10-Q 1 d185577.txt CARVER BANCORP INC 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 SEPTEMBER 30, 2003 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ 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 |X| 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 |X| whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes No X --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. COMMON STOCK, PAR VALUE $.01 2,284,390 ---------------------------- --------- Class Outstanding at October 31, 2003 TABLE OF CONTENTS
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of September 30, 2003 (unaudited) and March 31, 2003......................................1 Consolidated Statements of Income for the Six Months Ended September 30, 2003 and 2002 (unaudited)..........................................2 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income for the Six Months Ended September 30, 2003 (unaudited)...........3 Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2003 and 2002 (unaudited)..........................................4 Notes to Consolidated Financial Statements (unaudited).................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................7 Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................21 Item 4. Controls and Procedures........................................................................21 PART II. OTHER INFORMATION Item 1. Legal Proceedings..............................................................................21 Item 2. Changes in Securities and Use of Proceeds......................................................22 Item 3. Defaults Upon Senior Securities................................................................22 Item 4. Submission of Matters to a Vote of Security Holders............................................22 Item 5. Other Information..............................................................................23 Item 6. Exhibits and Reports on Form 8-K...............................................................23 SIGNATURES.......................................................................................................25 EXHIBITS.........................................................................................................26
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 30, MARCH 31, 2003 2003 --------------- ------------- ASSETS (Unaudited) Cash and cash equivalents: Cash and due from banks $ 11,856 $ 17,660 Federal funds sold 9,000 5,500 --------------- ------------- Total cash and cash equivalents 20,856 23,160 --------------- ------------- Securities: Available-for-sale, at fair value (including pledged as collateral of $96,333 at September 30, 2003 and $124,139 at March 31, 2003) 102,650 129,055 Held-to-maturity, at amortized cost (including pledged as collateral of $50,543 at September 30, 2003 and $35,138 at March 31, 2003; fair value of $52,227 at September 30, 2003 and $37,543 at March 31, 2003) 51,852 36,530 --------------- ------------- Total securities 154,502 165,585 --------------- ------------- Loans receivable: Real estate mortgage loans 316,555 294,710 Consumer and commercial business loans 2,117 2,186 Allowance for loan losses (4,113) (4,158) --------------- ------------- Total loans receivable, net 314,559 292,738 --------------- ------------- Office properties and equipment, net 10,469 10,193 Federal Home Loan Bank of New York ("FHLB-NY") stock, at cost 5,602 5,440 Accrued interest receivable 2,984 3,346 Identifiable intangible assets, net 71 178 Other assets 12,885 9,205 --------------- ------------- Total assets $ 521,928 $ 509,845 =============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 361,220 $ 347,164 Advances from the FHLB-NY and other borrowed money 97,644 108,996 Other liabilities 7,956 12,612 --------------- ------------- Total liabilities 466,820 468,772 --------------- ------------- Guaranteed preferred beneficial interest in junior subordinated debentures 12,742 - Stockholders' equity: Preferred stock (par value $0.01 per share; 1,000,000 shares authorized; 100,000 issued and outstanding) 1 1 Common stock (par value $0.01 per share: 5,000,000 shares authorized; 2,316,358 shares issued; 2,283,558 and 2,296,960 shares outstanding at September 30, 2003 and March 31, 2003, respectively) 23 23 Additional paid-in capital 23,811 23,781 Retained earnings 18,898 16,712 Unamortized awards of common stock under management recognition plan ("MRP") (36) (4) Treasury stock, at cost (32,800 shares at September 30, 2003 and 19,398 shares at March 31, 2003) (412) (190) Accumulated other comprehensive income 81 750 --------------- ------------- Total stockholders' equity 42,366 41,073 --------------- ------------- Total liabilities and stockholders' equity $ 521,928 $ 509,845 =============== =============
See accompanying notes to consolidated financial statements. 1
CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2003 2002 2003 2002 ------------- ----------- ----------- ----------- Interest Income: (1) Loans $ 5,061 $ 5,310 $ 9,927 $ 10,688 Total securities 1,515 1,372 3,111 2,652 Federal funds sold 26 77 81 188 ------------- ----------- ----------- ----------- Total interest income 6,602 6,759 13,119 13,528 ------------- ----------- ----------- ----------- Interest expense: Deposits 1,133 1,469 2,405 3,071 Advances and other borrowed money 953 741 1,911 1,478 ------------- ----------- ----------- ----------- Total interest expense 2,086 2,210 4,316 4,549 ------------- ----------- ----------- ----------- Net interest income 4,516 4,549 8,803 8,979 Provision for loan losses - - - - ------------- ----------- ----------- ----------- Net interest income after provision for loan losses 4,516 4,549 8,803 8,979 ------------- ----------- ----------- ----------- Non-interest income: Depository fees and charges 490 457 974 861 Loan fees and service charges 492 257 1,137 804 Gain on sale of securities 31 - 31 - Other 561 2 572 4 ------------- ----------- ----------- ----------- Total non-interest income 1,574 716 2,714 1,669 ------------- ----------- ----------- ----------- Non-interest expense: (1) Compensation and benefits 1,798 1,589 3,603 3,263 Net occupancy expense 343 320 667 656 Equipment 399 354 781 772 Capital securities cost 23 - 23 - Other 1,350 1,270 2,620 2,636 ------------- ----------- ----------- ----------- Total non-interest expense 3,913 3,533 7,694 7,327 ------------- ----------- ----------- ----------- Income before income taxes 2,177 1,732 3,823 3,321 Income taxes 751 797 1,310 1,511 ------------- ----------- ----------- ----------- Net income $ 1,426 $ 935 $ 2,513 $ 1,810 ============= =========== =========== =========== Dividends applicable to preferred stock $ 49 $ 49 $ 98 $ 98 ------------- ----------- ----------- ----------- Net income available to common stockholders $ 1,377 $ 886 $ 2,415 $ 1,712 ============= =========== =========== =========== Earnings per common share: Basic $ 0.60 $ 0.39 $ 1.05 $ 0.75 ============= =========== =========== =========== Diluted $ 0.55 $ 0.37 $ 0.98 $ 0.72 ============= =========== =========== ===========
(1) Reclassifications have been made to prior year periods to conform with current periods. See accompanying notes to consolidated financial statements. 2
CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS) ACCUMULATED COMMON ADDITIONAL OTHER STOCK PREFERRED COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE ACQUIRED STOCK STOCK CAPITAL EARNINGS STOCK INCOME BY MRP ------------- ---------- ------------- ----------- ------------ ----------------- ----------- Balance-March 31, 2003 $1 $23 $23,781 $16,712 ($190) $750 ($4) Comprehensive income: Net Income for the period ended June 30, 2003 - - - 1,087 - - - Change in net unrealized gain on securities, net of taxes - - - - - (36) - Dividends paid - - - (213) - - - Allocation of shares for MRP - - 22 - - - (36) Treasury stock activity - - - - (233) - - ------------- ---------- ------------- ----------- ------------ ----------------- ----------- Balance-June 30, 2003 $1 $23 $23,803 $17,586 ($423) $714 ($40) ------------- ---------- ------------- ----------- ------------ ----------------- ----------- Comprehensive income: Net Income for the period ended September 30, 2003 - - - 1,426 - - - Change in net unrealized gain on securities, net of taxes - - - - - (633) - Dividends paid - - - (114) - - - Allocation of shares for MRP - - - - - - 4 Treasury stock activity - - 8 - 11 - - ------------- ---------- ------------- ----------- ------------ ----------------- ----------- Balance-September 30, 2003 $1 $23 $23,811 $18,898 ($412) $81 ($36) ============= ========== ============= =========== ============ ================= ===========
TOTAL STOCK- HOLDERS' EQUITY ---------- Balance-March 31, 2003 $41,073 Comprehensive income: Net Income for the period ended June 30, 2003 $1,087 Change in net unrealized gain on securities, net of taxes ($36) Dividends paid ($213) Allocation of shares for MRP ($14) Treasury stock activity ($233) ---------- Balance-June 30, 2003 $41,664 ---------- Comprehensive income: Net Income for the period ended September 30, 2003 1,426 Change in net unrealized gain on securities, net of taxes (633) Dividends paid (114) Allocation of shares for MRP 4 Treasury stock activity 19 ---------- Balance-September 30, 2003 $42,366 ========== See accompanying notes to consolidated financial statements. 3
CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) SIX MONTHS ENDED SEPTEMBER 30, 2003 2002 ---- ---- Cash flows from operating activities: Net income $ 2,513 $ 1,810 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses - - ESOP and MRP expense 18 149 Depreciation and amortization expense 570 652 Amortization of intangibles 107 106 Other amortization 2,349 632 Changes in assets and liabilities: Decrease (increase) in accrued interest receivable 362 (155) Increase in other assets (4,238) (2) Decrease in other liabilities (4,706) (2,707) -------------- -------------- Net cash (used in) provided by operating activities (3,025) 485 -------------- -------------- Cash flows from investing activities: Purchases of securities: Available-for-sale (36,925) (36,848) Held-to-maturity (19,880) (4,167) Proceeds from principal payments, maturities and calls of securities: Available-for-sale 37,442 10,182 Held-to-maturity 4,452 2,307 Proceeds from sale of available-for-sale securities 23,871 - Disbursements for loan originations (36,683) (30,079) Loans purchased from third parties (38,751) (13,861) Principal collections on loans 53,389 52,897 Purchase of FHLB-NY stock (162) (690) Proceeds from loans sold - 1,493 Additions to premises and equipment (846) (455) -------------- -------------- Net cash used in by investing activities (14,093) (19,221) -------------- -------------- Cash flows from financing activities: Net increase in deposits 14,056 5,388 Advances from FHLB-NY and other borrowed money 34,000 29,300 Repayment of FHLB-NY advances and other borrowed money (45,352) (15,603) Issuance of trust preferred securities 12,740 - Purchase of treasury stock (303) (74) Dividends paid (327) (98) -------------- -------------- Net cash provided by financing activities 14,814 18,913 -------------- -------------- Net (decrease) increase in cash and cash equivalents (2,304) 177 Cash and cash equivalents at beginning of the period 23,160 34,851 -------------- -------------- Cash and cash equivalents at end of the period $ 20,856 $ 35,028 ============== ============== Supplemental information: Noncash Transfers- Change in unrealized gain on valuation of available-for-sale investments, net ($669) $483 ============== ============== Cash paid for- Interest 4,300 4,549 ============== ============== Income taxes 2,825 2,228 ============== ==============
See accompanying notes to consolidated financial statements 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Carver Bancorp, Inc. (the "Holding Company"), 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 and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission ("SEC"). 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, 2003 ("2003 10-K") previously filed with the SEC. The consolidated results of operations and other data for the three-month period ended September 30, 2003 are not necessarily indicative of results that may be expected for the entire fiscal year ending March 31, 2004 ("fiscal 2004"). 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"), Carver Statutory Trust I, Alhambra Holding Corp., an inactive Delaware corporation and the Bank's wholly owned subsidiaries, CFSB Realty Corp., CFSB Credit Corp. and Carver Asset Corporation. The Holding Company and its consolidated subsidiaries are referred to herein collectively as "Carver" or the "Company." All significant inter-company accounts and transactions have been eliminated in consolidation. We have no unconsolidated subsidiaries or unconsolidated special purpose entities. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. (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 include any additional common shares as if all potentially dilutive common shares were issued (for instance, convertible preferred stock and stock options with an exercise price that is less than the average market price of the common shares for the periods stated). For the purpose of these calculations, unreleased ESOP shares are not considered to be outstanding. For each of the three-month periods ended September 30, 2003 and 2002, 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 September 30, 2003 and 2002, 208,333 shares of common stock potentially issuable from the conversion of preferred stock and 81,384 shares of common stock at September 30, 2003 potentially issuable from the exercise of stock options with an exercise price that is less than the average market price of the common shares for the three-months ended September 30, 2003 were considered in determining the diluted net income per common share. (3) STOCK OPTION PLAN ACCOUNTING FOR STOCK BASED COMPENSATION Since we have elected to apply the intrinsic value method, we are required to disclose the pro-forma impact on net income and earnings per share that the fair value-based method would have had if it were applied rather than the intrinsic value method. Our policy with regards to stock-based compensation has been to grant stock options and restricted stock awards after fiscal year-end. Since stock options are typically awarded after fiscal year-end and contain a nominal vesting period, no pro-forma compensation expense and its 5 related effect on net income and earnings per share has been reported herein. Further disclosure is presented in Note 1 - "Summary of Significant Accounting Policies -- Stock Based Compensation Plans" of our audited consolidated financial statements in Carver's 2003 10-K. (4) RECENT ACCOUNTING PRONOUNCEMENTS ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY: RESCISSION OF SFAS NO. 150 In November 2003, the FASB rescinded Statement of Financial Accounting Standards ("SFAS") No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY." Issued in May 2003, SFAS 150 required issuers of certain financial instruments that fell within the scope of SFAS No. 150, having characteristics of both liabilities and equity, to be classified and measured as liabilities. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. The rescission of SFAS No. 150 did not have a material impact on our financial condition or results of operations. AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In April 2003, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," which amends and clarifies financial accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003, and should generally be applied prospectively. The provisions of SFAS No. 149 that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continued to be applied in accordance with their respective effective dates. In addition, the provisions of SFAS No. 149 which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on our financial condition or results of operations. GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTNESS OF OTHERS In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, "GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTNESS OF OTHERS" ("FIN 45"), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. FIN 45 requires the guarantor to recognize a liability for the non-contingent component of the guarantee; this is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. The Company has adopted the disclosure requirements of FIN 45 and will apply the recognition and measurement provisions for all guarantees entered into or modified after March 31, 2003. As of September 30, 2003, the Company maintained one letter of credit in the amount of $1.9 million. The adoption of this interpretation had no significant effect on the Company's earnings or financial position. ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS In October 2002, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 147, "ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS." SFAS No. 147 amends SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", and FASB Interpretation No. 9, "Applying APB Opinions Nos. 16 and 17 When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method." SFAS No. 147 removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of SFAS No. 72 and FASB Interpretation No. 9. SFAS No. 147 also amends SFAS No. 144 to include long-term customer-relationship intangible assets such as depositor- and borrower-relationship intangible assets and credit card holder 6 intangible assets. The provisions of SFAS No. 147 became effective October 1, 2002. The adoption of this statement had no significant effect on the Company's earnings or financial position. ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES In June 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES." The Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by this standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. Previous accounting guidance was provided by Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 replaces EITF Issue No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of this statement had no significant effect on the Company's earnings or financial position. RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS In April 2002, the FASB issued SFAS No. 145, "RESCISSION OF FASB STATEMENTS NO. 4, 44, AND 64, AMENDMENT OF FASB STATEMENT NO. 13, AND TECHNICAL CORRECTIONS." The Statement updates, clarifies and simplifies existing accounting pronouncements. SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will now be used to classify those gains and losses. SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," amended SFAS No. 4 and is no longer necessary because SFAS No. 4 has been rescinded. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. SFAS No. 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances they may change accounting practice. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. The adoption of this statement had no significant effect on the Company's earnings or financial position. 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 as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, senior management may make forward-looking statements verbally to analysts, investors, the media and others. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "intend," "should," "could," "plan," "estimate," "potential" and similar terms and phrases, or future or conditional verbs such as "will," "would," "should," "could," or "may." Such forward-looking statements are subject to risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those currently anticipated due to a number of factors. Factors which could result in material variations include, but are not limited to, the Company's success in implementing its initiatives, including expanding its product line, successfully opening new ATM centers and Bank branches, successfully rebranding its image and achieving greater operating efficiencies; changes in interest rates which could affect net 7 interest margins and net interest income; competitive factors which could affect net interest income and non-interest income; general economic conditions which could affect the volume of loan origination, deposit flows and real estate values; changes in the quality and composition of the Bank's loan and investment portfolios; changes in management's business strategy; the levels of non-interest income and the amount of loan losses as well as other factors discussed in documents filed by the Company with the SEC from time to time. Any forward-looking statements made in this report or incorporated by reference in this report are made as of the date of this report, and, except as required by applicable law, we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. You should consider these risks and uncertainties in evaluating forward-looking statements and you should not place undue reliance on these statements. As used in this Form 10-Q, "we," "us" and "our" refer to Carver Bancorp, Inc. and its consolidated subsidiaries, unless the context otherwise requires. CRITICAL ACCOUNTING POLICIES Note 1 to our Consolidated Financial Statements for fiscal 2003 included in our 2003 Form 10-K, as supplemented by this report, contains a summary of our significant accounting policies. We believe our policies with respect to the methodology for our determination of the allowance for loan losses and asset impairment judgments, including the recoverability of goodwill and other than temporary declines in the value of our securities, involve a high degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with our Finance and Audit Committee and our Board of Directors. GENERAL The Holding Company, a Delaware corporation, is the holding company for Carver Federal, a federally chartered savings bank, and, on a parent-only basis, had minimal results of operations. The Holding Company is headquartered in New York, New York. 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, Carver Federal, which operates five full-service banking locations in the New York City boroughs of Brooklyn, Queens and Manhattan. The Company is dependent on dividends from the Bank, its own earnings, capital raised and borrowings for sources of funds. The information below reflects principally the financial condition and results of operations of the Bank. The Bank's results of operations are primarily dependent on its net interest income. The Bank also generates other income, such as fee income on deposit and loan accounts and, to a lesser extent, debit card interchange credit, and, depending on market conditions, net gains on sales of securities and loans. The level of its expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, net losses on sales of securities and loans and income tax expense, further affects the Bank's net income. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements, the notes thereto and other financial information included in the Company's 2003 Form 10-K. COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2003 AND MARCH 31, 2003 ASSETS Total assets increased by $12.1 million, or 2.4%, to $521.9 million at September 30, 2003 compared to $509.8 million at March 31, 2003. The change was primarily attributable to increases of $21.8 million and $3.7 million in total loans receivable, net, and other assets, respectively, partially offset by 8 decreases of $11.1 million and $2.3 million in total securities and total cash and cash equivalents, respectively. Total loans receivable, net, increased $21.8 million, or 7.5%, to $314.6 from $292.7 million at March 31, 2003. The increase resulted from mortgage loan originations and purchases exceeding loan repayments during the first six months of fiscal 2004. During the six-month period ended September 30, 2003, loan purchases and originations were $38.8 million and $36.7 million, respectively, offset in part by loan repayments of $53.4 million. The $75.5 million in total loan originations and purchases for the period was primarily comprised of $26.7 million in multifamily loans, $22.2 million in one- to four-family loans, $21.0 million in non-residential real estate mortgage loans and $5.1 million in construction loans. Management has evaluated yields and loan quality in the competitive New York metropolitan area market and has made decisions in certain instances to purchase mortgage-backed securities. It is management's intent to continue to use proceeds from security repayments to fund mortgage loan growth. Management will continue to evaluate the balance of interest earning assets allocated to loan originations and purchases as well as additional purchases of mortgage-backed securities while continuing to assess yields and economic risk. Cash and cash equivalents for the six-month period decreased $2.3 million from March 31, 2003. The reduction was due to the Bank effectively managing its lower yielding excess liquid assets by investing in mortgage loans and mortgage-backed securities. Total securities decreased $11.1 million, or 6.7%, to $154.5 million from $165.6 million at March 31, 2003 as repayments, maturities and sales exceeded new security purchases. The decline is attributed to the low interest rate environment, which in turn has accelerated mortgage refinancing and prepayments of the Company's mortgage-backed securities. Principal repayments of mortgage-backed securities of $24.9 million, maturities of investment securities of $17.0 million and sales of $23.9 million were partially offset by new purchases of $56.8 million. Other assets increased $3.7 million, or 40.0%, to $12.9 million from $9.2 million at March 31, 2003. The increase is primarily due to a receivable booked in the quarter ended September 30, 2003 for $9.0 million relating to the sale of investment securities that was received in October 2003, partially offset by a $3.5 million reduction in mortgage loans in process and a decline in the Bank's deferred tax asset of $1.6 million. LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES At September 30, 2003, total liabilities decreased by $2.0 million, or 0.4%, to $466.8 million compared to $468.8 million at March 31, 2003. The decrease in liabilities primarily reflects a decrease of $11.4 million in advances from the Federal Home Loan Bank of New York ("FHLB-NY") and other borrowed money and a decrease of $4.7 million in other liabilities partially offset by deposit growth of $14.1 million. The decrease of $11.4 million in advances from the FHLB-NY and other borrowed money resulted from a repayment of maturing FHLB-NY borrowings using cash flow from the repayment of mortgage loans and mortgage-backed securities. The decrease in other liabilities was primarily the result of a decline in the liability for income taxes of $3.1 million as tax payments were remitted. The $14.1 million increase in deposit balances is primarily attributable to new relationships with corporate and not-for-profit entities which contributed to increases of $9.9 million in NOW accounts, $5.2 million in money market accounts and $1.4 million in savings and club accounts. The increases in core deposits were partially offset by a decrease of $2.4 million in certificates of deposit accounts. Other factors contributing to deposit growth include an emphasis on developing depository relationships with borrowers and the use of special promotions to attract deposits. At September 30, 2003, the Bank had five branches and one stand-alone 24/7 ATM center. We believe that deposits will continue to grow with the addition of new branches and 24/7 ATM centers coupled with our business development efforts. 