SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 333-5559
CARVER BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE BEING APPLIED FOR
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
75 WEST 125TH STREET, NEW YORK, NEW YORK 10027
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(212) 876-4747
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
N/A
--------------------------------------------
(Former name, former address and former fiscal year,
if changed from last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X .
------ -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Outstanding at
CLASS JUNE 30, 1996
----- -------------
Common Stock, par value $.01 100
<PAGE>
Carver Bancorp, Inc. ("Bancorp") was incorporated in the State
of Delaware on May 9, 1996. On June 27, 1996, the Form S-4 Registration
Statement of Bancorp was deemed effective by the Securities and Exchange
Commission. Upon consummation of an Agreement and Plan of Reorganization, dated
May 21, 1996, Carver Federal Savings Bank ("Carver") will become the wholly
owned subsidiary of Bancorp (the "Reorganization") and all of the outstanding
shares of Carver common stock (other than shares held by stockholders exercising
dissenters' rights, if any) will be converted into and exchanged for, on a
one-for-one basis, shares of Bancorp common stock. Bancorp currently has no
significant assets or liabilities. Accordingly, no separate financial
information regarding Bancorp is presented. In its place is presented financial
information regarding the Bank as set forth in the Bank's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, as filed with the Office of
Thrift Supervision.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Incorporated herein by reference to the Carver Federal Savings
Bank Form 10-Q for the quarter ended June 30, 1996, filed herewith as Exhibit
99.1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Incorporated herein by reference to the Carver Federal Savings
Bank Form 10-Q for the quarter ended June 30, 1996, filed herewith as Exhibit
99.1.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit 99.1 -- Carver Federal Savings Bank Form 10-Q
for the Quarter Ended June 30, 1996
(B) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARVER BANCORP, INC.
(Registrant)
By: /s/ Thomas L. Clark, Jr.
---------------------------
Thomas L. Clark, Jr.
President and Chief Executive Officer
By: /s/ Biswarup Mukherjee
---------------------------
Biswarup Mukherjee
Executive Vice President and
Chief Financial Officer
Officer
August 14, 1996
EXHIBIT 99.1
------------
OFFICE OF THRIFT SUPERVISION
WASHINGTON, D.C. 20552
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Office of Thrift Supervision Docket Number: 5273
CARVER FEDERAL SAVINGS BANK
(Exact name of registrant as specified in its charter)
UNITED STATES 13-1592005
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
75 WEST 125TH STREET, NEW YORK, NEW YORK 10027
- ---------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 876-4747
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes X No
---- ----
As of August 13, 1996, 2,314,375 shares of the registrant's common
stock were issued and outstanding.
Page 1 of 12 Pages
1
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
June 30, and March 31, 1996 (unaudited)...................................................3
Consolidated Statements of Income for the Three
Months Ended June 30, 1996 and 1995 (unaudited)...............................................4
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 1996 and 1995 (unaudited)......................................................5
Notes to Consolidated Financial Statements (unaudited)........................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................................7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................10
Item 2. Changes in Securities........................................................................11
Item 3. Defaults upon Senior Securities..............................................................11
Item 4. Submission of Matters to a Vote of Security Holders..........................................11
Item 5. Other Information............................................................................11
Item 6. Exhibits and Reports on Form 8-K.............................................................11
</TABLE>
SIGNATURES
2
<PAGE>
<TABLE>
<CAPTION>
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
AS OF AS OF
JUNE 30, MARCH 31,
ASSETS 1996 1996
- ------ ------------------------ -----------------------
<S> <C> <C>
Cash and amounts due from depository institutions............ $5,063,393 $3,225,950
Federal funds sold........................................... 1,400,000 6,800,000
--------- ---------
Total cash and cash equivalents.......................... 6,463,393 10,025,950
Securities available for sale................................ 117,051,325 114,328,245
Investment securities held to maturity, net
(estimated fair values of $8,650 ,000 and $8,814,000 at
June 30, 1996 and March 31, 1996)......................... 8,811,851 8,937,075
