1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
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)
Registrants telephone number, including area code: (212) 876-4747
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past thirty days.
Yes [X] No [ ]
COMMON STOCK, PAR VALUE $.01 2,306,286
Class Outstanding at July 31, 2001
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CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
June 30, 2001 (unaudited) and March 31, 2001.................... 1
Consolidated Statements of Income for the Three Months
Ended June 30, 2001 and 2000 (unaudited)........................ 2
Consolidated Statements of Cash Flows for the Three Months
Ended June 30, 2001 and 2000 (unaudited)........................ 3
Notes to Consolidated Financial Statements (unaudited).......... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 6
Item 3. Quantitative and Qualitative Disclosure............................ 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 13
Item 2. Changes in Securities and Proceeds................................ 13
Item 3. Defaults upon Senior Securities.................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................ 13
Item 5. Other Information.................................................. 13
Item 6. Exhibits and Reports on Form 8-K................................... 13
SIGNATURES....................................................................... 14
3
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, MARCH 31,
2001 2001
--------- ---------
(Unaudited)
ASSETS
Cash and amounts due from
depository institutions ................... $ 10,301 $ 8,058
Federal funds sold ......................... 26,400 23,700
--------- ---------
Total cash and cash
equivalents .......................... 36,701 31,758
--------- ---------
Investment securities available-
for-sale (including pledged as
collateral of $17,212 at
June 30, 2001) ............................ 42,939 19,926
Investment securities held-to-
maturity (including pledged as
collateral of $14,330 at March 31, 2001) .. -- 24,996
Mortgage-backed securities available-
for-sale, net (including pledged as
collateral of $16,051 at June 30, 2001) ... 19,437 --
Mortgage-backed securities held-to-
maturity, net (including pledged as
collateral of $16,916 at June 30, 2001
and $12,068 at March 31, 2001) ............ 21,124 42,866
Loans receivable ........................... 292,328 286,988
Less allowance for loan losses ........ (3,612) (3,551)
--------- ---------
Loans receivable, net ...... 288,716 283,437
--------- ---------
Real estate owned, net ..................... 27 476
Property and equipment, net ................ 9,908 10,421
Federal Home Loan Bank of New York
stock, at cost ............................ 5,755 5,755
Accrued interest receivable ................ 2,264 2,541
Excess of cost over net assets acquired, net 550 603
Other assets ............................... 1,893 1,721
--------- ---------
Total assets ............................... $ 429,314 $ 424,500
========= =========
LIABILITIES
Deposits ................................... $ 272,173 $ 279,424
Advances from Federal Home
Loan Bank of New York ..................... 100,093 100,299
Securities sold under agreements
to repurchase ............................. 14,930 4,930
Other borrowed money ....................... 326 371
Other liabilities .......................... 7,773 7,380
--------- ---------
Total liabilities ............... 395,295 392,404
--------- ---------
Commitments and contingencies .............. -- --
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
per share; 1,000,000 shares authorized;
100,000 shares issued and outstanding ..... 1 1
Common stock, $0.01 par value per
share; 5,000,000 shares authorized;
2,314,275 shares issued; 2,306,286
issued and outstanding ................... 23 23
Additional paid-in capital ................. 23,764 23,769
Retained earning ........................... 9,860 8,793
Treasury stock, at cost (7,989 shares) ..... (61) (61)
Common stock acquired by ESOP .............. (288) (334)
Common stock acquired by Management
Recognition Plan .......................... (95) (95)
Unrealized gain on mortgage-backed
and other securities available-for-sale,
net of taxes .............................. 815 --
--------- ---------
Total stockholders' equity ............ 34,019 32,096
--------- ---------
Total liabilities and stockholders' equity . $ 429,314 $ 424,500
========= =========
See accompanying notes to consolidated financial statements.
