-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P+mCPqNLy8pwAtQf2iOsLUwCk9gUht5eTXOQtz+Yu9lXTdCXfEZ1FStQ/kEVmcp+ n9u8Ny6c1TNMeoTTX4qD0g== 0000882377-96-000115.txt : 19960816 0000882377-96-000115.hdr.sgml : 19960816 ACCESSION NUMBER: 0000882377-96-000115 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARVER BANCORP INC CENTRAL INDEX KEY: 0001016178 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-05559 FILM NUMBER: 96615299 BUSINESS ADDRESS: STREET 1: 75 W 125TH ST CITY: NEW YORK STATE: NY ZIP: 10027-4512 BUSINESS PHONE: 2128764747 MAIL ADDRESS: STREET 1: 75 W 125TH ST CITY: NEW YORK STATE: NY ZIP: 10027-4512 10-Q 1 CARVER BANCORP, INC. 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, 1996 OR [ ] 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: 333-5559 CARVER BANCORP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE BEING APPLIED FOR (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) (212) 876-4747 (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) N/A -------------------------------------------- (Former name, former address and former fiscal year, if changed from last Report) 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 twelve 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 No X . ------ ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Outstanding at CLASS JUNE 30, 1996 ----- ------------- Common Stock, par value $.01 100 Carver Bancorp, Inc. ("Bancorp") was incorporated in the State of Delaware on May 9, 1996. On June 27, 1996, the Form S-4 Registration Statement of Bancorp was deemed effective by the Securities and Exchange Commission. Upon consummation of an Agreement and Plan of Reorganization, dated May 21, 1996, Carver Federal Savings Bank ("Carver") will become the wholly owned subsidiary of Bancorp (the "Reorganization") and all of the outstanding shares of Carver common stock (other than shares held by stockholders exercising dissenters' rights, if any) will be converted into and exchanged for, on a one-for-one basis, shares of Bancorp common stock. Bancorp currently has no significant assets or liabilities. Accordingly, no separate financial information regarding Bancorp is presented. In its place is presented financial information regarding the Bank as set forth in the Bank's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, as filed with the Office of Thrift Supervision. PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Incorporated herein by reference to the Carver Federal Savings Bank Form 10-Q for the quarter ended June 30, 1996, filed herewith as Exhibit 99.1. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Incorporated herein by reference to the Carver Federal Savings Bank Form 10-Q for the quarter ended June 30, 1996, filed herewith as Exhibit 99.1. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES 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) Exhibit 99.1 -- Carver Federal Savings Bank Form 10-Q for the Quarter Ended June 30, 1996 (B) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CARVER BANCORP, INC. (Registrant) By: /s/ Thomas L. Clark, Jr. --------------------------- Thomas L. Clark, Jr. President and Chief Executive Officer By: /s/ Biswarup Mukherjee --------------------------- Biswarup Mukherjee Executive Vice President and Chief Financial Officer Officer August 14, 1996 EX-99.1 2 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996 EXHIBIT 99.1 ------------ OFFICE OF THRIFT SUPERVISION WASHINGTON, D.C. 20552 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, 1996. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Office of Thrift Supervision Docket Number: 5273 CARVER FEDERAL SAVINGS BANK (Exact name of registrant as specified in its charter) UNITED STATES 13-1592005 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 75 WEST 125TH STREET, NEW YORK, NEW YORK 10027 - ---------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 876-4747 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No ---- ---- As of August 13, 1996, 2,314,375 shares of the registrant's common stock were issued and outstanding. Page 1 of 12 Pages 1
CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of June 30, and March 31, 1996 (unaudited)...................................................3 Consolidated Statements of Income for the Three Months Ended June 30, 1996 and 1995 (unaudited)...............................................4 Consolidated Statements of Cash Flows for the Three Months Ended June 30, 1996 and 1995 (unaudited)......................................................5 Notes to Consolidated Financial Statements (unaudited)........................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................7 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................................................10 Item 2. Changes in Securities........................................................................11 Item 3. Defaults upon Senior Securities..............................................................11 Item 4. Submission of Matters to a Vote of Security Holders..........................................11 Item 5. Other Information............................................................................11 Item 6. Exhibits and Reports on Form 8-K.............................................................11
SIGNATURES 2