Mortgage-backed securities held to maturity, net
(estimated fair values of $123,849,000 and $129,813,000 at
June 30, 1996 and March 31, 1996)......................... 125,136,847 131,105,405
Loans receivable, net........................................ 84,221,117 82,608,065
Real estate owned, net....................................... 118,525 314,261
Property and equipment, net.................................. 10,435,352 9,956,981
Federal Home Loan Bank of New York stock, at cost............ 3,120,000 3,120,000
Accrued interest receivable, net............................. 2,613,321 2,688,199
Excess of cost over net assets acquired, net................. 1,615,814 1,669,082
Other assets................................................. 2,781,328 2,904,078
--------- ---------
Total assets............................................. $362,368,873 $367,657,341
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits................................................... $261,494,469 $256,951,883
Securities sold under agreement to repurchase.............. 37,000,000 47,000,000
Advances from Federal Home Loan Bank of New York........... 25,400,000 25,400,000
Other borrowed money....................................... 1,502,589 1,548,122
Advance payments by borrowers for taxes and insurance...... 483,055 483,055
Other liabilities.......................................... 1,614,063 1,509,500
--------- ---------
Total liabilities....................................... 327,494,176 332,892,560
----------- -----------
Stockholders' Equity:
Preferred stock, $0.01 par value per share;
1,000,000 shares authorized; none issued................. -- --
Common stock, $0.01 par value per share; 5,000,000 shares
authorized; 2,314,375 shares issued and outstanding...... 23,144 23,144
Additional paid-in capital................................. 21,427,513 21,436,235
Retained earnings-substantially restricted................. 16,362,213 16,098,728
Common stock acquired by Employee Stock Ownership Plan..... (1,502,589) (1,548,122)
Unrealized (loss) net, on securities available for sale,... (1,435,584) (1,245,204)
------------- -----------
Total stockholders' equity............................... 34,874,697 34,764,781
---------- ----------
Total liabilities and stockholders' equity......... $362,368,873 $ 367,657,341
============ ================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1996 1995
---- ----
<S> <C> <C>
Interest income:
Loans receivable................................... $ 1,716,869 $ 1,021,798
Mortgage-backed securities......................... 2,738,163 3,189,052
Debt and equity securities......................... 1,169,619 1,477,797
Other interest-earning assets...................... 186,758 225,478
------- -------
Total interest income........................... 5,811,409 5,914,125
--------- ---------
Interest expense:
Deposits........................................... 2,073,300 2,053,091
Advances and other borrowed money.................. 1,058,926 1,403,994
--------- ---------
Total interest expense........................... 3,132,226 3,457,085
--------- ---------
Net interest income.................................. 2,679,183 2,457,040
(Recovery of) provision for loan losses 51,862 (19,108)
------ --------
Net interest income after (recovery of)
provision for loan losses.......................... 2,627,321 2,476,148
--------- ---------
Non-interest income:
Loan fees and service charges 38,419 22,778
Other.............................................. 289,648 108,140
------- -------
Total non-interest income 328,067 130,918
------- -------
Non-interest expenses:
Salaries and employee benefits..................... 967,609 879,877
Net occupancy expenses............................. 309,388 226,465
Equipment.......................................... 252,797 162,088
Loss on foreclosed real estate 6,050 886
Advertising........................................ 45,172 73,216
Federal deposit insurance premium 144,649 187,432
Amortization of intangibles........................ 53,268 60,479
Legal expenses 55,000 86,000
Bank charges....................................... 77,130 77,158
Security service 73,862 49,670
Other.............................................. 478,843 340,639
------- -------
Total non-interest expenses 2,463,768 2,143,910
--------- ---------
Income before income taxes 491,620 463,156
Income taxes......................................... 228,136 197,415
------- -------
Net income........................................... $263,484 $265,741
======== ========
Net income per common share $ 0. 12 $ 0.12
=========== ===========
Weighted average number of common shares
outstanding........................................ $ 2,162,598 $ 2,142,918
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
JUNE 30,
------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 263,484 $ 265,741
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization of premises and equipment...................... 155,351 58,348
Amortization of intangibles.................................................. 53,268 60,479