1
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CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except share data)
Three Months Ended
June 30,
----------------------
2001 2000
------- ------
Interest Income:
Loans ................................ $ 5,485 $5,298
Mortgage-backed securities ........... 666 824
Investment securities ................ 682 751
Federal funds sold ................... 216 209
------- ------
Total interest income ............. 7,049 7,082
------- ------
Interest expense:
Deposits ............................. 2,165 2,028
Advances and other borrowed money .... 1,222 1,365
------- ------
Total interest expense ............ 3,387 3,393
------- ------
Net interest income .................... 3,662 3,689
Provision for loan losses .............. 225 470
------- ------
Net interest income after provision
for loan losses ...................... 3,437 3,219
------- ------
Non-interest income:
Loan fees and service charges ........ 92 106
Income from sale of branches ......... 987 255
Loss from sale of loans .............. (101) --
Other ................................ 442 320
------- ------
Total non-interest income ......... 1,420 681
------- ------
Non-interest expense:
Salaries and employee benefits ....... 1,381 1,438
Net occupancy expenses ............... 293 427
Equipment ............................ 325 299
Other ................................ 1,420 1,563
------- ------
Total non-interest expenses ....... 3,419 3,727
------- ------
Income before income taxes ............. 1,438 173
State and local income taxes ........... 273 24
------- ------
Net income ............................. $ 1,165 $ 149
======= ======
Dividends applicable to preferred stock $ 49 $ 49
======= ======
Net income available to common
stockholders .................... $ 1,116 $ 100
======= ======
Net income per common share - basic .... $ 0.49 $ 0.04
======= ======
Net income per common share - diluted .. $ 0.47 $ 0.04
======= ======
See accompanying notes to consolidated financial statements.
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CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Three Months Ended
June 30,
-------------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net income ................................. $ 1,165 $ 149
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization of
premises and equipment .................... 284 280
Amortization of intangibles ................ 53 53
Other accretion and amortization ........... (253) 92
Provision for loan losses .................. 225 470
Gain on sale of branch ..................... (987) --
Impairment of foreclosed real estate ....... 20 --
Allocation of ESOP stock ................... 41 46
Decrease in accrued interest receivable, net 277 368
(Increase) decrease in other assets ........ (172) 390
Increase (decrease) in other liabilities ... 208 (1,045)
-------- --------
Net cash provided by operating activities .. 861 803
-------- --------
Cash flows from investing activities:
Purchases of securities available-for-sale . (54,847) (35,000)
Proceeds from maturities of securities
available-for-sale ........................ 58,000 50,000
Principal repayment of mortgage backed
securities held-to-maturity ............... 2,392 1,780
Net increase in loans receivable ........... (5,508) (4,857)
Additions to premises and equipment ........ (115) (41)
Proceeds from sale of fixed assets ......... 570 --
Proceeds from sale of real estate owned .... 429 --
-------- --------
Net cash provided by investing activities .. 921 11,882
-------- --------
Cash flows from financing activities:
Net increase in deposits ................... 9,312 1,374
Net increase (decrease) in securities
sold under agreements to repurchase ....... 10,000 (700)
Repayment of advances from Federal
Home Loan Bank of New York ................ (41,006) (15,005)
Advances from Federal Home Loan
Bank of New York .......................... 40,800 14,500
Repayment of other borrowed money .......... (45) (46)
Dividends paid ............................. (98) (84)
Cash paid to fund sale of deposits ......... (15,802) --
-------- --------
Net cash provided by financing activities .. 3,161 39
Net increase in cash and equivalents ....... 4,943 12,724
Cash and equivalents - beginning ........... 31,758 22,203
-------- --------
Cash and equivalents - ending .............. $ 36,701 $ 34,927
======== ========
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest ................................... $ 3,601 $ 3,379
======== ========
Federal, state and city income taxes ....... -- --
======== ========
See accompanying notes to consolidated financial statements.
