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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CARVER BANCORP, INC.
(Exact name of registrant as specified in its charter)
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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
(212) 876-4747
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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DEBORAH C. WRIGHT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
75 WEST 125TH STREET
NEW YORK, NEW YORK 10027
(212) 876-4747
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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With a copy to:
KOFI APPENTENG
THACHER PROFFITT & WOOD
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK
10048-0087
(212) 912-7418
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: from
time to time after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11 (a) (1) of this form, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
to be Registered Registered Offering Price Aggregate Offering Registration
Per Share Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per 462,000 Shares N/A $3,696,000 $1,030
share
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee;
based on the average of the high and low prices of the Common Stock on
October 15, 1999, as reported on the American Stock Exchange.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
PROSPECTUS
[LOGO - CARVER BANCORP, INC.]
SHARES PROGRAM
A Direct Purchase Program for Carver Bancorp, Inc. Common Stock
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SHARES PROGRAM HIGHLIGHTS
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Under the Shares Program you may:
o Purchase and sell Carver common stock without using a stockbroker
o Build your investment over time, starting with as little as $200
o If you wish, easily add to your investment with automatic monthly
payments
o Invest up to $100,000 per year
o Have shares held for safe-keeping and certificates issued upon request
This prospectus relates to 462,000 shares of Carver common stock, par value
$0.01 per share, to be offered for purchase under the Shares Program.
Neither the Securities and Exchange Commission nor any state securities
regulators has approved the common stock discussed in this prospectus, nor have
they determined whether this prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
The shares of common stock are not savings accounts or savings deposits, are not
guaranteed or insured by the Federal Deposit Insurance Corporation or any other
government agency, are not guaranteed by Carver Bancorp Inc. or Carver Federal
Savings Bank and are subject to investment risk.
Our shares are traded on the American Stock Exchange. Our ticker symbol is
"CNY." The shares offered through this prospectus will be sold at the prevailing
market price at the time of purchase. On October 15, 1999, the closing price of
our common stock on the American Stock Exchange was $7.875. Carver will pay the
costs of mailings and other administration costs of the Shares Program. Program
participants will pay commissions and related service charges related to shares
purchased or sold through the Shares Program.
The date of this prospectus is October [ ],1999
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TABLE OF CONTENTS
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Information about Carver Bancorp, Inc..........................................1
A Few Words About Why We Are Offering The Shares Program.......................2
A Summary of the Shares Program................................................3
Information About The Shares Program...........................................5
Federal Income Tax Consequences...............................................12
Description of Carver's Common Stock..........................................12
Use of Proceeds...............................................................14
Legal Matters.................................................................14
Experts .....................................................................14
Indemnification...............................................................14
Factors That May Affect Future Results........................................15
Where You Can Find Additional Information.....................................15
Documents Incorporated by Reference...........................................16
<PAGE>
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INFORMATION ABOUT CARVER BANCORP, INC.
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Carver Bancorp, Inc., with over $400 million in assets, is the holding
company for Carver Federal Savings Bank, a federally chartered savings bank. We
refer to Carver Bancorp, Inc. as "Carver" and Carver Federal Savings Bank as
"Carver Federal." Carver Federal Savings was founded in 1948 to provide an
African-American-operated institution where residents of under-served
communities could invest their savings and obtain credit. Our principal
business, conducted through our principal subsidiary Carver Federal, consists of
attracting passbook and other savings accounts through branch offices and
investing the funds deposited in these accounts in mortgage loans and other
investments permitted to federal savings banks. Carver Federal operates seven
full service branches in predominantly African-American neighborhoods in the New
York City boroughs of: Brooklyn, Queens, Manhattan and in Nassau County, New
York. Based on asset size as of September 30, 1999, Carver Federal is the
largest African-American-operated financial institution in the United States.
Additional information about our business is contained in the following
documents which have been delivered to you along with this prospectus:
(i) Our latest Annual Report on Form 10-K, and
(ii) Our Quarterly Report on Form 10-Q for the latest quarter ended
after the date of our last Annual Report on Form 10-K.
These documents are incorporated by reference into this prospectus.
This means these documents are part of this prospectus.
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Please read this prospectus, including the documents
incorporated by reference into this prospectus, before
making a decision about investing in
our common stock through the Shares Program. If you do invest, please
keep this prospectus with your permanent investment records, since
it contains important information about the Shares Program.
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Our principal executive offices are located at 75 West 125th Street,
New York, New York 10027 and our telephone number is (212) 876-4747.
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<PAGE>
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A FEW WORDS ABOUT WHY WE ARE OFFERING THE SHARES PROGRAM
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We designed the Carver Shares Program to give our customers, employees,
investors and members of the communities we serve a simple, convenient and
economical way to invest in our common stock.
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Participation in the Shares Program is entirely voluntary
and we give no advice regarding your decision to
join the Program.
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If you have questions about the Shares Program, please contact the
Program Administrator:
American Stock Transfer & Trust Company
Attention: Carver Shares Program
40 Wall Street
New York, New York 10005
(800) 278-4353
investpower.com
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<PAGE>
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A SUMMARY OF THE SHARES PROGRAM
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ENROLLMENT
Anyone may apply for enrollment in the Shares Program by completing,
signing and returning an enrollment form, together with a check or money order
of not less than $200 or more than $10,000. You may enroll by mail, by calling
the Program Administrator at 1-800-278-4353 or by downloading an application and
enrollment form at the investpower.com internet site. If you are not a record
owner of our common stock (that is, if you do not have our common stock
registered in your name) there is a one-time $2.50 registration fee for your
initial purchase of our common stock through the Shares Program.
PROGRAM ACCOUNT
When enrolled in the Shares Program, an account will be opened in your
name and shares purchased will be held by the Program Administrator in
book-entry form, which means the Program Administrator will maintain an account
in which the number of shares you hold will be allocated to you. You will
receive periodic statements instead of receiving stock certificates. You may
request stock certificates for shares held by the Program Administrator in your
account at any time, upon request and without charge.
ADDITIONAL PURCHASES
You may purchase additional shares of our common stock through the
Shares Program. You may buy from $100 to $10,000 worth of common stock per
transaction, as often as once per week. There will be a $2.50 fee for each
purchase made by mailing a check or money order to the Program Administrator.
You are also allowed to make automatic monthly purchases for a constant dollar
value by instructing the Program Administrator to electronically debit and
transfer funds from your bank, for a fee of $1.00 per transaction. The brokerage
commission is $.10 for each share purchased.
SELLING SHARES FROM YOUR ACCOUNT
You may sell shares held by the Program Administrator in your account
on the open market at the prevailing market price on the stock exchange. You
will be charged a transaction fee of $7.50 and a brokerage commission of $.10
per share for each transaction.
SAFEKEEPING OF CERTIFICATES
You may mail any stock certificates you have for our common stock to
the Program Administrator, at any time. The shares represented by the
certificate will be maintained in book-entry form and held in your Shares
Program account. You may request stock certificates at
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<PAGE>
any time for the shares held in your account. There is a one-time fee of $7.50
for depositing your certificates, unless you instruct the Program Administrator
to sell the shares represented by the certificates, in which case only the sales
fee and commissions will be applied.
TRANSFERRING SHARES
You may at any time transfer or provide a gift to another person of
your shares in the Shares Program without charge.
STATEMENTS AND FORMS
Each program account will receive a quarterly statement that reflects
all investment account activity. Each time a purchase is made for you, you will
also receive a confirmation advisory reflecting your purchase price and your new
share balance. Each form you receive will contain a tear-off stub form that can
be used for any future Shares Program transactions you may desire. In addition,
you can conveniently submit your transaction instruction through the Program
Administrator's automated telephone system and internet site.
CONTACTING US FOR INFORMATION
Our Transfer Agent and Program Administrator is American Stock Transfer
& Trust Company. You can contact them in the following ways:
TELEPHONE: 1-800-278-4353
INTERNET: investpower.com
MAIL: American Stock Transfer & Trust Company
40 Wall Street, 46th Floor
New York, NY 10005
COURIER/
MESSENGER: 6201 15th Avenue - 3rd Floor Brooklyn, NY 11219
SUMMARY OF TRANSACTION ADMINISTRATIVE FEES
Investors are responsible for the fees described in this prospectus.
The fees shown below will apply to each transaction in your account. Except as
described in this prospectus, we pay for all other costs of administering the
Shares Program.
Additional Purchases . . . . . . . . $2.50 per transaction
Additional Electronic Purchases. . . $1.00 per transaction
Sale of Stock. . . . . . . . . . . . $7.50 per transaction
Safekeeping. . . . . . . . . . . . . $7.50 per transaction
Commission . . . . . . . . . . . . . $.10 per share on purchases and sales
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<PAGE>
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INFORMATION ABOUT THE SHARES PROGRAM
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The following questions and answers explain and set forth the terms of the
Shares Program.
1. WHAT IS THE CARVER SHARES PROGRAM AND WHO CAN PARTICIPATE?
o The Carver Shares Program is a convenient purchase program
available for new investors that want to make an initial
investment in our common stock and for existing investors that
want to increase their holdings of our common stock. Our
shareholders, employees, customers and members of the
communities we serve, along with any other interested persons,
can participate in the Shares Program.
Participation is voluntary.
2. HOW DO I ENROLL?
o If you already own at least one share of our common stock, and
it is registered in your name, simply fill out and sign the
enclosed enrollment form and mail it to the Program
Administrator using the pre-paid postage envelope.
o If you do not currently own our common stock and are investing
for the first time, fill out a "New Account Application" by
calling 1-800-278-4353, or download the application and
enrollment form at investpower.com, the Program
Administrator's internet site. The minimum initial purchase is
$200 and the registration fee is $2.50.
o If you own our common stock and it is held in a broker, bank,
trust or other name than yours, request that entity transfer
at least one share of stock into your name. If you do not wish
to transfer shares into your name, you can still enroll and
buy shares as instructed above but you will have to pay the
$7.50 initial registration fee.
3. HOW DO I PURCHASE ADDITIONAL SHARES?
o You can easily purchase additional shares of our common stock
at any time by making payments. Your payments, less applicable
service charges and brokerage commissions, are used to
purchase shares of our common stock for your account. The
Program Administration will make purchases at least once every
week. You will become the owner of the shares purchased for
your account on the date the purchase is made. No interest
will be paid to you on cash held by the Program Administrator
pending the purchase of stock.
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<PAGE>
o You can make an investment when joining the Shares Program by
enclosing a check or money order with your enrollment form.
Thereafter, payments should be mailed in to the Program
Administrator with the tear-off portion of either your
quarterly account statements or the purchase transaction
advisory mailed to you to confirm a purchase.
o For first-time investors, the minimum initial investment is
$200. For existing investors who have shares already
registered in their name the minimum investment is $100. The
maximum weekly investment for existing or new investors is
$10,000 per week. The maximum annual investment is $100,000
per year.
o You may authorize the Program Administrator to make automatic
monthly purchases of a specified dollar amount of our common
stock, paid for by automatic withdrawal from your bank
account. You may sign up for this service when filling out the
New Account Application or by accessing the Program
Administrator's internet site, investpower.com, and following
the simple instructions. Funds will generally be withdrawn
from your bank account on the 10th day of each month (or the
next following business day if the 10th is not a business
day). To terminate monthly purchases by automatic withdrawal,
you must send the Program Administrator written, signed
instructions.
o If a check you send to the Program Administrator for share
purchases is returned to the Administrator as "unpaid," the
Program Administrator will resell any shares purchased and
liquidate additional shares, if necessary, to reimburse the
Program Administrator for any fees or loss incurred when
reselling the shares.
4. HOW ARE MY SHARES PURCHASED?
o The Program Administrator will consolidate payments from all
participants and apply them to purchase our shares on the
American Stock Exchange or directly from Carver. All share
purchases will be made at the prevailing market price. If the
purchase is made directly from Carver Bancorp, the prevailing
price shall be the average of the closing price of our common
stock for the five (5) trading days preceding the purchase
date. The Program Administrator may also purchase Shares on
another stock exchange, in the over-the-counter market or in
negotiated transactions at prevailing prices. The Program
Administrator will first purchase shares on the stock
exchange, in the over-the-counter market or in negotiated
transactions. If the number of shares available through these
sources is insufficient to satisfy the number of shares to be
purchased for participants, then the Program Administrator
shall purchase shares from Carver. The price per share cannot
be determined prior to the purchase. Purchases are made at
least once a week and, depending on investment volume, may be
made more frequently.
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<PAGE>
5. WHAT IS THE PRICE I WILL PAY FOR SHARES?
o Since the Program Administrator aggregates purchases, the
share price you pay for any purchase will be the average price
paid for all shares purchased by the Program Administrator for
plan participants in the week in which you purchase. The share
price is calculated in the same way for initial investors and
current investors who send payments.
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You should be aware that the price of shares of the common
stock may rise during the period between your request for
purchase, its receipt by the
Program Administrator and the ultimate purchase.
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PURCHASE FEE SUMMARY
--------------------
Initial registration fee for new investors . . . $2.50
Purchases by check or money order . . . . . . . . $2.50
Monthly purchase by automatic withdrawal. . . . . $1.00
Brokerage commission . . . . . . . . . . . . . . $0.10 per share
o The Program Administrator may not increase the fees charged
under the Shares Program without mailing a notice of the
increase to participants at least thirty (30) days before the
increases go into effect.
6. HOW DO I KEEP TRACK OF TRANSACTIONS IN MY ACCOUNT?
o The Program Administrator will mail you quarterly statements
reflecting your account balance and all activity for the year
to date. In addition, whenever there is a purchase for your
account an advisory will be mailed to serve as confirmation of
the purchase.
o You can reach the Program Administrator by dialing
1-800-278-4353 and following the instructions of the automated
telephone system. You can also speak to a customer service
representative by calling the same number during normal
business hours, eastern standard time. Be sure to keep your
program statement for your permanent records.
7. WHAT IS SAFEKEEPING OF CERTIFICATES?
o If you already have certificates for our common stock and wish
to make sure they do not get lost or stolen, you may elect to
deposit the certificates into your Shares Program account for
safekeeping with the Program Administrator. The Program
Administrator will credit these shares to your Shares Program
account in book-
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<PAGE>
entry form. You may later request issuance of a certificate
from the Program Administrator at any time.
o If you are not already in the Shares Program, you must
complete and sign an enrollment form to accompany certificates
sent in for safekeeping in the Shares Program.
o To deposit certificates with the Program Administrator, insure
the certificates for 2% of their total value to protect
against loss in transit and send via registered mail to the
Program Administrator.
o The usual fee of $7.50 for this service will be waived if you
choose to deposit your certificates and sell them at the same
time through the Shares Program.
8. HOW DO I WITHDRAW STOCK THAT IS IN MY SHARES PROGRAM ACCOUNT?
o You may request that the Program Administrator issue a
certificate(s) for some or all of the shares held in your
Shares Program account. You may make this request by using the
form enclosed in your Shares Program statement, through the
Program Administrator's automated telephone system, or through
the Program Administrator's internet site. The Program
Administrator will issue certificates in the exact amount
shown on your program statement unless otherwise instructed in
writing. Certificates will be sent by first class mail,
generally within a few days after receiving your request, and
there is no charge for this service if you are still
participating in the Program.
9. HOW DO I TRANSFER SHARES TO ANOTHER PERSON?
o Transfers can be made in book-entry form or certificates can
be issued and sent to the new owner by first class mail. You
can transfer shares to a person who already has a Shares
Program account, or you can set up a new account if the person
does not have one. To complete a transfer you should:
(i) call the Program Administrator to request a Shares
Program brochure and enrollment form. Complete the
form providing the full registration name, address
and social security number of the new participant;
and
(ii) send the completed enrollment form along with a
written request indicating the number of shares (full
and fractional if any) which should be transferred to
the new participant to the Program Administrator. The
owners of the Shares Program account must sign the
instructions and their signatures must be guaranteed
by a bank, broker or financial institution that is a
member of the Signature Guarantee Medallion Program.
You can check with your bank to see if it is a member
of the Medallion Program or contact the Program
Administrator for a list of banks, brokers and
financial institutions that belong to the Medallion
Program.
-8-
<PAGE>
10. CAN I SELL SHARES IN MY ACCOUNT?
o You may instruct the Program Administrator to sell any or all
the shares held in your Shares Program account by calling the
toll-free telephone number supplied in this prospectus and
accessing the Program Administrator's automated telephone
system with your instructions. You may also complete and sign
the tear-off portion of your account statement and mail the
instructions to the Program Administrator. If there is more
than one individual owner of the Shares Program account, all
the owners must sign the tear-off portion of the account
statement.
o As with purchases, the Program Administrator aggregates all
requests to sell shares then sells the total share amount on
the open market through a broker. Sales will be made no less
than once a week and may be made daily or as soon as
practicable depending on participant demand. The selling price
will not be known until the sale is completed. The proceeds of
the sale, less an administrative fee of $7.50 and brokerage
commission of $.10 per share, will be sent to you by check
within three business days following the sale.
o Sale instructions sent to the Program Administrator may not be
rescinded.
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You should be aware that the price for your shares may fall during the period
between a request for sale, its receipt by the Program Administrator and the
ultimate sale on the open market.
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11. HOW DO I CLOSE MY ACCOUNT?
o You may withdraw from the Shares Program at any time using the
tear-off stub at the bottom of your statement. Upon
termination, a certificate for the full shares held in your
Shares Program account will be issued and any fractional
shares held in the Shares Program account will be sold. You
will receive a check for the net proceeds, less a service fee
of $7.50 and a $.10 per share brokerage commission. If the
stock sold is insufficient to cover the processing fee of
$7.50, a check will not be issued nor will you be billed for
any additional fees.
o Alternatively, you may direct the Program Administrator to
sell any or all of the shares in your account in accordance
with the instructions outlined in the answer to Question 10
above.
o After your account is closed, dividends or any shares you hold
in certificate form will be sent to you at the address you
provide, or automatically deposited in your bank account in
accordance with your instructions.
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OTHER TERMS
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The following additional terms also govern the Shares Program.
STOCK DISTRIBUTIONS
If Carver declares a stock split or stock dividend, the Program
Administrator will credit your account with the appropriate number of shares on
the payment date. In the event of a stock subscription or other offering of
rights to shareholders, you will be entitled to such rights based on the number
of shares credited to your account.
VOTING
For any shareholder meeting, you will receive a proxy that covers all
the shares you hold in your Shares Program account. The proxy allows you to
indicate how you want your shares to be voted. Your shares will be voted as you
indicate. If no instructions are indicated on a properly completed, signed and
returned proxy card, all of the whole shares credited to your account will be
voted in accordance with the recommendations of our management. If you do not
return the properly completed and signed proxy card, none of your shares will be
voted unless you vote in person at the applicable shareholder meeting.
RESPONSIBILITIES OF THE PROGRAM ADMINISTRATOR
The Program Administrator will not be liable for any act performed in
good faith or for any good faith omission to act, including, without
limitations, any claim of liability arising out of (i) failure to terminate a
participant's account, sell common stock in the Shares Program, or invest
optional cash payments without receipt of proper documentation and instructions;
or (ii) with respect to the prices at which our common stock is purchased or
sold for the participant's account and the time such purchases or sales are
made, including price fluctuations in market value after purchases or sales.
OUR RESPONSIBILITIES
We will not be liable for any act we perform in good faith, for any
good faith omission to act or for any act of the Program Administrator,
including, without limitations, any claim of liability arising out of (i) the
Program Administrator's failure to terminate a participant's account, sell
common stock in the Shares Program, or invest optional cash payments without
receipt of proper documentation and instructions; or (ii) with respect to the
prices at which our common stock is purchased or sold for the participant's
account and the time such purchases or sales are made, including price
fluctuations in market value after purchases or sales.
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Participants should recognize that neither Carver,
Carver Federal nor the Program Administrator can guarantee a
profit or protect against a loss on
common stock purchased under the Shares Program.
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CHANGES IN THE SHARES PROGRAM
We may change the terms of the Shares Program, including applicable
fees, or terminate the Shares Program at any time. We may also suspend or
terminate the right of any person to participate in the Shares Program at any
time for any reason including, but not limited to, arbitrage-related activities,
transactional profit activities and excessive re-enrollments. We will mail you a
notice before any material changes in the Shares Program are effective.
PLEDGE OR ASSIGNMENT OF SHARES
Shares credited to your account under the Shares Program may not be
pledged or assigned and any such purported pledge or assignment will be void.
ADDITIONAL TERMS
We will reimburse the Program Administrator for the mailing of this
prospectus, brochures and enrollment forms as well as telephone expenses
associated with inquiries about the Shares Program. Fees and expenses normally
associated with transfer agent functions will also be paid by us.
If the total number of shares in a participant's account is less than
one (1) share, any remaining fractions will be sold and the account closed. The
proceeds of the sale, less applicable fees, will be credited to the
participant's account.
The Program Administrator reserves the right to modify the Shares
Program with our consent, including the right to terminate the Shares Program
upon notice to Shares Program participants. In addition, the Program
Administrator reserves the right to interpret and regulate the Shares Program as
it deems necessary or desirable in connection with its operation.
The Shares Program shall be governed by and construed in accordance
with the laws of the State of New York. The signing and mailing of the
enrollment form shall constitute an offer by the participant to establish an
agency relationship with American Stock Transfer & Trust Company to be governed
by the terms and conditions of the Shares Program.
We may terminate the Program Administrator's services under the Share
Program and substitute another agent as Program Administrator upon thirty (30)
days prior written notice to you and the Program Administrator. The Program
Administrator may resign upon giving us ninety (90) days prior written notice.
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FEDERAL INCOME TAX CONSEQUENCES
==============================================================
All brokerage commissions/fees that you pay when you buy shares through
the Shares Program become part of your "cost basis," which you will use in
determining your taxable gain or loss at the time you sell your shares. The
total amount of dividends will be reported to you and to the Internal Revenue
Service shortly after the close of each year. You will generally realize gain or
loss upon the receipt of cash for fractional shares held in the Shares Program.
You will also realize gain or loss when shares are sold. The amount of gain or
loss will be the difference between the amount that you receive for the shares
of common stock sold and your tax basis in the shares (generally, the amount you
paid for the shares). In order to determine the tax basis for shares in your
account, you should retain all account transaction statements.
As required by law, all shares of common stock that are sold through
the Program Administrator will be reported to the Internal Revenue Service. Any
gain or loss, whether you sell through the Program Administrator or through a
broker of your own choosing, should be reported when you file your income tax
return.
Be sure to keep your account statements for income tax purposes. If you
have questions about the tax basis of any transactions, please consult your tax
advisor.
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DESCRIPTION OF CARVER'S COMMON STOCK
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GENERAL
Carver is authorized to issue ten million (10,000,000) shares of common
stock having a par value of $0.01 per share and two million (2,000,000) shares
of preferred stock having a par value of $0.01 per share. Each share of Carver's
common stock has the same relative rights and is identical in all respects with
every other share of common stock.
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The shares of common stock:
o are not deposit accounts and are subject to investment risk;
o are not insured or guaranteed by the FDIC, or any other
government agency; and
o are not guaranteed by Carver or Carver Federal.
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VOTING RIGHTS
Each shareholder is entitled to one vote for each share of common stock
held. There are no cumulative voting rights. Shareholders are entitled to vote
on all matters requiring shareholder approval under Delaware law and our
Certificate of Incorporation and Bylaws, including the election of members of
the Board of Directors. Directors are divided into three equal (or nearly equal)
groups. At each annual meeting of our shareholders, only one of the group of
directors are up for election by the shareholders. Elected directors serve for
three (3) years.
DIVIDENDS
We can pay dividends out of statutory surplus or from net profits if,
as and when declared by our Board of Directors. Payment of dividends is subject
to limitations which are imposed by law. If we issue preferred stock, the
holders of the preferred stock may have a priority over the holders of the
common stock with respect to dividends.
LIQUIDATION
If we are liquidated or dissolved, shareholders of common stock are
entitled to receive all of our assets which remain after our debts and
liabilities are paid, subject to a liquidation account created pursuant to the
conversion at Carver Federal. If we issue preferred stock, the holders of our
preferred stock may have a priority over the holders of common stock in the
event of our liquidation or dissolution. As of the date of this prospectus, we
have not issued any preferred stock.
PREEMPTIVE RIGHTS; REDEMPTION; NON-ASSESSABILITY
Our common stock has no preemptive rights. This means that our
shareholders do not have a right to buy their proportional share of any
additional shares we issue. There are no provisions for redemption, conversion
rights, sinking funds, or liability for further calls or assessments on the
common stock. This means that we cannot ask you for more money for your shares,
we cannot force you to sell your shares back to us and your shares cannot be
exchanged for a different security. It also means you cannot sell your shares to
us.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS
Our Certificate of Incorporation and Bylaws contain a number of
provisions, relating to corporate governance and certain rights of stockholders,
that might discourage future takeover attempts. As a result, stockholders who
might desire to participate in such transactions may not have an opportunity to
do so. In addition, such provisions will also render the removal of our Board of
Directors or management more difficult. These provisions include: limitations on
voting rights, staggered terms for members of our Board of Directors,
limitations on the removal of directors and on business combinations with
principal shareholders, and certain procedural requirements for nomination of
directors by shareholders and shareholder proposals. See "Where You Can Find
Additional Information" to find out how to obtain a copy of our Certificate of
Incorporation and Bylaws.
-13-
<PAGE>
==============================================================
USE OF PROCEEDS
==============================================================
Carver will not know the number of shares of our common stock that will
ultimately be purchases through the Shares Program, the extent to which the
shares will be purchased directly from us rather than in the open market, or the
prices at which the shares will be purchased. The proceeds from purchases
directly from Carver under the Shares Program will be used for general corporate
purposes. We are unable to estimate the amount of the proceeds that will be
devoted to any specific purpose.
==============================================================
LEGAL MATTERS
==============================================================
Thacher Proffitt & Wood, New York, New York, has passed upon the
validity of the issuance of the common stock being offered under the Shares
Program.
==============================================================
EXPERTS
==============================================================
We have incorporated our consolidated financial statements in this
prospectus by reference to our latest Annual Report on Form 10-K in reliance on
the report of Mitchell & Titus LLP, independent accountants. Mitchell & Titus,
LLP gave this report on its authority as experts in auditing and accounting.
==============================================================
INDEMNIFICATION
==============================================================
The General Corporation Law of Delaware contains provisions permitting
indemnification of our officers and directors which may be sufficiently broad to
indemnify them for liabilities arising under the Securities Act of 1933, as
amended. Moreover, our Certificate of Incorporation contains provisions on
indemnification of officers and directors. We also have a directors' and
officers' liability and corporation reimbursement insurance policy protecting
our
-14-
<PAGE>
directors and officers against liability arising from any claim for breach of
duty, neglect, error, misstatement, misleading statement, omission or any other
wrongful act (subject to certain exceptions) committed by reason of the director
or officer acting in such capacity. In addition, the Shares Program provides
that Carver Bancorp (including its officers, directors and employees) shall be
indemnified against any and all liability arising by reason of any act or
failure to act made in good faith pursuant to the provisions of the Shares
Program.
==============================================================
FACTORS THAT MAY AFFECT FUTURE RESULTS
==============================================================
Please keep in mind that the information delivered to you with this
prospectus, as well as the annual, quarterly and special reports and other
information filed by us with the Securities and Exchange Commission, contain
forward-looking statements which involve various uncertainties. These
uncertainties could cause our actual results to be materially different from the
forward- looking statements. When reading any of these documents, you should
consider all of the risks and uncertainties that are discussed, and you should
not rely solely on forward-looking statements made by us.
Factors that could cause actual results to be materially different from
forward-looking statements include: (1) interest rate, market and monetary
fluctuations, (2) monetary and fiscal policies and laws, (3) inflation, (4)
default rates on loans, (5) changes in regulation affecting our business, (6)
actons taken by the regulatory bodies that regulate Cerver Federal (7) general
and local economic conditions, (8) increasing competition, (9) new products
innovations, and (10) our ability to manage these and other risks.
==============================================================
WHERE YOU CAN FIND ADDITIONAL INFORMATION
==============================================================
We have filed a registration statement on Form S-2 regarding this
offering with the Securities Exchange Commission ("SEC") . This prospectus,
which is a part of the registration statement, does not contain all of the
information included in the registration statement, and you should refer to the
registration statement and its exhibits to read the information. You may read
and copy the registration statement, the related exhibits and the other
materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Room 1024, Washington,
-15-
<PAGE>
D.C. 20549, and at the SEC's New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. You can also request copies of those
documents, upon payment of a duplicating fee, by writing to the SEC. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. The SEC also maintains an Internet site that contains reports,
proxy and information statements and other information regarding issuers that
file with the SEC; the site's address is www.sec.gov. You may also request a
copy of these filings at no cost, by writing or telephoning as follows: American
Stock Transfer & Trust Company, Attention Carver Shares Program, 40 Wall Street
- - 46th Floor, New York, NY 10005, (800) 278-4353.
==============================================================
DOCUMENTS INCORPORATED BY REFERENCE
==============================================================
The SEC allows us to "incorporate by reference" in this prospectus
other information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is an important part of this prospectus; however, to
the extent that there are any inconsistencies between information presented in
this prospectus and the information contained in incorporated documents filed
with the SEC before the date of this prospectus, the information in this
prospectus shall be deemed to supersede the earlier information. Information
that we file with the SEC after the date of this prospectus will automatically
update and supersede the information in this prospectus and any earlier filed or
incorporated information. Specifically we incorporate by reference the following
documents: our latest Annual Report on Form 10-K, our Quarterly Reports on Form
10-Q for each quarter ended after the date of our last Annual Report on Form
10-Q. We also incorporate by reference any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until all of the
securities offered through this prospectus are sold.
- --------------------------------------------------------------------------------
You should rely only on the information contained in this document or the
documents incorporated by reference. We have not authorized anyone to provide
you with information that is different.
Neither the delivery of this prospectus nor any sale made through this
prospectus shall, under any circumstances, create any implication that there has
been no change in our affairs since the date of this prospectus, or that the
information contained or incorporated by reference in this prospectus is correct
as of any time subsequent to the date of this prospectus.
- --------------------------------------------------------------------------------
-16-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
SEC registration fee(1)......................................... $ 1,030
Printing, postage and mailing................................... $ 15,000
Legal fees and expenses......................................... $ 40,000
Blue sky fees and expenses (including fees of counsel).......... $ 12,500
Accounting fees and expenses ................................... $ 1,000
Miscellaneous................................................... $ 2,000
--------------
TOTAL........................................................... $
==============
(1) Actual expenses based upon the registration of 462,000 shares at
average of high and low prices on October 15, 1999 of $8 per share. All
other expenses are estimated.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("DGCL") INTER
ALIA, empowers a Delaware corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (other than an action by or in the right of
the corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of another corporation or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Similar indemnity is
authorized for such person against expenses (including attorneys' fees) actually
and reasonably incurred in connection with the defense or settlement of any such
threatened, pending or completed action or suit if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and provided further that (unless a court of
competent jurisdiction otherwise provides) such person shall not have been
adjudged liable to the corporation. Any such indemnification may be made only as
authorized in each specific case upon a determination by the shareholders or
disinterested directors or by independent legal counsel in a written opinion
that indemnification is proper because the indemnitee has met the applicable
standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him, and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
II-1
<PAGE>
Article IX of the Company's Certificate of Incorporation provides that
a director shall not be personally liable to the Company or its stockholders for
damages for breach of his fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is expressly prohibited by
the DGCL. Article X of the Company's Certificate of Incorporation requires the
Company, among other things, to indemnify to the fullest extent permitted by the
DGCL, any person who is or was or has agreed to become a director or officer of
the Company, who was or is made a party to, or is threatened to be made a party
to, or has become a witness in, any threatened, pending or completed action,
suit or proceeding, including actions or suits by or in the right of the
Company, by reason of such agreement or service or the fact that such person is,
was or has agreed to serve as a director, officer, employee or agent of another
corporation or organization at the written request of the Company.
Article X also empowers the Company to purchase and maintain insurance
to protect itself and its directors and officers, and those who were or have
agreed to become directors or officers, against any liability, regardless of
whether or not the Company would have the power to indemnify those persons
against such liability under the law or the provisions set forth in the
Certificate of Incorporation. The Company is also authorized by its Certificate
of Incorporation to enter into individual indemnification contracts with
directors and officers. The Company currently maintains directors' and officers'
liability insurance consistent with the provisions of the Certificate of
Incorporation. The Company has and expects to continue to enter into employment
agreements that require the Company to maintain a directors' and officer's
liability policy for the benefit of such persons or that the Company will
indemnify such officers to the fullest extent provided by law.
Item 16. Exhibits.
The exhibits filed as a part of this Registration Statement are as
follows:
LIST OF EXHIBITS.
4.1 Specimen Stock Certificate of Cerver Bancorp, Inc. (1)
5.1 Opinion of Thacher Proffitt & Wood regarding: legality
13.1 Carver Bancorp, Inc.'s Annual Report on Form 10-K for the Year
Ended March 31, 1999.
27.1 Financial Data Schedule (only submitted with filing in
electronic format).
13.2 Carver Bancorp, Inc. Annual Report on Form 10-K/A for the Year
Ended March 31, 1999.
13.3 Carver Bancorp, Inc.'s Quarterly Report on Form 10-Q for the
Period Ended December 31, 1998.
27.2 Financial Data Schedule (only submitted with filing in
electronic format).
23.1 Consent of Independent Auditors
23.2 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1)
99.1 Form of Enrollment Application
99.2 Form of Cover Letter
(1) Incorporated herein by reference to Registration Statement No. 333-0559
on Form S-4 (the "Form S-4") of Carver Bancorp, Inc., filed with the
Securities and Exchange Commission during July 1997, as amended.
II-2
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, present a fundamental change in the
information set forth in the registration statement;
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material changes to
such information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(4) To deliver or cause to be delivered with the
prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security
holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim
financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to
each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically
incorporated by reference in the prospectus to
provide such interim financial information.
(5) That, for purposes of determining any liability under
the Securities Act of 1933, the information omitted
from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b) (1) or (4) or
497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it
was declared effective.
II-3
<PAGE>
(6) That, for the purposes of determining any liability
under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated
by reference in this Registration Statement shall be
deemed to be a new registration statement relating to
the securities offered therein, and the offering of
such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on October 19, 1999.
CARVER BANCORP, INC.
By: /s/ Deborah C. Wright
------------------------------
Deborah C. Wright
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and has appointed each of Deborah C. Wright, President
and Chief Executive Officer, and Walter T. Bond, Acting Chief Financial Officer
and Chief Investment Officer, acting alone or together, his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Deborah C. Wright President, Chief Executive Officer October 19, 1999
- ----------------------------------- and Director
Deborah C. Wright
/s/ Walter T. Bond Acting Chief Financial Officer and October 19, 1999
- ----------------------------------- Chief Investment Officer
Walter T. Bond
/s/ David N. Dinkins Director October 19, 1999
- -----------------------------------
David N. Dinkins
/s/ Lida H. Dunham Director October 19, 1999
- -----------------------------------
Linda H. Dunham
/s/ Herman Johnson Director October 19, 1999
- -----------------------------------
Herman Johnson
/s/ David R. Jones Director October 19, 1999
- -----------------------------------
David R. Jones
/s/ Pazel G. Jackson Director October 19, 1999
- -----------------------------------
Pazel G. Jackson
/s/ Robert J. Franz Director October 19, 1999
- -----------------------------------
Robert J. Franz
</TABLE>
EXHIBIT NO. 5.1 OPINION OF THACHER PROFFITT & WOOD RE: LEGALITY
<PAGE>
[LETTERHEAD OF THACHER PROFFITT & WOOD]
Writer's Direct Dial
(212) 912-7418
October 19, 1999
Carver Bancorp, Inc.
75 West 125th Street
New York, New York 10024
Ladies and Gentlemen:
We have acted as special counsel to Carver Bancorp, Inc., a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, by the Company of an aggregate of 462,000
shares of Common Stock, par value $.01 per share (the "Shares"), of the Company,
pursuant to the Carver Bancorp, Inc. Shares Program, and the related preparation
and filing by the Company with the Securities and Exchange Commission of a
Registration Statement on Form S-2 (the "Registration Statement"). In rendering
the opinion set forth below, we do not express any opinion concerning law other
than the federal law of the United States and the corporate law of the State of
Delaware.
We have examined originals or copies, certified or otherwise
identified, of such documents, corporate records and other instruments, and have
examined such matters of law, as we have deemed necessary or advisable for
purposes of rendering the opinion set forth below. As to matters of fact, we
have examined and relied upon the representations of the Company contained in
the Registration Statement and, where we have deemed appropriate,
representations or certificates of officers of the Company or public officials.
We have assumed the authenticity of all documents submitted to us as originals,
the genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all documents submitted to us as copies. In
making our examination of any documents, we have assumed that all parties had
the corporate power and authority to enter into and perform all obligations
thereunder, and, as to such parties, we have also assumed the due authorization
by all requisite action, the due execution and delivery of such documents and
the validity and binding effect and enforceability thereof.
<PAGE>
Carver Bancorp, Inc. Page 2
October 19, 1999
Based on the foregoing, we are of the opinion that the Shares which are
being registered pursuant to the Carver Bancorp, Inc. Shares Program have been
duly authorized and, when sold as contemplated in the Registration Statement,
will be validly issued and outstanding, fully paid and non-assessable.
In rendering the opinion set forth above, we have not passed
upon and do not purport to pass upon the application of "doing business" or
securities or "blue-sky" laws of any jurisdiction (except federal securities
laws).
This opinion is given solely for the benefit of the Company
and investors who purchase Shares pursuant to the Registration Statement and may
not be relied upon by any other person or entity, nor quoted in whole or in
part, or otherwise referred to in any document without our express written
consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus which is part of the Registration Statement.
Very truly yours,
THACHER PROFFITT & WOOD
By: /s/ Kofi Appenteng
----------------------------
Kofi Appenteng
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1999
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.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3904174
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE
(Title of Class) (Name of Each Exchange on
which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of May 31, 1999, there were 2,314,275 shares of Common Stock of
the registrant issued and outstanding. The aggregate market value of the
Registrant's common stock held by non-affiliates (based on the closing sales
price of $8 1/2 per share of the registrant's Common Stock on May 28, 1999) was
approximately $18.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1999 Annual
Meeting of Stockholders are incorporated by reference into Items 10, 11, 12 and
13 hereof.
<PAGE>
EXPLANATORY NOTE
This Annual Report on Form 10-K contains forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Registrant 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 Registrant's operations and investments, the ability of the Registrant to
originate and purchase loans with attractive terms and acceptable credit
quality, and the ability of the Registrant to realize cost efficiencies.
ITEM 1. BUSINESS.
GENERAL
CARVER BANCORP, INC.
Carver Bancorp, Inc. (the "Holding Company"), 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. 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 common stock 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 subsidiaries, the Bank and Alhambra Holding
Corp, a Delaware corporation ("Alhambra"). The Company formed Alhambra to hold
the Company's investment in a commercial office building. See "Asset
Quality--Nonperforming Assets."
The Holding Company's executive offices are located at the home
office of the Bank at 75 West 125th Street, New York, New York 10027. The
Holding Company's telephone number is (212) 876-4747.
CARVER FEDERAL SAVINGS BANK
The Bank was chartered in 1948 and began operations in 1949 as
Carver Federal Savings and Loan Association, a federally chartered mutual
savings and loan association, at which time the Bank obtained federal deposit
insurance and became a member of the Federal Home Loan Bank of New York
("FHLB"). The Bank converted to a federal savings bank in 1986 and changed its
name at that time to Carver Federal Savings Bank. On October 24, 1994, the Bank
converted from mutual to stock form and issued 2,314,375 shares of its common
stock, par value $0.01 per share.
Carver Federal was founded to provide an African-American operated
institution where residents of under-served communities could invest their
savings and obtain credit. Carver Federal's principal business consists of
attracting passbook and other savings accounts through its branch offices and
investing those funds in mortgage loans and other investments permitted to
federal savings banks. During fiscal year 1997 ("fiscal 1997") Carver adopted a
business plan to shift its emphasis to direct lending and restructure its
balance sheet to shift from mortgaged-backed and other investment securities to
higher yielding whole loans. In the fourth quarter of fiscal 1997 and the first
quarter of fiscal year 1998 ("fiscal 1998"), Carver restructured its balance
sheet by purchasing whole loans and decreasing its investment in mortgage-backed
and other investment securities. During fiscal 1998, Carver continued following
this strategy and expanded its origination of multi-family and commercial real
estate mortgage loans. As a result of this effort, Carver's loan portfolio
substantially increased as a percentage of total assets. As a result of this
restructuring, Carver's earnings are derived more from direct lending and
purchase activities than from investing in securities. Based on asset size as of
March 31, 1999, Carver Federal is the largest minority-operated financial
institution in the United States.
1
<PAGE>
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. For a
description of Ms. Wright's business experience, see "Executive Officers of the
Holding Company--Deborah C. Wright." 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.
LENDING ACTIVITIES
General. Carver's principal lending activity is the origination of
mortgage loans for the purpose of purchasing or refinancing multi-family
residential and commercial real estate properties and one- to four-family
residential property. Carver also originates or participates in loans for the
construction or renovation of commercial property and residential housing
developments and occasionally originates permanent financing upon completion. In
addition, Carver originates consumer loans secured by deposits, education loans
and second mortgages on residential property.
During the past fiscal year, Carver has shifted the emphasis of its
lending from one- to four-family residential lending to multi-family and
commercial mortgage lending. Carver has continued to originate fixed-rate, one-
to four-family mortgage loans to service its retail customers. To compliment
this activity and as part of Carver's overall strategy to increase its loan
portfolio as a percentage of total assets, Carver continued to engage in loan
purchases during the past fiscal year. At the close of the twelve month period
ended March 31, 1999, one-to four-family mortgage loans totaled $181.3 million,
or 65.39%, of Carver's total gross loan portfolio, multi-family loans totaled
$52.4 million or 18.89% of the total gross loans, non-residential real estate
loans totaled $23.1 million or 8.33% of total gross loans and construction loans
totaled $11.0 million or 3.98% of total gross loans. Consumer and commercial
loans totaled $9.4 million or 3.41% of total gross loans. Gross loans receivable
decreased by $5.1 million or 1.80% to $277.3 million at March 31, 1999, compared
to $282.4 million at March 31, 1998. However, Carver's net loan portfolio as a
percentage of total assets increased to 64.95% at March 31, 1999 from 62.85% at
March 31, 1998.
Loan Portfolio Composition. The following table sets forth selected
data relating to the composition of Carver's loan portfolio by type of loan at
the dates indicated. One- to four-family mortgage loans decreased by $7.4
million or 3.94% to $181.3 million. The decrease primarily reflects an increase
in one- to four-family loan repayments and a decrease in one- to four-family
loan purchases offset in part by an increase in one- to four-family originations
during the fiscal year ended March 31, 1999 ("fiscal 1999"). The increase in
repayments of one- to four-family mortgage loans is caused primarily by
refinancings due to lower market interest rates. During fiscal 1999,
multi-family real estate loans increased by $3.1 million or 6.28% to $52.4
million at March 31, 1999 compared to $49.3 million at March 31, 1998.
Non-residential real estate loans increased by $10.3 million or 80.47% to $23.1
at March 31, 1999 primarily reflecting approximately $6.2 million in
originations coupled with the purchase of participation interest in
non-residential real estate mortgage loans. Construction loans decreased by $4.9
million or 30.92% to $11.0 million at March 31, 1999 compared to $16.0 million
at March 31, 1998 primarily reflecting a reduction in the origination of
construction loans coupled with repayments on outstanding construction loans.
Loans secured by savings accounts and certificates of deposit decreased by
$622,000 or 62.32% to $376,000 at March 31, 1999 compared to $998,000 at March
31, 1998, primarily reflecting a reduction of emphasis on consumer lending.
Other loans consisting primarily of consumer loans decreased by $6.1 million or
39.19% to $9.4 million compared to $15.5 million at March 31, 1998. The decrease
primarily reflects the charge-off of approximately $3.4 million in consumer
loans coupled with repayments on consumer loans. During fiscal 1999 the Company
discontinued the origination of unsecured consumer loans. See "Consumer
Lending."
2
<PAGE>
Premium on loans decreased by $541,000 or 34.79% to $1.0 million at
March 31, 1999 compared to $1.6 million at March 31, 1998 primarily reflecting
the repayment of loans purchased at a premium. Loans in process decreased by
$2.2 million or 44.53% to $2.6 million at March 31, 1999 compared to $4.8
million at March 31, 1998 reflecting the decrease in construction loans.
Allowance for loan losses increased by $883,000 or 28.15% to $4.0 at March 31,
1999 compared to $3.1 million at March 31, 1998 reflecting increased provision
for loan losses during fiscal 1999. See "Asset Quality--Asset Classification and
Allowance for Losses."
3
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family ........ $181,320 65.39% $188,761 66.85% $139,961 67.94% $58,547 69.23% $31,572 61.63%
Multi-family ............... 52,365 18.89 49,289 17.46 19,936 9.68 2,490 2.94 2,165 4.23
Nonresidential ............. 23,092 8.33 12,789 4.53 22,415 10.88 11,138 13.18 8,660 16.90
Construction ................. 11,047 3.98 15,993 5.66 14,386 6.98 6,971 8.24 3,179 6.21
Consumer and commercial
business loans:
Savings accounts (1) ....... 376 0.14 998 0.35 955 0.46 1,011 1.20 1,099 2.14
Student .................... 147 0.05 174 0.06 975 0.48 1,162 1.37 1,346 2.63
Other (2) .................. 8,927 3.22 14,364 5.09 7,380 3.58 3,244 3.84 3,209 6.26
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
$277,274 100.00% $282,368 100.00% $206,008 100.00% $84,563 100.00% $51,230 100.00%
======== ====== ======== ====== ======== ====== ======= ====== ======= ======
Add:
Premium on loans ........... 1,014 1,555 1,805 882 366
Less:
Loans in process (3) ....... (2,636) (4,752) (6,854) (1,406) (1,853)
Deferred fees and
loan discounts .......... (1,110) (1,080) (795) (225) (208)
Allowance for loan losses .. (4,020) (3,137) (2,246) (1,206) (1,075)
-------- -------- -------- ------- -------
Total .................... $270,522 $274,954 $197,918 $82,608 $48,460
======== ======== ======== ======= =======
</TABLE>
(1) Loans secured by passbook accounts and certificates of deposit.
(2) Other loans include second mortgage, home equity, personal, auto,
credit cards and commercial business loans.
(3) Represents undisbursed portion of outstanding construction loans.
4
<PAGE>
One- to Four-Family Residential Lending. Traditionally, Carver's
lending activity has been the origination of loans secured by first mortgages on
existing one- to four-family residences in Carver's market area. The Company
periodically purchases portfolios of first mortgages on existing one- to
four-family residences to augment originations. See "-- Purchases of Loans."
Carver originates and purchases one- to four-family residential
mortgage loans in amounts that range between $28,000 and $750,000. At March 31,
1999, $181.3 million, or 65.39%, of Carver's total gross loans were secured by
one- to four-family residences. Carver's one-to four-family residential mortgage
loan portfolio consisted of approximately 87.0% purchased loans and
approximately 13.0% originated loans of which approximately 93.0% had adjustable
rates and approximately 7.0% had fixed rates.
Carver's one- to four-family residential mortgage loans are generally
for terms of 30 years, amortized on a monthly basis, with principal and interest
due each month. Residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms. These loans
customarily contain "due-on-sale" clauses which permit the Bank to accelerate
repayment of a loan upon transfer of ownership of the mortgaged property. Also,
borrowers may refinance or prepay loans at their option without penalty.
The Bank's lending policies generally limit the maximum loan-to-value
ratio ("LTV") on one- to four-family residential mortgage loans secured by
owner-occupied properties to 95% of the lesser of the appraised value or
purchase price, with private mortgage insurance required on loans with LTV
ratios in excess of 80%. The maximum LTV ratio on mortgage loans secured by
non-owner-occupied properties is limited to 80%. Under a special loan program
the LTV ratio may go to 100%. This special loan program consists of loans
originated and sold to the State of New York Mortgage Agency ("SONYMA") secured
by detached single family homes purchased by first time home buyers.
Carver's fixed-rate, one- to four-family residential mortgage loans are
underwritten in accordance with applicable guidelines and requirements for sale
to Federal National Mortgage Association ("Fannie Mae") or SONYMA in the
secondary market. The Bank originates fixed-rate loans that qualify for sale,
and from time to time has sold such loans to Fannie Mae since 1993 and to SONYMA
since 1984. The Bank also originates, to a limited extent, loans underwritten
according to Federal Home Loan Mortgage Corporation ("FHLMC") standards. Loans
are sold with limited recourse, on a servicing retained basis to Fannie Mae and
on a servicing released basis to SONYMA. Carver uses an outside firm to service
mortgage loans, whether held in portfolio or sold servicing retained. At March
31, 1999, the Company, through its sub-servicer, was servicing approximately
$3.0 million of loans for Fannie Mae and FHLMC.
Carver offers one-year, three-year, five/one and five/three-year
adjustable-rate, one- to four-family residential mortgage loans. These loans are
indexed to the weekly average rate on the one-year, three-year and five-year
U.S. Treasury securities, respectively, adjusted to a constant maturity
(usually, one year), plus a margin of 275 basis points. The rates at which
interest accrues on these loans are adjustable every one or three years,
generally with limitations on adjustments of two percentage points per
adjustment period and six percentage points over the life of the one-year
adjustable-rate mortgage and five percentage points over the life of a
three-year adjustable-rate mortgage.
The retention of adjustable-rate loans in the Company's portfolio helps
reduce the Bank's exposure to increases in prevailing market interest rates.
However, there are unquantifiable credit risks resulting from potential
increases in costs to borrowers in the event of upward repricing of
adjustable-rate loans. It is possible that during periods of rising interest
rates, the risk of default on adjustable-rate loans may increase due to
increases in interest costs to borrowers. Further, adjustable-rate loans which
provide for initial rates of interest below the fully indexed rates may be
subject to increased risk of delinquency or default as the higher, fully indexed
rate of interest subsequently replaces the lower, initial rate. In order to
mitigate such risk, the Bank qualifies borrowers at a rate equal to two
percentage points above any discounted introductory rate on one year adjustable
rate mortgage loans ("ARMs"), one percentage point above any discounted
introductory rate on three-year ARMs and at the discounted introductory rate on
five/three ARMs. In addition, although adjustable-rate loans allow the Bank to
increase the
5
<PAGE>
sensitivity of its interest-earning assets to changes in interest rates, the
extent of this interest sensitivity is limited by the periodic and lifetime
interest rate adjustment limitations and the ability of borrowers to convert the
adjustable-rate loans to fixed-rate. Accordingly, there can be no assurance that
yields on the Bank's adjustable-rate loans will fully adjust to compensate for
increases in the Bank's cost of funds. Finally, adjustable-rate loans increase
the Bank's exposure to decreases in prevailing market interest rates, although
decreases in the Bank's cost of funds would tend to offset this effect.
Multi-Family Real Estate Lending. During fiscal 1999, multi-family real
estate loans increased by $3.1 million or 6.29% to $52.4 million at March 31,
1999 compared to $49.3 million at March 31, 1998. See "--Loan Portfolio
Composition." At March 31, 1999, multi-family loans comprised 18.89% of Carver's
gross loan portfolio. The largest of permanent loans outstanding was a $1.8
million loan on a 106 unit, multi-family apartment building located in the New
York City borough of Manhattan. This loan was performing at March 31, 1999.
During fiscal 1998, Carver increased its focus on the origination of
multi-family real estate loans in order to benefit from the higher origination
fees and interest rates, as well as shorter terms to maturity and repricing,
than could be obtained from one- to four-family mortgage loans. The Bank has
emphasized a highly competitive multi-family mortgage loan product, which has
enabled the Bank to expand its presence in the multi-family lending market in
the New York City area. Carver offers competitive rates with flexible terms
which make the product attractive to borrowers. These factors have combined for
growth in this loan category during fiscal 1999. Multi-family property lending,
however, entails additional risks compared with one- to four-family residential
lending. For example, such loans typically involve large loan balances to single
borrowers or groups of related borrowers, the payment experience on such loans
typically is dependent on the successful operation of the real estate project,
and these risks can be significantly impacted by supply and demand conditions in
the market for multi-family residential units.
To obtain the highest asset quality in its multi-family lending
activities Carver has established conservative underwriting guidelines. Carver
originates the bulk of its multi-family residential mortgage loans for apartment
buildings of 15 units or more and 5-10 unit owner occupied residential
properties. Carver originates multi-family mortgage loans for smaller buildings
on a case by case basis. In many cases on five to ten unit properties, the Bank
requires that the borrower reside in the subject property. Carver's multi-family
product guidelines generally require that the maximum LTV not exceed 80%, and in
the case of 5-10 unit properties, that the maximum LTV does not exceed 75%. The
Bank requires a debt coverage ratio of 1.30 to 1.0 ("DCR"), which requires the
properties to generate cash flow after expenses and allowances in excess of the
principal and interest payment. Carver's underwriting guidelines stipulate a
minimum DCR of 1.3 to 1.0 for all multi-family loans. The product is designed
for, and the Bank seeks to lend to borrowers that are experienced in real estate
management. On a case by case basis, the Bank will consider loan requests from
inexperienced borrowers who are purchasing a multi-family property as their
primary residence. In these instances the borrowers are required to take a Bank
approved property management course prior to closing of the loan. Pursuant to
regulation, Carver's maximum loan amount for an individual loan is $3.9 million.
Currently, the Bank limits its maximum amount for an individual loan to $2.0
million.
Carver originates multi-family mortgage loans that generally amortize
on the basis of a 15-, 20-, 25- or 30-year period but require a balloon payment
after the first five years, or the borrower may have an option to extend the
loan for two additional five year periods for a fee of 0.5% of the outstanding
loan balance, payable upon exercising each option. If a ballooning multi-family
mortgage has performed according to the loan agreement and the property value
has not decreased, Carver's practice is to extend an opportunity for the
borrower to roll-over the outstanding balance at the current rate then in effect
for another five-year period. The Bank on a case by case basis originates
fifteen-year fixed rate loans.
Commercial Real Estate Lending (Non-residential). At March 31, 1999,
non-residential real estate mortgage loans (including loans to churches) totaled
$23.1 million or 0.83% of the gross loan portfolio. At March 31, 1999, the
largest non-residential loan outstanding was a $3.2 million loan secured by a
retail shopping center located in the New York City borough of Brooklyn. This
loan was performing at March 31, 1999. Carver's non-residential real estate
lending activity consists predominantly of loans for the purpose of refinancing
commercial office, retail space and churches in its immediate service area.
Commercial (non-residential) lending, however, entails additional risks compared
with one- to four-family residential lending. For example, such loans typically
6
<PAGE>
involve large loan balances to single borrowers or groups of related borrowers
and the payment experience on such loans typically is dependent on the
successful operation of the real estate project.
