SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21487
CARVER BANCORP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3904174
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(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
Indicate the number of shares outstanding of each of the issuer's
classes of stock outstanding of the latest practicable date.
Class Outstanding at February 12, 1997
- ---------------------------------- ----------------------------------
Common Stock, par value $.01 2,314,275
<PAGE>
CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, and March 31, 1996 (unaudited)........................3
Consolidated Statement of Operations for the Three and
Nine Months Ended December 31, 1996 and 1995 (unaudited)...........4
Consolidated Statement of Cash Flows for the Nine Months
Ended December 31, 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...........................................14
Item 2. Changes in Securities.......................................14
Item 3. Defaults upon Senior Securities.............................14
Item 4. Submission of Matters to Vote of Security Holders...........14
Item 5. Other Information...........................................14
Item 6. Exhibits and Reports on Form 8-K............................14
SIGNATURES
2
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<TABLE>
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1996 1996
------------- -------------
<S> <C> <C>
ASSETS
- ------
Cash and amounts due from depository institutions........................... $ 8,949,371 $ 3,225,950
Federal funds sold.......................................................... 10,700,000 6,800,000
----------- -----------
Total cash and cash equivalents............................................. 19,649,371 10,025,950
Securities available for sale............................................... 107,240,830 114,328,245
Investment securities held to maturity, net
(estimated fair values of $6,662,000 and $8,814,000 at
December 31, 1996 and March 31, 1996).................................... 6,675,181 8,937,075
Mortgage-backed securities held to maturity, net
(estimated fair values of $113,751,000 and $129,813,000 at
December 31, 1996 and March 31, 1996)...................................... 115,791,084 131,105,405
Loans receivable, net....................................................... 103,791,623 82,608,065
Real estate owned, net...................................................... 94,698 314,261
Property and equipment, net................................................. 11,130,984 9,956,981
Federal Home Loan Bank of New York stock, at cost........................... 2,435,000 3,120,000
Accrued interest receivable, net............................................ 2,600,938 2,688,199
Excess of cost over net assets acquired, net................................ 1,509,277 1,669,082
Other assets................................................................ 1,228,084 2,904,078
----------- -----------
Total assets............................................................ $372,147,070 $367,657,341
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Deposits.................................................................. $263,375,973 $256,951,883
Securities sold under agreement to repurchase............................. 43,335,000 47,000,000
Advances from Federal Home Loan Bank of New York.......................... 25,400,000 25,400,000
Other borrowed money...................................................... 1,411,523 1,548,122
Advance payments by borrowers for taxes and insurance..................... 670,502 483,055
Other liabilities......................................................... 3,051,772 1,509,500
----------- -----------
Total liabilities...................................................... $337,244,770 $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................................................ 21,314,060 21,436,235
Retained earnings-substantially restricted................................ 15,730,049 16,098,728
Common stock acquired by Employee Stock Ownership Plan.................... (1,411,523) (1,548,122)
Unrealized (loss) net, on securities available for sale................... (753,430) (1,245,204)
----------- -----------
Total stockholders' equity.................................................. 34,902,300 34,764,781
----------- -----------
Total liabilities and stockholders' equity.................... $372,147,070 $367,657,341
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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<TABLE>
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable............................ $2,017,551 $1,168,696 $ 5,557,667 $ 3,239,118
Mortgage-backed securities.................. 2,448,720 3,032,904 7,659,413 9,336,466
Debt and equity securities.................. 1,175,444 1,312,178 3,494,998 4,242,014
Other interest-earning assets............... 128,242 369,275 478,027 916,072
--------- --------- ---------- ----------
Total interest income....................... 5,769,957 5,883,053 17,190,105 17,733,670
--------- --------- ---------- ----------
Interest expense:
Deposits.................................... 2,100,702 2,109,071 6,282,634 6,323,860
Advances and other borrowed money........... 1,034,650 1,237,460 3,117,571 4,033,712
--------- --------- ---------- ----------
Total interest expense................... 3,135,352 3,346,531 9,400,205 10,357,572
--------- --------- ---------- ----------
Net interest income............................... 2,634,605 2,536,522 7,789,900 7,376,098
Provision for (recovery of) loan losses........... 51,254 75,000 135,895 60,944
--------- --------- ---------- ----------
Net interest income after provision for
(recovery of) loan losses....................... 2,583,351 2,461,522 7,654,005 7,315,154
--------- --------- ---------- ----------
Non-interest income:
Loan fees and service charges............... 52,946 16,381 154,275 62,427
Other....................................... 184,912 126,720 693,620 364,691
--------- --------- ---------- ----------
Total non-interest income.................. 237,858 143,101 847,895 427,118
--------- --------- ---------- ----------
Non-interest expenses:
Salaries and employee benefits.............. 917,143 779,658 2,961,576 2,563,062
Net occupancy expenses...................... 317,327 228,591 853,130 764,671
Equipment................................... 301,261 177,362 804,597 505,690
Loss on foreclosed real estate.............. 1,188 14,164 9,688 43,040
Advertising................................. 54,308 79,027 133,530 161,442
Federal deposit insurance premium........... 148,663 144,411 439,320 473,358
Amortization of intangibles................. 53,268 55,672 159,805 176,629
Legal expenses ............................. 41,841 131,671 115,182 320,921