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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 accounting principles generally accepted in the United States of
America ("GAAP") for interim financial information and with the instructions to
Form 10-Q promulgated by the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete consolidated financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for fair
presentation have been included. The unaudited consolidated financial statements
presented herein should be read in conjunction with the consolidated financial
statements and notes thereto included in the Holding Company's Annual Report on
Form 10-K for the year ended March 31, 2001. The consolidated results of
operations and other data for the three-month period ended June 30, 2001 are not
necessarily indicative of results that may be expected for the entire fiscal
year ending March 31, 2002 ("fiscal 2002"). The unaudited consolidated financial
statements include the accounts of the Holding Company and its wholly owned
subsidiaries, Carver Federal Savings Bank (the "Bank" or "Carver Federal") and
Alhambra Holding Corp., a Delaware corporation ("Alhambra Holding"), and the
Bank's wholly owned subsidiaries, CFSB Realty Corp. and CFSB Credit Corp. Carver
Federal and the Holding Company are referred to herein collectively as "Carver"
or the "Company." All significant inter-company accounts and transactions have
been eliminated in consolidation.
(2) NET INCOME PER COMMON SHARE
Basic earnings per common share is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding. Diluted earnings per common share includes any additional common
shares as if all potentially dilutive common shares were issued (e.g.,
convertible preferred stock). For the purpose of these calculations, unreleased
ESOP shares are not considered to be outstanding. For each of the three-month
periods ended June 30, 2001 and 2000, preferred dividends of $49,000 were
deducted from net income to arrive at the amount of net income available to
common stockholders. Additionally, for both the three-month periods ended June
30, 2001 and 2000, 208,333 shares of common stock potentially issuable from the
conversion of preferred stock are considered in determining the diluted net
income per common share.
(3) TRANSFER OF INVESTMENT AND MORTGAGE-BACKED SECURITIES
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," which has been amended in 1999
and 2000 by SFAS No. 137, which delayed its effectiveness date to January 1,
2001, and SFAS No. 138, which addressed a limited number of implementation
issues. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
contracts for hedging activities. As permitted by SFAS No. 133, on April 1, 2001
Carver transferred investment securities and mortgage-backed securities with a
book value of approximately $45.7 million from the classification of
held-to-maturity to available-for-sale.
(4) COMPREHENSIVE INCOME
A reconciliation of net income to comprehensive income for the periods
indicated follows.
Three Months Ended
June 30,
------------------
(In thousands)
2001 2000
------ ------
Net income ........................ $1,165 $ 149
Unrealized gain on mortgage-backed
and other securities available for
sale, net of taxes ............. 815 --
------ ------
Comprehensive income .............. $1,980 $ 149
====== ======
4
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(5) RECENT ACCOUNTING PRONOUNCEMENT
In July 2001, the FASB issued SFAS No. 141, "Business Combinations,"
and SFAS No. 142, "Goodwill and Other Intangible Assets." The SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 142 requires the
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually in accordance
with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of." The Holding Company has not recognized any impairment
of unamortized goodwill.
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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
and may be identified by the use of such words as "believe," "expect,"
"anticipate," "should," "planned," "estimated," and "potential." Examples of
forward-looking statements include, but are not limited to, 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, but are not
limited to, the Company's success in implementing its initiatives, its ability
to achieve cost-savings associated with the Bank's branch closings, 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. The Company assumes no obligation to update these forward
looking statements to reflect the actual results, changes in assumptions or
changes in other factors affecting such forward-looking statements.
GENERAL
The Holding Company, a Delaware corporation, is the holding company for
the Bank, a federally chartered savings bank. 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 four full- service banking
locations in the New York City boroughs of Brooklyn, Queens and Manhattan. In
addition, in September the Bank is anticipating opening its first new branch in
over a decade located on Malcolm X Boulevard at 117th Street in Harlem.
COMPARISON OF FINANCIAL CONDITION AT
JUNE 30, 2001 AND MARCH 31, 2001
ASSETS
Total assets increased by $4.8 million to $429.3 million at June 30,
2001 compared to $424.5 million at March 31, 2001. The increase was primarily
attributable to an increase of $5.3 million in loans and an increase of $4.9
million in cash and cash equivalents, partially offset by a $4.3 million decline
in mortgage-backed and investment securities due to pay downs or maturities that
occurred during the quarter.