During fiscal 1999, to help ensure continued collateral protection and
asset quality for the term of the commercial real estate loans, Carver adopted
(with the assistance of an independent consulting firm) a risk rating system.
Under the risk-rating system, all commercial real estate loans are risk rated by
management prior to granting the loan, and separate loan portfolio reviews are
performed semi-annually resulting in written management summary reports.
Furthermore, under this system, property inspections on commercial real estate
loans with balances of $500,000 or greater are performed annually, and all other
commercial loans are inspected on a two-year cycle. Any loan that becomes sixty
days delinquent is required to be inspected promptly. Written reports on all
properties inspected, along with photographs, are provided to document the
collateral status of each loan.
Carver originates commercial (non-residential) real estate first
mortgage loans in its service area. These mortgages are predominantly on well
established larger office buildings and retail properties in the communities in
which the Bank's offices are located. In certain instances, Carver originates
loans which are secured by mixed use real estate. In some, Carver typically
requires that the borrower maintain some form of occupancy at the subject
property, either in the form of operating their primary business from the
subject property or residing in the subject property. Carver's maximum LTV on
commercial real estate mortgage loans is 80%. The minimum DCR is 1.30 to 1.0.
The Bank requires that properties be managed by an established professional
commercial real estate property manager. In addition, Carver requires the
assignment of rents of all tenants leasing in the subject property.
Church Lending. Historically, Carver has been a New York City area
leader in the origination of loans to churches. At March 31, 1999, loans to
churches totaled $14 million, or approximately 5% of the Bank's gross loan
portfolio. These loans generally have 5-, 7- or 10-year terms with 15-, 20- or
25-year amortization periods and a balloon payment due at the end of the term,
and generally have no greater than a 60% loan- to-value ratio. The largest
permanent church loan was a $2.0 million loan to a church located in Manhattan,
New York City. The second largest loan to a church was a $1.7 million
construction loan to a church also located in Manhattan. These loans were
performing according to the terms of their loan at March 31, 1999. The Bank
provides construction financing for churches and generally provides permanent
financing upon completion. Under the Bank's current loan policy, the maximum
loan amount for such lending is $1.0 million, but larger loan amounts are
considered on a case by case basis. Loans to churches generally average
approximately $583,000.
Loans secured by real estate owned by religious organizations generally
are larger and involve greater risks than one- to four-family residential
mortgage loans. Because payments on loans secured by such properties are often
dependent on voluntary contributions by members of the church's congregation,
repayment of such loans may be subject to a greater extent to adverse conditions
in the economy. The Bank seeks to minimize these risks in a variety of ways,
including reviewing the church's financial condition, limiting the size of such
loans and establishing the quality of the collateral securing the loan. The Bank
determines the appropriate amount and type of security for such loans based in
part upon the governance structure of the particular organization, the length of
time the church has been established in the community and a cash flow analysis
of the church to determine its ability to service the proposed loan. As a
general matter, Carver will obtain a first mortgage on the underlying real
property and personal guarantees of key members of the congregation and/or key
person life insurance on the pastor of the congregation and may also require the
church to obtain key person life insurance on specific members of the church's
leadership. Asset quality in the church loan category has been exceptional
throughout Carver's history. Management believes that Carver remains a leading
lender to churches in its market area.
Construction Lending. The Bank currently originates construction loans
primarily for the new construction and renovation of churches, multi-family
buildings, planned residential developments, community service facilities and
affordable housing programs. Carver also offers construction loans to qualified
individuals and developers for new construction and renovation of one- to
four-family residences in the Bank's market area. The Bank does not lend to
private developers for speculative single-family housing construction. The
Bank's construction loans generally have adjustable interest rates and are
underwritten in accordance with the same standards as the Bank's mortgages on
existing commercial properties, except the loans generally provide for
disbursement in stages during a construction period from 12 to 24 months, during
which period the borrower is required to make monthly
7
<PAGE>
payments of accrued interest on the outstanding loan balance. Construction loans
generally have a maximum LTV of 70%. Borrowers must satisfy all credit
requirements that apply to the Bank's permanent mortgage loan financing for the
subject property. While the Bank's construction loans generally require
repayment in full upon the completion of construction, the Bank typically makes
construction loans with the intent to convert to permanent loans following
completion of construction. Carver has established additional criteria for
construction loans to include an engineer's review on all construction budgets
in excess of $500,000, appropriate interest reserves for loans in excess of
$250,000, and advances are made in installments as construction progresses.
Construction financing generally is considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could result in
delays and cost overruns. If the estimate of construction costs proves to be
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate, the Bank may be confronted, at or prior to the
maturity of the loan, with a project having a value which is insufficient to
assure full repayment. The ability of a developer to sell developed lots or
completed dwelling units will depend on, among other things, demand, pricing,
availability of comparable properties and economic conditions. The Bank has
sought to minimize this risk by limiting construction lending to qualified
borrowers in the Bank's market areas, limiting the aggregate amount of
outstanding construction loans and imposing a stricter LTV ratio requirement
than required for one- to four-family mortgage loans.
At March 31, 1999, the Bank had $11.0 million (including $2.6 million
of undisbursed funds) in construction loans outstanding, comprising 3.98% of the
Bank's total gross loan portfolio. The largest construction loan was on an 83
unit apartment building for $2.1 million located in the New York City borough of
Manhattan. The second largest of such loans outstanding was a $1.7 million loan
to a church also located in Manhattan. At March 31, 1999, both loans were
performing according to their terms. In addition, at March 31, 1999, the Bank
carried a loan to a developer secured by a residential development which
contains 22 two-family homes located in the New York City borough of Brooklyn of
which 16 were sold and closed and the final six were in contract for sale. This
loan was not performing at March 31, 1999. See "Asset Quality--Nonperforming
Assets."
Consumer Lending. During fiscal 1999, Carver ceased consumer lending
through its wholly-owned subsidiary, CFSB Credit Corp., and deactivated the
subsidiary. At March 31, 1999, the Bank had approximately $9.4 million in
consumer loans, or 3.41% of the Bank's gross loan portfolio. The Bank's consumer
loans primarily consist of $3.2 million in credit card loans, $3.1 million in
automobile loans and $2.7 million in personal loans. The Bank had $684,000 home
equity loans and second mortgages on single-family residences.
At March 31, 1999, Carver carried $3.2 million in credit card lines
consisting of $3.0 million of unsecured lines and $200,000 of secured lines.
During fiscal 1999, the Company discontinued the issuance of unsecured credit
lines. The Company continues to issue secured credit cards to its existing
customers. At March 31, 1999, the Company had approximately 2,880 cards
outstanding.
At March 31, 1999, Carver carried $3.1 million in automobile loans.
During fiscal 1999, the Company discontinued the origination of automobile
loans.
At March 31, 1999, Carver carried $2.7 million in personal loans
consisting of $2.3 million unsecured personal loans and $400,000 in secured
personal loans. During fiscal 1999, the Company discontinued the issuance of
unsecured personal loans. Carver continues to grant loans secured by deposits
for up to 90% of the amount of the deposits. These loans are payable based on
terms from 12 to 60 months and funds on deposit with Carver must be pledged as
collateral to secure the loan.
At March 31, 1999, Carver carried $425,000 in home equity loans and
$259,000 in second mortgages on single-family residences. These loans, when
combined with any loan having priority over such loans, are generally limited to
75% of the appraised value of the property.
8
<PAGE>
At March 31, 1999, Carver carried $147,000 in student loans. Carver has
participated in the Federal Family Education Loan Program since 1964. The Bank's
student loans are guaranteed by the New York Higher Education Service
Corporation, an independent agency of the State of New York. During fiscal 1999,
the Bank sold approximately $107,000 in student loans.
Consumer loans generally involve more risk than first mortgage loans.
In addition, loan collections are dependent on the borrower's continuing
financial stability, and thus are more likely to be adversely affected by job
loss, divorce, illness or personal bankruptcy. Further, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered. These loans may
also give rise to claims and defenses by a borrower against Carver, and a
borrower may be able to assert claims and defenses against Carver which it has
against the seller of the underlying collateral. In underwriting consumer loans,
Carver considers the borrower's credit history, an analysis of the borrower's
income, expenses and ability to repay the loan and the value of the collateral.
In addition, with respect to defaulted automobile loans, repossessed collateral
may not provide an adequate source of repayment of the outstanding loan balance
as a result of damage, loss or depreciation, and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower.
See "Asset Quality--Nonperforming Assets."
Commercial Business Loans. At March 31, 1999, secured and unsecured
commercial business loans outstanding totaled $616,000. During the fourth
quarter of fiscal 1999, the Bank discontinued the origination of unsecured
commercial business loans. The Bank continues to make a limited number of
commercial business loans, which are secured in full by passbook and/or
certificate of deposit accounts.
Loan Processing and Approval. Carver loan originations are derived from
a number of sources, including referrals by realtors, builders, depositors,
borrowers and mortgage brokers, as well as walk-in customers. Loans are
originated by the Bank's personnel who receive either salary, salary plus
commission or commissions. Loan application forms are available at each of the
Bank's offices.
All applications are forwarded to the processing department located in
the main office. Applications for all fixed-rate one- to four-family real estate
loans are underwritten in accordance with Fannie Mae and SONYMA guidelines. All
loan applications for other types of loans are underwritten in accordance with
the Bank's own comparable guidelines.
For commercial real estate loans, Carver has established underwriting
standards that require the broker or applicant to initially submit an itemized
income and expense statement (loan set-up). If acceptable, a letter of intent is
issued by Carver expressing an interest in the request, and such letter outlines
the conditions under which Carver will process the loan request. If the
applicant accepts the letter of intent, a commercial real estate loan
application is provided to the applicant. Prior to submission for loan approval,
the property must be visited by a commercial loan officer, who will prepare an
initial property inspection report. As part of the loan approval process,
consideration is given to the appraisal, location, accessibility, stability of
neighborhood, environmental assessment, personal credit history of the
applicant(s), and financial capacity.
Upon receipt of a completed loan application from a prospective
borrower, a credit report and verifications are ordered to verify specific
information relating to the loan applicant's employment, income and credit
standing. It is the Bank's policy to obtain an appraisal of the real estate
intended to secure a proposed mortgage loan from a fee appraiser approved by the
Bank.
It is Carver's policy to record a lien on the real estate securing the
loan and to obtain a title insurance policy which insures that the property is
free of prior encumbrances. Borrowers must also obtain hazard insurance policies
prior to closing and, when the property is in a flood plain as designated by the
Department of Housing and Urban Development, paid flood insurance policies. Most
borrowers are also required to advance funds on a monthly basis together with
each payment of principal and interest to a mortgage escrow account from which
the Bank makes disbursements for items such as real estate taxes and hazard
insurance.
9
<PAGE>
The Board of Directors has the overall responsibility and authority for
general supervision of Carver's loan policies. The Board has established written
lending policies for the Bank. The Bank's Chief Lending Officer has authority to
approve all consumer loans below $50,000, the President has authority to approve
such loans below $100,000, and the executive committee of the Board of Directors
must approve loans at or above $100,000. All mortgage loans that conform to
FANNIE MAE standards and limits can be approved by the Chief Lending Officer.
The Management Loan Committee composed of the President, the Chief Lending
Officer and the Acting Chief Financial Officer, approves non-conforming loans up
to $750,000. Loans above $750,000 must be approved by the executive committee of
the Board of Directors, and loans above $1.0 million must be approved by the
full Board of Directors. It has been management's experience that substantially
all approved loans are funded. During the period from January 25, 1999 to June
1, 1999, the Company's Operating Committee assumed the responsibilities of the
President and certain responsibilities of the executive committee.
Originations and Sales of Loans. Originations of one- to four-family
real estate loans are generally within the New York City metropolitan area,
although Carver does occasionally fund loans in other areas. All such loans,
however, satisfy the Company's underwriting criteria regardless of location. In
fiscal 1999, Carver continued its increased emphasis on multi-family and
non-residential lending. The Bank continues to offer one-to four-family
fixed-rate mortgage loans in response to consumer demand but requires that such
loans satisfy guidelines of either Fannie Mae or SONYMA to ensure subsequent
sale in the secondary market as required to manage interest rate risk exposure.
Under the loans-to-one-borrower limits of the Office of Thrift
Supervision ("OTS"), with certain limited exceptions, loans and extensions of
credit to a single or related group of borrowers outstanding at one time
generally shall not exceed 15% of the unimpaired capital and surplus of a
savings bank. Loans and extensions of credit fully secured by readily marketable
collateral may comprise an additional 10% of unimpaired capital and surplus. At
March 31, 1999, the Bank had no lending relationships in excess of the OTS
loans-to-one-borrower limits.
Purchases of Loans. To supplement its origination of one- to
four-family first mortgage loans and consistent with its business strategy,
during fiscal 1999, Carver purchased a total of $55.8 million performing one- to
four-family adjustable rate mortgage loans which represented 20.12% of Carver's
gross loan portfolio at March 31, 1999. The Company purchases loans in order to
increase interest income and to manage its interest rate risk. The $55.8 million
in performing one- to four-family adjustable rate mortgages purchased during the
fiscal year consist of $20.5 million 3/1Year ARMs and $35.3 million 5/1Year
ARMs. The Company also purchased approximately $500,000 in commercial real
estate mortgage loans. The properties securing these loans are located in 34
states, none of which has loans secured by properties located therein in an
amount in excess of 5% of Carver's total gross loan portfolio, with the
exception of loans secured by properties located in California, which amount to
approximately $34.6 million or 12.49% of the Company's gross loans at March 31,
1999.
The Company plans to reduce its purchases of one- to four-family
adjustable rate mortgages and increase its participation in multi-family and
commercial real estate mortgage loans with New York area lenders. In addition,
the Company is shifting its loan origination emphasis to take advantage of the
higher yields and better interest rate risk characteristics available on
multi-family and commercial real estate mortgage loans.
10
<PAGE>
The following table sets forth certain information with respect to
Carver's loan originations, purchases and sales during the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1999 1998 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans originated:
One- to four-family ... $11,487 $ 7,235 $ 8,103
Multi-family .......... 12,013 31,248 15,138
Nonresidential ........ 6,213 3,300 16,855
Construction .......... 6,016 4,226 11,207
Consumer .............. 3,801 8,999 4,775
------- ------- -------
Total loans originated. $39,530 $55,008 $56,078
======= ======= =======
Loans purchased(1) ...... $55,842 $80,175 $83,026
======= ======= =======
Loans sold(2) ........... $ 107 $ 1,459 $ --
======= ======= =======
</TABLE>
(1) Comprised primarily of one- to four-family mortgage loans and a
non-residential mortgage loan, all purchased with servicing retained.
(2) Comprised of one- to four-family loans and student loans, with loans
sold with servicing released.
Loans purchased by the Company entail certain risks not necessarily
associated with loans the Company originates. The Company's purchased loans are
generally acquired without recourse and in accordance with the Company's
underwriting criteria for originations. In addition, the purchased loans have a
variety of terms, including maturities, interest rate caps and indices for
adjustment of interest rates that may differ from those offered at the time by
the Company in connection with the loans the Company originates. Finally, the
market areas in which the properties which secure the purchased loans are
located are subject to economic and real estate market conditions that may
significantly differ from those experienced in Carver's market area. There can
be no assurance that economic conditions in these out of state areas will not
deteriorate in the future resulting in increased loan delinquencies and loan
losses among the loans secured by property in these areas.
In an effort to reduce these risks, with its existing personnel and
through the use of a quality control/loan review firm, the Bank has sought to
ensure that purchased loans satisfy the Bank's underwriting standards and do not
otherwise have a higher risk of collection or loss than loans originated by the
Bank although specific rates and terms may differ from those offered by the
Bank. A Company officer monitors the inspection and confirms the review of each
purchased loan. The Company is dependent on the seller or originator of the
loans for ongoing collection efforts and collateral review. Carver also requires
appropriate documentation and further seeks to reduce its risk by requiring, in
each buy/sell agreement a series of warranties and representations as to the
underwriting standards and the enforceability of the related legal documents.
These warranties and representations remain in effect for the life of the loan.
Any misrepresentation must be cured within ninety (90) days of discovery or
trigger certain repurchase provisions in the buy/sell agreement.
Interest Rates and Loan Fees. Interest rates charged by Carver on
mortgage loans are primarily determined by competitive loan rates offered in its
market area and minimum yield requirements for loans purchased by the Fannie Mae
and SONYMA. Mortgage loan rates reflect factors such as prevailing market
interest rate levels, the supply of money available to the savings industry and
the demand for such loans. These factors are in turn affected by general
economic conditions, the monetary policies of the federal government, including
the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"), the general supply of money in the economy, tax policies and
governmental budget matters.
11
<PAGE>
Carver charges fees in connection with loan commitments and
originations, rate lock-ins, loan modifications, late payments and changes of
property ownership and for miscellaneous services related to its loans. Loan
origination fees are calculated as a percentage of the loan principal. The
Company typically receives fees of between zero and three points (one point
being equivalent to 1% of the principal amount of the loan) in connection with
the origination of fixed-rate and adjustable-rate residential mortgage loans.
The loan origination fee, net of certain direct loan origination expenses, is
deferred and accreted into income over the contractual life of the loan using
the interest method. If a loan is prepaid, refinanced or sold, all remaining
deferred fees with respect to such loan are taken into income at such time.
In addition to the foregoing fees, Carver receives fees for servicing
loans for others, which in turn generally are subserviced for Carver by a third
party servicer. Servicing activities include the collection and processing of
mortgage payments, accounting for loan repayment funds and paying real estate
taxes, hazard insurance and other loan-related expenses out of escrowed funds.
Loan servicing fees usually are charged as a percentage (usually, between 1/4%
and 3/8%) of the outstanding balance of the loans being serviced. Income from
these activities varies from period to period with the volume and type of loans
originated, sold and purchased, which in turn is dependent on prevailing market
interest rates and their effect on the demand for loans in the Company's market
area.
Loan Maturity Schedule. The following table sets forth information at
March 31, 1999 regarding the dollar amount of loans maturing in Carver's
portfolio, including scheduled repayments of principal, based on contractual
terms to maturity. Demand loans, loans having no schedule of repayments and no
stated maturity and overdrafts are reported as due in one year or less. The
table below does not include any estimate of prepayments, which significantly
shorten the average life of all mortgage loans and may cause Carver's actual
repayment experience to differ from that shown below.
<TABLE>
<CAPTION>
DUE DURING THE YEAR ENDING DUE AFTER DUE AFTER DUE AFTER
MARCH 31, 3 THROUGH 5 THROUGH 10 THROUGH DUE AFTER 20
------------------------------ 5 YEARS AFTER 10 YEARS AFTER 20 YEARS AFTER YEARS AFTER
2000 2001 2002 MARCH 31, 1999 MARCH 31, 1999 MARCH 31, 1999 MARCH 31, 1999 TOTAL
-------- -------- -------- -------------- -------------- -------------- -------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate loans:
One- to four-family . $ 9,476 $ 459 $ 270 $ 4,794 $ 5,109 $ 2,428 $158,784 $181,320
Multi-family ........ 326 1,949 6,677 20,348 1,996 12,189 8,880 52,365
Nonresidential ...... 2,840 289 748 5,119 5,703 6,525 1,868 23,092
Construction ........ 11,047 -- -- -- -- -- -- 11,047
Consumer and commercial
business loans:
Savings accounts(1) . 376 -- -- -- -- -- -- 376
Student ............. -- -- -- 147 -- -- -- 147
Other ............... 1,249 1,021 1,025 3,230 2,402 -- -- 8,927
-------- -------- -------- -------- -------- -------- -------- --------
Total ............ $ 25,314 $ 3,718 $ 8,720 $ 33,638 $ 15,210 $ 21,142 $169,532 $277,274
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
(1) Loan secured by passbook accounts and certificates of deposit.
12
<PAGE>
The following table sets forth, at March 31, 1999, the dollar amount of
loans maturing subsequent to the year ending March 31, 2000 which have
predetermined interest rates and floating or adjustable interest rates.
<TABLE>
<CAPTION>
PREDETERMINED FLOATING OR
RATE ADJUSTABLE RATES TOTAL
------------- ---------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One-to four-family ................ $ 27,242 $144,602 $171,844
Multi-family ...................... 45,653 6,386 52,039
Nonresidential .................... 20,252 -- 20,252
Construction ...................... -- -- --
Consumer and commercial business loans:
Savings accounts .................. -- -- --
Student ........................... 147 -- 147
Other ............................. 7,548 130 7,678
-------- -------- --------
Total ......................... $100,842 $151,118 $251,960
======== ======== ========
</TABLE>
Scheduled contractual principal repayments of loans do not necessarily
reflect the actual life of such assets. The average life of long-term loans is
substantially less than their contractual terms due to prepayments. In addition,
due-on-sale clauses in mortgage loans generally give Carver the right to declare
a conventional loan due and payable in the event, among other things, that a
borrower sells the real property subject to the mortgage and the loan is not
repaid. The average life of mortgage loans tends to increase when current
mortgage loan market rates are substantially higher than rates on existing
mortgage loans and tends to decrease when current mortgage loan market rates are
substantially lower than rates on existing mortgage loans.
ASSET QUALITY
Non-performing Assets. When a borrower fails to make a payment on a
mortgage loan, immediate steps are taken by Carver's sub-servicers to have the
delinquency cured and the loan restored to current status. With respect to
mortgage loans, once the payment grace period has expired (in most instances 15
days after the due date), a late notice is mailed to the borrower within two
business days, and a late charge is imposed, if applicable. If payment is not
promptly received, the borrower is contacted by telephone, and efforts are made
to formulate an affirmative plan to cure the delinquency. Additional calls are
made by the 20th and 25th day of the delinquency. If a mortgage loan becomes 30
days delinquent, a letter is mailed to the borrower requesting payment by a
specified date. If a mortgage loan becomes 60 days delinquent, Carver seeks to
make personal contact with the borrower and also has the property inspected. If
a mortgage becomes 90 days delinquent, a letter is sent to the borrower
demanding payment by a certain date and indicating that a foreclosure suit will
be filed if the deadline is not met. If payment is still not made, management
may pursue foreclosure or other appropriate action.
When a borrower fails to make a payment on a consumer loan, immediately
steps are taken by Carver's loan servicing department to have the delinquency
cured and the loan restored to current status. With the exception for automobile
loans, once the payment grace period has expired (10 days after the due date) a
late notice is mailed to the borrower immediately and a late charge is imposed
if applicable. If payment is not promptly received, the borrower is contacted by
telephone, and efforts are made to formulate an affirmative plan to cure the
delinquency. If payment still has not been received, additional telephone calls
are made by the 20th and 25th day of the delinquency. If a consumer loan becomes
30 days delinquent, a letter is mailed to the borrower requesting payment by a
specified date. If the loan becomes 60 days delinquent, a second letter goes to
the borrower and the co-borrower (if any) demanding payment by a specified date
and outlining the seriousness of the problem. If the loan becomes 90 days
delinquent, a final warning letter is sent to the borrower and the co-borrower.
If the loan remains delinquent, it is reviewed for charge-off and/or placed for
collection.
13
<PAGE>
If an automobile loan borrower fails to make a payment on a loan,
immediate steps are taken by Carver's loan servicing department to have the
delinquency cured and the loan restored to current status. Once the payment
grace period has expired (10 days after the due date), a late notice is mailed
to the borrower immediately and a late charge is imposed if applicable. If
payment is not promptly received the borrower is contacted by telephone, with a
follow-up letter requesting payment. By the 45th day of the delinquency, if
payment is not received, repossession efforts begin. Once the vehicle is
repossessed, the borrower has a 30 day right of redemption. In order for the
borrower to exercise this right, one of the following must occur:
1. The borrower must make all delinquent payments plus two
additional monthly payments, coupled with repossession and storage
charges. In addition, the borrower must show proof that the vehicle is
fully insured and that Carver is the loss payee.
2. If Carver reasonably believes that something seriously
affects the collectability of the monies owed under the installment
loan note and the security agreement or the value of the collateral,
the full unpaid balance plus accrued interest, late charges and other
fees become immediately payable in order for the vehicle to be released
to the borrower.
14
<PAGE>
The following table sets forth information with respect to Carver's
non-performing assets at the dates indicated. Loans generally are placed on
non-accrual status when they become 90 days delinquent.
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis(1)
Real estate
One- to four- family ............................. $ 392 $1,134 $1,791 $ 672 $ 520
Multi-family ..................................... 1,051 258 -- 478 --
Nonresidential ................................... -- -- 284 284 339
Construction ..................................... 560 3,089 954 521 521
Consumer and commercial .......................... 414 1,087 256 79 152
------ ------ ------ ------ ------
Total ....................................... $2,417 $5,568 $3,285 $2,034 $1,532
====== ====== ====== ====== ======
Accruing loans contractually past due 90 days or more:
Real Estate
One- to four-family .............................. 568 1,049 279 4 --
Multi-family ..................................... 804 -- 373 55 --
Nonresidential ................................... -- -- -- 217 --
Construction ..................................... 530 -- 2,069 611 --
Consumer and commercial .......................... 183 226 400 334 208
------ ------ ------ ------ ------
Total ....................................... $2,085 $1,275 $3,121 $1,221 $ 208
====== ====== ====== ====== ------
Total of non-accrual and accruing 90 day
past due loans ...................................... $4,502 $6,843 $6,406 $3,255 $1,740
------ ------ ------ ------ ------
Other non-performing assets (2):
Real estate:
One- to four-family .............................. 185 82 82 285 273
Multi-family ..................................... -- -- -- -- --
Consumer ......................................... 99 -- -- -- --
Nonresidential ................................... -- -- -- 29 29
------ ------ ------ ------ ------
Total other non-performing assets ........... 284 82 82 314 302
------ ------ ------ ------ ------
Total non-performing assets ................. $4,786 $6,925 $6,488 $3,569 $2,042
====== ====== ====== ====== ======
Non-performing assets to total loans (3) .................. 1.66% 2.47% 3.28% 4.32% 4.21%
Non-performing assets to total assets ..................... 1.15% 1.58% 1.53% 0.97% 0.56%
Troubled debt restructurings (4):
Real estate
Multi-family and commercial ...................... $ -- $ 807 $ 413 $ -- $1,468
====== ====== ====== ====== ======
</TABLE>
(1) Non-accrual status denotes any loan where the delinquency exceeds 90
days past due and in the opinion of management the collection of
additional interest is doubtful. After a careful review of individual
loan history and related collateral by management, the loan may be
designated as an accruing loan that is contractually past due 90 days
or more or if in the opinion of management, the collection of
additional interest is doubtful, the loan will remain in non-accrual
status. Payments received on a non-accrual loan are either applied to
the outstanding principal balance or recorded as interest income,
depending on assessment of the ability to collect on the loan. During
the year ended March 31, 1999, gross interest income of $419,000 would
have been recorded on loans accounted for on a non-accrual basis at the
end of the year if the loans had been current throughout the year.
Instead, interest on such loans included in income during the period
amounted to $107,000.
(2) Other non-performing assets represents property acquired by the Company
in settlement of loans (i.e., through foreclosure or repossession or as
an in-substance foreclosure). These assets are recorded at the lower of
their fair value or the unpaid principal balance plus unpaid accrued
interest of the related loans.
(3) Non-performing assets consist of non-accrual loans, accruing loans 90
days or more past due and property acquired in settlement of loans.
(4) Troubled debt restructurings, as defined under Statement of Financial
Accounting Standards ("SFAS") No. 15, are loans where the creditor has,
for economic or legal reasons, granted concessions to the debtor that
the creditor would not otherwise consider. At March 31, 1999, Carver
had no restructured loans.
At March 31, 1999 non-performing assets decreased by $2.1 million or
30.89% to $4.8 million compared to $6.9 million at March 31, 1998.
The decrease in non-performing assets reflects a decrease in loans
accounted for on a non-accrual basis, offset in part by an increase in accruing
loans past due 90 days or more and other non-performing assets.
15
<PAGE>
Loans accounted for on a non-accrual basis decreased $3.2 million or
56.59% to $2.4 million at March 31, 1999, compared to $5.6 million at March 31,
1998. The decrease primarily reflects a decrease in one- to four-family,
construction, consumer and commercial loans, accounted for on a non-accrual
basis, offset in part by an increase in multi-family loans accounted for on the
same basis.
Accruing loans contractually past due 90 days or more increased
$810,000 or 63.53% to $2.1 million at March 31, 1999, compared to $1.3 million
at March 31, 1998. The increase primarily reflects increases in multi-family and
construction loans, accounted for as accruing 90 days past due, offset by
decreases in one- to four-family, consumer and commercial loans accounted for on
the same basis.
Other non-performing assets increased $202,000 or 246.34% to $284,000
at March 31, 1999, compared to $82,000 at March 31, 1998. The increase primarily
reflects the repossession of automobiles and real estate in connection with
non-performing loans. See "Lending Activities--General."
During fiscal 1999, the Company established an allowance of $709,000
for consumer loans and charged off approximately $3.4 in non-performing loans.
At March 31, 1999 the Bank maintained a $109,000 specific allowance in
connection with credit card lines. The Company has instituted a reorganization
of its consumer lending activities. See "-- Subsidiary Activities."
Carver serves as the lead lender for a construction loan for the
development of 22 two-family units of affordable housing. The project is being
developed under a New York City new homes program. The total development cost of
the project is $4.8 million. The project has received a substantial subsidy from
state and local housing agencies. The construction loan for the project is $2.9
million. The Bank originally held a participation interest in the construction
loan of $1.7 million (60%), which has been paid down to $452,000, and sold a
non-recourse participation interest in the loan of $1.2 million (40%) to another
New York area lender which had been paid down to $93,000. At March 31, 1999, the
loan was classified as non accruing reflecting certain delays in connection with
the completion of the project. At March 31, 1999, construction on the project
was complete and 16 homes had been delivered to buyers. The six remaining homes
were under contract of sale to prospective homeowners.
Alhambra Holding Corp. In 1991, Carver purchased an $893,000
participation in a $2.4 million loan to finance the first construction phase of
a project to renovate a historic theater located in the New York City borough of
Manhattan, the Alhambra Building, into office space. The first phase of the
project went into receivership with the FDIC and the borrower declared
bankruptcy and the rents were being paid into the bankruptcy court. These events
contributed to Carver writing down the outstanding loan balance of the
participation to $413,000. During fiscal 1997, Carver negotiated the purchase of
the FDIC's interest in the loan for $395,000. At March 31, 1998, the Bank held
100% interest in the original loan of $2.4 million carried on the books at
$807,000 and the Company was involved in legal action to vacate the stay placed
by the bankruptcy court on the collateral in order to proceed with legal
recourse.
In December of 1998, in connection with a court approved bankruptcy
plan, the loan asset was transferred by the Bank to the Company. The Company
contributed $600,000 in cash and the loan asset into a newly formed wholly owned
subsidiary, Alhambra Holding Corp. ("Alhambra Holding"). Alhambra Holding used
the cash and the loan to acquire 80% of the common stock and approximately $1.4
million or 100% of the preferred stock of Alhambra Realty Corp. ("Alhambra
Realty"). As of December 31, 1998, Alhambra Realty purchased the property, holds
title to the Alhambra Building and was authorized to receive rental payments.
Carver is currently examining various options with respect to the property owned
by Alhambra Realty. These options include, but are not limited to, completing
the development of the property and leasing the unoccupied space or conducting a
sale of the property.
Asset Classification and Allowances for Losses. Federal regulations
require savings institutions to classify their assets on the basis of quality on
a regular basis. An asset is classified as "substandard" if it is determined to
be inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. An asset is classified as
"doubtful" if full collection is highly questionable or improbable. An asset is
16
<PAGE>
classified as "loss" if it is considered uncollectible, even if a partial
recovery could be expected in the future. The regulations also provide for a
"special mention" designation, described as assets which do not currently expose
a savings institution to a sufficient degree of risk to warrant classification
but do possess credit deficiencies or potential weaknesses deserving
management's close attention. Assets classified as substandard or doubtful
require a savings institution to establish general allowances for loan losses.
If an asset or portion thereof is classified loss, a savings institution must
either establish specific allowances for loan losses in the amount of the
portion of the asset classified loss, or charge off such amount. Federal
examiners may disagree with a savings institution's classifications. If a
savings institution does not agree with an examiner's classification of an
asset, it may appeal this determination to the OTS Regional Director.
At March 31, 1999, Carver Federal had $528,000 of assets classified as
substandard (including $185,000 of real estate acquired in settlement of loans),
$571,000 of assets classified as doubtful, and $581,000 of assets classified as
loss. The aggregate of the aforementioned classifications and designations
totaled $1.7 million, which represented 0.24% of the Bank's total assets and
5.43% of the Bank's tangible regulatory capital at March 31, 1999.
The OTS, in conjunction with the other federal banking agencies, has
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectability of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although management believes that adequate specific and general loan loss
allowances have been established, actual losses are dependent upon future events
and, as such, further additions to the level of specific and general loan loss
allowances may become necessary. Federal examiners may disagree with the savings
institution as to the appropriate level of the institution's allowance for loan
losses. While management believes Carver has established its existing loss
allowances in accordance with generally accepted accounting principles, there
can be no assurance that regulators, in reviewing Carver's assets, will not
require Carver to increase its loss allowance, thereby negatively affecting
Carver's reported financial condition and results of operations.
Carver's methodology for establishing the allowance for loan losses
takes into consideration probable losses that have been identified in connection
with specific loans as well as losses that have not been identified but can be
expected to occur. Further, management reviews the ratio of allowances to total
loans (including projected growth) and recommends adjustments to the level of
allowances accordingly. Management conducts quarterly reviews of the Bank's
loans and evaluates the need to establish general and specific allowances on the
basis of this review. In addition, management actively monitors Carver's asset
quality and charges off loans and properties acquired in settlement of loans
against the allowances for losses on loans and such properties when appropriate
and provides specific loss reserves when necessary. Although management believes
it uses the best information available to make determinations with respect to
the allowances for losses, future adjustments may be necessary if economic
conditions differ substantially from the economic conditions in the assumptions
used in making the initial determinations.
Carver reviews its assets on a quarterly basis to determine whether any
assets require classification or re-classification. The Bank has a centralized
loan processing structure that relies upon an outside servicer, which generates
a monthly report of delinquent loans. The Board of Directors of the Bank has
designated the Internal Auditor and the Internal Asset Review Committee to
perform quarterly reviews of the Bank's asset quality and their report is
submitted to the Board for review and approval prior to implementation of any
classification. In originating loans, Carver recognizes that credit losses will
occur and that the risk of loss will vary with, among other things, the type of
loan being made, the creditworthiness of the borrower over the term of the loan,
general economic conditions and, in the case of a secured loan, the quality of
the security for the loan. It is management's policy to maintain a general
allowance for loan losses based on, among other things, regular reviews of
delinquencies and loan portfolio quality, character and size, the Company's and
the industry's historical and
17
<PAGE>
projected loss experience and current and forecasted economic conditions. In
addition, considerable uncertainty exists as to the future improvement or
deterioration of the real estate markets in various states, or of their ultimate
impact on Carver as a result of its purchased loans in such states. See
"Purchases of Loans". Carver increases its allowance for loan losses by charging
provisions for possible losses against the Company's income. General allowances
are established by the Board of Directors on at least a quarterly basis based on
an assessment of risk in the Bank's loans taking into consideration the
composition and quality of the portfolio, delinquency trends, current charge-off
and loss experience, the state of the real estate market and economic conditions
generally. Specific allowances are provided for individual loans, or portions of
loans, when ultimate collection is considered improbable by management based on
the current payment status of the loan and the fair value or net realizable
value of the security for the loan. At the date of foreclosure or other
repossession or at the date the Company determines a property is an impaired
property, the Company transfers the property to real estate acquired in
settlement of loans at the lower of cost or fair value, less estimated selling
costs. Fair value is defined as the amount in cash or cash-equivalent value of
other consideration that a real estate parcel would yield in a current sale
between a willing buyer and a willing seller. At March 31, 1999, the Bank held
$185,000, net of loss allowance, in real estate acquired in settlement of loans.
Any amount of cost in excess of fair value is charged-off against the allowance
for loan losses. Carver records an allowance for estimated selling costs of the
property immediately after foreclosure. Subsequent to acquisition, the property
is periodically evaluated by management and an allowance is established if the
estimated fair value of the property, less estimated costs to sell, declines.
If, upon ultimate disposition of the property, net sales proceeds exceed the net
carrying value of the property, a gain on sale of real estate is recorded. See
Note 1 of Notes to Consolidated Financial Statements.
The following table sets forth an analysis of Carver's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ....................... $ 3,138 $ 2,246 $ 1,206 $ 1,075 $ 1,268
Loans charged-off(1)
Real estate
One- to four-family ............................... -- -- -- -- 43
Multi-family ...................................... -- -- -- -- --
Commercial ........................................ -- -- 624 -- 481
Consumer .......................................... 3,431 367 75 -- 3
------- ------- ------- ------- -------
Total charge-offs .............................. 3,431 367 699 -- 527
------- ------- ------- ------- -------
Recoveries:
Construction ...................................... 45 -- 50 19 --
Consumer loans .................................... 37 -- -- -- --
------- ------- ------- ------- -------
Total Recoveries .................................. 82 -- 50 19 --
------- ------- ------- ------- -------
Net loans charged-off/(Recoveries) ................... 3,349 367 649 (19) 527
------- ------- ------- ------- -------
Provision for losses .............................. 4,231 1,259 1,689 150 334
------- ------- ------- ------- -------
Balance at end of period .......................... $ 4,020 $ 3,138 $ 2,246 $ 1,206 $ 1,075
======= ======= ======= ======= =======
Ratio of net charge-offs to average loans
outstanding ....................................... 1.27% 0.15% 0.69% --% 1.06%
Ratio of allowance to total loans ................. 1.48% 1.11% 1.09% 1.42% 2.10%
Ratio of allowance to non-performing loans (2) .... 85.60% 45.30% 35.06% 37.05% 61.79%
</TABLE>
(1) Loans are charged-off when management determines that they are
uncollectible.
(2) Non-performing assets consist of non-accrual loans, accruing loans 90
days or more past due and property acquired in settlement of loans.
18
<PAGE>
The following table allocates the allowance for loan losses by asset
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans:
Real estate
One-to four-family ..... $ 957 23.81% $1,691 53.91% $1,065 47.40% $ 165 69.23% $ 165 64.80%
Multi-family ........... 902 22.44 400 12.75 264 11.76 75 2.94 75 4.23
Nonresidential ......... 251 6.24 111 3.54 414 18.44 616 13.18 616 16.90
Construction ........... 424 10.55 340 10.84 212 9.44 15 8.24 15 6.20
Consumer, commercial
and other ................. 1,486 36.96 596 18.97 291 12.96 335 6.41 204 7.87
------ ------ ------ ------- ------ ------- ------ ------- ------ -------
Total allowance for
loan losses ............... $4,020 100.00 $3,138 100.00% $2,246 100.00% $1,206 100.00% $1,075 100.00%
====== ====== ====== ======= ====== ======= ====== ======= ====== =======
</TABLE>
MORTGAGE-BACKED AND RELATED SECURITIES
Carver maintains a significant portfolio of mortgage-backed securities
in the form of Government National Mortgage Association ("GNMA") pass-through
certificates, Fannie Mae and FHLMC participation certificates and collateralized
mortgage obligations ("CMOs"). GNMA pass-through certificates are guaranteed as
to the payment of principal and interest by the full faith and credit of the
U.S. Government, while Fannie Mae and FHLMC certificates are each guaranteed by
their respective agencies as to principal and interest. Mortgage-backed
securities generally entitle Carver to receive a pro rata portion of the cash
flows from an identified pool of mortgages. CMOs are securities issued by
special purpose entities generally collateralized by pools of mortgage-backed
securities. The cash flows from such pools are segmented and paid in accordance
with a predetermined priority to various classes of securities issued by the
entity. Carver's CMOs are primarily adjustable-rate CMOs issued by the
Resolution Trust Corporation ("RTC"). Carver also invests in pools of loans
guaranteed as to principal and interest by the Small Business Administration
("SBA").
Although mortgage-backed securities generally yield from 60 to 100
basis points less than whole loans, they present substantially lower credit risk
and are more liquid than individual mortgage loans and may be used to
collateralize obligations of the Company. Because Carver receives regular
payments of principal and interest from its mortgage-backed securities, these
investments provide more consistent cash flows than investments in other debt
securities which generally only pay principal at maturity. Mortgage-backed
securities also help the Bank meet certain definitional tests for favorable
treatment under federal banking and tax laws. See "Regulation and
Supervision--Regulation of Federal Savings Associations--QTL" and "Federal and
State Taxation."
The Bank seeks to avoid interest rate risk by investing in
adjustable-rate mortgage-backed securities, which at March 31, 1999 constituted
$38.6 million or 57.97% of the mortgage-backed securities portfolio.
Mortgage-backed securities, however, expose Carver to certain unique risks. In a
declining rate environment, accelerated prepayments of loans underlying these
securities expose Carver to the risk that it will be unable to obtain comparable
yields upon reinvestment of the proceeds. In the event the mortgage-backed
security has been funded with an interest-bearing liability with a maturity
comparable to the original estimated life of the mortgage-backed security, the
Bank's interest rate spread could be adversely affected. Conversely, in a rising
interest rate environment, the Bank may experience a lower than estimated rate
of repayment on the underlying mortgages, effectively extending the estimated
life of the mortgage-backed security and exposing the Bank to the risk that it
may be required to fund the asset with a liability bearing a higher rate of
interest.
The increased effort by Carver, since fiscal 1997, to originate and
purchase loans has shifted the emphasis away from the use of mortgage-backed
securities as the Company's primary interest earning asset. Over the last
19
<PAGE>
fiscal year repayments received from mortgage-backed securities have been
reinvested in residential mortgage loans. This has resulted in a significant
decrease in Carver's investment in mortgage-backed securities and a reduction in
the percentage of mortgage-backed securities to total assets. At March 31, 1999,
mortgage-backed securities constituted 15.99% of total assets, as compared to
27.32% at March 31, 1998, and 46.42% at March 31, 1997.
The following table sets forth the carrying value of Carver's
investments at the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
HELD TO MATURITY
GNMA ...................................... $ 7,631 $ 8,855 $ 11,689
FANNIE MAE ................................ 29,718 36,685 41,344
FHLMC ..................................... 24,636 35,901 44,890
SBA ....................................... 1,325 1,770 2,249
CMO:
RTC ................................... 2,282 6,565 8,354
FHLMC ................................. 647 1,340 1,690
Other ................................. 345 -- 637
-------- -------- --------
Total CMOs ....................... 3,274 7,905 10,681
-------- -------- --------
Total Held to Maturity ....... 66,584 91,116 110,853
-------- -------- --------
AVAILABLE-FOR-SALE:
GNMA ...................................... $ -- $ 15,192 $ 16,907
FANNIE MAE ................................ -- 8,541 9,176
FHLMC ..................................... -- 4,674 6,622
-------- -------- --------
Total Available-for-Sale .............. -- 28,407 32,705
-------- -------- --------
Total Mortgage-Backed Securities . $ 66,584 $119,523 $143,558
======== ======== ========
</TABLE>
The following table sets forth the scheduled maturities, carrying
values, market values and average yields for Carver's mortgage-backed securities
at March 31, 1999. Expected maturities will differ from contractual maturities
due to scheduled repayments and because borrowers may have the right to call or
prepay obligations with or without prepayment penalties. The following table
does not take into consideration the effects of scheduled repayments or the
effects of possible prepayments.
<TABLE>
<CAPTION>
ONE TO FIVE YEARS FIVE TO TEN YEARS MORE THAN TEN YEARS TOTAL MORTGAGE-BACKED SECURITIES
----------------- ----------------- ------------------- --------------------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING MARKET AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE VALUE YIELD
-------- ------- -------- ------- -------- ------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMNA ............... $ -- --% $ -- --% $ 7,631 6.73% $ 7,631 $ 7,686 6.73%
Fannie Mae ......... -- -- 3,067 6.54 26,651 6.17 29,718 29,578 6.21
FHLMC .............. -- -- 1,138 7.03 23,498 6.00 24,636 23,864 6.05
SBA ................ -- -- -- -- 1,325 5.89 1,325 1,330 5.89
CMO:
RTC ............. -- -- -- -- 2,282 4.64 2,282 2,246 4.64
FHLMC ........... 647 5.17 -- -- -- -- 647 645 5.17
Other ........... -- -- -- -- 345 6.63 345 345 6.63
-------- -------- -------- -------- -------
TOTAL ........ $ 647 $ 4,205 $ 61,732 $ 66,584 $65,694
======== ======== ======== ======== =======
</TABLE>
20
<PAGE>
INVESTMENT ACTIVITIES
Carver is permitted under federal law to make certain investments,
including investments in securities issued by various federal agencies and state
and municipal governments, deposits at the FHLB, certificates of deposit in
federally insured institutions, certain bankers' acceptances and federal funds.
The Bank may also invest, subject to certain limitations, in commercial paper
having one of the two highest investment ratings of a nationally recognized
credit rating agency, and certain other types of corporate debt securities and
mutual funds. Federal regulations require the Bank to maintain an investment in
FHLB stock and a minimum amount of liquid assets which may be invested in cash
and specified securities. From time to time, the OTS adjusts the percentage of
liquid assets which savings banks are required to maintain. For additional
information, see "Regulation and Supervision--Regulation of Federal Savings
Associations--Liquidity."
<TABLE>
<CAPTION>
AT MARCH 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
HELD TO MATURITY:
Debt securities:
U.S. government and agency securities ................................ $ -- $ -- $ 1,675
Other investments
FHLB stock ........................................................... 5,755 5,755 5,535
------- ------- -------
Total held to maturity .......................................... 5,755 5,755 7,210
------- ------- -------
AVAILABLE FOR SALE:
Equity securities:
Capstone government investment fund .................................. -- -- 49,008
Asset management fund adjustable-rate
mortgage portfolio share funds .................................. -- -- 100
Common and preferred stocks .......................................... -- -- 2,050
Other investments:
Federal funds sold ................................................... 10,200 3,000 --
U.S. government and agency securities ................................ 29,918 -- --
------- ------- -------
Total available for sale ........................................ 40,118 3,000 51,158
------- ------- -------
Total investment securities ................................. $45,873 $ 8,755 $58,368
======= ======= =======
</TABLE>
(1) Equity securities were classified as available-for-sale at March 31,
1999, 1998 and 1997.
21
<PAGE>
The following table sets forth the scheduled maturities, carrying
values, market values and average yields for Carver's investments at March 31,
1999.
<TABLE>
<CAPTION>
ONE YEAR OR LESS ONE TO FIVE YEARS TOTAL OTHER INVESTMENTS
------------------ ----------------- -----------------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING MARKET AVERAGE
VALUE YIELD VALUE YIELD VALUE VALUE YIELD
-------- ------- -------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. government and
Agency securities ......... $ 29,918 4.80% $ -- --% $ 29,918 $ 30,039 4.80%
Federal funds sold ........... 10,200 5.00 -- -- 10,200 10,200 5.00
Equity securities ............ -- -- -- -- -- -- --
Common and preferred stock ... -- -- -- -- -- -- --
FHLB stock ................... 5,755 7.05 -- -- 5,755 5,755 7.05
-------- -------- -------- --------
Total investments ............ $ 45,873 $ -- $ 45,873 $ 45,994
======== ======== ======== ========
</TABLE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
General. Deposits are the primary source of Carver's funds for lending
and other investment purposes. In addition to deposits, Carver derives funds
from loan principal repayments, interest payments and maturing investments. Loan
repayments and interest payments are a relatively stable source of funds, while
deposit inflows and outflows are significantly influenced by prevailing market
interest rates and money market conditions. Borrowing may be used to supplement
the Company's available funds, and from time to time the Company has borrowed
funds from the FHLB and through reverse repurchase agreements.
22
<PAGE>
Deposits. Carver attracts deposits principally from within its market
area by offering a variety of deposit instruments, including passbook and
statement accounts and certificates of deposit which range in term from 91 days
to seven years. Deposit terms vary, principally on the basis of the minimum
balance required, the length of time the funds must remain on deposit and the
interest rate. Carver also offers Individual Retirement Accounts. Carver's
policies are designed primarily to attract deposits from local residents through
the Company's branch network rather than from outside the Company's market area.
Carver also holds deposits from various governmental agencies or authorities.
Carver does not accept deposits from brokers. The Bank's interest rates,
maturities, service fees and withdrawal penalties on deposits are established by
management on a periodic basis. Management determines deposit interest rates and
maturities based on the Company's funds acquisition and liquidity requirements,
the rates paid by the Company's competitors, the Company's growth goals and
applicable regulatory restrictions and requirements.
The following table sets forth deposit categories, weighted average
interest rate, minimum terms, minimum balance, aggregate balance and percentage
of total deposits for Carver's deposits at March 31, 1999.
<TABLE>
<CAPTION>
WEIGHTED PERCENTAGE
AVERAGE MINIMUM MINIMUM AGGREGATE OF TOTAL
INTEREST RATE TERM CATEGORY BALANCE BALANCE DEPOSITS
- ------------- ------------ ----------------------------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2.23% None NOW accounts $ 500 $ 16,102 5.81%
2.50 None Savings and club 300 143,795 51.91
3.22 None Money market savings accounts 500 20,932 7.56
-- None Other demand accounts 500 10,609 3.83
-------- --------
Total Savings accounts 191,438 69.11
-------- --------
Certificates of Deposit
-----------------------------
3.84 91 days Fixed-term, fixed rate 2,500 2,937 1.06
3.92 182-365 days Fixed-term, fixed rate 2,500 15,097 5.45
4.45 1-2 years Fixed-term, fixed rate 1,000 26,403 9.53
4.60 2-3 years Fixed-term, fixed rate 1,000 4,540 1.64
4.73 3-4 years Fixed-term, fixed rate 1,000 7,261 2.62
4.93 4-5 years Fixed-term, fixed rate 1,000 2,935 1.06
4.79 5-7 years Fixed-term, fixed rate 500 21,604 7.80
4.14 30 days Negotiable 80,000 4,784 1.73
-------- --------
Total Certificates of Deposit 85,561 30.89
-------- --------
Total Deposits $276,999 100.00%
======== ========
</TABLE>
23
<PAGE>
The following table sets forth the change in dollar amount of deposits
in the various types of accounts offered by Carver between the dates indicated.
<TABLE>
<CAPTION>
BALANCE AT PERCENTAGE BALANCE AT PERCENTAGE BALANCE AT PERCENTAGE
MARCH 31, OF TOTAL INCREASE MARCH 31, OF TOTAL INCREASE MARCH 31, OF TOTAL
1999 DEPOSITS (DECREASE) 1998 DEPOSITS (DECREASE) 1997 DEPOSITS
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings and club ................ $ 143,795 51.91% $ (1,653) $ 145,448 52.91% $ 2,495 $ 142,953 53.65%
Money market savings ............ 20,932 7.56 (564) 21,496 7.82 418 21,078 7.91
NOW and demand accounts ......... 26,711 9.64 (2,206) 28,917 10.52 2,662 26,255 9.85
Certificates of deposit ......... 85,561 30.89 6,528 79,033 28.75 2,848 76,185 28.59
---------- ------ -------- ---------- ------ -------- ---------- ------
Total deposits ............ $ 276,999 100.00% $ 2,105 $ 274,894 100.00% $ 8,423 $ 266,471 100.00%
========== ====== ======== ========== ====== ======== ========== ======
</TABLE>
The following table sets forth the average balances and interest rates
based on month end balances for certificates of deposit and non-certificate
accounts as of the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
--------- ------- --------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing demand ........ $ 9,670 0.00% $ 8,625 0.00% $ 4,774 0.00%
Savings and club ................... 144,990 2.49 144,466 2.49 142,410 2.49
Certificates ....................... 80,897 4.81 76,990 5.13 74,583 5.15
Money market savings accounts ...... 21,541 2.85 21,514 3.22 20,398 3.23
NOW accounts ....................... 18,789 1.67 18,725 1.89 19,909 1.56
--------- --------- ---------
Total ......................... $ 275,887 $ 270,320 $ 262,074
========= ========= =========
</TABLE>
The following table sets forth time deposits in specified weighted
average interest rate categories as of the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
2%-3.99% ........ $ 18,034 $ -- $ 1
4%-5.99% ........ 67,527 78,958 61,674
6%-7.99% ........ -- 75 14,510
8%-9.99% ........ -- -- --
-------- -------- --------
Total ........ $ 85,561 $ 79,033 $ 76,185
======== ======== ========
</TABLE>
The following table sets forth the amount and maturities of time
deposits in specified weighted average interest rate categories at March 31,
1999.
<TABLE>
<CAPTION>
AMOUNT DUE
-------------------------------------------------------------
LESS THAN AFTER
RATE ONE YEAR 1-2 YEARS 2-3 YEARS 3 YEARS TOTAL
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2% - 3.99% ...... $ 18,034 $ -- $ -- $ -- $ 18,034
4% - 5.99% ...... -- 26,403 4,540 36,584 67,527
6% - 7.99% ...... -- -- -- -- --
--------- --------- --------- --------- ---------
Total ...... $ 18,034 $ 26,403 $ 4,540 $ 36,584 $ 85,561
========= ========= ========= ========= =========
</TABLE>
24
<PAGE>
The following table indicates the amount of Carver's certificates of
deposit of $100,000 or more by time remaining until maturity as of March 31,
1999.
<TABLE>
<CAPTION>
CERTIFICATES OF
MATURITY PERIOD DEPOSITS
- --------------------------------- ---------------
<S> <C>
(IN THOUSANDS)
Three months or less ........... $ --
Three through six months ....... 1,816
Six through 12 months .......... 2,515
Over 12 months ................. 11,584
--------
Total ....................... $ 15,915
========
</TABLE>
The following table sets forth Carver's deposit reconciliation for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deposits at beginning of period ............ $ 274,894 $ 266,471 $ 256,952
Net increase (decrease) before
interest credited ......................... (6,315) (173) 1,137
Interest credited .......................... 8,420 8,596 8,382
--------- --------- ---------
Deposits at end of period .................. $ 276,999 $ 274,894 $ 266,471
========= ========= =========
</TABLE>
Borrowing. Savings deposits historically have been the primary source
of funds for Carver's lending, investment and general operating activities.
Carver is authorized, however, to use advances and securities sold under
agreement to repurchase ("Repos") from the FHLB and approved primary dealers to
supplement its supply of funds and to meet deposit withdrawal requirements. The
FHLB functions as a central bank providing credit for savings institutions and
certain other member financial institutions. As a member of the FHLB system,
Carver is required to own stock in the FHLB and is authorized to apply for
advances. Advances are made pursuant to several different programs, each of
which has its own interest rate and range of maturities. Advances from the FHLB
are secured by Carver's stock in the FHLB and a blanket pledge of Carver's
mortgage loan and mortgage-backed securities portfolios.
