UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-21487
CARVER BANCORP, INC.
--------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3904174
- ---------------------------------------- ------------------------------
(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 thirty days.
Yes X No
--- ---
Common Stock, par value $.01 2,314,275
- ---------------------------------------- ------------------------------
Class Outstanding at August 14, 1999
<PAGE>
CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 1999 and March 31, 1999 (unaudited)...................1
Consolidated Statements of Income for the Three
Months Ended June 30, 1999 and 1998 (unaudited)................2
Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 1999 and 1998 (unaudited)................3
Notes to Consolidated Financial Statements (unaudited).........4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................5
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................13
Item 2. Changes in Securities and Use of Proceeds........................13
Item 3. Defaults upon Senior Securities..................................13
Item 4. Submission of Matters to a Vote of Security Holders..............13
Item 5. Other Information................................................14
Item 6. Exhibits and Reports on Form 8-K.................................14
SIGNATURES....................................................................15
<PAGE>
<TABLE>
<CAPTION>
CARVER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
As of As of
June 30, March 31,
1999 1999
- ----------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks........................................... $ 10,922,891 $ 11,120,748
Other interest earning assets..................................... 9,900,000 10,200,000
------------- -------------
Total cash and cash equivalents.............................. 20,822,891 21,320,748
------------- -------------
Securities held to maturity....................................... 24,996,434 --
Securities available for sale..................................... 34,877,726 29,918,137
Mortgage-backed securities held to maturity, net
(estimated fair values of $60,231,064 and $65,693,568 at
June 30, 1999 and March 31, 1998)............................ 61,885,233 66,584,447
Loans receivable.................................................. 255,308,162 274,541,950
Less allowance for loan losses............................... (3,765,263) (4,020,099)
Loans receivable, net........................................ 251,542,899 270,521,851
------------- -------------
Real estate owned, net............................................ 184,599 184,599
Property and equipment, net....................................... 11,735,477 11,884,983
Federal Home Loan Bank of New York stock, at cost................. 5,754,600 5,754,600
Accrued interest receivable....................................... 2,478,143 2,860,693
Excess of cost over net assets acquired, net...................... 976,584 1,029,853
Other assets...................................................... 7,225,793 6,422,933
------------- -------------
Total assets................................................. $ 422,480,379 $ 416,482,844
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits.......................................................... $ 283,383,360 $ 276,999,074
Securities sold under agreement to repurchase..................... 35,337,000 35,337,000
Advances from Federal Home Loan Bank of New York.................. 65,703,529 65,708,466
Other borrowed money.............................................. 941,768 992,619
Advance payments for taxes........................................ -- --
Other liabilities................................................. 5,107,851 6,270,419
------------- -------------
Total liabilities............................................ 390,473,508 385,307,578
------------- -------------
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; 2,314,275 shares issued and outstanding.......... 23,144 23,144
Additional paid-in capital........................................ 21,417,427 21,423,574
Retained earnings-substantially restricted........................ 11,508,065 10,721,168
Common stock acquired by Employee Stock Ownership Plan............ (941,765) (992,620)
Comprehensive Income, net of income tax........................... -- --
Total stockholders' equity................................... 32,006,871 31,175,266
------------- -------------
Total liabilities and stockholders' equity........................ $ 422,480,379 $ 416,482,844
============= =============
</TABLE>
1
<PAGE>
CARVER BANCORP, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Ended
June 30,
----------------------------------
1999 1998
---- ----
Interest income:
Loans ................................. $ 5,060,527 $ 5,354,256
Mortgage-backed securities............. 981,214 1,846,566
Investment securities.................. 680,966 166,024
Other interest earning assets.......... 142,415 218,037
------------ ------------
Total interest income................ 6,865,122 7,584,883
------------ ------------
Interest expense:
Deposits............................... 2,177,561 2,141,768
Advances and other borrowed money...... 1,402,961 1,745,405
------------ ------------
Total interest expense.............. 3,580,522 3,887,173
------------ ------------
Net interest income...................... 3,284,600 3,697,710
Provision for loan losses................ 150,000 450,015
------------ ------------
Net interest income after
provision for loan losses.............. 3,134,600 3,247,695
------------ ------------
Non-interest income:
Loan fees and service charges.......... 10,785 48,195
Other income........................... 464,347 526,473
------------ ------------
Total non-interest income........... 475,132 574,668
------------ ------------
Non-interest expenses:
Salaries and employee benefits......... 1,304,140 1,240,244
Net occupancy expenses................. 346,549 287,976
Equipment.............................. 395,477 447,011
Other.................................. 776,669 1,293,613
------------ ------------