9 On September 17, 2003, the Holding Company, through a subsidiary business trust, Carver Statutory Trust I, issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities. Gross proceeds from the sale of these trust preferred securities were $13.0 million, and, together with the proceeds from the sale of the trust's common securities, were used to purchase approximately $13.4 million aggregate principal amount of the Holding Company's floating rate junior subordinated debt securities due 2033. The trust preferred securities are redeemable quarterly at the option of the Company beginning on or after July 7, 2007 and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred securities are cumulative and payable at a floating rate per annum (reset quarterly) equal to 3.05% over 3-month LIBOR, with an initial rate of 4.19%. The Holding Company has guaranteed the obligations of Carver Statutory Trust I to the trust's capital security holders. The $12.7 million net proceeds of the issuance of trust preferred securities were contributed to the Bank to enhance regulatory capital, which will facilitate the Company's growth strategy. STOCKHOLDERS' EQUITY Total stockholders' equity increased $1.3 million, or 3.1%, to $42.4 million at September 30, 2003 compared to $41.1 million at March 31, 2003. The increase in total stockholders' equity was primarily attributable to an increase in retained earnings year-to-date of $2.2 million, partially offset by a decrease of $669,000 in accumulated other comprehensive income and a $222,000 decrease related to treasury stock. The $222,000 decrease related to treasury stock is attributable to repurchases of the Company's stock, partially offset by payments made from treasury stock for stock-based compensation plans. Accumulated other comprehensive income decreased as a result of a reduction in net unrealized gains, net of taxes, relating to certain investment and mortgage-backed securities. 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. During the quarter ended September 30, 2003, the Holding Company did not purchase any additional shares of its common stock. To date, the Holding Company has purchased 29,100 shares of its common stock in open market transactions at an average price of $13.84 per share as part of its repurchase program announced on August 6, 2002. The Holding Company intends to use repurchased shares to fund its stock-based benefit and compensation plans and for any other purpose the Board of Directors of the Holding Company deems advisable in compliance with applicable law. ASSET/LIABILITY MANAGEMENT The Company's primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuation on asset prepayments, the level and composition of deposits and the credit quality of earning assets. Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity and to manage its exposure to changes in interest rates. The Company's Asset/Liability and Interest Rate Risk Committee ("ALCO"), comprised of members of the Board of Directors, meets periodically with senior management to evaluate the impact of changes in market interest rates on assets and liabilities, net interest margin, capital and liquidity. Risk assessments are governed by policies and limits established by senior management that are reviewed and approved by ALCO and the entire Board of Directors. The economic environment continually presents uncertainties as to future interest rate trends. ALCO regularly monitors the Company's cumulative gap position, which is the difference between the sensitivity to rate changes on our interest earning assets and interest bearing liabilities. In addition, the Company utilizes a model that projects net interest income based on increasing or decreasing interest rates, in order to respond effectively to changes in interest rates. LIQUIDITY AND CAPITAL RESOURCES Liquidity is a measure of the Bank's ability to generate adequate cash to meet financial obligations. The principal cash requirements of a financial institution are to cover downward fluctuations 10 in deposit accounts and increases in its loan and investment portfolio. 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. Other sources of liquidity include the ability to borrow under repurchase agreements, FHLB-NY advances utilizing unpledged mortgage-backed securities and certain mortgage loans, the sale of available-for-sale securities and the sale of loans. At September 30, 2003, the Bank had the ability to borrow from the FHLB-NY an additional $39.0 million on a secured basis, utilizing mortgage-related loans and securities as collateral. The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During the six months ended September 30, 2003, total cash and cash equivalents decreased by $2.3 million. Net cash used in operating activities during this period was $3.0 million, primarily representing decreases in other liabilities and increases in other assets, adjusted for the balances of depreciation and amortization expense and other amortization. Net cash used in investing activities was $14.1 million, primarily representing the purchase of securities, loan purchases and originations offset in part by principal payments and maturities of securities, sale of available-for-sale securities and principal collections on loans. Net cash provided by financing activities was $14.8 million, primarily representing a net increase in deposits and proceeds from the issuance of trust preferred securities, partially offset by a decrease in advances from the FHLB-NY. The Bank is required to maintain sufficient liquidity to ensure its safe and sound operation. Management believes the Bank's short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements. The Bank monitors its liquidity utilizing guidelines that are contained in a policy developed by management of the Bank and approved by the Bank's Board of Directors. The Bank's several liquidity measurements are evaluated on a frequent basis. The Bank was in compliance with this policy as of September 30, 2003. 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 most significant liquidity challenge the Bank faces is the variability in cash flows as a result of mortgage refinance activity. As mortgage interest rates decline, customers' refinance activities tend to accelerate, causing the cash flow from both the mortgage loan portfolio and the mortgage-backed securities portfolio to accelerate. When mortgage interest rates increase, the opposite effect tends to occur. In addition, as mortgage interest rates decrease, customers generally tend to prefer fixed rate mortgage loan products over variable rate products. Since the Bank generally sells its 15-year and 30-year fixed rate loan production into the secondary mortgage market, the origination of such products for sale does not significantly reduce the Bank's liquidity. During the fiscal year ended March 31, 2002 ("fiscal 2002"), the Federal Open Market Committee reduced the federal funds rate on eight separate occasions by a total of 325 basis points, resulting in a lower interest rate environment in fiscal 2002 compared to the fiscal year ended March 31, 2001. During the fiscal year ended March 31, 2003 ("fiscal 2003"), the federal funds rate was again lowered on three separate occasions a total of 125 basis points. To date, during fiscal 2004 the federal funds rate has remained unchanged. The increase in loan and securities repayments experienced by the Bank over the past two fiscal years was primarily the result of the increase in mortgage loan refinancing activity caused by this lower interest rate environment. The Office of Thrift Supervision (the "OTS"), the Bank's primary federal regulator, requires that the Bank meet minimum capital requirements. Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. At September 30, 2003, the Bank exceeded all regulatory minimum capital requirements and qualified, under OTS regulations, as a well-capitalized institution. The table below presents certain information relating to the Bank's capital compliance at September 30, 2003. 11
REGULATORY CAPITAL AT SEPTEMBER 30, 2003 Amount % of Assets ------ ----------- Total capital (to risk-weighted assets): Capital level $59,337 17.83 % Less requirement 26,622 8.00 ------------ ------------- Excess $32,715 9.83 % ============ ============= Tier 1 capital (to risk-weighted assets): Capital level $55,224 10.51 % Less requirement 21,022 4.00 ------------ ------------- Excess $34,202 6.51 % ============ ============= Tier 1 Leverage capital (to adjusted total assets): Capital level $55,224 16.59 % Less requirement 13,311 4.00 ------------ ------------- Excess $41,913 12.59 % ============ =============
On October 23, 2003, the Board of Directors declared a quarterly dividend of $0.05 per common share. The dividend will be payable on November 18, 2003 to stockholders of record at the close of business on November 3, 2003. ANALYSIS OF EARNINGS The Company's profitability is primarily dependent upon net interest income, which mainly 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, for the periods indicated, certain information relating to Carver's average interest-earning assets, average interest-bearing liabilities, net interest income, interest rate spread and interest rate margin. It reflects the average yield on assets and the average cost of liabilities. 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 month-end balances as available. Management does not believe that the use of average monthly balances instead of average daily balances 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. 12