The $5.3 million net increase in loans receivable during the first
three months of the fiscal year ending March 31, 2002 ("fiscal 2002") includes
loan originations of $12.3 million and loan purchases of $20.3 million, offset
in part by loan repayments during the period. Loan originations were
concentrated in multi-family and commercial real estate mortgage loans and loan
purchases were one- to four-family residential mortgage loans. The increase in
cash and cash equivalents primarily reflects an increase in the overnight
investment in federal funds sold.
As of April 1, 2001, the Bank transferred $45.7 million of
mortgage-backed and investment securities from held-to-maturity to
available-for-sale. An unrecognized gain of $1.0 million as of June 30, 2001 is
included in the carrying value of the mortgage-backed and investment securities
available-for-sale. The decreases in mortgage and investment securities,
adjusted for the available-for-sale adjustment in mortgage-backed and investment
securities, primarily represent maturities and/or principal repayments that
occurred during the first three months of fiscal 2002 which exceeded purchases
of investment securities. The net funds received from these activities were used
primarily to fund the increase in loans.
During the quarter ended June 30, 2001, Carver sold its automobile loan
portfolio with a book value of $490,000 for $191,000 less than the carrying
value. This portfolio was sold because of its high level of delinquencies and
losses as well as the associated costs. A loss of $90,000 was charged to the
allowance for loan losses, and $101,000 was charged as a loss on the sale of
loans on the Statements of Income.
Real estate owned, net, decreased $449,000 to $27,000 at June 30, 2001
compared to $476,000 at March 31, 2001 due to the sale of a previously
foreclosed property. Property and equipment, net, declined $513,000 to $9.9
6
9
million at June 30, 2001 compared to $10.4 million at March 31, 2001 due
primarily to the property and equipment included in the East New York branch
sale and to depreciation on the Bank's property and equipment.
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
At June 30, 2001, total liabilities increased by $2.9 million to $395.3
million compared to $392.4 million at March 31, 2001. The increase in
liabilities primarily reflects an increase of $9.7 million in total borrowings,
offset in part by a decrease of $7.3 million in deposits. The increase in total
borrowings is primarily due to a $10 million increase in securities sold under
agreements to repurchase.
The $7.3 million decrease in deposits is primarily attributable to the
sale of deposits from the Bank's East New York branch during the three months
ended June 30, 2001, which had $18.4 million in deposits at March 31, 2001.
Excluding the deposits of the East New York branch, total deposits for the
remaining branches increased by approximately $11.1 million during the first
three months of fiscal 2002. Net changes in deposit balances by major product
category during the period include decreases of $7.0 million in regular savings
and club accounts, $1.6 million in money market accounts and $395,000 in
certificates of deposit, offset in part by an increase of $1.7 million in NOW
accounts. The deposits sold were replaced in part by certificates of deposit and
short-term borrowings.
STOCKHOLDERS' EQUITY
Stockholders' equity increased $1.9 million to $34.0 million at June
30, 2001 compared to $32.1 million at March 31, 2001. The increase in
stockholders' equity was primarily attributable to $1.1 million of net income
for the three months ended June 30, 2001 and unrealized gains of approximately
$815,000, net of taxes, relating to the transfer of certain investment and
mortgage-backed securities from the accounting classification of
held-to-maturity to available-for-sale. Investment and mortgage-backed
securities accounted for as held-to-maturity are carried at cost while such
securities designated as available-for-sale are carried at market with an
adjustment to stockholders' equity, net of taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, borrowed funds and
principal and interest payments on loans, mortgage-backed securities and
investment securities. While maturities and scheduled amortization of loans,
mortgage-backed securities and investment securities are predictable sources of
funds, deposit flows and loan and mortgage-backed securities prepayments are
strongly influenced by changes in general interest rates, economic conditions
and competition.
