also proposed to revise the initial base assessment rate schedule
by lowering assessment rates to a range between 2.5 and 9 basis points for banks in the lowest risk category, and 30 to 45 basis points for banks in the highest risk category. In connection with the proposed changes to the assessment base, the FDIC
also proposed to modify or eliminate the adjustments made to an institutions initial



15



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base assessment rate for unsecured debt, secured liabilities, and brokered deposits, and to add a new adjustment for holding unsecured debt issued by another insured depository institution. The
changes would generally take effect as of April 1, 2011 and would be reflected in the June 30, 2011 fund balance and the invoices for assessments due September 30, 2011. In a separate rulemaking, the FDIC Board re-proposed changes for
the deposit insurance assessment system for large institutions with $10 billion or more in assets (changes were first proposed in April 2010), given the assessment base changes required under the Dodd-Frank Act The impact of the proposed rules and
additional FDIC special assessments or other regulatory changes impacting the financial services industry could negatively effect the Companys liquidity and financial results in future periods.

The Company anticipates that it will have sufficient funds available to meet its current loan and other commitments. As of
September 30, 2010, the Company had cash and cash equivalents of $3.4 million and available for sale securities of $56.3 million. At September 30, 2010, the Company has outstanding commitments to originate loans of $8.8 million and $11.3
million of undisbursed funds from approved lines of credit, principally under a homeowners equity line of credit lending program. Certificates of deposit scheduled to mature in one year or less at September 30, 2010, totaled $85.9
million. Historically, the Companys deposit flow history has been that a significant portion of such deposits remain with the Company. A portion of the retail deposit increase of $59.6 million in the year ended September 30, 2009 occurred
from promotional certificate of deposit rates offered in connection with the Mount Kisco branch opening, and the retention rate for these certificates of deposit was lower than the Companys historical retention rates.

On April 17, 2008 and September 25, 2008, the Companys Board of Directors approved stock buy back plans that authorized
the Company to buy back up to 98,647 and 93,715 shares of the outstanding stock of the Company, respectively. The buy backs were administered as 10(b)5-1 plans by Stifel Nicolaus, the Companys investment banker. Through September 30,
2009, 98,647 shares of the Companys common stock had been repurchased for $999,000 under the first plan and 93,715 shares of common stock had been repurchased for $661,000 under the second plan. No shares were repurchased during the year ended
September 30, 2010.

The Company has an Overnight Advance line with the FHLB, of which none was in use at
September 30, 2010. The Companys overall credit exposure at the FHLB, including borrowings under the Overnight Advance line 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 following table sets forth the Banks capital position at
September 30, 2010, compared to the minimum regulatory capital requirements:



|                                                 |  |                        |        |  |                              |  |       |                                                               |  |   |        |  |  |        |       |   |       |   |         |  |  |  |        |  
|------------------------------------------------ |  | ---------------------- | ------ |  | ---------------------------- |  | ----- | ------------------------------------------------------------- |  | - | ------ |  |  | ------ | ----- | - | ----- | - | ------- |  |  |  | ------ | -
|                                                 |  | Actual                 |        |  | For CapitalAdequacy Purposes |  |       | To be WellCapitalized underPrompt CorrectiveAction Provisions | 
|                                                 |  | Amount                 |        |  | Ratio                        |  |       | Amount                                                        |  |   | Ratio  |  |  | Amount |       |   | Ratio |  
|                                                 |  | (Dollars in thousands) |       
|Total capital (to risk-weighted assets)          |  | $                      | 19,836 |  |                              |  | 17.13 | %                                                             |  | $ | 39,263 |  |  |        | 38.00 | % |       | $ | 311,579 |  |  |  | 310.00 | %
|Core (Tier 1) capital (to risk-weighted assets)  |  |                        | 18,722 |  |                              |  | 16.17 |                                                               |  |   |       |  |  |        |      |   |       |   | 36,947  |  |  |  | 36.00  |  
|Core (Tier 1) capital (to total adjusted assets) |  |                        | 18,722 |  |                              |  | 7.60  |                                                               |  |   | 39,850 |  |  |        | 34.00 |   |       |   | 312,313 |  |  |  | 35.00  |  
|Tangible capital (to total adjusted assets)      |  |                        | 18,722 |  |                              |  | 7.60  |                                                               |  |   | 33,694 |  |  |        | 31.50 |   |       |   |        |  |  |  |       |  

Off-Balance Sheet
Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on the Companys financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Recent Accounting Pronouncements

See Note 19 to the Consolidated Financial Statements for a summary of recent accounting pronouncements.



16



---

Impact of Inflation and Changing Prices

The consolidated financial statements and related notes of the Company have been prepared in accordance with GAAP which generally requires
the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased
cost of the Companys operations. Unlike industrial companies, the Companys assets and liabilities are primarily monetary in nature. As a result, the effect of changes in interest rates will have a more significant impact on the
Companys performance than will the effect of changing prices and inflation in general.



17



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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

CMS Bancorp, Inc.

White Plains, New York

We have audited the accompanying consolidated statements of financial condition of CMS Bancorp, Inc. and subsidiary (collectively the
Company) as of September 30, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders equity and cash flows for the years then ended. CMS Bancorp, Inc.s management is responsible for
the consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting
principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of CMS Bancorp, Inc. and subsidiary as of September 30, 2010 and 2009, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

LOGO

Clark, New Jersey

December 15, 2010



18



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CMS Bancorp, Inc.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



|                                                                                                                    |  |                                               |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                    |  | September 30,                                 |        
|                                                                                                                    |  | 2010                                          |         |   | 2009 |  
|                                                                                                                    |  | (Dollars in thousands,
except per share data) |        
|ASSETS                                                                                                              |  |                                               |         |  
|Cash and amounts due from depository institutions                                                                   |  | $                                             | 818     |   |      | $ | 1,008   |  
|Interest-bearing deposits                                                                                           |  |                                               | 2,616   |   |      |   | 6,296   |  
|                                                                                                                    |  |                                               |         |   |      |   |         |  
|Total cash and cash equivalents                                                                                     |  |                                               | 3,434   |   |      |   | 7,304   |  
|Securities available for sale                                                                                       |  |                                               | 56,336  |   |      |   | 58,487  |  
|Securities held to maturity, estimated fair value of $172                                                           |  |                                               |        |   |      |   | 156     |  
|Loans held for sale                                                                                                 |  |                                               | 557     |   |      |   | 635     |  
|Loans receivable, net of allowance for loan losses of $1,114 and $749, respectively                                 |  |                                               | 179,066 |   |      |   | 169,293 |  
|Premises and equipment                                                                                              |  |                                               | 2,945   |   |      |   | 3,119   |  
|Federal Home Loan Bank of New York stock                                                                            |  |                                               | 1,956   |   |      |   | 1,938   |  
|Interest receivable                                                                                                 |  |                                               | 988     |   |      |   | 976     |  
|Other assets                                                                                                        |  |                                               | 2,103   |   |      |   | 1,256   |  
|                                                                                                                    |  |                                               |         |   |      |   |         |  
|Total assets                                                                                                        |  | $                                             | 247,385 |   |      | $ | 243,164 |  
|                                                                                                                    |  |                                               |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                |  |                                               |         |   |      |   |         |  
|                                                                                                                    |  |                                              
|Liabilities:                                                                                                        |  |                                               |         |   |      |   |         |  
|Deposits                                                                                                            |  | $                                             | 188,306 |   |      | $ | 184,387 |  
|Advances from Federal Home Loan Bank of New York                                                                    |  |                                               | 34,578  |   |      |   | 34,726  |  
|Advance payments by borrowers for taxes and insurance                                                               |  |                                               | 849     |   |      |   | 668     |  
|Other liabilities                                                                                                   |  |                                               | 1,896   |   |      |   | 2,470   |  
|                                                                                                                    |  |                                               |         |   |      |   |         |  
|Total liabilities                                                                                                   |  |                                               | 225,629 |   |      |   | 222,251 |  
|                                                                                                                    |  |                                               |         |   |      |   |         |  
|Stockholders equity:                                                                                               |  |                                               |         |   |      |   |         |  
|Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding                                      |  |                                               |        |   |      |   |        |  
|Common stock, $.01 par value, authorized shares: 7,000,000; shares issued: 2,055,165; shares outstanding:
1,862,803 |  |                                               | 21      |   |      |   | 21      |  
|Additional paid-in capital                                                                                          |  |                                               | 18,272  |   |      |   | 18,045  |  
|Retained earnings                                                                                                   |  |                                               | 6,511   |   |      |   | 6,345   |  
|Treasury stock, 192,362 shares                                                                                      |  |                                               | (1,660  | ) |      |   | (1,660  | )
|Unearned Employee Stock Ownership Plan (ESOP) shares                                                              |  |                                               | (1,452  | ) |      |   | (1,507  | )
|Accumulated other comprehensive income (loss)                                                                       |  |                                               | 64      |   |      |   | (331    | )
|                                                                                                                    |  |                                               |         |   |      |   |         |  
|Total stockholders equity                                                                                          |  |                                               | 21,756  |   |      |   | 20,913  |  
|                                                                                                                    |  |                                               |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                          |  | $                                             | 247,385 |   |      | $ | 243,164 |  
|                                                                                                                    |  |                                               |         |   |      |   |         |  

See notes to consolidated financial statements.



19



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CMS Bancorp, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                     |  |                                               |           |  |      |   |           |  
|---------------------------------------------------- |  | --------------------------------------------- | --------- |  | ---- | - | --------- | -
|                                                     |  | Years EndedSeptember 30,                      |          
|                                                     |  | 2010                                          |           |  | 2009 |  
|                                                     |  | (Dollars in thousands,
except per share data) |          
|Interest income:                                     |  |                                               |           | 
|Loans, including fees                                |  | $                                             | 10,219    |  |      | $ | 10,396    |  
|Securities, taxable                                  |  |                                               | 1,044     |  |      |   | 905       |  
|Other interest-earning assets                        |  |                                               | 163       |  |      |   | 104       |  
|                                                     |  |                                               |           |  |      |   |           |  
|Total interest income                                |  |                                               | 11,426    |  |      |   | 11,405    |  
|                                                     |  |                                               |           |  |      |   |           |  
|Interest expense:                                    |  |                                               |           |  |      |   |           |  
|Deposits                                             |  |                                               | 2,038     |  |      |   | 3,281     |  
|Mortgage escrow funds                                |  |                                               | 24        |  |      |   | 21        |  
|Borrowings, short-term                               |  |                                               | 15        |  |      |   | 13        |  
|Borrowings, long-term                                |  |                                               | 1,687     |  |      |   | 1,698     |  
|                                                     |  |                                               |           |  |      |   |           |  
|Total interest expense                               |  |                                               | 3,764     |  |      |   | 5,013     |  
|                                                     |  |                                               |           |  |      |   |           |  
|Net interest income                                  |  |                                               | 7,662     |  |      |   | 6,392     |  
|Provision for loan losses                            |  |                                               | 366       |  |      |   | 230       |  
|                                                     |  |                                               |           |  |      |   |           |  
|Net interest income after provision for loan losses  |  |                                               | 7,296     |  |      |   | 6,162     |  
|                                                     |  |                                               |           |  |      |   |           |  
|Non-interest income:                                 |  |                                               |           |  |      |   |           |  
|Fees and service charges                             |  |                                               | 201       |  |      |   | 214       |  
|Net gain on sale of loans                            |  |                                               | 361       |  |      |   | 270       |  
|Net gain on sale and call of securities              |  |                                               | 457       |  |      |   |          |  
|Other                                                |  |                                               | 10        |  |      |   | 14        |  
|                                                     |  |                                               |           |  |      |   |           |  
|Total non-interest income                            |  |                                               | 1,029     |  |      |   | 498       |  
|                                                     |  |                                               |           |  |      |   |           |  
|Non-interest expenses:                               |  |                                               |           |  |      |   |           |  
|Salaries and employee benefits                       |  |                                               | 4,106     |  |      |   | 3,878     |  
|Net occupancy                                        |  |                                               | 1,174     |  |      |   | 942       |  
|Equipment                                            |  |                                               | 675       |  |      |   | 633       |  
|Professional fees                                    |  |                                               | 645       |  |      |   | 485       |  
|Advertising                                          |  |                                               | 201       |  |      |   | 186       |  
|Federal insurance premium                            |  |                                               | 260       |  |      |   | 346       |  
|Directors fees                                      |  |                                               | 245       |  |      |   | 161       |  
|Other insurance                                      |  |                                               | 75        |  |      |   | 68        |  
|Bank charges                                         |  |                                               | 72        |  |      |   | 87        |  
|Other                                                |  |                                               | 567       |  |      |   | 542       |  
|                                                     |  |                                               |           |  |      |   |           |  
|Total non-interest expenses                          |  |                                               | 8,020     |  |      |   | 7,328     |  
|                                                     |  |                                               |           |  |      |   |           |  
|Income (loss) before income tax expense (benefit)    |  |                                               | 305       |  |      |   | (668      | )
|Income tax expense (benefit)                         |  |                                               | 139       |  |      |   | (229      | )
|                                                     |  |                                               |           |  |      |   |           |  
|Net income (loss)                                    |  | $                                             | 166       |  |      | $ | (439      | )
|                                                     |  |                                               |           |  |      |   |           |  
|Net income (loss) per common share                   |  |                                               |           |  |      |   |           |  
|Basic and diluted                                    |  | $                                             | 0.10      |  |      | $ | (0.25     | )
|                                                     |  |                                               |           |  |      |   |           |  
|Weighted average number of common shares outstanding |  |                                               |           |  |      |   |           |  
|Basic and diluted                                    |  |                                               | 1,698,705 |  |      |   | 1,732,422 |  
|                                                     |  |                                               |           |  |      |   |           |  

See notes to consolidated financial statements.