Total non-interest expenses......... 2,822,835 3,268,844
------------ ------------
Income (loss) before income taxes........ 786,897 553,519
Income taxes............................. 372,000 235,465
Income taxes (benefit)................... (372,000) --
------------ ------------
Net income (loss)....................... $ 786,897 $ 318,054
============ ============
Net income (loss) per common share....... $ 0.35 $ 0.14
============ ============
Weighted average number of common
shares outstanding..................... 2,218,324 2,199,025
============ ============
2
<PAGE>
<TABLE>
<CAPTION>
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months Ended
June 30,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 786,897 $ 318,054
Adjustments:
Depreciation and amortization of premises and equipment 252,023 191,749
Amortization of Intangibles 53,269 51,359
Other amortization and accretion, net 131,950 112,821
Provision for loan losses 150,000 450,015
Allocation of ESOP stock 39,279 63,566
(Increase) decrease in accrued interest receivable 382,550 (374,033)
(Increase) decrease in other assets (802,860) (633,575)
Increase (decrease) in other liabilities (1,162,568) 8,048,469
------------- -------------
Net cash provided by operating activities (169,460) 8,228,425
------------- -------------
Cash flows from investing activities:
Principal repayments on securities available for sale -- 2,700,399
Purchase of securities available for sale (150,189,616) --
Proceeds from sales and call of securities available for sale 145,000,000 --
Purchase of investment securities held to maturity (25,000,000) --
Principal repayment of mortgage-backed securities held to maturity 4,656,286 5,372,694
Net change in loans receivable 18,978,952 10,345,738
Proceeds from sale of real estate owned -- --
Additions to premises and equipment (102,517) (910,203)
Net cash (used in) provided by investing activities (6,656,895) 17,508,628
------------- -------------
Cash flows from financing activities:
Net increase (decrease) in deposits 6,384,286 4,623,729
Net increase (decrease in short term borrowing (Repos) -- (18,300.000)
Proceeds of long-term borrowings -- --
Repayment of long-term borrowings (FHLB Advances) (4,937) (5,004,768)
Repayment of other borrowed money (50,851) (45,533)
------------- -------------
Net cash provided by (used in) financing activities 6,328,498 (18,726,672)
------------- -------------
Net increase (decrease) in cash and equivalents (497,857) 7,010,481
Cash and equivalents - beginning 21,320,748 15,120,071
------------- -------------
Cash and equivalents - ending 20,822,891 22,130,552
============= =============
Unrealized gain (loss) on securities available for sale 0.00 3,486
Deferred Income taxes 0.00 1,530
------------- -------------
0.00 5,016
============= =============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 3,580,522 $ 3,887,173
============= =============
Federal, state and city income taxes $ 0 $ 0
============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Carver
Bancorp, Inc. (the "Holding 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 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, 1999 are not
necessarily indicative of results that may be expected for the entire fiscal
year ending March 31, 2000 ("fiscal year 2000"). The unaudited consolidated
financial statements include the accounts of the Holding Company and its wholly
owned subsidiary Carver Federal Savings Bank (the "Bank" or "Carver Federal")
and the Bank's wholly owned subsidiaries, C.F.S.B. Realty Corp., C.F.S.B. Credit
Corp. and Alhambra Holding Corp., a Delaware corporation ("Alhambra Holding").
Carver Federal and the Holding Company are referred to herein collectively as
"Carver". All significant inter company accounts and transactions have been
eliminated in consolidation.
(2) EARNINGS PER SHARE CALCULATION
Net income per share for the three month periods ended June 30, 1999 and
1998 are calculated based on weighted average number of shares outstanding
during the period.
(3) ALHAMBRA HOLDING CORP.
Other Assets in the Unaudited Consolidated Statements of Financial
Condition includes an investment of $1.4 million in Alhambra Holding. During the
third quarter of the fiscal year ended March 31, 1999 ("fiscal year 1999"),
Carver established Alhambra Holding to hold 80% of the common stock and 100% of
the preferred stock of Alhambra Realty Corp. ("Alhambra Realty"). Alhambra
Realty was established to hold title to a certain piece of commercial real
property located in the City of New York, borough of Manhattan.
Carver acquired a majority interest in Alhambra Realty through Alhambra
Holding in connection with a workout with an existing borrower of the Bank whose
loan was secured by partially occupied commercial real property. Carver is
currently examining its options with respect to Alhambra Realty and the property
it owns, which include, but are not limited to, conducting a sale of the
property or developing the property and leasing the unoccupied space.
4
<PAGE>
ITEM 2
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 the actual results to differ materially from these estimates. These
factors include, without limitation, changes in general, economic and market,
legislative and regulatory conditions and 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.
General
Carver Bancorp, Inc., (the "Holding Company" or "Bancorp"), a Delaware
corporation, is the holding company for Carver Federal Savings Bank (the "Bank"
or "Carver Federal"), a federally chartered savings bank. Collectively, the
Holding Company and the Bank are referred to herein as the "Company" or
"Carver." On October 17, 1996, the Bank completed its reorganization into a
holding company structure (the "Reorganization") and became the wholly-owned
subsidiary of the Holding Company. At this time, the Holding Company conducts
business as a unitary savings and loan holding company and the principal
business of the Holding Company consists of the operation of its wholly-owned
subsidiary, the Bank, which operates seven full service branches in the New York
City boroughs of Brooklyn, Queens and Manhattan, and in Nassau County, New York.
