SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998.
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
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
Class Outstanding at August 14, 1998
----- ------------------------------
Common Stock, par value $.01 2,314,275
CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 1998 and March 31, 1998 (unaudited) .............................. 3
Consolidated Statements of Income for the Three
Months Ended June 30, 1998 and 1997 (unaudited) ........................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 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 ............................................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................ 16
Item 2. Changes in Securities and Use of Proceeds .................... 16
Item 3. Defaults upon Senior Securities .............................. 16
Item 4. Submission of Matters to a Vote of Security Holders .......... 16
Item 5. Other Information ............................................ 17
Item 6. Exhibits and Reports on Form 8-K ............................. 17
SIGNATURES
-2-
Carver Bancorp, Inc.
Consolidated Statements of Financial Condition
(Unaudited)
As of As of
Assets June 30, 1998 March 31, 1998
------------- -------------
Cash and due from banks .................... $ 14,430,552 $ 12,120,071
Federal funds sold ......................... 7,700,000 3,000,000
------------- -------------
Total cash and cash equiv .............. 22,130,552 15,120,071
------------- -------------
Securities available for sale .............. 25,702,483 28,407,505
Inv. Securities held to maturity ........... 0 0
MBS securities held to maturity ........... 85,723,175 91,115,861
Loans receivable, net: ..................... 265,128,709 274,954,337
REO ........................................ 82,198 82,198
Property & Equipment ....................... 12,163,163 11,545,627
FHLB stock ................................. 5,754,600 5,754,600
Accrued interest ........................... 2,388,810 2,762,843
Excess of cost over net assets acquired ... 1,194,757 1,246,116
Other assets ............................... 7,102,628 6,469,053
------------- -------------
Total assets ............................. $ 427,371,077 $ 437,458,211
============= =============
Liabilities & Equity
Deposits ................................... 279,746,103 274,894,232
Repos ...................................... 68,720,000 87,020,000
Advances ................................... 31,736,918 36,741,686
Other borrowings ........................... 1,138,325 1,183,858
------------- -------------
Total Borrowings ........................ 101,595,243 124,945,544
------------- -------------
Advance payments for taxes ................. 659,995 659,995
Other liabilities .......................... 9,472,565 1,424,096
------------- -------------
Total liabilities ........................ 391,473,906 401,923,867
------------- -------------
Stockholders' Equity
Common stock ............................... 23,144 23,144
Add paid in capital ........................ 21,436,929 21,418,897
Retained Earnings .......................... 15,571,936 15,289,632
Dividends declared and paid .................. 0 0
ESOP stock ................................. (1,138,325) (1,183,858)
Unrealized (loss) on securities AFS .......... 3,486 (13,470)
------------- -------------
Total stockholders' equity ................. 35,897,170 35,534,345
------------- -------------
Total liabilities & stockholders' equity .. $ 427,371,077 $ 437,458,211
============= =============
- 3 -
Carver Bancorp,Inc.