20



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CMS Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

Years Ended September 30, 2010 and 2009

(Dollars in thousands)



|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|---------------------------------------- |  | ----------- | -- |  | ------------------------ | - | ------ | ---------------- |  | - | ------------- | - |  | ------------------ | ------ | - | --------------------------------- | - | ------ | ----- |  | - | ---- | - |  | - | ------ | -
|                                         |  | CommonStock |    |  | AdditionalPaid-inCapital |   |        | RetainedEarnings |  |   | TreasuryStock |   |  | UnearnedESOPShares |        |   | AccumulatedOtherComprehensiveLoss |   |        | Total | 
|Balance October 1, 2008                  |  | $           | 21 |  |                          | $ | 17,852 |                  |  | $ | 6,784         |   |  | $                  | (999   | ) |                                   | $ | (1,562 | )     |  | $ | (387 | ) |  | $ | 21,709 |  
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|Net loss                                 |  |             |    |  |                          |   |        |                  |  |   | (439          | ) |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | (439   | )
|Other comprehensive income               |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   | 56   |   |  |   | 56     |  
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|Total comprehensive (loss)               |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | (314   | )
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|ESOP shares committed for release        |  |             |    |  |                          |   | (15    | )                |  |   |               |   |  |                    |        |   |                                   |   | 55     |       |  |   |      |   |  |   | 40     |  
|Stock option expense                     |  |             |    |  |                          |   | 83     |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | 83     |  
|Restricted stock award expense           |  |             |    |  |                          |   | 125    |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | 125    |  
|Treasury stock purchased(93,715 shares) |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    | (661   | ) |                                   |   |        |       |  |   |      |   |  |   | (661   | )
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|Balance September 30, 2009               |  |             | 21 |  |                          |   | 18,045 |                  |  |   | 6,345         |   |  |                    | (1,660 | ) |                                   |   | (1,507 | )     |  |   | (331 | ) |  |   | 20,913 |  
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|Net income                               |  |             |    |  |                          |   |        |                  |  |   | 166           |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | 166    |  
|Other comprehensive income               |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   | 395  |   |  |   | 395    |  
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|Total comprehensive income               |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | 561    |  
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|ESOP shares committed for release        |  |             |    |  |                          |   | (9     | )                |  |   |               |   |  |                    |        |   |                                   |   | 55     |       |  |   |      |   |  |   | 46     |  
|Stock option expense                     |  |             |    |  |                          |   | 96     |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | 96     |  
|Restricted stock award expense           |  |             |    |  |                          |   | 140    |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   | 140    |  
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  
|Balance September 30, 2010               |  | $           | 21 |  |                          | $ | 18,272 |                  |  | $ | 6,511         |   |  | $                  | (1,660 | ) |                                   | $ | (1,452 | )     |  | $ | 64   |   |  | $ | 21,756 |  
|                                         |  |             |    |  |                          |   |        |                  |  |   |               |   |  |                    |        |   |                                   |   |        |       |  |   |      |   |  |   |        |  

See notes to consolidated financial statements.



21



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CMS Bancorp, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                   |  |                          |         |   |      |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                                                                   |  | Years EndedSeptember 30, |        
|                                                                                                   |  | 2010                     |         |   | 2009 |  
|                                                                                                   |  | (In thousands)           |        
|Cash flows from operating activities:                                                              |  |                          |         |  
|Net Income (loss)                                                                                  |  | $                        | 166     |   |      | $ | (439    | )
|Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities: |  |                          |         |   |      |   |         |  
|Depreciation of premises and equipment                                                             |  |                          | 351     |   |      |   | 332     |  
|Amortization and accretion, net                                                                    |  |                          | 308     |   |      |   | 313     |  
|Provision for loan losses                                                                          |  |                          | 366     |   |      |   | 230     |  
|Deferred income taxes                                                                              |  |                          | (371    | ) |      |   | (165    | )
|ESOP expense                                                                                       |  |                          | 46      |   |      |   | 40      |  
|Stock option expense                                                                               |  |                          | 96      |   |      |   | 83      |  
|Restricted stock award expense                                                                     |  |                          | 140     |   |      |   | 125     |  
|Net gain on sale and call of securities                                                            |  |                          | (457    | ) |      |   |        |  
|Net gain on sale of loans                                                                          |  |                          | (361    | ) |      |   | (270    | )
|Loans originated for resale                                                                        |  |                          | (16,872 | ) |      |   | (12,527 | )
|Proceeds from loans sold                                                                           |  |                          | 17,311  |   |      |   | 12,162  |  
|(Increase) in interest receivable                                                                  |  |                          | (12     | ) |      |   | (195    | )
|(Increase) decrease in other assets                                                                |  |                          | (740    | ) |      |   | 34      |  
|(Decrease) increase in accrued interest payable                                                    |  |                          | (171    | ) |      |   | 286     |  
|Increase (decrease) in other liabilities                                                           |  |                          | 261     |   |      |   | (37     | )
|                                                                                                   |  |                          |         |   |      |   |         |  
|Net cash provided by (used by) operating activities                                                |  |                          | 61      |   |      |   | (28     | )
|                                                                                                   |  |                          |         |   |      |   |         |  
|Cash flows from investing activities:                                                              |  |                          |         |   |      |   |         |  
|Proceeds from sale and call of securities available for sale                                       |  |                          | 18,499  |   |      |   | 2,500   |  
|Proceeds from sale of securities held to maturity                                                  |  |                          | 163     |   |      |   |        |  
|Purchases of securities available for sale                                                         |  |                          | (44,896 | ) |      |   | (54,723 | )
|Principal repayments, calls and maturities on securities available for sale                        |  |                          | 28,857  |   |      |   | 4,439   |  
|Principal repayments on securities held to maturity                                                |  |                          | 2       |   |      |   | 35      |  
|Net (increase) decrease in loans receivable                                                        |  |                          | (10,313 | ) |      |   | 11,392  |  
|Additions to premises and equipment                                                                |  |                          | (177    | ) |      |   | (957    | )
|(Purchase) redemption of FHLB stock                                                                |  |                          | (18     | ) |      |   | 649     |  
|                                                                                                   |  |                          |         |   |      |   |         |  
|Net cash (used by) investing activities                                                            |  |                          | (7,883  | ) |      |   | (36,665 | )
|                                                                                                   |  |                          |         |   |      |   |         |  
|Cash flows from financing activities:                                                              |  |                          |         |   |      |   |         |  
|Net increase in deposits                                                                           |  |                          | 3,919   |   |      |   | 55,630  |  
|Net (decrease) in securities sold under repurchase agreements                                      |  |                          |        |   |      |   | (614    | )
|Decrease in short-term advances from Federal Home Loan Bank of N.Y.                                |  |                          |        |   |      |   | (15,900 | )
|Repayment of long-term advances from Federal Home Loan Bank of N.Y.                                |  |                          | (148    | ) |      |   | (141    | )
|Net increase in payments by borrowers for taxes and insurance                                      |  |                          | 181     |   |      |   | 281     |  
|Purchase of treasury stock                                                                         |  |                          |        |   |      |   | (661    | )
|                                                                                                   |  |                          |         |   |      |   |         |  
|Net cash provided by financing activities                                                          |  |                          | 3,952   |   |      |   | 38,595  |  
|                                                                                                   |  |                          |         |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                                               |  |                          | (3,870  | ) |      |   | 1,902   |  
|Cash and cash equivalents-beginning                                                                |  |                          | 7,304   |   |      |   | 5,402   |  
|                                                                                                   |  |                          |         |   |      |   |         |  
|Cash and cash equivalents-ending                                                                   |  | $                        | 3,434   |   |      | $ | 7,304   |  
|                                                                                                   |  |                          |         |   |      |   |         |  
|Supplemental information                                                                           |  |                          |         |   |      |   |         |  
|Cash paid during the period for                                                                    |  |                          |         |   |      |   |         |  
|Interest                                                                                           |  | $                        | 3,935   |   |      | $ | 4,727   |  
|                                                                                                   |  |                          |         |   |      |   |         |  
|Income taxes                                                                                       |  | $                        | 26      |   |      | $ | 3       |  
|                                                                                                   |  |                          |         |   |      |   |         |  

See notes to consolidated financial statements.



22



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1Principles of Consolidation

The consolidated financial
statements include the accounts of CMS Bancorp, Inc. (the Company) and its wholly owned subsidiary, Community Mutual Savings Bank (the Bank). The Companys business is conducted principally through the Bank. All
significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified in the consolidated financial statements to conform to the current presentation.

Note 2Summary of Significant Accounting Policies

Basis of Financial Statement Presentation

The consolidated
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). In preparing the consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the dates of the statements of financial condition and revenues and expenses for the periods then ended. Actual results could differ significantly from those estimates.

It is managements opinion that accounting estimates covering certain aspects of the business have more significance
than others due to the relative importance of those areas to overall performance, or the level of subjectivity required in making these estimates. Material estimates that are particularly susceptible to significant change relate to the determination
of the allowance for loan losses, the potential impairment of Federal Home Loan Bank of New York (FHLB) stock, the determination of other-than-temporary impairment on securities, and the assessment of whether deferred taxes are more
likely than not to be realized. Management believes that the allowance for loan losses represents its best estimate of losses known and inherent in the loan portfolio that are both probable and reasonable to estimate. While management uses available
information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in market and economic conditions in the Companys market area. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Companys 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.

Managements determination of whether investments, including FHLB
stock, are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. Managements assessment as to the amount of deferred taxes more likely than not to be realized
is based upon future taxable income, which is subject to revision upon updated information.

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 may occur for potential recognition in the financial statements, identifies the circumstances
under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosure that should be made about events or transactions that occur after the balance sheet date. In
preparing these consolidated financial statements, the Company evaluated the events that occurred after September 30, 2010 and through the date these consolidated financial statements were issued.

Cash and Cash Equivalents

Cash and cash equivalents include cash and amounts due from depository institutions, interest-earning deposits and federal funds sold, all with original maturities of three months or less.



23



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Securities

Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity
securities and reported at amortized cost. Debt securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and
losses included in earnings. Debt securities not classified as trading securities or as held to maturity securities, are classified as available for sale securities and reported at fair value, with unrealized holding gains and losses, net of
applicable income taxes, reported in accumulated other comprehensive income (loss), as a separate component of stockholders equity. The Company has no securities classified as trading securities.

Premiums and discounts on all debt securities are amortized or accreted to income by use of the interest method over the estimated
remaining period to contractual maturity, or the security call date.

Gains or losses on sales of securities are recognized on
the specific identification method.

Individual securities are considered impaired when the fair value of such security is
less than its amortized cost. The Company evaluates all securities with unrealized losses quarterly to determine if such impairments are temporary or other-than-temporary in accordance with applicable accounting guidance. The Company
accounts for temporary impairments based upon security classification as either available for sale or held to maturity. Temporary impairments on available for sale securities are recognized on a tax-effected basis, through other comprehensive income
(loss) with offsetting entries adjusting the carrying value of the securities and the balance of deferred income taxes. Temporary impairments of held to maturity securities are not recognized in the consolidated financial statements; however
information concerning the amount and duration of impairments on held to maturity securities is disclosed in the notes to the consolidated financial statements.

Other-than-temporary impairments on securities that the Company has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level to, or
exceeding amortized cost are recognized in earnings. Otherwise, the other-than-temporary impairment is bifurcated into credit related and noncredit-related components. The credit related impairment generally represents the amount by which the
present value of the cash flows expected to be collected on a debt security falls below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. Credit related
other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred income taxes, in other comprehensive income (loss).