Bank charges................................ 81,715 85,405 260,781 212,664
Security service............................ 77,032 79,745 232,833 177,874
SAIF assessment ............................ 0 0 1,632,290 0
Other....................................... 564,868 418,364 1,577,388 1,340,044
--------- --------- ---------- ----------
Total non-interest expenses............... 2,558,614 2,194,070 9,180,120 6,739,395
--------- --------- ---------- ----------
Income (Loss) before income taxes................. 262,595 410,553 (678,220) 1,002,877
Income taxes (Benefit)............................ 111,066 270,125 (309,541) 520,251
--------- ---------- ----------
Net income (Loss)................................ $ 151,529 $ 140,428 $ (368,679) $ 482,626
========= ========= ========== ==========
Net income (Loss) per common share................ $0.07 $0.07 $(0.17) $0.22
========= ========= ========== ==========
Weighted average number of common shares
outstanding....................................... 2,171,194 2,153,492 2,166,992 2,147,973
========= ========= ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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<TABLE>
CARVER BANCORP, INC.AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended
December 31
---------------------------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ (368,679) $ 482,626
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment................ 497,776 222,962
Amortization of intangibles............................................ 159,805 176,630
Other amortization and accretion, net.................................. 948,582 471,427
Provision for (recovery of) loan losses................................ 135,895 60,944
Deferred income taxes.................................................. 292,471 176,046
Allocation of ESOP..................................................... 111,383 114,586
Changes in:
Accrued interest receivable, net....................................... 87,261 230,009
Refundable income taxes................................................ 0 (342,135)
Other assets........................................................... 1,675,994 613,320
Other liabilities...................................................... 0 (382,504)
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Net cash provided by operating activities........................... 3,540,488 1,823,911
---------- ----------
Cash flows from investing activities:
Purchase of securities available for sale.............................. (8,500,000) 0
Principal repayments on securities available for sale.................. 4,264,055 2,076,207
Proceeds from sale of securities available for sale.................... 12,114,321 0
Gain from sale of securities available for sale.......................... 91,713 0
Purchase of investment securities held to maturity..................... (50,000) 0
Proceeds from maturities and calls of investment
securities held to maturity...................................... 2,311,894 9,000,000
Principal repayment on mortgage-backed securities
held to maturity.................................................... 15,049,089 17,773,908
Net change in loans receivable......................................... (21,199,581) (10,927,846)
Proceeds from sale of real estate owned................................ 252,292 0
Loss from sale of real estate owned.................................... 20,292 0
Additions to premises and equipment.................................. (1,766,080) (4,415,659)
Redemption of Federal Home Loan Bank stock........................... 685,000 0
---------- ----------
Net cash (used in) provided by investing activities.................. 3,272,995 13,506,610
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in deposits.................................... 6,424,090 6,149,279
Repayment of securities sold under agreements to repurchase............ (67,000,000) 0
Repayment of advances from Federal Home Loan Bank of
New York............................................................. 0 (49,188,000)
Securities sold under agreement to repurchase......................... 63,335,000 39,000,000
Repayment of other borrowed money..................................... (136,599) (136,599)
Net increase in advance payments by borrowers for taxes and
insurance ............................................................ 187,447 (363,253)
---------- ----------
Net cash provided by (used in) financing activities...................... (2,809,938) (4,538,573)
---------- ----------
Net increase (decrease) in cash and cash equivalents..................... (9,623,421) 10,791,948
Cash and cash equivalents -- beginning................................... 10,025,950 11,817,805
---------- ----------
Cash and cash equivalents -- ending...................................... $19,649,371 $22,609,753
========== ==========
Supplemental disclosure of non-cash activities: Unrealized Gain (loss) on
securities available for sale:
Unrealized Gain (loss)............................................... 927,875 $ (778,809)
Deferred income taxes................................................ 491,774 366,040
---------- -----------
Loans receivable transferred to real estate owned...................... $ 32,729 $ 11,869
========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest............................................................. $11,595,424 $ 10,360,741
========== ===========
Federal, state and city income taxes................................. $ 286,000 $ 492,367
========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Carver
Bancorp, Inc. (the "Company" or "Bancorp") 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 nine month period ended December 31, 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 Company and its wholly
owned subsidiary, Carver Federal Savings Bank (the "Bank"), and the
Bank's 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) REORGANIZATION INTO A HOLDING COMPANY
On October 17, 1996, the Bank completed its reorganization into a
holding company structure (the "Reorganization") and became the wholly
owned subsidiary of Carver Bancorp, Inc., a savings and loan holding
company. Pursuant to an Agreement and Plan of Reorganization, dated May
21, 1996, each share of the Bank's outstanding common stock was
exchanged for one share of Bancorp common stock. The Bank's
shareholders approved the Reorganization at the Bank's annual meeting
of shareholders held on July 29, 1996. In connection with the
Reorganization, a shareholder of the Bank exercised appraisal rights,
and 100 shares of the Bank's common stock were purchased from such
shareholder in the fourth fiscal quarter of 1997. At this time Bancorp
conducts business as a unitary savings and loan holding company and the
principal business of Bancorp consists of the operation of the Bank.