THREE MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------------------------------- 2003 2002 --------------------------------------------- -------------------------------------- Average Annualized Avg. Average Annualized Avg. Balance Interest Yield/Cost Balance Interest Yield/Cost -------------- ------------ --------------- ------------ ------------------------ (Dollars in thousands) Loans receivable (1) $305,391 $5,061 6.58% $282,684 $5,310 7.45% Investment securities (2) 172,311 1,515 3.49% 110,036 1,372 4.95% Federal funds 11,622 26 0.90% 17,871 77 1.72% -------------- ------------ ------------ ---------- Total interest earning assets 489,324 6,602 5.35% 410,591 6,759 6.53% Non-interest earning assets 31,459 31,429 -------------- ------------ Total assets $520,783 $442,020 ============== ============ Liabilities and Equity ---------------------- Deposits: NOW accounts $25,472 $23 0.36% $17,948 $33 0.73% Savings and club accounts 131,435 243 0.73% 127,002 373 1.17% Money market accounts 27,341 54 0.78% 15,660 46 1.17% Certificates of deposit 161,118 813 2.00% 152,330 1,017 2.65% -------------- ------------ ------------ ---------- Total deposits 345,366 1,133 1.30% 312,940 1,469 1.86% Mortgagor's deposits 1,183 10 3.49% 2,506 1 0.16% Borrowed money 104,927 943 3.56% 67,904 740 4.32% -------------- ------------ ------------ ---------- Total interest-bearing liabilities 451,476 2,086 1.82% 383,350 2,210 2.29% Non-interest-bearing DDA accounts 18,319 14,169 Other non-interest-bearing liabilities 6,873 6,530 -------------- ------------ Total liabilities 476,668 404,049 Guaranteed beneficial interest in junior subordinated debentures 1,904 Stockholders' equity 42,211 37,971 -------------- ------------ Total liabilities and stockholders' equity $520,783 $442,020 ============== ------------ ============ ---------- Net interest income $4,516 $4,549 ============ ========== Interest rate spread 3.53% 4.24% =============== ============== Net interest margin 3.66% 4.40% =============== ============== Ratio of average interest-earning assets to deposits and interest-bearing liabilities 1.08x 1.07x ============ ==========
(1) Includes non-accrual loans. (2) Includes FHLB-NY stock. 13
SIX MONTHS ENDED SEPTEMBER 30, ----------------------------------------------------------------------------------- 2003 2002 --------------------------------------------- -------------------------------------- Average Annualized Avg. Average Annualized Avg. Balance Interest Yield/Cost Balance Interest Yield/Cost -------------- ------------ --------------- ------------ ------------------------ (Dollars in thousands) Loans receivable (1) $300,782 $9,927 6.58% $284,092 $10,688 7.50% Investment securities (2) 170,004 3,111 3.65% 105,318 2,652 5.02% Federal funds 15,289 81 1.07% 22,201 188 1.69% -------------- ------------ ------------ ---------- Total interest earning assets 486,075 13,119 5.38% 411,611 13,528 6.55% Non-interest earning assets 30,227 30,422 -------------- ------------ Total assets $516,302 $442,033 ============== ============ Liabilities and Equity ---------------------- Deposits: NOW accounts $23,624 $48 0.41% $18,815 $81 0.86% Savings and club accounts 131,190 563 0.86% 127,724 816 1.27% Money market accounts 26,421 116 0.88% 15,224 96 1.26% Certificates of deposit 161,606 1,678 2.07% 152,187 2,078 2.72% -------------- ------------ ------------ ---------- Total deposits 342,841 2,405 1.40% 313,950 3,071 1.95% Mortgagor's deposits 1,711 15 1.72% 2,506 2 0.16% Borrowed money 102,731 1,896 3.68% 66,107 1,476 4.45% -------------- ------------ ------------ ---------- Total interest-bearing liabilities 447,283 4,316 1.92% 382,563 4,549 2.37% Non-interest-bearing DDA accounts 19,301 14,041 Other non-interest-bearing liabilities 7,120 7,872 -------------- ------------ Total liabilities 473,704 404,476 Guaranteed beneficial interest in junior subordinated debentures 957 Stockholders' equity 41,641 37,557 -------------- ------------ Total liabilities and stockholders' equity $516,302 $442,033 ============== ------------ ============ ---------- Net interest income $8,803 $8,979 ============ ========== Interest rate spread 3.46% 4.18% =============== ============== Net interest margin 3.61% 4.35% =============== ============== Ratio of average interest-earning assets to deposits and interest- bearing liabilities 1.09x 1.08x ============ ==========
(1) Includes non-accrual loans. (2) Includes FHLB-NY stock. 14 COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 OVERVIEW Selected operating ratios for the three months ended September 30, 2003 and 2002 are set forth in the table below. The following analysis discusses the changes in components of operating results giving rise to net income. THREE MONTHS ENDED SELECTED OPERATING RATIOS: SEPTEMBER 30, 2003 2002 --------------- ------------- Return on average assets(1) 1.10 % 0.85 % Return on average equity(1) 13.51 9.85 Interest rate spread(1) 3.53 4.24 Net interest margin(1) 3.66 4.40 Operating expenses to average assets(1) 3.01 3.20 Equity-to-assets 8.12 8.30 Efficiency ratio 64.25 67.10 Average interest-earning assets to interest-bearing liabilities 1.08x 1.07x (1) Annualized NET INCOME Net income for the three-month period ended September 30, 2003 was $1.4 million compared to net income of $935,000 for the corresponding prior year period. Net income available to common stockholders (after adjustment for dividends payable on the Company's preferred stock) was $1.4 million, or $0.55 per diluted common share, compared to $886,000, or $0.37 per diluted common share, for the corresponding prior year period. Net income available to common stockholders increased $491,000 primarily due to an increase in non-interest income of $858,000, partially offset by an increase in non-interest expense of $357,000. Income for the three months ended September 30, 2003 includes a recovery of $558,000 related to previously unrecognized income from prior fiscal year periods from mortgage loans. INTEREST INCOME Interest income decreased by $157,000, or 2.3%, to $6.6 million for the three months ended September 30, 2003 compared to $6.8 million in the prior year period. Interest income decreased primarily as a result of the lower interest rate environment compared to the prior year period. The change in total interest income was attributable to a decrease of 118 basis points in the annualized average yield on interest-earning assets to 5.35% for the three months ended September 30, 2003 compared to 6.53% for the prior year period. This was partially offset by an increase in the average balance of interest-earning assets of $78.7 million, or 19.2%, to $489.3 million for the three months ended September 30, 2003 compared to $410.6 million for the prior year period. Net interest margin declined 74 basis points to 3.66% for the three months ended September 30, 2003 compared to 4.40% for the prior year period resulting from lower interest rates. Interest income on loans decreased by $249,000 or 4.7%, to $5.1 million for the three months ended September 30, 2003 compared to $5.3 million for the prior year period. The change was primarily due to a decline in interest rates, which resulted in decreased yields in the loan portfolio. The annualized average yield on loans for the three months ended September 30, 2003 declined 87 basis points to 6.58% compared to 7.45% for the prior year period. The decline in interest income on loans was partially offset by an increase in average mortgage loan balances of $22.7 million to $305.4 million compared to $282.7 15 million for the prior year period. Interest income on total securities increased by $143,000, or 10.4%, to $1.5 million for the three months ended September 30, 2003 compared to $1.4 million for the prior year period. The change was primarily due to an increase of $62.3 million, or 56.6%, in the average balance of securities to $172.3 million compared to $110.0 million in the prior year period, partially offset by a 146 basis point decrease in the annualized average yield on securities to 3.49% from 4.95% in the prior year period. The growth in the average balance of securities, primarily mortgage-backed securities, reflects execution of our balance sheet management strategy. Portfolio yields and interest income declined as new purchases and the reinvestment of portfolio cash flows were at yields significantly below existing portfolio yields. To mitigate interest rate risk, we have purchased short duration securities that by their nature have lower yields. Additionally, yields and income were impacted by prepayment activity, which has shortened the anticipated life of mortgage-backed securities and accelerated premium amortization. Interest income on federal funds sold decreased by $51,000, or 66.2%, to $26,000 for the three months ended September 30, 2003 compared to $77,000 for the prior year period. The decline was primarily attributable to a decrease in the average balance of federal funds of $6.2 million, or 35.0%, to $11.6 million from $17.9 million in the prior year period. Also contributing to the decline in interest income was a decrease of 82 basis points in the annualized yield on federal funds sold, which was 0.90% for the three months ended September 30, 2003 compared to 1.72% in the prior year period due to lower short-term interest rates. INTEREST EXPENSE Total interest expense decreased by $124,000, or 5.6%, to $2.1 million for the three months ended September 30, 2003 compared to $2.2 million for the prior year period. The change in interest expense is primarily due to the lower interest rate environment cited above. The annualized average cost of interest-bearing liabilities decreased 47 basis points to 1.82% from 2.29% for the prior year period. The decrease in interest expense was partially offset by an increase in the average balance of interest-bearing liabilities of $68.1 million, or 17.8%, to $451.5 million from $383.4 million during to the prior year period. Interest expense on deposits decreased $336,000, or 22.9%, to $1.1 million for the three months ended September 30, 2003 compared to $1.5 million for the prior year period. The decrease in interest expense on deposits was due primarily to a 56 basis point decline in the rate paid on deposits to 1.30% compared to 1.86% for