On January 28, 1998, the Company announced that the Bank had entered into a
definitive agreement to sell its branch office located in Roosevelt, New York,
to City National Bank of New Jersey. The Roosevelt Office is located in Nassau
County, New York and had deposits of approximately $8.7 million at June 30,
1999. Due to certain regulatory issues, the transaction, which was expected to
close by March 31, 1999, has not yet been consummated. During May, 1999, the
Company and City National Bank held a meeting to discuss the issues preventing
the transaction from closing and mutually agreed to pursue the consummation of
the transaction under similar terms and conditions as the sale agreement.
Financial Condition
ASSETS. At June 30, 1999, total assets increased by $6.0 million or 1.44%
to $422.5 million compared to $416.5 million at March 31, 1999. The increase in
total assets was primarily attributable to increases in securities held to
maturity, securities held as available for sale and other assets, offset in part
by decreases in loans receivable net, mortgage-backed securities ("MBSs") held
to maturity, and cash and cash equivalents.
At June 30, 1999, total cash and cash equivalents decreased by $498,000 or
2.34% to $20.8 million compared to $21.3 million at March 31, 1999. The decrease
primarily reflects the shift of $300,000 from other interest earning assets to
securities held to maturity.
At June 30, 1999, the Company held $25.0 million in securities classified
as held to maturity, whereas at March 31, 1999, the Company did not carry any
securities classified as held to maturity. Securities held as available for sale
increased $5.0 million or 16.58% to $34.9 million compared to $30.0 million at
March 31, 1999. The increase in securities held to maturity and the increase in
securities held as available for sale primarily reflect the reinvestment of
principal and interest repayments received on MBSs and loans receivable. The
Company purchased intermediate term government agency securities to earn the
higher yield available on such securities as compared to short term investments.
The securities held as available for sale consist primarily of short term
government agency securities.
At June 30, 1999, MBSs held to maturity decreased by $4.7 million or 7.06%
to $61.9 million compared to $66.6 million at March 31, 1999. The decrease
primarily reflects principal repayments on MBSs held to maturity.
5
<PAGE>
At June 30, 1999, loans receivable net decreased by $19.0 million or 7.02%
to $251.5 million compared to $270.5 million at March 31, 1999. The decrease
primarily reflects scheduled monthly principal repayments coupled with
prepayments on loans receivable. The prepayments primarily reflect refinancing
due to lower market interest rates available on mortgage loans. The Company
expects to increase its purchase of multi-family and commercial real estate
mortgage loans to augment originations and offset prepayments. The Company's
strategy is to reinvest principal and interest receipts from loans receivable
into short term assets until suitable loans can be purchased or originated.
LIABILITIES AND STOCKHOLDERS' EQUITY. At June 30, 1999, total deposits
increased by $6.4 million or 2.30% to $283.4 million compared to $277.0 million
at March 31, 1999. The increase in total deposits reflects increases of $2.9
million in regular savings, $1.4 million in certificates of deposits and $2.6
million in checking accounts. The increase in deposits was primarily
attributable to new account relationships coupled with increased deposits from
existing customers.
At June 30, 1999, total borrowings were unchanged at $102.0 million as
compared to the balance at March 31, 1999. The Company's strategy is to use
borrowings to increase balance sheet leverage when suitable loans and other
investments can be originated or purchased.
At June 30, 1999, stockholders' equity increased by $832,000 or 2.67% to
$32.0 million, primarily reflecting an increase in retained earnings of
$787,000. The increase in retained earnings is attributable to the Company's net
income for the first quarter of fiscal year 2000.
LIQUIDITY AND CAPITAL RESOURCES. The Company'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 normally strongly influenced by changes in market
interest rates, economic conditions and competition.
The primary investment activity of the Company is the purchase and
origination of loans and, to a lesser extent, the purchase of investment
securities and mortgage-backed securities. During the three month period ended
June 30, 1999, the Company sold no mortgage loans and sold no investment
securities. During the three month period ended June 30, 1999, the Company
purchased no mortgage loans and purchased approximately $25.0 million of
investment securities.
The Company's most liquid assets are federal funds sold and cash and due
from banks. In addition to the liquidity provided by federal funds sold and cash
and due from banks, the Company derives liquidity from its line of credit with
the FHLB, which equals 30% of total assets. 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 June 30, 1999, the
Company's cash and cash equivalents totaled $20.8 million compared to $21.3
million at March 31, 1999.
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 June 30, 1999, 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, 1999 and March 31, 1999.
At June 30, 1999 At March 31, 1999
------------------------ --------------------------
Amount % of Assets Amount % of Assets
------ ----------- ------ -----------
(Dollars in thousands)
Tangible Capital.......... $ 26,996 6.42% $ 25,916 6.26%
Core Capital.............. 27,032 6.43 25,953 6.27
Risk Based Capital........ 29,486 14.79 28,580 13.38
6
<PAGE>
ANALYSIS OF EARNINGS. The Company's profitability is primarily dependent
upon net interest income, which represents the difference between income on
interest earning assets and expense on interest-bearing liabilities. Net
interest income is dependent on the difference between the average balances and
rates earned on interest earning assets and the average balances and rates paid
on interest-bearing liabilities. Net income is further affected by provisions
for loan losses, non-interest income, non-interest expense and income taxes. The
earnings of the Company are significantly affected by general economic and
competitive conditions, particularly changes in market interest rates, and to a
lesser extent by government policies and actions of regulatory authorities.