(3) EARNINGS PER SHARE CALCULATION
Net income per share for the three months and nine months ended
December 31, 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 State savings banks. The
Department will manage the business of Nationar until a suitable buyer
is found. As of February 6, 1995, the Bank had invested $1,366,000 in
federal funds and $600,000 in certificates of deposit, or a total of
$1,966,000, with Nationar. This $1,966,000 investment was reclassified,
net of a $256,000 allowance for estimated losses, to other assets on
the Company's statement of financial condition. At a hearing on April
10, 1996, pursuant to the recommendation of the Superintendent of Banks
of the Department (the "Superintendent"), the presiding judge entered
an order directing the return of the $600,000 in certificates of
deposit that had been deposited with Nationar. These funds were
received plus interest, in early June 1996. Subsequently, the Bank
received 40% of the $1,366,000 plus interest in July 1996 as part of
its first distribution. The Bank received the balance along with
interest of $20,609 in December 1996.
6
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q contains forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are subject to various factors which
could cause actual results to differ materially from these estimates. These
factors include, changes in general, economic and market, legislative and
regulatory conditions, the development of an adverse interest rate environment
that adversely affects the interest rate spread or other income anticipated from
the Company's operations and investments, the ability of the Company to
originate loans with attractive terms and acceptable credit quality and the
ability of the Company to realize cost efficiencies.
FINANCIAL CONDITION
Total assets at December 31, 1996 increased approximately $4.5 million,
or 1.22%, to $372.1 million from $367.7 million at March 31, 1996. The increase
was primarily attributable to an increase in loans receivable, federal funds
sold and cash and amounts due from depository institutions, offset in part by
decreases in securities available for sale, investment securities held to
maturity and mortgage-backed securities held to maturity. Increases in loans
receivable and decreases in each of the securities portfolios reflect
management's efforts to restructure the Company's balance sheet and to
significantly increase the Bank's loan portfolio.
Mortgage-backed securities held to maturity decreased by $15.3 million,
or 11.68%, to $115.8 million at December 31, 1996 from $131.1 million at March
31, 1996, reflecting the receipt of principal repayments on such securities.
These repayments, and an increase in deposits, were used to originate loans and
repay outstanding borrowings under reverse repurchase agreements from the
Federal Home Loan Bank of New York ("FHLB") and other loans. Total cash and cash
equivalents increased by $9.6 million or 95.99%, to $19.6 million at December
31, 1996 from $10.0 million at March 31, 1996. Securities available for sale
decreased $7.0 million or 6.39% to $107.3 million at December 31, 1996 from
$114.3 million at March 31, 1996, primarily due to the sale of $8.5 million of
mutual funds and principal payments, which were partly offset by a decrease in
unrealized loss of $492,000. Net loans receivable increased to $103.8 million at
December 31, 1996 as compared to $82.6 million at March 31, 1996. The increase
was due to increases in loan originations of one-to-four family, multifamily and
commercial loans, which were in part offset by principal repayments.
Total liabilities increased by $4.4 million, or 1.31%, from $332.9
million at March 31, 1996 to $337.2 million at December 31, 1996 as the result
of increased deposits, offset in part by a decrease in securities sold under
agreements to repurchase. Deposits increased $6.4 million, or 2.50%, to $263.4
million at December 31, 1996 from $256.9 million at March 31, 1996. Other
liabilities, which consist of accounts payable, accrued interest on deposits,
accrued taxes payable and automatic teller machine clearing accounts, increased
to $3.0 million at December 31, 1996 from $1.5 million at December 31, 1995.
This increase was primarily attributable to automatic teller machine clearing
accounts. The Company used its excess liquidity to repay a portion of its
borrowings.