The Consolidated Statements of Cash Flows present the change in cash
from operating, investing and financing activities. During the three months
ended June 30, 2001, cash and cash equivalents increased by $4.9 million. Net
cash provided by operating activities was $861,000, representing primarily net
income adjusted for depreciation and amortization, the provision for loan
losses, the net gain from the sale of deposits and the net changes in other
assets and liabilities. Net cash provided by investing activities was $921,000,
representing primarily the net cash provided by the maturity of securities and
principal repayments of mortgage-backed securities held to maturity, offset in
part by investment purchases and a net increase in loans. Net cash provided by
financing activities was $3.2 million, representing primarily a net increase in
deposits and borrowed funds, offset in part by cash paid to fund the sale of
deposits.
Until recently, the Bank was required by the Office of Thrift
Supervision (the "OTS") regulations, to maintain a minimum average daily balance
of liquid assets as a percentage of net withdrawable deposit accounts plus
short-term borrowings. The OTS has since eliminated this requirement. Under the
revised regulations, which became effective March 15, 2001, the Bank is required
to maintain sufficient liquidity to ensure its safe and sound operation. At June
30, 2001, the Bank's liquidity ratio was 14.1%. The levels of the Bank's
short-term liquid assets are dependent on the Bank's operating, financing and
investing activities during any given period.
The OTS, the Bank's primary federal regulator, requires that the Bank
meet minimum capital requirements.
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At June 30, 2001, the Bank exceeded all regulatory minimum capital requirements.
The table below presents certain information relating to the Bank's capital
compliance at June 30, 2001.
Amount % of Assets
------ -----------
(Dollars in thousands)
Total capital (to risk-weighted assets):
Capital level ............................... $34,040 16.40%
Less requirement ............................ 16,602 8.00
------- -----
Excess ...................................... $17,438 8.40%
======= =====
Tier 1 capital (to risk-weighted assets):
Capital level ............................... $31,433 15.15%
Less requirement ............................ 17,114 4.00
------- -----
Excess ...................................... $14,319 11.15%
======= =====
Tier 1 leverage capital (to adjusted assets):
Capital level ............................... $31,433 7.35%
Less requirement ............................ 17,114 4.00
------- -----
Excess ...................................... $14,319 3.35%
======= =====
ANALYSIS OF EARNINGS
The Company's profitability is primarily dependent upon net interest
income, which represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income is
dependent on the difference between the average balances and rates earned on
interest-earning assets and the average balances and rates paid on
interest-bearing liabilities. Provisions for loan losses, non-interest income,
non-interest expense and income taxes further affect net income. 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.
The following tables set forth certain information relating to Carver's
average interest-earning assets and average interest-bearing liabilities and
reflect 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 daily or
average month-end 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.
8
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Three Months Ended June 30,
----------------------------------------------------------------------
2001 2000
--------------------------------- -----------------------------------
Annualized Annualized
Average Avg. Average Avg.
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
ASSETS
INTEREST EARNING ASSETS
Loans (1)..................................... $ 277,767 $ 5,485 7.90% $ 277,402 $ 5,298 7.64%
Investment securities (2)..................... 45,688 682 5.97 45,979 751 6.53
Mortgage-backed securities.................... 41,547 666 6.41 53,317 824 6.18
Federal funds sold............................ 20,062 216 4.31 13,625 209 6.14
--------- -------- ----- --------- ------- -----
Total interest earning assets.............. 385,064 7,049 7.32% 390,323 7,082 7.26%
-------- -------
Non-interest earning assets................... 24,319 28,452
--------- ---------
Total Assets............................... $ 409,383 $ 418,775
========= =========
LIABILITIES
INTEREST BEARING LIABILITIES
Deposits
DDA........................................... $ 8,012 $ -- --% $ 12,328 $ -- --%
NOW........................................... 20,183 59 1.17 17,883 76 1.70
Savings and clubs............................. 132,019 697 2.11 144,616 833 2.30
Money market accounts......................... 16,417 85 2.07 19,370 123 2.54
Certificates of deposit....................... 107,208 1,324 4.94 87,022 996 4.57
--------- -------- ----- --------- ------- -----
Total Deposits............................. 283,839 2,165 3.05 281,219 2,028 2.88
Borrowed money................................... 85,302 1,222 5.73 97,840 1,365 5.58
--------- -------- ----- --------- ------- -----
Total deposits and interest-bearing liabilities.. 369,141 3,387 3.67% 379,059 3,393 3.58%
-------- -------
Non-interest-bearing liabilities................. 7,898 6,946
--------- ---------
Total liabilities................................ 377,039 386,005
Stockholders' equity............................. 32,344 32,770
--------- ---------
Total liabilities and stockholders' equity....... $ 409,383 $ 418,775
========= =========
Net interest income.............................. $ 3,662 $ 3,689
======== =======
Interest rate spread............................. 3.65% 3.68%
===== =====
Net interest margin.............................. 3.80% 3.78%
===== =====
Ratio of average interest earning assets
to deposits and
interest-bearing liabilities..................... 1.04x 1.03x
===== =====
(1) Includes non-accrual loans.