One of the elements of Carver's investment strategy is to leverage the
balance sheet by increasing liabilities with advances and Repos and investing
borrowed funds into adjustable rate mortgage loans. The Bank seeks to match as
closely as possible the term of borrowing with the repricing cycle of the
mortgage loans on the balance sheet. During fiscal 1999, the Bank shifted from
Repos to FHLB Advances to take advantage of the more attractive terms available
on FHLB Advances. At March 31, 1999, Carver had $65.7 million in FHLB Advances
and $35.3 million in securities sold under agreements to repurchase outstanding.
25
<PAGE>
The following table sets forth certain information regarding Carver's
short-term borrowing at the dates and for the periods indicated:
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED MARCH 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amounts outstanding at end of period:
FHLB advances .............................................. $ 65,708 $ 36,742 $ 45,400
Securities sold under agreements to repurchase ............. 35,337 87,020 74,335
Weighted average rate paid at period end:
FHLB advances .............................................. 5.46% 5.82% 6.93%
Securities sold under agreements to repurchase ............. 5.52% 5.85% 5.67%
Maximum amount of borrowing outstanding at any month end:
FHLB advances .............................................. $ 65,723 $ 39,744 $ 45,400
Securities sold under agreements to repurchase ............. 85,720 87,020 74,335
Approximate average amounts outstanding for period:
FHLB advances .............................................. $ 47,393 $ 31,273 $ 26,250
Securities sold under agreements to repurchase ............. 59,296 78,310 42,398
Approximate weighted average rate paid during period(1):
FHLB advances .............................................. 5.66% 5.96% 6.05%
Securities sold under agreements to repurchase ............. 5.74% 5.79% 5.61%
</TABLE>
(1) The approximate weighted average rate paid during the period was
computed by dividing the average amounts outstanding into the related
interest expense for the period.
SUBSIDIARY ACTIVITIES
Carver Bancorp, Inc. is the parent of two wholly owned subsidiaries,
Carver Federal and Alhambra Holding Corp. ("Alhambra"). For a description of
Alhambra, see "Asset Quality--Non-performing Assets."
As a federally chartered savings institution, Carver Federal is
permitted to invest up to 2% of its assets in subsidiary service corporations
plus an additional 1% in subsidiaries engaged in specified community purposes.
At March 31, 1999, the net book value of the Bank's service corporations
investments was $445,237 which includes Carver's investment in a captive
insurance corporation.
Carver Federal is also authorized to make investments of any amount in
operating subsidiaries that engage solely in activities that federal savings
institutions may conduct directly. On March 8, 1995, the Bank formed CFSB Realty
Corp. as a wholly-owned subsidiary which holds real estate acquired through
foreclosure pending eventual disposition. At March 31, 1999, this subsidiary had
$319,374 in total capital and net operating expenses of $2,080.
On September 19, 1996, the Bank formed CFSB Credit Corp., ("CCC") as a
wholly-owned subsidiary to undertake Carver's credit card issuance. CCC is
currently inactive and its operations have been consolidated into the Bank's
activities. During the fourth quarter of fiscal 1997, the Bank transferred all
consumer lending activities to CCC. During the fourth quarter of fiscal 1998, in
response to delinquencies in the credit card portfolio the Board of Directors
resolved to discontinue the direct issuance of unsecured credit cards and
limited the issuance of secured credit cards to existing Bank customers.
MARKET AREA AND COMPETITION
General. The Company's primary market area for deposits consists of the
areas served by its seven branches and the Bank considers its lending market to
include Bronx, Kings, New York, Queens and Richmond counties, together
comprising New York City, and Lower Westchester and Nassau Counties, New York.
The
26
<PAGE>
Company has entered into an agreement to sell its branch located in Nassau
County, New York. See "--Branch Sale Agreement."
Although Carver's branches are located in areas that have been
historically underserved by other financial institutions, Carver is facing
increasing competition for deposits and residential mortgage lending in its
immediate market areas. Management believes that this competition has become
more intense as a result of an increased examination emphasis by federal banking
regulators on financial institutions' fulfillment of their responsibilities
under the Community Reinvestment Act ("CRA"). Many of Carver's competitors have
substantially greater resources than Carver and offer a wider array of financial
services and products than Carver. At times, these larger commercial banks and
thrifts may offer below market interest rates on mortgage loans and above market
interest rates for deposits. These pricing concessions combined with a larger
presence in the New York market add to the challenges Carver faces in expanding
its current market share. The Bank believes that it can compete with these
institutions by offering a competitive range of services as well as through the
personalized attention and community commitment which has always been Carver's
hallmark.
Branch Sale Agreement. On January 28, 1998, the Company announced that
it had entered into a definitive agreement to sell the Bank's branch office
located in Roosevelt, New York to City National Bank of New Jersey ("City
National Bank"). The Roosevelt branch office is located in Nassau County and had
deposits of approximately $8.4 million at March 31, 1999. Due to certain
regulatory issues, the transaction, which was expected to close by March 31,
1998, has not yet been consummated. During May, 1999, the Company and City
National Bank reopened the discussion of the transaction under similar terms and
conditions as the sale agreement.
EMPLOYEES
As of March 31, 1999, Carver had 120 full-time equivalent employees,
none of whom was represented by a collective bargaining agreement.
27
<PAGE>
REGULATION AND SUPERVISION
GENERAL
The Bank is subject to extensive regulation, examination, and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Bank's deposit accounts are insured up to applicable limits by the
Savings Association Insurance Fund ("SAIF") administered by the FDIC, and it is
a member of the FHLB. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition, and it must obtain regulatory
approvals prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions. The OTS and the FDIC conduct
periodic examinations to assess the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings association can engage and is
intended primarily for the protection of the insurance fund and depositors. The
Company, as a savings association holding company, is required to file certain
reports with, and otherwise comply with, the rules and regulations of the OTS
and of the Securities and Exchange Commission (the "SEC") under the federal
securities laws.
The OTS and the FDIC have significant discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC, or the Congress, could have a material
adverse impact on the Company, the Bank, and the operations of both.
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations, and it does not
purport to be a comprehensive description of all such statutes and regulations.
REGULATION OF FEDERAL SAVINGS ASSOCIATIONS
Business Activities. The Bank derives its lending and investment powers
from the Home Owner's Loan Act, as amended ("HOLA"), and the regulations of the
OTS thereunder. Under these laws and regulations, the Bank may invest in
mortgage loans secured by residential and commercial real estate, commercial and
consumer loans, certain types of debt securities, and certain other assets. The
Bank may also establish service corporations that may engage in activities not
otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage. These investment powers are
subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories; (b) a limit of 350% of an association's capital on
the aggregate amount of loans secured by non-residential real estate property;
(c) a limit of 20% of an association's assets on commercial loans, with the
amount of commercial loans in excess of 10% of assets being limited to small
business loans; (d) a limit of 35% of an association's assets on the aggregate
amount of consumer loans and acquisitions of certain debt securities; (e) a
limit of 5% of assets on nonconforming loans (loans in excess of the specific
limitations of HOLA); and (f) a limit of the greater of 5% of assets or an
association's capital on certain construction loans made for the purpose of
financing what is or is expected to become residential property.
Loans to One Borrower. Under HOLA, savings associations are generally
subject to the same limits on loans to one borrower as are imposed on national
banks. Generally, under these limits, a savings association may not make a loan
or extend credit to a single or related group of borrowers in excess of 15% of
the association's unimpaired capital and surplus. Additional amounts may be
lent, not in excess of 10% of unimpaired capital and surplus, if such loans or
extensions of credit are fully secured by readily marketable collateral. Such
collateral is defined to include certain debt and equity securities and bullion,
but generally does not include real estate. At March 31, 1998, the Bank's limit
on loans to one borrower based on its unimpaired capital and surplus was $4.6
million. Due to charges taken by the Bank, during fiscal 1999, the limit on
loans to one borrower was reduced to $3.9 million. At March 31, 1999, the Bank's
largest aggregate amount of loans to one borrower was $4.3 million and the
second largest borrower had an aggregate balance of $3.7 million. Both of these
loans were originated prior to fiscal 1999. During the third quarter of fiscal
1999, the Bank was directed by the OTS to abstain from
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<PAGE>
originating new loans which individually, or in the aggregate exceed $2.0
million to one borrower. Since such notice, the Bank has not originated loans
which individually, or in the aggregate exceed $2.0 million.
QTL Test. HOLA requires a savings association to meet a qualified
thrift lender ("QTL") test. Under the QTL test, a savings association is
required to maintain at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent
twelve-month period. "Portfolio assets" means, in general, an association's
total assets less the sum of (a) specified liquid assets up to 20% of total
assets, (b) certain intangibles, including goodwill and credit card rights, and
(c) the value of property used to conduct the association's business. "Qualified
thrift investments" includes various types of loans made for residential and
housing purposes, investments related to such purposes, including certain
mortgage backed and related securities, and consumer loans. At March 31, 1999,
the Bank maintained approximately 81.99% of its portfolio assets in qualified
thrift investments. The Bank had also met the QTL test in each of the prior 12
months and was, therefore, a qualified thrift lender.
A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The initial
restrictions include prohibitions against (a) engaging in any new activity not
permissible for a national bank, (b) paying dividends not permissible under
national bank regulations, (c) obtaining new advances from any FHLB, and (d)
establishing any new branch office in a location not permissible for a national
bank in the association's home state. In addition, within one year of the date a
savings association ceases to meet the QTL test, any company controlling the
association would have to register under, and become subject to the requirements
of, the Bank Holding Company Act of 1956 ("BHC Act"), as amended. If the savings
association does not re-qualify under the QTL test within the three-year period
after it failed the QTL test, it would be required to terminate any activity and
to dispose of any investment not permissible for a national bank and would have
to repay as promptly as possible any outstanding advances from an FHLB. A
savings association that has failed the QTL test may re-qualify under the QTL
test and be free of such limitations, but it may do so only once.
Capital Requirements. The OTS regulations require savings associations
to meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets for those
savings institutions which have been assigned a composite rating of 1 under the
Uniform Financial Institutions Rating System, and 4% for all other savings
institutions, unless a higher leverage capital ratio is warranted by the
particular circumstances or risk profile of the depository institution, and a
risk-based capital ratio requirement of 8% of core and supplementary capital to
total risk-based assets. In determining the amount of risk weighted assets for
purposes of the risk-based capital requirement, a savings association must
compute its risk-based assets by multiplying its assets and certain off balance
sheet items by risk weights, which range from 0% for cash and obligations issued
by the United States Government or its agencies to 100% for consumer and
commercial loans, as assigned by the OTS capital regulation based on the risks
OTS believes are inherent in the type of asset.
Tangible capital is defined, generally, as common stockholder's equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related earnings, minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles other than certain mortgage
servicing rights and investments in and loans to subsidiaries engaged in
activities not permissible for a national bank. Core capital is defined
similarly to tangible capital, but core capital also includes certain qualifying
supervisory goodwill and certain purchased credit card relationships.
Supplementary capital currently includes cumulative preferred stock, longterm
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock, and the allowance for loan and lease losses.
The allowance for loan and lease losses included in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets, and the amount of
supplementary capital that may be included as total capital cannot exceed the
amount of core capital.
The OTS has adopted regulations to require a savings association to
account for interest rate risk when determining its compliance with the
risk-based capital requirement, a savings association with "above normal"
interest rate risk is required to deduct a portion of its total capital to
account for any "above normal" interest rate risk. A savings association's
interest rate risk is measured by the decline in the net portfolio value of its
assets (i.e.,
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the difference between incoming and outgoing discounted cash flows from assets,
liabilities and off balance sheet contracts) resulting from a hypothetical 2%
increase or decrease in market rates of interest, divided by the estimated
economic value of the association's assets, as calculated in accordance with
guidelines set forth by the OTS. At the times when the 3 month Treasury bond
equivalent yield falls below 4%, an association may compute its interest rate
risk on the basis of a change equal to half of that Treasury rate rather than on
the basis of 2%. A savings association whose measured interest rate risk
exposure exceeds 2% would be considered to have "above normal" risk. The
interest rate risk component is an amount equal to half of the difference
between the association's measured interest rate risk and 2%, multiplied by the
estimated economic value of the association's assets. That dollar amount is
deducted from an association's total capital in calculating compliance with its
risk based capital requirement. Any required deduction for interest rate risk
becomes effective on the last day of the third quarter following the reporting
date of the association's financial data on which the interest rate risk was
computed. The OTS has indefinitely deferred the implementation of the interest
rate risk component in the computation of an institution's risk-based capital
requirements. The OTS continues to monitor the interest rate risk of individual
institutions and retains the right to impose additional capital requirements on
individual institutions.
At March 31, 1999, the Bank met each of its capital requirements. The
table below presents the Bank's regulatory capital as compared to the OTS
regulatory capital requirements at March 31, 1999:
<TABLE>
<CAPTION>
CAPITAL EXCESS
BANK REQUIREMENTS CAPITAL
-------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Tangible capital ............ $ 25,916 $ 6,211 $ 19,705
Core capital ................ 25,953 16,563 9,390
Risk-based capital .......... 28,580 17,083 11,497
</TABLE>
A reconciliation between regulatory capital and GAAP capital at March
31, 1999 in the accompanying financial statements is presented below:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK BASED
CAPITAL CAPITAL CAPITAL
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
GAAP capital .................................................... $26,946 $ 26,946 $ 26,946
Unrealized loss on securities available-for-sale, net ........... -- -- --
General valuation allowances .................................... -- -- 2,667
Qualifying intangible assets .................................... -- 37 37
Goodwill ........................................................ (1,030) (1,030) (1,030)
Excess of net deferred tax ...................................... -- -- --
Assets required to be deducted .................................. -- -- (40)
-------- -------- --------
Regulatory capital .............................................. $25,916 $ 25,953 $ 28,580
======== ======== ========
</TABLE>
Limitation on Capital Distributions. Effective April 1, 1999, the OTS
amended its capital distribution regulations to reduce regulatory burdens on
savings associations. The regulations being replaced, which were effective
throughout 1998, established limitations upon capital distributions by savings
associations, such as cash dividends, payments to repurchase or otherwise
acquire its shares, payments to shareholders of another institution in a cashout
merger, and other distributions charged against capital. At least 30-days
written notice to the OTS was required for a proposed capital distribution by a
savings association, and capital distributions in excess of specified earnings
or by certain institutions were subject to approval by the OTS. An association
that had capital in excess of all fully phased in regulatory capital
requirements before and after a proposed capital distribution and that was not
otherwise restricted in making capital distributions, could, after prior notice
but without the approval of the
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<PAGE>
OTS, make capital distributions during a calendar year equal to the greater of
(a) 100% of its net earnings to date during the calendar year plus the amount
that would reduce by half its "surplus capital ratio" (the excess capital over
its fully phased in capital requirements) at the beginning of the calendar year,
or (b) 75% of its net earnings for the previous four quarters. Any additional
capital distributions would require prior OTS approval. Under the amendments
adopted by the OTS, certain savings associations will be permitted to pay
capital distributions during a calendar year that do not exceed the
association's net income for that year plus its retained net income for the
prior two years, without notice to, or the approval of, the OTS. However, a
savings association subsidiary of a savings and loan holding company, such as
the Bank, will continue to have to file a notice unless the specific capital
distribution requires an application. In addition, the OTS can prohibit a
proposed capital distribution, otherwise permissible under the regulation, if
the OTS has determined that the association is in need of more than normal
supervision or if it determines that a proposed distribution by an association
would constitute an unsafe or unsound practice. Furthermore, under the OTS
prompt corrective action regulations, the Bank would be prohibited from making
any capital distribution if, after the distribution, the Bank failed to meet its
minimum capital requirements, as described above. See "--Prompt Corrective
Regulatory Action."
Liquidity. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain corporate debt securities and commercial paper) equal
to a specified percentage of the average daily balance of its net withdrawal
deposit accounts plus short-term borrowing for the preceding calendar quarter or
the balance of such items at the end of the preceding calendar quarter. This
liquidity requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10% depending upon economic conditions and the savings
flows of member institutions, and is currently 4%. Monetary penalties may be
imposed for failure to meet these liquidity requirements. The Bank's liquidity
ratio for the year ended March 31, 1999 was 16.59%, which exceeded the
applicable requirements. The Bank has never been subject to monetary penalties
for failure to meet its liquidity requirements.
Assessments. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a quarterly basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported in
the association's latest quarterly Thrift Financial Report. During fiscal 1999,
the Bank paid an assessment of $101,000. The OTS has adopted amendments to its
regulations, effective January 1, 1999, that are intended to assess savings
associations on a more equitable basis. The new regulations will base the
assessment for an individual savings association on three components: the size
of the association, on which the basic assessment would be based; the
association's supervisory condition, which would result in an additional
assessment based of a percentage of the basic assessment for any savings
institution with a composite rating of 3, 4 or 5 in its most recent safety and
soundness examination; and the complexity of the association's operations, which
would result in an additional assessment based of a percentage of the basic
assessment for any savings association that managed over $1.0 billion in trust
assets, serviced for others loans aggregating more than $1.0 billion, or had
certain off-balance sheet assets aggregating more than $1.0 billion. In order to
avoid a disproportionate impact on the smaller savings institutions, which are
those whose total assets never exceeded $100.0 million, the new regulations
provide that the portion of the assessment based on asset size will be the
lesser of the assessment under the amended regulations or the regulations before
the amendment. Management believes that any change in its rate of OTS
assessments under the amended regulations will not be material.
Branching. Subject to certain limitations, HOLA and the OTS regulations
permit federally chartered savings associations to establish branches in any
state of the United States. The authority to establish such a branch is
available (a) in states that expressly authorize branches of savings
associations located in another state and (b) to an association that qualifies
as a "domestic building and loan association" under the Internal Revenue Code of
1986 (the "Code"), which imposes qualification requirements similar to those for
a "qualified thrift lender" under HOLA. See "QTL Test." The authority for a
federal savings association to establish an interstate branch network would
facilitate a geographic diversification of the association's activities. This
authority under HOLA and the OTS regulations preempts any state law purporting
to regulate branching by federal savings associations.
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<PAGE>
Community Reinvestment. Under the CRA, as implemented by OTS
regulations, a savings association has a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the OTS, in connection with
its examination of a savings association, to assess the association's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such association. The CRA
regulations establish an assessment system that bases an association's rating on
its actual performance in meeting community needs. In particular, the assessment
system focuses on three tests: (a) a lending test, to evaluate the institution's
record of making loans in its assessment areas; (b) an investment test, to
evaluate the institution's record of investing in community development
projects, affordable housing, and programs benefitting low or moderate income
individuals and businesses; and (c) a service test, to evaluate the
institution's delivery of services through its branches, ATMs, and other
offices. The CRA also requires all institutions to make public disclosure of
their CRA ratings. The Bank received a "Satisfactory" CRA rating in its most
recent examination.
Transactions with Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act ("FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other company
that is controlled by a company that controls the Bank, excluding the Bank's
subsidiaries other than those that are insured depository institutions. The OTS
regulations prohibit a savings association (a) from lending to any of its
affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the BHC Act and (b) from purchasing the
securities of any affiliate other than a subsidiary. Section 23A limits the
aggregate amount of transactions with any individual affiliate to 10% of the
capital and surplus of the savings association and also limits the aggregate
amount of transactions with all affiliates to 20% of the savings association's
capital and surplus. Extensions of credit to affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A, and
the purchase of low quality assets from affiliates is generally prohibited.
Section 23B provides that certain transactions with affiliates, including loans
and asset purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
association as those prevailing at the time for comparable transactions with
nonaffiliated companies. In the absence of comparable transactions, such
transactions may only occur under terms and circumstances, including credit
standards, that in good faith would be offered to or would apply to
nonaffiliated companies.
The Bank's authority to extend credit to its directors, executive
officers, and 10% shareholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h)
of the FRA and Regulation O of the Federal Reserve Board thereunder. Among other
things, these provisions require that extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit underwriting
procedures that are not less stringent than, those prevailing for comparable
transactions with unaffiliated persons and that do not involve more than the
normal risk of repayment or present other unfavorable features and (b) not
exceed certain limitations on the amount of credit extended to such persons,
individually and in the aggregate, which limits are based, in part, on the
amount of the association's capital. In addition, extensions of credit in excess
of certain limits must be approved by the association's board of directors.
Enforcement. Under the Federal Deposit Insurance Act ("FDI Act"), the
OTS has primary enforcement responsibility over savings associations and has the
authority to bring enforcement action against all "institution affiliated
parties," including any controlling stockholder or any shareholder, attorney,
appraiser and accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or certain
other wrongful actions that causes or is likely to cause a more than a minimal
loss or other significant adverse effect on an insured savings association.
Civil penalties cover a wide range of violations and actions and range from
$5,000 for each day during which violations of law, regulations, orders, and
certain written agreements and conditions continue, up to $1.0 million per day
for such violations if the person obtained a substantial pecuniary gain as a
result of such violation or knowingly or recklessly caused a substantial loss to
the institution. Criminal penalties for certain financial institution crimes
include fines of up to $1.0 million and imprisonment for up to 30 years. In
addition, regulators have substantial discretion to take enforcement action
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<PAGE>
against an institution that fails to comply with its regulatory requirements,
particularly with respect to its capital requirements. Possible enforcement
actions range from the imposition of a capital plan and capital directive to
receivership, conservatorship, or the termination of deposit insurance. Under
the FDI Act, the FDIC has the authority to recommend to the Director of OTS that
enforcement action be taken with respect to a particular savings association. If
action is not taken by the Director of the OTS, the FDIC has authority to take
such action under certain circumstances.
Standards for Safety and Soundness. Pursuant to the FDI Act, as amended
by FDICIA and the Riegle Community Development and Regulatory Improvement Act of
1994, the OTS and the federal bank regulatory agencies have adopted a set of
guidelines prescribing safety and soundness standards. The guidelines establish
general standards relating to internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director or principal shareholder. In addition, the
OTS adopted regulations pursuant that authorize, but do not require, the OTS to
order an institution that has been given notice by the OTS that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the OTS must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to which
an undercapitalized association is subject under the "prompt corrective action"
provisions of FDICIA. If an institution fails to comply with such an order, the
OTS may seek to enforce such order in judicial proceedings and to impose civil
money penalties.
Prompt Corrective Regulatory Action. FDICIA established a system of
prompt corrective action to resolve the problems of undercapitalized depository
institutions. Under this system, the federal banking regulators are required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends on the institution's degree of capitalization. For
this purpose, a savings association would be placed in one of five categories
based on the association's capital. Generally, a savings association is treated
as "well capitalized" if its ratio of total capital to risk-weighted assets is
at least 10.0%, its ratio of core capital to risk weighted assets is at least
6.0%, its ratio of core capital to total assets is at least 5.0%, and it is not
subject to any order or directive by the OTS to meet a specific capital level. A
savings association will be treated as "adequately capitalized" if its ratio of
total capital to risk-weighted assets is at least 8.0%, its ratio of core
capital to risk weighted assets is at least 4.0%, and its ratio of core capital
to total assets is at least 4.0% (3.0% if the association receives the highest
rating on the Uniform Financial Institutions Rating System). A savings
association that has a total risk based capital of less than 8.0% or a leverage
ratio or a Tier 1 capital ratio that is less than 4.0% (3.0% leverage ratio if
the association receives the highest rating on the Uniform Financial
Institutions Rating System) is considered to be "undercapitalized." A savings
association that has a total risk based capital of less than 6.0% or a Tier 1
risk based capital ratio or a leverage ratio of less than 3.0% is considered to
be "significantly undercapitalized." A savings association that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." The elements of an association's capital for purposes of the
prompt corrective action regulations are defined generally as they are under the
regulations for minimum capital requirements. See "Regulation of Federal Savings
Associations--Capital Requirements."
When appropriate, the OTS can require corrective action by a savings
association holding company under the "prompt corrective action" provisions of
FDICIA.
Insurance of Deposit Accounts. The Bank is a member of the SAIF of the
FDIC, and the Bank pays its deposit insurance assessments to the SAIF of the
FDIC. The FDIC also maintains another insurance fund, the Bank Insurance Fund
("BIF"), which primarily insures the deposits of banks and state chartered
savings banks.
Pursuant to FDICIA, the FDIC established a new risk based assessment
system for determining the deposit insurance assessments to be paid by insured
depository institutions. Under the new assessment system, which
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<PAGE>
began in 1993, the FDIC assigns an institution to one of three capital
categories based on the institution's financial information as of the reporting
period ending seven months before the assessment period. The three capital
categories consist of (a) well capitalized, (b) adequately capitalized, or (c)
undercapitalized. The FDIC also assigns an institution to one of three
supervisory subcategories within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and information that
the FDIC determines to be relevant to the institution's financial condition and
the risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. Under the regulation, there are nine assessment risk classifications
(i.e., combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied. Assessment rates currently range from
0.0% of deposits for an institution in the highest category (i.e.,
well-capitalized and financially sound, with no more than a few minor
weaknesses) to 0.27% of deposits for an institution in the lowest category
(i.e., undercapitalized and substantial supervisory concern). The Bank's annual
assessment rate for the first half of 1999 was .085% of deposits. The increase
in the rate of assessment reflects a reduction in the Bank's OTS rating. The
FDIC is authorized to raise the assessment rates as necessary to maintain the
required reserve ratio of 1.25%. As a result of the Deposit Insurance Funds Act
of 1996 (the "Funds Act"), both the BIF and the SAIF currently satisfy the
reserve ratio requirement. If the FDIC determines that assessment rates should
be increased, institutions in all risk categories could be affected. The FDIC
has exercised this authority several times in the past and could raise insurance
assessment rates in the future. If such action is taken by the FDIC, it could
have an adverse effect on the earnings of the Bank.
In addition, the Funds Act 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. Beginning January 1, 1997, the deposits of both BIF- and
SAIF-insured institutions were assessed for the payments on the FICO bonds.
Until December 31, 1999, or such earlier date on which the last savings
association ceases to exist, the rate of assessment for BIF-assessable deposits
shall be one-fifth of the rate imposed on SAIF-assessable deposits. The annual
rate of assessments on SAIF-assessable deposits for the payments on the FICO
bonds for the first, second, third and fourth quarters of fiscal 1999 were
0.0622%, 0.0610%, 0.0582 and 0.0610%, respectively.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Federal Home Loan Bank System. The Bank is a member of the FHLB, which
is one of the regional FHLBs composing the FHLB System. Each FHLB provides a
central credit facility primarily for its member institutions. The Bank, as a
member of the FHLB, is required to acquire and hold shares of capital stock in
the FHLB in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year or of its advances (borrowing) from
the FHLB. The Bank was in compliance with this requirement with an investment in
the capital stock of the FHLB at March 31, 1999, of $5.8 million. Any advances
from a FHLB must be secured by specified types of collateral, and all long term
advances may be obtained only for the purpose of providing funds for residential
housing finance.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of earnings that the FHLBs can pay as
dividends to their members and could also result in the FHLBs imposing a higher
rate of interest on advances to their members. The FHLB paid dividends to the
Bank of $407,000 for the twelve months ended March 31, 1999 and dividends of
$358,000 for the prior fiscal year. If dividends were reduced, or interest on
future FHLB advances increased, the Bank's net interest income would likely also
be reduced.
Federal Reserve System. The Bank is subject to provisions of the FRA
and the Federal Reserve Board's regulations pursuant to which depositary
institutions may be required to maintain noninterest-earning reserves against
their deposit accounts and certain other liabilities. Currently, reserves must
be maintained against
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<PAGE>
transaction accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves be maintained in the
amount of 3% of the aggregate of transaction accounts up to $46.5 million. The
amount of aggregate transaction accounts in excess of $46.5 million are
currently subject to a reserve ratio of 10%, which ratio the Federal Reserve
Board may adjust between 8% and 12%. The Federal Reserve Board regulations
currently exempt $4.9 million of otherwise reservable balances from the reserve
requirements, which exemption is adjusted by the Federal Reserve Board at the
end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of either
vault cash, a noninterest bearing account at a Federal Reserve Bank, or a
passthrough account as defined by the Federal Reserve Board, the effect of this
reserve requirement is to reduce the Bank's interest-earning assets. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements imposed by the OTS.
FHLB System members are also authorized to borrow from the Federal Reserve
"discount window," but Federal Reserve Board regulations require such
institutions to exhaust all FHLB sources before borrowing from a Federal Reserve
Bank.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Holding Company and the Bank currently file consolidated
federal income tax returns, report their income for tax return purposes on the
basis of a taxable-year ending March 31st, using the accrual method of
accounting and are subject to federal income taxation in the same manner as
other corporations with some exceptions, including particularly the Bank's tax
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Holding Company.
Bad Debt Reserves. The Bank, as a "small bank" (one with assets having
an adjusted tax basis of $500 million or less) is permitted to maintain a
reserve for bad debts with respect to "qualifying loans," which, in general, are
loans secured by certain interests in real property, and to make, within
specified formula limits, annual additions to the reserve which are deductible
for purposes of computing the Bank's taxable income. Pursuant to the Small
Business Job Protection Act of 1996, the Bank is now recapturing (taking into
income) over a multi-year period a portion of the balance of its bad debt
reserve as of March 31, 1996.
Distributions. To the extent that the Bank makes "nondividend
distributions" to shareholders, such distributions will be considered to result
in distributions from the Bank's "base year reserve" i.e., its reserve as of
March 31, 1988, to the extent thereof and then from its supplemental reserve for
losses on loans, and an amount based on the amount distributed will be included
in the Bank's taxable income. Nondividend distributions include distributions in
excess of the Bank's current and accumulated earnings and profits, distributions
in redemption of stock and distributions in partial or complete liquidation.
However, dividends paid out of the Bank's current or accumulated earnings and
profits, as calculated for federal income tax purposes, will not constitute
nondividend distributions and, therefore, will not be included in the Bank's
income.
The amount of additional taxable income created from a nondividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, approximately one and
one-half times the nondividend distribution would be includable in gross income
for federal income tax purposes, assuming a 34% federal corporate income tax
rate.
Corporate Alternative Minimum Tax. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased
by certain preference items. Only 90% of AMTI can be offset by net operating
loss carryovers. AMTI is also adjusted by determining the tax treatment of
certain items in a manner that negates the deferral of income resulting from the
regular tax treatment of those items. Thus, the Company's AMTI is increased by
an amount equal to 75% of the amount by which the Company's adjusted current
earnings exceeds its AMTI (determined without regard to this adjustment and
prior to reduction for net operating losses).
35
<PAGE>
Dividends-Received Deduction and Other Matters. The Holding Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations. The corporate dividends-received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Holding Company and the Bank will not file a
consolidated tax return, except that if the Holding Company or the Bank owns
more than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be deducted.
STATE AND LOCAL TAXATION
State of New York. The Bank and the Holding Company are subject to New
York State franchise tax on net income or one of several alternative bases,
whichever results in the highest tax. "Net income" means federal taxable income
with adjustments. The Bank and the Holding Company file combined returns and are
subject to taxation in the same manner as other corporations with some
exceptions, including the Bank's deductions for additions to its reserve for bad
debts. The New York State tax rate for each of fiscal years 1998 and 1999 was
10.53% (including Metropolitan Commuter Transportation District Surcharge) of
net income. In general, the Holding Company is not be required to pay New York
State tax on dividends and interest received from the Bank or on gains realized
on the sale of Bank stock.
New York State has enacted legislation that enabled the Bank to avoid
the recapture of the New York State tax bad debt reserves that otherwise would
have occurred as a result of the changes in federal law and to continue to
utilize either the federal method or a method based on a percentage of its
taxable income for computing additions to its bad debt reserve.
New York City. The Bank and the Holding Company are also subject to a
similarly calculated New York City banking corporation tax of 9% on income
allocated to New York City. In this connection, legislation was recently enacted
regarding the use and treatment of tax bad debt reserves that is substantially
similar to the New York State legislation described above.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Holding Company is exempted from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
state of Delaware.
EXECUTIVE OFFICERS OF THE HOLDING COMPANY
The name, position, term of office as officer and period during which
he or she has served as an officer is provided below for each executive officer
of the Holding Company. Each of the persons listed below is an executive officer
of the Holding Company and the Bank.
36
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --------- -------------------------------------------------
<S> <C> <C>
Deborah C. Wright ... 41 President and Chief Executive Officer, Director
Howard R. Dabney .... 56 Senior Vice President and Chief Lending Officer
Raymond L. Bruce .... 47 Senior Vice President, Corporate Counsel and
Corporate Secretary
Walter T. Bond ...... 40 Vice President and Acting Chief Financial Officer
Guy Brea ............ 57 Vice President and Branch Operations Coordinator
Anthony Galleno ..... 57 Vice President and Controller
</TABLE>
DEBORAH C. WRIGHT is currently President, Chief Executive Officer and
Director of the Holding Company and the Bank, positions she assumed on June 1,
1999. Prior to assuming her current positions, Ms. Wright was President & CEO of
the Upper Manhattan Empowerment Zone Development Corporation, a position she
held since May 1996. She previously served as Commissioner of the Department of
Housing Preservation and Development under Mayor Rudolph W. Giuliani from
January 1994 through March 1996. Prior to that appointment, Ms. Wright was named
to the New York City Housing Authority Board, by Mayor David N. Dinkins, which
manages New York City's 189,000 public housing units. She serves on the boards
of the Initiative for a Competitive Inner City, The Municipal Art Society of New
York, PENCIL, Inc., The Newman Real Estate Institute at Baruch College and The
Center on Urban & Metropolitan Policy at the Brooking Institution. Ms. Wright
earned A.B., J.D. and M.B.A. degrees from Harvard University.
HOWARD R. DABNEY is Senior Vice President and Chief Lending Officer of
the Bank. Formerly, he was Vice President/Loan Officer, a position he held since
joining the Bank in 1982. Mr. Dabney currently serves on the board of directors
of the Latimer Wood Economic Development Corporation and on the advisory council
of Howard University School of Business, Department of Business Law, Economics
and Communications. He is a member of the Community Bankers Association of New
York State (Mortgages and Real Estate Committee), Mortgage Bankers Association
of America and Metropolitan Mortgage Officers Society of New York.
RAYMOND L. BRUCE, ESQ. is Senior Vice President, Corporate Counsel and
Corporate Secretary, and oversees the Bank's litigation, contracts, compliance
and other legal concerns. Prior to joining Carver in April of 1995, Mr. Bruce
was an Assistant Counsel at the New York State Banking Department (from 1992 to
1995), which is responsible for regulating New York State-chartered banking
organizations. From 1988 to 1992, Mr. Bruce served as Counsel both to
Assemblyman Herman D. Farrell, Jr. (then Chairman to the Assembly Banks
Committee) and to the New York State Assembly Banks Committee. Mr. Bruce is a
member of the Banking Committee of the Association of the Bar of the City of New
York and a member of the Regulatory Committee of the Community Bankers
Association of New York State. In addition, he is an Advisor to the Tioga-Carver
Community Foundation.
WALTER T. BOND is Vice President and Acting Chief Financial Officer.
Mr. Bond joined the Bank in February 1993, as Assistant Vice President, Mortgage
Lender. Mr. Bond was assigned to the position of Investment Officer in November
1995 and promoted to his current position in September 1997. Mr. Bond is
Chairman of the Bank's Investment Committee and serves as the Company's Investor
Relations Officer. Mr. Bond is a member of the New York Society of Securities
Analyst and the Financial Managers Society.
GUY BREA is the Vice President and Branch Operations Coordinator. Mr.
Brea joined the Bank in December 1972 as a Management Trainee. Since 1972 he has
managed various branch offices of the Bank. Mr. Brea was promoted to Assistant
Vice President, Branch Coordinator in April 1981 and in that capacity has
overseen the acquisition of various branches, changes of systems and the
development of various new products and services. Mr. Brea also serves as the
Bank's security director and fraud prevention officer. Mr. Brea serves on the
Community Bankers' Association of the New York State Bank Operations Committee
and the Group IV, V, VI Depositor Service Committee.
37
<PAGE>
ANTHONY GALLENO is Vice President and Controller. After serving 35
years in the banking business, Mr. Galleno joined the Bank in September, 1998.
During his previous 35 years of service in a thrift financial environment, he
served in various capacities including Senior Vice President-District Manager
Community Lending (Home Savings of America, FSB), Senior Vice President-Chief
Financial Officer (The Bowery Savings Bank), Vice President-Controller (The
Bowery Savings Bank) and Senior Vice President-Corporate Secretary of both Home
Savings of America, FSB-NY and The Bowery Savings Bank. He has served as a Board
member of Home Savings of America, FSB-NY, The Bowery Savings Bank, Long Island
Housing Partnership, Queens Child Guidance Center and various other
organizations.
ITEM 2. PROPERTIES.
The following table sets forth certain information regarding Carver's
offices and other material properties at March 31, 1999.
<TABLE>
<CAPTION>
LEASE NET BOOK
OWNED OR EXPIRATION VALUE AT
YEAR OPENED LEASED DATE MARCH 31, 1999
----------- -------- ---------- --------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
MAIN OFFICE:
75 West 125th Street 1996 Owned -- $ 7,763
New York, New York
BRANCH OFFICES:
2815 Atlantic Avenue 1990 Owned -- 358
Brooklyn, New York
(East New York Office)
1281 Fulton Street 1989 Owned -- 1,303
Brooklyn, New York
(Bedford-Stuyvesant Office)
1009-1015 Nostrand Avenue 1975 Owned -- 285
Brooklyn, New York
(Crown Heights Office)
261 8th Avenue 1964 Leased 10/31/04 --
New York, New York
(Chelsea Office)
115-02 Merrick Boulevard 1982 Leased 02/28/11 --
Jamaica, New York
(St. Albans Office)
302 Nassau Road (1) 1985 Leased 06/30/05
Roosevelt, New York
(Roosevelt Office) -------
Total $ 9,709
=========
</TABLE>
(1) See "Business--Area and Competition--Branch Sale Agreement."
The net book value of Carver's investment in premises and equipment
totaled approximately $11.9 million at March 31, 1999.
38
<PAGE>
ITEM 3. 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.
On January 2, 1996, the United States District Court for the Southern
District of New York dismissed the class action suit encaptioned Dougherty v.
Carver Federal Savings Bank for lack of subject matter jurisdiction. The class
action alleged that the offering circular, used by Carver to sell its stock in
its public offering, contained material misstatements and omissions. Further,
the complaint alleged that the Bank's shares were not appraised 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.
In August, 1998, the plaintiffs in each of the above mentioned cases
with the consent of the defendants filed a motion with the District Court for
preliminary approval of a settlement proposed by the parties. In November, 1998,
Judge Mukasey of the U.S. District Court preliminarily approved the proposed
settlement and scheduled a hearing on the fairness of the same for February 16,
1999. On February 16, 1999, Judge Mukasey approved the final settlement. The
Company incurred a one time charge of $250,000 during the second quarter of
fiscal year 1999 in connection with the settlement.
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 during 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 on May 28, 1999
the court granted summary judgment in favor of the plaintiff on the issue of
liability. The Bank intends to appeal the judgment, and a trial to determine
damages has yet to be scheduled. In the third case, Hardy v. Carver Federal
Savings Bank and L. & 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 has
filed claims for indemnification against the general contractor responsible for
the construction site in each of these cases. The Bank is contesting each of
these cases vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET FOR THE COMMON STOCK
The Common Stock is listed on the American Stock Exchange under the
symbol "CNY." Prior to May 21, 1997, the Common Stock traded on the National
Market of The Nasdaq Stock Market under the symbol "CARV." As of June 29, 1999,
there were 2,314,275 shares of the Common Stock outstanding, held by
approximately 2,706 holders of record. The following table shows the high and
low per share sales prices of the Common Stock.
39
<PAGE>
CLOSING SALES PRICE QUARTER ENDED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Year Ended March 31, 1999
First Quarter .......... $13 3/4 $ 13
Second Quarter ......... $10 3/8 $ 8 7/8
Third Quarter .......... $ 9 1/4 $ 7 7/8
Fourth Quarter ......... $10 1/4 $ 7
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Year Ended March 31, 1998
First Quarter ......... $11 3/4 $ 9 5/8
Second Quarter ........ $12 5/8 $ 12 3/8
Third Quarter ......... $17 5/8 $ 12 3/4
Fourth Quarter ........ $15 1/8 $ 14 1/4
</TABLE>
The Board of Directors declared a cash dividend of $0.05 (five cents)
per share on July 28, 1998 for stockholders of record on July 2, 1998. The Board
has not determined to establish a regular dividend at this time, but will review
the Company's position after each quarter for the possible declaration of
additional dividends. The timing and amount of future dividends will be within
the discretion of Carver's Board of Directors and will depend on the earnings of
the Company and its subsidiaries, their financial condition, liquidity and
capital requirements, applicable governmental regulations and policies and other
factors deemed relevant by the Board of Directors.
The Bank will not be permitted to pay dividends to the Holding
Company on its capital stock if its stockholders' equity would be reduced below
applicable regulatory capital requirements or the amount required to be
maintained for the liquidation account. The OTS capital distribution regulations
applicable to savings institutions (such as the Bank) that meet their regulatory
capital requirements, generally limit dividend payments in any year to the
greater of (i) 100% of year-to-date net income plus an amount that would reduce
surplus capital by one-half or (ii) 75% of net income for the most recent four
quarters. Surplus capital is the excess of actual capital at the beginning of
the year over the institution's minimum regulatory capital requirement. For
information concerning the Bank's liquidation account, see Note 2 of the Notes
to Financial Statements.
Unlike the Bank, the Holding Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent, in part, upon dividends from the
Bank. The Holding Company is subject to the requirements of Delaware law, which
generally limit dividends to an amount equal to the excess of the net assets of
the Company (the amount by which total assets exceed total liabilities) over its
statutory capital, or if there is no such excess, to its net profits for the
current and/or immediately preceding fiscal year.
40
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
AT MARCH 31
--------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total amount of:
Assets ............................ $416,483 $437,458 $423,614 $367,657 $367,962
Loans, net ........................ 270,522 274,954 197,918 82,608 48,460
Mortgage-backed securities ........ 66,584 91,116 110,853 131,105 181,134
Investment securities ............. -- -- 1,675 8,937 18,035
Securities available for sale (1) . 29,918 28,408 83,863 114,328 93,328
Excess of cost over assets acquired 1,030 1,246 1,456 1,669 1,899
Cash and cash equivalents ......... 21,321 15,120 4,231 10,026 11,818
Deposits .......................... 276,999 274,894 266,471 256,952 248,446
Borrowed funds .................... 102,038 124,946 121,101 73,948 82,318
Stockholders' equity .............. 31,175 35,534 33,984 34,765 34,801
NUMBER OF:
Deposit accounts .................. 58,113 51,550 49,142 45,815 44,324
Offices ........................... 7 7 7 8 8
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AT MARCH 31
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ---------- ----------- ---------- ----------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income ............................ $ 28,473 $ 27,828 $ 22,847 $ 23,529 $ 19,750
Interest expense ........................... 14,815 15,019 12,483 13,594 10,532
----------- ---------- ----------- ---------- ----------
Net interest income ........................ 13,658 12,809 10,364 9,935 9,218
Provision for loan losses .................. 4,029 1,260 1,690 131 334
----------- ---------- ----------- ---------- ----------
Net interest income after provision for loan 9,629 11,549 8,764 9,804 8,884
losses ................................... ----------- ---------- ----------- ---------- ----------
Non-interest income:
Gain (loss) on sales of asset .............. 4 188 (927) -- --
Other ...................................... 2,378 2,163 1,040 608 576
----------- ---------- ----------- ---------- ----------
Total non-interest income .................. 2,382 2,351 113 608 576
----------- ---------- ----------- ---------- ----------
Non-interest expenses:
Loss on sale of foreclosed real estate ..... -- -- 38 77 34
Other ...................................... 17,963 11,651 11,764 8,976 7,907
----------- ---------- ----------- ---------- ----------
Total non-interest expense ................. 17,963 11,651 11,802 9,053 7,941
----------- ---------- ----------- ---------- ----------
Income (loss) before income taxes .......... (5,952) 2,249 (3,015) 1,359 1,519
----------- ---------- ----------- ---------- ----------
Income taxes (benefit) ..................... (1,499) 1,203 (1,275) 606 674
----------- ---------- ----------- ---------- ----------
Net income (loss) .......................... $ (4,453) $ 1,046 $ (1,740) $ 753 $ 845
=========== ========== =========== ========== ==========
Net (loss) income per common share ......... $ (2.02) $ 0.48 $ (0.80) $ 0.35 $ 0.40(1)
Weighted average number of common shares
outstanding ............................. 2,206,133 2,187,619 2,156,346 2,169,276 2,136,615
</TABLE>
- ---------------------
(1) Historical net income per common share for fiscal 1995 is based on net
income from October 24, 1994 (the date of the Bank's conversion to
stock form) to March 31, 1995 was $0.17.
41
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
KEY OPERATING RATIOS:
Return on average assets (1) (2) .................... (1.05)% 0.25% (0.47)% 0.21% 0.25%
Return on average equity (2)(3) ..................... (12.70) 3.00 (5.00) 2.16 3.61
Interest rate spread (4) ............................ 3.36 3.14 2.90 2.57 2.74
Net interest margin (5) ............................. 3.47 3.27 3.04 2.85 2.91
Operating expenses to average assets (2)(6) ......... 4.22 2.80 3.22 2.48 2.38
Equity-to-assets (7) ................................ 7.49 8.12 8.03 9.45 9.46
Efficiency Ratio (2)(8) ............................. 111.98 76.85 112.65 85.87 81.08
Average interest-earning assets to average
Interest-bearing liabilities ..................... 1.04x 1.03x 1.04x 1.07x 1.05x
ASSET QUALITY RATIOS:
Non performing assets to total assets (9) ........... 1.15% 1.58% 1.53% 0.97% 0.56%
Non performing assets to total loans (9) ............ 1.66 2.47 3.28 4.32 4.21
Allowance for loan losses to total loans ............ 1.48 1.11 1.09 1.42 2.10
Allowance for loan losses to non-performing loans (9) 85.60 45.30 35.06 37.05 61.79
Net loan charge-offs to average loans outstanding ... 1.27 0.15 0.69 -- 1.06
</TABLE>
- ---------------------
(1) Net income divided by average total assets.
(2) Excluding non-recurring items amounting to $7.8 million, the return on
average assets, return on average equity, operating expenses to average
assets and operating income to operating expenses for the fiscal year
ended March 31, 1999 were 0.24%, 2.85%, 2.98% and 78.94%, respectively.
Excluding an assessment to recapitalize the Saving Association
Insurance Fund of $1.6 million, the return on average assets, return on
average equity, operating expenses to average assets and operating
income to operating expenses for the fiscal year ended March 31, 1997
were (0.022%), (2.29%), 2.77% and 97.07%, respectively.
(3) Net income divided by average total equity.
(4) Combined weighted average interest rate earned less combined weighted
average interest rate cost.
(5) Net interest income divided by average interest-earning assets.
(6) Non-interest expenses less loss on foreclosed real estate, divided by
average total assets.
(7) Total equity divided by assets at period end.
(8) Efficiency ratio represents operating expenses divided by the sum of
net interest income plus operating income.
(9) Non-performing assets consist of non-accrual loans, accruing loans 90
days or more past due and property acquired in settlement of loans.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Carver's net income is dependent primarily on its net interest
income, which is the difference between interest income earned on its loan,
investment and mortgage-backed securities portfolios and the interest paid on
its interest-bearing liabilities, such as deposits and borrowings. In addition,
net income is affected by the level of provision for loan losses, as well as
non-interest income and operating expenses.
The operations of the Bank are significantly affected by prevailing
economic conditions, competition and the monetary and fiscal policies of
governmental agencies. Lending activities are influenced by the demand for and
supply of housing, competition among lenders, the level of interest rates and
the availability of funds. Deposit flow and costs of funds are influenced by
prevailing market rates of interest, primarily on competing investments, account
maturities, and the levels of personal income and savings.
During the third quarter of the year ended March 31, 1999 ("fiscal
1999"), the Company incurred one-time pre-tax charges of $7.8 million due to
reconciliation adjustments related to the conversion of the Company's data
processing operations and consultant fees related to post conversion assignments
combined with a special provision
42
<PAGE>
for loan losses and other charges. During the fourth quarter of fiscal 1999, the
Company recovered approximately $750,000 of the write-off. At March 31, 1999,
all such unreconciled differences had been cleared. See "Comparison of Results
of Operations for years ended March 31, 1999 and 1998--Provisions for Loan
Losses and Non-Interest Expense."
RESTRUCTURING OF BALANCE SHEET
In December, 1996 the Board of Directors designed a strategy to
reallocate the Company's assets by shifting assets out of securities and into
loans. During the first quarter of the year ended March 31, 1998 ("fiscal
1998"), the Company completed the reallocation. During fiscal 1999, the Company
continued to follow the strategy to maintain its percentage of loans to total
assets. The Company continues to focus on increasing loans as a percentage of
total assets and is shifting its emphasis from the origination of one- to
four-family mortgages to the origination of multi-family and commercial real
estate mortgage loans.
DEPOSIT INSURANCE ASSESSMENT
During the second quarter of the year ended March 31, 1997 ("fiscal
1997"), Carver paid a one time pre-tax assessment of $1.6 million for
recapitalization of the Savings Association Insurance Fund ("SAIF") pursuant to
legislation which was enacted in September, 1996. The reduced deposit insurance
assessment rates that followed the SAIF recapitalization reduced Carver
Federal's deposit insurance premium from 23 basis points, on insured deposits of
approximately $248.4 million, to 6.5 basis points effective January 1, 1997.
As a result of the recapitalization of SAIF, the rates of assessments
for SAIF were reduced, and the Bank benefitted from a decrease in deposit
insurance assessments during the first three fiscal quarters of 1999. This
benefit of the SAIF recapitalization was offset in part by the increased deposit
insurance assessments that were paid by the Bank in the fourth quarter of fiscal
1999 as a result of the reduction in the Bank's supervisory rating by the Office
of Thrift Supervision ("OTS"), Carver's primary regulator. Carver's deposit
insurance assessments decreased by $356,000 or 73.94% to $126,000 for the twelve
month period ended March 31, 1998 compared to $482,000 for the twelve month
period ended March 31, 1997.
ASSET/LIABILITY MANAGEMENT
Net interest income, the primary component of Carver's net income, is
determined by the difference or "spread" between the yield earned on
interest-earning assets and the rates paid on its interest-bearing liabilities
and the relative amounts of such assets and liabilities. Because Carver's
interest-bearing liabilities consist primarily of shorter term deposit accounts,
Carver's interest rate spread can be adversely affected by changes in general
interest rates if its interest-earning assets are not sufficiently sensitive to
changes in interest rates. Management has sought to reduce Carver's exposure to
changes in interest rates by more closely matching the effective maturities and
repricing periods of its interest-earning assets and interest-bearing
liabilities through a variety of strategies, including the origination and
purchase of adjustable-rate loans for its portfolio, investment in
adjustable-rate mortgage-backed securities and shorter-term investment
securities and the sale of all long-term fixed-rate loans originated into the
secondary market. Carver Federal has also reduced interest rate risk through its
origination and purchase of primarily adjustable rate mortgage loans and
extending the term of borrowings. See "--Restructuring of Balance Sheet."
DISCUSSION OF MARKET RISK--INTEREST RATE SENSITIVITY ANALYSIS
As a financial institution, the Company's primary component of market
risk is interest rate volatility. Fluctuations in interest rates will ultimately
impact both the level of income and expense recorded on a large portion of the
Company's assets and liabilities, and the market value of all interest-earning
assets, other than those which possess a short term to maturity. Since all of
the Company's interest-bearing liabilities and virtually all of the Company's
interest-earning assets are located at the Bank, virtually all of the Company's
interest rate risk exposure lies at the Bank level. As a result, all significant
interest rate risk management procedures are performed
43
<PAGE>
at the Bank level. Based upon the Bank's nature of operations, the Bank is not
subject to foreign currency exchange or commodity price risk. The Bank does not
own any trading assets.
The Company seeks to manage its interest risk by monitoring and
controlling the variation in repricing intervals between its assets and
liabilities. To a lesser extent, the Company also monitors its interest rate
sensitivity by analyzing the estimated changes in market value of its assets and
liabilities assuming various interest rate scenarios. As discussed more fully
below, there are a variety of factors which influence the repricing
characteristics of any given asset or liability.
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive"
and by monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate-sensitive within a specific period if it
will mature or reprice within that period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific period of time and the amount of interest-bearing
liabilities repricing within that same time period. A gap is considered positive
when the amount of rate-sensitive assets exceeds the amount of rate-sensitive
liabilities and is considered negative when the amount of interest rate
sensitive liabilities exceed the amount of rate-sensitive assets. Generally,
during a period of falling interest rates a negative gap could result in an
increase in net interest income, while a positive gap could adversely affect net
interest income, and during a period of rising interest rates a negative gap
could adversely affect net interest income, while a positive gap could result in
an increase in net interest income. As illustrated below, Carver had a positive
one-year gap equal to 0.79% of total rate-sensitive assets at March 31, 1999, as
a result of which its net interest income could be positively affected by rising
interest rates, and adversely affected by falling interest rates.
44
<PAGE>
The following table sets forth information regarding the projected
maturities, prepayments and repricing of the major rate-sensitive asset and
liability categories of Carver as of March 31, 1999. Maturity repricing dates
have been projected by applying the assumptions set forth below to contractual
maturity and repricing dates. The information presented in the following table
is derived from data incorporated in "Schedule CMR: Consolidated Maturity and
Rate," which is part of the Bank's quarterly reports filed with OTS. The
repricing and other assumptions are not necessarily representative of the Bank's
actual results. Classifications of items in the table below are different from
those presented in other tables and the financial statements and accompanying
notes included herein and do not reflect non-performing loans.
<TABLE>
<CAPTION>
Over One
Three or Four to Through Over Three
Less Twelve Three Through
Months Months Months Years Five Years
- ------------------------------------------------------ --------- -------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS:
Loans ................................................ $ 9,466 $ 39,174 $ 68,396 $85,061
Federal Funds Sold ................................... 10,200 -- -- --
Investment Securities(1) ............................. 29,918 -- -- --
Mortgage-Backed Securities ........................... 33,387 647 -- --
------- -------- --------- -------
Total ................................................ $82,971 $ 39,821 $ 68,396 $85,061
======= ======== ========= =======
RATE-SENSITIVE LIABILITIES:
NOW Accounts ......................................... $ 2,404 3,205 6,945 3,473
Savings Accounts ..................................... 5,752 7,255 12,387 23,007
Money Market Accounts ................................ 3,977 12,350 2,093 1,675
Certificate of Deposits .............................. 20,904 33,953 16,330 14,374
Borrowings ........................................... -- 30,000 70,337 --
------- -------- --------- -------
Total Interest-Bearing Liabilities ................... $33,037 $ 86,764 $ 108,092 $42,529
======= ======== ========= =======
Interest Sensitivity Gap ............................. $49,934 $(46,943) $ (39,696) $42,532
Cumulative Interest Sensitivity Gap .................. $49,934 $ 2,991 $ (36,705) $ 5,828
Ratio of Cumulative Gap to Total Rate-Sensitive Assets 13.24% 0.79% (9,73)% 1.54%
</TABLE>
<TABLE>
<CAPTION>
Over Five Over
Through Ten
Months Ten Years Years Total
- ------------------------------------------------------ --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
RATE-SENSITIVE ASSETS:
Loans ................................................ $52,497 $ 15,928 $ 270,522
Federal Funds Sold ................................... -- -- 10,200
Investment Securities(1) ............................. -- -- 29,918
Mortgage-Backed Securities ........................... 4,204 28,346 66,584
------- -------- ---------
Total ................................................ $56,701 $ 44,274 $ 377,224
======= ======== =========
RATE-SENSITIVE LIABILITIES:
NOW Accounts ......................................... $ 5,342 5,342 26,712
Savings Accounts ..................................... 45,204 50,190 143,795
Money Market Accounts ................................ 419 419 20,932
Certificate of Deposits .............................. -- -- 85,561
Borrowings ........................................... 1,351 349 102,037
------- -------- ---------
Total Interest-Bearing Liabilities ................... $52,316 $ 56,300 $ 379,038
======= ======== =========
Interest Sensitivity Gap ............................. $ 4,385 $(12,026) $ (1,814)
Cumulative Interest Sensitivity Gap .................. $10,213 $ (1,814) $ --
Ratio of Cumulative Gap to Total Rate-Sensitive Assets 2.71% (0.48)% --
</TABLE>
- --------------
(1) Includes securities available-for-sale.