Stockholders' equity increased by $137,000, or 0.40%, to $34.9 million
at December 31, 1996 from $34.8 million at March 31, 1996. Retained earnings at
December 31, 1996 decreased $369,000, or 2.29%, to $15.7 million from $16.1
million at March 31, 1996, as a result of a loss for the nine months
7
<PAGE>
ended December 31, 1996 due to a one-time pre-tax assessment during the quarter
ended September 30, 1996 of $1.6 million for the recapitalization of the Savings
Association Insurance Fund ("SAIF") pursuant to the Deposit Insurance Funds Act
of 1996 ("Funds Act"), which was enacted on September 30, 1996. At December 31,
1996, unrealized losses on securities available for sale (which are recorded net
of deferred income taxes as a reduction to retained earnings) were approximately
$753,000, a decrease of $492,000, or 39.49%, as compared to $1.2 million at
March 31, 1996. The decrease in unrealized loss is attributable primarily to the
lower interest rate environment, which has increased the value of the Company's
portfolio of securities available for sale. In accordance with Statement of
Financial Accounting Standards ("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 DECEMBER 31, 1996 AND 1995
Net income for the three months ended December 31, 1996 increased by
$5,000, or 3.55%, to $145,000 as compared to $140,000 for the three months ended
December 31, 1995. The increase in net income was due to increases in net
interest income and non-interest income, a decrease in the provision for loan
losses and a decrease in income tax expense, partially offset by increased
non-interest expense.
Net interest income increased $98,000, or 3.87%, to $2.6 million for
the three months ended December 31, 1996 as compared to $2.5 million for the
three months ended December 31, 1995. The increase in net interest income is
attributable to a $211,000, or 6.31%, decrease in interest expense, which was
partially offset by a $113,000, or 1.92%, decrease in interest income.
The Company's interest rate spread increased to 2.91% for the quarter
ended December 31, 1996 from 2.72% for the quarter ended December 31, 1995 and
net interest margin increased by 10 basis points over the same period. These
increases are primarily due to an increase in higher yielding mortgage loans, a
decrease in the cost of deposits and a decrease in the cost of borrowed funds.
The Company's ratio of average interest-earning assets to average
interest-bearing liabilities decreased from 1.06x for the three months ended
December 31, 1995 to 1.04x for the three months ended December 31, 1996 due to
the receipt of principal payments on mortgage-backed securities and a reduction
in the Company's investment portfolio, partially offset by an increase in loans
receivable, as well as an increase in deposits and an increase in borrowed
funds.
Interest income decreased by $113,000 or 1.92, to $5.8 million for the
three months ended December 31, 1996 from $5.9 million for the three months
ended December 31, 1995. This decrease was primarily due to a decrease of 15
basis points in the average yield on interest-earning assets. Interest income
from mortgage-backed securities decreased $584,000, or 19.27%, to $2.4 million
for the three months ended December 31, 1996, compared to $3.0 million for the
three months ended December 31, 1995. This decrease is primarily attributable to
a decrease of $32.6 million in the average balance of mortgage-backed securities
and a decrease of 14 basis points in the average yield on mortgage-backed
securities. Income from investment securities and other interest-earning assets
decreased by $378,000, or 22.47%, to $1.3 million during the three months ended
December 31, 1996 as compared to $1.7 million for the same period in 1995. The
average balance of investment securities and other interest-earning assets
decreased by $10.9 million and the average yield on these assets decreased by 86
basis points. Interest income on loans receivable increased by $849,000, or
72.64%, to $2.0 million for the three months ended December 31, 1996, compared
to $1.2 million for the three months ended December 31, 1995. This
8
<PAGE>
increase is primarily attributable to an increase in average loan portfolio
balances of $44.2 million, partially offset by a decrease of 58 basis points in
the average yield on the loan portfolio.
Interest expense decreased by $211,000, or 6.31%, to $2.6 million for
the three months ended December 31, 1996, as compared to $3.3 million for the
same period in 1995. Interest expense on deposits decreased by $8,000 or 0.40%
during the three months ended December 31, 1996 as compared to the three months
ended December 31, 1995, primarily due to a decrease in costs of deposits of 15
basis points, partially offset by an increase in average deposit balances of
$10.4 million. The increase in average deposit balances is primarily
attributable to interest credited to deposit accounts with the Bank. Interest
expense on FHLB advances and other borrowings decreased to $1.0 million for the
quarter ended December 31, 1996, from $1.2 million for the same period in 1995.
The decrease is attributable to a decrease in average borrowings of $4.7 million
and a decrease in the average cost of borrowings of 73 basis points.
During the three months ended December 31, 1996, the provision for loan
losses was $51,000, compared to a $75,000 provision for the three months ended
December 31, 1995. The provision for loan losses attributable to possible losses
on real estate loans was $16,000 and the provision for possible losses
attributable to credit card losses was $35,000. The decrease in the provision
for loan losses is primarily due to an increase in the provision for the
corresponding period in 1995, as a result of increased provisions attributable
to credit quality concerns relating to loan participations purchased from TASCO
(Thrift Association Service Corporation). During the three months ended December
31, 1996, the Bank's net charge-off (recovery) was $0; accordingly, as a result
of the provision for loan losses, the allowance for loan losses increased from
$980,000 at September 30, 1996 to $1.03 million at December 31, 1996. The ratio
of the allowance for loan losses to non-performing loans at December 31, 1996
was 19.37% compared to 20.65% at September 30, 1996.