During fiscal year 1999, the Company discontinued the operations of its
consumer loan subsidiary, CFSB Credit Corp., and ceased unsecured consumer
lending. The decision to close the subsidiary was primarily due to an increase
in non-performing consumer loans and insufficient loan originations. At June 30,
1999, consumer loans totaled approximately $8.6 million, consisting primarily of
$2.7 million in automobile loans, $3.0 million in outstanding credit card
balances, $2.4 million in personal loans and $500,000 in other consumer loans.
At June 30, 1999, non-performing consumer loans totaled approximately $620,000
or 7.21% of total consumer loans. At June 30, 1999, the Company's allowance for
loan losses was $3.8 million, resulting in a ratio of allowance for loan losses
to total consumer loans of 44.19%, and the ratio of non-performing consumer
loans to allowance for loan losses was 16.46%. With respect to delinquent
automobile loans, it is the Company's policy to act quickly on such loans to
repossess and dispose of the vehicles securing such loans. The Company has also
increased its collection efforts on delinquent credit card balances and personal
loans.
The following table sets forth certain information relating to Company's
average interest earning assets and average interest-bearing liabilities and
reflects the average yield on assets and the average cost of liabilities for the
quarters indicated. Such yields and costs are derived by dividing annualized
income or expense by the average balances of assets or liabilities,
respectively, for the periods shown. Average balances are derived from average
month-end balances, except for federal funds, which are derived from daily
balances. Management does not believe that the use of average monthly balances
instead of average daily balances on all other accounts has caused any material
difference in information presented. The average balance of loans includes loans
on which the Company has discontinued accruing interest. The yield and cost
include fees which are considered adjustments to yields.
7
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------------------------------------------
1999 1998
------------------------------------------- ------------------------------------------
Average Quarterly Annualized Average Quarterly Annualized
Balance Interest Avg. Yield/Cost Balance Interest Avg. Yield/Cost
----------- ----------- ----------------- ----------- ---------- -----------------
ASSETS
INTEREST EARNING ASSETS (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans (1)................................... $ 261,082 $ 5,061 7.75% $ 279,448 $ 5,354 7.66%
Investment securities (2)................... 51,893 681 5.25 5,795 167 5.76
Mortgage-backed securities.................. 64,208 981 6.11 114,414 1,846 6.45
Other interest earning assets............... 11,625 142 4.89 15,225 218 5.73
---------- ------- ------ --------- ------- ------
Total interest earning assets.......... 388,807 $ 6,865 7.06% 414,882 $ 7,585 7.31%
------- -------
Non-interest earning assets................. 30,845 21,827
---------- ---------
Total assets................................ $ 419,653 $ 436,709
========== =========
LIABILITIES
INTEREST BEARING LIABILITIES
Deposits
DDA.................................... $ 11,675 $ - % $ 10,751 $ - %
NOW.................................... 16,902 78 1.85 18,818 87 1.85
Savings and clubs...................... 146,808 925 2.52 146,586 924 2.52
Money market accounts.................. 21,600 160 2.96 21,656 153 2.83
Certificates of deposits............... 85,963 1,015 4.72 80,361 978 4.87
---------- ------- ------ --------- ------- ------
Total deposits......................... 282,948 2,178 3.08 278,172 2,142 3.08
Borrowed money.............................. 102,023 1,403 5.50 118,096 1,745 5.91
---------- ------- ------ --------- ------- ------
Total interest bearing liabilities.......... 384,971 3,581 3.72% 396,268 3,887 3.92%
------- -------
Non-interest bearing liability.............. 3,045 5,058
---------- ---------
Total liabilities........................... 388,016 401,326
Stockholders' equity........................ 31,637 35,383
---------- ---------
Total liabilities and stockholders' equity.. $ 419,653 $ 436,709
========== =========
Net interest income......................... $ 3,284 $ 3,698
======= =======
Interest rate spread........................ 3.34% 3.39%
======= =======
Net interest margin......................... 3.38% 3.57%
======= =======
Ratio to average interest earning
assets to interest-bearing liabilities... 1.01x 1.03x
======= =======
</TABLE>
_____________________________________
(1) Includes non-accrual loans.
(2) Includes FHLB stock and fair market value of securities available for sale
of $34.9 million at June 30, 1999.
8
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
1998
GENERAL. The Company reported net income for the three month period ended
June 30, 1999 of $787,000 compared to net income of $318,000 for the three month
period ended June 30, 1998. The increase in net income primarily reflects an
income tax benefit, along with decreases in non-interest expense and provision
for loan losses, offset in part by decreases in net interest income and
non-interest income.