the prior year period, partially offset by a $32.4 million increase in the average balance of interest-bearing deposits to $345.4 million for the three months ended September 30, 2003 from $312.9 million for the prior year period. Customer deposits have historically provided Carver with a relatively low cost funding source from which its net interest income and net interest margin have benefited. The Bank's success in growing core deposits, thereby benefiting net interest income and net interest margin, has been tempered by the sustained low interest rate environment. Interest expense on advances and other borrowed money increased $212,000, or 28.6%, to $953,000 for the three months ended September 30, 2003 compared to $741,000 for the prior year period. This was primarily due to an increase of $37.0 million in the average balance of borrowed money to $104.9 million from $67.9 million for the corresponding prior year period, partially offset by a decrease of 76 basis points in the cost of borrowings to 3.56% from 4.32% for the prior year period. NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES Net interest income before the provision for loan losses was substantially unchanged at $4.5 million for the three months ended September 30, 2003 compared to the prior year period. The Company's annualized average interest rate spread decreased by 71 basis points to 3.53% for the three months ended September 30, 2003 compared to 4.24% for the prior year period. PROVISION FOR LOAN LOSSES AND ASSET QUALITY 16 The Company did not provide for additional loan loss reserves for the three months ended September 30, 2003 or 2002 as the Company considers the overall allowance for loan losses to be adequate. During the second quarter of fiscal 2004, the Company recorded net loan charge-offs of $10,000 compared to net recoveries of $40,000 for the prior year period. At September 30, 2003, the Bank's allowance for loan losses was $4.1 million compared to $4.2 million at March 31, 2003. At September 30, 2003, non-performing assets totaled $2.9 million, or 0.91% of total loans, compared to $1.8 million, or 0.61% of total loans receivable, at March 31, 2003. Non-performing assets include loans 90 days past due, non-accrual loans and other real estate owned. Other real estate owned consists of property acquired through foreclosure or deed in lieu of foreclosure. The Bank had no foreclosed real estate as of September 30, 2003. The increase of $1.1 million in non-performing loans is primarily attributable to three loans that were 90 days past due at September 30, 2003. Future levels of non-performing assets will be influenced by economic conditions, including the impact of those conditions on our customers, interest rates and other internal and external factors existing at the time. The ratio of the allowance for loan losses to non-performing loans was 141.8% at September 30, 2003 compared to 230.7% at March 31, 2003. The ratio of the allowance for loan losses to total loans was 1.29% at September 30, 2003 compared to 1.40% at March 31, 2003. Management's judgment in determining the adequacy of the allowance for loan losses is based on an evaluation of individual loans, the risk characteristics and size of the loan portfolio, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, past loan loss experience, review of regulatory authority examination reports and other relevant factors. Based on the process employed, management believes that the allowance for loan losses is adequate under prevailing economic conditions to absorb losses on existing loans that may become uncollectible. 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, results of regulatory examinations and other factors, both within and outside of management's control. NON-INTEREST INCOME Total non-interest income in the second quarter of fiscal 2004 increased $858,000, or 119.8%, to $1.6 million compared to $716,000 for the prior year period. The increase was primarily attributable to a recovery of $558,000 in mortgage income of which $411,000 related to the recognition of previously unrecognized mortgage loan income from one problem loan that had been held in escrow pending the resolution of certain mechanics' liens. The remaining $147,000 resulted from the recognition of previously unrecognized prepaid mortgage loan income. Further contributing to the increase in non-interest income was an increase in loan fees and service charges of $235,000 and an increase of $33,000 in depository fees and charges, which can be attributed to increased ATM usage, growth in debit card income and the restructuring of depository fees and charges during the second quarter of fiscal 2003. Loan fees and service charges increased primarily as a result of recognition of higher mortgage prepayment penalties due to refinancing activity. A gain on the sale of securities of $31,000 was recognized as a result of the sale of certain mortgage-backed securities in the second quarter of fiscal 2004. Non-interest income represented 19.3% of revenue (interest income plus non-interest income) for the second quarter of fiscal 2004 compared to 9.6% for the corresponding prior year period. NON-INTEREST EXPENSE For the quarter ended September 30, 2003, total non-interest expense increased $380,000, or 10.8%, to $3.9 million compared to $3.5 million for the prior year period. The increase in non-interest expense was primarily due to a rise in employee compensation and benefit expense resulting from salary increases effective as of September 1, 2003, new hires at higher average salaries, an increase in the costs to 17 provide employee benefits and the timing of accruals for employee bonus expense. It is the Bank's policy that employee bonuses are expensed in each quarter when the performance of the Bank indicates that they will likely be earned by year-end. In fiscal 2003 the application of this policy resulted in the majority of employee bonuses being both earned and expensed in the fourth quarter, whereas in fiscal 2004, due to the performance of the Bank, more employee bonuses have been expensed earlier in the year. Additionally, the capital securities cost of $23,000 related to the issuance of the subordinated debentures during the second quarter was minimal as the securities were issued in mid-September. INCOME TAX EXPENSE For the three-month period ended September 30, 2002, the Company accrued for Federal, New York State and New York City income tax expense at a combined total tax rate of 45%. For the three-month period ended September 30, 2003, the Company decreased its tax rate following the establishment of Carver Asset Corporation, the Bank's real estate investment trust. For the three-month period ended September 30, 2003, income before taxes increased $445,000, or 25.7%, to $2.2 million compared to $1.7 million for the prior year period. Income tax expense decreased $46,000, or 5.8%, to $751,000 compared to $797,000 for the prior year period. COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 OVERVIEW Selected operating ratios for the six months ended September 30, 2003 and 2002 are set forth in the table below. The following analysis discusses the changes in components of operating results giving rise to net income. SIX MONTHS ENDED SELECTED OPERATING RATIOS: SEPTEMBER 30, 2003 2002 --------------- ------------- Return on average assets(1) 0.97 % 0.82 % Return on average equity(1) 12.07 9.64 Interest rate spread(1) 3.46 4.18 Net interest margin(1) 3.61 4.35 Operating expenses to average assets(1) 2.98 3.32 Equity-to-assets 8.12 8.30 Efficiency ratio 66.81 68.81 Average interest-earning assets to interest-bearing liabilities 1.09x 1.08x (1) Annualized NET INCOME The Company reported net income for the six-month period ended September 30, 2003 of $2.5 million compared to net income of $1.8 million for the corresponding prior year period. Net income available to common stockholders (after adjustment for dividends payable on the Company's preferred stock) was $2.4 million, or $0.98 per diluted common share, compared to $1.7 million, or $0.72 per diluted common share, for the corresponding prior year period. Income for the six months ended September 30, 2003 includes a recovery of $558,000 related to previously unrecognized income from prior fiscal year periods from mortgage loans. This recovery was recorded in other non-interest income. Net income available to common stockholders increased $703,000 primarily due to a rise in non-interest income of $1.0 18 million, partially offset by an increase in non-interest expense of $344,000. INTEREST INCOME Interest income decreased by $409,000, or 3.0%, to $13.1 million for the six months ended September 30, 2003 compared to $13.5 million in the corresponding prior year period. The decrease in interest income was due to a lower interest rate environment during the six-month period ended September 30, 2003 compared to the corresponding prior year period. The change in total interest income was attributable to a decrease of 117 basis points in the annualized average yield on interest-earning assets to 5.38% for the six months ended September 30, 2003 compared to 6.55% for the corresponding prior year period. This was partially offset by an increase in the average balance of interest-earning assets of $74.5 million, or 18.1%, to $486.1 million for the six months ended September 30, 2003 compared with $411.6 million for the corresponding prior year period. Interest income on loans decreased by $761,000, or 7.1%, to $9.9 million for