Other amortization and accretion, net........................................ 130,211 176,491
Provision for (recovery of) loan losses...................................... 51,862 (19,108)
Deferred income taxes (96,678) 144,295
Allocation of ESOP........................................................... 36,812 34,530
Changes in:
Accrued interest receivable, net............................................. 74,878 117,091
Refundable income taxes (106,930) (15,247)
Other assets................................................................. 122,748 195,877
Other liabilities 466,599 204,060
------- -------
Net cash provided by operating activities.................................. 1,151,605 1,222,557
--------- ---------
Cash flows from investing activities:
Purchase of securities available for sale.................................... (8,500,000) --
Principal repayments on securities available for sale 1,736,689 349,190
Proceeds from sale of securities available for sale.......................... 3,649,399 --
Gain on sale of securities available for sale................................ 56,635 --
Purchase of investment securities held to maturity........................... (50,000) --
Proceeds from maturities and calls of investment
securities held to maturity................................................ 174,100 --
Purchase of mortgage-backed securities held to maturity -- --
Principal repayment on mortgage-backed securities
held to maturity........................................................... 5,861,794 4,530,640
Net change in loans receivable............................................... (1,701,846) 271,137
Proceeds from sale of real estate owned 164,500 --
Loss on sale of real estate owned........................................... 31,236 --
Additions to premises and equipment (633,722) --
--------- ---
Net cash (used in) provided by investing activities....................... 788,785 3,926,135
------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits.......................................... 4,542,586 5,237,561
Advances from Federal Home Loan Bank of New York............................ 10,000,000 --
Repayment of advances from Federal Home Loan Bank
of New York (20,000,000) (8,000,000)
Repayment of other borrowed money............................................ (45,533) --
Net increase (decrease) in advance payments by borrowers
for taxes and insurance.................................................... -- 14,691
-- ------
Net cash provided by (used in) financing activities (5,502,947) 2,747,748
----------- ---------
Net increase (decrease) in cash and cash equivalents........................... (3,562,557) 2,400,944
Cash and cash equivalents -- beginning......................................... 10,025,950 11,817,805
---------- ----------
Cash and cash equivalents -- ending............................................ $6,463,393 $14,218,749
========== ===========
Supplemental disclosure of non-cash activities: Unrealized loss on securities
available for sale:
Unrealized loss............................................................ $348,808 $261,325
Deferred income taxes...................................................... (158,428) (122,823)
--------- ---------
$190,380 $138,502
======== ========
Loans receivable transferred to real estate owned............................ $ -- $11,869
====== =======
Supplemental disclosure of cash flow information: Cash paid for:
Interest................................................................... $3,098,514 $3,453,607
========== ==========
Federal, state and city income taxes $ -- $68,367
====== =======
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X., promulgated by the
Securities and Exchange Commission. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete
consolidated financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary
for fair presentation have been included. The consolidated results of
operations and other data for the three month period ended June 30,
1996 are not necessarily indicative of results that may be expected for
the entire fiscal year ending March 31, 1997. The unaudited
consolidated financial statements include the accounts of the Bank and
its wholly owned subsidiaries, C.F.S.B. Realty Corp. and C.F.S.B.
Credit Corp. All significant intercompany accounts and transactions
have been eliminated in consolidation.
(2) STOCK CONVERSION
On August 31, 1993, the Board of Directors of the Bank initially
approved a plan to convert the Bank from a federally chartered mutual
savings bank to a federally chartered stock savings bank which was
substantially revised and adopted as a new plan of conversion effective
June 21, 1994. The plan of conversion ("Plan") was approved by the OTS
in August 1994 and by the Bank's members in October 1994. The Bank
completed its stock offering simultaneously with its mutual to stock
conversion on October 24, 1994 and issued 2,314,375 shares of common
stock at $10.00 per share.
(3) EARNINGS PER SHARE CALCULATION
Net income per share for the three months ended June 30, 1995 and 1996
are calculated based on weighted average number of shares outstanding
during the period.