INTEREST INCOME. Interest income decreased by $720,000 or 9.49% to $6.9
million for the three month period ended June 30, 1999 compared to $7.6 million
for the same period the prior year. The decrease primarily reflects a decrease
of $26.0 million or 6.28% in the average balance of interest earning assets to
$388.8 million for the three month period ended June 30, 1999 compared to $414.9
million for the three month period ended June 30, 1998. The decrease in the
average balance of interest earning assets primarily reflects decreases in the
average balance of loans receivable net and MBSs, offset in part by an increase
in investment securities. The average yield on average interest-earning assets
decreased by 25 basis points to 7.06% for the three month period ended June 30,
1999 compared to 7.31% for the same period the prior year. The decrease in the
average yield on average interest earning assets reflects the decline in market
interest rates coupled with a decrease in the average balance of loans and an
increase in the average balance of lower yielding investment securities.
Interest income on loans receivable net decreased by $294,000 or 5.49% to
$5.1 million for the three month period ended June 30, 1999 compared to $5.4
million for the three month period ended June 30, 1998. The decrease reflects an
$18.4 million or 6.57% decrease in the average balance of loans receivable net
to $261.1 million for the three month period ended June 30, 1999 compared to
$279.4 million for the three month period ended June 30, 1998 coupled with a 9
basis point decrease in the average yield on the loan portfolio. The decrease in
the average balance of loans receivable primarily reflects scheduled monthly
principal repayments coupled with prepayments on loans receivable. The
prepayments primarily reflect refinancing due to lower market interest rates
available for the refinancing of these mortgage loans. The Company expects to
increase its purchase of multi-family and commercial real estate mortgage loans
to augment originations and offset prepayments. The Company expects to fund such
purchases with principal and interest payments from MBSs and loans and by
shifting assets out of short term investments.
Interest income on mortgage-backed securities decreased $865,000 or 46.86%
to $981,000 for the three month period ended June 30, 1999 compared to $1.8
million for the three month period ended June 30, 1998. This decrease primarily
reflects a decrease of $50.2 million or 43.88% in the average balance of
mortgage-backed securities to $64.2 million compared to $114.4 million coupled
with a 34 basis point decrease in the average yield on such securities. The
decrease in the average yield on MBSs primarily reflects increased pre-payments
which reduced the net yield on MBSs. The decrease in the average balance of MBSs
reflects the Company's strategy to shift assets from such securities into loans.
During the first quarter of fiscal year 2000, the Company reinvested principal
and interest received on MBSs into short term securities.
Interest income on investment securities increased by $515,000 or 310.16%
to $681,000 for the three month period ended June 30, 1999 compared to $166,000
for the same period the prior year. The increase in interest income was
primarily attributable to a $46.1 million or 794.82% increase in the average
balance of such securities to $51.9 million for the three month period ended
June 30, 1999 compared to $5.8 million for the three month period ended June 30,
1998. The increase in the average balance of investment securities for the three
month period ended June 30, 1999 reflects an investment in intermediate term
government agency securities classified as held to maturity combined with an
increased investment in shorter term government agency securities classified as
available for sale. From time to time, the Bank invests in short term government
agency, securities, and federal funds sold until such time as funds generated by
MBSs, loans receivable and deposits can be reinvested in loans or other longer
term assets. See "Financial Condition-Assets."
Interest income on other interest earning assets, primarily federal funds
sold, decreased by $76,000 or 34.68% to $142,000 for the three month period
ended June 30, 1999 compared to $218,000 for the same period the prior year. The
decrease reflects a $3.6 million decrease in the average balance of other
interest earning assets coupled with an 84 basis point decrease in the yield on
such assets. The decrease in the average yield primarily reflects the lower
market
9
<PAGE>
interest rates and the decrease in the average balance reflects a shift of
assets from other interest earning assets into higher yielding investment
securities.
INTEREST EXPENSE. Interest expense decreased by $307,000 or 7.89% to $3.6
million for the three month period ended June 30, 1999 compared to $3.9 million
for the same period the prior year. The decrease in interest expense was
primarily attributable to a 20 basis point decrease in the average cost of
average interest bearing liabilities to 3.72% for the three month period ended
June 30, 1999 compared to 3.92% for the same period the prior year, and a $13.4
million or 3.37% decrease in the average balance of interest bearing liabilities
to $382.9 million for the three month period ended June 30, 1999 compared to
$396.3 million for the three month period ended June 30, 1998. The decrease
primarily reflects a decrease in the average balance and average cost of
borrowed money, offset in part by an increase in the average balance of
deposits.
Interest expense on deposits increased by $36,000 or 1.67% to $2.2 million
for the three month period ended June 30, 1999 compared to $2.1 million for the
same period the prior year. The increase in interest expense on deposits was
primarily attributable to a $2.7 million or 0.97% increase in the average
balance of deposits, primarily certificates of deposit and demand deposit
accounts ("DDA"), to $282.9 million compared to $278.2 million for the same
period the prior year, offset in part by the decreased cost of certificates of
deposit.
Interest expense on borrowings decreased by $342,000 or 19.62% to $1.4
million for the three month period ended June 30, 1999 compared to $1.7 million
for the same period the prior year. The decrease in interest expense on
borrowings primarily reflects a 41 basis point decrease in the average cost of
borrowings and a $16.1 million decrease in the average balance of borrowings due
to a decrease in market interest rates. The decrease in the average balance of
borrowings reflects a decrease in the Company's need for borrowings. The Company
funded investments and loans for the first quarter of fiscal year 2000 through
increases in deposits together with principal and interest payments on MBSs and
loans. The decrease in the average cost of borrowings is primarily reflects the
replacement of higher cost borrowings with lower cost borrowings during fiscal
year 1999.