The Company reviews its investment portfolio on a quarterly basis for indications of impairment. This review includes analyzing the
length of time and the extent to which the fair value has been lower than the cost, and the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer. The Company also
assesses its intent with regard to selling or holding each security as well as any conditions which may require it to sell the security prior to the recovery of fair value to a level which equals or exceeds amortized cost.

Loans Receivable

Loans receivable are carried at unpaid principal balances and net deferred loan origination costs less the allowance for loan losses.



24



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company defers loan origination fees and certain direct loan origination costs and
accretes net amounts as an adjustment of yield over the contractual lives of the related loans. Unamortized net fees and costs are written off if the loan is repaid before its stated maturity.

Recognition of interest income is discontinued and existing accrued interest receivable is reversed on loans that are more than ninety
days delinquent and where management, through its loan review process, feels such loan should be classified as non-accrual. Income is subsequently recognized only to the extent that cash payments are received until, in managements judgment,
the borrowers ability to make periodic interest and principal payments is probable, in which case the loan is returned to an accrual status.

Allowance for Loan Losses

An allowance for loan losses is
maintained at a level that represents managements best estimate of losses known and inherent in the loan portfolio that are both probable and estimable. The allowance is decreased by loan charge-offs, increased by subsequent recoveries of
loans previously charged off, and then adjusted, via either a charge or credit to operations, to an amount determined by management to be necessary. Loans or portions thereof are charged off when, after collection efforts are exhausted, they are
determined to be uncollectible. Management of the Company, in determining the allowance for loan losses, considers the losses inherent in its loan portfolio and changes in the nature and volume inherent in its loan activities, along with the general
economic and real estate market conditions. The Company utilizes a two tier approach: (1) identification of impaired loans and establishment of specific loss allowances on such loans; and (2) establishment of general valuation allowances
on the remainder of its loan portfolio. The Company maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential impaired loans.

Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition
of the borrowers. Specific loan loss allowances are established for identified loans based on a review of such information and/or appraisals of the underlying collateral. General loan losses are determined based upon a combination of factors
including, but not limited to, actual loan loss experience, composition of the loan portfolio, current economic conditions and managements judgment. Although management believes that specific and general loan losses are established in
accordance with managements best estimate, actual losses are dependent upon future events and, as such, further additions to the level of loan loss allowances may be necessary.

A loan evaluated for impairment is deemed to be impaired when, based on current information and events, it is probable that the Company
will be unable to collect all amounts due according to the contractual terms of the loan agreement. The amount of loan impairment is measured based on the present value of expected future cash flows discounted at the loans effective interest
rate or, as a practical expedient, at the loans observable market price or the fair value of the collateral if the loan is collateral dependent. All loans identified as impaired are evaluated independently. The Company does not aggregate such
loans for evaluation purposes.

Federal Home Loan Bank of New York Stock

The Companys required investment in the common stock of the FHLB is carried at cost as of September 30, 2010 and 2009.

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. Managements determination of whether this investment is impaired is based on their assessment of the ultimate recoverability of their cost rather



25



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the
significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the
level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment charge
was necessary related to the FHLB stock as of September 30, 2010.

Transfer of Financial Assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred
assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the
transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Concentration of Risk

The Companys lending activities are
concentrated in loans secured by real estate located in Westchester County, N. Y. and surrounding areas.

Premises and
Equipment

Premises and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and
equipment and leasehold improvements, at cost less accumulated depreciation and amortization. Depreciation and amortization charges are computed using the straight-line method over the following estimated useful lives:



|                           |  |                                         
|-------------------------- |  | ----------------------------------------
|                           |  | Years                                   
|Buildings and improvements |  | 10  50                                 
|Furnishings and equipment  |  | 3  10                                  
|Leasehold improvements     |  | The lesser ofuseful life or termof lease

Significant renewals and betterments are charged to the property and equipment account. Maintenance and repairs are charged to expense in the year incurred. Rental income is netted against occupancy
expenses in the consolidated statements of operations.

Advertising

Advertising expense is recognized as incurred.

Income Taxes

The Company and the Bank file a consolidated federal
income tax return. Federal income taxes are allocated to the Company and the Bank based upon the contribution of their respective income or loss to the consolidated return. The Company and the Bank file a combined state income tax return.



26



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Federal and state income taxes have been provided on the basis of reported income
(loss). The amounts reflected on the income tax returns differ from these provisions due principally to temporary differences in the treatment of certain items for financial statement and income tax reporting purposes. Deferred income taxes have
been recorded to recognize such temporary differences. The realization of deferred tax assets is assessed and a valuation allowance is provided, when necessary, for that portion of the asset which more likely than not will not be realized.

The Company follows the FASBs guidance regarding accounting for uncertainty in income taxes. This guidance provides
clarification on accounting for uncertainty in income taxes recognized in an enterprises financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return, and also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Companys evaluation of
the implementation of this guidance, no significant income tax uncertainties were identified. Therefore, the Company recognized no adjustment for unrecognized income tax benefits for the years ended September 30, 2010 and 2009. The
Companys policy is to recognize interest and penalties on unrecognized tax benefits in income taxes expense in the consolidated statement of operations. The Company did not recognize any interest and penalties for the years ended
September 30, 2010 and 2009. The tax years subject to examination by the taxing authorities are the years ended December 31, 2009, 2008 and 2007.

Benefit Plans

The Company has a non-contributory defined benefit
pension plan covering all eligible employees. The Company also has a 401(k) retirement plan and an ESOP, both of which are defined contribution plans.

The benefits for the pension plan are based on years of service and employees compensation. Prior service costs for the pension plan generally are amortized over the estimated remaining service
periods of employees. The Company uses the corridor approach in the valuation of the pension plan which defers all actuarial gains and losses resulting from differences between actual results and economic estimates or actuarial assumptions. For the
pension plan, these unrecognized gains and losses are amortized to income when net gains and losses exceed 10% of the greater of the market-value of plan assets or the projected benefit obligation at the beginning of the plan year.

In accordance with FASBs guidance regarding accounting for defined benefit and other postretirement plans, which the Company
adopted as of September 30, 2007, the Company recognizes the over-funded or under-funded status of the benefit plans as an asset or liability in the consolidated statement of financial condition, with the changes in the funded status recorded
through other comprehensive income (loss) in the year in which the change occurs.

Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) by the weighted average number of
shares of common stock outstanding. Outstanding stock options were antidilutive and were therefore excluded from common stock equivalents. Unallocated common shares held by the ESOP are not included in the weighted average number of common shares
outstanding for purposes of calculating both basic and diluted net income (loss) per share until they are committed to be released.

Off-Balance Sheet Credit-Related Financial Instruments

In the
ordinary course of business, the Company enters into commitments to extend credit, including commitments under lines of credit. Such financial instruments are recorded when they are funded.



27



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 3Securities Available for Sale

Securities available for sale as of September 30, 2010 and 2009 were as follows:



|                                          |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|----------------------------------------- |  | -------------- | ------ |  | -------------------- | - | --- | --------------------- |  | - | --------- |  |  | - | ------ | 
|                                          |  | AmortizedCost  |        |  | GrossUnrealizedGains |   |     | GrossUnrealizedLosses |  |   | FairValue | 
|                                          |  | (In thousands) |       
|September 30, 2010                        |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|U.S. Government Agencies:                 |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|Due after one but within five years       |  | $              | 26,550 |  |                      | $ | 288 |                       |  | $ |          |  |  | $ | 26,838 | 
|Due after five years but within ten years |  |                | 11,753 |  |                      |   | 23  |                       |  |   |          |  |  |   | 11,776 | 
|Mortgage-backed securities                |  |                | 17,455 |  |                      |   | 267 |                       |  |   |          |  |  |   | 17,722 | 
|                                          |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|                                          |  | $              | 55,758 |  |                      | $ | 578 |                       |  | $ |          |  |  | $ | 56,336 | 
|                                          |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|September 30, 2009                        |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|U.S. Government Agencies:                 |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|Due after one but within five years       |  | $              | 18,415 |  |                      | $ | 174 |                       |  | $ |          |  |  | $ | 18,589 | 
|Due after five years but within ten years |  |                | 5,861  |  |                      |   |    |                       |  |   | 22        |  |  |   | 5,839  | 
|Mortgage-backed securities                |  |                | 33,628 |  |                      |   | 464 |                       |  |   | 33        |  |  |   | 34,059 | 
|                                          |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 
|                                          |  | $              | 57,904 |  |                      | $ | 638 |                       |  | $ | 55        |  |  | $ | 58,487 | 
|                                          |  |                |        |  |                      |   |     |                       |  |   |           |  |  |   |        | 

There were no securities with unrealized losses as of September 30, 2010. The age of unrealized losses
and fair value of related securities available for sale at September 30, 2009 were as follows:



|                           |  |                     |        |  |                   |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    | 
|-------------------------- |  | ------------------- | ------ |  | ----------------- | - | -- | --------- |  | - | ---------------- |  |  | --------- | - |  | ---------------- | - | ------ |  |  | - | -- | 
|                           |  | Less than 12 Months |        |  | 12 Months or More |   |    | Total     | 
|                           |  | FairValue           |        |  | UnrealizedLosses  |   |    | FairValue |  |   | UnrealizedLosses |  |  | FairValue |   |  | UnrealizedLosses |  
|                           |  | (In thousands)      |       
|September 30, 2009         |  |                     |        |  |                   |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    | 
|U.S. Government Agencies   |  | $                   | 5,839  |  |                   | $ | 22 |           |  | $ |                 |  |  | $         |  |  |                  | $ | 5,839  |  |  | $ | 22 | 
|Mortgage-backed securities |  |                     | 12,212 |  |                   |   | 33 |           |  |   |                 |  |  |           |  |  |                  |   | 12,212 |  |  |   | 33 | 
|                           |  |                     |        |  |                   |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    | 
|                           |  | $                   | 18,051 |  |                   | $ | 55 |           |  | $ |                 |  |  | $         |  |  |                  | $ | 18,051 |  |  | $ | 55 | 
|                           |  |                     |        |  |                   |   |    |           |  |   |                  |  |  |           |   |  |                  |   |        |  |  |   |    | 

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 Companys consolidated financial statements.

The
unrealized losses reported on securities at September 30, 2009 relate to two securities issued by U.S. Government Agencies and seven mortgage-backed securities. These unrealized losses were due to changes in interest rates.



28



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



All mortgage-backed securities are U.S. Government Agencies backed and collateralized by
residential mortgages.

During the year ended September 30, 2010, proceeds from sales of securities available for sale
totaled $18,499,000 and resulted in gross gains of $402,000 and gross losses of $5,000.

There were no sales of securities
available for sale during the year ended September 30, 2009.

Note 4Securities Held to Maturity



|                                                |  |                |     |  |                      |   |    |                       |  |   |           |  |  |   |     | 
|----------------------------------------------- |  | -------------- | --- |  | -------------------- | - | -- | --------------------- |  | - | --------- |  |  | - | --- | 
|                                                |  | AmortizedCost  |     |  | GrossUnrealizedGains |   |    | GrossUnrealizedLosses |  |   | FairValue | 
|                                                |  | (In thousands) |    
|September 30, 2009                              |  |                |     |  |                      |   |    |                       |  |   |           |  |  |   |     | 
|Mortgage-backed securities, due after ten years |  | $              | 156 |  |                      | $ | 16 |                       |  | $ |          |  |  | $ | 172 | 
|                                                |  |                |     |  |                      |   |    |                       |  |   |           |  |  |   |     | 
|                                                |  | $              | 156 |  |                      | $ | 16 |                       |  | $ |          |  |  | $ | 172 | 
|                                                |  |                |     |  |                      |   |    |                       |  |   |           |  |  |   |     | 

During the year ended September 30, 2010, proceeds from sales of securities held to maturity totaled
$163,000, including gross gains of $9,000. The securities sold consisted of mortgaged-backed securities on which the Company had already collected more than eighty-five percent of the principal outstanding at the sale date. There were no sales of
securities held to maturity during the year ended September 30, 2009.