(4) CONTINGENCIES
On February 6, 1995, the New York State Banking Department
(the "Department") took possession of Nationar Trust Company
("Nationar"), a trust company owned by sixty-seven New York savings
banks. The Department will manage the business of Nationar until a
suitable buyer is found. As of February 6, 1995, Carver had invested
$1,366,000 in federal funds and $600,000 in certificate of deposits, or
a total of $1,966,000, with Nationar. This $1,966,000 investment has
been reclassified, net of a $256,000 allowance for estimated losses, to
other assets on Carver's statement of financial condition. At a hearing
on April 10, 1996, pursuant to the recommendation of the Superintendent
of Banks of the State of New York Banking Department (the
"Superintendent"), the judge in the instant case entered an order
directing the return of the $600,000 in certificates of deposits that
had been deposited with Nationar. The Bank received these funds, plus
interest, in early June 1996. As a result, the Bank will recover the
valuation allowance of 13.0% on the $600,000 amount. Subsequently, the
Bank received 40% of the $1,366,000 plus interest in July, 1996 as part
of the first distribution.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Bank's total assets at June 30, 1996 decreased approximately $5.3
million, or 1.44%, to $362.4 million from $367.7 million at March 31, 1996. The
decrease was primarily attributable to the decreases in the Bank's portfolio of
mortgaged-backed securities held to maturity and federal fund sold offset in
part by an increase in securities available for sale and an increase in loans
receivable. The Bank's portfolio of mortgage-backed securities held to maturity
decreased by $6.0 million, or 4.55%, to $125.1 million at June 30, 1996 from
$131.1 million at March 31, 1996, reflecting the receipt of principal repayments
on such securities. The Bank used these repayments, together with the increased
liquidity provided by earnings, an increase in deposits and the reduction of
federal funds to originate loans and repay advances from the Federal Home Loan
Bank ("FHLB") of New York. Securities available for sale increased $2.7 million
or 2.38% to $117.1 million at June 30, 1996 from $114.3 million at March 31,
1996. This increase in the securities available for sale was due to purchases of
securities available for sale, partly offset by the principal payments and an
increase in unrealized loss of $190,400. The Bank's loans receivable increased
to $84.2 million at June 30, 1996 as compared to $82.6 million at March 31,
1996. The increase was due to increase in loans originations partly offset by
principal payments.
The Bank's total consolidated liabilities decreased by $5.3 million, or
1.60%, from $332.9 million at March 31, 1996 to $327.6 million at June 30, 1996
as the result of decreased borrowings in the form of securities sold under
agreement to repurchase partially offset by an increase in deposits. The Bank
used its excess liquidity to repay a portion of borrowings from the FHLB. The
Bank's deposits increased $4.5 million, or 1.77%, to $261.5 million at June 30,
1996 from $256.9 million at March 31, 1996.
Stockholders' equity increased by $28,321, or .08%, to $34.79 million
at June 30, 1996 from $34.76 million at March 31, 1996 due to an increase in
retained earnings and the allocation of shares under the Employee Stock
Ownership Plan, partially offset by an increase in the unrealized loss, net, on
securities available for sale. Retained earnings of the Bank at June 30, 1996
increased $181,900, or 1.13%, to $16.3 million at June 30, 1996 from $16.1
million at March 31, 1996, as a result of earnings during the three months ended
June 30, 1996. Under Statement of Financial Accounting Standards ("SFAS") No.
115, unrealized losses on securities available for sale are recorded net of
deferred income tax as a reduction to retained earnings. At June 30, 1996, such
unrealized losses were approximately $1.4 million, an increase of $190,400, or
15.29%, as compared to $1.2 million at March 31, 1996. The increase in
unrealized loss is attributable primarily to the rising interest rate
environment, which has continued to reduce the value of the Bank's portfolio of
securities available for sale. In accordance with SFAS No. 115, such losses will
not be reflected as a charge to earnings until the underlying securities are
sold, and then only to the extent of the amount of loss, if any, actually
realized at the time of sale.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net income for the three months ended June 30, 1996 declined by
approximately $2,000, or .85%, to $263,000 as compared to approximately $265,000
for the three months ended June 30, 1995. The decrease in net income was due
primarily to increased non-interest expenses and an increase in the provision
for loan losses, which were offset in part by an increase in net interest income
and non-interest income.
Net interest income increased $222,000, or 9.04%, to $2.7 million for
the three months ended June 30, 1996 as compared to $2.5 million for the three
months ended June 30, 1995. The increase in net interest income is attributable
to a $325,000, or 9.40%, decrease in interest expense which partly offset a
$103,000, or 1.74%, decrease in interest income.