NET INTEREST INCOME BEFORE PROVISIONS FOR LOAN LOSSES. Net interest income
before provision for loan losses decreased by $413,000 or 11.17% to $3.3 million
for the three month period ended June 30, 1999 compared to $3.7 million for the
same period the prior year. The decrease in net interest income before provision
for loan losses primarily reflects a $26.1 million decrease in the average
balance of interest earning assets and a 25 basis point decrease in the average
yield on interest earning assets, offset in part by a 20 basis point decrease in
the average cost of interest bearing liabilities. The decrease in the average
balance of interest earning assets primarily reflects a reduction in the average
balance of MBSs and loans, offset in part by an increase in the average balance
of lower yielding investment securities. The decrease in the average yield
reflects the decline in market interest rates on mortgage loans and MBSs. See
"-Interest Income."
The Company's interest rate spread decreased by 5 basis points to 3.34% for
the three month period ended June 30, 1999 compared to 3.39% for the three month
period ended June 30, 1998. The Company's net interest margin decreased by 19
basis points to 3.38% for the three month period ended June 30, 1999 compared to
3.57% for the three month period ended June 30, 1998. The decrease in interest
rate spread and net interest margin is primarily attributable to decreases in
the average balance and average yield on interest earning assets, offset in part
by decreases in the average balance and average cost of interest bearing
liabilities. The Company's ratio of average interest earning assets to average
interest bearing liabilities was 101.0% for the three month period ended June
30, 1999 compared to 103.36% for the same period the prior year.
PROVISION FOR LOAN LOSSES. The Company provided $150,000 for loan losses
for the three month period ended June 30, 1999 compared to $450,000 for the same
period the prior year. The decrease in the provision for loan losses for the
first quarter of fiscal 2000 reflects a decrease in non-performing loans. During
the first quarter, the Bank charged off approximately $310,000 in non-performing
consumer loans. At June 30, 1999, non-performing assets totaled $4.4 million, or
1.77% of total loans compared to $4.8 million or 1.66% at March 31, 1999. At
June 30, 1999, the Bank's allowance for loan losses was $3.8 million compared to
$4.0 million at March 31, 1999, resulting in a ratio of allowance
10
<PAGE>
for loan losses to non-performing assets of 85.63% at June 30, 1999 compared to
85.60% at March 31, 1999 and a ratio of allowance for loan losses to total loans
of 1.50% and 1.48%, respectively.
NON-INTEREST INCOME. Non-interest income decreased $100,000 or 17.32% to
$475,000 for the three month period ended June 30, 1999 compared to $575,000 for
the same period the prior year. The decrease in non-interest income primarily
reflects a decrease in loan fees and related charges coupled with a decrease in
prepayment fees from the early repayment of mortgage loans. During the first
quarter, the Company primarily experienced prepayment of one- to four-family
mortgage loans, which did not contain prepayment penalties.
NON-INTEREST EXPENSE. Non-interest expense decreased by $446,000 or
13.64% to $2.8 million for the three month period ended June 30, 1999 compared
to $3.3 million for the same period the prior year. The decrease in non-interest
expense reflects a $52,000 decrease in equipment expense and a $517,000 decrease
in other expenses, offset in part by a $64,000 increase in salary and benefit
expense and a $59,000 increase in net occupancy expense reflecting the payment
of property taxes. The decrease in other expense reflects decreases of $24,000
in training expense, $30,000 in advertising expense, $37,000 in consultant fees,
$20,000 in bank charges, $32,000 in office supply expense, $29,000 in check
printing fees, $10,000 in contributions and gifts and $335,000 in other
expenses. The decrease in non-interest expense for the first quarter of fiscal
year 2000 primarily reflects periodic decreases in variable expenses.
INCOME TAX EXPENSE. In connection with the loss from operations incurred
during the three month period ended June 30, 1999, the Company has reflected a
benefit reflecting the carry forward of the loss for the income taxes paid. The
Company did not incur income tax expense for the three month period ended June
30, 1999 compared to $329,000 for the three month period ended June 30, 1998.
The Company's effective tax rate for the three month period ended June 30, 1999
was 0.0% compared to 42.54% for the three month period ended June 30, 1998.
THE YEAR 2000 ISSUE
The "Year 2000 Issue" centers on the inability of some computer systems to
recognize the year 2000. Many existing computer programs and systems were
originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers may recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, the Company and its operations may be
significantly and adversely affected by the Year 2000 Issue due to the nature of
financial information. Software, hardware, and equipment both within and outside
the Company's direct control and with which the Company electronically or
operationally interfaces (e.g. including, but not limited to, third party
vendors providing data processing, information system management, maintenance of
computer systems, and credit bureau information) are likely to be affected.