Consolidated Statement of Income
(Unaudited)
Three Months Three Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
Interest Income
Loan receivable ................................. $5,354,256 $4,369,777
Mortgage-backed securities ...................... 1,846,566 2,225,628
Investments and other interest-earning assets ... 166,024 134,592
Federal Funds Sold .............................. 218,037 66,877
---------- ----------
Total interest income ......................... 7,584,883 6,796,874
---------- ----------
Interest expense
Deposits ........................................ 2,141,768 2,122,659
Advances and Repos .............................. 1,745,405 1,697,577
---------- ----------
Total interest expense ........................ 3,887,173 3,820,236
---------- ----------
Net interest income ............................... 3,697,710 2,976,638
---------- ----------
Provisions ........................................ 450,015 167,356
---------- ----------
Net interest income less provision for loan loss .. 3,247,694 2,809,282
---------- ----------
Non interest income
Loan fees & service charges ..................... 48,195 37,216
Gain or (loss) on sale of securities ............ 0 0
Other income .................................... 526,473 279,145
---------- ----------
Total non-interest income ..................... 574,668 316,361
---------- ----------
Non-interest expense
Salaries and benefits ........................... 1,240,244 1,107,995
Net occupancy ................................... 287,976 252,439
Equipment ....................................... 447,011 239,150
Loss on foreclosure RE .......................... 0 4,163
Advertising ..................................... 36,238 59,375
FDIC ............................................ 65,308 0
Amortization of intangibles ..................... 48,213 53,268
Legal expense ................................... 60,050 55,000
Bank charges .................................... 88,827 126,593
Security service ................................ 64,196 54,576
Other ........................................... 930,783 608,800
---------- ----------
Total non interest expense ................... 3,268,844 2,561,359
---------- ----------
Income before taxes ............................... 553,519 564,284
---------- ----------
Income taxes ...................................... 235,465 254,159
---------- ----------
Net income ........................................ $ 318,054 $ 310,125
========== ==========
Net income (loss) per common share ................ $ 0.14 $ 0.14
---------- ----------
Weighted Average Number of Shares Outstanding ..... 2,199,025 2,180,812
========== ==========
-4-
Carver Bancorp, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
June 30, 1998
----------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net income $ 318,054 $ 310,125
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 191,749 117,482
Amortization of intangibles 51,359 53,268
Other amortization and accretion, net 112,821 211,844
Provision for loan losses 450,015 167,356
Deferred income taxes 0 (315,044)
Allocation of ESOP 63,566 47,438
Changes in:
Accrued interest receivable, net (374,033) (25,811)
Refundable income taxes 0 0
(Increase)Decrease in other assets (633,575) (697,024)
(Increase)Decrease in other liabilities 8,048,469 (418,921)
------------ ------------
Net cash provided by operating activities 8,228,425 (549,287)
------------ ------------
Cash flows from investing activities:
Purchase of securities available for sale 0 (5,000,000)
Principal repayments on securities available for sale 2,700,399 1,234,966
Proceeds from sale of securities available for sale 0 49,008,308
Gain from sale of securities available for sale 0 0
Purchase of investment securities held to maturity 0 0
Proceeds from maturities and calls of investment
securities held to maturity 0 64,327
Principal repayment on mortgage-backed securities
held to maturity 5,372,694 4,345,148
Principal repayment on investment
held to maturity 0 0
Net change in loans receivable 10,345,738 (4,374,683)
Purchase of mortgage loans 0 (32,544,057)
Proceeds from sale of real estate owned 0 0
Loss from sale of real estate owned 0 0
Additions to premises and equipment (910,203) (311,603)
------------ ------------
Net cash (used in) provided by investing activities 17,508,628 12,422,406
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits 4,623,729 3,069,460
Increase (Decrease) in short term borrowings (18,300,000) 8,000,000
Repayment of advances from Federal Home Loan Bank
of New York (5,004,768) (43,000,000)
Advances from Federal Home Loan Bank of New York 0 22,000,000
Repayment of other borrowed money (45,533) (45,533)
Redemption of Federal Home Loan Bank stock 0 575,000
Net increase (decrease) in advance payments by borrowers 0 0
for taxes and insurance 0 0
------------ ------------
Net cash provided by (used in) financing activities (18,726,572) (9,401,073)
------------ ------------
Net increase (decrease) in cash and cash equivalents 7,010,481 2,472,046
Cash and cash equivalents -- beginning 15,120,071 4,230,757
------------ ------------
Cash and cash equivalents -- ending $ 22,130,552 $ 6,702,803
------------ ------------
Supplemental disclosure of non-cash activities:
Unrealized Gain (loss) on securities available for sale:
Unrealized Gain (loss) $ 3,486 $ 456,734
Deferred income taxes 1,530 (214,665)
------------ ------------
$ 5,016 $ 242,069
============ ============
Loans receivable transferred to real estate owned $ 0 $ 0
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 3,887,173 $ 3,717,198
============ ============
Federal, state and city income taxes $ 0 $ 0
============ ============
-5-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Carver
Bancorp, Inc. (the Holding Company" or "Bancorp"), have been prepared in
accordance with generally accepted accounting principles ("GAAP") for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X promulgated by the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete consolidated financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) necessary for fair presentation have been included.