7
<PAGE>
Interest income decreased to $5.8 million for the three months ended
June 30, 1996 from $5.9 million for the three months ended June 30, 1995. This
decrease was primarily due to a decrease in average interest-earning assets of
$4.8 million partly offset by an increase of 3 basis points in the average yield
on interest-earning assets. Interest income from mortgage-backed securities
decreased $451,000, or 14.14%, to $2.7 million for three months ended June 30,
1996 compared to $3.2 million for the three months ended June 30, 1995. This
decrease is primarily attributable to decrease of $30.4 million in average
balances partially offset by 10 basis points increase in the average yield on
mortgage-backed securities. Income from debt and equity securities and other
interest-earning assets decreased by $347,000, or 20.37%, to $1.36 million
during the three months ended June 30, 1996 as compared to $1.70 million for the
same period in 1995. Average debt and equity securities and other
interest-earning assets decreased by $9.0 million while the average yield on
these assets decreased by 85 basis points. Interest on loans receivable
increased by $695,000, or 68.02%, to $1.72 million for the three months ended
June 30, 1996 compared to $1.02 million, for the three months ended June 30,
1995. This increase is primarily attributed to an increase in average loan
portfolio balances by $34.7 million, partly offset by a decrease of 18 basis
points in the average yield on the loan portfolio. The increase in the average
loan portfolio balances reflects management's strategy of increasing the
emphasis on loan originations and the impact of loan purchases made in the later
part of the 1996 fiscal year.
Interest expense decreased to $3.1 million for the three months ended
June 30, 1996 as compared to $3.5 million for the same period in 1995. Interest
expense on deposits increased by $20,000 or .98% during the three months ended
June 30, 1996 as compared to three months ended June 30, 1995 primarily due to
an increase in the average deposit balances by $8.7million offset by a decrease
of cost of funds by 8 basis points. Interest on FHLB advances and other
borrowings decreased to $1.1 million for the quarter ended June 30, 1996 from
$1.4 million, for the same period in 1995. The decrease is attributable to
decrease in average borrowings by $7.4 million and a decrease in the average
cost of borrowings by 122 basis points. The decrease in average borrowings
reflects the Bank's use of excess liquidity to repay a portion of borrowings
from the FHLB.
The Bank's interest rate spread increased from 2.57% during the quarter
ended June 30, 1995 to 2.95% for the quarter ended June 30, 1996 and its net
interest margin increased by 30 basis points. These increases are primarily due
to an increase in higher yielding mortgage loans, which partially offset the
impact of a lower interest rate environment during the three months ended June
30, 1996 as compared to the prior year period. The increased spread also
reflects a decrease in cost of deposits and a decrease in the cost of borrowed
money as the higher cost advances matured during the lower interest rate
environment. The Bank's ratio of interest-earning assets to interest-bearing
liabilities decreased from 1.06x to 1.05x.
During the three months ended June 30, 1996, the Bank provided $52,000
in loan losses compared to a $19,000 recovery for the three months ended June
30, 1995. $36,000 was for general allowance provision for loan losses and
$16,000 was provided for credit card loss. In addition the Bank had net
charge-offs during the three months ended June 30, 1996 of $314,000, resulting
in a net decrease in the allowance for loan losses from $1.2 million at March
31, 1996 to $944,000 at June 30, 1996. The ratio of the allowance for loan loss
to non-performing loans at June 30, 1996 was 38% compared to 37% at March 31,
1996.
Non-interest income increased by $197,000, or 150.59%, to $328,000 for
the three months ended June 30, 1996 as compared to $131,000 for the three
months ended June 30, 1995. The increase was due primarily to a gain of $75,000
on sale of GNMA from securities available for sale portfolio and an increase in
depositor service fee income which are included in other income. The increase in
non-interest income also reflects $42,000 in interest income recovered in
connection with the receipt of funds from the Superintendent that were
previously held by Nationar.
Non-interest expenses were $2.5 million for the three months ended June
30, 1996, an increase of $319,000 or 14.87%, from $2.14 million in the same
period for the previous fiscal period. The increase principally reflects an
increase of $88,000, or 9.97% in salaries and employee benefits due to increase
in salary and provision for management incentive plan, an increase of $83,000,
or 36.62%, in maintenance and depreciation of the new main building, as well as
$91,000, or 55.96%, increase in equipments expenses reflecting increased
depreciation and maintenance cost for new furniture,
8
<PAGE>
fixtures, computers, etc. for the new main building. Furthermore there was an
increase of $138,000, or 40.57%, in other expenses, primarily due to a $28,000
fee to EDS to discontinue their contract for data processing services, a
$57,000, or 6.33%, increase in other employee expenses, and a $48,000, or 5.33%,
increase in employee retirement plan expense. These increases were offset in
part by declines in advertising and Federal deposit insurance premium expenses.