45
<PAGE>
The preceding table was prepared utilizing certain assumptions
regarding prepayment and decay rates as determined by the OTS for savings
associations nationwide as of December 31, 1995. While management does not
believe that these assumptions will be materially different from Carver's actual
experience, the actual interest rate sensitivity of the Bank's assets and
liabilities could vary significantly from the information set forth in the table
due to market and other factors. The following assumptions were used: (i)
adjustable-rate first mortgage loans will prepay at the rate of 6% per year; and
(ii) fixed-rate first mortgage loans will prepay annually as follows:
<TABLE>
<CAPTION>
ANNUAL PREPAYMENT RATE
------------------------------------------------------
5-YEAR
COUPON RATE 30-YEAR 15-YEAR BALLOON
- ----------------------------- --------- -------- ----------
<S> <C> <C> <C>
6.50%.............. 9.00% 8.00% 13.00%
7.00............... 9.00 9.00 16.00
7.50............... 11.00 11.00 19.00
8.00............... 13.00 14.00 25.00
8.50............... 16.00 -- --
9.00............... 20.00 -- --
9.50............... 25.00 -- --
10.00............... 28.00 -- --
</TABLE>
In addition, it is assumed that fixed maturity deposits are not
withdrawn prior to maturity, transaction accounts will decay at a rate of 37.00%
In the first year and passbook accounts will decay at a rate of 17.00% In the
first year, and money market accounts will reflect a 79.00% Decay rate in year
one.
Certain shortcomings are inherent in the method of analysis presented
in the table above. Although certain assets and liabilities may have similar
maturities or periods of repricing, they may react in different degrees to
changes in the market interest rates. The interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while rates on other types of assets and liabilities may lag behind
changes in market interest rates. Certain assets, such as adjustable-rate
mortgages, generally have features which restrict changes in interest rates on a
short-term basis and over the life of the asset. In the event of a change in
interest rates, prepayments and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Additionally, an
increased credit risk may result as the ability of many borrowers to service
their debt may decrease in the event of an interest rate increase. Virtually all
of the adjustable-rate loans in carver's portfolio contain conditions which
restrict the periodic change in interest rate.
The ratio of cumulative gap to total rate sensitivity assets was
positive 0.79% At March 31, 1999 compared to negative 5.54% At March 31, 1999.
Adjustable rate assets represented 65.96% Of the Bank's total interest sensitive
assets at March 31, 1999.
NPV Analysis. As part of its efforts to maximize net interest income
and manage the risks associated with changing interest rates, management uses
the net portfolio value ("NPV") methodology which the OTS has adopted as part of
its capital regulations.
Under this methodology, interest rate risk exposure is assessed by
reviewing the estimated changes in net interest income ("NII") and NPV which
would hypothetically occur if interest rates rapidly rise or fall all along the
yield curve. Projected values of NII and NPV at both higher and lower regulatory
defined rate scenarios are compared to base case values (no change in rates) to
determine the sensitivity to changing interest rates.
Presented below, as of March 31, 1999, is an analysis of the bank's
interest rate risk ("IRR") as measured by changes in NPV and NII for
instantaneous and sustained parallel shifts of 100 basis points in market
interest rates. Such limits have been established with consideration of the
impact of various rate changes and the Bank's
46
<PAGE>
current capital position. The information set forth below relates solely to the
Bank; however, because virtually all of the Company's interest rate risk
exposure lies at the bank level, management believes the table below also
accurately reflects an analysis of the Company's IRR.
<TABLE>
<CAPTION>
NET PORTFOLIO VALUE NPV AS % OF PV OF ASSETS
--------------------------------------------------------- ---------------------------------
CHANGE IN RATE $ AMOUNT $ CHANGE % CHANGE NPV RATIO CHANGE
-------------------------- ---------- ------------- ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+400 bp $ -- $ -- -- % -- % -- bp
+300 bp 34,757 2,082 +6 8.36 +59 bp
+200 bp 35,401 2,726 +8 8.46 +69 bp
+100 bp 34,466 1,791 +5 8.21 +44 bp
-- bp 32,675 7.77
(100) bp 33,060 385 +1 7.81 +4 bp
(200) bp 34,241 1,566 +5 8.01 +24 bp
(300) bp 35,851 3,176 +10 8.31 +54 bp
(400) bp -- -- -- -- -- bp
</TABLE>
<TABLE>
<CAPTION>
3/31/99 12/31/98 3/31/98
-------- --------- --------
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK
Pre-Shock NPV Ratio: NPV as % of PV of Assets................ 7.77% 7.39% 10.30%
Post-Shock NPV Ratio......................................... 7.77 7.39 9.85
Sensitivity Measure; Decline in NPV Ratio.................... -- bp -- bp 45 bp
</TABLE>
Certain shortcomings are inherent in the methodology used in the
above interest rate risk measurements. Modeling changes in NPV require the
making of certain assumptions which may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates. In this
regard, the NPV Table presented assumes that the composition of the Company's
interest sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV Table provides an indication of the
Company's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Company's net interest income
and will differ from actual results.
AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES
The following table sets forth certain information relating to
Carver'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 years indicated. Such yields and costs are derived by
dividing 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 the information presented.
The table also presents information for the years indicated with
respect to the difference between the weighted average yield earned on
interest-earning assets and the weighted average rate paid on interest-bearing
liabilities, or "interest rate spread," which savings institutions have
traditionally used as an indicator of profitability. Another indicator of an
institution's net interest income is its "net interest margin," which is its net
interest income divided by the average balance of interest-earning assets. Net
interest income is affected by the interest rate spread and by the relative
amounts of interest-earning assets and interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income.
47
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------- ------------------------------------
1999 1999
-------------------------- -----------------------------------
AVERAGE AVERAGE
YIELD AVERAGE YIELD
BALANCE COST BALANCE INTEREST COST
--------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C>
Loans(1) ................................. $270,522 7.63% $269,241 $ 20,575 7.64%
Investment securities(2) ................. 35,672 5.25 32,284 1,801 5.58
Mortgage-backed securities ............... 66,584 6.36 85,236 5,431 6.37
Federal funds sold ....................... 10,200 5.00 12,013 666 5.54
-------- ---- -------- -------- ----
Total interest-earning assets ............ 382,978 7.11% 398,774 28,473 7.14%
---- -------- ----
Non-interest earning assets .............. 33,505 26,709
-------- --------
Total assets ............................. $416,483 $425,483
======== ========
INTEREST-BEARING LIABILITIES:
Deposits
DDA ................................. $ 10,609 0.00% $ 9,670 $-- --%
NOW ................................. 16,102 1.95 18,789 314 1.67
Savings and clubs ................... 143,795 2.51 144,990 3,604 2.49
Money market accounts ............... 20,932 2.93 21,541 613 2.85
Certificate of deposits ............. 85,561 4.55 80,897 3,890 4.81
-------- ---- -------- -------- ----
Total deposits ........................... 276,999 3.04 275,887 8,421 3.05
Borrowed money ........................... 102,038 5.65 107,766 6,393 5.89
-------- ---- -------- -------- ----
Total interest-bearing liabilities ....... 379,037 3.84 383,653 14,814 3.85%
---- -------- ----
Non-interest-bearing liabilities ......... 6,270 6,771
-------- --------
Total liabilities ........................ 385,308 390,424
Stockholders' equity ..................... 31,175 35,059
-------- --------
Total liabilities and stockholders' equity $416,483 $425,483
======== ========
Net interest income.......................... $ 13,659
========
Interest rate spread......................... 3.27% 3.29%
==== ====
Net interest margin.......................... 3.43%
====
Ratio of average interest-earning assets to
average interest-bearing liabilities .... 1.04x
====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD AVERAGE YIELD
BALANCE INTEREST COST BALANCE INTEREST COST
-------- -------- -------- -------- --------- --------
(DOLLARS IN THOUSANDS)
INTEREST EARNING ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Loans(1) ................................. $242,948 $18,311 7.54% $ 94,346 $ 7,844 8.31%
Investment securities(2) ................. 12,117 671 5.54 85,040 4,742 5.58
Mortgage-backed securities ............... 130,927 8,523 6.51 156,454 9,979 6.38
Federal funds sold ....................... 5,735 323 5.63 5,202 282 5.42
-------- ------- ---- --------- -------- ----
Total interest-earning assets ............ 391,727 27,828 7.10% 341,042 22,847 6.70%
------- ---- -------- ----
Non-interest earning assets .............. 23,746 25,453
-------- ---------
Total assets ............................. $415,473 $366,495
======== ========
INTEREST-BEARING LIABILITIES:
Deposits
DDA ................................. $ 8,625 $-- --% $ 4,774 $-- --%
NOW ................................. 18,725 354 1.89 19,909 311 1.56
Savings and clubs ................... 144,466 3,601 2.49 142,410 3,542 2.49
Money market accounts ............... 21,514 692 3.22 20,398 658 3.23
Certificate of deposits ............. 76,990 3,949 5.13 74,583 3,844 5.15
-------- ------ ---- --------- -------- ----
Total deposits ........................... 270,320 8,596 3.18 262,074 8,355 3.19
Borrowed money ........................... 108,970 6,423 5.89 66,403 4,128 6.22
-------- ------- ---- --------- -------- ----
Total interest-bearing liabilities ....... 379,290 15,019 3.96% 328,477 12,483 3.80
------- ---- -------- ----
Non-interest-bearing liabilities ......... 1,310 3,239
-------- ---------
Total liabilities ........................ 380,600 331,716
Stockholders' equity ..................... 34,873 34,779
-------- ---------
Total liabilities and stockholders' equity $415,473 $ 366,495
======== ========
Net interest income.......................... $12,809 $ 10,364
======= ========
Interest rate spread......................... 3.14% 2.90%
==== ====
Net interest margin.......................... 3.27% 3.04%
==== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities .... 1.04x 1.03x
==== ====
</TABLE>
(1) Includes non-accrual loans
(2) Includes FHLB stock and fair value of investments available for sale
of $5.8 million at March 31, 1999.
48
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth information regarding the extent to
which changes in interest rates and changes in volume of interest related assets
and liabilities have affected Carver's interest income and expense during the
periods indicated. For each category of interest-earning asset and
interest-bearing liability, information is provided for changes attributable to
(i) changes in volume (changes in volume multiplied by new rate), (ii) changes
in rates (change in rate multiplied by old volume), and (iii) total change.
Changes in rate/volume (changes in rate multiplied by the changes in volume) are
allocated proportionately between changes in rate and changes in volume.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1999 VS. 1998 1998 VS. 1997
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
LOANS ................................. $ 2,021 $ 243 $ 2,264 $ 11,201 $(734) $ 10,468
INVESTMENT SECURITIES (1) ................ 1,125 5 1,130 (4,040) (34) (4,074)
MORTGAGE-BACKED SECURITIES (1) ........ (2,909) (182) (3,091) (1,674) 219 (1,455)
SECURITIES ............................ -- -- --
FEDERAL FUNDS SOLD ....................... 348 (6) 342 30 11 41
------- ----- ------- -------- ----- --------
TOTAL INTEREST-EARNING ASSETS ...... 585 60 645 5,517 (538) 4,979
------- ----- ------- -------- ----- --------
INTEREST-BEARING LIABILITIES:
DDA ................................... -- -- -- -- -- --
NOW ................................... -- (41) (41) (22) 68 45
SAVINGS AND CLUBS ..................... 3 -- 3 52 0 52
MONEY MARKET ACCOUNTS ................. 1 (80) (79) 36 (2) 34
CERTIFICATE OF DEPOSITS ............... 188 (246) (58) 123 (15) 109
------- ----- ------- -------- ----- --------
TOTAL DEPOSITS ..................... 192 (367) (175) 189 51 239
BORROWED MONEY ........................ (30) -- (30) 2,507 (212) 2,295
------- ----- ------- -------- ----- --------
TOTAL INTEREST-BEARING LIABILITIES . 162 (367) (205) 2,696 (162) 2,534
------- ----- ------- -------- ----- --------
NET CHANGE IN NET INTEREST INCOME ........ $ 423 $(427) $ 850 $ 2,821 $(376) $ 2,445
======= ===== ======= ======== ===== ========
</TABLE>
- -----------------
(1) Includes securities available for sale.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND 1998
At March 31, 1999 total assets decreased by $21.0 million, or 4.82%
to $416.5 million compared to $437.5 million at March 31, 1998. The decrease in
total assets was primarily attributable to decreases in mortgage-backed
securities ("MBSs") held to maturity and loans receivable, offset in part by
increases in cash and equivalents accounts, in securities available for sale. At
March 31, 1999, total cash and cash equivalents increased by $6.2 million, or
41.01% to $21.3 million compared to $15.1 million at March 31, 1998. Investment
securities held as available for sale increased by $1.5 million, or 5.32% to
$29.9 million at March 31, 1999 compared to $28.4 million at March 31, 1998.
These increases reflect the increased investment of repayments from loans and
MBSs, in federal funds sold and short term securities held as available for
sale.
MBSs held to maturity decreased by $24.5 million, or 26.92% to $66.6
million compared to $91.1 million at March 31, 1998. Loans receivable decreased
by $4.4 million, or 1.61% to $270.5 million at March 31, 1999 compared to $275.0
at March 31, 1998. These decreases primarily reflect principal repayments on
MBSs held to maturity and loans receivable.
At March 31, 1999 total liabilities decreased by $16.6 million or
4.13% to $385.3 million compared to $401.9 million at March 31, 1998.
49
<PAGE>
At March 31, 1999, total deposits increased by $2.1 million, or .77%
to $277.0 million compared to $274.9 million at March 31, 1998. The increase in
total deposits was primarily attributable to increases of $6.5 million in
certificates of deposits, offset in part by decreases of $1.6 million in regular
savings accounts, $2.2 million in NOW accounts, $564,000 in money market
accounts, and $43,000 in club accounts. The Company plans to put renewed
emphasis on gathering core deposits from its traditional customer base, mortgage
borrowers, and small businesses.
At March 31, 1999, total borrowings decreased by $22.9 million, or
18.33% to $102.0 million compared to $124.9 million at March 31, 1998. The
decrease in total borrowings reflects a decrease in reverse repurchase
agreements ("repos") of $51.7 million, or 59.39% to $35.3 million, offset in
part by an increase in Federal Home Loan Bank of New York ("FHLB") advances of
$29.0 million, or 78.84% to $65.7 million. The Company shifted from repos to
take advantage of the more attractive terms available on FHLB advances. The
overall decrease in total borrowings reflects a reduction in the need for
borrowed funds. The Company was able to fund loan originations and loan
purchases with repayments on MBSs and loans receivable together with an increase
in deposits.
At March 31, 1999, stockholders' equity decreased by $4.4 million, or
12.27% to $31.2 million compared to $35.5 million at March 31, 1998. The
decrease in stockholders' equity primarily reflects a reduction in retained
earnings due to the after tax impact of one-time charges incurred during fiscal
1999 due to reconciliation adjustments related to the conversion of the
Company's data processing operations and consultant fees related to post
conversion assignments combined with the special provision for loan losses and
other charges.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
Net Income (Loss)
The Company reported a net loss for the twelve month period ended
March 31, 1999 of $4.5 million compared to net income of $1.0 million for the
same period the prior year. The decrease in net income was primarily due to
increases in non-interest expense and provision for loan losses, offset in part
by increases in net interest income and non-interest income.
Interest Income
Interest income increased by $646,000 or 2.32% to $28.4 million for
the twelve month period ended March 31, 1999 compared to $27.8 million for the
twelve month period ended March 31, 1998. The increase in interest income was
primarily attributable to a $7.1 million or 1.80% increase in average balance of
interest earning assets to $398.8 million for the twelve months ended March 31,
1999 compared to $391.7 million for twelve months ended March 31, 1998, coupled
with a 4 basis point increase in the yield on average interest earning assets to
7.14% for the twelve months ended March 31, 1999 compared to 7.10% for the same
period the prior year.
Interest income on loans increased by $2.3 million or 12.37% to $20.6
million for the twelve month period ended March 31, 1999 compared to $18.3
million for the same period the prior year. The increase in interest income from
loans reflects a $26.3 million or 10.83% increase in the average balance of
loans to $269.2 million at March 31, 1999 compared to $242.9 million at March
31, 1998 coupled with a 10 basis point increase in the average yield on loans to
7.64% from 7.54%. Interest income on mortgage-backed securities held to maturity
decreased by $3.1 million or 36.28% to $5.4 million for the twelve months ended
March 31, 1999, compared to $8.5 million for the same period the prior year
reflecting a decrease of $45.7 million in the average balance of total MBSs to
$85.2 million at March 31, 1999 compared to $130.9 million at March 31, 1998
coupled with a 14 basis point decrease in the average yield on MBSs to 6.37%
from 6.51%. Interest income on investment securities increased by approximately
$1.1 million or 168.56% to $1.8 million for the twelve months ended March 31,
1999 compared to $671,000 for the same period the prior year. The increase in
interest income on investment securities is primarily due to $20.2 million or
166.94% increase in the average balance of investment securities to $32.3
million for the twelve months ended March 31, 1999, compared to $12.1 million
for the same period the prior year.
50
<PAGE>
The increase in the average balances of investment securities reflects the
increased investment of repayments from loans and MBSs into investment
securities.
Interest Expense
Interest expense decreased by $204,000 or 1.36% to $14.8 million for
the twelve month period ended March 31, 1999 compared to $15.0 million for the
same period the prior year. The decrease in interest expense reflects an 11
basis point decrease in the average cost of such liabilities to 3.85% for the
twelve months ended March 31, 1999 compared to 3.96% for the same period the
prior year, offset in part by a $4.4 million or 1.15% increase in the average
balance of interest bearing liabilities.
Interest expense on deposits decreased by $175,000 or 2.04% to $8.4
million for the twelve month period ended March 31, 1999 compared to $8.6
million for the same period the prior year primarily due to a 13 basis point
decrease in the cost average of deposits, offset in part by a $5.6 million or
2.06% increase in the average balance of deposits to $275.9 million for the
twelve month period ended March 31, 1999 compared to $270.3 million for the same
period the prior year.
Interest expense on borrowings was unchanged at $6.4 million for the
twelve month period ended March 31, 1999 compared to the same period the prior
year. The average balance of borrowings decreased by $1.2 million to $107.8
million for the twelve month period ended March 31, 1999 compared to $109.0
million for the same period the prior year. The average cost of borrowings was
unchanged at 5.89%.
Net Interest Income
Net interest income before provision for loan losses for the twelve
month period ended March 31, 1999, increased by $850,000, or 6.64%, to $13.7
million compared to $12.8 million for the same period the prior year. The
increase was primarily attributable to a 15 basis point increase in the
Company's interest rate spread for the twelve month period ended March 31, 1999
to 3.29% from 3.14%, coupled with a $7.0 million increase in the balance of
average interest earning assets to $398.8 million for the twelve month period
ended March 31, 1999 compared to the same period the prior year. The Company's
net interest margin increased by 16 basis points to 3.43% from 3.27%, average
interest-earning assets to interest-bearing liabilities increased to 1.04x for
the twelve month period ended March 31, 1999, compared to 1.03x for the same
period the prior year.
Provision for Loan Losses
Provision for loan losses increased by $2.8 million or 219.96% to
$4.0 million, for the twelve month period ended March 31, 1999, compared to $1.3
million for the year ended March 31, 1998. When determining the provision for
loan losses, management assesses the risk inherent in its loan portfolio based
on the information available at such time relating to trends in the local and
national economy, trends in the real estate market and the Company's level on
non performing loans and assets and net charge offs. The increase in the
provision for loan losses for the twelve month period, in significant part,
reflects a one time special provision of $2.5 million. The Company took the
special provision along with a general increase in the provision to
significantly increase the Bank's allowance for loan losses primarily in
response to an increase in non-performing consumer loans and to maintain an
adequate level of allowance consistent with the Bank's policies. During the
twelve month period, the Bank charged off approximately $3.4 million in
non-performing loans. At March 31, 1999, non-performing loans totaled $4.8
million or 1.66% of total loans compared to $6.8 million, or 2.47% at March 31,
1998. At March 31, 1999, the Bank's allowance for loan losses was $4.0 million
compared to $3.1 million at March 31, 1998, resulting in a ratio of allowance to
non-performing loans of 85.60% at March 31, 1999 compared to 45.30% at March 31,
1998, and a ratio of allowances for loan losses to total loans of 1.48% and
1.11%, respectively.
51
<PAGE>
Non-Interest Income
Non-interest income is composed of loan fees and service charges,
gains or (losses) from the sale of securities, and fee income for banking
services. Non-interest income was unchanged at $2.4 million for the twelve month
period ended March 31, 1999. Non-interest income for the twelve month period
ended March 31, 1998 reflected a $188,000 gain on the sale of securities.
Excluding the gain on the sale of securities, non-interest income increased by
$219,000, or 10.13% for the twelve month period ended March 31, 1999 compared to
the same period the prior year. The increase in non-interest income excluding
the gain on the sale of securities reflects increases in prepayment fees on
loans and increases in fees from bank service charges.
Non-Interest Expense
Non-interest expense increased by approximately $6.3 million, or
54.18% to $18.0 million for the twelve month period ended March 31, 1999
compared to $11.7 million for the twelve month period ended March 31, 1998. The
increase in non-interest expense reflects non-recurring charges of $4.1 million
in reconciliation adjustments related to the conversion of the Company's data
processing system, $1.2 million in consultant fees related to post conversion
assignments, and $750,000 in one-time charges incurred during the fourth
quarter, offset in part by a recovery of approximately $750,000 of such
adjustments.
Excluding all reconciliation adjustments, one-time charges, and the
consultant fees, non-interest expense increased by approximately $1.0 million,
or 8.69% to $12.7 million for the twelve month period ended March 31, 1999
compared to $11.7 million for the same period the prior year. This increase
primarily reflects increases of $365,000 in salaries and employee benefits
expense, $142,000 in equipment expense, $117,000 in FDIC insurance expense,
$125,000 in legal expense and $250,000 in connection with the settlement of
litigation.
Income Tax Expense
In connection with the loss from operations incurred through the
twelve-month period ended March 31, 1999, the Company has reflected a benefit
resulting from the carry back of the loss for income taxes paid of approximately
$1.5 million of which $1.2 million were paid in fiscal 1998 compared to an
income tax expense of $1.6 million for fiscal 1998. In addition, the Company has
available an operating loss tax carry forward totaling approximately $4.4
million, which will expire in 2019 to offset future taxable income. The Company
paid no taxes for the year ended March 31, 1999, and its effective tax rate was
45.70% for the year ended March 31, 1998.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997
Net Income (Loss)
The Company reported net income for the fiscal year ended March 31,
1998 of $1.0 million or $.48 per share, compared to a net loss of $1.7 million
or $.80 per share for the fiscal year ended March 31, 1997.
Earnings for fiscal 1997 were adversely affected by three unusual
events. During the second quarter of fiscal 1997, Carver experienced a one time
pre-tax assessment of $1.6 million for the recapitalization of the Savings
Association Insurance Fund ("SAIF") pursuant to legislation which was enacted in
September of 1996. During the fourth quarter of fiscal 1997, Carver experienced
a one time pre-tax charge of $1.0 million as a result of the disposition of
approximately $72 million of money market rate investment securities, or mutual
funds. Carver's operating results for the year were also impacted by increases
in net interest income, provision for loan losses, and non-interest expense.
Interest Income
Interest income increased by $5.0 million or 21.80% to $27.8 million
for the twelve months ended March 31, 1998 compared to $22.8 million for the
twelve months ended March 31, 1997. The increase in interest income was
primarily attributable to a $50.7 million or 14.86% increase in average balance
of interest earning assets to
52
<PAGE>
$391.7 million for the twelve months ended March 31, 1998 compared to $341.0
million for twelve months ended March 31, 1997, coupled with a 40 basis point
increase in the yield on average interest earning assets to 7.10% the twelve
months ended March 31, 1998 compared to 6.70% for the same period the prior
year.
The growth in total interest earning assets was concentrated interest
income received from loans. Interest income on loans increased by $10.5 million,
or 133.45%, to $18.3 million for the twelve months ended March 31, 1998 compared
to $7.8 million for the same period the prior year. The increase in interest
income from loans reflects a $148.8 million or 157.51% increase in the average
balance of loans to $243.0 million at March 31, 1998 compared to $94.3 million
at March 31, 1997 was partially offset by a 77 basis point decrease from 8.31%
to 7.54% in the average yield on loans due to lower market rates of interest.
Interest income on mortgage-backed securities held to maturity and MBSs
available for sale decreased by $1.5 million or 14.59% to $8.5 million for the
twelve months ended March 31, 1998 compared to $10.0 million for the same period
the prior year reflecting a decrease of $25.5 million in the average balance of
total MBSs and a three basis point decrease in the average yield on MBSs.
Interest income on investment securities decreased by approximately $4.1 million
or 85.84% to $671,000 for the twelve months ended March 31, 1998 compared to
$4.4 million for the same period the prior year. The decrease in interest income
on investment securities is primarily due to $72.9 million or 85.75% decrease in
the average balance of investment securities to $12.1 million for the twelve
months ended March 31, 1998 compared to $85.0 million for the same period the
prior year. The declines in the average balances of investment securities and
MBSs reflect the Company's strategy to shift assets into higher yielding loans.
Interest Expense
Total interest expense increased by $2.5 million or 20.32% to $15.0
million for the twelve months ended March 31, 1998 compared to $12.5 million for
the same period the prior year. The increase in interest expense reflects a
$50.8 million or 15.47% increase in the average balance of interest bearing
liabilities coupled with a 16 basis point increase in the average cost of such
liabilities. This increase reflects the use of borrowings primarily to fund the
origination and purchase of loans.
Interest expense on deposits increased by $241,000 or 2.89% to $8.6
million for the twelve months ended March 31, 1998 compared to $8.4 million for
the same period the prior year primarily due to an $8.2 million or 3.15%
increase in the average balance of deposits to $270.3 million, offset in part by
a 1 basis point decrease in the cost of deposits.
Interest expense on borrowings increased by $2.3 million or 55.60% to
$6.4 million for the twelve months ended March 31, 1998 compared to $4.1 million
for the same period the prior year. The increase in interest expense on
borrowings reflects a $42.6 million or 64.10% increase in the average balance of
borrowings to $109.0 for the twelve months ended March 31, 1998 compared to
$66.4 million for the same period the prior year partially offset by a 33 basis
point decrease in the average cost of borrowings from 6.22% to 5.89%.
Net Interest Income
Net interest income before provision for loan losses for the year
ended March 31, 1998, increased $2.4 million, or 23.59%, to $12.8 million
compared to $10.4 million for the same period the prior year. The increase was
primarily attributable to a 24 basis point increase in the Company's interest
rate spread for the twelve months ended March 31, 1998 to 3.14 % from 2.90%,
coupled with a $50.7 million increase in the balance of average interest earning
assets offset in part by a $50.8 million increase in the average balance of
interest bearing liabilities. The Company's net interest margin increased by 23
basis points to 3.27 % from 3.04%, however, average interest-earning assets to
interest-bearing liabilities decreased to 1.03x for the twelve months 1998, from
1.04x for the same period the prior year.
53
<PAGE>
Provision for Loan Losses
The provision for loan losses decreased by $430,000 to $1.3 million,
for the year ended March 31, 1998, from $1.7 million for the year ended March
31, 1997. When determining the provision for loan losses, management assesses
the risk inherent in its loan portfolio based on the information available at
such time relating to trends in the local and national economy, trends in the
real estate market and the Company's level on non performing loans and assets
and net charge offs. Non performing loans increased from $6.4 million at March
31, 1997 to $6.8 million at March 31, 1998 and net charge-offs decreased from
$649,000 to $368,000 over the same period the prior year. The net effect of the
increased provision and the charge-offs for fiscal 1998 was an increase in the
allowance for loan losses from $2.2 million at March 31, 1997, to $3.1 million
at March 31, 1998. The allowance for loan losses equaled 1.11% of the gross loan
portfolio at March 31, 1998 compared 1.09% at March 31, 1997.
Non-Interest Income
Non-interest income is composed of loan fees and service charges,
gains or (losses) from the sale of securities, and fee income for banking
services. Non-interest income increased by $2.2 million to $2.4 million for the
twelve month period ended March 31, 1998 compared to $113,000 the twelve month
period ended March 31, 1997. Non interest income for the period ended March 31,
1997 was reduced by approximately $927,000 as the result of a loss on the sale
of securities related to the Restructuring. Non interest income increased by
$1.3 million or 126.06% for the twelve month period ended March 31, 1998
compared to the same period the prior year before posting the loss on the sale
of securities. The increase in non interest income reflects a gain of $184,000
on the sale of securities held as available for sale during the fourth quarter
combined with an increase of $2.1 million in other income which consist of fees
for banking services and products.
Non-Interest Expense
Non interest expense for the twelve month period ended March 31, 1998
was $11.7 million. Non-interest expense for fiscal 1997, contained a one-time
pre-tax assessment of $1.6 million for the recapitalization of SAIF, pursuant to
the Funds Act. Excluding the SAIF assessment, total non-interest expense would
have been $10.2 million for fiscal 1997. Non interest expense increased by $1.5
million or 14.71% for the twelve month period ended March 31, 1998 compared to
the same period the prior year before posting the SAIF assessment. During the
twelve month period ended March 31, 1998 the Company continued to invest
substantially in improving its infrastructure. These investments encompassed
upgrading technology, increasing staff and expanding marketing efforts. These
investments increased operating expenses for the fiscal 1998. Salaries and
employee benefits for fiscal 1998 increased by $694,000, or 17.17%, to $4.7
million from $4.0 million for fiscal 1997. This increase was primarily due to a
general increase in staff, incentive compensation and ESOP expense. Equipment
expense for fiscal 1998 increased by $167,000, or 15.35%, to $1.3 million from
$1.1 million in fiscal 1997, reflecting the increased depreciation and
maintenance cost for new furniture, fixtures and computers for Carver's
headquarters and certain branches. Legal expenses increased by $214,000 or
136.54% to $371,000 for fiscal 1998 compared to $157,000 for fiscal 1997. Bank
charges increased by $74,000 or 21.67% to $415,000 for fiscal 1998 compared to
$341,000 for fiscal 1997. These increases in non-interest expenses were offset
in part by a $356,000 or 73.94% decrease in deposit insurance premiums to
$135,000 for fiscal 1998 compared to $482,000 for fiscal 1997.
Income Tax Expense
Income tax expense totaled $1.2 million for fiscal 1998, compared to
a benefit of $1.3 million for fiscal 1997. The Company's effective tax rates
were 45.7% and 42.3% for the years then ended March 31, 1998 and 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Carver Federal's primary sources of funds are deposits, FHLB
advances, and proceeds from principal and interest payments on loans,
mortgage-backed securities. While maturities and scheduled amortization of loans
and
54
<PAGE>
investments are predictable sources of funds, deposit flow and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The Bank is required to maintain an average daily balance of liquid
assets and short term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by OTS regulation. The minimum
required liquidity and short-term liquidity ratio is 4%. The Bank's liquidity
ratios were 16.59% and 12.26% at March 31, 1999 and 1998, respectively.
The Bank's most liquid assets are cash and short-term investments.
The level of these assets are dependent on the Bank's operating, financing
lending and investing activities during any given period. At March 31,1999, and
1998, assets qualifying for short-term liquidity, including cash and short-term
investments, totaled $50.8 million and $21.5 million, respectively.
The primary investment activity of the Bank is the origination and
purchase of loans and, to a lesser extent, the purchase of investment and
mortgage-backed securities. During fiscal 1999, Carver purchased approximately
$55.8 million in whole loan mortgages, $12.6 million net in investment
securities and no mortgage-backed securities, and sold $5.0 million in
investment securities and 23.5 million in mortgage-backed securities. During
fiscal 1998 the Bank purchased $80.2 million of whole loan mortgages and
originated $51.3 million mortgage and other loans. During fiscal 1998 the Bank
purchased $6.4 million in investment securities and no mortgage-backed
securities. During fiscal years 1999 and 1998, the Bank received $27.3 million
and $38.3 million, respectively, in principal payments. During fiscal 1999 and
fiscal 1998, there was a cash-in flow of $1.8 million and $2.0 million,
respectively, due to call back of securities.
At March 31, 1999, the Bank had outstanding loan commitments of $7.4
million. Certificates of deposit which are scheduled to mature in one year or
less from March 31, 1999 totaled $4.3 million. Management believes that a
significant percentage of such deposits will remain with the Bank.
THE YEAR 2000 PROBLEM
The "Year 2000 Problem" 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 Problem 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 Problem
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 Problem 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
Association. There has been limited litigation filed against corporations
regarding the Year 2000 Problem 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 Problem. 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.
55
<PAGE>
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 Problem 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 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 Problem 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 will be substantially complete by June 30, 1999.
The Company has complied 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 is on target for substantially completing testing
of both internally and externally supplied systems by June 30, 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
Problem 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 Problem will be mitigated without causing a material
adverse impact on the operations of the Company. At this time, the Company
anticipates most of its hardware and software systems to become Year 2000
compliant, tested and operational within the OTS's suggested time frame.
However, if such modifications and conversions are not successfully made or are
not completed on a timely basis, the Year 2000 Problem could have an adverse
impact on the operations of the Company.
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 expects to become 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 been directed to update and review their existing recovery plans in
addition to developing contingency plans prior to March 31, 1999 to address the
possible failure of one or more mission critical systems.
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,
56
<PAGE>
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 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
Problem 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.
REGULATORY CAPITAL POSITION
The Bank must satisfy three minimum capital standards established by
the OTS. For a description of the OTS capital regulation, see "Regulation and
Supervision--Regulation of Savings Associations--Capital Requirements."
The Bank presently exceeds all capital requirements as currently
promulgated. At March 31, 1999, the Bank had tangible, core, and risk-based
capital ratios of 6.26%, 6.27%, and 13.38% respectively.
The following table reconciles the Bank's stockholders equity at
March 31, 1999, under generally accepted accounting principles to regulatory
capital requirements:
<TABLE>
<CAPTION>
REGULATORY CAPITAL REQUIREMENTS
-------------------------------------------------------
GAAP TANGIBLE TIER/CORE RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
-------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Stockholders' Equity at March 31, 1999(1) .............. $ 26,946 $ 26,946 $ 26,946 $ 26,946
========
Add:
Unrealized loss on securities available ............. -- -- --
for sale, net
General valuation allowances ........................ -- -- 2,667
Qualifying intangible assets ........................ -- 37 37
Deduct:
Goodwill ............................................ (1,030) (1,030) (1,030)
Excess of net deferred tax assets ................ -- -- --
Asset required to be deducted ....................... -- -- (40)
-------- -------- --------
Regulatory capital .................................. 25,916 25,953 28,580
Minimum capital requirement ......................... 6,211 16,563 17,083
-------- -------- --------
Regulatory capital excess ........................... $ 19,705 $ 9,390 $ 11,497
======== ======== ========
</TABLE>
- ----------------
(1) Reflects Bank only.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and accompanying notes appearing elsewhere
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of Carver's operations. Unlike most
industrial companies, nearly all the assets and liabilities of the Company are
monetary in nature. As a result, interest rates have a greater impact on
Carver's performance than do the effects of the general level of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
57
<PAGE>
Tax Bad Debt Reserves. Federal tax law changes were enacted in August
1996 to eliminate the "thrift bad debt" method of calculating bad debt
deductions. The legislation requires the Bank to recapture into taxable income
(over a six-year period) all bad debt reserves accumulated after March 31, 1988.
Since the Bank's federal bad debt reserves approximated the 1988 base-year
amounts, this recapture requirement had no significant impact. The tax law
changes also provide that taxes associated with the recapture of pre-1988 bad
debt reserves would become payable under more limited circumstances than under
prior law. For example, such taxes would no longer be payable in the event that
the thrift charter is eliminated and the Bank is required to convert to a bank
charter.
Amendments to the New York State and New York City tax laws
redesignate the Bank's state and New York City bad debt reserves at December 31,
1995 as the base-year amount and also permit future additions to the base-year
reserves using the percentage-of-taxable-income method. This change eliminated
the excess New York State and New York City reserves for which the Company had
recognized a deferred tax liability. Management does not expect these changes to
have a significant impact on the Bank. Taxes associated with the recapture of
the New York State and New York City base-year reserve would still become
payable under various circumstances, including conversion to a bank charter or
failure to meet various thrift definition tests.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits," which provides
improved disclosures about pensions and other post-retirement benefits. The
disclosures will provide information that is more comparable, understandable and
concise, and that would better serve users' needs. This statement is effective
for fiscal years beginning after December 15, 1997. The adoption of this
statement is not anticipated to have a material impact on Carver's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities." This statement also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and those instruments at fair value. This statement is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. The adoption
of this statement is not anticipated to have a material impact on the financial
position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The information required by this item appears under the caption
"Discussion of Market Risk--Interest Rate Sensitivity Analysis."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
58
<PAGE>
LETTERHEAD OF MITCHELL & TITUS LLP
To The Board of Directors and Stockholders
Carver Bancorp Inc.,
We have audited the accompanying consolidated statements of financial
condition of Carver Bancorp Inc., and subsidiaries (the "Company") as of March
31, 1999 and 1998 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the years in the three years
ended March 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and the significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of March 31, 1999 and 1998, and the results of its operations and
cash flows for each of the years in the three years ended March 31, 1999 in
conformity with generally accepted accounting principles.
/s/ MITCHELL & TITUS LLP
June 29, 1999
New York, New York
59
<PAGE>
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
ASSETS:
Cash and amounts due from depository institutions ........................................ $ 11,120,748 $ 12,120,071
Federal funds sold ....................................................................... 10,200,000 3,000,000
------------- -------------
Total cash and cash equivalents (Notes 1 and 19) ......................................... 21,320,748 15,120,071
------------- -------------
Securities available for sale (Notes 1, 3, 13 and 19) .................................... 29,918,137 28,407,505
Mortgage-backed securities held to maturity, net (estimated fair values of $65,693,568 and
$90,197,873 at March 31, 1999 and March 31, 1998) (Notes 1, 5, 12, 13, 18 and 19) .... 66,584,447 91,115,861
Loans receivable ......................................................................... 274,541,950 278,092,337
Less allowance for loan losses ........................................................ (4,020,099) (3,138,000)
Loans receivable, net (Notes 1, 6, 13 and 19) ......................................... 270,521,851 274,954,337
------------- -------------
Real estate owned, net (Note 1) .......................................................... 184,599 82,198
Property and equipment, net (Notes 1 and 8) .............................................. 11,884,983 11,545,627
Federal Home Loan Bank of New York stock, at cost (Note 13) .............................. 5,754,600 5,754,600
Accrued interest receivable, net (Notes 1, 9 and 19) ..................................... 2,860,693 2,762,843
Excess of cost over net assets acquired, net (Notes 1 and 10) ............................ 1,029,853 1,246,116
Other assets (Notes 14 and 16) ........................................................... 6,422,933 6,469,053
------------- -------------
Total assets ....................................................................... $ 416,482,844 $ 437,458,211
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Notes 11 and 19) ............................................................... $ 276,999,074 $ 274,894,232
Securities sold under agreements to repurchase (Notes 12 and 19) ......................... 35,337,000 87,020,000
Advances from Federal Home Loan Bank of New York
(Notes 13 and 19) ..................................................................... 65,708,466 36,741,686
Other borrowed money (Notes 17 and 19) ................................................... 992,619 1,183,858
Advance payments by borrowers for taxes and insurance .................................... -- 659,995
Other liabilities (Notes 14 and 16)....................................................... 6,270,419 1,424,096
------------- -------------
Total liabilities................................................................... 385,307,578 401,923,867
------------- -------------
Commitments and contingencies (Notes 18 and 19) .......................................... -- --
STOCKHOLDERS' EQUITY: (Note 15) Preferred stock,
$0.01 par value per share; 1,000,000 authorized; none issued .......................... -- --
Common stock; $0.01 par value per share; 5,000,000 authorized; 2,314,275 issued and
outstanding (Note 2) ..................................................................... 23,144 23,144
Additional paid-in capital (Note 2) ...................................................... 21,423,574 21,418,897
Retained earnings substantially restricted (Notes 2 and 14)............................... 10,721,168 15,289,632
Common stock acquired by Employee Stock Ownership
Plan ("ESOP") (Notes 2 and 17) ........................................................ (992,620) (1,183,858)
Comprehensive income, net of income tax .................................................. -- (13,470)
------------- -------------
Total stockholders' equity ............................................................ 31,175,266 35,534,345
------------- -------------
Total liabilities and stockholders' equity ............................................ $ 416,482,844 $ 437,458,211
============= =============
</TABLE>
See Notes to Consolidated Financial Statements
60
<PAGE>
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Interest income:
Loans (Note 1) ................................................ $ 20,576,506 $18,311,042 $ 7,843,822
Mortgage-backed securities .................................... 5,430,638 8,522,922 9,978,660
Investment securities ......................................... 1,800,738 670,509 607,903
Other interest-earning assets ................................. 665,544 323,243 4,416,362
------------ ----------- ------------
Total interest income ...................................... 28,473,426 27,827,716 22,846,747
------------ ----------- ------------
Interest expense:
Deposits (Note 11) ............................................ 8,421,226 8,596,358 8,355,168
Advances and other borrowed money ............................. 6,393,457 6,422,666 4,127,743
------------ ----------- ------------
Total interest expense ........................................ 14,814,683 15,019,024 12,482,911
------------ ----------- ------------
Net interest income .............................................. 13,658,743 12,808,692 10,363,836
Provision for loan losses (Notes 1 and 6) ........................ 4,029,996 1,259,531 1,689,508
------------ ----------- ------------
Net interest income after provision for loan losses .............. 9,628,747 11,549,161 8,674,328
------------ ----------- ------------
Non-interest income:
Loan fees and service charges ................................. 673,541 559,960 194,689
Gain (loss) on sale of securities held for sale (Notes 4 and 5) 3,948 188,483 (927,093)
Other ......................................................... 1,704,667 1,603,096 845,287
------------ ----------- ------------
Total non-interest income .................................. 2,382,156 2,351,539 112,883
------------ ----------- ------------
Non-interest expenses:
Salaries and employee benefits (Notes 16 and 17) .............. 5,247,525 4,739,069 4,044,718
Net occupancy expense (Notes 1 and 18) ........................ 1,490,592 1,118,467 1,111,602
Equipment (Note 1) ............................................ 1,409,429 1,255,301 1,088,258
Other ......................................................... 9,815,474 4,538,111 5,557,379
------------ ----------- ------------
Total non-interest expenses ................................ 17,963,020 11,650,948 11,801,957
------------ ----------- ------------
Income (loss) before income taxes ................................ (5,952,117) 2,249,752 (3,014,746)
------------ ----------- ------------
Income taxes (benefit) (Notes 1 and 14) .......................... (1,499,367) 1,203,466 (1,275,078)
------------ ----------- ------------
Net income (loss) ................................................ $ (4,452,750) $ 1,046,286 $ (1,739,668)
============ =========== ============
Net income (loss) per common share ............................... $ (2.02) $ 0.48 $ (0.80)
============ =========== ============
Weighted average number of shares outstanding (Note 1) ........... 2,206,133 2,187,619 2,169,276
============ =========== ============
</TABLE>
See Notes to Consolidated Financial Statements
61
<PAGE>
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED COMMON
ADDITIONAL EARNINGS STOCK
COMMON PAID-IN SUBSTANTIALLY ACQUIRED COMPREHENSIVE
STOCK CAPITAL RESTRICTED BY-ESOP INCOME TOTAL
----- ------- ---------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance--March 31, 1996 ...... $23,144 $ 21,436,235 $ 16,098,728 $(1,548,122) $ (1,245,204) $34,764,781
------- ------------ ------------ ----------- ------------- -----------
Net loss for the year ended
March 31, 1997 ............ -- -- (1,739,668) -- -- (1,739,668)
Allocation of ESOP stock ..... -- (26,068) -- 182,132 -- 156,064
Dividends paid ............... -- -- -- -- -- --
Options exercised ............ -- -- -- -- -- --
Decrease in unrealized, loss
in securities available for
sale, net ................. -- -- -- -- 802,545 802,545
------- ------------ ------------ ----------- ------------- -----------
Balance--March 31, 1997 ...... 23,144 21,410,167 14,359,060 (1,365,990) (442,659) 33,983,722
------- ------------ ------------ ----------- ------------- -----------
Net Income for the year ended
March 31, 1998 ........... -- -- 1,046,286 -- -- 1,046,286
Allocation of ESOP Stock ..... -- 58,566 -- 182,132 -- 240,698
Dividends paid ............... -- (115,714) (115,714)
Options exercised ............ -- (49,836) -- -- -- (49,836)
Decrease in unrealized, loss
in Securities available for
sale, net ................. -- -- -- -- 429,189 429,189
------- ------------ ------------ ----------- ------------- -----------
Balance--March 31, 1998 ...... 23,144 21,418,897 15,289,632 (1,183,858) (13,470) 35,534,345
------- ------------ ------------ ----------- ------------- -----------
Net loss for the year ended
March 31, 1999 ........... -- -- (4,452,750) -- -- (4,452,750)
Allocation of ESOP Stock ..... -- 4,677 -- 191,240 -- 195,917
Dividends paid ............... -- (115,714) (115,714)
Options exercised ............ -- -- -- -- -- --
Decrease in unrealized, loss
in Securities available for
sale, net ................. -- -- -- -- 13,470 13,470
------- ------------ ------------ ----------- ------------- -----------
Balance--March 31, 1999 ...... $23,144 $ 21,423,574 $ 10,721,168 $ (992,620) $ -- $31,175,266
======= ============ ============ =========== ============= ===========
</TABLE>
See Notes to Consolidated Financial Statements
62
<PAGE>
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------
1999 1998 1997
--------------- ------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ................................................ $ (4,452,750) $ 1,046,286 $ (1,739,668)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization .................................... 1,042,659 695,192 664,750
Amortization of intangibles ...................................... 216,264 209,892 213,082
Other amortization and accretion, net ............................ 1,108,675 402,662 1,143,308
Provision for loan losses ........................................ 4,029,996 1,259,531 1,689,508
Gain from sale of real estate owned .............................. -- -- (26,229)
Proceeds from maturity sale of loans ............................. -- 1,459,491 --
Net loss on sale of securities available for sale ................ 3,948 (188,483) 927,093
Deferred income taxes ............................................ -- 58,555 (387,456)
Allocation of ESOP stock ......................................... 195,917 240,698 156,064
(Increase) decrease in accrued interest receivable ............... 97,850 215,522 (290,166)
Increase (Decrease) in refundable income taxes ................... 1,195,852 -- (286,000)
(Increase) decrease in other assets .............................. (46,120) 2,818,687 (1,493,435)
Increase (decrease) in other liabilities ......................... 4,846,323 37,294 (510,154)
------------- ------------ -------------
Net cash provided by operating activities ........................ 8,238,614 8,255,327 60,697
------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on investments held to maturity ............. -- 194,476 311,894
Principal repayments on securities available for sale ............ 3,753,447 5,061,181 5,357,790
Purchases of securities available for sale ....................... (331,888,674) (17,000,000) (57,508,308)
Proceeds from maturity, sales and call of securities held for sale 319,510,288 55,485,112 84,052,091
Purchase of investment securities held to maturity ............... -- (1,946,326) (50,000)
Proceeds from maturities and calls of investment
securities held to maturity ................................... 1,797,042 8,480,705 7,000,000
Principal repayment of mortgage-backed securities held to maturity 23,592,334 19,313,831 19,302,028
Net change in loans receivable ................................... 4,432,486 (77,036,664) (116,974,149)
Proceeds from sale of real estate owned .......................... -- -- 258,292
Additions to premises and equipment .............................. (1,656,535) (897,030) (2,050,447)
(Purchase) Federal Home Loan Bank stock .......................... -- (219,600) (2,415,000)
------------- ------------ -------------
Net cash (used in) provided by investing activities .............. 19,540,388 (8,564,315) (62,715,809)
------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits .............................. 2,104,842 8,422,745 9,519,604
Net increase (decrease) in short-term borrowings ................. (51,683,000) (942,404) 58,335,000
Proceeds of long-term borrowings ................................. -- 12,685,000 --
Repayment of long-term borrowings (FHLB Advances) ................ 28,966,780 (8,658,686) (11,000,000)
Repayment of other borrowed money ................................ (191,238) (182,132) (182,132)
Dividends paid ................................................... (115,714) (115,714) --
Increase (Decrease) in advance payments by
borrowers for taxes and insurance.............................. (659,995) (10,507) 187,447
------------- ------------ -------------
Net cash provided by (used in) financing activities .............. (21,578,325) (11,198,302) 56,859,919
------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents ............. 6,200,677 10,889,314 (5,795,193)
Cash and cash equivalents--beginning ............................. 15,120,071 4,230,757 10,025,950
------------- ------------ -------------
Cash and cash equivalents--ending ................................ $ 21,320,748 $ 15,120,071 $ 4,230,757
============= ============ =============
Supplemental disclosure of non-cash activities:
Transfers of mortgage-backed securities .......................... $ -- $ -- $ --
============= ============ =============
Unrealized Gain (loss) on securities available for sale:
Unrealized Gain (loss) ........................................... -- (25,417) 835,206
Deferred income taxes ............................................ -- 11,947 (397,547)
============= ============ =============
$ -- $ 13,470 $ 442,659
============= ============ =============
Loans receivable transferred to real estate owned ................ $ -- $ -- $ 32,729
============= ============ =============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ......................................................... $ 14,814,683 $ 15,019,024 $ 12,361,162
============= ============ =============
Federal, state and city income taxes ............................. $ -- $ 515,457 $ 286,000
============= ============ =============
</TABLE>
See Notes to Consolidated Financial Statements
63
<PAGE>
CARVER BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background
Carver Bancorp, Inc. ("Carver" or the "Holding Company") is a holding
company that was incorporated in May 1996 and whose principal wholly owned
subsidiaries are Carver Federal Savings Bank (the "Bank") and Alhambra Holding
Corp. ("Alhambra"). CFSB Realty Corp. and CFSB Credit Corp. are wholly owned
subsidiaries of the Bank. Alhambra Realty Corp. is a majority-owned subsidiary
of Alhambra. The Bank was chartered in 1948 and began operations in 1949 as
Carver Federal Savings and Loan Association, a federally chartered mutual
savings and loan association. The Bank converted to a federal savings bank in
1986 and changed its name at that time. On October 24, 1994, Carver Federal
Savings Bank converted from mutual stock form and issued 2,314,375 shares of its
common stock, par value $0.01 per share. On October 17, 1996, the Bank
completed its reorganization into a holding company structure and became a
wholly owned subsidiary of the Holding Company (the "Reorganization"). In
connection with the Reorganization, each share of the Bank's outstanding common
stock was exchanged for one share of the Holding Company's common stock, par
value $.01 per share. See Note 2.
Nature of operations
Carver's banking subsidiary's principal business consists of
attracting passbook and other savings accounts through its branch offices and
investing those funds in mortgage loans and other investments permitted federal
savings banks. Carver's banking subsidiary has seven branches located throughout
the City of New York that primarily serves the communities in which they
operate.
Basis of consolidated financial statement presentation
The consolidated financial statements include the accounts of Carver,
the Bank its wholly owned subsidiary, CFSB Realty Corp., CSFB Credit Corp. and
Alhambra and its majority-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the consolidated statement of financial condition and revenues and
expenses for the period then ended. Estimates that are particularly susceptible
to significant changes in the near-term relate to prepayment assumptions on
mortgage-backed securities, the determination of the allowance for loan losses
and the valuation of real estate owned. Actual results could differ
significantly from those estimates.
Management believes that prepayment assumptions on mortgage-backed
securities are appropriate, the allowance for loan losses is adequate and real
estate owned is properly valued. While management uses available information to
recognize losses on loans and real estate owned, future additions to the
allowance for loan losses or future write downs of real estate owned may be
necessary based on changes in economic conditions in the areas where Carver had
extended mortgages and other credit instruments.
In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Carver's allowance for loan
losses and real estate owned valuations. Such agencies may require Carver to
recognize additions to the allowance for loan losses or additional write downs
of real estate owned based on their judgments about information available to
them at the time of their examination.
64
<PAGE>
Cash and cash equivalents
Cash and cash equivalents include cash and amounts due from
depository institutions and federal funds sold. Generally, federal funds sold
are sold for one-day periods.
Investment and mortgage-backed securities
When purchased, securities are classified in either the investments
held to maturity portfolio or the securities available for sale portfolio.
Securities can be classified as held to maturity and carried at amortized cost
only if the reporting entity has a positive intent and ability to hold those
securities to maturity. If not classified as held to maturity, such securities
must be classified as securities available for sale. Unrealized holding gains or
losses for securities available for sale are to be excluded from earnings and
reported net of deferred income taxes as a separate component of retained
earnings.
Investment and mortgage-backed securities held to maturity are
carried at cost, adjusted for the amortization of premiums and the accretion of
discounts using the level-yield method over the remaining period until maturity.
Gains or losses on sales of securities of all classifications are
recognized on the specific identification method.
Loans receivable
Loans receivable are carried at unpaid principal balances plus
unamortized premiums, less the allowance for loan losses and deferred loan fees
and discounts.
Carver defers loan origination fees and certain direct loan
origination costs and accretes such amounts as an adjustment of yield over the
contractual lives of the related loans by use of the interest method. Premiums
and discounts on loans purchased are amortized and accreted, respectively, as an
adjustment of yield over the contractual lives of the related loans by use of
the interest method.
Loans are generally placed on non-accrual status when they are past
due three months or more as to contractual obligations. When a loan is placed on
non-accrual status, any interest accrued but not received is reversed against
interest income. A non-accrual loan is restored to accrual status when principal
and interest payments become less than three months past due.