The consolidated results of operations and other data for the three month
period ended June 30, 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 subsidiary Carver Federal Savings Bank
(the "Bank" or "Carver Federal") and the Bank's wholly owned subsidiaries,
C.F.S.B. Realty Corp. and C.F.S.B. Credit Corp. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(2) EARNINGS PER SHARE CALCULATION
Net income per share for the three month period ended June 30, 1998
and 1997 are calculated based on weighted average number of shares
outstanding during the period.
(3) 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.
(4) BRANCH SALE AGREEMENT
On January 28, 1998, the Holding 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.
-6-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2
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.
See "Branch Sale Agreement".
Financial Condition
Assets
At June 30, 1998, total assets decreased $10.1 million or 2.31% to $427.4
million compared to $437.5 million at March 31, 1998. The decrease in total
assets was primarily attributable to decreases in securities held as available
for sale, mortgage-backed securities (collectively "MBS") held to maturity and
loans receivable net, offset in part by an increase in cash and equivalents. The
decreases in MBS are consistent with the Company's investment strategy and the
decrease in loans receivable net reflect repayments in excess of originations
and purchases.
Total cash and equivalents increased by $7.0 million or 46.37% to $22.1
million at June 30, 1998 compared to $15.1 million at March 31, 1998. The
increase in cash and equivalents primarily reflect receipts on MBS and loans.
The Company's portfolio of MBS held to maturity by $5.4 million or 5.92% to
$85.7 million at June 30, 1998 compared to $91.1 million at March 31, 1998, MBS
held as available for sale decreased by $2.7 million or 9.52% to $25.7 million
compared to $28.4 million at March 31, 1998. The decreases in MBS primarily
reflect the receipt of principal repayments on such securities. The Company used
these repayments of mortgage backed securities to originate loans, and repay
advances from the Federal Home Loan Bank ("FHLB Advances") and repay other
borrowings.
The Company's loans receivable decreased $10.8 million or 4.21% to $246.3
million at June 30, 1998 compared to $257.2 million at March 31, 1998. The
decrease was primarily reflects receipt of principal repayments offset in part
by originations.
Liabilities and Stockholders' Equity
At June 30, 1998, total deposits increased by $4.9 million or 1.76% to
$279.7 million compared to $274.9 million at March 31, 1998. The increase in
total deposits was primarily attributable to increases of $2.3 million in
certificates of deposits, $947,000 in regular savings, and $367,000 in NOW
accounts.
At June 30, 1998, FHLB Advances decreased by $18.3 million to $68.7 million
and reverse repurchase agreements and other borrowings decreased by $5.0 million
to $31.7 million compared to $87.0 million and $36.7 million at March 31, 1997
respectively. These decreases primarily reflect a reduction in the need for
borrowed funds primarily due to repayments from MBS securities and loans coupled
with an increase in deposits.
-7-
At June 30, 1998, stockholders' equity increased by $363,000 or 1.02%, to
$35.9 million compared to $35.5 million at March 31, 1998, primarily reflecting
an increase in retained earnings of approximately $282,000, combined with a
decrease in the unrealized net loss on securities available for sale, and the
allocation of shares under the Employee Stock Ownership Plan.
Under Statement of Financial Accounting Standards("SFAS") No. 115,
unrealized losses on securities available for sale are recorded net of deferred
income tax as a reduction to stockholders' equity. At June 30, 1998, such
unrealized losses were approximately $3,400, a decrease of $10,000, from $13,400
at March 31, 1998. In accordance with SFAS No. 115, such losses will not be
reflected as a charge to earnings until the underlying securities are sold, and
then only to the extent of the amount of loss, if any, actually realized at the
time of sale.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits and principal and
interest payments on loans, redemption of mortgage-backed securities and
investment securities. While maturities and scheduled amortization of loans,
mortgage-backed securities and investment securities are predictable sources of
funds, deposit flows and loan and mortgage-backed securities prepayments are
strongly influenced by changes in general interest rates, economic conditions
and competition.
The 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 June 30,
1998, the Company neither purchased nor sold investment securities, or mortgage
loans and sold no investment securities. During the three month period ended
June 30, 1997, the Company purchased $32.5 million of mortgage loans, $5.0
million of investment securities, and sold $49.0 million in investment
securities.