Non-interest income increased by $95,000, or 66.22%, to $238,000 for
the three months ended December 31, 1996 as compared to $143,000 for the three
months ended December 31, 1995. The increase was due primarily to an increase in
other non-interest income from $127,000 to $185,000, which is primarily
attributable to increased loan and service fee charges associated with increased
loan volume.
Non-interest expenses were $2.6 million for the three months ended
December 31, 1996, an increase of $365,000 or 16.62%, from $2.2 million for the
same period in 1995. The increase principally reflects an increase of $137,000
or 17.64% in salaries and employee benefits expense, due to ordinary increases
in salary, increased amortization of expense for the Bank's Management
Recognition Plan and ESOP expense. Non-interest expenses also reflect an
increase of $89,000 or 38.82% in net occupancy expense due to Bank's new
headquarters, the renovation of two branches and the consolidation of the
Jamaica branch into the St. Albans branch in November 1996, which was done as
part of the Company's ongoing efforts to reduce operating costs and increase
profitability. The equipment expense increased by $124,000 or 69.86% due to
increased depreciation and maintenance cost for new furniture, fixtures,
computers for the Bank's new headquarters and certain branches. Miscellaneous
other expenses increased by $147,000 or 35.02% due to increased appraisal and
inspection fees, loan service fees, stationery and supplies, and insurance.
These increases in non-interest expenses were partially offset by a decrease of
$25,000 in advertising expense.
Income tax provision for the three months ended December 31, 1996 was
$111,000 compared to $270,000 for the three months ended December 31, 1995
resulting from pre-tax income of $263,000. The Company's effective tax rates
were 42.30% and 65.80% for the three months ended December 31, 1996 and 1995,
respectively.
9
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NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net income for the nine months ended December 31, 1996 decreased by
$851,000, or 176.39%, to a loss of $369,000, as compared to income of $483,000
for the same period in 1995. This decrease was primarily attributable to a
one-time pre-tax assessment of $1.6 million for the recapitalization of SAIF,
pursuant to the Funds Act. The decrease also reflects an increase in
non-interest expense which offset increases in net interest income after
provision for loan losses and non-interest income. Excluding the one-time SAIF
assessment, net income for the nine month period would have been $518,000.
Net interest income increased $414,000, or 5.61%, to $7.8 million for
the nine months ended December 31, 1996 as compared to $7.4 million for the nine
months ended December 31, 1995. The increase in net interest income was
attributable to a $957,000, or 9.25%, decrease in interest expense which was
partially offset by a $544,000, or 3.07%, decrease in interest income.
The Company's interest rate spread increased from 2.60% for the nine
months ended December 31, 1995 to 2.86% for the nine months ended December 31,
1996 and its net interest margin increased by 18 basis points. These increases
are primarily due to a lower cost of funds which primarily reflect lower market
interest rates as well as a reduction in higher cost borrowings and a
corresponding increase in lower cost deposits. The interest rate spread also
reflects the replacement of mortgage backed securities with higher yielding
loans. The Bank's ratio of average interest-earning assets to average
interest-bearing liabilities decreased from 1.06x for the nine months ended
December 31, 1995 to 1.05x for the nine months ended December 31, 1996 due to
lower average interest-earning assets and higher average interest-bearing
liabilities.
Interest income decreased to $17.2 million for the nine months ended
December 31, 1996, from $17.7 million for the nine months ended December 31,
1995. This decrease was primarily due to a decrease in average interest-earning
assets of $2.5 million and a decrease of 16 basis points in the average yield on
interest-earning assets. Interest income from mortgage-backed securities
decreased $1.7 million, or 17.97%, to $7.7 million for the nine months ended
December 31, 1996, compared to $9.3 million for the nine months ended December
31, 1995. This decrease is primarily attributable to a decrease in average
balances of mortgage-backed securities, supplemented by a 10 basis point
decrease in the average yield on mortgage-backed securities. Income from debt
and equity securities and other interest-earning assets decreased by $1.2
million, or 22.98%, to $4.0 million during the nine months ended December 31,
1996 as compared to $5.2 million for the same period in 1995. Average debt and
equity securities and other interest-earning assets decreased by $1.2 million,
and the average yield on these assets decreased by 98 basis points. Interest on
loans receivable increased by $2.3 million, or 71.58%, to $5.6 million for the
nine months ended December 31, 1996, compared to $3.2 million for the nine
months ended December 31, 1995. This increase is primarily attributable to an
increase in average loans receivable of $39.7 million, partially offset by a
decrease of 38 basis points in the average yield on loans receivable. Interest
income on other interest-earning assets, which consist of federal funds sold and
interest on the Bank's deposits in correspondent banks decreased to $478,027 for
the nine months ended December 31, 1996 from $916,000 for the corresponding
period in 1995. This decrease is primarily attributable a decline of $8.3
million in the average balances in those accounts as well as a decline of 35
basis points in the average yield.