Furthermore, if computer systems are not adequately changed to identify the year
2000, many computer applications could fail or create erroneous results. As a
result, many calculations which rely on date field information, such as
interest, payment of due dates and other operating functions, may generate
results which could be significantly misstated, and the Company could experience
an inability for a temporary, but unknown duration, to process transactions,
send invoices or engage in similar normal business activities. In addition,
under certain circumstances, failure to adequately address the Year 2000 Issue
could adversely affect the viability of the Company's suppliers and creditors
and the creditworthiness of its borrowers. Thus, if not adequately addressed,
the Year 2000 Issue could result in a material adverse impact on the Company's
products, services and competitive condition and therefore, its results of
operations and could be deemed to imperil the safety and soundness of the Bank.
There has been limited litigation filed against corporations regarding the Year
2000 Issue and their compliance efforts. Nonetheless, the law in this area will
likely continue to develop well into the new millennium. Should the Company
experience a Year 2000 failure, exposure of the Company could be significant and
material, unless there is legislative action to limit such liability.
Legislation has been introduced in several jurisdictions regarding the Year 2000
Issue. However, no assurance can be given that legislation will be enacted in
jurisdictions where the Company does business that will have the effect of
limiting any potential liability.
The OTS, the Company's primary federal bank regulatory agency, along with
the other federal bank regulatory agencies has published substantive guidance on
the Year 2000 Issue and had included Year 2000 compliance as a substantive area
of examination for both regularly scheduled and special examinations. These
publications, in addition to providing guidance as to examination criteria, have
outlined requirements for creation and implementation of a
11
<PAGE>
compliance plan and target dates for testing and implementation of corrective
action, as discussed below. As a result of the oversight by and authority vested
in the federal bank regulatory agencies, a financial institution that does not
become Year 2000 compliant could become subject to administrative remedies
similar to those imposed on financial institutions otherwise found not to be
operating in a safe and sound manner, including remedies available under prompt
corrective action regulation.
The Company has developed and is implementing a Year 2000 Project Plan (the
"Plan") to address the Year 2000 Issue and its effects on the Company. The Plan
includes five components which address issues involving awareness, assessment,
renovation, validation and implementation. The Company has completed the
awareness, assessment and renovation phases of the Plan. During the awareness,
assessment and renovation phases of the Plan, the Company inventoried all
material information systems and reviewed them for Year 2000 readiness. Among
the systems reviewed were computer hardware and systems software, applications
software and communications hardware and software as well as embedded or
automated devices. As noted below, this review included both internal systems
and those of third party vendors which provide systems such as retail deposit
processing, loan origination processing, loan servicing and general ledger and
accounting systems and software. Following awareness and assessment, the Company
then renovated or replaced the systems that may have posed a Year 2000 related
problem. Following renovation, the functionality of new systems were validated.
At March 31, 1999, the validation phase and the implementation phase were
complete, and the testing, contingency planning and the customer awareness
program was completed by August 6, 1999.
The Company believes that it is in compliance with federal banking
regulatory guidelines, completing testing of its mission critical systems prior
to September 1, 1998 and its customer systems prior to September 30, 1998. The
Company has met federal banking regulatory guidelines stating that the Company
must substantially complete testing of core mission critical internal systems by
December 31, 1998. The Company completed testing of both internally and
externally supplied systems by August 6, 1999. The Company has arranged to
establish end-to-end Year 2000 tests with its business partners allowing the
Company an additional opportunity to test and stress such systems.
As part of the Plan, the Company has had formal communications with all of
its significant suppliers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues and has been following the progress of those vendors with their Year
2000 compliance status. The Company presently believes that with modifications
to existing software and conversions to new software and hardware where
necessary, the Year 2000 Issue will be mitigated without causing a material
adverse impact on the operations of the Company. At this time, the Company
believes that all of its hardware and software systems are Year 2000 compliant,
tested and operational.
Despite its best efforts to ensure Year 2000 compliance, it is possible
that one or more of the Company's internal or external systems may fail to
operate. At this time, while the Company believes that its systems are Year 2000
compliant, the probability of such likelihood cannot be determined. As a result,
the Company expects to formulate contingency plans for its mission critical
systems where possible. These systems included retail deposit processing, check
clearing and wire transfer capabilities, loan origination processing, loan
servicing, investment monitoring and accounting, general ledger and accounting
systems and payroll processing. The Company maintains a disaster recovery
program designed to deal with similar failures on an ongoing basis. All business
units have completed their update and review of their existing recovery plans in
addition to developing contingency plans to address the possible failure of one
or more mission critical systems. These plans will be vigorously tested during
the next three to four months.
The Company has reviewed its customer base to determine whether they pose
significant Year 2000 risks. The Company's customer base consists primarily of
individuals who utilize the Company's services for personal, household or
consumer uses. Individually such customers are not likely to pose significant
Year 2000 risks directly. It is not possible at this time to gauge the indirect
risks which could be faced if the employers of such customers encounter
unresolved Year 2000 issues.