The Company's most liquid assets are federal funds sold and cash and due
from banks. In addition to the liquidity provided by federal funds sold and cash
and due from banks, the Company derives liquidity from its line of credit with
the FHLB, which equals 30% of total assets. The levels of the Company's cash and
cash equivalents are dependent on the Company's operating, financing, lending
and investing activities during any given period. At June 30, 1998, the
Company's cash and cash equivalents totaled $22.1 million compared to $15.1
million at March 31, 1997.
The Office of Thrift Supervision, the Bank's primary federal regulator,
requires that the Bank meet minimum tangible, core and risk-based capital
requirements. At June 30, 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 June 30, 1998 and March 31, 1998.
At June 30, 1998, the Company exceeded all fully phased-in regulatory
capital requirements. The table below presents certain information relating to
the Company's capital compliance at June 30, 1998 and March 31, 1998.
At June 30, 1998 At March 31, 1998
---------------- -----------------
% of % of
Amount Assets Amount Assets
------ ------ ------ ------
(Dollars in thousands)
Tangible Capital ............. $30,647 7.17% $30,201 6.90%
Core Capital ................. $30,870 7.22 30,249 6.93
Risk Based Capital ........... $32,312 17.54 31,731 16.00
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
-8-
rates paid on interest-bearing liabilities. Net income is further affected by
provisions for loan losses, non-interest income, 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.
In April of 1997, Carver completed a restructuring of its balance sheet and
the Company is now placing primary emphasis on its whole loan portfolio through
the origination of loans, as well as the purchase of whole loans. The Company
continued to pursue this strategy for the three month period ended June 30,
1998. As a result of this effort, the loan portfolio has substantially increased
as a percentage of total assets. Therefore, it is expected that the Company's
future earnings will be derived primarily from direct lending and purchase
activities rather than investing in securities.
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
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 the 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.
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
1998 1997
-------------------------------------- ------------------------------------
Average Quarterly Annualized Average Quarterly Annualized
Assets Balance Interest Avg. Yield/Cost Balance Interest Avg. Yield/Cost
------- --------- --------------- ------- -------- ---------------
Interest Earning Assets
Loan (1) $279,448 $ 5,354 7.66% $236,098 $ 4,369 7.40%
Investment Securities (2) 5,795 167 5.76% 12,483 163 5.22%
Mortgage-backed Securities (3) 114,414 1,846 6.45% 141,051 2,225 6.31%
Federal Funds Sold 15,225 218 5.73% 3,500 40 4.57%
-------- -------- -------- -------- -------- --------
Total Interest Earning Assets 414,882 7,585 7.31% 393,132 6,797 6.92%
Non-interest Earning Assets 21,827 22,339
-------- --------
Total Assets $436,709 $415,471
======== ========
Liabilities and Stockholders' Equity
Interest Bearing Liabilities
Deposits
DDA $ 10,751 $ 0 0.00% $ 8,004 $ 0 0.00%
NOW 18,818 87 1.85% 18,215 84 1.84%
Savings and club 146,586 924 2.52% 144,952 920 2.54%
Money market accounts 21,656 153 2.83% 21,489 168 3.13%
Certificates of deposits 80,361 978 4.87% 76,168 950 4.99%
-------- -------- -------- -------- -------- --------
Total Deposits 278,172 2,142 3.08% 268,828 2,122 3.16%
Borrowed Money 118,096 1,745 5.91% 111,339 1,698 6.10%
-------- -------- -------- -------- -------- --------
Total Interest Bearing Liabilities 396,268 3,887 3.92% 380,167 3,820 4.02%
-------- --------
Non-interest Bearing Liabilities 5,058 878
-------- --------
Total Liabilities 401,326 381,045
Stockholders' Equity 35,383 34,426
-------- --------
Total Liabilities and Stockholders' Equity $436,709 $415,471
======== ========
Net Interest Income $ 3,698 $ 2,977
======== ========
Interest Rate Spread 3.39% 2.90%
======== ========
Net Interest Margin 3.57% 3.03%
======== ========
Ratio of average interest
earning assets to average
interest bearing liabilities 1.03 x 1.03 x
======== ========
(1) Includes non-accrual loans.