Note 5Loans Receivable



|                                             |  |                |         |   |      |   |         |  
|-------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                             |  | September 30,  |        
|                                             |  | 2010           |         |   | 2009 |  
|                                             |  | (In thousands) |        
|Real estate:                                 |  |                |         |   |      |   |         |  
|One-to-four-family                           |  | $              | 123,116 |   |      | $ | 135,580 |  
|Multi-family                                 |  |                | 9,124   |   |      |   | 4,021   |  
|Non-residential                              |  |                | 22,259  |   |      |   | 10,170  |  
|Construction                                 |  |                | 796     |   |      |   | 667     |  
|Equity and second mortgages                  |  |                | 9,454   |   |      |   | 9,245   |  
|                                             |  |                |         |   |      |   |         |  
|                                             |  |                | 164,749 |   |      |   | 159,683 |  
|                                             |  |                |         |   |      |   |         |  
|Commercial                                   |  |                | 14,255  |   |      |   | 8,985   |  
|                                             |  |                |         |   |      |   |         |  
|Consumer:                                    |  |                |         |   |      |   |         |  
|Passbook and other                           |  |                | 363     |   |      |   | 301     |  
|Student                                      |  |                | 10      |   |      |   | 15      |  
|Checking overdraft                           |  |                | 13      |   |      |   | 17      |  
|                                             |  |                |         |   |      |   |         |  
|                                             |  |                | 386     |   |      |   | 333     |  
|                                             |  |                |         |   |      |   |         |  
|Total Loans                                  |  |                | 179,390 |   |      |   | 169,001 |  
|Allowance for loan losses                    |  |                | (1,114  | ) |      |   | (749    | )
|Net deferred loan origination fees and costs |  |                | 790     |   |      |   | 1,041   |  
|                                             |  |                |         |   |      |   |         |  
|                                             |  | $              | 179,066 |   |      | $ | 169,293 |  
|                                             |  |                |         |   |      |   |         |  



29



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is an analysis of the allowance for loan losses:



|                                |  |                          |       |   |      |   |     | 
|------------------------------- |  | ------------------------ | ----- | - | ---- | - | --- | 
|                                |  | Years EndedSeptember 30, |      
|                                |  | 2010                     |       |   | 2009 |  
|                                |  | (In thousands)           |      
|Balancebeginning of year       |  | $                        | 749   |   |      | $ | 516 | 
|Provision charged to operations |  |                          | 366   |   |      |   | 230 | 
|Loans recovered                 |  |                          | 2     |   |      |   | 3   | 
|Loans charged off               |  |                          | (3    | ) |      |   |    | 
|                                |  |                          |       |   |      |   |     | 
|Balanceend of year             |  | $                        | 1,114 |   |      | $ | 749 | 
|                                |  |                          |       |   |      |   |     | 

At September 30, 2010 and 2009, the Company had loans in the amount of $2.4 million and $1.7 million,
respectively, that were considered to be impaired, none of which were subject to specific loss reserves. The average balances of impaired loans outstanding during the years ended September 30, 2010 and 2009 were $1.8 million and $139,000,
respectively. During the year ended September 30, 2010 and 2009, $43,000 and $44,000, respectively, of interest was collected and recognized on these loans and had all such loans been performing in accordance with their original terms,
additional interest income of $105,000 and $49,000, respectively, would have been recognized. The Company is not committed to lend additional funds on these non-accrual loans. At September 30, 2010 and 2009, the Company had student loans which
were ninety days or more delinquent and still accruing interest of $2,000 and $4,000, respectively, and such loans were guaranteed by New York State.

Note 6Premises and Equipment



|                           |  |                |        |   |      |   |        |  
|-------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                           |  | September 30,  |       
|                           |  | 2010           |        |   | 2009 |  
|                           |  | (In thousands) |       
|Land                       |  | $              | 179    |   |      | $ | 179    |  
|                           |  |                |        |   |      |   |        |  
|Buildings and improvements |  |                | 1,294  |   |      |   | 1,190  |  
|Accumulated depreciation   |  |                | (523   | ) |      |   | (490   | )
|                           |  |                |        |   |      |   |        |  
|                           |  |                | 771    |   |      |   | 700    |  
|                           |  |                |        |   |      |   |        |  
|Leasehold improvements     |  |                | 1,944  |   |      |   | 1,889  |  
|Accumulated amortization   |  |                | (527   | ) |      |   | (384   | )
|                           |  |                |        |   |      |   |        |  
|                           |  |                | 1,417  |   |      |   | 1,505  |  
|                           |  |                |        |   |      |   |        |  
|Furnishings and equipment  |  |                | 2,115  |   |      |   | 2,097  |  
|Accumulated depreciation   |  |                | (1,537 | ) |      |   | (1,362 | )
|                           |  |                |        |   |      |   |        |  
|                           |  |                | 578    |   |      |   | 735    |  
|                           |  |                |        |   |      |   |        |  
|                           |  | $              | 2,945  |   |      | $ | 3,119  |  
|                           |  |                |        |   |      |   |        |  

Note 7Accrued Interest Receivable



|           |  |                |     |  |      |   |     | 
|---------- |  | -------------- | --- |  | ---- | - | --- | 
|           |  | September 30,  |    
|           |  | 2010           |     |  | 2009 |  
|           |  | (In thousands) |    
|Loans      |  | $              | 803 |  |      | $ | 706 | 
|Securities |  |                | 185 |  |      |   | 270 | 
|           |  |                |     |  |      |   |     | 
|           |  | $              | 988 |  |      | $ | 976 | 
|           |  |                |     |  |      |   |     | 



30



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 8Deposits



|                              |  |                        |         |  |                     |  |      |        |  |   |                     |  |  |  |      |  
|----------------------------- |  | ---------------------- | ------- |  | ------------------- |  | ---- | ------ |  | - | ------------------- |  |  |  | ---- | -
|                              |  | September 30,          |        
|                              |  | 2010                   |         |  | 2009                | 
|                              |  | Amount                 |         |  | WeightedAverageRate |  |      | Amount |  |   | WeightedAverageRate | 
|                              |  | (Dollars in thousands) |        
|Demand deposits:              |  |                        |         |  |                     |  |      |        |  |   |                     |  |  |  |      |  
|Non-interest bearing deposits |  | $                      | 14,094  |  |                     |  |     |        |  | $ | 16,607              |  |  |  |     |  
|Interest bearing deposits     |  |                        | 32,761  |  |                     |  | 0.80 | %      |  |   | 24,232              |  |  |  | 1.02 | %
|                              |  |                        |         |  |                     |  |      |        |  |   |                     |  |  |  |      |  
|                              |  |                        | 46,855  |  |                     |  | 0.56 | %      |  |   | 40,839              |  |  |  | 0.61 | %
|Savings and club deposits     |  |                        | 41,320  |  |                     |  | 0.40 | %      |  |   | 42,046              |  |  |  | 0.40 | %
|Certificates of deposit       |  |                        | 100,131 |  |                     |  | 1.71 | %      |  |   | 101,502             |  |  |  | 2.53 | %
|                              |  |                        |         |  |                     |  |      |        |  |   |                     |  |  |  |      |  
|                              |  | $                      | 188,306 |  |                     |  | 1.14 | %      |  | $ | 184,387             |  |  |  | 1.61 | %
|                              |  |                        |         |  |                     |  |      |        |  |   |                     |  |  |  |      |  

The scheduled maturities of certificates of deposit are as follows:



|                                          |  |   |         | 
|----------------------------------------- |  | - | ------- | 
|Years Ending September 30, (In thousands) |  |   |        
|2011                                      |  | $ | 85,947  | 
|2012                                      |  |   | 8,619   | 
|2013                                      |  |   | 2,096   | 
|2014                                      |  |   | 960     | 
|2015                                      |  |   | 2,509   | 
|                                          |  |   |         | 
|                                          |  | $ | 100,131 | 
|                                          |  |   |         | 

The aggregate amount of certificates of deposit with balances of $100,000 or more totaled approximately
$40,772,000 and $45,950,000 at September 30, 2010 and 2009, respectively. Deposits in excess of $250,000 are generally not insured by FDIC.

Interest expense on deposits consists of the following:



|                          |  |                           |       |  |      |   |       | 
|------------------------- |  | ------------------------- | ----- |  | ---- | - | ----- | 
|                          |  | Years Ended September 30, |      
|                          |  | 2010                      |       |  | 2009 |  
|                          |  | (In thousands)            |      
|Demand deposits           |  | $                         | 288   |  |      | $ | 226   | 
|Savings and club deposits |  |                           | 159   |  |      |   | 150   | 
|Certificates of deposit   |  |                           | 1,591 |  |      |   | 2,905 | 
|                          |  |                           |       |  |      |   |       | 
|                          |  | $                         | 2,038 |  |      | $ | 3,281 | 
|                          |  |                           |       |  |      |   |       | 



31



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 9Advances from FHLB



|                                                                                                                                                                                  |  |                |        |  |      |   |        | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                                                                                                                                                                  |  | September 30,  |       
|                                                                                                                                                                                  |  | 2010           |        |  | 2009 |  
|                                                                                                                                                                                  |  | (In thousands) |       
|Five year advance, maturing August 15, 2012, with interest payable quarterly at 4.78%                                                                                             |  | $              | 10,000 |  |      | $ | 10,000 | 
|Five year advance, maturing August 8, 2012, with interest payable quarterly at 4.81%                                                                                              |  |                | 10,000 |  |      |   | 10,000 | 
|Seven year advance, maturing December 29, 2014, with interest payable quarterly at 3.56%                                                                                          |  |                | 5,000  |  |      |   | 5,000  | 
|Seven year fixed rate advance with interest at 5.57%, payable in monthly installments of principal and interest of $57,000 with a
balloon payment of $8,925,000 on August 8, 2014 |  |                | 9,578  |  |      |   | 9,726  | 
|                                                                                                                                                                                  |  |                |        |  |      |   |        | 
|Total                                                                                                                                                                             |  | $              | 34,578 |  |      | $ | 34,726 | 
|                                                                                                                                                                                  |  |                |        |  |      |   |        | 

A schedule of the Companys annual principal obligations to the FHLB is as follows:



|                                         |  |   |        | 
|---------------------------------------- |  | - | ------ | 
|Year Ending September 30, (In thousands) |  |   |       
|2011                                     |  | $ | 157    | 
|2012                                     |  |   | 20,166 | 
|2013                                     |  |   | 176    | 
|2014                                     |  |   | 14,079 | 
|                                         |  |   |        | 
|                                         |  | $ | 34,578 | 
|                                         |  |   |        | 

These FHLB advances are secured by stock of the FHLB in the amount of $1,956,000 and $1,938,000 at
September 30, 2010 and 2009, respectively, and a blanket assignment of qualifying loans and securities.

The Company can
borrow on an overnight basis from the FHLB, and had no such borrowings as of September 30, 2010 or 2009. The Companys overall credit exposure at the FHLB cannot exceed 50% of its total assets, subject to certain limitations based on the
underlying loan and securities pledged as collateral.

Note 10Lease Commitments and Total Rental Expense

The Company leases five locations under long-term operating leases. Future minimum lease payments by year and in the aggregate, under
non-cancellable operating leases with initial or remaining terms of one year or more, consisted of the following at September 30, 2010 (in thousands):



|                           |  |   |       | 
|-------------------------- |  | - | ----- | 
|Years ending September 30, |  |   |      
|2011                       |  | $ | 553   | 
|2012                       |  |   | 596   | 
|2013                       |  |   | 634   | 
|2014                       |  |   | 648   | 
|2015                       |  |   | 620   | 
|Thereafter                 |  |   | 3,184 | 
|                           |  |   |       | 
|                           |  | $ | 6,235 | 
|                           |  |   |       | 

The total rental expense and related charges for all leases for the years ended September 30, 2010 and
2009 was $681,000 and $581,000, respectively.



32



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 11Income Taxes

The Company qualifies as a thrift under the provisions of the Internal Revenue Code and, therefore, was permitted, prior to
January 1, 1996, to deduct from federal taxable income an allowance for bad debts based on 8% of taxable income before such deduction, less certain adjustments, subject to certain limitations. Beginning January 1, 1996, the Company, for
federal income tax purposes, must calculate its tax bad debt deduction using either the experience or specific charge off method. The New York State tax law permits the Company to deduct 32% of its taxable income before bad debt deduction, subject
to certain limitations.

Retained earnings at September 30, 2010 include approximately $1,981,000 of such bad debt
deduction for which federal income taxes of approximately $612,000 have not been provided. In addition, deferred New York State taxes of approximately $369,000 have not been provided on bad debt deductions in the amount of $4,100,000. If such amount
is used for purposes other than for bad debt losses, including distributions in liquidation, it will be subject to income tax at the then current rate.