the six months ended September 30, 2003 compared to $10.7 million for the corresponding prior year period. The decline in interest income was due primarily to a decrease in the annualized average yield on mortgage loans to 6.58% compared to 7.50% for the six months ended September 30, 2002. Additionally, the decrease in interest income was due to the inclusion of an acceleration in the recognition of deferred loan fees of $212,000 resulting from higher than anticipated mortgage loan prepayments in the income of the prior fiscal year. The decrease in interest income on loans was offset by an increase in average mortgage loan balances of $16.7 million, or 5.9%, to $300.8 million for the six months ending September 30, 2003 compared to $284.1 million for the corresponding prior year period. Interest income on total securities increased by $459,000, or 17.3%, to $3.1 million for the six months ended September 30, 2003 compared to $2.7 million for the corresponding prior year period. The change was primarily due to an increase in the average balance of total securities of $64.7 million, or 61.4%, to $170.0 million for the six months ended September 30, 2003 compared to $105.3 million for the corresponding prior year period, partially offset by a decrease in the annualized average yield on mortgage-backed securities of 137 basis points to 3.65% from 5.02% during the same period. Interest income on federal funds sold decreased by $107,000, or 56.9%, to $81,000 for the six months ended September 30, 2003 compared to $188,000 for the corresponding prior year period. The annualized yield on federal funds sold declined 62 basis points to 1.07% for the six months ended September 30, 2003 compared to 1.69% for the corresponding prior year period due to a lower short-term interest rate environment. In addition, the average balance of federal funds decreased $6.9 million, or 31.1%, to $15.3 million from $22.2 million for the corresponding prior year period. INTEREST EXPENSE Total interest expense decreased by $233,000, or 5.1%, to $4.3 million for the six months ended September 30, 2003 compared to $4.5 million for the corresponding prior year period. The reduction in interest expense is primarily due to the lower interest rate environment partially offset by higher average borrowings year over year to fund the growth of the balance sheet. The annualized average cost of interest-bearing liabilities decreased 45 basis points to 1.92% from 2.37% for the corresponding prior year period. The decrease in the average cost of interest-bearing liabilities was partially offset by an increase in the average balance of interest-bearing liabilities of $64.7 million, or 16.9%, to $447.3 million from $382.6 million compared to the corresponding prior year period. 19 Interest expense on deposits decreased $666,000, or 21.7%, to $2.4 million for the six months ended September 30, 2003 compared to $3.1 million for the corresponding prior year period. The decrease in interest expense on deposits was due primarily to a 55 basis point decline in the rate paid on deposits to 1.40% for the six months ended September 30, 2003 compared to 1.95% for the corresponding prior year period. This was partially offset by a $28.9 million increase in the average balance of interest-bearing deposits to $342.8 million from $314.0 million for the corresponding prior year period. Interest expense on advances and other borrowed money increased $433,000, or 29.3%, to $1.9 million for the six months ended September 30, 2003 compared to $1.5 million for the corresponding prior year period. This increase in interest expense was primarily due to a $36.6 million, or 55.4%, increase in the average balance of borrowed money to $102.7 million from $66.1 million for the corresponding prior year period, partially offset by a decrease of 77 basis points in the cost of borrowings to 3.68% from 4.45% for the corresponding prior year period. NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES Net interest income before the provision for loan losses decreased by $176,000, or 2.0%, to $8.8 million for the six months ended September 30, 2003 compared to $9.0 million for the corresponding prior year period. Total interest income decreased by $409,000 while total interest expense decreased by $233,000 for the six months ended September 30, 2003. The Company's annualized average interest rate spread decreased by 72 basis points to 3.46% for the six months ended September 30, 2003 compared to 4.18% for the corresponding prior year period. PROVISION FOR LOAN LOSSES AND ASSET QUALITY The Company did not provide for additional loan losses for each six-month period ended September 30, 2003 and 2002. Due to the credit quality of the loan portfolio at period end, the Company believed the total loan loss allowance to be adequate. During the first six months of fiscal 2004, Carver recorded net loan charge-offs of $45,000 to the allowance for loan losses compared to net recoveries of $44,000 for the corresponding prior year period. At September 30, 2003, the Bank's allowance for loan losses at $4.1 million compared to $4.2 million at March 30, 2003. At September 30, 2003, non-performing loans totaled $2.9 million, or 0.91% of total loans, compared to non-performing loans of $1.8 million, or 0.61% of total loans, at March 31, 2003, an increase of $1.1 million or 61.0%. The increase in non-performing loans lowered the ratio of the allowance for loan losses to non-performing loans to 141.8% at September 30, 2003 compared to 230.7% at March 31, 2003. The ratio of the allowance for loan losses to total loans at September 30, 2003 was 1.29% compared to 1.40% March 31, 2003. Management's judgment in determining the adequacy of the allowance for loan losses is based on an evaluation of individual loans, the risk characteristics and size of the loan portfolio, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, past loan loss experience, review of regulatory authority examination reports and other relevant factors. Based on the process employed, management believes that the allowance for loan losses is adequate under prevailing economic conditions to absorb losses on existing loans that may become uncollectible. 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 $1.0 million, or 62.6%, to $2.7 million for the six-month period ended September 30, 2003 compared to $1.7 million for the corresponding prior year period. The increase in non-interest income resulted from increases in depository fees and charges, loan fees and 20 service charges and other non-interest income. The increases in loan fees and service charges as well as depository fees and charges were primarily due to higher mortgage prepayment penalties, increases in ATM usage over the corresponding prior year period, growth in debit card income and a restructuring of loan and depository fees and service charges which began in the second quarter of fiscal 2003. Other non-interest income increased as a result of a recovery of $558,000 of which $411,000 was related to the recognition of previously unrecognized mortgage loan income from one problem loan that had been held in escrow pending the resolution of certain mechanics' liens. The remaining recovery of $147,000 was from previously unrecognized prepaid mortgage loan income. In an effort to reposition the balance sheet, the Company sold investment securities during the second quarter of fiscal 2004 that generated a net gain on sale of securities of $31,000. NON-INTEREST EXPENSE Total non-interest expense increased $367,000, or 5.0%, to $7.7 million for the six months ended September 30, 2003 compared to $7.3 million for the corresponding prior year period. The increase was primarily attributable to increases in employee compensation and benefits. Employee compensation and benefit expense was higher year over year by $340,000 as a result of salary increases, new hires at higher average salaries, increased cost of benefit plans and the timing of accruals for employee bonus expense. Additionally, the capital securities cost of $23,000 related to the issuance of the subordinated debentures during the period was minimal as the securities were issued in mid-September. Other non-interest expense includes a $204,000 increase in consulting expenses related to establishing the Bank's real estate investment trust, offset by reductions in advertising expense of $124,000 and loan expenses of $77,000. INCOME TAX EXPENSE For the six-month period ended September 30, 2002, the Company accrued for Federal, New York State and New York City income tax expense at a combined total tax rate of 45%. For the six-month period ended September 30, 2003, the Company decreased its rate following the establishment of Carver Asset Corporation. For the six-month period ended September 30, 2003, income before taxes increased $502,000, or 15.1%, to $3.8 million compared to $3.3 million for the prior year period. Income tax expense decreased $201,000, or 13.3%, to $1.3 million compared $1.5 million for the prior year period. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Quantitative and qualitative disclosure about market risk is presented at March 31, 2003 in Item 7 of the Company's 2003 10-K. The Company believes that there have been no material changes in the Company's market risk at September 30, 2003 compared to March 31, 2003. ITEM 4. CONTROLS AND PROCEDURES The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. As of September 30, 2003, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective and timely in alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. 