(2) Includes FHLB stock.
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COMPARISON OF OPERATING RESULTS FOR THE
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
GENERAL
The Company reported net income for the three-month period ended June
30, 2001 of $1.2 million compared to net income of $149,000 for the same period
last year. Net income available to common stockholders (net income reduced by
dividends relating to the Company's preferred stock) was $1.1 million, or $0.49
per common share, compared to $100,000, or $0.04 per common share, for the
corresponding period last year. For each period the Company applied a tax loss
carryforward resulting from prior period losses and therefore no federal taxes
have been applied to earnings for either period. Income for the quarter ended
June 30, 2001 includes net non-recurring income of approximately $886,000 which
represents the gain realized on the sale of deposits of the Bank's East New York
branch offset in part by a loss of $101,000 from the sale of the Bank's $490,000
of automobile loan portfolio. The three-month period ended June 30, 2000
included a net gain realized of $255,000 on the sale of deposits of the Bank's
Roosevelt branch. Excluding these non-recurring items, the Company would have
recorded a net income of $395,000 available to common stockholders, or $0.17 per
common share, for the first quarter of fiscal 2002 compared to a loss of
$155,000, or $0.07 per common share, for the corresponding period last year.
INTEREST INCOME
Interest income decreased by $33,000 to $7.0 million for the three
months ended June 30, 2001 compared to $7.1 million in the corresponding prior
year period. The decrease in total interest income was attributable to the
average balance of total interest-earning assets decreasing $5.3 million, or
1.3%, to $385.1 million for the three months ended June 30, 2001 compared with
$390.3 million for the corresponding prior year period. The decrease in the
average balance of total interest earning-assets was offset in part by a 6 basis
point increase in the annualized annual yield on interest-earning assets to
7.32% for the three months ended June 30, 2001 compared with 7.26% for the
corresponding prior year period.
Interest income on loans receivable increased by $187,000, or 3.5%, to
$5.5 million for the three months ended June 30, 2001 compared to $5.3 million
for the corresponding prior year period. The increase primarily reflected a 26
basis point improvement in the annualized return on average loans to 7.90% for
the three months ended June 30, 2001 compared to 7.64% for the three months
ended June 30, 2000. The increase in the return on loans receivable resulted
primarily from the origination and purchase of loans with a higher yield than
the yield on loans that paid down.
Interest income on investment securities decreased by $69,000, or 9.2%,
to $682,000 for the three months ended June 30, 2001 compared to $751,000 for
the prior year period. The decrease was primarily due to the 56 basis point
decline in the average yield to 5.97% for the three months ended June 30, 2001
compared to 6.53% for the three months ended June 30, 2000.
Interest income on mortgage-backed securities decreased by $158,000, or
19.2%, to $666,000 for the three months ended June 30, 2001 compared to $824,000
for the prior year period. The decrease was primarily due to the decline in the
average balance of mortgage-backed securities resulting principally from
accelerated prepayments. The average balance of mortgage-backed securities
declined $11.8 million, or 22.1%, to $41.5 million for the three months ended
June 30, 2001 compared to $53.3 million for the prior year period.