Interest expense decreased to $9.4 million for the nine months ended
December 31, 1996 as compared to $10.4 million for the same period in 1995.
Interest expense on deposits decreased by $41,000 or 0.66% for the nine months
ended December 31, 1996 as compared to the nine months ended December 31, 1995,
primarily due to a decrease in the average cost of funds of 14 basis points,
partially
10
<PAGE>
offset by an increase in average deposit balances of $9.4 million. The increase
in the average balance of deposits is primarily attributable to interest
credited to deposit accounts in the Bank. Interest on FHLB advances and other
borrowed funds decreased to $3.1 million for the nine months ended December 31,
1996 from $4.0 million for the same period in 1995. The decrease is attributable
to a decrease in average borrowings by $6.5 million supplemented by a decrease
in the average cost of borrowings of 111 basis points.
During the nine months ended December 31, 1996 provision for loan
losses was $136,000, compared to a $61,000 provision for loan losses for the
nine months ended December 31, 1995. Of the $136,000, $74,000 was attributable
to possible losses on real estate loans and $62,000 was attributable to possible
credit card losses. In addition, the Bank had net charge-offs during the nine
months ended December 31, 1996 of $311,000, most of which was due to charge-offs
that occurred during the quarter ended June 30, 1996. The net charge-off for the
nine month period resulted in a net decrease in the allowance for loan losses
from $1.2 million at March 31, 1996 to $1.03 million at December 31, 1996. The
ratio of the allowance for loan losses to non-performing loans at December 31,
1996 was 19% compared to 37% at March 31, 1996.
Non-interest income increased by $421,000 or 98.52%, to $848,000 for
the nine months ended December 31, 1996 as compared to $427,000 for the nine
months ended December 31, 1995. The increase was primarily due to the gain of
$75,000 on sales of GNMA securities from the Company's securities available for
sale portfolio and increases in loan fees and service charges and other
non-interest income. Other non-interest income increased by $329,000, or 90.10%,
to $694,000 at December 31, 1996 from $365,000 at December 31, 1995. This
increase is primarily attributable to lapsed loan commitment fees and service
fee charges associated with increased loan volume. In addition, the increase in
non-interest income also reflects $35,000 in interest income recovered in
connection with the receipt of funds from the Superintendent that were
previously held by Nationar.
Non-interest expenses were $9.2 million for the nine months ended
December 31, 1996, an increase of $2.4 million, or 36.22% from $6.7 million for
the same period in 1995. The increase principally reflects a $1.6 million
one-time pre-tax assessment for the recapitalization of the SAIF pursuant to the
Deposit Funds Act. Excluding the SAIF assessment, total non-interest expense
would have been $7.6 million; in addition, the increase in non-interest expense
reflects an increase of $399,000 or 15.55% in salaries and employee benefits
expense due to increases in salary, increased amortization of expense for the
Bank's Management Recognition Plan, an increase of $299,000, or 59.11% in
equipment expenses reflecting increased depreciation and maintenance cost for
new furniture, fixtures and computers for the Bank's new headquarters and
certain branches, and an increase of $55,000, or 30.90% in security service
expense due to the Bank's new headquarters. These increases were offset in part
by declines in advertising, legal, and federal deposit insurance premium
expenses.
Income tax expense (benefit) for the nine months ended December 31,
1996 was a benefit of $310,000 as compared to a $520,000 expense for the nine
months ended December 31, 1995 due to the net loss for the nine months ended
December 31, 1996. The Company's effective tax rates were 45.64% and 51.88% for
the nine months ended December 31, 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and
interest payments on loans, mortgage-backed securities and investment
securities. While maturities and the scheduled amortization of loans,
mortgage-backed securities and investment securities are predictable sources of
funds, deposit
11
<PAGE>
flows and loan and mortgage-backed securities prepayments are strongly
influenced by changes in general interest rates, economic conditions and
competition.
The Company's most liquid assets are cash and cash equivalents and
short-term investments including mutual funds. The levels of the Company's cash
and cash equivalents are dependent on the Company's operating, financing,
lending and investing activities during any given period. At December 31, 1996,
the Company's cash and cash equivalents totaled $19.6 million, compared to $10.0
million at March 31, 1996. The increase in cash and cash equivalents primarily
reflects the sale of mutual fund shares, the proceeds of which are to be used to
fund loan originations. For additional information about cash flows from the
Company's operating, financing and investing activities, see the Consolidated
Statements of Cash Flows included herein.