A loan is considered to be impaired, as defined by FAS No. 114,
"Accounting by Creditors for Impairment of a Loan," when it is probable that
Carver will be unable to collect all principal and interest amounts due
according to the contractual terms of the loan agreement. Carver tests loans
covered under FAS No. 114 for impairment if they are on nonaccrual status or
have been restructured. Consumer credit nonaccrual loans are not tested for
impairment because they are included in large groups of smaller-balance
homogeneous loans that, by definition along with leases, are excluded from the
scope of FAS No. 114. Impaired loans are required to be measured based upon the
present value of expected future cash flows, discounted at the loan's initial
effective interest rate, or at the loan's market price or fair value of the
collateral if the loan is collateral dependent. If the loan valuation is less
than the recorded value of the loan, an impairment reserve must be established
for the difference. The impairment reserve is established by either an
allocation of the reserve for credit losses or by a provision for credit losses,
depending on the adequacy of the reserve for credit losses. Impairment reserves
are not needed when interest payments have been applied to reduce principal, or
when credit losses have been recorded so that the recorded investment in an
impaired loan is less than the loan valuation.
65
<PAGE>
Allowance for loan losses
An allowance for loan losses is maintained at a level considered
adequate to absorb future loan losses. Management, in determining the allowance
for loan losses, considers the risks inherent in its loan portfolio and changes
in the nature and volume of its loan activities, along with the general economic
and real estate market conditions.
Carver maintains a loan review system which allows for a periodic
review of its loan portfolio and the early identification of potential problem
loans. Such system takes into consideration, among other things, delinquency
status, size of loans, type of collateral and financial condition of the
borrowers. Loan loss allowances are established for problem loans based on a
review of such information and/or appraisals of the underlying collateral. On
the remainder of its loan portfolio, loan loss allowances are based upon a
combination of factors including, but not limited to, actual loan loss
experience, composition of loan portfolio, current economic conditions and
management's judgment. Although management believes that adequate loan loss
allowances have been established, actual losses are dependent upon future events
and, as such, further additions to the level of the loan loss allowance may be
necessary in the future.
Concentration of risk
The Bank's principle lending activities are concentrated in loans
secured by real estate a substantial portion of which is located in the State of
New York, and the State of California.
Premises and equipment
Premises and equipment are comprised of land and construction in
progress, at cost, and buildings, building improvements, furnishings and
equipment and leasehold improvements, at cost, less accumulated depreciation and
amortization. Depreciation and amortization charges are computed using the
straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 10 to 50 years
Furnishings and equipment 3 to 10 years
Leasehold improvements The lesser of useful life or remaining term of lease
</TABLE>
Significant renewals and betterments are charged to the property and
equipment account. Maintenance and repairs are charged to expense in the year
incurred.
Real estate owned
Real estate acquired by foreclosure or deed in lieu of foreclosure is
recorded at the lower of cost or fair value at the date of acquisition and
thereafter carried at the lower of cost or fair value less estimated selling
costs. The amounts ultimately recoverable from real estate owned could differ
from the net carrying value of these properties because of economic conditions
and the current softness in the local real estate market.
Costs incurred to improve properties or get them ready for sale are
capitalized. Revenues and expenses related to the holding and operating of
properties are recognized in operations as earned or incurred. Gain or loss on
sale of properties is recognized as incurred.
Excess of cost over net assets acquired
In connection with the acquisition of two branches, core deposit
premiums paid and other capitalized acquisition costs are being amortized to
expense over periods from five to fifteen years using the straight-line method.
66
<PAGE>
Interest-rate risk
The Bank is principally engaged in the business of attracting
deposits from the general public and using these deposits, together with
borrowings and other funds, to originate and purchase loans secured by real
estate and to purchase investment and mortgage-backed securities. The potential
for interest-rate risk exists as a result of the shorter duration of
interest-sensitive liabilities compared to the generally longer duration of
interest-sensitive assets. In a rising rate environment, liabilities will
reprice faster than assets, thereby reducing the market value of long-term
assets and net interest income. For this reason, management regularly monitors
the maturity structure of the assets and liabilities in order to measure its
level of interest-rate risk and plan for future volatility.
Income taxes
Carver accounts for income taxes under the provisions of SFAS No.
109, "Accounting for Income Taxes." SFAS 109 requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based upon the
differences in the financial statement and tax bases of assets and liabilities
using tax rates in effect for the year in which the differences are expected to
reverse.
Comprehensive Income
Effective April 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes new rules for reporting and display of
comprehensive income and its components. However, the adoption had no impact on
the Company's net income (loss) or stockholders' equity. SFAS 130 requires
unrealized gains or losses on the Company's available for sale securities and
minimum pension liability, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130.
Net income (Loss) per common share
Net income (loss) per common share for each of the years in the three
period year ended March 31, 1999 is based on net income (loss) for the entire
year dividend by weighted average shares outstanding during the year. For the
purpose of these calculations, unreleased ESOP shares are not considered to be
outstanding.
NOTE 2. CONVERSION TO STOCK FORM OF OWNERSHIP AND REORGANIZATION INTO A HOLDING
COMPANY
On October 24, 1994, the Bank issued an initial offering of 2,314,375
shares of common stock (par value $0.01) at a price of $10 per share resulting
in net proceeds of $21,519,000. As part of the initial public offering, the Bank
established a liquidation account at the time of conversion, in an amount equal
to the surplus and reserves of the Bank at September 30, 1994. In the unlikely
event of a complete liquidation of the Bank (and only in such event), eligible
depositors who continue to maintain accounts shall be entitled to receive a
distribution from the liquidation account. The total amount of the liquidation
account may be decreased if the balances of eligible deposits decreased as
measured on the annual determination dates. The balance of the liquidation
account was approximately $4,139,000, and $4,884,000 at March 31, 1999 and 1998,
respectively, based on an assumed decrease of 15.25% of eligible deposits per
annum. On October 17, 1996, the Bank completed 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 the Holding Company's common stock. 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. Accordingly 2,314,275 shares of the
Company's common stock remain outstanding. The Bank's shareholder approved
the Reorganization at the Bank's annual meeting of shareholders held on
July 29, 1996. As a result of the Reorganization, the Bank will not be
permitted to pay dividends to the Holding Company on its capital stock if
the effect thereof would cause its net worth to be reduced below either:
(i) the amount required for the liquidation
67
<PAGE>
account or (ii) the amount required for the Bank to comply with applicable
minimum regulatory capital requirements.
NOTE 3. SECURITIES AVAILABLE FOR SALE
At March 31, 1999 the Company held no MBSs as available for sale.
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------------------------------
GROSS UNREALIZED
CARRYING ---------------------------- ESTIMATED
VALUE GAINS LOSSES FAIR-VALUE
------------ -------- ----------- -------------
<S> <C> <C> <C> <C>
Investment securities..... 29,918,137 $121,761 $ -- $30,039,898
----------- -------- --------- -----------
$29,918,137 $121,761 $ -- $30,039,898
=========== ======== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------------------------------------
GROSS UNREALIZED
CARRYING ---------------------------- ESTIMATED
VALUE GAINS LOSSES FAIR-VALUE
------------ -------- ----------- -------------
<S> <C> <C> <C> <C>
Mortgage-backed securities ........... $28,407,505 $ -- $ 25,416 $28,382,089
----------- ------- ----------- -----------
$28,407,505 $ $ 25,416 $28,382,089
=========== ======= =========== ===========
</TABLE>
Proceeds from the sales of investment securities held for sale during the
years ended March 31, 1999 and March 31, 1998 were $24,365,488 and $5,188,483,
respectively, resulting in gross gains of $3,948 and $188,000, respectively.
There were no sales of investment securities held for sale during the year ended
March 31, 1997.
NOTE 4. INVESTMENT SECURITIES HELD TO MATURITY, NET
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------------------------------
GROSS UNREALIZED
CARRYING ---------------------------- ESTIMATED
VALUE GAINS LOSSES FAIR-VALUE
------------ -------- ----------- -------------
<S> <C> <C> <C> <C>
FHLB Stock $5,754,600 $ -- $ -- $5,754,600
Other .... -- -- -- --
---------- -------- -------- ----------
$5,754,600 $ -- $ -- $5,754,600
========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------------------------------------
GROSS UNREALIZED
CARRYING ---------------------------- ESTIMATED
VALUE GAINS LOSSES FAIR-VALUE
------------ -------- ----------- -------------
<S> <C> <C> <C> <C>
FHLB Stock $5,754,600 $ -- $ -- $5,754,600
Other .... -- -- -- --
---------- -------- -------- ----------
$5,754,600 $ -- $ -- $5,754,600
========== ======== ======== ==========
</TABLE>
There were no sales of securities held to maturity during the years
ended March 31, 1999, 1998 and 1997. Proceeds from calls of investment
securities held to maturity during the years ended March 31, 1999, 1998 and 1997
were $1,797,042, $2,000,000 and $7,000,000 respectively. No gains or losses were
realized on these calls.
68
<PAGE>
NOTE 5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY, NET
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------------------------
PRINCIPAL UNAMORTIZED UNSECURED CARRYING
BALANCE PREMIUMS DISCOUNTS VALUE
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Government National Mortgage Association . $ 7,682,759 $ -- $ 52,123 $ 7,630,636
Federal Home Loan Mortgage Corporation ... 24,068,374 642,964 75,638 24,635,700
Federal National Mortgage Association .... 29,333,923 454,013 69,369 29,718,567
Small Business Administration ............ 1,333,913 -- 8,160 1,325,753
Collateralized Mortgage Obligations:
Resolution Trust Corporation ......... 2,253,881 28,135 -- 2,282,016
Federal Home Loan Mortgage Corporation 647,010 -- -- 647,010
Others ............................... 341,643 3,123 -- 344,766
----------- ---------- ----------- -----------
$65,661,503 $1,128,235 $ 205,291 $66,584,447
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------------------------------
PRINCIPAL UNAMORTIZED UNSECURED CARRYING
BALANCE PREMIUMS DISCOUNTS VALUE
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Government National Mortgage Association. $ 8,918,901 $ 0 $ 64,260 $ 8,854,642
Federal Home Loan Mortgage Corporation .. 35,141,886 872,418 112,803 35,901,501
Federal National Mortgage Association ... 36,264,031 529,740 109,146 36,684,625
Small Business Administration ........... 1,782,199 -- 11,847 1,770,352
Collateralized Mortgage Obligations:
Resolution Trust Corporation ......... 6,478,542 85,901 -- 6,564,443
Federal Home Loan Mortgage Corporation 1,340,298 -- -- 1,340,298
Others ............................... -- -- -- --
----------- ---------- ----------- -----------
$89,925,857 $1,488,059 $ 298,056 $91,115,861
=========== ========== =========== ===========
</TABLE>
69
<PAGE>
A summary of gross unrealized gains and losses and estimated fair
value follows:
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------------------------
GROSS UNREALIZED
---------------------------
CARRYING ESTIMATED
VALUE GAINS LOSSES FAIR-VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Government National Mortgage Association .................... $ 7,630,636 $ 55,247 $ -- $ 7,685,883
Federal Home Loan Mortgage Corporation ...................... 24,635,700 -- 772,153 23,863,547
Federal National Mortgage Association ....................... 29,718,567 -- 140,411 29,578,156
Small Business Administration ............................... 1,325,753 4,255 -- 1,330,008
Collateralized Mortgage Obligations:
Resolution Trust Corporation ............................ 2,282,016 -- 36,023 2,245,993
Federal Home Loan Mortgage Corporation .................. 647,010 -- 1,820 645,190
Others .................................................. 344,766 27 -- 344,793
----------- ----------- ----------- -----------
$66,584,447 $ 59,529 $ 950,408 $65,693,568
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------------------------
GROSS UNREALIZED
---------------------------
CARRYING ESTIMATED
VALUE GAINS LOSSES FAIR-VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Government National Mortgage Association $ 8,854,642 $ -- $ 39,022 $ 8,156,620
Federal Home Loan Mortgage Corporation 35,901,501 -- 585,759 35,315,741
Federal National Mortgage Association 36,684,625 -- 206,223 36,478,402
Small Business Administration 1,770,352 40,744 -- 1,811,096
Collateralized Mortgage Obligations:
Resolution Trust Corporation 1,340,298 -- 116,838 1,329,408
Federal Home Loan Mortgage 6,564,443 -- 10,890 6,447,605
Others -- -- -- --
----------- ----------- ----------- -----------
$91,115,861 $ 40,744 $ 958,732 $90,197,873
=========== =========== =========== ===========
</TABLE>
The following is a schedule of final maturities as of March 31,1999:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
VALUE FAIR VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
After one through five years... $ 647,010 $ 645,190
After five through ten years... 4,204,883 4,210,558
After ten years ............... 61,732,554 60,837,820
----------- -----------
$66,584,447 $65,693,568
=========== ===========
</TABLE>
There were no sales of mortgage-backed securities held to maturity
during the years ended March 31,1999, 1998 and 1997.
70
<PAGE>
NOTE 6. LOANS RECEIVABLE, NET
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Real estate mortgage:
One- to four- family ............ $ 181,320,829 $ 188,761,350 $ 139,961,350
Multi-family .................... 52,365,984 49,289,001 19,935,991
Non-residential ................. 23,092,010 12,789,230 22,415,427
Equity and second mortgages ..... 424,981 443,907 586,300
------------- ------------- -------------
257,203,804 251,283,488 182,899,068
------------- ------------- -------------
Real estate construction ........... 11,047,185 15,993,381 14,386,137
------------- ------------- -------------
Commercial loans ................... 616,325 1,442,158 3,192,251
------------- ------------- -------------
Consumer:
Savings accounts(1) ............. 376,227 997,804 954,635
Student education ............... 147,064 174,313 974,892
Other ........................... 7,883,503 12,478,147 3,600,859
------------- ------------- -------------
8,406,794 13,650,264 5,530,386
------------- ------------- -------------
Total loans ........................ 277,274,107 282,369,290 206,007,842
------------- ------------- -------------
Add: Premium ....................... 1,013,770 1,555,397 1,804,938
Less: Loans in process ............. (2,635,520) (4,752,246) (6,854,591)
Allowance for loan losses .......... (4,020,100) (3,138,000) (2,245,746)
Deferred loan fees and discounts ... (1,110,406) (1,080,104) (794,770)
------------- ------------- -------------
(6,752,257) (7,414,953) (8,090,169)
------------- ------------- -------------
$ 270,521,851 $ 274,954,337 $ 197,917,673
============= ============= =============
</TABLE>
- ---------------------
(1) Loan secured by passbook accounts and certificates of deposit.
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Balance--beginning ......................... $ 3,138,000 $ 2,245,746 $ 1,204,496
Provision charged to operations ............ 4,231,176 1,259,532 1,698,508
Recoveries of amounts previously charged off 81,713 -- 49,940
Loans charged off .......................... (3,430,788) (367,278) (699,198)
----------- ----------- -----------
Balance--ending ............................ $ 4,020,101 $ 3,138,000 $ 2,245,746
=========== =========== ===========
</TABLE>
Non-accrual loans consist of loans for which the accrual of interest
has been discounted as a result of such loans becoming three months or more
delinquent as to principal and/or interest payments. Interest income on
non-accrual loans is recorded when received. Restructured loans consist of loans
where borrowers have been granted concessions in regards to the terms of their
loans due to financial or other difficulties which rendered them unable to
service their loans under the original contractual terms. The balances of
non-accrual and restructured loans and their impact in interest income are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1999 1998 1997
-----------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans.... $2,417 $5,568 $2,872
Restructured loans... -- 807 413
------ ------ ------
$2,417 $6,375 $3,285
====== ====== ======
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1999 1998 1997
----------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income which would have been recorded had
loans performed in accordance with original contracts............................ $419 $762 $393
Interest income received ............................................................. 107 285 147
---- ---- ----
Interest income lost ................................................................. $312 $477 $246
==== ==== ====
</TABLE>
At March 31, 1999, loans to officers totaled approximately $472,000.
In addition, the Bank carried three loans to former officers totaling
approximately $290,000.
The following is a summary of loans to the Bank's directors and
officers (and to any associates of such persons), exclusive of loans to any such
person which in aggregate did not exceed $60,000:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1999 1998
-------------------------
(IN THOUSANDS)
<S> <C> <C>
Balance--beginning... $ 850,195 $ 649,607
Loans originated .... -- 464,488
Other ............... -- (243,789)
Repayments .......... (378,578) (20,111)
--------- ---------
Balance--ending ..... $ 471,617 $ 850,195
========= =========
</TABLE>
NOTE 7. LOANS SERVICING
The mortgage loan portfolios serviced for the FHLMC and Fannie Mae
are not included in the accompanying financial statements. The unpaid principal
balances of these loans aggregated $3,035,000, $3,696,000 and $3,881,000 at
March 31, 1999, 1998 and 1997, respectively.
Custodial escrow balances, maintained in connection with the
foregoing loan servicing, were approximately $55,000, $61,000 and $80,000 at
March 31, 1999, 1998 and 1997, respectively.
NOTE 8. PREMISES AND EQUIPMENT, NET
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1999 1998
----------------------------
<S> <C> <C>
Land ......................................... $ 450,952 $ 450,952
Buildings and improvements ................... 8,501,923 8,431,160
Leasehold improvements ....................... 697,903 395,770
Furnishings and equipment .................... 5,546,236 4,231,094
Construction in process ...................... -- 299,809
----------- -----------
15,197,014 13,808,785
Less accumulated depreciation and amortization 3,312,032 2,263,158
----------- -----------
$11,884,983 $11,545,627
=========== ===========
</TABLE>
Depreciation and amortization charged to operations for the years
ended March 31, 1999, 1998 and 1997 were $1,042,659, $695,000 and $664,000,
respectively.
72
<PAGE>
NOTE 9. ACCRUED INTEREST RECEIVABLE, NET
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Loans .................................................................. $ 2,311,991 $ 2,164,713
Mortgage-backed securities ............................................. 522,530 745,533
Investments and other interest-bearing assets .......................... 26,172 98,918
----------- -----------
2,860,693 3,009,164
Less allowance for uncollected interest ................................ --(1) (243,321)
----------- -----------
$ 2,860,693 $ 2,762,843
=========== ===========
</TABLE>
(1) Allowance for uncollected interest is included in the Bank's general
allowance loss.
NOTE 10. EXCESS OF COST OVER ASSETS ACQUIRED, NET
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1999 1998
-------------------------
<S> <C> <C>
Core deposit premium... $ 992,956 $1,198,405
Acquisition costs ..... 36,897 47,712
---------- ----------
$1,029,853 $1,246,117
========== ==========
</TABLE>
NOTE 11. DEPOSITS
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
-----------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RATE AMOUNT PERCENT RATE AMOUNT PERCENT
-----------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
DEMAND:
Interest bearing....................... 1.94% $ 16,102 0.06% 2.23% $ 19,230 6.99%
Non-interest-bearing................... -- 10,609 0.04 0.00 9,687 3.52
---- ---------- ----- ---- ---------- -------
-- 26,711 0.10 1.48 28,917 10.52
---- ---------- ----- ---- ---------- -------
SAVINGS:
Savings and club....................... 2.51 143,795 0.52 2.50 145,448 52.93
Money Management....................... 2.93 20,932 0.08 3.22 21,496 7.82
Certificate of Deposit................. 4.55 85,561 0.31 5.24 79,033 28.74
---- ---------- ----- ---- ---------- -------
-- 250,288 0.90 3.46 246,072 89.48
---- ---------- ----- ---- ---------- -------
3.04% $ 276,999 1.00% 3.24% $ 274,894 100.00%
==== ========== ==== ==== ========== ======
</TABLE>
The scheduled maturities of certificates of deposits are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1999 1998
--------------------
(IN THOUSANDS)
<S> <C> <C>
One year or less .............. $18,033 $23,765
After one year to three years . 30,944 38,605
After three years to five years 10,197 29
After five years .............. 26,387 16,634
------- -------
$85,561 $79,033
======= =======
</TABLE>
73
<PAGE>
The aggregate amount of certificates of deposit with minimum
denominations of $100,000 or more was approximately $15,915,000 and $11,625,000
at March 31,1999 and 1998, respectively.
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
FOR YEAR ENDED MARCH 31,
---------------------------------------------
1999 1998 1997
---------------------------------------------
<S> <C> <C> <C>
Demand ................................................... $ 313,391 $ 364,774 $ 332,393
Savings and clubs ........................................ 3,604,347 3,601,095 3,542,024
Money Management ......................................... 613,267 691,939 657,529
Certificates of deposit .................................. 3,902,435 3,948,687 3,844,009
----------- ----------- -----------
8,433,440 8,606,495 8,375,955
Penalty for early withdrawals of certificate of deposit... (12,214) (10,137) (20,787)
----------- ----------- -----------
$ 8,421,226 $ 8,596,358 $ 8,355,168
=========== =========== ===========
</TABLE>
NOTE 12. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
LENDER MATURITY INTEREST RATE 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Home Loan Bank April 13, 1998 5.77% $ $5,700,000
Federal Home Loan Bank May 26, 1998 5.89 6,000,000
Federal Home Loan Bank June 23, 1998 5.98 5,000,000
Federal Home Loan Bank June 23, 1998 5.89 6,000,000
Federal Home Loan Bank July 28, 1998 5.91 6,000,000
Federal Home Loan Bank July 29, 1998 5.91 8,000,000
Federal Home Loan Bank August 14, 1998 5.91 4,000,000
Federal Home Loan Bank September 3, 1998 5.92 6,500,000
Federal Home Loan Bank October 27, 1998 5.58 6,000,000
Federal Home Loan Bank November 26, 1998 5.81 4,820,000
Federal Home Loan Bank February 26, 1999 5.91 8,000,000
Morgan Stanley Repo August 13, 1999 5.79 4,000,000
Federal Home Loan Bank December 20, 1999 5.82 5,000,000
Federal Home Loan Bank March 2, 2000 5.75 7,000,000 7,000,000
Federal Home Loan Bank January 26, 2000 5.82 9,000,000
Federal Home Loan Bank May 22, 2000 5.88 4,400,000
Federal Home Loan Bank July 26, 2000 5.41 8,000,000
Federal Home Loan Bank September 5, 2000 5.40 6,750,000
Federal Home Loan Bank October 26, 2000 4.81 5,187,000
------------
$ 35,337,000 $ 87,020,000
============ ============
</TABLE>
Information concerning borrowings collateralized by securities sold
under agreements to repurchase are summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MARCH 31,
------------------------------------
1999 1998
------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Average balance during the year........................................................ $ 59,296 $ 78,310
Average interest rate during the year.................................................. 5.74% 5.79%
Maximum month-end balance during the year.............................................. $ 85,720 $ 87,020
Mortgage-backed securities underlying the agreements at year end:
Carrying value................................................................... $ 39,343 $ 59,065
Estimated fair value............................................................. $ 39,316 $ 59,090
</TABLE>
74
<PAGE>
NOTE 13. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------------------------
1999 1998
MATURING ------------------------------------------------------------------------
YEAR ENDED WEIGHTED WEIGHTED
MARCH 31, AVERAGE RATE AMOUNT AVERAGE-RATE AMOUNT
--------- ------------ ------ ------------ ------
<S> <C> <C> <C> <C>
1998 --% $ -- 5.89% $ 21,000,000
1999 5.79 5,000,000 5.84 5,000,000
2000 5.33 40,000,000 5.85 10,000,000
2001 5.24 20,000,000 --
2003 3.58 358,700 3.58 372,596
2012 3.50 349,766 3.50 369,090
------------ -------------
$ 65,708,466 $ 36,741,686
============ =============
</TABLE>
At March 31, 1999 and 1998, the advances were secured by pledges of
the Bank's investment in the capital stock of the Federal Home Loan Bank
totaling $5,754,600 respectively and a blanket assignment of the Bank's
unpledged qualifying mortgage, mortgage-backed securities and investment
portfolios.
NOTE 14. INCOME TAXES
The Bank qualifies as a thrift institution under the provisions of
the Code and is therefore permitted to deduct from taxable income an allowance
for bad debts based on the greater of: (1) actual loan losses (the "experience
method"); or (2) eight percent of taxable income before such bad debt deduction
less certain adjustments (the "percentage method"). For the years ended
March 31, 1999, March 31, 1998, and March 31, 1997, the deductions for bad debt
was computed using the percentage method.
Retained earnings at March 31, 1999, includes approximately
$4,183,000 of such bad debts, for which federal income taxes have not been
provided. If such amount is used for purpose other than bad debts losses,
including distributions in liquidation, it will be subject to federal income tax
at the current rate.
The components of income taxes are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Current (Benefit) $(1,499,367) $ 966,000 $(1,348,259)
Deferred ........ -- 237,466 73,181
----------- ----------- -----------
$(1,499,367) $ 1,203,466 $(1,275,078)
=========== =========== ===========
</TABLE>
In connection with the operating loss incurred in the year ended March
31, 1999, the Company has a net operating loss ("NOL"), a portion of which was
used to recover income taxes previously paid. The balance of the NOL expires
during 2019. The NOL will be available to offset future operating income. The
NOL at March 31, 1999 was $4,892,000.
75
<PAGE>
The following table presents a reconciliation between the reported
income taxes and the federal income taxes which would be computed by applying
the standard federal income tax rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income taxes .............................. $(2,023,680) (34.00)% $ 765,000 34.00% $ (1,025,014) (34.00)%
Increases (reductions) in income taxes
resulting from:
Statutory bad debts deduction ............. 272,340 4.58 303,000 13.47 -- --
Amortization of intangibles ............... 74,000 1.24 (34,000) (1.51) (43,324) (1.44)
Dividend exclusion ........................ (117,000) (1.97) (85,200) (3.79) (373,400) (12.39)
State and city income taxes, net of federal
income tax effect ...................... 295,000 4.96 (304,660) 12.47 (166,660) (5.53)
Other items, net .......................... (49,334) (2.15) -- --
----------- ------ ----------- ----- ------------ -----
Effective income taxes (benefit) .......... $(1,499,340) (25.19)% $ 1,203,466 53.49 (1,275,078) 72.30%
=========== ====== =========== ===== ============ =====
</TABLE>
At March 31, 1999, income taxes payable of $379,076 are included in
other liabilities. The tax effects of existing temporary differences that give
rise to significant portions of deferred tax assets and deferred tax liabilities
are as follows:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1999 1998
----------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS
Reserve for uncollected interest.................................................... $114,400 $ 114,360
Loan and real estate owned losses in excess of bad
debts deduction................................................................. 299,000 188,000
Deferred loan fees.................................................................. 161,700 151,400
Accrued pension..................................................................... (63,165) (63,165)
Write down of common stock.......................................................... -- 19,829
Reserve for losses on other assets.................................................. 98,741 98,741
Unrealized loss on securities available for sale.................................... -- 40,410
-------- -----------
Other............................................................................... 68,000 65,165
-------- -----------
678,676 612,740
DEFERRED TAX LIABILITIES
Savings premium..................................................................... 209,000 209,883
Depreciation........................................................................ 430,800 330,800
-------- -----------
Sub total........................................................................... 38,876 540,683
Less: Valuation allowance........................................................... (38,876) --
-------- -----------
Net deferred tax assets included in other assets.................................... $ -- $ 72,057
========= ===========
</TABLE>
NOTE 15. REGULATORY CAPITAL
The operations and profitability of the Bank are significantly
affected by legislation and the policies of the various regulatory agencies. As
required by the Financial Institutions Reform, Recovery, and Enforcement Act,
the OTS promulgated capital requirements for financial institutions consisting
of minimum tangible and core capital ratios of 1.50% and 3.00%, respectively, of
the institution's adjusted total assets and a minimum risk-based capital ratio
of 8.00% of the institution's risk weighted assets. Although the minimum core
capital ratio is 3.00%, the FDICIA stipulates that an institution with less than
4.0% core capital is deemed undercapitalized. At March 31,1999 and 1998, the
Bank exceeded all the current capital requirements.
76
<PAGE>
The following table sets out the Bank's various regulatory capital
categories at March 31, 1999.
<TABLE>
<CAPTION>
At March 31, 1999
---------------------
DOLLARS PERCENTAGE
------- ----------
(IN THOUSANDS)
<S> <C> <C>
Tangible capital ..................... 25,916 6.26%
Core/leverage capital ................ 25,953 6.27
Tier 1 risk-based capital............. 28,580 13.38
Total risk-based capital.............. 28,580 13.38
</TABLE>
The following table reconciles the Bank's stockholders' equity at
March 31, 1999, under generally accepted accounting principles to regulatory
capital requirements:
<TABLE>
<CAPTION>
REGULATORY CAPITAL REQUIREMENTS
----------------------------------------------------
GAAP TANGIBLE TIER/CORE RISK-BASED
CAPITAL CAPITAL CAPITAL CAPITAL
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
Stockholders' Equity at March 31, 1999 (1) $ 26,946 $ 26,946 $ 26,946 $ 26,946
========
Add:
Unrealized loss on securities ........ -- -- --
available for sale, net
General valuation allowances ......... -- -- 2,667
Qualifying intangible assets ......... -- 37 37
Deduct:
Goodwill ............................. (1,030) (1,030) (1,030)
Excess of net deferred tax assets .... -- -- --
Asset required to be deducted ........ -- -- (40)
-------- -------- --------
Regulatory capital ................... 25,916 25,953 28,580
Minimum capital requirement .......... 6,211 16,563 17,083
-------- -------- --------
Regulatory capital excess ............ $ 19,705 $ 9,390 $ 11,497
======== ======== ========
</TABLE>
- ----------------------
(1) Reflects Bank only.
NOTE 16. BENEFIT PLANS
Pension Plan
Carver has a non-contributory defined benefit pension plan covering
all eligible employees. The benefits are based on each employee's term of
service. Carver's policy is to fund the plan with contributions which equal the
maximum amount deductible for federal income tax purposes. The following table
sets forth the plan's funded status:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligation including
vested benefits of $2,054,535 and $1,690,000 .......... $ 2,593,359 $ 2,382,850
Projected benefit obligation ............................... 3,144,934 2,796,385
Plan assets at fair value .................................. 3,625,222 3,275,671
Plan assets in excess of projected benefit obligation ...... 480,288 474,255
Unrecognized net obligation being amortized over 19.75 years 294,873 330,567
Unrecognized prior service cost ............................ 16,544 18,678
Unrecognized net (gain) .................................... (943,321) (947,721)
(Accrued) pension cost included other liabilities .......... $ (122,769) $ (119,181)
</TABLE>
77
<PAGE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Service cost $ 161,729 $ 158,235 $ 115,541
Interest cost 188,592 182,273 158,379
Return on plan assets (456,614) (387,657) (318,555)
Net deferral and amortization 188,174 133,928 157,672
--------- --------- ---------
Net periodic pension cost $ 81,881 $ 86,779 $ 55,057
========= ========= =========
</TABLE>
Significant actuarial assumptions used in determining plan benefits
are:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1999 1998 1997
-------------------------------
<S> <C> <C> <C>
Annual salary increase ............. 4.50% 5.50% 5.00%
Long-term return on assets ......... 8.00% 8.00% 8.00%
Discount rate used in measurement of
benefit obligations ............. 6.75% 7.50% 7.00%
</TABLE>
Savings Incentive Plan
The Bank has a savings incentive plan, pursuant to Section 401(k) of
the Code, for all eligible employees of the Bank. Employees may elect to defer
up to the lesser of 15% or the maximum amount allowed under law of their
compensation and may receive a percentage matching contribution from the Bank
with respect to 50% of the eligible employee's contributions up to the maximum
allowed by law. Total incentive plan expenses for the years ended March 31,
1999, 1998 and 1997 were $68,000, $73,000 and $63,500 respectively.
Directors' Retirement Plan
Concurrent with the conversion to the stock form of ownership, the
Bank adopted a retirement plan for non-employee directors. The benefits are
payable based on the term of service as a director.
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------
1999 1998
-----------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation including vested
benefits of $2,054,535 and $1,690,000......................................... $ 424,370 $ 327,815
Projected benefit obligation..................................................... 795,439 479,672
Plan assets at fair value........................................................ -- --
Projected benefit obligation in excess of plan assets............................ 795,439 479,672
Unrecognized past service cost................................................... 110,464 165,700
Additional minimum liability..................................................... 89,477 13,843
Accrued liability included in other liabilities.................................. $ 424,370 $ 327,815
</TABLE>
78
<PAGE>
Net periodic pension cost for the years ended March 31, 1999, 1998
and 1997 included the following:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Service cost .................................. $ -- $ 42,403 $ 24,330
Interest cost ................................. 50,918 31,562 31,395
Expected return on assets ..................... -- -- --
Amortization of:
Unrecognized transition asset (obligation) -- -- --
Unrecognized gain (loss) ................. 26,866 -- --
Unrecognized past service liability ...... 55,236 -- --
Net deferral and amortization (1) ............. -- 58,758 55,324
-------- -------- --------
Net pension cost .............................. $133,020 $132,723 $111,049
======== ======== ========
</TABLE>
(1) For fiscal years 1998 and 1997, amortization of unrecognized items were
reported as net deferral and amortization cost
The actuarial assumptions used in determining plan benefits include
annual fee at 2.80% for each of the three years ended March 31, 1998, and a
discount rate of 8.00%, 7.50% and 8.00%, for the years ended March 31, 1998,
1997 and 1996, respectively. The additional minimum liability included as an
intangible asset in other assets are $165,700 and $221,093 for the years ended
March 31, 1998 and 1997, respectively.
Management Recognition Plan
Pursuant to the management recognition plan approved at the
stockholders meeting held on September 12, 1995, the Bank recognized $62,000 and
$93,000 as expense for the years ended March 31, 1999 and 1998.
NOTE 17. EMPLOYEE STOCK OWNERSHIP PLAN
Effective upon conversion, an ESOP was established for all eligible
employees. The ESOP used $1,821,320 in proceeds from a term loan obtained from a
third-party institution to purchase 182,132 shares of Bank common stock in the
initial public offering. The term loan principal is payable over forty equal
quarterly installments through September 2004. Interest on the term loan is
payable quarterly, at a rate of 3.00% over the average federal funds rate. Each
year, the Bank intends to make discretionary contributions to the ESOP which
will be equal to principal and interest payments required on the term loan less
any dividends received by the ESOP on unallocated shares.
Shares purchased with the loan proceeds were initially pledged as
collateral for the term loan and are held in a suspense account for future
allocation among the participants on the basis of compensation, as described by
the Plan, in the year of allocation.
Accordingly, the ESOP shares pledged as collateral are reported as
unearned ESOP shares in the consolidated statements of financial condition. As
shares are committed to be released from collateral, the Bank reports
compensation expense equal to the current market price of the shares, and the
share become outstanding for net income per common share computations. ESOP
compensation expense was $171,000 and $241,000 for the years ended March 31,
1999 and 1998 respectively.
79
<PAGE>
The ESOP shares at March 31,1999 and 1998 are as follows:
<TABLE>
<CAPTION>
March 31
----------------------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allocated shares...................................... $ 75,755 $ 50,236
Shares committed to be released....................... 19,995 25,519
Unreleased shares..................................... 86,382 106,377
-------- ----------
Total ESOP shares..................................... 182,132 182,132
======== ==========
Fair value of unreleased shares....................... $755,843 $1,582,358
</TABLE>
NOTE 18. COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing need of its
customers.
These financial instruments primarily include commitments to extend
credit and to sell loans. Those instruments involve, to varying degrees,
elements of credit and interest rate in excess of the amount recognized in the
statement of financial condition. The contract amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The Bank
uses the same credit policies making commitments as it does for on-balance-sheet
instruments.
The Bank has outstanding various loan commitments as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------
1999 1998
---------- ----------
<S> <C> <C>
Commitments To Originate Loans Mortgage........................ $7,440,520 $9,585,776
Commitments To Purchase Loans Mortgage......................... -- --
Commitments to Sell Loans Mortgage............................. -- --
Consumer Loans................................................. -- --
---------- ----------
Total.......................................................... $7,440,520 $9,585,776
========== ==========
</TABLE>
At March 31,1999, of the $7,440,520 in outstanding commitments to
originate mortgage loans, $3,940,000 are one-year loans, $235,000 are at fixed
rates within a range of 7.00% to 7.125%, $630,000 is a balloon loan with a five
year maturity and a rate of 9.875% and $2,635,520 are for commercial loans with
adjustable rate whose initial rates range between 8.00% to 10.50%.
At March 31,1999, undisbursed funds from approved commercial lines of
credit totaled $4,500,000. All such lines are secured, including $1,000,000 in
warehouse lines of credit secured by the underlying warehoused mortgages, expire
within one year, and carry interest rates that float at 1.00% above the prime
rate.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counter-party.
80
<PAGE>
Collateral held consists primarily of residential real estate, but may include
income-producing commercial properties.
Rentals, including real estate taxes, under long-term operating
leases for certain branch offices aggregated approximately $266,000, $263,000
and $285,000 for the years ended March 31, 1999, 1998, and 1997, respectively.
As of March 31, 1999, minimum rental commitments under all noncancellable leases
with initial or remaining terms of more than one year and expiring through 2011
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, MINIMUM RENTAL
--------------------------------------------------
(IN THOUSANDS)
<S> <C>
1999 $ 252
2000 255
2001 258
2002 264
2003 267
Thereafter 1,725
-------
$ 3,021
=======
</TABLE>
The Bank also has, in the normal course of business, commitments for
services and supplies. Management does not anticipate losses on any of these
transactions.
Legal Proceedings
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 during 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 on May 28, 1999
the court granted summary judgment in favor of the plaintiff on the issue of
liability. The Bank intends to appeal the judgment, and a trial to determine
damages has yet to be scheduled. In the third case, Hardy v. Carver Federal
Savings Bank and L.& 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 has
filed claims for indemnification against the general contractor responsible for
the construction site in each of these cases. The Bank is contesting each of
these cases vigorously.
NOTE 19. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is defined as the amount at
which the instrument could be exchange in a current transaction between willing
parties, other than a forced or liquidation sale. Significant estimations were
used by the Bank for the purpose of this disclosure. Estimated fair values have
been determined by the Bank using the best available data and estimation
methodology suitable for each category of financial instrument. For those loans
and deposits with floating interest rates, it is presumed that estimated fair
values generally approximate their recorded book balances. The estimation
methodologies used and the estimated fair values and carrying values of the
Bank's financial instruments are set forth below:
Cash And Cash Equivalents And Accrued Interest Receivable
The carrying amounts for cash and cash equivalents and accrued
receivable approximate fair value because they mature in three months or less.
81
<PAGE>
Securities
The fair values for securities available for sale, mortgage-backed
securities held to maturity and investment securities held to maturity are based
on quoted market or dealer prices, if available. If quoted market or dealer
prices are not available, fair value is estimated using quoted market or dealer
prices for similar securities.
Loans Receivable
The fair value of loans receivable is estimated by discounting future
cash flows, using current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining maturities of
such loans.
Deposits
The fair value of demand, savings and club accounts is equal to the
amount payable on demand at the reporting date. The fair value of certificates
of deposit is estimated using rates currently offered for deposits of similar
remaining maturities. The fair value estimates do not include the benefit that
results from the low-cost funding provided by deposit liabilities compared to
the cost of borrowing funds in the market.
Advances from Federal Home Loan Bank of New York, Securities sold under
agreement to repurchase and other borrowed money
The fair values of advances from Federal Home Loan Bank of New York,
securities sold under agreement to repurchase and other borrowed money are
estimated using the rates currently available to the Bank for debt with similar
terms and remaining maturities.
Commitments
The fair value of commitments to originate loans is equal to amount
of commitment.
82
<PAGE>
The carrying amounts and estimated fair values of the Bank's
financial instruments at March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
AT MARCH 31,
------------------------------------------------
1999 1998
------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ----------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents . $ 21,321 $ 21,321 $ 15,120 $ 15,120
Securities available ...... $ 29,918 $ 30,000 $ 28,408 $ 23,382
Mortgage-backed securities $ 66,584 $ 65,694 $ 91,116 $ 90,198
Loans receivable .......... $270,522 $272,711 $274,905 $276,170
Accrued interest receivable $ 2,861 $ 2,861 $ 2,763 $ 2,763
Financial Liabilities:
Deposits .................. $276,999 $276,999 $274,894 $273,401
Securities sold under
agreements to purchase .. $ 35,337 $ 35,337 $ 87,020 $ 87,020
Advances from Federal Home
Loan Bank of New York ... $ 65,708 $ 65,708 $ 36,742 $ 36,730
Other borrowed money ...... $ 993 $ 993 $ 1,184 $ 1,184
Commitments:
To originate loans ........ $ 7,440 $ 7,440 $ 9,586 $ 9,586
To sell loans ............. -- $ -- $ -- $ --
To fund line of credit .... $ 4,985 $ 4,985 $ 5,276 $ 5,276
</TABLE>
Limitations
The fair value estimates are made at a discrete point in time based
on relevant market information about the financial instruments. These estimates
do not reflect any premium or discount that could result from offering for sale
at one time the entire holdings of a particular financial instrument. Because no
quoted market value exists for a significant portion of the Bank's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
In addition, the fair value estimates are based on existing on an off
balance sheet financial instruments without attempting to value anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets and liabilities include premises and equipment and
advances from borrowers for taxes and insurance. In addition, the tax
ramifications related to the realization of unrealized gains and losses can have
a significant effect on fair value estimates and have not been considered in any
of the estimates.
Finally, reasonable comparability between financial institutions may
not be likely due to the wide range of permitted valuation techniques and
numerous estimates which must be made given the absence of active secondary
markets for many of the financial instruments. This lack of uniform valuation
methodologies introduces a greater degree of subjectively to these estimated
fair values.
83
<PAGE>
NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999(1)
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------------------------------------------
<S> <C> <C> <C> <C>
Interest income .................. $ 7,585 $ 7,001 $ 6,931 $ 6,956
Interest expense ................. (3,887) (3,633) (3,523) (3,772)
Net interest income .............. 3,698 3,368 3,408 3,184
Provision for loan losses ........ (450) (300) (3,061) (218)
Non-interest income loss ......... 575 572 347 888
Non-interest expense ............. 3,269 3,337 8,270 3,089
Income taxes (benefit) ........... 236 110 (1,847) --
------- ------- ------- -------
Net income (loss) ................ $ 318 $ 193 $(5,729) $ 765
======= ======= ======= =======
Net income (loss) per common share $ .14 $ .09 $ (2.59) $ .35
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998(1)
------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------------------------------------------
<S> <C> <C> <C> <C>
Interest income .................. $ 6,797 $ 7,146 $ 6,931 $ 6,954
Interest expense ................. (3,820) (3,828) (3,694) (3,677)
Net interest income .............. 2,977 3,318 3,237 3,277
Provision for loan losses ........ (168) (171) (280) (691)
Non-interest income loss ......... 316 353 550 1,133
Non-interest expense ............. (2,561) (2,902) (2,938) (3,200)
Income taxes (benefit) ........... 254 269 268 413
------- ------- ------- -------
Net income (loss) ................ $ 310 $ 329 $ 301 $ 106
======= ======= ======= =======
Net income (loss) per common share $ 0.14 $ 0.15 $ 0.14 $ 0.05
======= ======= ======= =======
</TABLE>
- -------------
(1) Sum of four quarter results may not equal year-end results due to rounding.
84
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding Directors and Executive Officers of the
Registrant is included under the headings, "Information with respect to Nominees
and Continuing Directors," "Nominees for Election as Directors," "Continuing
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Company's Proxy Statement for its 1999 Annual Meeting of
Stockholders, which is expected to be filed with the SEC within 120 days from
March 31, 1999, and is incorporated herein by reference. Information regarding
Executive Officers, who are not Directors, appears under the caption "Executive
Officers of the Holding Company" included in Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is included under the
headings "Executive Compensation" (excluding the Stock Performance Graph and the
Compensation Committee Report) and "Directors' Compensation" in the Company's
Proxy Statement for its 1999 Annual Meeting of Stockholders, which is expected
to be filed with the SEC within 120 days from March 31, 1999, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to security ownership of certain beneficial
owners and management is included under the headings "Security Ownership of
Certain Beneficial Owners" and "Stock Ownership of Management" in the Company's
Proxy Statement for its 1999 Annual Meeting of Stockholders, which is expected
to be filed with the SEC within 120 days from March 31, 1999, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions
is included under the heading "Certain Relationships and Related Transactions"
in the Company's Proxy Statement for its 1999 Annual Meeting of Stockholders,
which is expected to be filed with the SEC within 120 days from March 31, 1999
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) List of Documents Filed as Part of this Report
(1) Consolidated Financial Statements. The following are
incorporated by reference from Item 8 hereof.
Independent Auditors' Report
Consolidated Statements of Financial Condition as of
March 31, 1999 and 1998
Consolidated Statements of Income for Each of the
Years in the Three-Year Period Ended March 31, 1999
85
<PAGE>
Consolidated Statements of Changes in
Stockholders' Equity for Each of the Years in the
Three-Year Period Ended March 31, 1999
Consolidated Statements of Cash Flows for Each of the
Years in the Three-Year Period Ended March 31, 1999
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules. All financial
statement schedules have been omitted as the required
information is either inapplicable or included in the
Financial Statements or related notes.
(3) Exhibits. The following is a list of exhibits filed
as part of this Annual Report and is also the Exhibit
Index.
(b) Reports on Form 8-K filed during the last quarter of the
period covered by this report:
(1) Current Report on Form 8-K, filed with the Securities
and Exchange Commission on February 12, 1999,
announcing an expected non-recurring third quarter
loss, the termination of the Chief Executive Officer
and the appointment of an operating committee.
(c) Exhibits required by Item 601 of Regulation S-K:
86
<PAGE>
NO. EXHIBIT
3.1 Certificate of Incorporation of Carver Bancorp, Inc.(1)
3.2 Bylaws of Carver Bancorp, Inc.(1)
4.1 Stock certificate of Carver Bancorp, Inc.(1)
4.2 Federal Stock Charter of Carver Federal Savings Bank(1)
4.3 Bylaws of Carver Federal Savings Bank(1)
4.4 Amendments to Bylaws of Carver Federal Savings Bank (3)
10.1 Carver Bancorp, Inc. 1995 Stock Option Plan, effective as of
September 12, 1995(1)
10.2 Carver Federal Savings Bank Retirement Income Plan, as amended
and restated effective as of January 1, 1989(1)
10.3 Carver Federal Savings Bank 401(k) Savings Plan in RSI
Retirement Trust, as amended and restated effective as of May
1, 1993(1)
10.4 Carver Bancorp, Inc. Employee Stock Ownership Plan, effective
as of January 1, 1993(1)
10.5 Carver Federal Savings Bank Deferred Compensation Plan,
effective as of August 10, 1993(1)
10.6 Carver Federal Savings Bank Retirement Plan for Nonemployee
Directors, effective as of October 24, 1994(1)
10.7 Carver Bancorp, Inc. Management Recognition Plan, effective as
of September 12, 1995(1)
10.8 Carver Bancorp, Inc. Incentive Compensative Plan, effective as
of September 12, 1995(1)
10.9 Employment Agreement by and between Carver Federal Savings
Bank and Thomas L. Clark, entered into as of April 1, 1997(2)
10.10 Employment Agreement by and between Carver Bancorp, Inc. and
Thomas L. Clark, entered into as of April 1, 1997(2)
10.11 Employment Agreement by and between Carver Federal Savings
Bank and Deborah C. Wright, entered into as of June 1, 1999
10.12 Employment Agreement by and between Carver Bancorp, Inc. and
Deborah C. Wright, entered into as of June 1, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Mitchell & Titus LLP
27.1 Financial Data Schedule (only submitted with filing in
electronic format)
99.1 Proxy Statement for the 1999 Annual Meeting of Stockholders of
Carver Bancorp, Inc. to be filed with the Securities and
Exchange Commission within 120 days from March 31, 1999 is
incorporated herein by reference.
(1) Incorporated herein by reference to Registration Statement No. 333-0559
on Form S-4 of Carver Bancorp. Inc., filed with the Securities and
Exchange Commission during July 1997, as amended.
(2) Incorporated herein by reference to the Exhibits to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
(3) Incorporated herein by reference to the Exhibits to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
87
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CARVER BANCORP, INC.
June 28, 1999 By /s/ DEBORAH C. WRIGHT
--------------------------------------
Deborah C. Wright
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
By: /s/ DEBORAH C. WRIGHT President, Chief Executive June 28, 1999
--------------------- Officer and Director
Deborah C. Wright (Principal Executive Officer)
By: /s/ WALTER T. BOND Acting Chief Financial Officer and June 28, 1999
--------------------- Chief Investment Officer (Principal
Walter T. Bond Financial and Accounting Officer)
By: /s/ DAVID N. DINKINS Director June 26, 1999
---------------------
David N. Dinkins
By: /s/ LINDA H. DUNHAM Director June 28, 1999
---------------------
Linda H. Dunham
By: /s/ HERMAN JOHNSON Director June 26, 1999
---------------------
Herman Johnson
By: /s/ DAVID R. JONES Chairman of the Board and Director June 28, 1999
---------------------
David R. Jones
By: /s/ PAZEL G. JACKSON Director June 28, 1999
---------------------
Pazel G. Jackson
By: /s/ ROBERT J. FRANZ Director June 28, 1999
---------------------
Robert J. Franz
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Description
No.
3.1 Certificate of Incorporation of Carver Bancorp, Inc.(1)
3.2 Bylaws of Carver Bancorp, Inc.(1)
4.1 Stock certificate of Carver Bancorp, Inc.(1)
4.2 Federal Stock Charter of Carver Federal Savings Bank(1)
4.3 Bylaws of Carver Federal Savings Bank(1)
4.4 Amendments to Bylaws of Carver Federal Savings Bank (3)
10.1 Carver Bancorp, Inc. 1995 Stock Option Plan, effective as of
September 12, 1995(1)
10.2 Carver Federal Savings Bank Retirement Income Plan, as amended
and restated effective as of January 1, 1989(1)
10.3 Carver Federal Savings Bank 401(k) Savings Plan in RSI
Retirement Trust, as amended and restated effective as of May
1, 1993(1)
10.4 Carver Bancorp, Inc. Employee Stock Ownership Plan, effective
as of January 1, 1993(1)
10.5 Carver Federal Savings Bank Deferred Compensation Plan,
effective as of August 10, 1993(1)
10.6 Carver Federal Savings Bank Retirement Plan for Nonemployee
Directors, effective as of October 24, 1994(1)
10.7 Carver Bancorp, Inc. Management Recognition Plan, effective as
of September 12, 1995(1)
10.8 Carver Bancorp, Inc. Incentive Compensative Plan, effective as
of September 12, 1995(1)
10.9 Employment Agreement by and between Carver Federal Savings
Bank and Thomas L. Clark, entered into as of April 1, 1997(2)
10.10 Employment Agreement by and between Carver Bancorp, Inc. and
Thomas L. Clark, entered into as of April 1, 1997(2)
10.11 Employment Agreement by and between Carver Federal Savings
Bank and Deborah C. Wright, entered into as of June 1, 1999
10.12 Employment Agreement by and between Carver Bancorp, Inc. and
Deborah C. Wright, entered into as of June 1, 1999
21.1 Subsidiaries of the Registrant
23.1 Consent of Mitchell & Titus LLP
27.1 Financial Data Schedule (only submitted with filing in
electronic format)
99.1 Proxy Statement for the 1999 Annual Meeting of Stockholders of
Carver Bancorp, Inc. to be filed with the Securities and
Exchange Commission within 120 days from March 31, 1999 is
incorporated herein by reference.
(1) Incorporated herein by reference to Registration Statement No. 333-0559
on Form S-4 of Carver Bancorp. Inc., filed with the Securities and
Exchange Commission during July 1997, as amended.
(2) Incorporated herein by reference to the Exhibits to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1997.
(3) Incorporated herein by reference to the Exhibits to the Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
<PAGE>
EXHIBIT 10.11
BANK EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of June 1, 1999, by and between CARVER FEDERAL SAVINGS BANK, a savings
bank organized and operating under the federal laws of the United States and
having an office at 75 West 125th Street, New York, New York 10027 ("Bank") and
DEBORAH C. WRIGHT, an individual residing [Address omitted] ("Executive").
For purposes of this Agreement Carver Bancorp, Inc. will be referred to as (the
"Holding Company").
W I T N E S S E T H :
WHEREAS, subject to the approval of the applicable federal and
state bank regulators, for purposes of securing the Executive's services for the
Bank, the Board of Directors of the Bank has approved and authorized the
execution of this Agreement with the Executive; and
WHEREAS, the Executive is willing to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth and, the Bank and the
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to employ Executive, and the Executive hereby
agrees to such employment, during the period and upon the terms and conditions
set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this Section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on June 1, 1999 (the "Effective Date"). The Board shall
review the Executive's performance of services under this Agreement on an annual
basis. Prior to the second anniversary of the date of this Agreement and on each
anniversary date thereafter (each, an "Anniversary Date"), the Board shall
review the terms of this Agreement and the Executive's performance of services
hereunder and may, in the absence of objection from the Executive, approve a
one-year extension of the Employment Agreement. In such event, the Employment
Agreement shall be extended to the second anniversary of the relevant
Anniversary Date.
Page 1 of 22
<PAGE>
(b) For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the Anniversary Date on which the Employment Period (as
extended pursuant to Section 2(a) of this Agreement) is then scheduled to
expire.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank at any time from terminating Executive's employment during the Employment
Period with or without prior notice for any reason; provided, however, that the
relative rights and obligations of the Bank and Executive in the event of any
such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Executive shall serve as President and Chief Executive Officer
of the Bank, and as a member of the Board, having such power, authority and
responsibility, including without limitation the power to hire and dismiss any
employees of the Bank, and performing such duties as are prescribed by or under
the By-Laws of the Bank and as are customarily associated with such positions.
Executive shall devote her full business time and attention (other than during
weekends, holidays, approved vacation periods, and periods of illness or
approved leaves of absence) to the business and affairs of the Bank and shall
use her best efforts to advance the interests of the Bank.
SECTION 4. BASE SALARY.
In consideration for the services to be rendered by Executive
hereunder, the Bank shall pay to Executive a base salary at an initial annual
rate of Two Hundred and Thirty-Five Thousand Dollars ($235,000.00) payable in
approximately equal installments in accordance with the Bank's customary payroll
practices for senior officers. Each May, prior to the Anniversary Date of the
Effective Date of this Agreement occurring during the Employment Period, the
Board shall review Executive's annual rate of salary and may, in its discretion,
approve an increase therein.
SECTION 5. INCENTIVE COMPENSATION.