The components of income taxes (benefit) are as follows:



|                                       |  |                           |      |   |      |   |      |  
|-------------------------------------- |  | ------------------------- | ---- | - | ---- | - | ---- | -
|                                       |  | Years Ended September 30, |     
|                                       |  | 2010                      |      |   | 2009 |  
|                                       |  | (In thousands)            |     
|Current income tax expense (benefit):  |  |                           |      |   |      |   |      |  
|Federal                                |  | $                         | 351  |   |      | $ | (12  | )
|State                                  |  |                           | 159  |   |      |   | (52  | )
|                                       |  |                           |      |   |      |   |      |  
|                                       |  |                           | 510  |   |      |   | (64  | )
|                                       |  |                           |      |   |      |   |      |  
|Deferred income tax expense (benefit): |  |                           |      |   |      |   |      |  
|Federal                                |  |                           | (249 | ) |      |   | (182 | )
|State                                  |  |                           | (122 | ) |      |   | 17   |  
|                                       |  |                           |      |   |      |   |      |  
|                                       |  |                           | (371 | ) |      |   | (165 | )
|                                       |  |                           |      |   |      |   |      |  
|                                       |  | $                         | 139  |   |      | $ | (229 | )
|                                       |  |                           |      |   |      |   |      |  

The following table reconciles the reported income taxes and the federal income taxes which would be
computed by applying the normal federal income tax rate of 34% to income (loss) before income taxes:



|                                                     |  |                           |     |   |                      |  |      |      |  |   |                      |   |  |  |       |   
|---------------------------------------------------- |  | ------------------------- | --- | - | -------------------- |  | ---- | ---- |  | - | -------------------- | - |  |  | ----- | --
|                                                     |  | Years Ended September 30, |    
|                                                     |  | 2010                      |     |   | Percentof PretaxLoss |  |      | 2009 |  |   | Percentof PretaxLoss |  
|                                                     |  | (Dollars in thousands)    |    
|Federal income taxes (benefit)                       |  | $                         | 104 |   |                      |  | 34.0 | %    |  | $ | (227                 | ) |  |  | (34.0 | )%
|State income taxes, net of federal income tax effect |  |                           | 24  |   |                      |  | 7.9  | %    |  |   | (23                  | ) |  |  | (3.5  | )%
|Non-deductible stock based compensation              |  |                           | 22  |   |                      |  | 7.2  | %    |  |   | 40                   |   |  |  | 6.0   | % 
|Other items, net                                     |  |                           | (11 | ) |                      |  | (3.5 | )%   |  |   | (19                  | ) |  |  | (2.8  | )%
|                                                     |  |                           |     |   |                      |  |      |      |  |   |                      |   |  |  |       |   
|Effective Income Taxes                               |  | $                         | 139 |   |                      |  | 45.6 | %    |  | $ | (229                 | ) |  |  | (34.3 | )%
|                                                     |  |                           |     |   |                      |  |      |      |  |   |                      |   |  |  |       |   



33



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The tax effects of existing temporary differences that give rise to significant portions
of net deferred tax assets and liabilities are as follows:



|                                                                 |  |                |       |   |      |   |       |  
|---------------------------------------------------------------- |  | -------------- | ----- | - | ---- | - | ----- | -
|                                                                 |  | September 30,  |      
|                                                                 |  | 2010           |       |   | 2009 |  
|                                                                 |  | (In thousands) |      
|Deferred tax assets:                                             |  |                |       |   |      |   |       |  
|Allowance for loan losses                                        |  | $              | 442   |   |      | $ | 299   |  
|Deferred rent                                                    |  |                | 77    |   |      |   | 41    |  
|Net operating loss carryforward                                  |  |                | 275   |   |      |   | 242   |  
|Contribution carryover                                           |  |                | 270   |   |      |   | 270   |  
|Benefit plan adjustment (Accumulated Other Comprehensive Income) |  |                | 187   |   |      |   | 453   |  
|Accrued pension                                                  |  |                | 63    |   |      |   | 68    |  
|Stock based compensation                                         |  |                | 175   |   |      |   | 108   |  
|Other                                                            |  |                | 91    |   |      |   | 40    |  
|                                                                 |  |                |       |   |      |   |       |  
|Total Deferred Tax Assets                                        |  |                | 1,580 |   |      |   | 1,521 |  
|                                                                 |  |                |       |   |      |   |       |  
|Deferred tax liabilities:                                        |  |                |       |   |      |   |       |  
|Depreciation                                                     |  |                | 173   |   |      |   | 219   |  
|Unrealized gain on securities available for sale                 |  |                | 229   |   |      |   | 233   |  
|                                                                 |  |                |       |   |      |   |       |  
|Total Deferred Tax Liabilities                                   |  |                | 402   |   |      |   | 452   |  
|                                                                 |  |                |       |   |      |   |       |  
|Valuation allowance                                              |  |                | (270  | ) |      |   | (270  | )
|                                                                 |  |                |       |   |      |   |       |  
|Net Deferred Tax Assets Included in Other Assets                 |  | $              | 908   |   |      | $ | 799   |  
|                                                                 |  |                |       |   |      |   |       |  

Note 12Comprehensive Income (Loss)

Total comprehensive income (loss) represents the sum of net income and items of other comprehensive income or loss that are reported directly in equity on an after tax basis, such as the net
unrealized holding gain or loss on securities available for sale and defined benefit pension plan adjustments. The Company has reported its total comprehensive income in the statements of changes in stockholders equity.

Other comprehensive income (loss) is summarized as follows:



|                                                                                                                    |  |                           |      |   |      |   |      |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ---- | - | ---- | - | ---- | -
|                                                                                                                    |  | Years Ended September 30, |     
|                                                                                                                    |  | 2010                      |      |   | 2009 |  
|                                                                                                                    |  | (In thousands)            |     
|Securities available for sale:                                                                                      |  |                           |      |   |      |   |      |  
|Net unrealized holding gains arising during the year, net of income taxes of $(176,000) and $(247,000)
respectively |  | $                         | 267  |   |      | $ | 371  |  
|Net unrealized holding gains transferred to income on sale or call of securities, net of income taxes of $180,000   |  |                           | (268 | ) |      |   |     |  
|Defined benefit plan adjustment, net of income taxes of $(268,000) and $209,000 respectively                        |  |                           | 396  |   |      |   | (315 | )
|                                                                                                                    |  |                           |      |   |      |   |      |  
|                                                                                                                    |  | $                         | 395  |   |      | $ | (56  | )
|                                                                                                                    |  |                           |      |   |      |   |      |  



34



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Accumulated other comprehensive income (loss), which is included in stockholders
equity, consisted of the following:



|                                                                                                                                     |  |                |      |   |      |   |      |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ---- | - | ---- | - | ---- | -
|                                                                                                                                     |  | September 30,  |     
|                                                                                                                                     |  | 2010           |      |   | 2009 |  
|                                                                                                                                     |  | (In thousands) |     
|Net unrealized holding gains on securities available for sale, net of deferred income tax of $(229,000) and $(233,000),
respectively |  | $              | 349  |   |      | $ | 350  |  
|Benefit plan adjustment, net of related deferred taxes of $185,000 and $453,000, respectively                                        |  |                | (285 | ) |      |   | (681 | )
|                                                                                                                                     |  |                |      |   |      |   |      |  
|                                                                                                                                     |  | $              | 64   |   |      | $ | (331 | )
|                                                                                                                                     |  |                |      |   |      |   |      |  

Note 13Regulatory Matters

For the purpose of granting eligible account holders a priority in the event of future liquidation, the Bank, at the time of conversion, established a liquidation account in an amount equal to its
retained earnings of $8.3 million at September 30, 2006. In the event of a future liquidation of the Bank (and only in such event), an eligible account holder who continues to maintain his or her deposit account shall be entitled to receive a
distribution from the special account. The total amount of the special account is decreased (but never increased) in an amount proportionally corresponding to decreases in the deposit account balances of eligible account holders as of each
subsequent year end. After conversion, no dividends may be paid to stockholders if such dividends would reduce retained earnings of the converted Bank below the amount required by the special account.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off balance sheet items as calculated under regulatory accounting practices. The
Banks capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital to total assets (as defined).



35



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table presents a reconciliation of the Banks capital based on GAAP
and regulatory capital at the dates presented:



|                                                                               |  |                |        |   |      |   |        |  
|------------------------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                                               |  | September 30,  |       
|                                                                               |  | 2010           |        |   | 2009 |  
|                                                                               |  | (In thousands) |       
|GAAP capital:                                                                  |  | $              | 18,786 |   |      | $ | 16,819 |  
|Disallowed deferred tax asset                                                  |  |                |       |   |      |   | (9     | )
|Pension liability, net of deferred taxes                                       |  |                | 285    |   |      |   | 681    |  
|Unrealized (gain) loss on securities available for sale, net of deferred taxes |  |                | (349   | ) |      |   | (350   | )
|                                                                               |  |                |        |   |      |   |        |  
|Tier I and tangible capital                                                    |  |                | 18,722 |   |      |   | 17,141 |  
|General valuation allowance                                                    |  |                | 1,114  |   |      |   | 749    |  
|                                                                               |  |                |        |   |      |   |        |  
|Total Regulatory Capital                                                       |  | $              | 19,836 |   |      | $ | 17,890 |  
|                                                                               |  |                |        |   |      |   |        |  

The following table sets forth the Banks capital position, compared to the minimum regulatory capital
requirements:



|                                                 |  |                        |        |  |                              |  |       |                                                               |  |   |        |  |  |        |       |   |       |   |         |  |  |  |        |  
|------------------------------------------------ |  | ---------------------- | ------ |  | ---------------------------- |  | ----- | ------------------------------------------------------------- |  | - | ------ |  |  | ------ | ----- | - | ----- | - | ------- |  |  |  | ------ | -
|                                                 |  | Actual                 |        |  | For CapitalAdequacy Purposes |  |       | To be WellCapitalized underPrompt CorrectiveAction Provisions | 
|                                                 |  | Amount                 |        |  | Ratio                        |  |       | Amount                                                        |  |   | Ratio  |  |  | Amount |       |   | Ratio |  
|                                                 |  | (Dollars in thousands) |       
|September 30, 2010:                              |  |                        |        |  |                              |  |       |                                                               |  |   |        |  |  |        |       |   |       |   |         |  |  |  |        |  
|Total capital (to risk-weighted assets)          |  | $                      | 19,836 |  |                              |  | 17.13 | %                                                             |  | $ | 39,263 |  |  |        | 38.00 | % |       | $ | 311,579 |  |  |  | 310.00 | %
|Core (Tier 1) capital (to risk-weighted assets)  |  |                        | 18,722 |  |                              |  | 16.17 |                                                               |  |   |       |  |  |        |      |   |       |   | 36,947  |  |  |  | 36.00  |  
|Core (Tier 1) capital (to total adjusted assets) |  |                        | 18,722 |  |                              |  | 7.60  |                                                               |  |   | 39,850 |  |  |        | 34.00 |   |       |   | 312,313 |  |  |  | 35.00  |  
|Tangible capital (to total adjusted assets)      |  |                        | 18,722 |  |                              |  | 7.60  |                                                               |  |   | 33,694 |  |  |        | 31.50 |   |       |   |        |  |  |  |       |  
|                                                 |  |                        |        |  |                              | 
|September 30, 2009:                              |  |                        |        |  |                              |  |       |                                                               |  |   |        |  |  |        |       |   |       |   |         |  |  |  |        |  
|Total capital (to risk-weighted assets)          |  | $                      | 17,890 |  |                              |  | 16.16 | %                                                             |  | $ | 38,857 |  |  |        | 38.00 | % |       | $ | 311,071 |  |  |  | 310.00 | %
|Core (Tier 1) capital (to risk-weighted assets)  |  |                        | 17,141 |  |                              |  | 15.48 |                                                               |  |   |       |  |  |        |      |   |       |   | 36,643  |  |  |  | 36.00  |  
|Core (Tier 1) capital (to total adjusted assets) |  |                        | 17,141 |  |                              |  | 7.10  |                                                               |  |   | 39,660 |  |  |        | 34.00 |   |       |   | 312,075 |  |  |  | 35.00  |  
|Tangible capital (to total adjusted assets)      |  |                        | 17,141 |  |                              |  | 7.10  |                                                               |  |   | 33,622 |  |  |        | 31.50 |   |       |   |        |  |  |  |       |  

As of the most recent
notification from the regulatory authorities, the Bank was categorized as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions existing or events which have occurred since notification
that management believes have changed the Banks regulatory capital categorization.

Note 14Benefit Plans

Pension Plan

The Bank maintains a non-contributory defined benefit pension plan (the Plan) covering all eligible employees hired before July 1, 2008. The benefits are based on employees years of
service and compensation.



36



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Banks policy is to fund the Plan annually with at least the minimum contribution deductible and/or allowable for federal income tax purposes. On January 28, 2010, the Board of
Directors passed a resolution to suspend the accrual of benefits under the Companys defined benefit pension plan. The suspension became effective during the three month period ended March 31, 2010 and reduced annual pension expense by
approximately $165,000 for the year ended September 30, 2010 compared to what the expense would have been without such suspension of the accrual of benefits. This suspension is expected to reduce annual pension expense by approximately $300,000
per year thereafter, compared to what the expense would have been without such suspension of the accrual of benefits.