Monitoring and managing the Year 2000 Project Plan will result in
additional direct and indirect costs to the Company. Direct costs include
potential charges by third party software vendors for product enhancements,
costs involved in testing for Year 2000 compliance, and costs for developing and
implementing contingency plans for critical
12
<PAGE>
systems which fail. Indirect costs will principally consist of the time devoted
by existing employees in monitoring software vendor progress, testing and
developing and implementing any necessary contingency plans. Both direct and
indirect costs of addressing the Year 2000 Issue will be charged to earnings
as incurred. Such costs have not been material to date. The Company does not
believe that such costs will have a material effect on results of operations,
although there can be no assurance that such costs would not become material in
the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at
March 31, 1999 in Item 7A to the Company's Annual Report of Form 10-K, filed
with the Securities and Exchange Commission ("SEC") on June 29, 1999 as amended
on Form 10-K/A filed with the SEC on July 29, 1999. The Company believes that
there have been no material changes in the Company's market risk at June 30,
1999 compared to March 31, 1999.
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 March 31, 1999, 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.
Currently, the Bank is defending actions brought by three unrelated
individuals who are alleging that the Bank and others were responsible for the
injuries they suffered during the construction of the Bank's headquarters
building in 1995. The cases were brought in the Supreme Court of the State of
New York, County of Bronx. In the first case, Johnson v. Carver Federal Savings
Bank and Norway Electric Corp., the plaintiff has requested damages of $2.0
million. The complaint was originally filed on June 26, 1995, and the case is
scheduled for trial on September 21, 1999. In the second case, Galarza v. Carver
Federal Savings Bank, DQS Construction & Flintlock Construction, Inc. and
Flintlock Construction, Inc., the plaintiff requested damages of $3.0 million.
The complaint was originally filed on September 20, 1995, and the court has
granted summary judgment in favor of the plaintiff on the issue of liability.
The Bank intends to appeal the liability judgment, and a trial to determine
damages has yet to be scheduled. In the third case, Hardy v. Carver Federal
Savings Bank and L. and L. Mason, Inc. and McKenzie & McKenzie Drywall, Inc.,
the plaintiff has requested damages of $2.0 million. The complaint was
originally filed on June 26, 1995, and a trial has not yet been scheduled. The
Bank believes that each of these cases is without merit with respect to the
Bank's liability and intends to aggressivley defend its interests.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE>
ITEM 5. OTHER INFORMATION
CHANGE IN EXECUTIVE MANAGEMENT. Deborah C. Wright was appointed President,
Chief Executive Officer and Director of the Holding Company and the Bank as of
June 1, 1999. Ms. Wright succeeds Thomas L. Clark, Jr., who was removed from his
positions as President and Chief Executive Officer of the Holding Company, and
President, Chief Executive Officer and Director of the Bank in January, 1999.
Mr. Clark subsequently resigned from his position as Director of the Holding
Company as of June 1, 1999. During the period from January 25, 1999, to June 1,
1999, the duties of the President and Chief Executive Officer were performed by
an Operating Committee comprised of directors and officers of Carver.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
14
<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.
Date: August 16, 1999 /s/ Deborah C. Wright
--------------------------------------
Deborah C. Wright
President and Chief Executive Officer
Date: August 16, 1999 /s/ Walter T. Bond
--------------------------------------
Walter T. Bond
Acting Chief Financial Officer and
Chief Investment Officer
15
<PAGE>
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
AS OF QUARTER ENDED JUNE 30, 1999
For the Three Month Period Ended
June 30, 1999 June 30, 1998
-------------- -------------
Net income / (loss) $ 786,897 $ 318,054
Weighted average shares outstanding 2,218,324 2,199,025
Earning / (loss) per shares outstanding $ 0.35 $ 0.14
<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
three month period ended June 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001016178
<NAME> CARVER BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,822,891
<INT-BEARING-DEPOSITS> 276,421,411
<FED-FUNDS-SOLD> 15,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,877,726
<INVESTMENTS-CARRYING> 70,966,306
<INVESTMENTS-MARKET> 70,267,378
<LOANS> 251,542,899
<ALLOWANCE> 3,765,263
<TOTAL-ASSETS> 422,480,379
<DEPOSITS> 283,383,360
<SHORT-TERM> 101,104,529
<LIABILITIES-OTHER> 5,107,851
<LONG-TERM> 941,768
0
0
<COMMON> 23,144
<OTHER-SE> 31,983,727
<TOTAL-LIABILITIES-AND-EQUITY> 422,480,379
<INTEREST-LOAN> 5,060,527
<INTEREST-INVEST> 680,966
<INTEREST-OTHER> 142,415
<INTEREST-TOTAL> 6,865,122
<INTEREST-DEPOSIT> 2,177,561
<INTEREST-EXPENSE> 3,580,522
<INTEREST-INCOME-NET> 3,284,600
<LOAN-LOSSES> 150,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,822,835
<INCOME-PRETAX> 786,897
<INCOME-PRE-EXTRAORDINARY> 786,897
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 786,897
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 7.05
<LOANS-NON> 2,882,000
<LOANS-PAST> 1,357,000
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 4,021,000
<CHARGE-OFFS> 310,000
<RECOVERIES> 68,000
<ALLOWANCE-CLOSE> 3,536,000
<ALLOWANCE-DOMESTIC> 3,536,000
<ALLOWANCE-FOREIGN> 0
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</TABLE>