(2) Includes FHLB stock and fair value of investments available for sale of
$5.8 million at June 30, 1998.
(3) Includes fair value of mortgage-backed securities available for sale of
$25.6 million at June 30, 1998.
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997
General
The Company reported net income for the three month period ended June 30,
1998 of $318,000, compared to $310,000, for the same period last year. The
increase in net income was due to an increase in net interest income and
non-interest income, offset in part by increases in provision for loan losses
and non-interest expense.
Interest Income
Interest income increased by $788,000 or 11.59% to $7.6 million for the
three months ended June 30, 1998 compared to $6.8 million for the three months
ended June 30, 1997. The increase was primarily due to an increase in the
average balance of interest earning assets of $21.2 million and a 39 basis point
increase in the average yield on interest-earning assets to 7.31%, which is the
result of the shift in assets from investment securities to higher-yielding
loans.
Interest income from loans receivable net increased by $984,000, or 22.53%,
to $5.4 million for the three months ended June 30, 1998 compared to $4.4
million for the three months ended June 30, 1997. This resulted from an increase
of $43.4 million or 18.36`% in the average balance of loan receivables to $279.4
million for the three month period ended June 30, 1998 compared to $236.1
million for the three month period ended June 30, 1997, coupled with an increase
of 26 basis points in the average yield on the loan portfolio. The increase in
the average loan portfolio balances primarily reflects the impact of
originations and loan purchases made during the fourth quarter of the fiscal
year which ended on March 31, 1998 ("fiscal 1998"). The increase in the average
yield on the loan portfolio reflects the origination of higher yielding
mult-family, commercial and consumer loans.
Interest income from mortgage-backed securities decreased $379,000, or
17.03%, to $1.8 million for three months ended June 30, 1998 compared to $2.2
million for the three months ended June 30, 1997. This decrease is primarily
attributable to a decrease of $26.6 million or 18.88% in the average balance of
mortgage-backed securities to $114.4 million compared to $141.1 million for same
period in fiscal 1998. Income from investment securities and federal funds sold
decreased by $182,000 or 90.00%, to $384,000 for the three months ended June 30,
1998 compared to $202,000 for the same period last year. The increase in
interest income is primarily attributable to a $5.0 million or 31.53% increase
in the average balance of such securities to $21.0 million for the three months
ended June 30, 1998 compared to $16.0 million for the three months ended June
30, 1997.
Interest Expense
Interest expense was relatively unchanged increasing by $67,000 or 1.73% to
$3.9 million for the three months ended June 30, 1998 compared to $3.8 million
for the same period last year. Interest expense on deposits
-9-
increased by $19,000 to $2.2 million and interest expense on borrowings
increased by $48,000 to $1.7 million for the three months ended June 30, 1998
compared to $2.1 and $1.7 million respectively for the same period last year.
For the three months ended June 30, 1998, the increased balances of demand
deposit, savings and club and certificate of deposit accounts were offset by the
decreased average cost of such liabilities.
Net Interest Income Before Provisions for Loan Losses
Net interest income increased $721,000 or 24.22%, to $3.7 million for the
three months ended June 30, 1998 compared to $3.0 million for the three months
ended June 30, 1997. The increase in net interest income is primarily
attributable to a $788,000 or 11.59%, increase in interest income which was
partially offset by a $67,000, or 1.73% increase in interest expense.
The Company's interest rate spread increased by 49 basis points to 3.39%
for the three months ended June 30, 1998 compared to 2.90% for the three months
ended June 30, 1997. The Company's net interest margin increased by 54 basis
points to 3.57% for the three months ended June 30, 1998 compared to 3.03% for
the three months ended June 30, 1997. The increase in interest rate spread and
net interest margin is primarily attributable to an increase in the average
yield on interest earning assets due to an increase in the average balance of
loans, coupled with a decrease in the cost of interest bearing liabilities due
to a decrease average cost of borrowed money. The Company's ratio of average
interest-earning assets to average interest-bearing liabilities was unchanged at
1.03x% for the three months ended June 30, 1998 compared to the same period last
year.