The Office of Thrift Supervision, the Bank's primary federal regulator,
requires that the Bank meet minimum tangible, core and risk-based capital
requirements. At December 31, 1996, the Bank exceeded all fully phased-in
regulatory capital requirements. The table below presents certain information
relating to the Bank's capital compliance at December 31, 1996 and March 31,
1996.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT MARCH 31, 1996
-------------------- -----------------
AMOUNT % OF ASSETS AMOUNT % OF ASSETS
------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
TANGIBLE CAPITAL:
Tangible Capital $ 30,100 8.19% $33,462 9.13%
Tangible Capital Requirement 5,510 1.50% 5,495 1.50%
------ ---- ----- -----
Excess Above Requirement $ 24,590 6.69% 27,967 7.63%
CORE CAPITAL:
Core Capital $30,154 8.21% 33,522 9.15%
Core Capital Requirement 11,021 3.00% 10,992 3.00%
------ ---- ------ ----
Excess Above Requirement $19,133 5.21% $22,530 6.15%
RISK BASED CAPITAL:
Risk Based Capital $30,421 30.89% $33,801 28.06%
Risk Based Capital Requirement 7,878 8.00% 9,638 8.00%
----- ---- ----- ----
Excess Above Requirement $22,543 22.89% $24,163 20.06%
</TABLE>
RECENT LEGISLATION -- RECAPITALIZATION OF SAIF -- DEPOSIT INSURANCE
For the first three quarters of 1996, SAIF-insured institutions paid
deposit insurance assessment rates of $0.23 to $0.31 per $100 of deposits. In
contrast, institutions insured by the FDIC's Bank Insurance Fund (the "BIF")
that were well capitalized and without any significant supervisory concerns paid
the minimum annual assessment of $2,000, and all other BIF-insured institutions
paid deposit insurance assessment rates of $0.03 to $0.27 per $100 of deposits.
In response to the disparity between the SAIF and BIF assessments, the
Deposit Insurance Funds Act of 1996 was enacted on September 30, 1996. The Funds
Act amended the Federal Deposit Insurance Act (the "FDIA") in several ways to
recapitalize the SAIF and reduce the disparity in the assessment rates
12
<PAGE>
for the BIF and the SAIF. The Funds Act authorized the FDIC to impose a special
assessment on all institutions with SAIF-assessable deposits in the amount
necessary to recapitalize the SAIF. As implemented by the FDIC, institutions
with SAIF-assessable deposits were assessed a special assessment, subject to
adjustment, of 65.7 basis points per $100 of the institution's SAIF-assessable
deposits. The special assessment was payable on November 27, 1996. The Funds Act
provides that the amount of the special assessment will be deductible for
federal income tax purposes for the taxable year in which the special assessment
is paid. Based on the foregoing, the Bank recorded an accrual for the special
assessment of $1.6 million at September 30, 1996. The impact on operations, net
of related tax effects, reduced reported earnings by $893,000 for the quarter
ended September 30, 1996.
As a result of the Funds Act, the SAIF was recapitalized in the last
quarter of 1996, and the FDIC reduced the assessment rates for the SAIF. For the
semi-annual period beginning January 1, 1997, the SAIF assessment rates range
from 0 to 27 basis points, which is the same as the schedule of assessment rates
for the BIF. The Funds Act also expanded the assessment base for the payments on
the bonds ("FICO bonds") issued in the late 1980s by the Financing Corporation
to recapitalize the now defunct Federal Savings and Loan Insurance Corporation
to include the deposits of both BIF- and SAIF-insured institutions beginning
January 1, 1997. Until December 31, 1999, or such earlier date on which the last
savings association ceases to exist, the rate of assessment for the FICO
payments imposed on BIFassessable deposits will be one-fifth of the rate imposed
on SAIF-assessable deposits. The annual rate of assessments for the payments on
the FICO bonds for the semi-annual period beginning on January 1, 1997 will be
0.0130% for BIF-assessable deposits and 0.0648% for SAIF-assessable deposits.
The Funds Act also provides for the merger of the BIF and SAIF on
January 1, 1999, with such merger being conditioned upon the prior elimination
of the thrift charter. The Secretary of the Treasury is required to conduct a
study of relevant factors with respect to the development of a common charter
for all insured depository institutions and abolition of separate charters for
banks and thrifts and to report the Secretary's conclusions and findings to the
Congress on or before March 31, 1997. Two bills have been introduced in Congress
to eliminate the federal thrift charter, with one requiring the federal thrift
to convert to a bank charter and the other giving the federal thrift the option
to convert to a national or state chartered bank or to a state savings and loan
association, but no determination has been made as to the enactment of either
bill.
RECENT TAX LEGISLATION REGARDING TAX BAD DEBT RESERVES
Prior to the enactment, on August 20, 1996, of the Small Business Job
Protection Act of 1996 (the "Small Business Act"), for federal income tax
purposes, thrift institutions such as the Bank, which met certain definitional
tests primarily relating to their assets and the nature of their business, were
permitted to establish tax reserves for bad debts and to make annual additions
thereto, which additions could, 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, could be computed using an amount based on a six-year moving
average of the Bank's actual loss experience (the "Experience Method"), or a
percentage equal to 8.0% 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.