Income tax expense for the three months ended June 30, 1996 increased
to $228,000 from $197,000 for the three months ended June 30, 1995 because of
the increase in pre-tax income during the quarter. The Bank's effective tax
rates were 46.41% and 42.6% for the three months ended June 30, 1996 and 1995,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits and principal and
interest payments on loans, mortgage-backed securities and investment
securities. While maturities and scheduled amortization of loans,
mortgage-backed securities and investment securities are predictable sources of
funds, deposit flows and loan and mortgage-backed securities prepayments are
strongly influenced by changes in general interest rates, economic conditions
and competition.
The Bank's most liquid assets are cash and cash equivalents and
short-term investments including mutual funds. The levels of the Bank's cash and
cash equivalents are dependent on the Bank's operating, financing, lending and
investing activities during any given period. At June 30, 1996, the Bank's cash
and cash equivalents totaled $6.5 million compared to $10.0 million at March 31,
1996. The decrease in cash and cash equivalents reflects primarily decline in
federal fund balance and pay off of borrowing when matured.
At June 30, 1995, the Bank exceeded all fully phased-in regulatory
capital requirements. The table below presents certain information relating to
the Bank's capital compliance at June 30, 1996 and March 31, 1996.
<TABLE>
<CAPTION>
AT JUNE 30, 1996 AT MARCH 31, 1996
---------------- -----------------
% of % of
AMOUNT ASSETS AMOUNT ASSETS
------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible Capital............ $ 33,563 9.29% $ 33,462 9.13%
Core Capital................ 33,621 9.31 33,522 9.15
Risk Based Capital.......... 33,846 27.60 33,801 28.06
</TABLE>
9
<PAGE>
IMPACT OF PROPOSED LEGISLATION
During the quarter ended June 30, 1996, representatives of the federal
banking agencies and other interested parties continued to work for legislative
action to recapitalize the Savings Association Insurance Fund ("SAIF"), which
insures the deposits of the Bank, and to resolve the disparity between the
deposit insurance assessments paid by institutions insured under the SAIF and
those insured under the Bank Insurance Fund ("BIF"). The various legislative
proposals discussed by Congress have generally followed the features of the
recapitalization legislation that are part of the Balanced Budget Act of 1995,
which was vetoed by the President for reasons unrelated to the SAIF
recapitalization. A continuing feature of the legislative proposals is a special
one-time SAIF assessment to be paid with respect to deposits subject to SAIF
assessments. Estimates of the special assessment have ranged from 80 to 90 basis
points such SAIF-assessable deposits as of March 31, 1995. For the Bank, such a
special assessment would range from $1.1 million at 80 basis points to $1.2
million at 90 basis points, each after taxes. Various holding companies with
SAIF-insured institutions are continuing to implement plans to establish
BIF-insured subsidiaries in order to facilitate the migration of deposits from
its SAIF-insured subsidiaries to its BIF-insured institutions, and the federal
regulators have begun to approve such BIF-insured subsidiaries. In the absence
of a legislative recapitalization of the SAIF, any significant reduction in
SAIF-assessable deposits could result in an increase of the SAIF assessment
rates.
At this time, the Bank cannot predict whether any legislative proposal
to recapitalize the BIF-SAIF assessment disparity will be adopted, or, if so, in
what form. Until such time as such legislation is adopted, it is expected that
the Bank will continue to be assessed deposit insurance assessments at rates
substantially in excess of those assessed comparably rated BIF-insured
institutions, primarily commercial banks. Based upon the Company's June 30, 1996
assessment base, the SAIF premium paid by the Bank on an annualized basis would
equal approximately $579,000. A comparably rated and sized BIF-insured
institution would pay approximately $2,000 for the same deposit insurance
coverage.
Under the Section 593 of the Internal Revenue Code, thrift institutions
such as the Bank, which meet certain definational tests, primarily relating to
their assets and the nature of their business, are permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions may,
within specified limitations, be deducted in arriving at their taxable income.