Interest income on federal funds sold was substantially flat at
$216,000 for the three months ended June 30, 2001. The average balance of
federal funds sold for the three months ended June 30, 2001 increased $6.5
million, or 47.2%, to $20.1 million from $13.6 million for the corresponding
prior year period. The higher level of average balances was offset by a decline
of 183 basis points in the annualized yield on these funds to 4.31% for the
three months ended June 30, 2001 compared to 6.14% for the prior year period due
to a lower short-term interest rate environment.
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INTEREST EXPENSE
Interest expense was substantially flat at $3.4 million for the three
months ended June 30, 2001. The impact of a $9.9 million decline in the average
balance of total deposits and interest-bearing liabilities to $369.1 million for
the three months ended June 30, 2001 compared to $379.1 million for the prior
year period was offset by a 9 basis point increase in the annualized cost of
total deposits and interest-bearing liabilities to 3.67% for the three months
ended June 30, 2001 compared to 3.58% for the same period last year.
Interest expense on deposits increased $137,000, or 6.8%, to $2.2
million for the three months ended June 30, 2001 compared to $2.0 million for
the prior year period. The increase in interest expense on deposits was due
primarily to a $2.6 million increase in the average balance of deposits to
$283.8 million from $281.2 million for the corresponding prior year period and a
17 basis point increase in the rate paid on deposits to 3.05% for the three
months ended June 30, 2001 compared to 2.88% for the same period last year. The
increase in the cost of deposits was primarily the result of a reduction in the
average balance of comparatively lower cost deposits (demand deposits, savings
and club accounts and money market accounts), which was offset in part by an
increase in the average balance of certificates of deposit. The average balance
of demand deposits declined $4.3 million to $8.0 million from $12.3 million for
the corresponding prior year period. The average balance of savings and club
accounts declined $12.6 million to $132.0 million from $144.6 million for the
corresponding prior year period. The average balance of money market accounts
declined $3.0 million to $16.4 million from $19.4 million for the corresponding
prior year period. The decline in the average balance of these lower cost
deposits was primarily due to the sale of deposits resulting from the Bank's
sale of non-strategic branches. The average balance of comparatively higher cost
certificates of deposit increased $20.2 million to $107.2 million from $87.0
million for the corresponding prior year period.
Interest expense on borrowed money decreased $143,000, or 10.5%, to
$1.2 million for the three months ended June 30, 2001 compared $1.4 million for
the corresponding prior year period. This decrease in interest expense was
primarily due to a $12.5 million decline in the average balance of borrowed
money to $85.3 million from $97.8 million for the corresponding prior year
period. The decrease was partially offset by a 15 basis point increase in the
rate paid for these funds to 5.73% for the three months ended June 30, 2001
compared to 5.58% for the same period last year.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES
Net interest income before the provision for loan losses was
substantially flat at $3.7 million for the three months ended June 30, 2001.
Interest income decreased by $33,000 while interest expense decreased by $6,000
for the three months ended June 30, 2001 compared to the corresponding prior
year period.
The Company's annualized interest rate spread decreased by 3 basis
points to 3.65%, for the three months ended June 30, 2001 compared to 3.68% for
the corresponding prior year period.
PROVISION FOR LOAN LOSSES AND ASSET QUALITY
The Company provided $225,000 for loan losses for the three-month
period ended June 30, 2001 compared to $470,000 for the corresponding period
last year. The primary reasons for the decrease in the provision included a
$252,000 reduction in loan charge-offs, net of recoveries, to $164,000 compared
to $416,000 for the corresponding period last year and an improvement in the
asset quality of the Company's consumer loan portfolio. Of the net loan
charge-offs for the three months ended June 30, 2001, $90,000, or 35.7%, were
related to the automobile loan portfolio sold during the quarter.