Provision for Loan Losses
The Company provided $450,000 for loans losses for the three months ended
June 30, 1998, compared to $167,000 for the same period last year. The increase
in the provision for the first quarter of fiscal 1999 in large part reflects the
growth in Company's loan portfolio as compared to the same period last year, and
in part to provide for delinquent consumer loans, in order to maintain the
allowance for loan losses at an adequate level consistent with the Company's
policies. During the first quarter, the Bank charged off approximately $153,000
in non-performing consumer loans. At June 30, 1998, non performing assets
acquired by the Company in settlement of loans increased by approximately
$260,000 to $342,000 compared to $82,000 at March 31, 1998. The increase is
attributable to repossession of automobiles recorded at the lower of their
market value or unpaid principal balance. At June 30, 1998, non-performing loans
totaled $8.3 million or 3.13% of total loans compared to 2.47% at March 31,
1998. The allowance for loan losses to total loans equaled 1.22% at June 30,
1998 compared to 1.11% at March 31, 1998, and the allowance allowance for loan
losses to non-performing loans equaled 39.88% and 45.30% respectively.
Non-Interest Income
Non interest income increased by $258,000 or 81.65% to $575,000 for the
three months ended June 30, 1998 compared to $316,000 for the three months ended
June 30, 1997. The increase was primarily due to a $247,000 increase in income
from bank services charges and to a lesser extent prepayment fees from the early
repayment of mortgage loans.
Non-Interest Expense
Non-interest expense increased by approximately $707,000 to $3.3 million
for the three months ended June 30, 1998 compared to $2.6 million for the three
months ended June 30, 1997. The increase reflects a $207,000 or 86.92% increase
in equipment expense to $447,000 for the three months ended June 30, 1998
compared to $239,000 for or the same period last year. The increase in equipment
expense is attributable to increased depreciation expense associated with the
conversion of the Company's data processing to an in-house system.
Non interest expense also reflects increases of; $132,000 or 11.94% in
salary and benefits expense, $35,500 or 14.08% in net occupancy expense, and
$305,000 or 83.87% in other expense, offset in part by reductions in advertising
expense, bank charges, and loan service expense. 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 recapitialize the Savings Association
Insurance Fund.
Income Tax Expense
Income tax expense for the three months ended June 30, 1998 was $235,000
compared to $254,000 for the three months ended June 30, 1997. The Company's
effective tax rate for the three months ended June 30, 1998 was 42.54% compared
to 45.04% for the three months ended June 30, 1997.
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The Year 2000 Problem
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. As a result, many calculations which rely on the date
field information, such as interest, payment or due dates and other operating
functions, will 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 any Year 2000 problems. Any institution's failure to address
appropriately the Year 2000 Problem could result in supervisory action.
The Company began testing on its loan and deposit systems in July 1998,
which will include Year 2000 issues and is currently in 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 the operations of the Company. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Problem could have an impact on the Company's operations. 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
Market risk is the potential loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending, investing and deposit taking activities.
Since there have been no significant changes in the Company's balance sheet
or the yield curve subsequent to March 31, 1998, the Company's current interest
rate risk exposure has not materially changed.
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. At June 30, 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.The plaintiffs filed a consolidated notice of appeal on January
29, 1996 with the United States Court of Appeals for the Second Circuit. In
April 1997 the Circuit Court concluded that the District Court had subject
matter jurisdiction over the plaintiffs' complaint, the Circuit Court reversed
and remanded the case back to the District Court. On July 10, 1997, upon request
of all counsel, the trial judge directed that discovery be completed by March
31,1998 and that the case be ready for trial in May of 1998. As of the date
hereof, no trial date has been set by the court. Carver believes that the
allegations made in this action are without merit and intends to aggressively
defend its interest with respect to such matter.
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
None
Item 6.Exhibits and Reports on Form 8K
(a) Exhibit 11 - Computation of Earnings Per Share
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Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1998 CARVER BANCORP, INC.
/s/ Thomas L. Clark, Jr.
-------------------------------------
Thomas L. Clark, Jr.
President and Chief Executive Officer
Date: August 14, 1998 /s/ Walter T. Bond
-------------------------------------
Walter T. Bond
Vice President and
Acting Chief Financial Officer
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