(a) Upon the Effective Date of this Agreement, the Executive
shall be granted incentive stock options under the Holding Company's 1995 Stock
Option Plan to purchase up to Thirty Thousand (30,000) shares of the Holding
Company's common stock, par value $.01 per share ("Options") at an exercise
price equal to the "Market Value" (as such term is defined in the 1995 Stock
Option Plan) of a share of the Holding Company's common stock on the date of
grant. Of the foregoing Option grant, Options granted with respect to the
purchase of Fifteen Thousand (15,000) shares of the Holding Company's common
stock shall vest and become immediately exercisable on the Effective Date and
the balance of these Options shall vest and become exercisable in equal
installments over a three-year period, with Five Thousand (5,000) Options
becoming 100% vested and fully exercisable on the first anniversary of the
Effective Date and Five Thousand (5,000) additional Options becoming 100% vested
and fully exercisable on the second and third immediately succeeding
anniversaries of the Effective Date. The foregoing grant of Options to the
Executive (and all rights and privileges relating to such Options) shall be
memorialized in a written stock option
Page 2 of 22
<PAGE>
agreement to be entered into by and between the Holding Company and the
Executive which shall be governed by, and incorporate by reference, the terms
and provisions of the Holding Company's 1995 Stock Option Plan and the terms of
this Agreement, as applicable. In addition, each May, prior to the anniversary
of the Effective Date of this Agreement, the Board of Directors of the Holding
Company shall review the Executive's performance under this Agreement and may,
in its discretion, grant additional stock option awards to the Executive under
the 1995 Stock Option Plan; provided, however, that no fewer than Thirty
Thousand (30,000) Options shall be granted to the Executive on June 1, 2000 and
such Options shall vest in three annual installments on each anniversary of such
grant date. The Executive acknowledges and agrees that the grant of all
additional stock option awards may be subject to the approval of the Holding
Company's shareholders to the proposed amendment to the 1995 Option Plan to
increase its share reserve.
(b) The Executive shall also be eligible to receive an annual
incentive compensation payment ("Incentive Compensation Award") in a dollar
amount to be determined by the Board, in its discretion, based upon the
Executive's performance during the applicable Incentive Compensation Award
measurement period ("Measurement Period") agreed upon by the Board and the
Executive. The dollar amount of the Incentive Compensation Award payable to the
Executive with respect to the applicable Measurement Period shall be determined
by the Board in May of each year or as soon as practicable after the release of
the audited consolidated financial statements of the Holding Company and the
Bank. The Incentive Compensation Award shall be paid to the Executive (less all
applicable tax withholding) in a single sum cash payment as soon as
administratively feasible after the date the dollar amount of the Incentive
Compensation Award has been determined by the Board. The Board's determination
of the dollar amount of the Executive's Incentive Compensation Award shall be
based upon the Executive's attainment of one or more of the performance goal
categories ("Performance Goals") set forth in Appendix A hereof; provided,
however, the Holding Company and the Executive agree that the Performance Goals
contained in Appendix A are illustrative rather than exhaustive and are evidence
of the intent of the parties that the dollar amount of the Incentive
Compensation Award be based on the Board's evaluation of the Executive's
performance during the applicable Measurement Period. The attainment of
Performance Goals is expected to result in an Incentive Compensation Award in
the range of twenty percent (20%) to fifty percent (50%) of the Executive's base
salary, although the Board may, in its discretion, make an Incentive
Compensation Award outside of the aforementioned range.
(c) Upon the Effective Date of this Agreement, the Executive
shall also be granted a restricted stock award ("Restricted Stock Award") under
the Holding Company's Management Recognition Plan with respect to Seventy-Five
Hundred (7,500) shares of the Holding Company's common stock. The Restricted
Stock Award (and all rights and privileges relating to such Award) shall be
memorialized in a written Restricted Stock Award Notice and Agreement to be
entered into between the Holding Company and the Executive which shall be
governed by, and incorporate by reference, the terms and provisions of the
Holding Company's Management Recognition Plan and the terms of this Agreement,
as applicable. The Restricted Stock Award shall vest in equal installments over
a three-year period, with Twenty-Five Hundred (2,500) shares of the Restricted
Stock Award becoming vested and distributable to the Executive on each of the
first, second and third immediately succeeding anniversaries of the Effective
Date of this Agreement; provided, however, the Board of Directors of the Holding
Company shall have the discretion to accelerate the vesting of all or a portion
of the foregoing Restricted Stock Award based upon the Executive's
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attainment of one or more of the Performance Goals set forth in Appendix A of
this Agreement during any applicable Measurement Period.
SECTION 6. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) (collectively, "Benefit Plans") as may from time to time be
maintained by, or cover employees of, the Bank, in accordance with the terms and
conditions of such employee benefit plans and programs and compensation plans
and programs and consistent with the Bank's customary practices. In addition,
the Bank shall provide to the Executive at the Bank's expense, with a term life
insurance policy in the amount of One Million Dollars ($1,000,000) payable to
the beneficiary designated by the Executive. Nothing paid to the Executive under
any such policy, plan or arrangement will be deemed to be in lieu of any other
compensation to which the Executive is entitled under this Agreement.
SECTION 7. SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS.
Without limiting the generality of Section 6 hereof, in the
event that the amount of benefits or contributions Executive would have received
or accrued under the benefit formulas of the tax-qualified Benefit Plans of the
Bank is limited by Sections 401(a)(17), 401(k)(3), 401(m), 402(g) or 415 of the
Internal Revenue Code of 1986 ("Benefit Limitations"), the Bank shall provide
Executive with supplemental benefits equal to the benefits attributable to
employer contributions that she would have received if the Benefit Limitations
did not apply. Such supplemental benefits shall be provided on a non-qualified,
deferred compensation basis and shall be determined under the benefit formulas
and actuarial assumptions of the applicable Benefit Plans. Payment of such
supplemental benefits shall be made in the same manner and at the same time as
payment of the Executive's benefits under the applicable Benefit Plan.
SECTION 8. INDEMNIFICATION.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Bank shall cause Executive to be covered by and named as
an insured under any policy or contract of insurance obtained by it to insure
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Bank, or service in
other capacities at the request of the Bank. The coverage provided to Executive
pursuant to this Section 8 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Bank.
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(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Bank shall indemnify Executive against and hold Executive harmless from any
costs, liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Bank or affiliate thereof. This Section 8(b) shall
not be applicable where Section 21 is applicable.
SECTION 9. OUTSIDE ACTIVITIES.
Executive may serve as a member of the boards of directors of
such business, community and charitable organizations as Executive may disclose
to and as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of her duties under this Agreement. Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of her duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly situated executives. The Executive may also serve as an officer or
director of the Holding Company on such terms and conditions as the Bank and the
Holding Company may mutually agree upon, and such service shall not be deemed to
materially interfere with the Executive's performance of her duties hereunder or
otherwise to result in a material breach of this Agreement.
SECTION 10. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Bank's executive offices at the address first above written, or at such other
location within New York City at which the Bank shall maintain its principal
executive offices, or at such other location as the Bank and Executive may
mutually agree upon. The Bank shall provide Executive at her principal place of
employment with a private office, secretarial services, reimbursement or direct
payment for business-related car expenses not to exceed Fifteen Hundred Dollars
($1,500.00) per month and other support services and facilities suitable to her
position with the Bank and necessary or appropriate in connection with the
performance of her assigned duties under this Agreement. The Bank shall
reimburse the Executive for her ordinary and necessary business expenses plus
membership fees, dues, capital contributions or such other business-related
charges required for, or related to, membership or participation in such clubs
and organizations as Executive and the Bank shall mutually agree are necessary
and appropriate for business purposes, and her travel and entertainment expenses
incurred in connection with the performance of her duties under this Agreement,
in each case upon presentation to the Bank of an itemized account of such
expenses in such form as the Bank may reasonably require. The Bank shall pay the
reasonable legal fees and expenses of Latham & Watkins, counsel to the
Executive, in connection with the negotiation of this Agreement.
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SECTION 11. TERMINATION OF EMPLOYMENT.
Executive shall be entitled to the severance benefits
described in Section 12 hereof in the event that her employment with the Bank
terminates during the Employment Period under any of the following
circumstances:
(a) prior to a Change in Control, as defined in Section 15
hereof:
(i) the termination by the Bank of the Executive's
employment hereunder for any reason other than Disability, as
defined in Section 13 hereof, Retirement, as defined in
Section 14(d) hereof, or Cause, as defined in Section 14(a)
hereof; or
(ii) Executive's voluntary resignation from
employment with the Bank upon (60) days written notice given
within six full calendar months following:
(A) the failure of the Board to appoint or
re-appoint or elect or re-elect Executive to the
office of President and Chief Executive Officer of
the Bank or the failure of the Board of the Holding
Company to appoint or re-appoint or elect or re-elect
Executive to the office of President and Chief
Executive Officer of the Holding Company; or
(B) the failure of the stockholders of the
Bank to elect or re-elect Executive as a member of
the Board, or the failure of the Board (or the
nominating committee thereof) to nominate Executive
for such election or re-election; or
(C) the expiration of a thirty (30) day
period following the date on which Executive gives
written notice to the Bank of its the material
failure, whether by amendment of the Bank's Federal
Stock Charter or By-laws, action of the Board, or the
Bank's stockholders or otherwise, to vest in
Executive the functions, duties, or responsibilities
attributable to the positions described in Section 3
of this Agreement, unless, during such thirty (30)
day period, the Bank cures such failure in a manner
determined by Executive, in her discretion, to be
satisfactory; or
(D) the expiration of a thirty (30) day
period following the date on which Executive gives
written notice to the Bank of its material breach of
any term, condition or covenant contained in this
Agreement (including, without limitations, any
reduction of Executive's rate of base salary in
effect from time to time, any change in the terms and
conditions of any compensation or benefit program in
which Executive participates, or change in
Executive's fringe
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benefits and perquisites, which, either individually
or together with other changes, has a material
adverse effect on the aggregate value of her total
compensation package), unless, during such thirty
(30) day period, the Bank cures such failure in a
manner determined by Executive, in her discretion, to
be satisfactory; or
(E) the relocation of Executive's principle
place of employment by more than 30 miles from its
location at the effective date of this Agreement or
any change in working conditions at such principal
place of employment which Executive, in her
reasonable discretion, determines to be embarrassing,
derogatory or otherwise adverse; or
(b) subsequent to a Change in Control, as defined in Section
15, Executive's voluntary or involuntary resignation or the termination by the
Bank of Executive's employment hereunder, for any reason, other than death,
Disability or Cause, then subject to Section 28, the Bank shall provide the
benefits and pay to the Executive the amounts described in Section 12.
SECTION 12. SEVERANCE BENEFITS.
Upon the termination of Executive's employment with the Bank
under the circumstances described in Section 11 of this Agreement, the Bank
shall pay and provide to Executive (or, in the event of her death following her
termination of employment, to her estate):
(a) her earned but unpaid compensation (including, without
limitation, all items which constitute wages under Section 190.1 of the
New York Labor Law and the payment of which is not otherwise provided
for under this Section 12) as of the date of the termination of her
employment with the Bank, such payment to be made at the time and in
the manner prescribed by law applicable to the payment of wages but in
no event later than thirty (30) days after termination of employment;
(b) the benefits, if any, to which Executive is entitled as a
former employee under the Benefit Plans maintained by the Bank for
their officers and employees;
(c) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, and continued benefits under the term life
insurance policy described in Section 6, in addition to that provided
pursuant to Section 12(b), and after taking into account the coverage
provided by any subsequent employer, if and to the extent necessary to
provide coverage for Executive and her family equivalent to the
coverage to which Executive would be entitled under the applicable
Benefit Plans (as in effect on the date of her termination of
employment, or, if her termination of employment occurs after a Change
in Control, on the date of such Change in Control, whichever benefits
are greater), if Executive had continued working for the Bank during
the Remaining
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Unexpired Employment Period, and during such period, Executive received
the highest annual rate of compensation achieved during that portion of
the Employment Period prior to Executive's termination of employment,
such benefits to be provided without regard to whether Executive's
continued participation in the applicable Benefit Plans is prohibited
during such period and to include continuation coverage for Executive
and members of Executive's family following the expiration of the
Remaining Unexpired Employment Period equivalent to the continuation
coverage that they would be entitled to under the Consolidated Omnibus
Budget Reconciliation Act ("COBRA") if such benefits were provided
under the applicable Benefit Plans; and
(d) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary that Executive would have earned if
Executive had continued working for the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary
achieved during that portion of the Employment Period which is prior to
Executive's termination of employment with the Bank, where such present
value is to be determined using a discount rate equal to the applicable
short-term federal rate prescribed under Section 1274(d) of the
Internal Revenue Code of 1986 ("Code"), compounded using the
compounding period corresponding to the Bank's regular payroll periods
for its officers;
(e) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to the
excess, if any, of:
(i) the present value of the aggregate benefits to
which Executive would be entitled under any and all qualified
and non-qualified defined benefit pension plans maintained by,
or covering employees of, the Bank, if Executive were 100%
vested thereunder and had continued working for the Bank
during the Remaining Unexpired Employment Period, such
benefits to be determined as of the date of termination of
employment by adding to the service actually recognized under
such plans an additional period equal to the Remaining
Unexpired Employment Period and by including in the
compensation recognized under such plans all amounts payable
under Sections 12(a), (d), (h), (i) and (j) which would be
credited under such plans had they been paid over the
Remaining Unexpired Employment Period; over
(ii) the present value of the benefits to which
Executive is actually entitled under such defined benefit
pension plans as of the date of her termination;
where such present values are to be determined using the mortality
table ("Applicable Mortality Table") and interest rate ("Applicable
Interest Rate") prescribed under Section 417(e)(3) of the Code;
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(f) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions to which
Executive would have been entitled under any and all qualified and
non-qualified defined contribution plans maintained by, or covering
employees of, the Bank, and if Executive were 100% vested thereunder
and had continued working for the Bank and the Bank during the
Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period
which is prior to Executive's termination of employment and making the
maximum amount of employee contributions, if any, required under such
plan or plans, such present value to be determined on the basis of a
discount rate, compounded using the compounding period that corresponds
to the frequency with which employer contributions are made to the
relevant plan, equal to the Applicable Interest Rate;
(g) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to the
fair market value (determined as of the date of her termination of
employment, or, if her termination of employment occurs after a Change
in Control, on the date of such Change in Control, whichever value is
greater) of any stock that would have been allocated or awarded to
Executive under any and all stock-based qualified or non-qualified
employee benefit plan or plans maintained by, or covering employees of,
the Bank, if Executive were 100% vested thereunder and continued
working for the Bank during the Remaining Unexpired Employment Period
at the highest annual rate of compensation achieved during that portion
of the Employment Period which is prior to the Executive's termination
of employment;
(h) the payments that would have been made to Executive under
any cash bonus or long-term or short-term cash incentive compensation
plan maintained by, or covering employees of, the Bank if Executive had
continued working for the Bank during the Remaining Unexpired
Employment Period and had earned the maximum bonus or incentive award
in each calendar year that ends during the Remaining Unexpired
Employment Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was
ever available to Executive under such incentive compensation
plan; multiplied by
(B) the salary that would have been paid to Executive
during each such calendar year at the highest annual rate of
salary achieved during that portion of the Employment Period
which is prior to Executive's termination of employment with
the Bank:
such payments to be made (without discounting for early payment) within
thirty (30) days following Executive's termination of employment;
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(i) at the election of Executive made within thirty (30) days
following her termination of employment, upon the surrender of options
or appreciation rights issued to Executive under any stock option and
appreciation rights plan or program maintained by, or covering
employees of, the Bank, a lump sum payment in an amount equal to the
product of:
(i) the excess of (A) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (B) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(ii) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this Section 12(i) and for purposes of determining
Executive's right following her termination of employment with the Bank
to exercise any options or appreciation rights not surrendered pursuant
hereto, Executive shall be deemed fully vested in all options and
appreciation rights under any stock option or appreciation rights plan
or program maintained by, or covering employees of, the Bank, even if
Executive is not vested under such plan or program;
(j) at the election of Executive made within thirty (30) days
following Executive's termination of employment, upon the surrender of
any shares awarded to Executive under any restricted stock plan
maintained by, or covering employees of, the Bank, a lump sum payment
in an amount equal to the product of:
(i) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of Executive's termination of employment; multiplied
by
(ii) the number of shares which are being
surrendered.
For purposes of this Section 12(j) and for purposes of determining
Executive's right following her termination of employment with the Bank
to any stock not surrendered pursuant hereto, Executive shall be deemed
fully vested in all shares awarded under any restricted stock plan
maintained by, or covering employees of, the Bank, even if Executive is
not vested under such plan;
(k) within thirty (30) days following her termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional benefits to which the Executive would
have been entitled under Section 7 of this Agreement if Executive had
continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
that portion of the Employment Period which is prior to Executive's
termination of employment, where such present value is to be determined
using the
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Applicable Mortality Table and Applicable Interest Rate and assuming
that the Benefit Limitations as in effect at the time of Executive's
termination remained in effect during the Remaining Unexpired
Employment Period.
The Bank and Executive hereby stipulate that the damages which may be incurred
by Executive following any termination of employment under the circumstances
described in Section 11 of this Agreement are not capable of accurate
measurement as of the date first above written and that the payments and
benefits contemplated by this Section 12 constitute reasonable damages under the
circumstances and shall be payable without any requirement of proof of actual
damage and without regard to Executive's efforts, if any, to mitigate damages.
The Bank and the Executive further agree that the Bank may condition the payment
and benefits (if any) due under Sections 12(c), (d), (e), (f), and (h) on the
receipt of the Executive's resignation from any and all positions which she
holds as an officer, director or committee member with respect to the Bank, the
Holding Company, or any subsidiary or affiliate of either of them.
SECTION 13. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical
or mental illness, she shall have been absent from her duties with the Bank on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given she shall not have
returned to the full-time performance of her duties, the Bank may terminate
Executive's employment for "Disability" and she shall be entitled to the
payments and benefits provided for under Sections 13(b) and (c). For purposes of
this Section 13(a), "Disability" shall have the same meaning set forth in the
group long-term disability policy or plan maintained by the Bank for employees
as in effect on the effective date of this Agreement, or if no such plan or
policy is maintained on such date, "Disability" shall mean a condition of total
incapacity, mental or physical, for the performance of the Executive's stated
duties hereunder, which incapacity shall have been determined, by a doctor
selected by the Bank and acceptable to the Executive or her legal
representatives, is likely to be permanent.
(b) The Bank will pay Executive, as disability pay,
three-quarters (3/4) of Executive's rate of salary as in effect pursuant to
Section 4 on the effective date of such termination, payable in approximately
equal installments in accordance with the Bank's customary payroll practices.
These disability payments shall commence on the effective date of Executive's
termination and will end on the earlier of (i) the date Executive returns to the
full-time employment of the Bank in the same capacity as she was employed prior
to her termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive attaining the age of 65; (iv) Executive's death; or
(v) the expiration of the term of this Agreement. The disability pay shall be
reduced by the amount, if any, paid to the Executive under any plan of the Bank
providing disability benefits to the Executive.
(c) The Bank will cause to be continued life, medical, dental
and disability coverage substantially identical to the coverage maintained by
the Bank for Executive prior to her termination for Disability. This coverage
and payments shall cease upon the earlier of (i) the date
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Executive returns to the full-time employment of the Bank, in the same capacity
as she was employed prior to her termination for Disability and pursuant to an
employment agreement between Executive and the Bank; (ii) Executive's full-time
employment by another employer; (iii) Executive's attaining the age of 65; (iv)
the Executive's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction
in the compensation otherwise payable to Executive during any period during
which Executive is incapable of performing her duties hereunder by reason of
temporary disability.
SECTION 14. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that Executive's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of Executive for "Cause," which, for
purposes of this Agreement, shall mean personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations
or similar offenses), or final cease and desist order, or any material
breach of this Agreement, in such case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that the Executive shall not be
deemed to have been discharged for Cause unless and until she shall
have received a written notice of termination from the Board,
accompanied by a resolution duly adopted by affirmative vote of a
majority of the entire Board at a meeting called and held for such
purpose (after reasonable notice to the Executive and a reasonable
opportunity for the Executive to make oral and written presentations to
the members of the Board, on her own behalf, or through a
representative, who may be her legal counsel, to refute the grounds for
the proposed determination) finding that in the good faith opinion of
the Board grounds exist for discharging the Executive for Cause; or
(b) Executive's voluntary resignation from employment with the
Bank for reasons other than those specified in Section 11;
(c) Executive's death; or
(d) Executive's "Retirement," which, for purposes of this
Agreement, shall mean Executive's voluntary termination at a time when
she is eligible for a normal retirement benefit under the qualified
defined benefit pension plan or plans of the Bank or the Bank, or if no
such plan is currently maintained, the Executive's voluntary
termination at or after the attainment of age 65;
then the Bank shall have no further obligations under this Agreement, other than
the payment to Executive (or, in the event of her death, to her estate) of her
earned but unpaid salary and, in the event of the Executive's death or
Retirement, her earned but unpaid Incentive Compensation Award,
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as of the date of the termination of her employment, and the provision of such
other benefits, if any, to which Executive is entitled as a former employee
under the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Bank.
SECTION 15. CHANGE IN CONTROL.
A Change in Control of the Bank ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(a) approval by the stockholders of the Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, respectively, with one or more other persons, other than a
transaction following which:
(i) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to
such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least
fifty-one percent (51%) of the outstanding equity ownership
interests in the Bank; and
(ii) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Bank;
(b) the acquisition of all or substantially all of the assets
of the Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of
the outstanding securities of the Bank entitled to vote generally in
the election of directors by any person or by any persons acting in
concert, or approval by the stockholders of the Bank of any transaction
which would result in such an acquisition;
(c) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank of a plan for such liquidation
or dissolution;
(d) the occurrence of any event if, immediately following such
event, at least fifty percent (50%) of the members of the Board do not
belong to any of the following groups:
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(i) individuals who were members of the Board on the
date of this Agreement; or
(ii) individuals who first became members of the
Board after the date of this Agreement either:
(A) upon election to serve as a member of
the Board by affirmative vote of three-quarters of
the members of such Board, or of a nominating
committee thereof, in office at the time of such
first election; or
(B) upon election by the stockholders of the
Bank to serve as a member of the Board, but only if
nominated for election by affirmative vote of
three-quarters of the members of the Board, or of a
nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board; or
(e) any event which would be described in Section 14(a), (b),
(c) or (d) if the term "Holding Company" were substituted for the term
"Bank" therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Bank, the Holding
Company, or a subsidiary of either of them, by the Bank, the Holding Company, or
a subsidiary of either of them, or by any employee benefit plan maintained by
any of them. For purposes of this Section 15, the term "person" shall have the
meaning assigned to it under Section 13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 16. COVENANT NOT TO COMPETE.
Executive hereby covenants and agrees that, in the event of
her termination of employment with the Bank prior to the expiration of the
Employment Period for any reason other than the circumstances provided under
Section 11 hereof, for a period of one (1) year following the date of her
termination of employment with the Bank (or, if less, for the Remaining
Unexpired Employment Period), Executive shall not, without the written consent
of the Bank, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that competes with the business of the Bank in any city,
town or county in which the Bank has an office or has filed an application for
regulatory approval to establish an office as of the date of Executive's
termination of employment; provided, however, that if Executive's employment
shall be terminated on account of Disability as provided in Section
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13 of this Agreement, this Section 16 shall not prevent Executive from accepting
any position or performing any services if (a) Executive first offers, by
written notice, to accept a similar position with, or perform similar services
for, the Bank on substantially the same terms and conditions and (b) the Bank
declines to accept such offer within ten (10) days after such notice is given.
SECTION 17. CONFIDENTIALITY.
Unless Executive obtains the prior written consent of the
Bank, Executive shall keep confidential and shall refrain from using for the
benefit of herself, or any person or entity other than the Bank or any entity of
which the Bank is a subsidiary, any material document or information obtained
from the Bank, or from its parent or subsidiaries, in the course of her
employment with any of them concerning their properties, operations or business
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of her own) until the same ceases to be material (or
becomes so ascertainable or available); provided, however, that nothing in this
Section 17 shall prevent Executive, with or without the Bank's consent, from
participating in or disclosing documents or information in connection with any
judicial or administrative investigation, inquiry or proceeding to the extent
that such participation or disclosure is required under applicable law.
SECTION 18. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Bank or by Executive, shall have no
effect on the rights and obligations of the parties hereto under the Bank's
qualified or non-qualified retirement, pension, savings, thrift, profit-sharing
or stock bonus plans, group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or
programs, as may be maintained by, or cover employees of, the Bank from time to
time.
SECTION 19. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Executive, her legal representatives and testate or intestate distributees,
the Bank and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank's obligations hereunder at least
sixty (60) days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.
SECTION 20. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in
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<PAGE>
writing and shall be deemed to have been given at such time as it is delivered
personally, or five (5) days after mailing if mailed, postage prepaid, by
registered or certified mail, return receipt requested, addressed to such party
at the address listed below or at such other address as one such party may by
written notice specify to the other party:
If to Executive:
Ms. Deborah C. Wright
[Address omitted]
with a copy to:
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022-4802
Attention: Sharon Y. Bowen, Esq.
If to the Bank:
Carver Federal Savings Bank
75 West 125th Street
New York, New York 10027
Attention: Chairman of the Compensation Committee
of the Board of Directors
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Kofi Appenteng, Esq.
SECTION 21. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend Executive
against reasonable costs, including legal fees, incurred by Executive in
connection with or arising out of any action, suit or proceeding in which
Executive may be involved, as a result of her efforts, in good faith, to defend
or enforce the terms of this Agreement; provided, however, that the Executive
shall have substantially prevailed on the merits pursuant to a judgment, decree,
or order of a court of competent jurisdiction or of an arbitrator in an
arbitration proceeding, or in a settlement. For purposes of this Agreement, any
settlement agreement which provides for payment of any amounts in settlement of
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<PAGE>
the Bank's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 22. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 23. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 24. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 25. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 26. HEADINGS AND CONSTRUCTION.
The headings of Sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any Section.
Any reference to a Section number shall refer to a Section of this Agreement,
unless otherwise stated.
SECTION 27. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or
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representations relating to the subject matter hereof, including all terms of
the Prior Agreement between the Bank and Executive. No modifications of this
Agreement shall be valid unless made in writing and signed by the parties
hereto. No provision of this Agreement shall be interpreted to mean that
Executive is subject to receiving fewer benefits than those available to her
without reference to this Agreement.
SECTION 28. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purpose of
complying with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Executive under Section 12 hereof (exclusive of amounts described in
Sections 12(a), (i) and (j)) exceed three times the Executive's average
annual total compensation for the last five consecutive calendar years
to end prior to her termination of employment with the Bank (or for her
entire period of employment with the Bank if less than five calendar
years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Executive by the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with Section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. Section 1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under Section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. Section 1818(e)(3) or 1818(g)(1), the Bank's obligations under
this Agreement shall be suspended as of the date of service of such
notice, unless stayed by appropriate proceedings. If the charges in
such notice are dismissed, the Bank, in its discretion, may (i) pay to
the Executive all or part of the compensation withheld while the Bank's
obligations hereunder were suspended and (ii) reinstate, in whole or in
part, any of the obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section 1818(e)(4) or (g)(1), all prospective obligations of the Bank
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and the Executive
shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank is in default (within the meaning of Section 3(x)(1) of the
FDI Act, 12 U.S.C. Section 1813(x)(1), all prospective obligations of
the Bank under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Bank and the
Executive shall not be affected.
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(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (i) by the Director of the
Office of Thrift Supervision ("OTS") or her designee or the Federal
Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters
into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in Section 13(c) of the FDI Act, 12
U.S.C. Section 1823(c); (ii) by the Director of the OTS or her designee
at the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Bank or when the Bank
is determined by such Director to be in an unsafe or unsound condition.
The vested rights and obligations of the parties shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
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IN WITNESS WHEREOF, the Bank has caused this Agreement to be
executed and Executive has hereunto set her hand, all as of the day and year
first above written.
/s/ Deborah C. Wright
------------------------------------
DEBORAH C. WRIGHT
ATTEST: CARVER FEDERAL SAVINGS BANK.
By
------------------------------- By /s/ David R. Jones
Secretary ----------------------------------
Name: David R. Jones
Title: Chairman of the Board
[Seal]
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[NOTARY PAGE INTENTIONALLY OMITTED]
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[APPENDIX A INTENTIONALLY OMITTED]
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EXHIBIT 10.12
HOLDING COMPANY EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of June 1, 1999, by and between CARVER BANCORP, INC., a publicly held
business corporation organized and operating under the laws of the State of
Delaware and having an office at 75 West 125th Street, New York, New York 10027
("Holding Company") and DEBORAH C. WRIGHT, an individual residing at 31 [Address
omitted] ("Executive").
W I T N E S S E T H :
WHEREAS, for purposes of securing the Executive's services for
the Holding Company, the Board of Directors of the Holding Company has approved
and authorized the execution of this Agreement with the Executive;
WHEREAS, Executive is willing to serve the Holding Company on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Holding Company and
Executive hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Holding Company agrees to employ Executive and Executive
hereby agrees to such employment, during the period and upon the terms and
conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this Section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on June 1, 1999 (the "Effective Date") and ending on the
third anniversary date of this Agreement, plus such extensions, if any, as are
provided pursuant to Sections 2(b) and (c). The Board shall review the
Executive's performance of services under this Agreement on an annual basis.
(b) Except as provided in Section 2(c), prior to the second
anniversary of the date of this Agreement and on each anniversary date
thereafter (each, an "Anniversary Date"), the Board shall review the terms of
this Agreement and the Executive's performance of services hereunder and may, in
the absence of objection from the Executive, approve a one-year extension of the
Employment Agreement. In such event, the Employment Agreement shall be extended
to the second anniversary of the relevant Anniversary Date. For all purposes of
this Agreement, the term "Remaining Unexpired Employment Period" as of any date
shall mean the period beginning on such date and ending on the Anniversary Date
on which the Employment Period (as extended pursuant to Section 2 of this
Agreement) is then scheduled to expire.
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(c) In the event of a Change in Control, as defined in Section
15 of this Agreement, Section 2(b) shall no longer be applicable, and,
notwithstanding any notice given pursuant to such Section 2(b), the Employment
Period shall be automatically extended to the third anniversary of the date on
which such Change in Control occurs, and shall be further extended automatically
for one (1) additional day each day following such Change in Control, unless
either Executive or the Holding Company elects not to extend the Employment
Period further by giving written notice to the other party, in which case the
Employment Period shall become fixed and shall end on the later of the last day
of the Employment Period specified in such notice or the third anniversary of
the date such written notice is given.
(d) Nothing in this Agreement shall be deemed to prohibit the
Holding Company at any time from terminating Executive's employment during the
Employment Period with or without prior notice for any reason; provided,
however, that the relative rights and obligations of the Holding Company and
Executive in the event of any such termination shall be determined under this
Agreement.
SECTION 3. DUTIES.
Executive shall serve as President and Chief Executive Officer
of the Holding Company, having such power, authority and responsibility,
including without limitation the power to hire and dismiss any employees of the
Holding Company, and performing such duties as are prescribed by or under the
By-Laws of the Holding Company and as are customarily associated with such
positions. Executive shall devote her full business time and attention (other
than during weekends, holidays, approved vacation periods, and periods of
illness or approved leaves of absence) to the business and affairs of the
Holding Company and shall use her best efforts to advance the interests of the
Holding Company.
SECTION 4. BASE SALARY.
In consideration for the services to be rendered by Executive
hereunder, the Holding Company shall pay to her a base salary at an initial
annual rate of Two Hundred and Thirty-Five Thousand Dollars ($235,000.00),
payable in approximately equal installments in accordance with the Holding
Company's customary payroll practices for senior officers. Each May prior to the
anniversary of the Effective Date of this Agreement occurring during the
Employment Period, the Board shall review Executive's annual rate of salary and
may, in its discretion, approve an increase therein.
SECTION 5. INCENTIVE COMPENSATION.
(a) Upon the Effective Date of this Agreement, the Executive
shall be granted incentive stock options under the Holding Company's 1995 Stock
Option Plan to purchase up to Thirty Thousand (30,000) shares of the Holding
Company's common stock, par value $.01 per share ("Options") at an exercise
price equal to the "Market Value" (as such term is defined in the 1995 Stock
Option Plan) of a share of the Holding Company's common stock on the date of
grant. Of the foregoing Option grant, Options granted with respect to the
purchase of Fifteen Thousand (15,000)
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shares of the Holding Company's common stock shall vest and become immediately
exercisable on the Effective Date and the balance of these Options shall vest
and become exercisable in equal installments over a three-year period, with Five
Thousand (5,000) Options becoming 100% vested and fully exercisable on the first
anniversary of the Effective Date and Five Thousand (5,000) additional Options
becoming 100% vested and fully exercisable on the second and third immediately
succeeding anniversaries of the Effective Date. The foregoing grant of Options
to the Executive (and all rights and privileges relating to such Options) shall
be memorialized in a written stock option agreement to be entered into by and
between the Holding Company and the Executive which shall be governed by, and
incorporate by reference, the terms and provisions of the Holding Company's 1995
Stock Option Plan and the terms of this Agreement, as applicable. In addition,
each May, prior to the anniversary of the Effective Date of this Agreement, the
Board shall review the Executive's performance under this Agreement and may, in
its discretion, grant additional stock option awards to the Executive under the
1995 Stock Option Plan; provided, however, that no fewer than Thirty Thousand
(30,000) Options shall be granted to the Executive on June 1, 2000 and such
Options shall vest in three annual installments on each anniversary of such
grant date. The Executive acknowledges and agrees that the grant of all
additional stock option awards may be subject to the approval of the Holding
Company's shareholders to the proposed amendment to the 1995 Option Plan to
increase its share reserve.
(b) The Executive shall also be eligible to receive an annual
incentive compensation payment ("Incentive Compensation Award") in a dollar
amount to be determined by the Board, in its discretion, based upon the
Executive's performance during the applicable Incentive Compensation Award
measurement period ("Measurement Period") agreed upon by the Board and the
Executive. The dollar amount of the Incentive Compensation Award payable to the
Executive with respect to the applicable Measurement Period shall be determined
by the Board in May of each year or as soon as practicable after the release of
the audited consolidated financial statements of the Holding Company and the
Bank. The Incentive Compensation Award shall be paid to the Executive (less all
applicable tax withholding) in a single sum cash payment as soon as
administratively feasible after the date the dollar amount of the Incentive
Compensation Award has been determined by the Board. The Board's determination
of the dollar amount of the Executive's Incentive Compensation Award shall be
based upon the Executive's attainment of one or more of the performance goal
categories ("Performance Goals") set forth in Appendix A hereof; provided,
however, the Holding Company and the Executive agree that the Performance Goals
contained in Appendix A are illustrative rather than exhaustive and are evidence
of the intent of the parties that the dollar amount of the Incentive
Compensation Award be based on the Board's evaluation of the Executive's
performance during the applicable Measurement Period. The attainment of
Performance Goals is expected to result in an Incentive Compensation Award in
the range of twenty percent (20%) to fifty percent (50%) of the Executive's base
salary, although the Board may, in its discretion, make an Incentive
Compensation Award outside of the aforementioned range.
(c) Upon the Effective Date of this Agreement, the Executive shall also
be granted a restricted stock award ("Restricted Stock Award") under the Holding
Company's Management Recognition Plan with respect to Seventy-Five Hundred
(7,500) shares of the Holding Company's common stock. The Restricted Stock Award
(and all rights and privileges relating to such Award) shall be memorialized in
a written Restricted Stock Award Notice and Agreement to be entered into between
the Holding Company and the Executive which shall be governed by, and
incorporate by reference, the terms and provisions of the Holding Company's
Management Recognition Plan and
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the terms of this Agreement, as applicable. The Restricted Stock Award shall
vest in equal installments over a three-year period, with Twenty-Five Hundred
(2,500) shares of the Restricted Stock Award becoming vested and distributable
to the Executive on each of the first, second and third immediately succeeding
anniversaries of the Effective Date of this Agreement; provided, however, the
Board shall have the discretion to accelerate the vesting of all or a portion of
the foregoing Restricted Stock Award based upon the Executive's attainment of
one or more of the Performance Goals set forth in Appendix A of this Agreement
during any applicable Measurement Period.
SECTION 6. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, Executive shall be treated as an
employee of the Holding Company and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) (collectively, "Benefit Plans") as may from time to time be
maintained by, or cover employees of, the Holding Company, in accordance with
the terms and conditions of such employee benefit plans and programs and
compensation plans and programs and consistent with the Holding Company's
customary practices. In addition, the Holding Company shall provide the
Executive, at the Holding Company's expense, with a term life insurance policy
in the amount of One Million Dollars ($1,000,000.00) that shall be payable to
the beneficiary designated by the Executive. Nothing paid to Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which Executive is entitled under this Agreement.
SECTION 7. SUPPLEMENTAL EXECUTIVE RETIREMENT BENEFITS.
Without limiting the generality of Section 6 hereof, in the
event that the amount of benefits or contributions Executive would have received
or accrued under the benefit formulas of the tax-qualified Benefit Plans of the
Holding Company is limited by Sections 401(a)(17), 401(k), 401(m), 402(g) or 415
of the Internal Revenue Code of 1986 ("Benefit Limitations"), the Holding
Company shall provide Executive with supplemental benefits equal to the benefits
attributable to employer contributions that she would have received if the
Benefit Limitations did not apply. Such supplemental benefits shall be provided
on a non-qualified, deferred compensation basis and shall be determined under
the benefit formulas and actuarial assumptions of the applicable Benefit Plans.
Payment of such supplemental benefits shall be made in the same manner and at
the same time as payment of Executive's benefits under the applicable Benefit
Plan.
SECTION 8. INDEMNIFICATION.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Holding Company shall cause Executive to be covered by and
named as an insured under any policy or contract of insurance obtained by it to
insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Holding
Company
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or service in other capacities at the request of the Holding Company. The
coverage provided to Executive pursuant to this Section 8 shall be of the same
scope and on the same terms and conditions as the coverage (if any) provided to
other officers or directors of the Holding Company.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Holding Company shall indemnify Executive against and hold her harmless from any
costs, liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Holding Company or any subsidiary or affiliate
thereof.
SECTION 9. OUTSIDE ACTIVITIES.
Executive may serve as a member of the boards of directors of
such business, community and charitable organizations as she may disclose to and
as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of her duties under this Agreement. Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of her duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Holding Company and generally
applicable to all similarly situated executives. Executive may also serve as an
officer or director of Carver Federal Savings Bank ("Bank"), a wholly owned
subsidiary of the Holding Company, on such terms and conditions as the Holding
Company and the Bank may mutually agree upon, and such service shall not be
deemed to materially interfere with Executive's performance of her duties
hereunder or otherwise result in a material breach of this Agreement. If
Executive is discharged or suspended, or is subject to any regulatory
prohibition or restriction with respect to participation in the affairs of the
Bank, she shall continue to perform services for the Holding Company in
accordance with this Agreement but shall not directly or indirectly provide
services to or participate in the affairs of the Bank in a manner inconsistent
with the terms of such discharge or suspension or any applicable regulatory
order.
SECTION 10. WORKING FACILITIES AND EXPENSES.
Executive's principal place of employment shall be at the
Holding Company's executive offices at the address first above written, or at
such other location within New York City at which the Holding Company shall
maintain its principal executive offices, or at such other location as the
Holding Company and Executive may mutually agree upon. The Holding Company shall
provide Executive at her principal place of employment with a private office,
secretarial services, reimbursement or direct payment for business-related car
expenses not to exceed Fifteen Hundred Dollars ($1,500.00) per month and other
support services and facilities suitable to her position with the Holding
Company and necessary or appropriate in connection with the performance of her
assigned duties under this Agreement. The Holding Company shall reimburse
Executive for her ordinary and necessary business expenses plus membership fees,
dues, capital contributions or such other business-related charges required for,
or related to, membership or participation in such clubs and organizations as
Executive and the Holding Company shall mutually agree are necessary and
appropriate for business purposes, and her travel and entertainment expenses
incurred in connec-
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tion with the performance of her duties under this Agreement, in each case upon
presentation to the Holding Company of an itemized account of such expenses in
such form as the Holding Company may reasonably require. The Holding Company
shall pay the reasonable legal fees and expenses of Latham & Watkins, counsel to
the Executive, in connection with the negotiation of this Agreement.
SECTION 11. TERMINATION OF EMPLOYMENT.
Executive shall be entitled to the severance benefits
described in Section 12 hereof in the event that her employment with the Holding
Company terminates during the Employment Period under any of the following
circumstances:
(a) prior to a Change in Control, as defined in Section 15
hereof:
(i) the termination by the Holding Company of
Executive's employment hereunder for any reason other than
Disability, as defined in Section 13 hereof, Retirement, as
defined in Section 14(d) hereof, or Cause, as defined in
Section 14(a) hereof; or
(ii) Executive's voluntary resignation from
employment with the Holding Company upon sixty (60) days
written notice given within six full calendar months
following:
(A) the failure of the Board to appoint or
reappoint or elect or re-elect Executive to the
office of President and Chief Executive Officer of
the Holding Company;
(B) the failure of the stockholders of the
Holding Company to elect or re-elect Executive to the
Board or the failure of the Board (or the nominating
committee thereof) to nominate Executive for such
election or re-election;
(C) the expiration of a thirty (30) day
period following the date on which Executive gives
written notice to the Holding Company of its material
failure, whether by amendment of the Holding
Company's Organization Certificate or By-laws,
action of the Board or the Holding Company's
stockholders or otherwise, to vest in Executive the
functions, duties, or responsibilities prescribed in
Section 3 of this Agreement, unless, during such
thirty (30) day period, the Holding Company cures
such failure in a manner determined by Executive, in
her discretion, to be satisfactory; or
(D) the expiration of a thirty (30) day
period following the date on which Executive gives
written notice to the Holding Company of its material
breach of any term,
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condition or covenant contained in this Agreement
(including, without limitation any reduction of
Executive's rate of base salary in effect from time
to time and any change in the terms and conditions of
any compensation or benefit program in which
Executive participates or a change in the Executive's
fringe benefits and perquisites which, either
individually or together with other changes, has a
material adverse effect on the aggregate value of her
total compensation package), unless, during such
thirty (30) day period, the Holding Company cures
such failure in a manner determined by Executive, in
her discretion, to be satisfactory; or
(E) the relocation of Executive's principle
place of employment by more than 30 miles from its
location at the effective date of this Agreement or
any change in working conditions at such principal
place of employment which Executive, in her
reasonable discretion, determines to be embarrassing,
derogatory or otherwise adverse; or
(b) subsequent to a Change in Control, as defined in Section
15, Executive's voluntary or involuntary resignation or the termination by the
Holding Company of Executive's employment hereunder, for any reason other than
death, Disability or Cause.
SECTION 12. SEVERANCE BENEFITS.
Upon the termination of Executive's employment with the
Holding Company under circumstances described in Section 11 of this Agreement,
the Holding Company shall pay and provide to Executive (or, in the event of her
death, to her estate):
(a) her earned but unpaid compensation (including, without
limitation, all items which constitute wages under Section 190.1 of the New York
Labor Law and the payment of which is not otherwise provided for under this
Section 12) as of the date of the termination of her employment with the
Holding Company, such payment to be made at the time and in the manner
prescribed by law applicable to the payment of wages but in no event later than
thirty (30) days after termination of employment;
(b) the benefits, if any, to which she is entitled as a former
employee under the Benefit Plans maintained for the benefit of the Holding
Company's officers and employees;
(c) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability insurance
benefits and continued benefits under the term life insurance policy described
in Section 6, in addition to that provided pursuant to Section 12(b), and after
taking into account the coverage provided by any subsequent employer, if and to
the extent necessary to provide coverage for Executive and her family equivalent
to the coverage to which Executive would be entitled under the applicable
Benefit Plans (as in effect on the date of her termination of employment, or, if
her termination of employment occurs after a Change in Control,
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on the date of such Change in Control, whichever benefits are greater), if
Executive had continued working for the Holding Company during the Remaining
Unexpired Employment Period, and during such period, Executive received the
highest annual rate of compensation achieved during that portion of the
Employment Period prior to Executive's termination of employment, such benefits
to be provided without regard to whether Executive's continued participation in
the applicable Benefit Plans is prohibited during such period and to include
continuation coverage for Executive and members of her family following the
expiration of the Remaining Unexpired Employment Period equivalent to the
continuation coverage that they would be entitled to under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") if such benefits were provided under
the applicable Benefit Plans; and
(d) within thirty (30) days following her termination of
employment with the Holding Company, a lump sum payment, in an amount equal to
the present value of the salary that Executive would have earned if Executive
had continued working for the Holding Company during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during that
portion of the Employment Period which is prior to Executive's termination of
employment with the Holding Company, where such present value is to be
determined using a discount rate equal to the applicable short-term federal rate
prescribed under Section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding period corresponding to the Holding Company's
regular payroll periods for its officers;
(e) within thirty (30) days following her termination of
employment with the Holding Company, a lump sum payment in an amount equal to
the excess, if any, of:
(i) the present value of the aggregate benefits to
which Executive would be entitled under any and all qualified
and non-qualified defined benefit pension plans maintained by,
or covering employees of, the Holding Company, if Executive
were 100% vested thereunder and had continued working for the
Holding Company during the Remaining Unexpired Employment
Period, such benefits to be determined as of the date of
termination of employment by adding to the service actually
recognized under such plans an additional period equal to the
Remaining Unexpired Employment Period and by adding to the
compensation recognized under such plans for the year in which
termination of employment occurs all amounts payable under
Sections 12(a), (d), (h), (i) and (j) which would be credited
under such plans had they been paid over the Remaining
Unexpired Employment Period; over
(ii) the present value of the benefits to which
Executive is actually entitled under such defined benefit
pension plans as of the date of her termination;
at where such present values are to be determined using the mortality
table ("Applicable Mortality Table") and interest rate ("Applicable
Interest Rate") prescribed under Section 417(e)(3) of the Code;
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(f) within thirty (30) days following her termination of
employment with the Holding Company, a lump sum payment in an amount equal to
the present value of the additional employer contributions to which Executive
would have been entitled under any and all qualified and non-qualified defined
contribution plans maintained by, or covering employees of, the Holding Company,
and if Executive were 100% vested thereunder and had continued working for the
Holding Company during the Remaining Unexpired Employment Period at the highest
annual rate of compensation achieved during that portion of the Employment
Period which is prior to Executive's termination of employment and making the
maximum amount of employee contributions, if any, required under such plan or
plans, such present value to be determined on the basis of a discount rate,
compounded using the compounding period that corresponds to the frequency with
which employer contributions are made to the relevant plan, equal to the
Applicable Interest Rate;
(g) within thirty (30) days following her termination of
employment with the Holding Company, a lump sum payment in an amount equal to
the fair market value (determined as of the date of her termination of
employment, or, if her termination of employment occurs after a Change in
Control, on the date of such Change in Control, whichever value is greater) of
any stock that would have been allocated or awarded to Executive under any and
all stock-based qualified or non-qualified employee benefit plan or plans
maintained by, or covering employees of, the Holding Company, if Executive were
100% vested thereunder and continued working for the Holding Company and during
the Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period which is
prior to Executive's termination of employment;
(h) the payments that would have been made to Executive under
any cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Holding Company if Executive had
continued working for the Holding Company during the Remaining Unexpired
Employment Period and had earned the maximum bonus or incentive award in each
calendar year that ends during the Remaining Unexpired Employment Period, such
payments to be equal to the product of:
(A) the maximum percentage rate at which an award was
ever available to Executive under such incentive compensation
plan; multiplied by
(B) the salary that would have been paid to Executive
during each such calendar year at the highest annual rate of
salary achieved during that portion of the Employment Period
which is prior to Executive's termination of employment with
the Holding Company:
such payments to be made (without discounting for early payment) within thirty
(30) days following Executive's termination of employment;
(i) at the election of Executive made within thirty (30) days
following her termination of employment, upon the surrender of options
or appreciation rights issued to Executive under any stock option and
appreciation rights plan or program maintained by, or covering
employees of, the Holding Company, a lump sum payment in an amount
equal to the product of:
Page 9 of 22
<PAGE>
(i) the excess of (A) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (B) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(ii) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this Section 12(i) and for purposes of determining Executive's
right following her termination of employment with the Holding Company to
exercise any options or appreciation rights not surrendered pursuant hereto,
Executive shall be deemed fully vested in all options and appreciation rights
under any stock option or appreciation rights plan or program maintained by, or
covering employees of, the Holding Company, even if Executive is not vested
under such plan or program;
(j) at the election of the Executive made within thirty (30)
days following Executive's termination of employment, upon the
surrender of any shares awarded to Executive under any restricted stock
plan maintained by, or covering employees of, the Holding Company or
the Bank, a lump sum payment in an amount equal to the product of:
(i) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of Executive's termination of employment; multiplied
by
(ii) the number of shares which are being
surrendered.
For purposes of this Section 12(j) and for purposes of determining Executive's
right following her termination of employment with the Holding Company to any
stock not surrendered pursuant hereto, Executive shall be deemed fully vested in
all shares awarded under any restricted stock plan maintained by, or covering
employees of, the Holding Company, even if she is not vested under such plan;
(k) within thirty (30) days following her termination of
employment with the Holding Company, a lump sum payment in an amount equal to
the present value of the additional benefits to which Executive would have been
entitled under Section 7 of this Agreement if Executive had continued working
for the Holding Company during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during that portion of the Employment
Period which is prior to Executive's termination of employment, where such
present value is to be determined using the Applicable Mortality Table and
Applicable Interest Rate and assuming that the Benefit Limitations as in effect
at the time of Executive's termination remained in effect during the Remaining
Unexpired Employment Period.
The Holding Company and Executive hereby stipulate that the damages which may be
incurred by Executive following any such termination of employment under the
circumstances described in Section 11 of this Agreement are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this Section 12 constitute reasonable
Page 10 of 22
<PAGE>
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to Executive's efforts, if any, to
mitigate damages.
SECTION 13. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical
or mental illness, she shall have been absent from her duties with the Holding
Company on a full-time basis for six (6) consecutive months, and within thirty
(30) days after written notice of potential termination is given she shall not
have returned to the full-time performance of her duties, the Holding Company
may terminate Executive's employment for "Disability" and Executive shall be
entitled to the payments and benefits provided for under Sections 13(b) and (c).
For purposes of this Section 13(a), "Disability" shall have the meaning set
forth in the group long-term disability policy or plan maintained by the Holding
Company for employees as in effect on the effective date of this Agreement, or
if no plan or policy is maintained on such date, "Disability" shall mean a
condition of total incapacity, mental or physical, for the performance of
Executive's stated duties hereunder, which incapacity shall have been
determined, by a doctor selected by the Holding Company and acceptable to
Executive or her legal representatives, is likely to be permanent.
(b) The Holding Company will pay Executive, as disability pay,
three-quarters (3/4) of Executive's rate of salary as in effect pursuant to
Section 4 on the effective date of such termination, payable in approximately
equal installments in accordance with the Holding Company's customary payroll
practices. These disability payments shall commence on the effective date of
Executive's termination and will end on the earlier of (i) the date Executive
returns to the full-time employment of the Holding Company in the same capacity
as she was employed prior to her termination for Disability and pursuant to an
employment agreement between Executive and the Holding Company; (ii) Executive's
full-time employment by another employer; (iii) Executive attaining the age of
65; (iv) Executive's death; or (v) the expiration of the term of this Agreement.
The disability pay shall be reduced by the amount, if any, paid to Executive
under any plan of the Holding Company providing disability benefits to
Executive.
(c) The Holding Company will cause to be continued life,
medical, dental and disability coverage substantially identical to the coverage
maintained by it for Executive prior to her termination for Disability. This
coverage and payments shall cease upon the earlier of (i) the date Executive
returns to the full-time employment of the Holding Company, in the same capacity
as she was employed prior to her termination of Disability and pursuant to an
employment agreement between Executive and the Holding Company; (ii) Executive's
full-time employment by another employer; (iii) Executive's attaining the age of
65; (iv) Executive's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction
in the compensation otherwise payable to Executive during any period during
which Executive is incapable of performing her duties hereunder by reason of
temporary disability.
Page 11 of 22
<PAGE>
SECTION 14. TERMINATION WITHOUT ADDITIONAL HOLDING COMPANY
LIABILITY.
In the event that Executive's employment with the Holding
Company shall terminate during the Employment Period on account of:
(a) the discharge of Executive for "Cause," which, for
purposes of this Agreement shall mean personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses), or final cease
and desist order, or any material breach of this Agreement, in such case as
measured against standards generally prevailing at the relevant time in the
savings and community banking industry; provided, however, that the Executive
shall not be deemed to have been discharged for Cause unless and until she shall
have received a written notice of termination from the Board, accompanied by a
resolution duly adopted by affirmative vote of a majority of the entire Board at
a meeting called and held for such purpose (after reasonable notice to the
Executive and a reasonable opportunity for the Executive to make oral and
written presentations to the members of the Board, on her own behalf, or through
a representative, who may be her legal counsel, to refute the grounds for the
proposed determination) finding that in the good faith opinion of the Board
grounds exist for discharging the Executive for Cause; or
(b) Executive's voluntary resignation from employment with the
Holding Company for reasons other than those specified in Section 11; or
(c) Executive's death; or
(d) Executive's "Retirement," which, for purposes of this
Agreement shall mean her voluntary termination at a time when she is eligible
for a normal retirement benefit under the qualified defined benefit pension plan
or plans of the Holding Company, or if no such plan is currently maintained,
Executive's voluntary termination at or after the attainment of age 65;
then the Holding Company shall have no further obligations under this Agreement,
other than the payment to Executive (or, in the event of her death, to her
estate) of her earned but unpaid salary and, in the event of the Executive's
death or Retirement, her earned but unpaid Incentive Compensation Award, as of
the date of the termination of her employment, and the provision of such other
benefits, if any, to which she is entitled as a former employee under the
employee benefit plans and programs and compensation plans and programs
maintained by, or covering employees of, the Holding Company.
SECTION 15. CHANGE IN CONTROL.
A Change in Control in the Holding Company ("Change in
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(a) approval by the stockholders of the Holding Company of a
transaction that would result in the reorganization, merger or
consolidation of the Holding Company, respectively, with one or more
other persons, other than a transaction following which:
Page 12 of 22
<PAGE>
(i) at least fifty-one percent (51%) of the equity
ownership interests of the entity resulting from such
transaction are beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to
such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least
fifty-one percent (51%) of the outstanding equity ownership
interests in the Holding Company; and
(ii) at least fifty-one percent (51%) of the
securities entitled to vote generally in the election of
directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule
13d-3 promulgated under the Exchange Act) at least fifty-one
percent (51%) of the securities entitled to vote generally in
the election of directors of the Holding Company;
(b) the acquisition of all or substantially all of the assets
of the Holding Company or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of twenty percent (20%) or more of the
outstanding securities of the Holding Company entitled to vote generally in the
election of directors by any person or by any persons acting in concert, or
approval by the stockholders of the Holding Company of any transaction which
would result in such an acquisition;
(c) a complete liquidation or dissolution of the Holding
Company, or approval by the stockholders of the Holding Company of a plan for
such liquidation or dissolution;
(d) the occurrence of any event if, immediately following such
event, at least fifty percent (50%) of the members of the Board of the Holding
Company do not belong to any of the following groups:
(i) individuals who were members of the Board of the
Holding Company on the date of this Agreement; or
(ii) individuals who first became members of the
Board of the Holding Company after the date of this Agreement
either:
(A) upon election to serve as a member of
the Board of directors of the Holding Company by
affirmative vote of three-quarters of the members of
such Board, or of a nominating committee thereof, in
office at the time of such first election; or
(B) upon election by the stockholders of the
Holding Company to serve as a member of the Board,
but only if nominated for election by affirmative
vote of three-quarters of the members of the Board,
or of a nominating committee thereof, in office at
the time of such first nomination;
Page 13 of 22
<PAGE>
provided, however, that such individual's election or nomination did not result
from an actual or threatened election contest (within the meaning of Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on
behalf of the Board of the Holding Company; or
(e) any event which would be described in Section 15(a), (b),
(c) or (d) if the term "Bank" were substituted for the term "Holding Company"
therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Bank, or a subsidiary of either of them, by the Holding Company, the Bank, or a
subsidiary of either of them, or by any employee benefit plan maintained by any
of them. For purposes of this Section 15, the term "person" shall have the
meaning assigned to it under Section 13(d)(3) or 14(d)(2) of the Exchange Act.