Under the Small Business Act, the PTI Method was repealed and the Bank
will be required to use the Experience Method of computing additions to its bad
debt reserve for taxable years beginning with the Bank's taxable year beginning
April 1, 1996. In addition, the Bank will be required to recapture (i.e., take
into taxable income) over a six-year period, beginning with the Bank's taxable
year beginning April
13
<PAGE>
1, 1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of March 31, 1996 over (a) the greater of 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 Small
Business Act such recapture requirements will be suspended for each of the two
successive taxable years beginning April 1, 1996 in which the Bank originates a
minimum amount of certain residential loans during such years that is not less
than the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding April 1, 1996. This legislation will result in
no recapture of bad debt reserves for the Bank.
The New York State tax law has been amended to prevent a similar
recapture of the Bank's bad debt reserve. Although New York City is presently
addressing conforming its tax law regarding bad debts to New York State's tax
law, it has not, to date, enacted similar legislation.
14
<PAGE>
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 December 31, 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.
STOCKHOLDER LITIGATION
On April 5, 1995, a class action was filed against Carver in federal
court alleging that the Offering Circular used in the Bank's conversion to a
stock-form institution was materially false and misleading. The suit, which
management thinks is without merit and will vigorously defend, seeks rescission,
restitution and unspecified damages.
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
appealed to the United States Court of Appeals for the Second Circuit. The oral
argument of this appeal was heard on September 4, 1996, at which time the Court
of Appeals reserved decision. Since that date the Court of Appeals has requested
amicus curie briefs of the Office of Thrift Supervision and the Securities and
Exchange Commission. Amicus briefs were filed by both regulatory agencies in
November of 1996 and all parties are presently awaiting the decision of the
United States Court of Appeals.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11. Statement regarding Computation of Per Share
Earnings.
Exhibit 27. Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
The Company filed a Form 8-K on October 18, 1996 to
report, pursuant to Items 5 and 7, the reorganization
of the Bank as a wholly-owned subsidiary of the
Company.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant had duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CARVER BANCORP, INC.
--------------------------------------
(Registrant)
February 13, 1997 By: /s/ Thomas L. Clark, Jr.
--------------------------------------
Thomas L. Clark, Jr.
President and Chief Executive Officer
February 13, 1997 By: /s/ Biswarup Mukherjee
--------------------------------------
Biswarup Mukherjee
Executive Vice President and Chief Financial
Officer
17
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
AS OF QUARTER ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------- ----------------------------
<S> <C> <C>
Net income/(Loss) $151,529 $140,428
Weighted average shares outstanding 2,171,194 2,153,492
Earning/(Loss) per shares outstanding $0.07 $0.07
<CAPTION>
FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------- ----------------------------
<S> <C> <C>
Net income/(Loss) ($368,679) $482,626
Weighted average shares outstanding 2,166,992 2,147,973
Earning/(Loss) per shares outstanding ($0.17) $0.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the balance sheet and the statement of earnings of Carver Bancorp, Inc. for the
period at and ending December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 8,949,371
<INT-BEARING-DEPOSITS> 335,933,718
<FED-FUNDS-SOLD> 10,700,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 107,240,830
<INVESTMENTS-CARRYING> 122,466,265
<INVESTMENTS-MARKET> 120,413,000
<LOANS> 103,791,623
<ALLOWANCE> 1,030,702
<TOTAL-ASSETS> 372,147,070
<DEPOSITS> 263,375,973
<SHORT-TERM> 68,335,000
<LIABILITIES-OTHER> 3,722,274
<LONG-TERM> 1,811,523
0
0
<COMMON> 23,144
<OTHER-SE> 34,879,156
<TOTAL-LIABILITIES-AND-EQUITY> 372,147,070
<INTEREST-LOAN> 5,557,667
<INTEREST-INVEST> 11,154,411
<INTEREST-OTHER> 478,027
<INTEREST-TOTAL> 17,190,105
<INTEREST-DEPOSIT> 6,282,634
<INTEREST-EXPENSE> 9,400,205
<INTEREST-INCOME-NET> 7,789,900
<LOAN-LOSSES> 135,895
<SECURITIES-GAINS> 74,809
<EXPENSE-OTHER> 9,180,120
<INCOME-PRETAX> (678,220)
<INCOME-PRE-EXTRAORDINARY> (678,220)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (309,541)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
<YIELD-ACTUAL> 6.73
<LOANS-NON> 1,436,500
<LOANS-PAST> 3,884,152
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,205,496
<CHARGE-OFFS> 311,000
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,030,702
<ALLOWANCE-DOMESTIC> 1,030,702
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