The Bank's deduction with respect to "qualifying loans," which are generally
loans secured by certain interests in real property, may currently be computed
using an amount based on the Bank's actual loss experience (the "Experience
Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI
Method"), computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted addition to the
non-qualifying reserve. Similar deductions for additions to the Bank's bad debt
reserve are permitted under the New York State Bank Franchise Tax and the New
York City Banking Corporation Tax; however, for purposes of these taxes, the
effective allowable percentage under the PTI method is 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 (the "1996 Act"),
as passed by the House and Senate on August 2, 1996, section 593 of the Code
would be amended and the Bank, for its current and future taxable years, will be
permitted to use only the Experience Method of computing additions to its tax
bad debt reserve. In addition, the Bank is required to recapture (i.e., take
into income) over a six-year period, beginning with the Bank's current taxable
year the
10
<PAGE>
excess of the balance of its tax bad debt reserves (other than its supplemental
reserve) as of March 31, 1996 over the greater of (a) the balance of such
reserves as of March 31, 1988) or (b) an amount that would have been the balance
of such reserves as of March 31, 1996 had the Bank always computed the additions
to its reserves using the Experience Method. However, under the 1996 Act, such
recapture requirements will be suspended for each of two successive taxable
years beginning with the Bank's current taxable year in which the Bank
originates a minimum amount of certain residential loans based upon the average
of the principal amounts of such loans made by the Bank during its six taxable
years preceding it current taxable year. It is anticipated that the President
will sign the 1996 Act in the near future, in which case the Bank anticipates it
will not incur additional tax liability. Since the Bank has already provided a
deferred income tax liability for this tax, such recapture will not adversely
impact the Bank's results of operations.
The New York State tax law has been amended to prevent a similar
recapture of the Bank's bad debt reserve, and to permit continued future use of
the bad debt reserve methods, for purposes of determining the Bank's New York
State tax liability. The Bank's officers and industry leaders continue to seek
such amendments to the New York City tax law, however, the Bank cannot predict
whether such changes to New York City law will be adopted and, if so, in what
form.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Carver Federal is a party to various legal
proceedings incident to its business. At June 30, 1996, except as set forth
below, there were no legal proceedings to which the Bank or its subsidiaries was
a party, or to which any of their property was subject, which were expected by
management to result in a material loss.
On January 2, 1996, the United States District Court for the Southern
District of New York dismissed the class action encaptioned DOUGHERTY V. CARVER
FEDERAL SAVINGS BANK for lack of subject matter jurisdiction. The class action
complaint contained allegations of material misrepresentations and omissions of
material facts in the Bank's prospectus for its initial public offering and the
failure to have the appraisal of the Bank's shares prepared by an independent
appraiser. By separate order on the same date, the court made its ruling
applicable to GOMBERG V. CARVER FEDERAL SAVINGS BANK and UMINER V. CARVER
FEDERAL SAVINGS BANK, two other class actions filed in the Southern District of
New York which asserted claims essentially identical to those asserted in the
Dougherty suit. The plaintiffs in DOUGHERTY V. CARVER FEDERAL SAVINGS BANK have
filed notice in the United States Court of Appeals for the Second Circuit of
their intent to appeal. The case(s) are now pending appeal in the United State
Court of appeal for the Second Circuit.
On September 19, 1995, Carver filed an action for declaratory judgment,
for damages for breach of contract, and for breach of a contractual trust,
against Nationar and the Superintendent, in the Supreme Court of New York State,
County of New York. When the Superintendent sold Carver's ESOP loan to a third
party purchaser, it did not transfer Carver's $1,966,000 in collateral along
with the loan. The $1,966,000 in collateral consisted of two separate sums in
the amounts of $1,366,000 and $600,000. The purpose of the lawsuit was to secure
the return of the entire $1,966,000 in collateral rather than a portion of it
.The Bank believes that it has adequate reserves at 13.0% of the claims, against
possible loss on these claims.
By order entered April 10, 1996, on the recommendations of the
Superintendent, the Court directed the return of the $600,000 in collateral. The
Bank received these funds, plus interest, in early June 1996. As a result, the
Bank will recover the valuation allowance of 13.0% on the $600,000 amount. Since
the Bank expects that it will receive 90% of the $1,366,000 amount as a general
creditor, the lawsuit has been discontinued. Subsequently, the Bank received 40%
of the $1,366,000 plus interest in July, 1996 as part of first distribution.
11
<PAGE>
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Incorporated by reference to Item 5 of the Bank's Current Report on
Form 8-K dated July 29, 1996. Filed on August 7, 1996.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Computation of Earnings Per Share
Exhibit 99 - Current Report on Form 8-K dated July 29, 1996
filed on August 7, 1996
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 29, 1996, filed on August 7, 1996
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1996 CARVER FEDERAL SAVINGS BANK
/s/ Thomas L. Clark, Jr.
------------------------
Thomas L. Clark, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
Date: August 13, 1996 /s/ Biswarup Mukherjee
-------------------------
Biswarup Mukherjee
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
13