SECTION 16. TAX INDEMNIFICATION.
(a) This Section 16 shall apply if Executive's employment is
terminated upon or following (i) a Change in Control (as defined in Section 15
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Holding Company or the Bank or "in the ownership of a substantial portion of
the assets" of the Holding Company or the Bank within the meaning of Section
280G of the Code. If this Section 16 applies, then, if for any taxable year,
Executive shall be liable for the payment of an excise tax under Section 4999 of
the Code with respect to any payment in the nature of compensation made by the
Holding Company, the Bank or any direct or indirect subsidiary or affiliate of
the Holding Company or the Bank to (or for the benefit of) Executive, the
Holding Company shall pay to Executive an amount equal to X determined under the
following formula:
X = E x P
------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
Section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this Section
15;
FI = the highest marginal rate of income tax applicable to
Executive under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to Executive under all applicable state
and local laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax
applicable to Executive under the Code for the
taxable year in question.
Page 14 of 22
<PAGE>
With respect to any payment in the nature of compensation that
is made to (or for the benefit of) Executive under the terms of this Agreement,
or otherwise, and on which an excise tax under Section 4999 of the Code will be
assessed, the payment determined under this Section 16(a) shall be made to
Executive on the earlier of (i) the date the Holding Company, the Bank or any
direct or indirect subsidiary or affiliate of the Holding Company or the Bank is
required to withhold such tax, or (ii) the date the tax is required to be paid
by Executive.
(b) Notwithstanding anything in this Section 16 to the
contrary, in the event that Executive's liability for the excise tax under
Section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in Section 16(a), Executive or the Holding Company,
as the case may be, shall pay to the other party at the time that the amount of
such excise tax is finally determined, an appropriate amount, plus interest,
such that the payment made under Section 16(a), when increased by the amount of
the payment made to Executive under this Section 16(b) by the Holding Company,
or when reduced by the amount of the payment made to the Holding Company under
this Section 16(b) by Executive, equals the amount that should have properly
been paid to Executive under Section 16(a). The interest paid under this Section
16(b) shall be determined at the rate provided under Section 1274(b)(2)(B) of
the Code. To confirm that the proper amount, if any, was paid to Executive under
this Section 16, Executive shall furnish to the Holding Company a copy of each
tax return which reflects a liability for an excise tax payment made by the
Holding Company, at least 20 days before the date on which such return is
required to be filed with the Internal Revenue Service.
SECTION 17. COVENANT NOT TO COMPETE.
Executive hereby covenants and agrees that, in the event of
her termination of employment with the Holding Company prior to the expiration
of the Employment Period for any reason other than the circumstances provided
under Section 11 hereof, for a period of one (1) year following the date of her
termination of employment with the Holding Company (or, if less, for the
Remaining Unexpired Employment Period), she shall not, without the written
consent of the Holding Company, become an officer, employee, consultant,
director or trustee of any savings bank, savings and loan association, savings
and loan holding company, bank or bank holding company, or any direct or
indirect subsidiary or affiliate of any such entity, that competes with the
business of the Holding Company in any city, town or county in which the Holding
Company has an office or has filed an application for regulatory approval to
establish an office as of the date of Executive's termination of employment;
provided, however, that if Executive's employment shall be terminated on account
of Disability as provided in Section 13 of this Agreement, this Section 17 shall
not prevent Executive from accepting any position or performing any services if
(a) she first offers, by written notice, to accept a similar position with, or
perform similar services for, the Holding Company on substantially the same
terms and conditions and (b) the Holding Company declines to accept such offer
within ten (10) days after such notice is given.
SECTION 18. CONFIDENTIALITY.
Unless she obtains the prior written consent of the Holding
Company, Executive shall keep confidential and shall refrain from using for the
benefit of herself, or any person or entity other
Page 15 of 22
<PAGE>
than the Holding Company or any entity which is a subsidiary of the Holding
Company or of which the Holding Company is a subsidiary, any material document
or information obtained from the Holding Company, or from its parent or
subsidiaries, in the course of her employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of her own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this Section 18 shall prevent Executive, with
or without the Holding Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 19. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of Executive's employment during the term of
this Agreement or thereafter, whether by the Holding Company or by Executive,
shall have no effect on the rights and obligations of the parties hereto under
the Holding Company's qualified or non-qualified retirement, pension, savings,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Holding Company from time to time.
SECTION 20. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Executive, her legal representatives and testate or intestate distributees,
and the Holding Company and its successors and assigns, including any successor
by merger or consolidation or a statutory receiver or any other per son or firm
or corporation to which all or substantially all of the assets and business of
the Holding Company may be sold or otherwise transferred. Failure of the Holding
Company to obtain from any successor its express written assumption of the
Holding Company's obligations hereunder at least sixty (60) days in advance of
the scheduled effective date of any such succession shall be deemed a material
breach of this Agreement.
SECTION 21. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Executive:
Deborah C. Wright
[ADDRESS OMITTED]
Page 16 of 22
<PAGE>
with a copy to:
Latham & Watkins
885 Third Avenue
Suite 1000
New York, New York 10022-4802
Attention: Sharon Y. Bowen, Esq.
If to the Holding Company:
Carver Bancorp, Inc.
75 West 125th Street
New York, New York 10027
Attention: Chairman of the Compensation Committee
of the Board of Directors
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Kofi Appenteng, Esq.
SECTION 22. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Holding Company shall indemnify, hold harmless and defend
Executive against reasonable costs, including legal fees, incurred by her in
connection with or arising out of any action, suit or proceeding in which she
may be involved, as a result of her efforts, in good faith, to defend or enforce
the terms of this Agreement; provided, however, that Executive shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Holding
Company's obligations hereunder shall be conclusive evidence of Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 23. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 24. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against
Page 17 of 22
<PAGE>
whom its enforcement is sought. Any waiver or relinquishment of any right or
power hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 25. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 26. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 27. HEADINGS AND CONSTRUCTION.
The headings of Sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any Section.
Any reference to a Section number shall refer to a Section of this Agreement,
unless otherwise stated.
SECTION 28. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 29. GUARANTEE.
The Holding Company hereby agrees to guarantee the payment by
the Bank of any benefits and compensation to which Executive is or may be
entitled to under the terms and conditions of the employment agreement dated as
of June 1, 1999, by and between the Bank and Executive, a copy of which is
attached hereto as Exhibit A ("Bank Agreement").
SECTION 30. NON-DUPLICATION.
In the event that Executive shall perform services for the
Bank or any other direct or indirect subsidiary of the Holding Company, any
compensation or benefits provided to Executive by such other employer shall be
applied to offset the obligations of the Holding Company hereunder, it being
intended that this Agreement set forth the aggregate compensation and benefits
payable to Executive for all services to the Holding Company and all of its
direct or indirect subsidiaries.
Page 18 of 22
<PAGE>
SECTION 31. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to Executive by the Holding Company, whether pursuant to this Agreement
or otherwise, are subject to and conditioned upon their compliance with Section
18(k) of the Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any
regulations promulgated thereunder.
Page 19 of 22
<PAGE>
IN WITNESS WHEREOF, the Holding Company has caused this
Agreement to be executed and Executive has hereunto set her hand, all as of the
day and year first above written.
/s/ Deborah C. Wright
----------------------------------
DEBORAH C. WRIGHT
ATTEST: CARVER BANCORP, INC.
By
-------------------------------------
Secretary By /s/ David R. Jones
---------------------------------
Name: David R. Jones
Title: Chairman of the Board
[Seal]
Page 20 of 22
<PAGE>
[Notary page intentionally omitted]
Page 21 of 22
<PAGE>
[Appendix A intentionally omitted]
Page 22 of 22
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Carver Bancorp, Inc. (the "Company") is the holding company for Carver
Federal Savings Bank (the "Bank"), a federally chartered stock savings bank. The
Bank, in turn, wholly owns two subsidiaries, CSFB Credit Corp. and CSFB Realty
Corp, both of which are incorporated in the State of New York.
The Company is the sole stockholder of Alhambra Holding Corp., a
Delaware corporation ("Alhambra"). Alhambra owns 80% of the common stock and
100% of the preferred stock of Alhambra Realty Corp., a Delaware corporation.
<PAGE>
EXHIBIT 23
Carver Bancorp, Inc.
75 West 125th Street
New York, New York 10027
We hereby consent to incorporation by reference in the Registration Statement
on Form S-8 of Carver Bancorp, Inc. of our report dated June 29, 1999 relating
to the consolidated financial condition of Carver Bancorp, Inc. and
subsidiaries as of March 31, 1999, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the year ended March
31, 1999, which report is incorporated by reference in the March 31, 1999
Annual Report on Form 10-K of Carver Bancorp, Inc. and subsidiaries.
/s/ Mitchell & Titus LLP
New York, New York
June 29, 1999
<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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,120,748
<INT-BEARING-DEPOSITS> 266,390
<FED-FUNDS-SOLD> 10,200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 29,918,137
<INVESTMENTS-CARRYING> 66,584,447
<INVESTMENTS-MARKET> 65,693,568
<LOANS> 270,521,851
<ALLOWANCE> 4,020,099
<TOTAL-ASSETS> 416,482,844
<DEPOSITS> 276,999,074
<SHORT-TERM> 101,045,466
<LIABILITIES-OTHER> 6,154,714
<LONG-TERM> 992,619
0
0
<COMMON> 23,144
<OTHER-SE> 31,267,826
<TOTAL-LIABILITIES-AND-EQUITY> 416,482,844
<INTEREST-LOAN> 20,576,506
<INTEREST-INVEST> 5,430,638
<INTEREST-OTHER> 1,800,738
<INTEREST-TOTAL> 28,473,426
<INTEREST-DEPOSIT> 8,421,226
<INTEREST-EXPENSE> 14,814,683
<INTEREST-INCOME-NET> 13,658,743
<LOAN-LOSSES> 4,231,000
<SECURITIES-GAINS> 3,948
<EXPENSE-OTHER> 17,963,020
<INCOME-PRETAX> (5,952,117)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,452,750)
<EPS-BASIC> (2.02)
<EPS-DILUTED> (2.02)
<YIELD-ACTUAL> 7.11
<LOANS-NON> 2,417,000
<LOANS-PAST> 3,920,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,085,000
<CHARGE-OFFS> 3,431,000
<RECOVERIES> 82,000
<ALLOWANCE-CLOSE> 4,020,000
<ALLOWANCE-DOMESTIC> 4,020,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
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.
--------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3904174
-------- ----------
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER
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
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE AMERICAN STOCK EXCHANGE
(TITLE OF CLASS) (NAME OF EACH EXCHANGE
ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of May 31, 1999, there were 2,314,275 shares of Common Stock of the
registrant issued and outstanding. The aggregate market value of the
Registrant's common stock held by non-affiliates (based on the closing sales
price of $8 1/2 per share of the registrant's Common Stock on May 28, 1999) was
approximately $18.2 million.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
INFORMATION WITH RESPECT TO DIRECTORS
The following table sets forth certain information with respect to each
director of Carver Bancorp, Inc. (the "Company"). There are no arrangements or
understandings between the Company and any director pursuant to which such
person was elected to be a director of the Company.
<TABLE>
<CAPTION>
END OF POSITION HELD WITH THE
NAME AGE (1) TERM COMPANY AND THE BANK DIRECTOR SINCE (2)
---- ------- ---- -------------------- ------------------
<S> <C> <C> <C> <C>
Deborah C. Wright 41 2001 President, Chief Executive 1999 (3)
Officer and Director
David N. Dinkins 72 1999 Director 1996
Linda H. Dunham 49 2000 Director 1996
Robert J. Franz 61 2000 Director 1997
Pazel G. Jackson, Jr. 64 2001 Director 1997
Herman Johnson, CPA 63 2001 Director 1981
David R. Jones 51 1999 Chairman of the Board 1989
and Director
</TABLE>
- ------------------------
(1) As of April 30, 1999.
(2) Includes terms as directors of Carver Federal Savings Bank (the "Bank")
prior to the incorporation of the Company in 1996.
(3) In accordance with Article VI, Section 3 of the Company's Certificate of
Incorporation and Article IV, Section 10 or the Company's By-Laws, the
Board appointed Ms. Wright as a director of the Company as of June 1, 1999,
in order to fill the vacancy created by the resignation of Thomas L. Clark,
Jr., who resigned as a director of the Company as of June 1, 1999. Mr.
Clark's term as a director was scheduled to expire at the 2001 Annual
Meeting of Shareholders of the Company. Accordingly, Ms. Wright's current
term as a director will expire at such meeting.
1
<PAGE>
The principal occupation and business experience of each director is set
forth below.
DEBORAH C. WRIGHT is currently President, Chief Executive Officer and
Director of Carver Bancorp, Inc. and Carver Federal Savings Bank, positions she
assumed on June 1, 1999. Prior to assuming her current positions, Ms. Wright was
President & CEO of the Upper Manhattan Empowerment Zone Development Corporation,
a position she held since May 1996. She previously served as Commissioner of the
Department of Housing Preservation and Development under Mayor Rudolph W.
Giuliani from January 1994 through March 1996. Prior to that appointment, Ms.
Wright was named to the New York City Housing Authority Board, by Mayor David N.
Dinkins, which manages New York City's 189,000 public housing units. She serves
on the boards of the Initiative for a Competitive Inner City, The Municipal Art
Society of New York, The New York City Partnership, Inc., PENCIL, Inc., The
Newman Real Estate Institute at Baruch College and The Center on Urban &
Metropolitan Policy at the Brooking Institution. Ms. Wright earned A.B., J.D.
and M.B.A. degrees from Harvard University.
DAVID N. DINKINS is currently a professor of public affairs at the Columbia
University School of International and Public Affairs and a senior fellow of the
Barnard-Columbia Center for Urban Policy. He also hosts a public affairs radio
program, "Dialogue with Dinkins," on WLIB-AM, and continues to be an advocate
for children, education, compassionate urban policy, and tolerance.
The 106th Mayor of the City of New York, Mr. Dinkins began his career in
public service in 1966 in the New York State Assembly, where he helped create
the Search for Education, Elevation and Knowledge (SEEK) program, which provides
low-income students with grants and educational assistance. He served as
president of the New York Board of Elections from 1972 through 1973, during
which time he established guidelines that encouraged wider voter registration.
He was appointed City Clerk in 1975, a post he held for 10 years. He was elected
President of the Borough of Manhattan in November 1985 and as Mayor of the City
of New York in November 1989, serving a four-year term.
Mr. Dinkins currently serves on the board of a number of non-profit and
charitable organizations, many of which assist children and young people. Among
them are the Association to Benefit Children; the Bard College Clemente Course
in the Humanities; Body Sculpt of New York; the Children's Health Fund; the
Federation of Protestant Welfare Agencies; Friends of the Nelson Mandela
Children's Fund; the Andrew Goodman Foundation; Hope for Infants; the Howard
Samuels Foundation; the International Tennis Hall of Fame; the Jazz Foundation
of America; the Lenox Hill Neighborhood House; the National Urban Technology
Center; the New York State International Partnership Program; the New York
Junior Tennis League; the Prisoner's Legal Services of New York; and the U.S.
Committee for UNICEF.
Mr. Dinkins is the national chairman of the Black Leadership Commission on
AIDS. He is the chairman of the board of the Constituency for Africa, and a
member of the Advisory Board of Citizens for Service, the Ronald H. Brown
Foundation, Shared Interest, and the South African-American Organization. He is
a member of the Board of Advisors of the Aristide Foundation for Democracy, of
the Advisory Group of the David C. Singler Foundation, of the Advisory Council
of the Respect for Law Alliance, and of the Advisory Committee for T-Ball USA
Association. He is a member of the President's Council of the New York City
Mission Society; of the Steering Committee of the Association for a Better New
York, and of the Honorary Board of Directors of the Rowell Foster Children's
Positive Plan. He is an Honorary Life Trustee of the Community Service of New
York, an Honorary Trustee of the Friends of Harlem Hospital, and a member of the
Eastern Tennis Association Hall of Fame.
Mr. Dinkins is also a member of the Council on Foreign Relations, the
Taubman Center for State and Local Government at Harvard University's Kennedy
School of Government and the Visiting Committee of the Robert J. Milano Graduate
of Management and Urban Policy at the New School for Social Research.
LINDA H. DUNHAM is Vice President of TCB Management Corporation and
co-owner/operator of five McDonald's restaurants. For 16 years, she was employed
by Chemical Bank in various management capacities in both the Retail and Private
Banking Divisions. Ms. Dunham is Secretary of the Board of Ronald McDonald House
of New York, a member of the Board of John Harms Center for the Arts, and a
member of the National Board of Ronald McDonald House Charities. In addition,
she is Vice President of the Black McDonald's Operator Association of New
York/New Jersey.
2
<PAGE>
ROBERT J. FRANZ is a retired Senior Vice President of Booz-Allen &
Hamilton, Inc., and former head of the firm's financial industries information
technology practice. His entire business career has been focused on the
financial services industries in technology and operations consulting,
technology management and financial management. He began his business career at
The Travelers Corporation where he managed the implementation of one of the
first large-scale on-line computer systems in the country. Subsequently, he
founded and managed their Corporate Systems Department. Mr. Franz spent twelve
years at Arthur Andersen & Co. in New York where he was partner-in-charge of
their worldwide capital markets and insurance consulting practices. He also was
a member of their global management team for the banking industries.
Subsequently, he was Managing Director at Morgan Stanley where he was Controller
and Director of Financial Planning and Analysis.
PAZEL G. JACKSON, JR. is currently employed as a Senior Vice President in
the Community Development Group of Chase Manhattan Bank. Since January, 1995,
Mr. Jackson has been responsible for new business development in targeted
markets throughout the United States. Mr. Jackson is also responsible for
assisting the Chase Manhattan Mortgage Corporation's staff in the development
and implementation of a national low and moderate income outreach program. Prior
to joining Chase Manhattan Bank, Mr. Jackson served as the Senior Credit Officer
of the Residential Mortgage Division of Chemical Bank. As Senior Credit Officer,
Mr. Jackson was directly responsible for Credit and Risk Management which
included oversight of the following areas: credit policy, underwriting,
appraisals, quality control, portfolio administration, asset recovery
(workouts), post-closing operations and supervision of the Affordable Housing
Unit. Mr. Jackson's previous business experience also includes employment as a
Senior Vice President in charge of Commercial and Residential Lending at The
Bowery Savings Bank. Mr. Jackson joined The Bowery in 1969 and held various
positions at this financial savings institution including, Senior Vice
President, Assistant to the Chairman (1985-1986); Senior Vice President,
Division Head, Real Estate Finance (1981-1985); Senior Vice President, Marketing
Director (1977-1981); and Vice President, Asset Recovery (1973-1977). Mr.
Jackson also served as Assistant Commissioner, New York City Department of
Buildings (1967-1968) and as Chief of Engineering Design for the 1964- 1965 New
York World's Fair Corporation (1962-1966).
HERMAN JOHNSON is currently self-employed as a certified public accountant
in Brooklyn, New York, and has been so employed in such profession since 1962.
Mr. Johnson currently serves as Chairman of the Board of Trustees of Mt. Sinai
Baptist Church in Brooklyn and has been a Trustee since 1966. He formerly served
as a Trustee of the Interfaith Medical Center in Brooklyn from 1987 to 1991.
DAVID R. JONES has been a director of Carver Federal since 1989. He was
appointed Chairman of the Board in October, 1995. Mr. Jones is currently the
President and Chief Executive Officer of the Community Service Society of New
York ("CSS"). One of the nation's oldest and largest nonprofit social welfare
organizations, the 150-year-old agency uses direct help, research, advocacy and
litigation to alleviate the effects of poverty, focusing on the areas of
education, health care delivery, income security and affordable housing. Prior
to joining CSS, Mr. Jones served for three years as Executive Director of the
New York City Youth Bureau and as Special Advisor to Mayor Edward I. Koch. A
member of the New York State and federal bars, he previously worked for four
years as a corporate lawyer at the law firm of Cravath, Swaine & Moore. Earlier,
he had been a clerk for federal Judge Constance Baker Motley and one of the last
interns for U.S. Senator Robert F. Kennedy. Mr. Jones is currently on the boards
of directors of the New York City Health and Hospitals Corporation, which runs
21 public hospitals and clinics, the Puerto Rican Legal Defense and Education
Fund, and the New York Foundation. He also serves on the board of directors of
the Prospect Park Alliance and is a member of the Board of Commissioners of the
Black Leadership Commission on AIDS. A charter trustee of Wesleyan University,
he also serves on the advisory boards of the John F. Kennedy School of
Government of Harvard University and the Barnard-Columbia Center for Leadership
on Urban Public Policy, and as a trustee of the New York Historical Society. He
is the author of the "Urban Agenda" column which appears in the AMSTERDAM NEWS
and ethnic papers throughout the nation and host of a local Cable TV show of the
same name.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and certain officers and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") and the American Stock Exchange.
Officers, directors and greater than ten
3
<PAGE>
percent shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of copies of such reports of ownership furnished
to the Company, or written representations that no forms were necessary, the
Company believes that, during the last fiscal year, all filing requirements
applicable to its officers, directors and greater than ten percent shareholders
of the Company were complied with, except for the late filing with the SEC of
one Form 3 "Initial Statement of Beneficial Ownership of Securities" by Anthony
M. Galleno upon first becoming an executive officer of the Company, the late
filing of a Form 4 "Statement of Changes in Beneficial Ownership" by Raymond L.
Bruce, an executive officer, reporting the grant of options to purchase 5,000
shares of Common Stock, and the late filing of a Form 5 "Annual Statement of
Beneficial Ownership of Securities" by Mr. Bruce.
4
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth cash and noncash compensation for the fiscal
years ended March 31, 1999, 1998 and 1997 awarded to or earned by the Company's
Chief Executive Officer and by each other executive officer whose compensation
exceeded $100,000 for services rendered in all capacities to the Company and the
Bank during the fiscal year ended March 31, 1999 ("Named Executive Officers").
No other officers received total compensation in excess of $100,000 in the
fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ---------------------- ------------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER RESTRICTED
ANNUAL STOCK OPTIONS LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
POSITIONS YEAR SALARY($) BONUS($) ($)(2) ($)(3) (#) ($) ($)
--------- ---- --------- -------- ------ ------ --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas L. Clark, Jr. (1) 1999 200,000 -- -- -- -- -- 16,631
Former President and 1998 200,000 14,520 -- -- -- -- 25,720
Chief Executive Officer 1997 200,000 -- -- 4,274 2,072 -- 17,766
</TABLE>
- -----------------------------------
(1) Mr. Clark was removed as President and Chief Executive Officer in January,
1999. No bonus, stock option or restricted stock awards were granted to Mr.
Clark under the Incentive Compensation Plan, the Option Plan or the MRP
during the fiscal year ended March 31, 1999. Due to the termination of Mr.
Clark's employment in January, 1999, he received salary payments of only
$173,077 during the fiscal year ended March 31, 1999.
(2) Does not include perquisites and other personal benefits the value of which
did not exceed the lesser of $50,000 or 10% of salary and bonus.
(3) Pursuant to the Incentive Compensation Plan, an award of 518 shares of
restricted stock were made to Mr. Clark on August 20, 1996, which are
scheduled to vest in five equal installments commencing on August 20,1997.
The dollar amounts in the table for this 1997 award is based on the closing
price of $8.25 per share of Common Stock on August 20, 1996, the award
date, as reported on The Nasdaq Stock Market. When shares become vested and
are distributed, the recipient also receives an amount equal to accumulated
dividends and earnings thereon, if any. As of Mr. Clark's termination of
employment, un-vested shares of restricted stock awarded to Mr. Clark were
forfeited.
(4) Includes $4,538, $4,761 and $3,830 in matching contributions allocated to
Mr. Clark's account under the Bank's 401(k) Plan for the fiscal years ended
March 31, 1999, 1998 and 1997, respectively.
(6) Includes allocations under the ESOP of 1,382, 1,409 and 1,351 shares of
Common Stock for the plan years ended December 31, 1998, 1997 and 1995 with
total market values of $12,093, $20,959 and 13,003, respectively, as of
March 31, 1999, 1998 and 1997 for the account of Mr. Clark.
EMPLOYEE BENEFIT PLANS
MANAGEMENT RECOGNITION PLAN. The MRP provides for automatic grants of
restricted stock to certain employees as of the September 12, 1995 of the MRP,
including Mr. Clark who received 17,357 shares of restricted stock. In addition,
the MRP provides for additional discretionary grants of restricted stock to
those employees selected by the committee established to administer the MRP.
Awards generally vest in three to five equal annual installments commencing on
the first anniversary date of the award, provided the recipient is still an
employee of the Company or the Bank on such date. Awards will become 100% vested
upon termination of service due to death or disability. When shares become
vested and are distributed, the recipients will receive an amount equal to any
accrued dividends with respect thereto.
INCENTIVE COMPENSATION PLAN. The Incentive Compensation Plan provides
incentive compensation to certain eligible employees in the form of bonuses,
stock options and restricted stock. For each fiscal year, eligible
5
<PAGE>
employees will receive a bonus equal to 4% of such employee's compensation,
multiplied by the lesser of 8 and the "Multiplier". In addition, each such
employee will receive a restricted stock award of shares having a market value
equal to 30% of the employee's bonus and an option to purchase 4 times the
number of shares of restricted stock awarded to such employee.
OPTION PLAN. The Option Plan provides for automatic option grants to
certain employees as of September 12, 1995, including Mr. Clark who was granted
options to purchase 34,715 shares of Common Stock at an exercise price of $10.38
per share. In addition, the Option Plan provides for additional discretionary
option grants to those employees selected by the committee established to
administer the Option Plan with an exercise price equal to the fair market value
of a share of Common Stock on the date of the grant. Options granted under the
Option Plan generally vest in three to five equal annual installments commencing
on the first anniversary of the effective date of the grant, provided the
recipient is still an employee of the Company or the Bank on such date. Upon
death or disability, all options previously granted automatically become
exercisable.
The following table provides certain information with respect to the number
of shares of Common Stock acquired through the exercise of, or represented by,
outstanding stock options held by Mr. Clark on March 31, 1999. Also reported is
the value for any "in-the-money" options, which represent the positive spread
between the exercise price of any such existing stock options and the fiscal
year-end price of Common Stock, which was $8.75 per share. No new stock options
were granted to Mr. Clark during the fiscal year ended March 31, 1999 under
either the Incentive Compensation Plan or the Option Plan.
<TABLE>
<CAPTION>
FISCAL YEAR END OPTION/SAR VALUES
---------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
ACQUIRED ON REALIZED ON YEAR-END (1) YEAR-END (1)
EXERCISE EXERCISE (#) ($)
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --- --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas L. Clark, Jr. -- -- 21,657/15,130 571/858
</TABLE>
- ------------------------
(1) As of March 31, 1999, Mr. Clark held 2,072 options granted to him under the
Incentive Compensation Plan with an exercise price of $8.06 per share, of
which 828 were exercisable and 1,244 were unexercisable. All of these
options are "in-the-money" options. As of March 31, 1999, Mr. Clark also
held 34,715 options granted to him under the Option Plan with an exercise
price of $10.38 per share, of which 20,829 were exercisable and 13,886 were
unexercisable. None of these options are "in-the-money" options.
PENSION PLAN. The Bank maintains a non-contributory, tax-qualified defined
benefit plan (the "Pension Plan"). As required, the Bank annually contributes an
amount to the Pension Plan necessary to satisfy the actuarially determined
minimum funding requirements in accordance with the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
Employees who are 18 years of age or older and who have completed one year
of service with the Bank are eligible to participate in the Pension Plan.
Participants become 100% vested after five years of service, death, or
termination of the Pension Plan, regardless of the participant's years of
service. The Pension Plan also provides for early retirement benefits, on an
actuarially reduced basis, at the election of a participant who terminates
employment after age 55.
Under the Pension Plan, each participant is entitled to a retirement
benefit equal to the greater of (a) the product of 50% of final earnings (as
defined in the Pension Plan) reduced by 50% of the social security amount (as
defined in the Pension Plan) times the ratio of number of years of credited
service (as defined in the Pension
6
<PAGE>
Plan) up to a maximum of 15, over 15 if the participant's employment ceased
after the normal retirement age (as defined in the Pension Plan) or multiplied
by the ratio of the number of years of credited service divided by the greatest
of (i) 15 and (ii) the number of years of credited service he or she would have
had on his or her normal retirement date, if the participant's employment ceased
prior to the normal retirement age (as defined in the Pension Plan), or (b) $25
multiplied by the number of the participants' months of credited service.
The following table sets forth the estimated annual benefits that would be
payable under the Pension Plan in the form of a single life annuity before
reduction for the social security amount upon retirement at the normal
retirement date. The amounts are expressed at various levels of compensation and
years of service.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
------------------------------------------------------------------------------------
FINAL EARNINGS 15 20 25 30 35
- -------------- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$100,000 $50,000 $50,000 $50,000 $50,000 $50,000
150,000 75,000 75,000 75,000 75,000 75,000
200,000(1) 100,000 100,000 100,000 100,000 100,000
250,000(1) 125,000 125,000 125,000 125,000 125,000
</TABLE>
- ------------------------
(1) Under Section 401(a)(17) of the Code, a participant's compensation in
excess of $160,000 (as adjusted to reflect cost-of- living increases) is
disregarded for purposes of determining final earnings. The amounts shown
in the table include the supplemental retirement benefits payable to Mr.
Clark under his employment agreement to compensate for the limitation on
includible compensation.
Final earnings equal the average of the participant's highest three
consecutive calendar years of taxable compensation during the last 10 full
calendar years of employment prior to termination, or the average of the
Participant's annual compensation over his or her total service, if less.
Mr. Clark's years of Credited Service was four years and his Final Earnings
were $192,398. Under the Pension Plan, Participants who cease employment with
the Company before obtaining five years Credited Service generally forfeit any
benefits which would accrue upon vesting and, accordingly, Mr. Clark will not
receive Pension Plan benefits.
EMPLOYMENT AGREEMENTS AND SEVERANCE PROVISIONS
EMPLOYMENT AGREEMENT WITH DEBORAH C. WRIGHT. As of June 1, 1999, both the
Company and the Bank entered into employment agreements to secure the services
of Deborah C. Wright as President and Chief Executive Officer of the Company and
the Bank. The employment agreement with the Company is intended to set forth the
aggregate compensation and benefits payable to Ms. Wright for all services
rendered to the Company and any of its subsidiaries, including the Bank, and to
the extent that payments under the Company's employment agreement and the Bank's
employment agreement are duplicative, payments due under the Company's
employment agreement would be offset by amounts actually paid by the Bank. Both
employment agreements provide for an initial term of three years beginning June
1, 1999. Prior to the second anniversary date of the agreements, and each
anniversary date thereafter, the term of the agreements may be extended an
additional year after a review by the Board of the Bank and the Company of Ms.
Wright's performance. Unless the Board or Ms. Wright determines not to extend
the agreements, in general, at any point in time the remaining term of the
agreements will be between one and two years.
The employment agreements provide for an annual base salary of $235,000
which will be reviewed annually by the Board. Under the agreements, as of June
1, 1999, Ms. Wright is entitled to a restricted stock award of 7,500 shares of
Common Stock, which will vest in equal installments over a three year period,
and the grant of an option to purchase 30,000 shares of Common Stock, 50% of
which is immediately exercisable and 50% of which will become exercisable in
equal installments over a three year period. In addition, the employment
7
<PAGE>
agreements provide for an annual incentive payment based on the achievement of
certain performance goals, future grant of stock awards, a supplemental
retirement benefit, additional life insurance protection and participation in
the various employee benefit plans maintained by the Company and the Bank from
time to time. The agreements also provide customary corporate indemnification
and errors and omissions insurance coverage throughout the term of the
agreements and for six years thereafter.
The Bank or the Company may terminate Ms. Wright's employment at any time
for cause as defined in the employment agreements. In the event the Bank or the
Company terminates Ms. Wright's employment for reasons other than for cause, she
would be entitled to a severance benefit equal in value to the cash
compensation, retirement and other fringe benefits she would have earned had she
remained employed for the remaining term of the agreements. The same severance
benefits would be available if Ms. Wright resigns during the term of the
employment agreements following: a loss of title, office or membership on the
Board; a material reduction in her duties, functions or responsibilities;
involuntary relocation of her principal place of employment by over 30 miles
from its location as of June 1, 1999; other material breach of contract by the
Company or the Bank that is not cured within 30 days; or a change in control. In
the event of a change in control, the remaining term of Ms. Wright's Agreement
with the Company at any point in time will be three years unless written notice
of non-renewal is given by the Board or Ms. Wright.
A portion of the severance benefits payable to Ms. Wright under the
employment agreements in the event of a change in control might constitute
"excess parachute payments" current federal tax laws. Federal tax laws impose a
20% excise tax, payable by the executive, on excess parachute payments. In the
event that any amounts paid to Ms. Wright following a change of control would
constitute "excess parachute payments", the employment agreement with the
Company provides that she will be indemnified for any excise taxes imposed due
to such excess parachute payments, and any additional income and employment
taxes imposed as a result of such indemnification of excise taxes. Any excess
parachute payments and indemnification amounts paid will not be deductible
compensation expenses for the Company or the Bank.
SEVERANCE PROVISIONS UNDER EMPLOYMENT AGREEMENT WITH THOMAS L. CLARK. At
the time of his termination of employment, Thomas L. Clark, the former President
and Chief Executive Officer of the Company and the Bank, was a party to
employment agreements with both the Company and the Bank. These agreements
provide for the payment of severance benefits in certain circumstances in the
event Mr. Clark's employment is terminated without "cause" as such term is
defined under the agreements. While no severance payments were made under the
employment agreements to Mr. Clark during the fiscal year ending March 31, 1999,
under the severance provisions of the employment agreements, Mr. Clark
potentially is entitled to a severance benefit equal in value to the cash
compensation, retirement and other fringe benefits he would have earned had he
remained employed for the remaining term of the agreements.
DIRECTORS' COMPENSATION
DIRECTORS' FEES. The Bank's directors, other than the Chief Executive
Officer, receive $600 per meeting attended of the Bank's Board of Directors,
except that the Chairman receives a fee of $850 per meeting. In addition, the
Chairman of the Board receives a quarterly retainer fee of $1,000. Fees for
executive committee meetings are $700 per meeting and $475 for all other
committee meetings. Ms. Wright does not receive fees for her attendance at
meetings of the either the Company's or Bank's board of directors or their
respective committees. Directors of the Bank also serve as directors of the
Company, but do not receive additional fees for service as directors of the
Company.
DIRECTORS' RETIREMENT PLAN. The Bank maintains the Carver Federal Savings
Bank Retirement Plan for Non employee Directors (the "Directors' Plan") to
provide retirement benefits to directors of the Bank who are neither employees
nor officers of the Bank. The Directors' Plan provides for a retirement benefit
equal to the product of a director's "Vested Percentage" and the fees such
director received for service on the Board during the calendar year preceding
his or her retirement. A participant's "Vested Percentage" is based on his or
her overall years of service on the Board of Directors of the Bank, and
increases from 0% for less than six years of service, to 33%
8
<PAGE>
for between six and ten years of service, to 67% for between eleven and nineteen
years of service and to 100% for more than twenty years of service. However, in
the event a participant terminates service on the Board due to "disability" (as
such term is defined in the Directors' Plan) or death, the participant's Vested
Percentage becomes 100% regardless of his or her years of service. In the event
of a director's death, a survivor benefit equal to 50% of the annual amount
which would have been payable to such director had he or she survived will be
paid to his or her surviving spouse. The Bank will pay such benefits from its
general assets.
OPTION PLAN. The Company maintains the Option Plan for the benefit of its
directors and certain key employees. Under the Option Plan, each outside
director who was a director on the effective date of the Option Plan was granted
options to purchase 6,943 shares of Common Stock, except that former directors
Richard T. Greene and M. Moran Weston were each granted stock options to
purchase 10,415 shares of Common Stock. Such options were granted on September
12, 1995 at an exercise price of $10.38 per share. Any individual who becomes an
outside director following the effective date of the Option Plan will be granted
options to purchase 1,000 shares of Common Stock with an exercise price equal to
the fair market value of a share of Common Stock on the date of the grant.
Accordingly, upon becoming a director, David N. Dinkins, Linda H. Dunham, Robert
J. Franz, and Pazel G. Jackson, Jr. were each granted stock options to purchase
1,000 shares of Common Stock at an exercise price equal to the fair market value
of a share of Common Stock on the date of grant. Options granted under the
Option Plan generally vest in five equal annual installments commencing on the
first anniversary of the effective date of the grant, provided the recipient is
still a director of the Company or the Bank on such date. In September, 1997,
the Option Plan was amended to provide the Committee with discretion to grant
stock options that will vest and become exercisable pursuant to a vesting
schedule that differs from the Plan's standard five-year schedule. The Option
Plan continues to provide that upon the death or disability of an option holder,
all options previously granted to such individual will automatically become
exercisable.
MANAGEMENT RECOGNITION PLAN. The Company maintains the MRP for the benefit
of its directors and certain key employees. Under the MRP, each outside director
who was a director on the effective date of the MRP received an automatic grant
of 3,471 shares of restricted stock, except that former directors Richard T.
Greene and M. Moran Weston each received 5,207 shares of restricted stock. Any
individual who becomes an outside director following the effective date of the
MRP will be granted 1,000 shares of restricted stock. Accordingly, upon becoming
directors, David N. Dinkins, Linda H. Dunham, Robert J. Franz and Pazel G.
Jackson, Jr. were each granted 1,000 shares of restricted stock under the MRP.
Awards granted under the MRP will generally vest in five equal annual
installments commencing on the first anniversary date of the award, provided the
recipient is still a director of the Company or the Bank on such date. Awards
will become 100% vested upon termination of service due to death or disability.
When shares become vested and are distributed, the recipients will receive an
amount equal to any accrued dividends with respect thereto. The MRP was also
amended in September, 1997, to permit the Committee, in its discretion, to grant
restricted stock awards with vesting schedules that differ from the Plan's
standard five-year schedule.
CONSULTING AGREEMENT. For purposes of securing a smooth transition in the
membership of the Board of Directors of the Company and the Bank, the Company
entered into a Consulting Agreement dated as of October 1, 1997 with M. Moran
Weston, a former Company and Bank board member. The Consulting Agreement
provides for Mr. Weston to be available, upon request, for a five year period
beginning effective as of October 1, 1997, to provide consulting services to the
respective Boards of Directors of the Company and the Bank. In consideration for
the availability of Mr. Weston's services, the Company has agreed to pay Mr.
Weston a retainer of $12,000 per year, with payments to commence to Mr. Weston
on a monthly basis beginning on the effective date of the Agreement. In the
event of Mr. Weston's death, any remaining retainer payments due under the
Consulting Agreement would be paid to Mr. Weston's surviving spouse (or
designated beneficiary) on a monthly basis. Upon retirement from the Company's
Board of Directors, Mr. Weston also became eligible to receive a ten-year annual
retirement benefit of $15,000 under the Directors' Retirement Plan.
9
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of the
outstanding shares of Common Stock on June 15, 1999, as disclosed in certain
reports regarding such ownership filed by such persons, with the Company or the
SEC in accordance with Section 13 of the Exchange Act. Other than those persons
listed below, the Company is not aware of any person or group, as such term is
defined in the Exchange Act, that beneficially owns more than 5% of the
outstanding shares of Common Stock as of May 31, 1999. For purposes of the table
set forth below and the table set forth under "--Stock Ownership of Management,"
an individual is considered to "beneficially own" any securities (a) over which
such individual exercises sole or shared voting or investment power, or (b) of
which such individual has the right to acquire beneficial ownership, including
the right to acquire beneficial ownership by the exercise of stock options
within 60 days after May 31, 1999. As used herein, "voting power" includes the
power to vote, or direct the voting of, such securities, and "investment power"
includes the power to dispose of, or direct the disposition of, such securities.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME AND ADDRESS BENEFICIAL COMMON STOCK
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING (1)
-------------- ------------------- --------- ---------------
<S> <C> <C> <C>
Common Stock EQSF Advisers, Inc. 218,500(2) 9.44%
767 Third Avenue
New York, NY 10017
Common Stock Carver Bancorp, Inc. 175,707(3) 7.59%
Employee Stock Ownership Plan
Trust (the "ESOP Trust")
75 West 125th Street New
York, NY 10027
Common Stock Koch Asset Management, L.L.C. 175,550(4) 7.59%
1293 Mason Road
Town & Country, MO 63131
Common Stock BBC Capital Market, Inc. 170,700(5) 7.38%
133 Federal Street
Boston, MA 02110
Common Stock FMR Corp.
82 Devonshire Street
Boston, MA 02109 139,800(6) 6.04%
</TABLE>
- ---------------------
(1) The total number of shares of Common Stock outstanding on May 31, 1999 was
2,314,275 shares.
(2) Based on a Schedule 13G, dated February 13, 1997, and filed with the SEC
jointly by EQSF Advisers, Inc. ("EQSF") and Martin J. Whitman, the Chief
Executive Officer and controlling person of EQSF. EQSF beneficially owns
218,500 shares of Common Stock. Mr. Whitman disclaims beneficial ownership
of such stock. Third Avenue Value Fund, Inc., an investment Company
registered under the Investment Company Act of 1940, has the right to
receive dividends with respect to, and proceeds from the sale of, such
shares. EQSF has sole voting and dispositive power over such shares.
(3) Based on a Schedule 13G, dated February 12, 1999, and filed with the SEC by
the Carver Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP")
Committee (the "Administrative Committee"). The Administrative Committee
established to administer the ESOP consists of officers of the Bank. The
ESOP's assets are held in the ESOP Trust, for which Marine Midland Bank
serves as trustee (the "ESOP Trustee"). The Administrative Committee
instructs the ESOP Trustee regarding the investment of funds contributed to
the ESOP. Common Stock purchased by the ESOP Trust is held in a suspense
account and allocated to participants' accounts annually based on
contributions made to the ESOP by the Bank. Shares released from the
suspense account are allocated among participants in proportion to their
compensation, as defined in the
10
<PAGE>
ESOP, for the year the contributions are made, up to the limits permitted
under the Internal Revenue Code of 1986 (the "Code"). The ESOP Trustee must
vote all allocated shares held in the ESOP Trust in accordance with the
instructions of participants. As of December 31, 1998, a total of 88,659
shares had been allocated, but not distributed, to participants. Under the
ESOP, unallocated shares or shares for which no voting instructions have
been received will be voted by the ESOP Trustee in the same proportion as
allocated shares with respect to which the ESOP Trustee receives
instructions. In the absence of any voting instructions with respect to
allocated shares, the Board of Directors, on behalf of the Company, directs
the voting of all shares of unallocated stock, or in the absence of such
directions from the Board of Directors, the ESOP Trustee has sole
discretion with respect to the voting of such shares. Each member of the
Board of Directors disclaims beneficial ownership of the shares held in the
ESOP Trust.
(4) Based on a Schedule 13G, dated February 25, 1999, and filed with the SEC
jointly by Koch Asset Management, L.L.C. ("KAM") and Donald Leigh Koch, the
sole Managing Member of KAM. KAM is a registered investment adviser which
furnishes investment advice to individual clients by exercising trading
authority over securities held in accounts on behalf of such clients
(collectively, the "Managed Portfolios"). In its role as an investment
adviser to its clients, KAM has sole dispositive power over the Managed
Portfolios and may be deemed to be the beneficial owner of shares of Common
Stock held by such Managed Portfolios. However, KAM does not have the right
to vote or to receive dividends from, or proceeds from the sale of, the
Common Stock held in such Managed Portfolios and disclaims any ownership
associated with such rights. Mr. Koch may be deemed to have the power to
exercise any dispositive power that KAM may have with respect to the Common
Stock held by the Managed Portfolios. Mr. Koch, individually, owns and
holds voting power with respect to Managed Portfolios containing
approximately 25,000 shares of Common Stock, or an aggregate of
approximately 1.1% of the total number of outstanding shares of Common
Stock (the "Koch shares"). Other than with respect to the Koch shares, all
shares reported in the Schedule 13G have been acquired by Koch Asset
Management, L.L.C., and Mr. Koch does not have beneficial ownership, voting
rights, rights to dividends, or rights to sale proceeds associated with
such shares.
(5) Based on a Schedule 13D, dated April 2, 1999, and filed with the SEC filed
jointly by The Boston Bank of Commerce, a Massachusetts Trust Company
("BBOC"), and BBC Capital Market, Inc., a Massachusetts corporation and
wholly owned subsidiary of BBOC ("BBC Capital"). Kevin Cohee, the Chairman,
President and Chief Executive Officer of BBOC, and Teri Williams, the
Senior Vice President-Marketing/Human Resources of BBOC, collectively own
as joint tenants 66.6% of the outstanding common stock of BBOC. Mr. Cohee
and Ms. Williams disclaim beneficial ownership of the Common Stock owned
beneficially by BBOC or BBC Capital. BBOC and BBC Capital have sole voting
and sole dispositive power over all of the shares of Common Stock shown.
(6) Based on a Schedule 13G, dated February 12, 1999, and filed with the SEC by
FMR Corp. ("FMR"). According to FMR Corp.'s Schedule 13G, Fidelity
Management & Research Company ("Fidelity"), a wholly-owned subsidiary of
FMR Corp. and an investment adviser registered under the Investment
Advisers Act of 1940, is the beneficial owner of 139,800 shares or 6.04% of
the Common Stock outstanding of Carver, as a result of acting as investment
adviser to various investment companies registered under the Investment
Company Act of 1940. The ownership of one investment company, Fidelity
Select Home Finance Portfolio, amounted to 139,800 shares or 6.04% of the
Common Stock outstanding. Edward C. Johnson 3d, Chairman of the Board of
FMR Corp., through his control of Fidelity, has sole power to dispose of
the 139,800 shares shown. Neither FMR Corp. nor Mr. Johnson, has the sole
power to vote or direct the voting of the shares owned directly by
Fidelity, which power resides with the Fidelity Funds' Boards of Trustees.
Fidelity carries out the voting of the shares under written guidelines
established by the Fidelity Funds' Boards of Trustees. Members of the
Edward C. Johnson 3d family and trusts for their benefit are the
predominant owners of Class B shares of common stock of FMR Corp.,
representing approximately 49% of the voting power of FMR Corp. Mr. Johnson
3d owns 12.0% and Abigail Johnson owns 24.5% of the aggregate outstanding
voting stock of FMR Corp. Abigail P. Johnson is a director of FMR Corp. The
Johnson family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be voted
in accordance with the majority vote of Class B shares. Accordingly,
through their ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the Investment Company Act of 1940, to form a controlling
group with respect to FMR Corp.
11
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information, determined as of June 15, 1999,
as to the total number of shares of Common Stock beneficially owned by each
director and each Named Executive Officer, as defined herein, identified in the
Summary Compensation Table, appearing elsewhere herein, and all directors and
executive officers of the Company or the Bank as a group. Ownership information
is based upon information furnished by the respective individuals. Except as
otherwise indicated, each person and the group shown in the table has sole
voting and investment power with respect to the shares indicated.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF COMMON
BENEFICIAL STOCK
NAME TITLE OWNERSHIP(1)(2) OUTSTANDING(3)
- ----------------------- --------------------------- --------------- --------------
<S> <C> <C> <C>
Deborah C. Wright (4) President and Chief 15,200 *
Executive Officer, Director
David N. Dinkins Director 3,821 *
Linda H. Dunham Director 2,621 *
Robert J. Franz Director 2,300 *
Pazel G. Jackson, Jr. Director 1,100 *
Herman Johnson, CPA (5) Director 5,272 *
David R. Jones Chairman of the Board, 8,472 *
Director
Thomas L. Clark, Jr. (6) Former President and Chief 38,257 1.61%
Executive Officer, and
Former Director
All directors, former directors and executive
officers as a group (13 persons)(7)(8)(9) 186,521 7.86%
</TABLE>
- --------------------------------------------
* Less than 1% of outstanding Common Stock.
(1) Includes 15,000, 20,829, 600, 600, 400, 400, 4,164 and 4,164 shares which
may be acquired by Ms. Wright, Messrs. Clark and Dinkins, Ms. Dunham and
Messrs. Franz, Jackson, Johnson and Jones, respectively, pursuant to
options granted under the Carver Bancorp, Inc. 1995 Stock Option Plan (the
"Option Plan"). Also includes the 828 shares that may be acquired by Mr.
Clark under the Carver Bancorp, Inc. Incentive Compensation Plan (the
"Incentive Compensation Plan").
(2) Excludes 7,500, 7,254, 400, 400, 600, 600, 1,389 and 1,389 shares of
restricted stock granted to Ms. Wright, Messrs. Clark and Dinkins, Ms.
Dunham and Messrs. Franz, Jackson, Johnson and Jones, respectively,
pursuant to the Carver Bancorp, Inc. Management Recognition Plan (the
"MRP") and/or the Incentive Compensation Plan with respect to which such
individuals have neither voting nor dispositive power.
(3) Percentages with respect to each person or group of persons have been
calculated on the basis of 2,314,275 shares of Common Stock, the total
number of shares of the Company's Common Stock outstanding as of May 31,
1999, plus the number of shares of Common Stock which such person or group
has the right to acquire within 60 days after May 31, 1999, by the exercise
of stock options.
(4) Ms. Wright was awarded 30,000 options to purchase the Company's Common
Stock at a price per share of $8.125 under the Option Plan, 15,000 of which
vested as of June 1, 1999, and the remainder of which vest in three equal
installments of 5,000 beginning on June 1, 2000. Ms. Wright was also
awarded $7,500 shares of restricted stock under the MRP, which will vest in
three equal installments of 2,500 beginning on June 1, 2000.
(5) Includes 50 shares held jointly by spouse and son and 50 shares held
individually by son over which Mr. Johnson has shared voting power and
dispositive power.
(6) Includes 4,019 shares held by the trustee of the Carver Federal Savings
Bank 401(k) Savings Plan in RSI Retirement Trust ("401(k) Plan") which are
attributable to the account of Mr. Clark, and as to which he shares voting
and dispositive power, and 4,142 shares allocated to the account of Mr.
Clark under the ESOP as to which he has sole voting power, but no
12
<PAGE>
dispositive power, except in limited circumstances. Mr. Clark was removed
as President and Chief Executive Officer in January, 1999, and resigned as
a director as of June 1, 1999. The stock options granted to Mr. Clark
pursuant to the Option Plan and Incentive Compensation Plan will be
forfeited on June 1, 2000 if unexercised at such time.
(7) Includes 9,157 shares in the aggregate held by the ESOP Trust that have
been allocated as of December 31, 1998 to the individual accounts of
executive officers Walter T. Bond, Guy Brea, Raymond L. Bruce and Howard R.
Dabney under the ESOP and as to which such executive officers have sole
voting power, but no dispositive power, except in limited circumstances.
Also includes 87,048 unallocated shares held by the ESOP Trust as to which
the Board of Directors shares voting and dispositive power. Each member of
the Board of Directors disclaims beneficial ownership of the shares held in
the ESOP.
(8) Includes 1,971 shares in the aggregate attributable to the individual
accounts of executive officers Bond, Brea and Bruce under the 401(k) Plan
and as to which such executive officers have sole dispositive power and
shared voting power with the members of the committee established to
administer the 401(k) Plan.
(9) Includes 9,616 shares which may be acquired by executive officers Bond,
Brea, Bruce and Dabney pursuant to options granted under the Option Plan.
Also includes 1,056 shares which may be acquired by such executive officers
pursuant to options granted under the Incentive Compensation Plan. Excludes
the 3,226 shares of restricted stock awarded to such executive officers
under the MRP and Incentive Compensation Plan with respect to which such
individuals have neither voting nor dispositive power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires that all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. Carver Federal offers
loans to its directors, officers and employees, which loans are made in the
ordinary course of business, and are not made with more favorable terms nor do
they involve more than the normal risk of collectibility or present unfavorable
features. Furthermore, loans above the greater of $25,000 or 5% of the Bank's
capital and surplus (up to $500,000) to the Bank's directors and executive
officers must be approved in advance by a disinterested majority of the Bank's
Board of Directors. Under prior law, however, Carver had a policy of offering
loans to directors, officers, employees and their immediate family members
residing at the same address on terms substantially equivalent to those offered
to the public, except the interest rates on loans were reduced so long as the
director, officer or employee remained at the Bank.
The following table sets forth information at March 31, 1999 relating to
loans made to directors and executive officers of the Bank whose terms included
reduced interest rates or other preferential terms and whose total aggregate
balances exceeded $60,000 at any time since April 1, 1998.
<TABLE>
<CAPTION>
HIGHEST
BALANCE
BALANCE AT SINCE
TYPE OF DATE ORIGINAL INTEREST MARCH 31, APRIL 1,
NAME AND RELATION TO COMPANY LOAN ORIGINATED AMOUNT RATE 1999 1998
- ---------------------------- ---- ---------- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Herman Johnson, Director Mortgage 10/18/89 $150,000 8.50% $110,357 $115,842
</TABLE>
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARVER BANCORP, INC.