21 There were no changes in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Disclosure regarding legal proceedings that the Company is a party to is presented in Note 13 to our Consolidated Financial Statements in the 2003 10-K. Except as set forth below, there have been no material changes with regard to such legal proceedings since the filing of the 2003 10-K. On or about April 29, 1999, plaintiff Reginald St. Rose ("St. Rose"), a former Carver Federal employee, filed suit against Carver Federal in the Supreme Court of the State of New York, County of New York (the "St. Rose Action"). In his complaint, St. Rose alleged the following causes of action relating to a January 12, 1999 agreement between the parties concerning St. Rose's separation from Carver Federal: (1) breach of contract; (2) promissory estoppel, and (3) fraudulent misrepresentation. On Carver Federal's motion, the Court dismissed the fraudulent misrepresentation claim. St. Rose seeks damages in an amount not less than $50,000 with respect to the breach of contract cause of action and seeks undisclosed damages with respect to the promissory estoppel claim. Carver Federal has not yet filed an answer to the remaining two claims because its time to do so has been extended without date. Carver Federal has unasserted counterclaims against St. Rose for, among other claims, payment of certain financial obligations to Carver Federal, which obligations remain outstanding as of the date of this Form 10-Q. Carver Federal and St. Rose have recently resumed settlement discussions. If the parties do not reach a settlement, Carver Federal intends to continue to defend the St. Rose Action vigorously. Carver Federal is also a defendant in two actions brought by Ralph Williams ("Williams I" and "Williams II") and an action brought by Janice Pressley (the "Pressley Action") all of which arise out of events concerning the Northeastern Conference Federal Credit Union ("Northeastern"), a federal credit union that maintained accounts with Carver Federal and certain other banks in the New York metropolitan area (the "Bank Defendants"). Plaintiff Williams is a former member of the Board of Directors of Northeastern and plaintiff Pressley is a former treasurer of Northeastern. Plaintiffs allege that the National Credit Union Administration (the "NCUA") acted improperly when it placed Northeastern into conservatorship and subsequent liquidation. In or about July 1998, Williams commenced Williams I in the United States District Court, District of Columbia seeking to restrain the NCUA from executing on the conservatorship order and an order directing the Bank Defendants to "restore [their] accounts to their original status." The Bank Defendants were not served with the pleadings in Williams I, and the Court entered judgment against them on default. After the Bank Defendants learned of this case, they made a motion in September 2001 to vacate the default judgment. That motion is still pending. On or about November 22, 2000, Williams filed Williams II in the United States District Court, District of Columbia, against the NCUA and the Bank Defendants seeking damages in the amount of $1 million plus certain additional unspecified amounts, and plaintiff Pressley filed the Pressley Action in the same court against the same defendants seeking unspecified compensatory and punitive damages. Williams seeks damages for the allegedly "unauthorized" or "invalid" actions of the NCUA Board of Directors in taking control of Northeastern as well as damages for discrimination and civil rights violations. Pressley seeks damages based on identical allegations except that she also alleges certain claims of employment discrimination. The Bank Defendants filed a joint motion to dismiss Williams II, which motion was granted by the District Court. Williams filed a notice of appeal on August 24, 2003. Pursuant to a scheduling order issued by the Court, Carver Federal filed a Notice of Appearance, Certificate of Counsel and Disclosure Statement. The Bank Defendants collectively filed a motion for summary affirmance of the District Court's decision on October 9, 2003. The scheduling order required that Williams make certain submissions on or before September 24, 2003 in support of his appeal. Williams failed to do so and the Court issued an order 22 directing Williams to show cause by November 7, 2003 why the appeal should not be dismissed for want of prosecution. On November 7, 2003, Williams filed an answer to the order to show cause and a motion for leave to file his submissions late. The court has not yet ruled on that motion as of the date of filing of this Form 10-Q. The Bank Defendants also made a joint motion to dismiss the Pressley Action. In September 2001, the District Court granted that motion. Pressley appealed the decision and the Court of Appeals remanded the case for a clarification by the District Court of its order as to whether it was a final order applicable to all of the defendants. The Court of Appeals dismissed the appeal in August 2003 and, in October 2003 with the consent of Pressley's counsel, the District Court dismissed Pressley's case against the Bank Defendants and has entered an order to that effect, resolving the Pressley Action in its entirety. In or about November 2001, Monique Barrow, a former branch teller, filed an action against Carver Federal in the United States District Court for the Southern District of New York alleging that Carver Federal's termination of her employment constituted a violation of the federal Family and Medical Leave Act and each of the New York State and City Human Rights Laws. Ms. Barrow seeks back pay, front pay and benefits with interest in an amount not less than $5 million, and punitive, liquidated and other compensatory damages in an amount not less than $10 million. On August 5, 2003, Carver Federal filed a motion for summary judgment to dismiss the complaint in its entirety. It is fully submitted, and Carver Federal awaits the Court's decision. 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 The Holding Company held its Annual Meeting on September 22, 2003 for the fiscal year ended March 31, 2003. The purpose of the Annual Meeting was to vote on the following proposals: 1. the election of two directors for terms of three years each; 2. the ratification of the appointment of KPMG, LLP as independent auditors of the Holding Company for the fiscal year ended March 31, 2004; and 3. the approval of an amendment to the Carver Bancorp, Inc Management Recognition Plan. The results of voting were as follows:
Proposal 1: Election of Directors: Holding Company Nominees Robert Holland, Jr. For 2,163,382 Withheld 153,855 Frederick O. Terrell For 2,163,357 Withheld 153,880 Proposal 2: Ratification of Appointment of Independent For 2,216,277 23 Auditors Withheld 99,374 Abstain 1,586 Proposal 3 Ratification of Amendment to the Carver Bancorp For 2,095,003 Management Recognition Plan Withheld 220,323 Abstain 1,911
In addition to the nominees elected at the Annual Meeting, the following persons' terms of office as directors continued after the Annual Meeting: David L. Hinds, Pazel G. Jackson, Jr., Carol Baldwin Moody, Edward B. Ruggiero, Deborah C. Wright and Strauss Zelnick. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are submitted with this report: Exhibit 4.1 Guarantee Agreement by and between Carver Bancorp, Inc. and U.S. Bank National Association, dated as of September 17, 2003. Exhibit 4.2 Amended and Restated Declaration of Trust by and among, U.S. Bank National Association, as Institutional Trustee, Carver Bancorp, Inc. as Sponsor and Linda Dunn, William Gray and Deborah Wright as Administrators, dated as of September 17, 2003. Exhibit 4.3 Indenture, dated as of September 17, 2003, between Carver Bancorp, Inc., as Issuer and U.S. Bank National Association, as Trustee. Exhibit 11. Computation of Net Income Per Share. Exhibit 31.1 Certification of Chief Executive Officer. Exhibit 31.2 Certification of Chief Financial Officer. Exhibit 32.1(*) Written Statement of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. Exhibit 32.2(*) Written Statement of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. * Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of Section 18 of the Exchange Act or be otherwise subject to the liability of that section. (b) Current Reports on Form 8-K. We furnished the following Current Reports on Form 8-K during the quarter ended September 30, 2003: 1. Current report on Form 8-K, dated September 17, 2003, an announcement of private placement of $13 million in Trust Preferred Securities. 24 2. Current report on Form 8-K/A, dated August 18, 2003, which includes information being filed pursuant to Item 12 but was filed under Item 9, an announcement of amendment to the Company's financial results for the first quarter ended June 30, 2003. 3. Current report on Form 8-K, dated July 23, 2003, which includes information being filed pursuant to Item 12 but was filed under Item 9, an announcement of the Company's financial results for the first quarter ended June 30, 2003. 25 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: November 14, 2003 /s/ Deborah C. Wright ------------------------------------- Deborah C. Wright President and Chief Executive Officer Date: November 14, 2003 /s/ William C. Gray ------------------------------------- William C. Gray Senior Vice President and Chief Financial Officer 26