At June 30, 2001, non-performing loans totaled $1.5 million, or 0.51%
of total loans, compared to non-performing loans of $2.5 million, or 0.88% of
total loans, at March 31, 2001. The reduction in non-performing loans improved
the ratio of the allowance for loan losses to non-performing loans to 242.5% at
June 30, 2001 compared to 138.1% at March 31, 2001. At June 30, 2001, the Bank's
allowance for loan losses at $3.6 million remained substantially unchanged from
March 31, 2001. The ratio of the allowance for loan losses to total loans was
1.2% compared to 1.1% at June 30, 2001 and March 31, 2001, respectively.
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Management believes that the allowance for loan losses is adequate.
While management estimates loan losses using the best available information, no
assurance can be made that future adjustments to the allowance will not be
necessary based on changes in economic and real estate market conditions,
further information obtained regarding known problem loans, identification of
additional problem loans and other factors, both within and outside of
management's control.
NON-INTEREST INCOME
Total non-interest income increased $739,000, or 108.5%, to $1.4
million for the three-month period ended June 30, 2001 compared to $681,000 for
the corresponding period last year. The increase was primarily attributable to a
net increase in non-recurring income of $886,000 for the three-month period
ended June 30, 2001, compared to $255,000 for the same period last year, and an
increase in fee income related to retail deposit accounts and other revenues.
The non-recurring income of $886,000 for the three months ended June 30, 2001
included a gain of $987,000 on the sale of the Bank's East New York branch
offset in part by a loss of $101,000 on the sale of the automobile loan
portfolio, while the same period last year included a $255,000 gain on the sale
of the Bank's Roosevelt branch.
NON-INTEREST EXPENSE
Total non-interest expense decreased $308,000, or 8.3%, to $3.4 million
for the quarter ended June 30, 2001 compared to $3.7 million for the
corresponding period last year. The decrease was primarily attributable to
decreases in salary and employee benefits, net occupancy expenses and other
expenses partially offset by increases in equipment costs. Salaries and employee
benefits decreased $57,000 to $1.4 million for the quarter ended June 30, 2001
compared to $1.4 million for the corresponding period last year, and net
occupancy expenses decreased $134,000 to $293,000 for the quarter ended June 30,
2001 compared to $427,000 for the corresponding period last year primarily due
to branch sales. Other expenses decreased $143,000 for the quarter ended June
30, 2001 to $1.4 million compared to $1.6 million for the corresponding period
last year primarily due to decreases in consulting expenses as the Bank
decreased its reliance on consultants because permanent senior management were
added and decreases in regulatory costs relating to a decline in the amount of
FDIC insurance premiums. These decreases were offset in part by increases of
$26,000 in equipment costs.
INCOME TAX EXPENSE
For each period presented, the Company applied a federal tax loss
carryforward resulting from prior period losses and therefore no federal income
taxes have been applied to income for either period. The taxes of $273,000 and
$24,000 for the three-months ended June 30, 2001 and 2000, respectively,
represent New York State and New York City income taxes only based upon the
Company's total assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented
at March 31, 2001 in the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission ("SEC"). The Company believes that there have
been no material changes in the Company's market risk at June 30, 2001 compared
to March 31, 2001.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, Carver Federal is a party to various legal
proceedings incident to its business. At June 30, 2001, 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.
Disclosure regarding legal proceedings that the Company is a party to
is presented on Carver's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission. There have been no material changes with
regard to such legal proceedings since the filing of the Annual Report on Form
10-K.
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 8-K
(a) Exhibits.
Exhibit 11. Net income per share.
(b) Reports on Form 8-K.
Form 8-K, dated June 1, 2001, reporting the resignation of James Boyle,
Chief Financial Officer, and the appointment of Frank Deaton as Senior Vice
President and Chief Auditor and Linda Dunn as Senior Vice President and General
Counsel.
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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.
CARVER BANCORP, INC.
Date: August 14, 2001 /s/ Deborah C. Wright
-----------------------------------------
Deborah C. Wright
President and Chief Executive Officer
Date: August 14, 2001 /s/ William Schult
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William Schult
Vice President and Controller