(Registrant)
Date: July 29, 1999 By: /s/ Deborah C. Wright
-------------------------------------
Deborah C. Wright
President and Chief Executive Officer
(Duly Authorized Representative)
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, 1998.
|_| 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 |_|
<TABLE>
<CAPTION>
Class Outstanding at February 22, 1999
----- --------------------------------
<S> <C>
Common Stock, par value $.01 2,314,275
</TABLE>
<PAGE>
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as
of December 31, 1998 and March 31, 1998 (unaudited)............3
Consolidated Statements of Income for the Three and
Nine Months Ended December 31, 1998 and 1997 (unaudited).......4
Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 1998 and 1997 (unaudited)............5
Notes to Consolidated Financial Statements (unaudited).........6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..............................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..............................................18
Item 2. Changes in Securities and Use of Proceeds......................18
Item 3. Defaults upon Senior Securities................................18
Item 4. Submission of Matters to a Vote of Security Holders............18
Item 5. Other Information .............................................18
Item 6. Exhibits and Reports on Form 8-K...............................18
SIGNATURES
2
<PAGE>
CARVER BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
As of As of
December 31, March 31,
ASSETS 1998 1998
------------- -------------
<S> <C> <C>
Cash and due from banks .................................... $ 13,826,870 $ 12,120,071
Federal funds sold ......................................... 15,800,000 3,000,000
------------- -------------
Total cash and cash equivalents ......................... 29,626,870 15,120,071
------------- -------------
Securities available for sale .............................. 42,369,985 28,407,505
Mortgage-backed securities held to maturity, net
(estimated fair values of $93,812,000 and $107,719,000 at
December 31, 1998 and March 31, 1997) ................... 70,966,306 91,115,861
Loans receivable ........................................... 257,042,658 278,092,337
Less allowance for loan losses .......................... (6,037,830) (3,138,000)
Loan receivables, net ................................... 251,004,828 274,954,337
------------- -------------
Real estate owned, net ..................................... 82,198 82,198
Property and equipment, net ................................ 12,034,474 11,545,627
Federal Home Loan Bank of New York stock, at cost .......... 5,754,600 5,754,600
Accrued interest receivable, net ........................... 2,581,121 2,762,843
Excess of cost over net assets acquired, net ............... 1,083,121 1,246,116
Other assets ............................................... 4,988,264 6,469,053
------------- -------------
Total assets ........................................... $ 420,491,768 $ 437,458,211
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits ................................................. $ 281,623,628 $ 274,894,232
Securities sold under agreement to repurchase ............ 35,337,000 87,020,000
Advances from Federal Home Loan Bank of New York ......... 65,718,308 36,741,686
Other borrowed money ..................................... 1,038,152 1,183,858
Advance payments by borrowers for taxes and insurance .... 1,762,257 659,995
Other liabilities ........................................ 4,150,288 1,424,096
------------- -------------
Total liabilities ..................................... 389,629,633 401,923,867
------------- -------------
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 .... 21,144 23,144
Additional paid-in capital ............................... 21,432,528 21,418,897
Retained earnings-substantially restricted ............... 10,562,237 15,289,631
Dividends declared and paid .............................. (115,714) 0
Common stock acquired by Employee Stock Ownership Plan ... (1,038,152) (1,183,858)
Unrealized (loss) net, on securities available for sale, . 92 (13,470)
------------- -------------
Total stockholders' equity ............................. 30,862,135 35,534,344
------------- -------------
Total liabilities and stockholders' equity ................. $ 420,491,768 $ 437,458,211
============= =============
</TABLE>
3
<PAGE>
CARVER INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable ..................... $ 4,937,816 $ 4,588,062 $ 15,497,439 $ 13,490,213
Mortgage-backed securities ........... 1,151,518 2,073,948 4,336,632 6,489,624
Investment securities ................ 629,841 238,109 1,125,263 773,775
Other interest-earning assets ........ 212,192 30,788 557,980 120,542
------------ ------------ ------------ ------------
Total interest income ............. 6,931,367 6,930,907 21,517,314 20,874,154
------------ ------------ ------------ ------------
Interest expense:
Deposits ............................. 2,037,072 2,162,459 6,249,725 6,456,748
Advances and other borrowed money .... 1,485,620 1,531,824 4,793,388 4,885,308
------------ ------------ ------------ ------------
Total interest expense ............. 3,522,692 3,694,283 11,043,113 11,342,056
------------ ------------ ------------ ------------
Net interest income .................... 3,408,675 3,236,624 10,474,201 9,532,098
Provision for loan losses .............. 3,060,569 279,920 3,810,569 618,113
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses ............ 348,106 2,956,704 6,663,632 8,913,985
------------ ------------ ------------ ------------
Non-interest income:
Loan fees and service charges ........ 10,080 33,829 119,191 100,015
Gain of (loss) on sale of securities .. 0 188,483 4,941 188,483
Other .................................. 337,257 328,053 1,370,239 930,979
------------ ------------ ------------ ------------
Total non-interest income ........ 347,337 550,365 1,494,371 1,219,477
------------ ------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits ....... 1,378,634 1,240,081 3,982,402 3,517,119
Net occupancy expenses ............... 286,180 261,644 880,142 804,069
Equipment ............................ 293,644 363,002 1,063,070 905,352
Loss on foreclosed real estate ....... 0 11,974 0 11,974
Advertising .......................... 34,419 75,716 111,568 194,466
Federal insurance premium ............ 41,400 42,119 148,841 83,622
Amortization of intangibles .......... 60,266 17,756 159,836 124,293
Legal expenses ....................... 38,790 105,000 139,665 220,000
Bank charges ......................... 96,109 113,084 280,641 308,423
Security service ..................... 110,832 96,004 302,170 238,122
Other ................................ 5,929,686 611,959 7,807,246 1,994,489
------------ ------------ ------------ ------------
Total non-interest expenses ...... 8,269,960 2,938,339 14,875,581 8,401,929
------------ ------------ ------------ ------------
Income (Loss) before income taxes ...... (7,575,517) 568,729 (6,717,578) 1,731,533
Income taxes (Benefit) ................. (1,851,134) 268,049 (1,505,458) 791,310
------------ ------------ ------------ ------------
Net income (Loss) ..................... $ (5,723,383) $ 300,680 $ (5,212,120) $ 940,221
============ ============ ============ ============
Net income (Loss) per common share ..... $ (2.59) $ 0.14 $ (2.37) $ 0.43
============ ============ ============ ============
Weighted average number of common shares
outstanding .......................... 2,208,432 2,189,918 2,203,690 2,185,376
============ ============ ============ ============
</TABLE>
4
<PAGE>
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ (5,212,120) $ 940,221
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment ............... 563,371 492,535
Amortization of intangibles ........................................... 162,995 124,293
Other amortization and accretion, net ................................. 733,264 784,666
Provision for loan losses ............................................ 3,060,569 681,113
Deferred income taxes ................................................. 0 (476,662)
Allocation of Employee Stock Ownership Plan ........................... 151,162 173,526
Changes in:
Accrued interest receivable, net ...................................... (181,722) 212,956
Refundable income taxes ............................................... 0 0
Other assets .......................................................... (1,480,789) (4,710,160)
Other liabilities ..................................................... 2,726,192 272,656
------------- -------------
Net cash provided by operating activities ........................... 522,922 (2,050,168)
------------- -------------
Cash flows from investing activities:
Purchase of securities available for sale ............................. (216,170,699) (17,000,000)
Principal repayments on securities available for sale ................. 3,713,435 4,419,045
Proceeds from maturity of securities available for sale .............. 198,841,581 55,819,825
Gain from sale of securities available for sale ....................... 188,483
Purchase of investment securities held to maturity .................... 0 (7,000,000)
Proceeds from maturities and calls of investment
securities held to maturity ........................................ 1,797,042 8,480,705
Principal repayment on mortgage-backed securities
held to maturity ................................................... 19,284,289 14,414,131
Principal repayment on investment
held to maturity ................................................... 0 194,476
Net change in loans receivable ........................................ 33,846,801 6,163,779
Purchase of mortgage loans ............................................ (11,140,215) (53,544,828)
Proceeds from sale of real estate owned ............................... 0 0
Loss from sale of real estate owned ................................... 0 0
Additions to premises and equipment .................................. (1,052,218) (760,466)
Redemption of Federal Home Loan Bank stock ........................... 0 147,500
------------- -------------
Net cash (used in) provided by investing activities ................. 29,120,016 11,522,650
------------- -------------
Cash flows from financing activities:
Net increase (decrease) in deposits ................................... 6,729,396 2,634,716
Decrease in short term borrowings .................................... (51,683,000) (942,404)
Repayment of securities sold under agreements to repurchase ........... 0 0
Repayment of advances from Federal Home Loan Bank
of New York ......................................................... 0 (52,400,000)
Advances from Federal Home Loan Bank of New York ..................... 28,976,622 42,000,000
Repayment of other borrowed money .................................... (145,705) (136,599)
Net increase (decrease) in advance payments by borrowers
for taxes and insurance ............................................. 1,102,262 0
Cash dividends paid ................................................. (115,714) (115,000)
------------- -------------
Net cash provided by (used in) financing activities .................. (15,136,139) (8,959,287)
------------- -------------
Net increase (decrease) in cash and cash equivalents .................... 14,506,799 513,195
Cash and cash equivalents - beginning ................................... 15,120,071 4,230,757
------------- -------------
Cash and cash equivalents - ending ...................................... $ 29,626,870 $ 4,742,952
============= =============
Supplemental disclosure of non-cash activities:
Unrealized Gain (loss) on securities available for sale:
Unrealized Gain (loss) .............................................. 173 $ 403,683
Deferred income taxes ............................................... (82) 189,731
------------- -------------
$ 213,952 $ 436,101
============= =============
Loans receivable transferred to real estate owned ..................... $ 0 $ 32,729
============= =============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ............................................................ $ 11,014,629 $ 11,367,056
============= =============
Federal, state and city income taxes ................................ $ 776,829 $ 0
============= =============
</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 "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
(including normal recurring adjustments) necessary for fair presentation
have been included. The consolidated results of operations and other data
for the three or nine month periods ended December 31, 1998 are not
necessarily indicative of results that may be expected for the entire
fiscal year ending March 31, 1999. The unaudited consolidated financial
statements include the accounts of the Holding Company and its wholly
owned subsidiaries Alhambra Holding Corp., ("Alhambra Holding") and
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. 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 and nine month periods ended
December 31, 1998 and 1997 are calculated based on weighted average number
of shares outstanding during the period.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. This statement also requires that
an entity recognize all derivatives as either assets or liabilities at
fair value in the statement of financial position and those instruments at
fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The adoption of this statement is not
anticipated to have a material impact on the financial position or results
of operations.
(4) ALHAMBRA HOLDING CORP.
In 1991, Carver purchased an $893,000 participation in a $2.4
million loan to finance the first construction phase of a project to
renovate a historic theatre, the Alhambra Building, into office space. The
first phase of the project was completed and leased out. The lead lender
on the project went into receivership with the FDIC and the borrower
declared bankruptcy and the rents were being paid into the bankruptcy
court. These events contributed to Carver writing down the outstanding
loan balance of the participation to $413,000.
During fiscal 1997, Carver negotiated the purchase of the FDIC's
interest in the loan for $395,000. At March 31, 1998, the Bank held 100%
interest in the original loan of $2.4 million carried on the books at
$807,000 and the Company was involved in legal action to vacate the stay
placed by the bankruptcy court on the collateral in order to proceed with
legal recourse.
In December of 1998, in connection with a court approved bankruptcy
plan, the loan asset was dividended by the Bank to the Company. The
Company contributed $600,000 in cash and the loan asset into a newly
formed wholly owned subsidiary, Alhambra Holding Corp. ("Alhambra
Holding"). Alhambra Holding used the cash and the loan to acquire 80% of
the common stock and approximately $1.4 million or 100% of the preferred
stock of Alhambra Realty Corp. ("Alhambra Realty"). As of December 31,
1998, Alhambra Realty purchased the property, holds title to the Alhambra
Building and was authorized to receive rental payments.
Carver is currently examining various options with respect to the
property owned by Alhambra Realty. These options include, but are not
limited to, completing the development of the property and leasing the
unoccupied space or conducting a sale of the property.
6
<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, 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 has deposits of approximately $10.0 million. Due to certain
regulatory issues, the transaction, which was expected to close by March 31,
1998, has not yet been consummated. Under ther terms of the definitive
agreement, either party has the right to terminate the agreement. To date,
neither party has exercised that right.
On January 25, 1999, Carver terminated Thomas L. Clark, Jr. as President
and Chief Executive Officer of the Company. Mr. Clark served in such capacity
since February 1, 1995. See Part II, Item 5 of this 10-Q.
Financial Condition
Assets
At December 31, 1998, total assets decreased $17.0 million or 3.88% to
$420.5 million compared to $437.5 million at March 31, 1998. The decrease in
total assets was primarily attributable to decreases in mortgage-backed
securities ("MBSs") held to maturity and loans receivable net, offset in part by
increases in securities held as available for sale and cash and equivalents.
At December 31, 1998, total cash and cash equivalents increased by $14.5
million or 95.94% to $29.6 million compared to $15.1 million at March 31, 1998.
The increase reflects the increased investment of repayments from loans and MBSs
into federal funds sold. The Bank invests in federal funds to maintain adequate
liquidity and earn interest on liquid assets.
Securities held as available for sale increased by $14.0 million or 49.15%
to $42.4 million at December 31, 1998 compared to $28.4 million at March 31,
1998. The increase primarily reflects the purchase of approximately $42.0
million in money market securities funded in large part with proceeds from the
sale during the second quarter of fiscal 1999 of approximately $23.8 million of
MBSs held as available for sale along with repayments on the remaining MBSs and
loans. The Bank invest in short term money market securities to improve the
yield on cash inflows until such time as these funds can be reinvested in loans
or other suitable higher yielding longer term assets.
7
<PAGE>
MBSs held to maturity decreased by $20.1 million or 22.11% to $71.0
million compared to $91.1 million at March 31, 1998. The decrease is
attributable to principal repayments on MBSs held to maturity. The decrease also
reflects the Bank's strategy to shift assets from MBSs and investment securities
to mortgage loans.
Other assets decreased by 1.5 million or 22.89% to $5.0 million at
December 31, 1998 compared to $6.5 million at March 31, 1998. The decrease in
other assets primarily reflects reconciliation adjustments. Other assets also
contain a $1.4 million investment in Alhambra Holding. See Notes to Financial
Statements, Alhambra Holding Corp.
Loans receivable decreased by $23.9 million or 8.71% to $251.0 million at
December 31, 1998 compared to $275.0 at March 31, 1998. The decrease primarily
reflects the receipt of principal payments on outstanding loans, offset in part
by loan purchases and loan originations. The Bank reinvests principal and
interest receipts from loans receivable into short term assets until suitable
loans can be purchased or originated.
Liabilities and Stockholders' Equity
At December 31, 1998, total deposits increased by $6.7 million or 2.49% to
$281.6 million compared to $274.9 million at March 31, 1998. The increase in
total deposits was primarily attributable increases of $7.2 million in
certificates of deposits and $1.4 million in NOW accounts, offset in part by
decreases in savings and club accounts and money market accounts. The increase
in certificate of deposits is primarily attributable to new account openings
which include a $3.5 million corporate deposit and a shift in deposits to
certificates of deposits from other types of accounts.
At December 31, 1998, total borrowings decreased by $22.9 million or
18.29% to $102.1 million compared to $125.0 million at March 31, 1998. The
decrease in total borrowings reflects a decrease in reverse repurchase
agreements ("repos") of $51.7 million or 59.39% to $35.3 million offset in part
by an increase in Federal Home Loan Bank of New York ("FHLB") advances of $29.0
million or 78.87% to $65.7 million. The Company shifted from repos to take
advantage of the longer borrowing terms available on FHLB advances. The decrease
in total borrowings primarily reflects a reduction in the need for borrowed
funds due to repayments on MBSs and loans coupled with an increase in deposits.
At December 31, 1998, stockholders' equity decreased by $4.7 million or
13.15%, to $30.9 million compared to $35.5 million at March 31, 1998. The
decrease in stockholders' equity primarily reflects a reduction in retained
earnings due to the after-tax impact of non-recurring pre-tax charges of
approximately $4.1 million in reconciliation adjustments primarily related to
the Company's conversion of its data processing operations from outside data
service providers to an in-house system, approximately $1.2 million in
consulting fees and approximately $2.5 million for a special provision for loan
losses in connection with the Bank's consumer loan portfolio.
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 origination and
purchase of loans and, to a lesser extent, the purchase of investment securities
and mortgage-backed securities. During the three month period ended December 31,
1998, the Company sold no mortgage loans and sold no investment securities.
During the three month period ended December 31, 1998, the Company purchased no
mortgage loans and purchased approximately $22.0 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 December 31, 1998, the
Company's cash and cash equivalents totaled $29.6 million compared to $15.1
million at March 31, 1998.
8
<PAGE>
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, 1998, 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, 1998 and March 31,
1998.
<TABLE>
<CAPTION>
At December 31, 1998 At March 31, 1998
-------------------- --------------------
% of % of
Amount Assets Amount Assets
------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Tangible Capital ............. $25,664 6.14% $30,201 6.90%
Core Capital ................. 25,703 6.15 30,249 6.93
Risk Based Capital ........... 30,393 14.24 31,731 16.00
</TABLE>
Analysis of Core 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.
At December 31, 1998, Company had 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 December
31, 1998, consumer loans totaled approximately $12.7 million, consisting
primarily of $4.5 million in automobile loans, $3.8 million in outstanding
credit card balances, $3.8 million personal loans and $600,000 of other consumer
loans. At December 31, 1998, non-performing consumer loans totaled approximately
$1.9 million or 14.96% of total consumer loans. In response to the increase in
non-performing consumer loans and to maintain an adequate allowance for loan
losses consistent with the Company's polices, the Company took a special
provision for loan losses of approximately $2.5 million during the third
quarter. At December 31, 1998 the Company's allowance to total consumer loans
was $3.3 million or 25.98% and the ratio of allowance to non-performing consumer
loans was 174.0%. The Company has taken action regarding delinquent automobile
loans to quickly 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.
9
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
Annualized Annualized
Average Quarterly Average Average Quarterly Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loan (1).................................. $ 256,575 $4,937 7.70% $ 238,810 $ 4,588 7.68%
Investment securities (2)................. 46,849 630 5.38 16,103 204 5.07
Mortgage-backed securities (3)............ 74,454 1,152 6.19 126,895 2,074 6.54
Federal funds sold........................ 15,475 212 5.48 4,613 65 5.64
--------- ------ ----- --------- -------- -------
Total interest-earning assets............. 393,353 6,931 7.05% 386,421 6,931 7.17%
------ --------
Non interest-earning assets............... 35,384 23,250
--------- ---------
Total assets.............................. $ 428,737 $ 409,671
========= =========
Interest-bearing Liabilities
Deposits
DDA....................................... $ 7,193 $ 0 0.00% $ 8,620 $ 0 0.00%
NOW....................................... 21,016 82 1.56 18,449 87 1.89
Savings and clubs......................... 144,154 900 2.50 143,875 924 2.57
Money market accounts..................... 21,479 130 2.42 21,441 173 3.23
Certificates of deposits.................. 80,483 925 4.60 77,027 978 5.08
--------- ------ ----- --------- -------- -------
Total deposits............................ 274,326 2,037 2.97 269,412 2,162 3.21
Borrowed money............................ 104,750 1,486 5.67 104,439 1,532 5.87
--------- ------ ----- --------- -------- -------
Total interest-bearing liabilities........ 379,076 3,523 3.72% 373,851 3,694 3.95%
------ ----- -------- -------
Non-interest bearing liabilities.......... 13,408 762
--------- ---------
Total liabilities......................... 392,484 374,613
Stockholders' equity...................... 36,253 35,058
--------- ---------
Total liabilities and stockholders' equity $ 428,737 $ 409,671
========= =========
Net interest income....................... $ 3,408 $ 3,237
======= ========
Interest rate spread...................... 3.33% 3.22%
----= -------
Net interest margin....................... 3.47% 3.35%
----= -------
Ratio to average interest-
earning assets to average................
Interest-bearing liabilities.............. 103.77% 103.36%
======= -------
</TABLE>
(1) Includes non-accrual loans.
(2) Includes FHLB stock and fair value of investments available for sale of
$48.1 million at December 31, 1998.
10
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997
-------------------------------- --------------------------------
Annualized Annualized
Average Quarterly Average Average Quarterly Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loan (1) ................................. $268,113 $ 15,496 7.71% $236,903 $ 13,490 7.59%
Investment securities (2) ................ 25,846 1,126 5.81 14,086 699 6.62
Mortgage-backed securities ............... 90,747 4,337 6.37 133,822 6,490 6.47
Federal funds sold ....................... 14,375 558 5.18 4,910 196 5.32
-------- -------- ------ -------- -------- ------
Total interest-earning assets ............ 399,082 21,517 7.19% 389,721 20,875 7.14%
-------- ------ -------- ------
Non interest-earning assets .............. 28,933 23,102
-------- --------
Total Assets ............................. $428,015 $412,823
======== ========
Interest-bearing Liabilities
Deposits
DDA ...................................... $ 9,546 $ 0 0.00% $ 8,364 $ -- 0.00%
NOW ...................................... 19,130 248 1.73 18,521 265 1.91
Savings and clubs ........................ 145,553 2,721 2.49 144,576 2,709 2.50
Money market accounts .................... 21,822 459 2.80 21,525 521 3.23
Certificates of deposits ................. 80,371 2,821 4.68 76,626 2,962 5.15
-------- -------- ------ -------- -------- ------
Total deposits ........................... 276,421 6,249 3.01 269,612 6,457 3.19
Borrowed money ........................... 108,329 4,793 5.90 107,162 4,885 6.08
-------- -------- ------ -------- -------- ------
Total interest-bearing liabilities ....... 384,750 11,042 3.83% 376,774 11,342 4.01%
-------- --------
Non-interest bearing liabilities ......... 7,372 1,301
-------- --------
Total liabilities ........................ 392,122 378,075
Stockholders' equity ..................... 35,893 34,748
-------- --------
Total liabilities and stockholders' equity $428,015 $412,823
======== ========
Net interest income ...................... $ 10,475 $ 9,533
======== ========
Interest rate spread ..................... 3.36% 3.13%
====== ======
Net interest margin ...................... 3.50% 3.26%
====== ======
Ratio to average interest-
earning assets to average
Interest-bearing liabilities ............. 103.72% 103.44%
====== ======
</TABLE>
- ----------
(1) Includes non-accrual loans.
(2) Includes FHLB stock and fair value of investments available for sale of
$48.1 million at December 31, 1998.
11
<PAGE>
Comparison of Operating Results for the
Three Months Ended December 31, 1998 and 1997
General
The Company reported a net loss for the three month period ended December
31, 1998 of $5.7 million, compared to net income of $301,000, for the three
month period ended December 31, 1997. The decrease in net income was primarily
due to increases in non-interest expense and provision for loan losses, along
with a decrease in non-interest income, offset in part by an increase in
net-interest income.
Interest Income
Interest income for the three month period ended December 31, 1998 was
unchanged at $6.9 million compared to the same period last year. The average
balance of interest-earning assets for the three month period ended December 31,
1998 increased by $6.9 million or 1.79% to $393.4 compared to $386.4 million for
the three month period ended December 31, 1997. The average yield on average
interest-earning assets decreased by 12 basis points to 7.05% for the three
month period ended December 31, 1998 compared to 7.17% for the same period last
year. The decrease in the average yield on average interest-earning assets
reflects the decline in market interest rates.
Interest income from net loans receivable increased by $349,000 or 7.61%
to $4.9 million for the three month period ended December 31, 1998 compared to
$4.6 million for the three month period ended December 31, 1997. This resulted
from an increase of $17.8 million or 7.44% in the average balance of loans
receivables to $256.6 million for the three month period ended December 31, 1998
compared to $238.8 million for the three month period ended December 31, 1997
coupled with a two basis point increase in the average yield on the loan
portfolio. The increase in the average loan portfolio balances primarily
reflects the cumulative impact of loan purchases and loan originations. The
Company carried a higher average loan portfolio balance for the three month
period compared to the period ending balance due to the reinvestment of the
normal monthly principal repayments and prepayments received on outstanding loan
balances into federal funds sold and money market securitites.
Interest income from mortgage-backed securities decreased $922,000, or
44.46%, to $1.2 million for three month period ended December 31, 1998 compared
to $2.1 million for the three month period ended December 31, 1997. This
decrease primarily reflects a decrease of approximately $52.4 million or 41.33%
in the average balance of mortgage-backed securities to $74.5 million compared
to $126.9 million coupled with a 35 basis point decrease in the average yield on
such securities. The decrease in the average yield on mortgage-backed securities
primarily reflects the decrease in market interest rates and increased
pre-payments which reduced the net yield on mortgage-backed securities.
Interest income from investment securities and other interest-earning
assets increased by $573,000 or 213.01%, to $842,000 for the three month period
ended December 31, 1998 compared to $269,000 for the same period last year. The
increase in interest income was primarily attributable to a $41.6 million or
200.84% increase in the average balance of such securities to $62.3 million for
the three month period ended December 31, 1998 compared to $20.7 million for the
three month period ended December 31, 1997. The increase in the average balance
of investment securities and other interest-earning assets for the three month
period ending December 31, 1998 reflects an investment in money market
securities. From time to time, the Bank invests in short term money market
securities and federal funds sold until such time as these monies can be
reinvested in loans or other longer term assets. See Financial
Conditions-Assets.
Interest Expense
Interest expense decreased by $171,000 or 4.63% to $3.5 million for the
three month period ended December 31, 1998 compared to $3.7 million for the same
period last year. The decrease in interest expense was primarily attributable to
a 27 basis point decrease in the average cost of average interest bearing
liabilities to 3.68% for the three month period ended December 31, 1998 compared
to 3.95% for the same period last year, offset in part by an increase of $8.7
million or 2.33% in the average balance of interest bearing liabilities to
$379.0 the three month period ended December 31, 1998 compared to $373.9 million
for the three month period ended December 31, 1997.
Interest expense on deposits decreased by $125,000 or 5.78% to $2.0
million for the three month period ended December 31, 1998 compared to $2.2 for
the same period last year. The decrease in interest expense on deposits was
primarily attributable to a 24 basis point decrease in the average cost of
deposits, offset in part by a $4.9 million or 1.82% increase in the average
balance of deposits to $274.3 million compared to $269.4 million for the same
period last year. Interest expense on borrowings decreased by $46,000 or 3.0% to
$ 1.5 million for the nine month period ended December 31, 1998 compared to $1.5
for the same period last year. The decrease in interest expense on borrowings
was primarily attributable to a 20 basis point decrease in the average cost of
borrowings due to a decrease in market interest rates.
12
<PAGE>
Net Interest Income Before Provisions for Loan Losses
Net interest income before provisions for loan losses increased $172,000
or 5.32%, to $3.4 million for the three month period ended December 31, 1998
compared to $3.2 million for the three month period ended December 31, 1997. The
increase in net interest income is primarily attributable to a 23 basis point
decrease in the average cost of interest bearing liabilities offset in part by a
12 basis point decrease in the average yield on interest-earning assets.
Net interest income after provision for loan losses decreased $2.6 million
or 88.23% to $348,000 for the three month period ended December 31, 1998
compared to $3.0 million for the same period last year. The decrease in net
interest income after provision for loan losses primarily reflects a special
provision of approximately $2.5 million to provide for potential losses on the
Bank's consumer loans. See Provision for Loan Losses.
The Company's interest rate spread increased by 11 basis points to 3.33%
for the three month period ended December 31, 1998 compared to 3.22% for the
three month period ended December 31, 1997. The Company's net interest margin
increased by 11 basis points to 3.47% for the three month period ended December
31, 1998 compared to 3.35% for the three month period ended December 31, 1997.
The increase in interest rate spread and net interest margin is primarily
attributable to a decrease in the cost of interest-bearing liabilities, offset
in part by a decrease in the average yield on interest-earning assets. The
Company's ratio of average interest-earning assets to average interest-bearing
liabilities was 103.77% for the three month period ended December 31, 1998
compared to 103.36% for the same period last year.
Provision for Loan Losses
The Company provided $3.1 million for loan losses for the three month
period ended December 31, 1998, compared to $280,000 for the same period last
year. The increase in the provision for the third quarter of fiscal 1999
reflects a one time special provision to significantly increase the Company's
allowance for loan losses in response to an increase in non-performing consumer
loans and to maintain an adequate level of allowance consistent with the Bank's
policies. During the third quarter, the Bank charged off approximately $314,000
in non-performing consumer loans. At December 31, 1998, non-performing loans
totaled approximately $10.1 million or 4.02% of total loans compared to $7.0
million or 2.86% at December 31, 1997. At December 31, 1998, Company's
allowance for loan losses was $6.0 million compared to $2.9 million at December
31, 1997, resulting in a ratio of allowance to non-performing loans of 59.91%
at December 31, 1998 compared to 41.13% at December 31, 1997 and a ratio of
allowances for loan losses to total loans of 2.36% and 1.18% respectively.
Non-Interest Income
Non-interest income decreased by $203,000 or 36.89% to $347,000 for the
third quarter of fiscal 1999 compared to $550,000 for the same period last year.
Non-interest income for the three month period ended December 31, 1997 reflected
a $188,000 gain on the sale of securities. Excluding the gain on sale of
securities, non-interest income for the third quarter of fiscal 1999 increased
by $15,000 compared to the same period last year. The increase in non-interest
income for the third quarter compared to the same period last year excluding the
gain on sale was primarily attributable to increases in fees from bank service
charges.
Non-Interest Expense
Non-interest expense increased by approximately $5.3 million or 181.45% to
$8.3 million for the three month period ended December 31, 1998 compared to $2.9
million for the three month period ended December 31, 1997. The increase
non-interest expense reflects non-recurring charges of $4.1 million in
reconciliation adjustments related to the conversion of the Company's data
processing system to an internal system from outside data service providers and
$1.2 million in consultant fees related to post conversion assignments. The
Company converted to an internal data processing system in April, 1998. During
the third quarter, the Company, with the assistance of outside consultants,
identified unreconcilable differences in the balance of certain accounts that
resulted from transaction processing and reconciling discrepancies. At December
31, 1998, the Company had cleared all such unreconciled differences from the
balances of these accounts.
Excluding the reconciliation adjustments and the consultant fees,
non-interest expense increased by approximately $62,000 or 0.02% to
approximately $3.0 million for three month period ended December 31, 1998
compared to $2.9 million for the same period last year. The increase in
non-interest expense during the third quarter excluding the
13
<PAGE>
reconciliation adjustments and the consultant fees was in large part
attributable to an increase in salary and benefits expense, offset in part by
reductions in advertising expense, equipment expense and legal expense.
The Company has been notified of an increase effective January 1, 1999, in
the rate of assessment by the Federal Deposit Insurance Corporation for deposit
insurance ("FDIC insurance") and the assessment by the Office of Thrift
Supervision (the "OTS assessment") due to a change in the OTS CAMEL rating for
the Bank. Management believes that these increases will result in an annualized
pre-tax increase in non-interest expense of approximately $500,000. The Bank is
normally examined by the OTS on an annual basis, however, examinations may occur
more or less frequently.
Income Tax Expense
In connection with the loss from operations incurred during the three
month period ended December 31, 1998, the Company has reflected a benefit
reflecting the carry back of the loss for the income taxes paid. The Company did
not incur income tax expense for the three month period ended December 31, 1998
compared to $329,000 for the three month period ended December 31, 1997. The
Company's effective tax rate for the three month period ended December 31, 1998
was 0.0% compared to 44.96% for the three month period ended December 31, 1997.
Comparison of Operating Results for the
Nine Months Ended December 31, 1998 and 1997
General
The Company reported a net loss for the nine month period ended December
31, 1998 of $5.2 million compared to net income of $940,000, for the same period
last year. The decrease in net income was primarily due to an increase in
non-interest expense and the provision for loan losses offset in part by
increases in net interest income and non-interest income.
Interest Income
Interest income increased by approximately $642,000 or 3.08% to $21.5
million for the nine month period ended December 31, 1998 compared to $20.9
million for the nine month period ended December 31, 1997. The increase in
interest income was primarily attributable to a $9.4 million or 2.40% increase
in the average balance of interest-earning assets to $399.1 the three month
period ended December 31, 1998 compared to $389.7 million for the nine month
period ended December 31, 1997 coupled with a five basis point increase in the
average yield on interest-earning assets to 7.19%. The increase in interest
income for the nine month period was primarily attributable to a shift in assets
from mortgage-backed securities to higher yielding loans.
Interest income from loans receivable increased by $2.0 million, or
14.87%, to $15.5 million for the nine months ended December 31, 1998 compared to
$13.5 million for the nine months ended December 31, 1997. The increase was
primarily attributable to a $31.2 million or 13.17% increase in the average
balance of loan receivables to $268.1 million for the nine month period ended
December 31, 1998 compared to $237.0 million for the nine month period ended
December 31, 1997, coupled with an increase of 12 basis points in the average
yield on the loan portfolio. The increase in the average loan portfolio balances
primarily reflects the impact of loan originations and purchases.
Interest income from mortgage-backed securities decreased $2.2 million, or
33.17%, to $4.3 million for the nine months ended December 31, 1998 compared to
$6.5 million for the nine months ended December 31, 1997. The decrease was
primarily attributable to a decrease of $43.1 million or 32.19% in the average
balance of mortgage-backed securities to $90.7 million for the three month
period ended December 31, 1998 compared to $133.8 million for the same period
last year. The decrease in the average balance of mortgage-backed securities
reflects the Company's strategy to shift assets from securities to higher
yielding loans.
Interest income from investment securities and other interest-earning
assets increased by $789,000 or 88.16%, to $1.7 million for the nine months
ended December 31, 1998 compared to $895,000 for the nine months ended December
31, 1997. The increase in interest income is primarily attributable to a $21.2
million or 111.74% increase in the average balance of investment securities and
other interest-earning assets to $40.2 million for the nine months ended
December 31, 1998 compared to $19.0 million for the nine months ended December
31, 1997, offset in part by an 81 basis point decrease in the average yield on
investment securities. The increase in the average balance of investment
securities and other interest-earning assets for the nine month period ending
December 31, 1998 reflects increased investment in money market securities.
14
<PAGE>
Interest Expense
Interest expense decreased by $298,000 or 2.64% to $11.0 million for the
nine months ended December 31, 1998 compared to $11.3 million for the nine
months ended December 31, 1997. The decrease in interest expense was primarily
attributable to a 18 basis point decrease in the average cost of
interest-bearing liabilities to 3.83% offset, in part by a $8.0 million or 2.12%
increase in the average balance of interest bearing liabilities to $384.8 the
nine month period ended December 31, 1998 compared to $376.8 million for the
nine month period ended December 31, 1997.
Interest expense on deposits decreased by $208,000 or 3.22% to $6.2
million for the nine month period ended December 31, 1998 compared to $6.5
million for the nine month period ended December 31, 1997. The decrease in
interest expense on deposits was primarily attributable to a 18 basis point
decrease in the average cost deposits, offset in part a $6.8 million or 2.53%
increase in the average balance of deposits to $276.4 million compared to $269.6
million for the same period last year. Interest expense on borrowings decreased
by $92,000 or 1.88% to $4.8 million for the nine month period ended December 31,
1998 compared to $4.9 for the same period last year. The decrease in interest
expense on borrowings is primarily attributable to an 18 basis point decrease in
the average cost of borrowings, offset in part by a $1.2 million increase in the
average balance of borrowings.
Net Interest Income Before Provisions for Loan Losses
Net interest income before provisions for loan losses increased $942,000
or 9.88%, to $10.5 million for the nine month period ended December 31, 1998
compared to $9.5 million for the nine month period ended December 31, 1997. The
increase in net interest income is primarily attributable to a 23 basis point
decrease in the average cost of interest bearing liabilities coupled with a 5
basis point increase in the average yield on interest-earning assets.
Net interest income after provision for loan losses decreased $2.2 million
or 24.71% to $6.7 million for the nine month period ended December 31, 1998
compared to $8.9 million for the same period last year. The decrease in net
interest income after provision for loan losses primarily reflects a special
provision of approximately $2.5 million incurred during the third quarter to
provide for possible losses on the Bank's consumer loan portfolio. See
Provision for Loan Losses.
The Company's interest rate spread increased by 23.0 basis points to 3.36%
for the nine month period ended December 31, 1998 compared to 3.13% for the nine
month period ended December 31, 1997. The Company's net interest margin
increased by 24 basis points to 3.50% for the nine month period ended December
31, 1998 compared to 3.26% for the nine month period ended December 31, 1997.
The increase in interest rate spread and net interest margin is primarily
attributable to an increase in the average balance and average yield on
interest-earning assets coupled with a decrease in the average cost on
interest-bearing liabilities. The Company's ratio of average interest-earning
assets to average interest-bearing liabilities decreased to 103.72% for the nine
month period ended December 31, 1998 from 103.44% for the nine month period
ended December 31, 1997.
Provision for Loan Losses
The Company provided $3.8 million for loan losses for the nine month
period ended December 31, 1998, compared to $618,000 for the same period last
year. The increase in the provision for loan losses for the nine month period
reflects a one time special provision of $2.5 million. The Company took the
special provision to significantly increase the Bank's allowance for loan losses
in response to an increase in non-performing loans and to maintain an adequate
level of allowance consistent with the Bank's policies. During the nine month
period, the Bank charged off approximately $1.0 million in non-performing
consumer loans. At December 31, 1998, non-performing loans totaled
approximately $10.1 million or 4.01% of total loans compared to $6.8 million
or 2.51% at March 31, 1998. At December 31, 1998, Carver's allowance for loan
losses was $6.0 million compared to $3.1 million at March 31, 1998, resulting
in a ratio of allowance to non-performing loans of 59.91% at December 31, 1998
compared to 45.30% at March 31, 1998, and a ratio of allowances for loan losses
to total loans of 2.36% and 1.11% respectively.
Non-Interest Income
Non-interest income increased by $275,000 or 22.54% to $1.5 million for
the nine month period ended December 31, 1998 compared to $1.2 million for the
same period last year. Non-interest income for the nine month period ended
December 31, 1997 reflected a $188,000 gain on the sale of securities. Excluding
the gain on sale of securities, non-interest income increased by $463,000 or
44.94% for the nine month period ended December 31, 1998 compared to the same
period last year reflecting early prepayment fees on loans and increases in fees
from bank service charges.
15
<PAGE>
Non-Interest Expenses
Non-interest expense increased by approximately $6.5 million or 77.05% to
$14.9 million for the nine month period ended December 31, 1998 compared to $8.4
million for the nine month period ended December 31, 1997. The increase in
non-interest expense reflects non-recurring charges of $4.1 million in
reconciliation adjustments related to the conversion of the Company's data
processing system to an internal system from outside data service providers and
$1.2 million in consultant fees related to post conversion assignments.
Excluding the reconciliation adjustments and the consultant fees,
non-interest expense increased by approximately $1.2 million to $9.6 million for
the nine month period ended December 31, 1998 compared to $8.4 million for the
same period last year. The increase in non-interest expense also reflects
increases of; $465,000 in salary and benefits expense, $157,000 in equipment
expense, and $64,000 in security service expense, offset in part by reductions
in advertising expense, and legal expense. FDIC insurance expense increased by
$65,000 or 77.99% to $148,000 for the nine month period ended December 31, 1998
compared to $84,000 for the same period last year. The Bank did not incur an
expense for quarterly FDIC premium during the first quarter of fiscal 1998 as a
result of the legislation enacted to recapitalize the Savings Association
Insurance Fund. The Company has been notified that the Bank's FDIC insurance
premium and OTS assessment will increase effective January 1, 1999. In addition,
the increase in non-interest expense for the nine month period reflects a
$250,000 charge that was incurred in connection with a prospective settlement of
litigation. See Legal Proceedings, Part II, Item 1 of this 10-Q.
Income Tax Expense
In connection with the loss from operations incurred during the three
month period ended December 31, 1998, the Company has reflected a benefit
reflecting the carry back of the loss for the income taxes paid of approximately
$1.5 million. In addition, the Company has available net operations loss carry
forward totaling approximatley 5.1 million, which will expire in 2019 to offset
fututre taxable income.The Company did not incur income tax expense for the
nine month period ended December 31, 1998 compared to $523,000 for the nine
month period ended December 31, 1997. The Company's effective tax rate for the
nine month period ended December 31, 1998 was 0.0% compared to 44.99% for the
nine month period ended December 31, 1997.
Year 2000 Compliance
The "Year 2000 Problem" centers on the inability of 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 will recognize "00" as the year 1900 rather than the year 2000. Like
most financial providers, the Company and its operations may be significantly
affected by the Year 2000 Problem due to the nature of financial information.
Software, hardware, and equipment both within and outside the Company's direct
control and with whom the Company electronically or operationally interfaces
(e.g. 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. Therefore, calculations which rely on the date field
information, such as interest, payment or due dates and other operating
functions, may generate results which could be significantly misstated, and the
Company could experience a temporary inability to process transactions, send
invoices or engage in similar normal business activities. In addition, under
certain circumstances, failure to adequately address the Year 2000 Problem 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 Problem could result in a significant adverse impact on the Company's
products, services and competitive condition.
The OTS and the other federal banking regulators have issued guidelines to
be followed by insured depository institutions, such as the Bank, to assure
resolution of the Year 2000 Problem. Any institution's failure to address
appropriately the Year 2000 Problem could result in supervisory action.
State of Readiness - During April 1997 the Company formulated its Year
2000 Project Plan (the "Plan") to address the Year 2000 Problem. The Company
converted its deposits and a portion of its loan portfolio to a Year 2000
Complaint System in April of 1998. The Company began testing its loan and
deposit systems in July, 1998 and is currently on the final phase of the process
of obtaining software modifications deemed necessary for compliance in all other
systems. The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company is vulnerable
to those third parties' failure to resolve their own Year 2000 Problem. The
Company presently believes that with modifications to existing software and
conversions to new software, the Year 2000 Problem will be mitigated without
causing a material adverse effect on its operations. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Problem could have a material
16
<PAGE>
adverse impact on the Company's operations. As a result the Company expects to
formulate a contingency plans for its mission critical systems where possible.
The Company does maintain a disaster recovery program designed to deal with
similar failures on an ongoing basis. All business units have been directed to
update and review their existing recovery plans in addition to developing
contingency plans prior to March 31, 1999 to address the possible failure of one
or more mission critical systems. At this time, management believes that any
such impact and any resulting costs will not be material.
Monitoring and managing the Year 2000 Problem 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 software products for Year 2000 compliance and any resulting costs for
developing and implementing contingency plans for critical software products
which are not enhanced. Indirect costs will principally consist of the time
devoted by existing employees in monitoring software vendor progress, testing
enhanced software products and implementing any necessary contingency plans.
Such costs have not been material to date. The Company believes that any such
costs to be incurred in the future will not have a material effect on its
results of operations. Both direct and indirect costs of addressing the Year
2000 Problem will be charged to earnings as incurred.
ITEM 3
Quantitative and Qualitative Disclosure About Market Risk
Quantitative and qualitative disclosure about market risk is presented at
March 31, 1998 in Item 7A to the Company's Annual Report of Form 10-K, filed
with the Securities and Exchange Commission ("SEC") on July 14, 1998 as amended
on Form 10-K/A filed with the SEC on August 13, 1998. The Company believes that
there have been no material changes in the Company's market risk at December 31,
1998 compared to March 31, 1998.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is a party to various legal proceedings
incident to its business. As of December 31, 1998, except as set forth below,
there were no legal proceedings to which the Company or its subsidiaries was a
party, or to which any of their property was subject, which were expected by
management to result in a material loss.
On January 2, 1996, the United States District Court for the Southern
District of New York dismissed the class action encaptioned Dougherty v. Carver
Federal Savings Bank for lack of subject matter jurisdiction. The class action
alleged that the offering circular, used by Carver to sell its stock in its
public offering, contained material misstatements and omissions. Further, the
complaint alleged that the Bank's shares were not appraised 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.
In August, 1998, the plaintiffs in each of the above mentioned cases with
the consent of the defendants filed a motion with the District Court for
preliminary approval of a settlement proposed by the parties herein. In
November, 1998, Judge Makasey of the U.S. District Court preliminarily approved
the proposed settlement and scheduled a hearing on the fairness of the same for
February 16, 1999. On February 16,1999, Judge Mukasey approved the final
settlement. The Company incurred a one time charge of $250,000 during the second
quarter of fiscal year 1999 in connection with the settlement.
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
Item 5. Other Information
On January 25, Carver announced the termination of Thomas L. Clark, Jr.
as President and Chief Executive Officer. At that time, Carver engaged Spencer
Stuart, a leading executive search firm to aid Carver in finding a replacement.
In the interim, Carver established an operating committee consisting of four
directors and members of senior management to manage the day-to-day operations
of Carver until a replacement is named. The operating committee is chaired by
Director Pazel G. Jackson.
The Company filed a current report on Form 8-K on February 12, 1999
relating to the termination of Mr. Clark as Carver's President and Chief
Executive Officer.
Item 6. Exhibits and Reports on Form 8-K
None
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 22, 1999 CARVER BANCORP, INC.
/s/ David R. Jones, Esq.
-----------------------------------------
David R. Jones, Esq.
Chairman of the Board of Directors
Date: February 22, 1999 /s/ Walter T. Bond
-----------------------------------------
Walter T. Bond
Vice President and
Acting Chief Financial Officer
19
<PAGE>
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
AS OF QUARTER ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
For the Three month Period Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net income / (Loss) $(5,723,383) $ 300,680
Weighted average shares outstanding 2,208,432 2,189,918
Earning / (Loss) per shares outstanding $ (2.59) $ 0.14
<CAPTION>
For the Nine month Period Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net income / (Loss) $(5,212,120) $ 940,221
Weighted average shares outstanding 2,203,690 2,185,376
Earning / (Loss) per shares outstanding $ (2.37) $ 0.43
</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 nine month
period ended December 31, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 29,626,870
<INT-BEARING-DEPOSITS> 269,710,911
<FED-FUNDS-SOLD> 15,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,369,985
<INVESTMENTS-CARRYING> 70,966,306
<INVESTMENTS-MARKET> 70,267,378
<LOANS> 251,004,828
<ALLOWANCE> 6,037,830
<TOTAL-ASSETS> 420,491,768
<DEPOSITS> 281,623,628
<SHORT-TERM> 101,055,308
<LIABILITIES-OTHER> 4,150,288
<LONG-TERM> 1,038,152
0
0
<COMMON> 21,144
<OTHER-SE> 30,862,135
<TOTAL-LIABILITIES-AND-EQUITY> 420,491,768
<INTEREST-LOAN> 15,497,439
<INTEREST-INVEST> 1,125,263
<INTEREST-OTHER> 557,980
<INTEREST-TOTAL> 21,517,314
<INTEREST-DEPOSIT> 6,249,725
<INTEREST-EXPENSE> 11,043,113
<INTEREST-INCOME-NET> 10,474,201
<LOAN-LOSSES> 3,810,569
<SECURITIES-GAINS> 4,941
<EXPENSE-OTHER> 7,807,246
<INCOME-PRETAX> (6,717,578)
<INCOME-PRE-EXTRAORDINARY> (6,717,578)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,212,120)
<EPS-BASIC> (2.37)
<EPS-DILUTED> (2.37)
<YIELD-ACTUAL> 7.19
<LOANS-NON> 1,320,000
<LOANS-PAST> 8,383,000
<LOANS-TROUBLED> 576,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,137,999
<CHARGE-OFFS> 917,738
<RECOVERIES> 7,000
<ALLOWANCE-CLOSE> 6,037,830
<ALLOWANCE-DOMESTIC> 6,037,830
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT NO. 23.1 CONSENT OF INDEPENDENT AUDITORS
<PAGE>
Carver Bancorp, Inc.
75 West 125th Street
New York, New York 10027
We hereby consent to incorporation by reference in the Registration Statement,
dated October 20, 1999, on Form S-2 of Carver Bancorp, Inc., of our report dated
June 29, 1999 relating to the consolidated financial condition of Carver
Bancorp, Inc. and subsidiaries as of March 31, 1999, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the year ended March 31, 1999, which report is incorporated by
reference in the March 31, 1999 Annual Report on Form 10-K of Carver Bancorp,
Inc. and subsidiaries.
New York, New York
October 20, 1999
EXHIBIT NO. 99.1 FORM OF ENROLLMENT APPLICATION
<PAGE>
A DIRECT PURCHASE PROGRAM FOR THE COMMON STOCK OF
CARVER BANCORP, INC.
ENROLLMENT APPLICATION
I (We) hereby appoint American Stock Transfer & Trust Company as my (our) Agent
under the terms and conditions of the Shares Program, as described in the
Prospectus of the program which accompanied this form, to receive cash payments
and apply them to the purchase of shares of Carver Bancorp, Inc. Common Stock as
indicated below.
NO INTEREST WILL BE PAID ON THE FUNDS HELD PENDING INVESTMENT.
ACCOUNT INFORMATION
- -------------------
1. SINGLE/JOINT: Joint account will be presumed to be joint tenants with right
of survivorship unless restricted by applicable state law or otherwise
indicated. Only one Social Security Number is required.
2 CUSTODIAL: A minor is the beneficial owner of the account with an adult
custodian managing the account until the minor becomes of age, as specified in
the Uniform Gift Transfer to Minors Act in the minor's state of residence.
3 TRUST. Account is established in accordance with the provisions of a
trust agreement. THIS FORM, WHEN COMPLETED AND SIGNED, SHOULD BE MAILED WITH
YOUR CHECK IN THE ENVELOPE PROVIDED. IF YOU DO NOT HAVE THE ENVELOPE, MAIL YOUR
CHECK AND THE FORM TO:
CARVER BANCORP, INC.
C/O AMERICAN STOCK TRANSFER & TRUST COMPANY
ATTN: CARVER SHARES PROGRAM
40 WALL STREET, NEW YORK, NEW YORK 10005
Your preprinted name and address above is for mailing purposes only. Please
complete one of the boxes below for the exact account registration.
ACCOUNT LEGAL REGISTRATION (CHOOSE ONE):
----------------------------------------
SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER ______________________________
I hereby warrant, under penalty of perjury, that the number provided above is
correct.
- --------------------------------------------------------------------------------
|_| SINGLE/JOINT ACCOUNT |_| CUSTODIAL ACCOUNT
_________________________ _______________________________
Name Custodian's Name
_________________________ _______________________________
Joint Owner (if any) Minor's Name
_________________________ _______________________________
Joint Owner (if any) Minor's State of Residence
|_| TRUST ACCOUNT
_________________________
Trust Name or Beneficiary
_________________________
Trustee Name
_________________________
Date of Trust
- --------------------------------------------------------------------------------
ACCOUNT ADDRESS_________________________________________________________________
STREET CITY STATE ZIP CODE
I acknowledge that the shares of Carver Bancorp, Inc. that I
purchase through the shares program are not savings deposits
or savings accounts, are not federally insured, and is not
guaranteed by Carver Bancorp, Carver Federal Savings Bank of
the federal government. If anyone asserts that investments
through the Shares Program is federally insured or guaranteed,
or is as safe as an insured deposit, I should call the Office
of Thrift Supervision Regional Director at (201) 413-7302.
SIGNATURE(S)____________________________________________________________________
All Joint Owners Must Sign
ATTACHED IS A CHECK FOR $________________ MINIMUM INITIAL INVESTMENT IS $200
MAXIMUM INITIAL INVESTMENT IS $10,000
(FOR AUTOMATIC MONTHLY DEDUCTIONS, SEE REVERSE)
<PAGE>
COMPLETE THIS PART ONLY IF YOU WANT AUTOMATIC MONTHLY DEDUCTIONS
I(We) hereby authorize American Stock Transfer & Trust Company to make monthly
automatic transfers of funds from the checking or savings account in the amount
stated below. This monthly deductions will be used to purchase shares of Carver
Bancorp, Inc. Common Stock for deposit into my (our) Carver Bancorp, Inc.
account.
Signature(s)_______________________________________
_______________________________________
Daytime
Date____________ Phone Number ____________________
1. Indicate the Type of Account: Checking or Savings.
2. Print the complete Bank Account Number.
3. Print the name on Bank Account as it appears on your statement.
4. Print the complete name of your financial institution, including the branch
name and address.
5. Print the ABA Number (Bank Number) from your check or savings deposit slip.
6. Amount of automatic monthly deduction: indicate the monthly amount
authorized to be transferred from your account. The minimum is $100 per
payment and the maximum is $100,000 per calendar year from your checking
savings account to purchase Carver Bancorp, Inc. Common Stock.
PLEASE ENCLOSE A COPY OF A VOIDED check or savings deposit slip to verify
banking information.
FILL IN THE INFORMATION BELOW FOR STOCK PURCHASES
USING AUTOMATIC MONTHLY DEDUCTIONS.
Please Print All items
1. type of Account checking |_| savings |_|
2. __________________________________________________________________
bank account number
3. __________________________________________________________________
name of bank account
4. __________________________________________________________________
financial institution
__________________________________________________________________
branch name
__________________________________________________________________
branch street address
__________________________________________________________________
branch city, state and zip code
5. _____________________________
ABA number (must be 9 digits)
6. $____________________________
Amount of automatic monthly deduction.
--------------------------------------------------------------
Name on JOHN A. DOE __________19______
Bank Account MARY B. DOE
123 YOUR STREET
ANYWHERE, U.S.A. 12345
PAY TO THE
ORDER OF $
----------------------------------------------- ------------
-------------------------------------------------------DOLLARS
FIRST NATIONAL BANK
Financial OF ANYWHERE
Institution and 123 MAIN STREET
Branch ANYWHERE, USA 12345
information
FOR SAMPLE (NON NEGOTIABLE)
----------------------------- ----------------------------
:071000013: 123456789"
--------------------------------------------------------------
EXHIBIT NO. 99.2 FORM OF COVER LETTER
<PAGE>
[LETTERHEAD OF CARVER BANCORP, INC.]
Dear Friend:
I am pleased to announce that the Board of Directors of Carver Bancorp,
Inc. has established the Carver Bancorp, Inc. Shares Program. The Board and
Carver's management believe that community ownership of our shares is important
to our success as an institution and to the communities we serve. The Shares
Program is designed to provide our customers, employees, investors and members
of the communities we serve a simple, convenient and economical way to invest in
our common stock.
The enclosed prospectus provides you with a description of the Shares
Program. Also included is a copy of our latest annual report on Form 10-K as
well as our most recent quarterly report on Form 10-Q which provide information
regarding our operations.
The Shares Program offers you an affordable alternative to buy shares
of our common stock. If you participate in the Program, you may also make
periodic investments in our stock. By participating in the Shares Program, you
can sell your shares without having to find your stock certificate(s). You can
also deposit your existing stock certificate(s) with the administrator of the
Shares Program, American Stock Transfer & Trust Company, for safekeeping or
sale. You can withdraw or transfer all or a portion of your stock held through
the Shares Program at any time. Please note that there are fees associated with
the Shares Program to cover administrative expenses.
The fees are described in the prospectus.
To enroll in the Shares Program, simply fill out the enclosed
enrollment form and mail it to American Stock Transfer & Trust Company. If you
have questions regarding the Program, please contact the program administrator
at:
American Stock Transfer & Trust Company
Attention: Carver Shares Program
40 Wall Street
New York, New York 10005
(800) 278-4353
investpower.com
Thank you for your interest in Carver Bancorp and for your commitment
to our success.
Sincerely,
Deborah C. Wright
President and Chief Executive Officer
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The shares of common stock are not savings accounts or savings deposits, are not
guaranteed or insured by the Federal Deposit Insurance Corporation or any other
government agency, are not guaranteed by Carver Bancorp Inc. or Carver Federal
Savings Bank and are subject to investment risk.
This letter is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the prospectus.
- --------------------------------------------------------------------------------