The
following table sets forth the Plans funded status and components of net periodic pension cost:



|                                                   |  |                |        |   |      |   |        |  
|-------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                   |  | September 30,  |       
|                                                   |  | 2010           |        |   | 2009 |  
|                                                   |  | (In thousands) |       
|Change in benefit obligation:                      |  |                |        |   |      |   |        |  
|Benefit obligationbeginning of year               |  | $              | 3,918  |   |      | $ | 3,427  |  
|Service cost                                       |  |                | 138    |   |      |   | 211    |  
|Interest cost                                      |  |                | 268    |   |      |   | 234    |  
|Actuarial (gain) loss                              |  |                | (554   | ) |      |   | 204    |  
|Benefits paid                                      |  |                | (158   | ) |      |   | (158   | )
|                                                   |  |                |        |   |      |   |        |  
|Benefit obligationend of year                     |  | $              | 3,612  |   |      | $ | 3,918  |  
|                                                   |  |                |        |   |      |   |        |  
|Change in plan assets:                             |  |                |        |   |      |   |        |  
|Fair value of assetsbeginning of year             |  | $              | 2,614  |   |      | $ | 2,722  |  
|Actual return on plan assets                       |  |                | 211    |   |      |   | (157   | )
|Benefits paid                                      |  |                | (158   | ) |      |   | (158   | )
|Contributions                                      |  |                | 320    |   |      |   | 207    |  
|                                                   |  |                |        |   |      |   |        |  
|Fair value of assetsend of year                   |  | $              | 2,987  |   |      | $ | 2,614  |  
|                                                   |  |                |        |   |      |   |        |  
|Reconciliation of funded status:                   |  |                |        |   |      |   |        |  
|Accumulated benefit obligation                     |  | $              | 3,612  |   |      | $ | 3,452  |  
|                                                   |  |                |        |   |      |   |        |  
|Projected benefit obligation                       |  | $              | (3,612 | ) |      | $ | (3,918 | )
|Fair value of assets                               |  |                | 2,987  |   |      |   | 2,614  |  
|                                                   |  |                |        |   |      |   |        |  
|Funded status                                      |  | $              | (625   | ) |      | $ | (1,304 | )
|                                                   |  |                |        |   |      |   |        |  
|Accrued pension cost included in other liabilities |  | $              | (625   | ) |      | $ | (1,304 | )
|                                                   |  |                |        |   |      |   |        |  
|                                                   | 
|                                                   |  | September 30,  |       
|                                                   |  | 2010           |        |   | 2009 |  
|Valuation assumptions                              |  |                |        |   |      |   |        |  
|Discount rate                                      |  |                | 7.00   | % |      |   | 7.00   | %
|Expected long-term return on assets                |  |                | 7.00   | % |      |   | 7.00   | %
|Rate of compensation increase                      |  |                | 0.00   | % |      |   | 4.00   | %



37



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company expects to recognize approximately $10,000 of net actuarial loss in
operations during the year ending September 30, 2011.



|                                                                                 |  |                          |      |   |      |   |        |  
|-------------------------------------------------------------------------------- |  | ------------------------ | ---- | - | ---- | - | ------ | -
|                                                                                 |  | September 30,            |     
|                                                                                 |  | 2010                     |      |   | 2009 |  
|                                                                                 |  | (In thousands)           |     
|Amounts recognized in accumulated other comprehensive loss, pre-tax, consist of: |  |                          |      |   |      |   |        |  
|Net actuarial loss                                                               |  | $                        | (470 | ) |      | $ | (1,114 | )
|Prior service cost                                                               |  |                          |     |   |      |   | (20    | )
|                                                                                 |  |                          |      |   |      |   |        |  
|                                                                                 |  | $                        | (470 | ) |      | $ | (1,134 | )
|                                                                                 |  |                          |      |   |      |   |        |  
|                                                                                 | 
|                                                                                 |  | Years EndedSeptember 30, |     
|                                                                                 |  | 2010                     |      |   | 2009 |  
|                                                                                 |  | (Dollars in thousands)   |     
|Net periodic pension expense                                                     |  |                          |      |   |      |   |        |  
|Service cost                                                                     |  | $                        | 138  |   |      | $ | 211    |  
|Interest cost                                                                    |  |                          | 268  |   |      |   | 234    |  
|Expected return on assets                                                        |  |                          | (182 | ) |      |   | (192   | )
|Amortization of prior service cost                                               |  |                          | 20   |   |      |   | 4      |  
|Amortization of unrecognized net loss                                            |  |                          | 63   |   |      |   | 21     |  
|                                                                                 |  |                          |      |   |      |   |        |  
|Total net periodic pension expense                                               |  | $                        | 307  |   |      | $ | 278    |  
|                                                                                 |  |                          |      |   |      |   |        |  
|Valuation assumptions:                                                           |  |                          |      |   |      |   |        |  
|Discount rate                                                                    |  |                          | 7.00 | % |      |   | 6.00   | %
|Rate of return on long-term assets                                               |  |                          | 7.00 | % |      |   | 7.00   | %
|Salary increase rate                                                             |  |                          | 0.00 | % |      |   | 4.00   | %

The Plan assets are
invested as follows:



|                           |  |               |     |   |      |  |     |  
|-------------------------- |  | ------------- | --- | - | ---- |  | --- | -
|                           |  | September 30, |    
|                           |  | 2010          |     |   | 2009 | 
|Mutual funds               |  |               | 49  | % |      |  | 53  | %
|Guaranteed insurance funds |  |               | 51  | % |      |  | 47  | %
|                           |  |               |     |   |      |  |     |  
|                           |  |               | 100 | % |      |  | 100 | %
|                           |  |               |     |   |      |  |     |  

The long-term rate of return on assets assumption is set based on historical returns earned by equities and
fixed income securities, adjusted to reflect expectations of future returns as applied to the Plans actual target allocation of asset classes. Equities and fixed income securities are assumed to earn real rates of return in the ranges of 5.0%
to 9.0% and 2.0% to 6.0%, respectively. Additionally, the long-term inflation rate is projected to be 2.5%. When these overall return expectations are applied to the Plans target allocation, the result is an expected return of 8.0% to 10.0%.

The Bank intends to maintain the current asset mix and seek to achieve an optimal risk/reward profile by limiting market
exposure to present levels. It is expected to have a 4.0% to 5.0% return from fixed income and a 5.0% to 9.0% rate of return from equities. The overall expected long-term rate of return on Plan assets used was 7.0% for both 2010 and 2009.



38



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The fair values of the Companys pension plan assets at September 30, 2010, by
asset category (see Note 18 for definition of Levels), are as follows:



|                               |  |                |       |  |                                                             |   |   |                                             |  |   |                                        |  |  |   |       | 
|------------------------------ |  | -------------- | ----- |  | ----------------------------------------------------------- | - | - | ------------------------------------------- |  | - | -------------------------------------- |  |  | - | ----- | 
|Description                    |  | FairValue      |       |  | (Level
1)Quoted Prices inActive Markets forIdentical Assets |   |   | (Level
2)Significant OtherObservable Inputs |  |   | (Level
3)SignificantUnobservableInputs | 
|                               |  | (In thousands) |      
|Mutual funds                   |  | $              | 1,467 |  |                                                             | $ |  |                                             |  | $ | 1,467                                  |  |  | $ |      | 
|Guaranteed investment contract |  | $              | 1,520 |  |                                                             | $ |  |                                             |  | $ |                                       |  |  | $ | 1,520 | 

At
September 30, 2010, expected benefit payments were as follows (in thousands):



|                           |  |   |       | 
|-------------------------- |  | - | ----- | 
|Years ending September 30, |  |   |      
|2011                       |  | $ | 158   | 
|2012                       |  |   | 177   | 
|2013                       |  |   | 191   | 
|2014                       |  |   | 224   | 
|2015                       |  |   | 230   | 
|2016 to 2020               |  |   | 1,380 | 
|                           |  |   |       | 
|                           |  | $ | 2,360 | 
|                           |  |   |       | 

The Bank expects to contribute at least the minimum required contribution of $200,000 to the Plan during the
year ended September 30, 2011.

Savings and Investment Plan

The Company has implemented a Savings and Investment Plan (the Savings Plan) pursuant to Section 401(k) of the Internal
Revenue Code for all eligible employees. Under the Savings Plan, employees may elect to contribute a percentage of their compensation, subject to limits. The Company makes a matching contribution equal to 25% of an employees contribution, up
to 8.0% of compensation, subject to certain limitations. The Savings Plan expenses for the years ended September 30, 2010 and 2009, amounted to $29,000 and $26,000, respectively.

Employees Stock Ownership Plan (ESOP)

The Company established an ESOP for all eligible employees in connection with the public offering of common stock in April 2007. The ESOP used the proceeds of a $1.6 million, 8.0% term loan from the
Company to purchase 164,413 shares of Company common stock. The term loan from the Company to the ESOP is payable in annual installments of principal and interest over 30 years commencing on December 31, 2007. The Company intends to make
discretionary contributions to the ESOP which will be equal to principal and interest payments on the term loan to the ESOP from the Company. Shares purchased with the loan proceeds are initially pledged as collateral for the term loan and are held
in a suspense account for future allocation among participants. Contributions to the ESOP and shares released from the suspense account will be allocated among the participants on the basis of compensation, as defined by the ESOP, in the year of
allocation. As of September 30, 2010 and 2009, the loan had a balance of $1,567,000 and $1,584,000, respectively.

The
ESOP is accounted for in accordance with the guidance issued by FASB. Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition.



39



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As shares are committed to be released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings
per share computations. Dividends on unallocated ESOP shares are recorded as a reduction of debt. ESOP compensation expense was $46,000 and $40,000 for the years ended September 30, 2010 and 2009, respectively.

The ESOP shares are summarized as follows:



|                                |  |               |           |  |      |   |           | 
|------------------------------- |  | ------------- | --------- |  | ---- | - | --------- | 
|                                |  | September 30, |          
|                                |  | 2010          |           |  | 2009 |  
|Unearned shares                 |  |               | 143,862   |  |      |   | 149,343   | 
|Shares committed to be released |  |               | 4,110     |  |      |   | 4,110     | 
|Shares released                 |  |               | 16,441    |  |      |   | 10,960    | 
|                                |  |               |           |  |      |   |           | 
|Total shares                    |  |               | 164,413   |  |      |   | 164,413   | 
|                                |  |               |           |  |      |   |           | 
|Fair value of unearned shares   |  | $             | 1,439,000 |  |      | $ | 1,060,000 | 
|                                |  |               |           |  |      |   |           | 

Note 15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 vest over a five year service period based on the
anniversary of the grant date.

In November 2009, the Company granted 8,300 options to purchase shares of the Companys
common stock at an exercise price of $7.25 per share and 4,150 shares of restricted stock with a grant date fair value of $7.25 per share. The fair value of each stock option grant was established at the date of grant using the Black-Scholes option
pricing model. The Black-Scholes model used the following weighted average assumptions for options granted in November 2009: risk-free interest rate of 3.37%; volatility factor of expected market price of the Companys common stock of 24.1%;
weighted average expected lives of the options of 7 years; and no cash dividends. The calculated weighted average fair value of options granted using these assumptions was $2.49 per option.

In May 2010, the Company granted 6,000 options to purchase shares of the Companys common stock at an exercise price of $8.35 per
share and 2,000 shares of restricted stock with a grant date fair value of $8.35 per share. The fair value of each stock option grant was established at the date of grant using the Black-Scholes option pricing model. The Black-Scholes model used the
following weighted average assumptions for options granted in May 2010: risk-free interest rate of 3.34%; volatility factor of expected market price of the Companys common stock of 44.5%; weighted average expected lives of the options of 7
years; and no cash dividends. The calculated weighted average fair value of options granted using these assumptions was $4.25 per option.

The Company expenses, in accordance with FASB guidance, the fair value of all options over their five year vesting periods and expenses the fair value of all share-based compensation granted over the
requisite five year vesting periods. In the years ended September 30, 2010 and 2009 the Company recorded an expense of $96,000 and $83,000 respectively relating to stock options and $140,000 and $125,000 respectively relating to the restricted
stock. The Company recognized approximately $68,000 and $59,000 of income tax benefits resulting from this expense in the years ended September 30, 2010 and 2009, respectively.



40



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of September 30, 2010 and 2009 there were 39,062 and 53,362 stock options and
14,355 and 20,505 shares of restricted stock remaining available for future awards under the Plans. Stock options and restricted stock awarded under the Plans vest over five years, at the rate of 20% per year.

The following is a summary of the status of the Companys non-vested restricted shares:



|                                 |  |                  |         |   |                                      |   |       | 
|-------------------------------- |  | ---------------- | ------- | - | ------------------------------------ | - | ----- | 
|                                 |  | RestrictedShares |         |   | Weighted AverageGrant Date FairValue |  
|Non-vested at October 1, 2008    |  |                  | 61,701  |   |                                      | $ | 10.12 | 
|Vested                           |  |                  | (12,340 | ) |                                      | $ | 10.12 | 
|                                 |  |                  |         |   |                                      |   |       | 
|Non-vested at September 30, 2009 |  |                  | 49,361  |   |                                      | $ | 10.12 | 
|Granted                          |  |                  | 6,150   |   |                                      | $ | 7.61  | 
|Vested                           |  |                  | (12,940 | ) |                                      | $ | 10.12 | 
|                                 |  |                  |         |   |                                      |   |       | 
|Non-vested at September 30, 2010 |  |                  | 42,571  |   |                                      | $ | 9.76  | 
|                                 |  |                  |         |   |                                      |   |       | 

Expected future compensation expense relating to the 42,571 non-vested restricted shares
outstanding at September 30, 2010 is $302,000 over a weighted average period of 1.4 years.

The following is a summary of
stock option activity:



|                                  |  |                       |         |  |                               |   |       |                                           |  |  |            | 
|--------------------------------- |  | --------------------- | ------- |  | ----------------------------- | - | ----- | ----------------------------------------- |  |  | ---------- | 
|                                  |  | Numberof StockOptions |         |  | WeightedAverageExercise Price |   |       | Weighted AverageRemaining ContractualTerm | 
|Balance at October 1, 2008,       |  |                       | 152,154 |  |                               | $ | 10.12 |                                           |  |  | 9.2 years  | 
|                                  |  |                       |         |  |                               |   |       |                                           |  |  |            | 
|Balance at September 30, 2009     |  |                       | 152,154 |  |                               | $ | 10.12 |                                           |  |  | 8.2 years  | 
|Granted                           |  |                       | 14,300  |  |                               | $ | 7.71  |                                           |  |  | 10.0 years | 
|                                  |  |                       |         |  |                               |   |       |                                           |  |  |            | 
|Balance at September 30, 2010     |  |                       | 166,454 |  |                               | $ | 9.92  |                                           |  |  | 7.4 years  | 
|                                  |  |                       |         |  |                               |   |       |                                           |  |  |            | 
|Exercisable at September 30, 2010 |  |                       | 64,462  |  |                               | $ | 10.12 |                                           |  |  | 7.2 years  | 

Shares issued
upon exercise of stock options will be issued from treasury stock or from previously unissued shares. As of September 30, 2010 the Company had 192,362 shares of treasury stock. Expected future compensation expense relating to the 166,454 vested
and non-vested options outstanding at September 30, 2010 is $213,000 over a weighted average period of 2.2 years.

At
September 30, 2010, the stock options outstanding had an intrinsic value of $33,000 and stock options exercisable had no intrinsic value. At September 30, 2009, the stock options outstanding and stock options exercisable had no intrinsic
value.

Note 16Stock Repurchase Programs

On September 25, 2008, the Companys Board of Directors approved a stock buy back plan that authorized the Company to buy back up to 93,715 shares of the outstanding stock of the Company. The
buy back plan was administered as a 10(b)5-1 plan by Stifel Nicolaus, the Companys investment banker. As of September 30, 2009, 93,715 shares of common stock had been repurchased for $661,000.



41



---

CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 17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 Companys exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance-sheet instruments. The
Company has the following outstanding commitments:



|                                                                      |  |                |        |  |      |   |        | 
|--------------------------------------------------------------------- |  | -------------- | ------ |  | ---- | - | ------ | 
|                                                                      |  | September 30   |       
|                                                                      |  | 2010           |        |  | 2009 |  
|                                                                      |  | (In thousands) |       
|Commitments to originate loans, expiring in three months or less      |  | $              | 8,770  |  |      | $ | 9,967  | 
|Commitments under homeowners equity lending program                  |  |                | 9,087  |  |      |   | 8,835  | 
|Commitments under overdraft protection and commercial lines of credit |  |                | 2,222  |  |      |   | 1,180  | 
|                                                                      |  |                |        |  |      |   |        | 
|Total                                                                 |  | $              | 20,079 |  |      | $ | 19,982 | 
|                                                                      |  |                |        |  |      |   |        | 

At September 30, 2010, of the $8,770,000 in outstanding commitments to originate loans, $2,604,000 were
at fixed rates ranging from 3.75% to 6.75% and $6,165,000 were adjustable rates with initial rates ranging from 3.25% to 7.0%.

At September 30, 2009, of the $9,967,000 in outstanding commitments to originate loans, $4,646,000 were at fixed rates ranging from
4.625% to 7.840% and $5,321,000 were adjustable rates with initial rates ranging from 4.00% to 6.27%.

At September 30,
2010 and 2009, undisbursed funds from approved lines of credit under a homeowners equity lending program totaled $9,087,000 and $8,835,000, respectively. Interest rates are either fixed (ranging from 6.75% to 7.625% at September 30, 2010)
or variable, based on the prime rate or prime minus 25 basis points adjusted on a monthly basis (ranging from 3.0% to 6.0% at September 30, 2010). At September 30, 2010 and 2009, unused overdraft protection and commercial lines of credits
were $2.2 million and $1.2 million, respectively. Unless specifically cancelled by notice from the Company, these funds represent firm commitments available to the respective borrowers on demand.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customers creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on managements
credit evaluation of the counterparty. Collateral held consists primarily of residential real estate, but may include income-producing commercial properties.



42



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company also has, in the normal course of business, commitments for services and
supplies. Management does not anticipate losses on any of these transactions.

The Company is not currently a party to
litigation, but may in the future become a party to litigation which arises primarily in the ordinary course of business. In the opinion of management, the ultimate disposition of such litigation should not have a material adverse effect on the
financial position or results of operations of the Company.

Note 18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 assets or liabilitys 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 Companys 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 Companys 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.



43



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



For financial assets measured at fair value on a recurring and non-recurring basis, the
fair value measurements by level within the fair value hierarchy at September 30, 2010 and 2009 are summarized below:



|                              |  |                |        |  |                                                             |   |   |                                             |  |   |                                         |  |  |   |   | 
|----------------------------- |  | -------------- | ------ |  | ----------------------------------------------------------- | - | - | ------------------------------------------- |  | - | --------------------------------------- |  |  | - | - | 
|Description                   |  | FairValue      |        |  | (Level
1)Quoted Prices inActive Markets forIdentical Assets |   |   | (Level
2)Significant OtherObservable Inputs |  |   | (Level
3)SignificantUnobservable Inputs | 
|                              |  | (In thousands) |       
|September 30, 2010            |  |                |        |  |                                                             |   |   |                                             |  |   |                                         |  |  |   |   | 
|Securities available for sale |  | $              | 56,336 |  |                                                             | $ |  |                                             |  | $ | 56,336                                  |  |  | $ |  | 
|                              |  |                |        |  |                                                             |   |   |                                             |  |   |                                         |  |  |   |   | 
|                              |  |                |        | 
|September 30, 2009            |  |                |        |  |                                                             |   |   |                                             |  |   |                                         |  |  |   |   | 
|Securities available for sale |  | $              | 58,487 |  |                                                             | $ |  |                                             |  | $ | 58,487                                  |  |  | $ |  | 
|                              |  |                |        |  |                                                             |   |   |                                             |  |   |                                         |  |  |   |   | 

The following methods and assumptions were used to estimate the fair value of each class of financial
instruments at September 30, 2010 and 2009:

Cash and Cash Equivalents, Interest Receivable and Interest
Payable. The carrying amounts for cash and cash equivalents, interest receivable and interest payable approximate fair value because they mature in three months or less.

Securities. The fair value for debt securities, both available for sale and held to maturity are based on quoted market
prices or dealer prices (Level 1), if available. If quoted market prices are not available, fair values are determined by obtaining matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without
relying exclusively on quoted prices for the specific securities but rather by relying on the securities relationship to other benchmark quoted securities (Level 2 inputs).

Loans 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 September 30, 2010 or 2009.



44



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The carrying amounts and estimated fair values of financial instruments are as follows:



|                              |  |                |         |  |                    |   |         |                |  |   |                    |  |  |   |         | 
|----------------------------- |  | -------------- | ------- |  | ------------------ | - | ------- | -------------- |  | - | ------------------ |  |  | - | ------- | 
|                              |  | September 30,  |        
|                              |  | 2010           |         |  | 2009               |  
|                              |  | CarryingAmount |         |  | EstimatedFairValue |   |         | CarryingAmount |  |   | EstimatedFairValue | 
|                              |  | (In thousands) |        
|Financial assets              |  |                |         |  |                    |   |         |                |  |   |                    |  |  |   |         | 
|Cash and cash equivalents     |  | $              | 3,434   |  |                    | $ | 3,434   |                |  | $ | 7,304              |  |  | $ | 7,304   | 
|Securities available for sale |  |                | 56,336  |  |                    |   | 56,336  |                |  |   | 58,487             |  |  |   | 58,487  | 
|Securities held to maturity   |  |                |        |  |                    |   |        |                |  |   | 156                |  |  |   | 172     | 
|Loans held for sale           |  |                | 557     |  |                    |   | 557     |                |  |   | 635                |  |  |   | 635     | 
|Loans receivable              |  |                | 179,066 |  |                    |   | 201,882 |                |  |   | 169,293            |  |  |   | 181,596 | 
|Accrued interest receivable   |  |                | 988     |  |                    |   | 988     |                |  |   | 976                |  |  |   | 976     | 
|                              |  |                |         | 
|Financial liabilities         |  |                |         |  |                    |   |         |                |  |   |                    |  |  |   |         | 
|Deposits                      |  |                | 188,306 |  |                    |   | 196,898 |                |  |   | 184,387            |  |  |   | 184,951 | 
|FHLB Advances                 |  |                | 34,578  |  |                    |   | 38,121  |                |  |   | 34,726             |  |  |   | 37,533  | 
|Accrued interest payable      |  |                | 478     |  |                    |   | 478     |                |  |   | 649                |  |  |   | 649     | 
|Commitments to extend credit  |  |                |        |  |                    |   |        |                |  |   |                   |  |  |   |        | 

Limitations

The fair value estimates are made at a discrete point in time based on relevant market information about the financial
instruments. Fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Further, the foregoing estimates may not reflect the actual amount that
could be realized if all of the financial instruments were offered for sale.

In addition, the fair value estimates are based
on existing on-and-off balance sheet financial instruments without attempting to value the anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities
that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any of the estimates.

Finally, reasonable
comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments.
This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

Note
19Recent Accounting Pronouncements

The FASB issued guidance concerning accounting for transfers of financial assets
and repurchase financing transactions. This guidance addresses the issue of whether or not these transactions should be viewed as two separate transactions or as one linked transaction. The guidance includes a rebuttable
presumption that presumes linkage of the two transactions unless the presumption can be overcome by meeting certain criteria.



45



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The guidance is effective for fiscal years beginning after November 15, 2008 and applies only to original transfers made after that date; early adoption will not be allowed. The
implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.

The FASB issued guidance concerning disclosures about derivative instruments and hedging activities, an amendment to previous guidance on the topic. This guidance requires entities that utilize
derivative instruments to provide qualitative disclosures about their objectives and strategies for using such instruments, as well as any details of credit-risk-related contingent features contained within derivatives. This guidance also
requires entities to disclose additional information about the amounts and location of derivatives located within the financial statements, how the provisions of the previous guidance has been applied, and the impact that hedges have on an
entitys financial position, financial performance, and cash flows. The guidance is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The implementation of this
standard did not have a material impact on the Companys consolidated financial position or results of operations.

The
FASB issued guidance concerning determination of the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under guidance concerning goodwill and other intangible assets. The intent of this guidance is to improve the consistency between the useful life of a recognized intangible asset under guidance concerning goodwill and other
intangible assets and the period of expected cash flows used to measure the fair value of the asset under guidance concerning business combinations, and other GAAP. This guidance is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal years. The implementation of this standard did not have a material impact on the Companys consolidated financial position or results of operations.

The FASB issued guidance concerning accounting for transfers of financial assets, an amendment to previous guidance on the topic. This
statement prescribes the information that a reporting entity must provide in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance and cash flows; and a
transferors continuing involvement in transferred financial assets. Specifically, among other aspects, this guidance amends previous guidance concerning accounting for transfers and servicing of financial assets and extinguishments of
liabilities by removing the concept of a qualifying special-purpose entity from previous guidance on transfers and servicing and removes the exception from applying previous guidance on transfers and servicing to variable interest entities that are
qualifying special-purpose entities. It also modifies the financial-components approach used in previous guidance. This guidance is effective for fiscal years beginning after November 15, 2009. The implementation of this standard is not
expected to have a material impact on the Companys consolidated financial position or results of operations.

The FASB
issued guidance requiring an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has
both (1) the power to direct the activities of a variable interest entity that most significantly impact the entitys economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. This guidance also amends previous guidance to require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity. This guidance is effective for fiscal years beginning after November 15, 2009. The implementation of this standard is not expected to have a material impact on the
Companys consolidated financial position or results of operations.



46



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The FASB issued guidance updating fair value measurements and disclosures. This guidance
amends prior guidance to clarify that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using (1) a valuation technique that uses a
quoted price of the identical liability when traded as an asset or quoted prices for similar liabilities or similar liabilities when traded as assets, or (2) another valuation technique that is consistent with the principals of FASB guidance.
Two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or
would receive to enter into the identical liability. When estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents
the transfer of the liability. Both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted
price of the asset are required are Level I fair value measurements. The adoption of this new standard did not have a material impact on the Companys consolidated financial statements.

The FASB issued guidance on transfers and servicing of financial assets which improves financial reporting by eliminating the exceptions
for qualifying special-purpose entities from the consolidation guidance and the exception that permitted sale accounting for certain mortgage securitizations when a transferor has not surrendered control over the transferred financial assets. In
addition, the amendments require enhanced disclosures about the risks that a transferor continues to be exposed to because of its continuing involvement in transferred financial assets. Comparability and consistency in accounting for transferred
financial assets will also be improved through clarifications of the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. This update is effective at the start of a reporting entitys
first fiscal year beginning after November 15, 2009 and is not expected to have a material impact on the Companys consolidated financial statements.

The FASB issued guidance on accounting for distributions to shareholders with components of stock and cash. The amendments in this update clarify that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in earnings per share
prospectively and is not a stock dividend. This update is effective for interim and annual periods ending on or after December 15, 2009, and has not had a material impact on the Companys consolidated financial statements.

The FASB has issued guidance regarding fair value measurements and disclosures which requires some new disclosures and clarifies some
existing disclosure requirements about fair value measurement. This guidance requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons
for the transfers; and, in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, this guidance
clarifies the requirements of the existing disclosures such that for purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the appropriate classes of assets and
liabilities; and, a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.



47



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The FASB issued guidance about the effect of a loan modification when the loan is part
of a pool that is accounted for as a single asset. The guidance provides that modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would
otherwise be considered a troubled debt restructuring. This guidance is effective prospectively for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010, and is not
expected to have a material impact on the Companys consolidated financial statements.

The FASB issued guidance
regarding disclosures about the credit quality of financing receivables including loans and the allowance for credit losses. This guidance requires more information about the credit quality of financing receivables in the disclosures to financial
statements, such as aging information and credit quality indicators. Both new and existing disclosures must be disaggregated by portfolio segment or class. The disaggregation of information is based on how a company develops its allowance
for credit losses and how it manages its credit exposure. The effective date of this guidance requires disclosures as of the end of a reporting period on or after December 15, 2010. The amendments that require disclosures about activity
that occurs during a reporting period are effective for periods beginning on or after December 15, 2010. The Company is currently evaluating the potential impact the new pronouncement will have on its consolidated financial statements.

Note 20Parent Only Financial Information

The following are the financial statements of the Company (Parent only) as of and for the years ended September 30, 2010 and 2009.

CONDENSED STATEMENTS OF FINANCIAL CONDITION

(In thousands)



|                                           |  |               |        |  |      |   |        | 
|------------------------------------------ |  | ------------- | ------ |  | ---- | - | ------ | 
|                                           |  | September 30, |       
|                                           |  | 2010          |        |  | 2009 |  
|Assets                                     |  |               |        |  |      |   |        | 
|Cash and cash equivalents                  |  | $             | 81     |  |      | $ | 863    | 
|Investment in Bank                         |  |               | 18,786 |  |      |   | 16,819 | 
|Loan receivable                            |  |               | 1,062  |  |      |   | 1,474  | 
|ESOP loan receivable                       |  |               | 1,567  |  |      |   | 1,584  | 
|Other assets                               |  |               | 296    |  |      |   | 194    | 
|                                           |  |               |        |  |      |   |        | 
|Total assets                               |  | $             | 21,792 |  |      | $ | 20,934 | 
|                                           |  |               |        |  |      |   |        | 
|Liabilities and stockholders equity       |  |               |        |  |      |   |        | 
|Other liabilities                          |  | $             | 36     |  |      | $ | 21     | 
|Stockholders equity                       |  |               | 21,756 |  |      |   | 20,913 | 
|                                           |  |               |        |  |      |   |        | 
|Total liabilities and stockholders equity |  | $             | 21,792 |  |      | $ | 20,934 | 
|                                           |  |               |        |  |      |   |        | 



48



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



CONDENSED STATEMENTS OF OPERATIONS

(In thousands)



|                                          |  |                           |     |   |      |   |      |  
|----------------------------------------- |  | ------------------------- | --- | - | ---- | - | ---- | -
|                                          |  | Years Ended September 30, |    
|                                          |  | 2010                      |     |   | 2009 |  
|Interest income                           |  | $                         | 211 |   |      | $ | 237  |  
|Equity in income (loss) of Bank           |  |                           | 290 |   |      |   | (425 | )
|                                          |  |                           |     |   |      |   |      |  
|Total income (loss)                       |  |                           | 501 |   |      |   | (188 | )
|                                          |  |                           |     |   |      |   |      |  
|Other non-interest expenses               |  |                           | 416 |   |      |   | 252  |  
|                                          |  |                           |     |   |      |   |      |  
|Income (loss) before income tax (benefit) |  |                           | 85  |   |      |   | (440 | )
|Income tax (benefit)                      |  |                           | (81 | ) |      |   | (1   | )
|                                          |  |                           |     |   |      |   |      |  
|Net income (loss)                         |  | $                         | 166 |   |      | $ | (439 | )
|                                          |  |                           |     |   |      |   |      |  

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)



|                                              |  |                           |        |   |      |   |        |  
|--------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------ | -
|                                              |  | Years Ended September 30, |       
|                                              |  | 2010                      |        |   | 2009 |  
|Cash flows from operating activities:         |  |                           |        |   |      |   |        |  
|Net income (loss)                             |  | $                         | 166    |   |      | $ | (439   | )
|Equity in (income ) loss of Bank              |  |                           | (290   | ) |      |   | 425    |  
|Increase in other assets                      |  |                           | (102   | ) |      |   | (14    | )
|Increase in other liabilities                 |  |                           | 15     |   |      |   | 11     |  
|                                              |  |                           |        |   |      |   |        |  
|Net cash used for operating activities        |  |                           | (211   | ) |      |   | (17    | )
|                                              |  |                           |        |   |      |   |        |  
|Cash flows from investing activities:         |  |                           |        |   |      |   |        |  
|Net decrease in loan receivable               |  |                           | 412    |   |      |   | 15     |  
|Decrease in ESOP loan receivable              |  |                           | 17     |   |      |   | 15     |  
|Capital contributed to Bank                   |  |                           | (1,000 | ) |      |   | (2,000 | )
|                                              |  |                           |        |   |      |   |        |  
|Net cash used for investing activities        |  |                           | (571   | ) |      |   | (1,970 | )
|                                              |  |                           |        |   |      |   |        |  
|Cash flows from financing activities:         |  |                           |        |   |      |   |        |  
|Purchase of treasury stock                    |  |                           |       |   |      |   | (661   | )
|                                              |  |                           |        |   |      |   |        |  
|Net cash used in financing activities         |  |                           |       |   |      |   | (661   | )
|                                              |  |                           |        |   |      |   |        |  
|Net decrease in cash and cash equivalents     |  |                           | (782   | ) |      |   | (2,648 | )
|Cash and cash equivalentsbeginning of period |  |                           | 863    |   |      |   | 3,511  |  
|                                              |  |                           |        |   |      |   |        |  
|Cash and cash equivalentsend of period       |  | $                         | 81     |   |      | $ | 863    |  
|                                              |  |                           |        |   |      |   |        |  



49



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CMS Bancorp, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Note 21Quarterly Financial Data (Unaudited)



|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|----------------------------------------------------- |  | ------------------------------------------ | ----- | - | ------------- | - | ----- | ------------ |  | - | ------------- | - |  | - | ----- | -
|                                                      |  | Year Ended September 30, 2010              |      
|                                                      |  | Dollars in thousands,except per share data |      
|                                                      |  | FirstQuarter                               |       |   | SecondQuarter |   |       | ThirdQuarter |  |   | FourthQuarter |  
|Interest income                                       |  | $                                          | 2,853 |   |               | $ | 2,795 |              |  | $ | 2,848         |   |  | $ | 2,930 |  
|Interest expense                                      |  |                                            | 992   |   |               |   | 885   |              |  |   | 909           |   |  |   | 978   |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net interest income                                   |  |                                            | 1,861 |   |               |   | 1,910 |              |  |   | 1,939         |   |  |   | 1,952 |  
|Provision for loan losses                             |  |                                            | 60    |   |               |   |      |              |  |   | 25            |   |  |   | 281   |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net interest income after provision for loan losses   |  |                                            | 1,801 |   |               |   | 1,910 |              |  |   | 1,914         |   |  |   | 1,671 |  
|Non-interest income                                   |  |                                            | 350   |   |               |   | 148   |              |  |   | 108           |   |  |   | 423   |  
|Non-interest expense                                  |  |                                            | 1,971 |   |               |   | 2,106 |              |  |   | 1,978         |   |  |   | 1,965 |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Income (loss) before income taxes (benefit)           |  |                                            | 180   |   |               |   | (48   | )            |  |   | 44            |   |  |   | 129   |  
|Income taxes (benefit)                                |  |                                            | 78    |   |               |   | (13   | )            |  |   | 24            |   |  |   | 50    |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net income (loss)                                     |  | $                                          | 102   |   |               | $ | (35   | )            |  | $ | 20            |   |  | $ | 79    |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net income (loss) per common share, basic and diluted |  | $                                          | 0.06  |   |               | $ | (0.02 | )            |  | $ | 0.01          |   |  | $ | 0.05  |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|                                                      | 
|                                                      |  | Year Ended September 30, 2009              |      
|                                                      |  | Dollars in thousands,except per share data |      
|                                                      |  | FirstQuarter                               |       |   | SecondQuarter |   |       | ThirdQuarter |  |   | FourthQuarter |  
|Interest income                                       |  | $                                          | 2,863 |   |               | $ | 2,826 |              |  | $ | 2,858         |   |  | $ | 2,858 |  
|Interest expense                                      |  |                                            | 1,277 |   |               |   | 1,201 |              |  |   | 1,289         |   |  |   | 1,246 |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net interest income                                   |  |                                            | 1,586 |   |               |   | 1,625 |              |  |   | 1,569         |   |  |   | 1,612 |  
|Provision for loan losses                             |  |                                            |      |   |               |   | 30    |              |  |   |              |   |  |   | 200   |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net interest income after provision for loan losses   |  |                                            | 1,586 |   |               |   | 1,595 |              |  |   | 1,569         |   |  |   | 1,412 |  
|Non-interest income                                   |  |                                            | 78    |   |               |   | 94    |              |  |   | 184           |   |  |   | 142   |  
|Non-interest expense                                  |  |                                            | 1,652 |   |               |   | 1,655 |              |  |   | 1,918         |   |  |   | 2,103 |  
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Income (loss) before income taxes (benefit)           |  |                                            | 12    |   |               |   | 34    |              |  |   | (165          | ) |  |   | (549  | )
|Income taxes (benefit)                                |  |                                            | 13    |   |               |   | 19    |              |  |   | (46           | ) |  |   | (215  | )
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net income (loss)                                     |  | $                                          | (1    | ) |               | $ | 15    |              |  | $ | (119          | ) |  | $ | (334  | )
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  
|Net income (loss) per common share, basic and diluted |  | $                                          | 0.00  |   |               | $ | 0.01  |              |  | $ | (0.07         | ) |  | $ | (0.19 | )
|                                                      |  |                                            |       |   |               |   |       |              |  |   |               |   |  |   |       |  

Note 23Transactions with Officers and Directors

The Bank has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its officers,
directors, and their immediate families (commonly referred to as related parties), on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. These persons were indebted to
the bank for loans totaling $890,000 and $902,000 at September 30, 2010 and 2009, respectively. During the year ended September 30, 2010 and 2009, no new loans were made and $12,000 and $301,000 of repayments were made.



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