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) AS OF AS OF JUNE 30, MARCH 31, ASSETS 1996 1996 - ------ ------------------------ ----------------------- Cash and amounts due from depository institutions............ $5,063,393 $3,225,950 Federal funds sold........................................... 1,400,000 6,800,000 --------- --------- Total cash and cash equivalents.......................... 6,463,393 10,025,950 Securities available for sale................................ 117,051,325 114,328,245 Investment securities held to maturity, net (estimated fair values of $8,650 ,000 and $8,814,000 at June 30, 1996 and March 31, 1996)......................... 8,811,851 8,937,075 Mortgage-backed securities held to maturity, net (estimated fair values of $123,849,000 and $129,813,000 at June 30, 1996 and March 31, 1996)......................... 125,136,847 131,105,405 Loans receivable, net........................................ 84,221,117 82,608,065 Real estate owned, net....................................... 118,525 314,261 Property and equipment, net.................................. 10,435,352 9,956,981 Federal Home Loan Bank of New York stock, at cost............ 3,120,000 3,120,000 Accrued interest receivable, net............................. 2,613,321 2,688,199 Excess of cost over net assets acquired, net................. 1,615,814 1,669,082 Other assets................................................. 2,781,328 2,904,078 --------- --------- Total assets............................................. $362,368,873 $367,657,341 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits................................................... $261,494,469 $256,951,883 Securities sold under agreement to repurchase.............. 37,000,000 47,000,000 Advances from Federal Home Loan Bank of New York........... 25,400,000 25,400,000 Other borrowed money....................................... 1,502,589 1,548,122 Advance payments by borrowers for taxes and insurance...... 483,055 483,055 Other liabilities.......................................... 1,614,063 1,509,500 --------- --------- Total liabilities....................................... 327,494,176 332,892,560 ----------- ----------- Stockholders' Equity: Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; none issued................. -- -- Common stock, $0.01 par value per share; 5,000,000 shares authorized; 2,314,375 shares issued and outstanding...... 23,144 23,144 Additional paid-in capital................................. 21,427,513 21,436,235 Retained earnings-substantially restricted................. 16,362,213 16,098,728 Common stock acquired by Employee Stock Ownership Plan..... (1,502,589) (1,548,122) Unrealized (loss) net, on securities available for sale,... (1,435,584) (1,245,204) ------------- ----------- Total stockholders' equity............................... 34,874,697 34,764,781 ---------- ---------- Total liabilities and stockholders' equity......... $362,368,873 $ 367,657,341 ============ ================
See Notes to Consolidated Financial Statements. 3
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED JUNE 30, 1996 1995 ---- ---- Interest income: Loans receivable................................... $ 1,716,869 $ 1,021,798 Mortgage-backed securities......................... 2,738,163 3,189,052 Debt and equity securities......................... 1,169,619 1,477,797 Other interest-earning assets...................... 186,758 225,478 ------- ------- Total interest income........................... 5,811,409 5,914,125 --------- --------- Interest expense: Deposits........................................... 2,073,300 2,053,091 Advances and other borrowed money.................. 1,058,926 1,403,994 --------- --------- Total interest expense........................... 3,132,226 3,457,085 --------- --------- Net interest income.................................. 2,679,183 2,457,040 (Recovery of) provision for loan losses 51,862 (19,108) ------ -------- Net interest income after (recovery of) provision for loan losses.......................... 2,627,321 2,476,148 --------- --------- Non-interest income: Loan fees and service charges 38,419 22,778 Other.............................................. 289,648 108,140 ------- ------- Total non-interest income 328,067 130,918 ------- ------- Non-interest expenses: Salaries and employee benefits..................... 967,609 879,877 Net occupancy expenses............................. 309,388 226,465 Equipment.......................................... 252,797 162,088 Loss on foreclosed real estate 6,050 886 Advertising........................................ 45,172 73,216 Federal deposit insurance premium 144,649 187,432 Amortization of intangibles........................ 53,268 60,479 Legal expenses 55,000 86,000 Bank charges....................................... 77,130 77,158 Security service 73,862 49,670 Other.............................................. 478,843 340,639 ------- ------- Total non-interest expenses 2,463,768 2,143,910 --------- --------- Income before income taxes 491,620 463,156 Income taxes......................................... 228,136 197,415 ------- ------- Net income........................................... $263,484 $265,741 ======== ======== Net income per common share $ 0. 12 $ 0.12 =========== =========== Weighted average number of common shares outstanding........................................ $ 2,162,598 $ 2,142,918 =========== ===========
See Notes to Consolidated Financial Statements. 4
CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended JUNE 30, ------------------ 1996 1995 ---- ---- Cash flows from operating activities: Net income..................................................................... $ 263,484 $ 265,741 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of premises and equipment...................... 155,351 58,348 Amortization of intangibles.................................................. 53,268 60,479 Other amortization and accretion, net........................................ 130,211 176,491 Provision for (recovery of) loan losses...................................... 51,862 (19,108) Deferred income taxes (96,678) 144,295 Allocation of ESOP........................................................... 36,812 34,530 Changes in: Accrued interest receivable, net............................................. 74,878 117,091 Refundable income taxes (106,930) (15,247) Other assets................................................................. 122,748 195,877 Other liabilities 466,599 204,060 ------- ------- Net cash provided by operating activities.................................. 1,151,605 1,222,557 --------- --------- Cash flows from investing activities: Purchase of securities available for sale.................................... (8,500,000) -- Principal repayments on securities available for sale 1,736,689 349,190 Proceeds from sale of securities available for sale.......................... 3,649,399 -- Gain on sale of securities available for sale................................ 56,635 -- Purchase of investment securities held to maturity........................... (50,000) -- Proceeds from maturities and calls of investment securities held to maturity................................................ 174,100 -- Purchase of mortgage-backed securities held to maturity -- -- Principal repayment on mortgage-backed securities held to maturity........................................................... 5,861,794 4,530,640 Net change in loans receivable............................................... (1,701,846) 271,137 Proceeds from sale of real estate owned 164,500 -- Loss on sale of real estate owned........................................... 31,236 -- Additions to premises and equipment (633,722) -- --------- --- Net cash (used in) provided by investing activities....................... 788,785 3,926,135 ------- --------- Cash flows from financing activities: Net increase (decrease) in deposits.......................................... 4,542,586 5,237,561 Advances from Federal Home Loan Bank of New York............................ 10,000,000 -- Repayment of advances from Federal Home Loan Bank of New York (20,000,000) (8,000,000) Repayment of other borrowed money............................................ (45,533) -- Net increase (decrease) in advance payments by borrowers for taxes and insurance.................................................... -- 14,691 -- ------ Net cash provided by (used in) financing activities (5,502,947) 2,747,748 ----------- --------- Net increase (decrease) in cash and cash equivalents........................... (3,562,557) 2,400,944 Cash and cash equivalents -- beginning......................................... 10,025,950 11,817,805 ---------- ---------- Cash and cash equivalents -- ending............................................ $6,463,393 $14,218,749 ========== =========== Supplemental disclosure of non-cash activities: Unrealized loss on securities available for sale: Unrealized loss............................................................ $348,808 $261,325 Deferred income taxes...................................................... (158,428) (122,823) --------- --------- $190,380 $138,502 ======== ======== Loans receivable transferred to real estate owned............................ $ -- $11,869 ====== ======= Supplemental disclosure of cash flow information: Cash paid for: Interest................................................................... $3,098,514 $3,453,607 ========== ========== Federal, state and city income taxes $ -- $68,367 ====== =======
See Notes to Consolidated Financial Statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X., promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of only normal recurring adjustments) necessary for fair presentation have been included. The consolidated results of operations and other data for the three month period ended June 30, 1996 are not necessarily indicative of results that may be expected for the entire fiscal year ending March 31, 1997. The unaudited consolidated financial statements include the accounts of the Bank and its wholly owned subsidiaries, C.F.S.B. Realty Corp. and C.F.S.B. Credit Corp. All significant intercompany accounts and transactions have been eliminated in consolidation. (2) STOCK CONVERSION On August 31, 1993, the Board of Directors of the Bank initially approved a plan to convert the Bank from a federally chartered mutual savings bank to a federally chartered stock savings bank which was substantially revised and adopted as a new plan of conversion effective June 21, 1994. The plan of conversion ("Plan") was approved by the OTS in August 1994 and by the Bank's members in October 1994. The Bank completed its stock offering simultaneously with its mutual to stock conversion on October 24, 1994 and issued 2,314,375 shares of common stock at $10.00 per share. (3) EARNINGS PER SHARE CALCULATION Net income per share for the three months ended June 30, 1995 and 1996 are calculated based on weighted average number of shares outstanding during the period. (4) CONTINGENCIES On February 6, 1995, the New York State Banking Department (the "Department") took possession of Nationar Trust Company ("Nationar"), a trust company owned by sixty-seven New York savings banks. The Department will manage the business of Nationar until a suitable buyer is found. As of February 6, 1995, Carver had invested $1,366,000 in federal funds and $600,000 in certificate of deposits, or a total of $1,966,000, with Nationar. This $1,966,000 investment has been reclassified, net of a $256,000 allowance for estimated losses, to other assets on Carver's statement of financial condition. At a hearing on April 10, 1996, pursuant to the recommendation of the Superintendent of Banks of the State of New York Banking Department (the "Superintendent"), the judge in the instant case entered an order directing the return of the $600,000 in certificates of deposits that had been deposited with Nationar. The Bank received these funds, plus interest, in early June 1996. As a result, the Bank will recover the valuation allowance of 13.0% on the $600,000 amount. Subsequently, the Bank received 40% of the $1,366,000 plus interest in July, 1996 as part of the first distribution. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Bank's total assets at June 30, 1996 decreased approximately $5.3 million, or 1.44%, to $362.4 million from $367.7 million at March 31, 1996. The decrease was primarily attributable to the decreases in the Bank's portfolio of mortgaged-backed securities held to maturity and federal fund sold offset in part by an increase in securities available for sale and an increase in loans receivable. The Bank's portfolio of mortgage-backed securities held to maturity decreased by $6.0 million, or 4.55%, to $125.1 million at June 30, 1996 from $131.1 million at March 31, 1996, reflecting the receipt of principal repayments on such securities. The Bank used these repayments, together with the increased liquidity provided by earnings, an increase in deposits and the reduction of federal funds to originate loans and repay advances from the Federal Home Loan Bank ("FHLB") of New York. Securities available for sale increased $2.7 million or 2.38% to $117.1 million at June 30, 1996 from $114.3 million at March 31, 1996. This increase in the securities available for sale was due to purchases of securities available for sale, partly offset by the principal payments and an increase in unrealized loss of $190,400. The Bank's loans receivable increased to $84.2 million at June 30, 1996 as compared to $82.6 million at March 31, 1996. The increase was due to increase in loans originations partly offset by principal payments. The Bank's total consolidated liabilities decreased by $5.3 million, or 1.60%, from $332.9 million at March 31, 1996 to $327.6 million at June 30, 1996 as the result of decreased borrowings in the form of securities sold under agreement to repurchase partially offset by an increase in deposits. The Bank used its excess liquidity to repay a portion of borrowings from the FHLB. The Bank's deposits increased $4.5 million, or 1.77%, to $261.5 million at June 30, 1996 from $256.9 million at March 31, 1996. Stockholders' equity increased by $28,321, or .08%, to $34.79 million at June 30, 1996 from $34.76 million at March 31, 1996 due to an increase in retained earnings and the allocation of shares under the Employee Stock Ownership Plan, partially offset by an increase in the unrealized loss, net, on securities available for sale. Retained earnings of the Bank at June 30, 1996 increased $181,900, or 1.13%, to $16.3 million at June 30, 1996 from $16.1 million at March 31, 1996, as a result of earnings during the three months ended June 30, 1996. Under Statement of Financial Accounting Standards ("SFAS") No. 115, unrealized losses on securities available for sale are recorded net of deferred income tax as a reduction to retained earnings. At June 30, 1996, such unrealized losses were approximately $1.4 million, an increase of $190,400, or 15.29%, as compared to $1.2 million at March 31, 1996. The increase in unrealized loss is attributable primarily to the rising interest rate environment, which has continued to reduce the value of the Bank's portfolio of securities available for sale. In accordance with SFAS No. 115, such losses will not be reflected as a charge to earnings until the underlying securities are sold, and then only to the extent of the amount of loss, if any, actually realized at the time of sale. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1996 AND 1995 Net income for the three months ended June 30, 1996 declined by approximately $2,000, or .85%, to $263,000 as compared to approximately $265,000 for the three months ended June 30, 1995. The decrease in net income was due primarily to increased non-interest expenses and an increase in the provision for loan losses, which were offset in part by an increase in net interest income and non-interest income. Net interest income increased $222,000, or 9.04%, to $2.7 million for the three months ended June 30, 1996 as compared to $2.5 million for the three months ended June 30, 1995. The increase in net interest income is attributable to a $325,000, or 9.40%, decrease in interest expense which partly offset a $103,000, or 1.74%, decrease in interest income. 7 Interest income decreased to $5.8 million for the three months ended June 30, 1996 from $5.9 million for the three months ended June 30, 1995. This decrease was primarily due to a decrease in average interest-earning assets of $4.8 million partly offset by an increase of 3 basis points in the average yield on interest-earning assets. Interest income from mortgage-backed securities decreased $451,000, or 14.14%, to $2.7 million for three months ended June 30, 1996 compared to $3.2 million for the three months ended June 30, 1995. This decrease is primarily attributable to decrease of $30.4 million in average balances partially offset by 10 basis points increase in the average yield on mortgage-backed securities. Income from debt and equity securities and other interest-earning assets decreased by $347,000, or 20.37%, to $1.36 million during the three months ended June 30, 1996 as compared to $1.70 million for the same period in 1995. Average debt and equity securities and other interest-earning assets decreased by $9.0 million while the average yield on these assets decreased by 85 basis points. Interest on loans receivable increased by $695,000, or 68.02%, to $1.72 million for the three months ended June 30, 1996 compared to $1.02 million, for the three months ended June 30, 1995. This increase is primarily attributed to an increase in average loan portfolio balances by $34.7 million, partly offset by a decrease of 18 basis points in the average yield on the loan portfolio. The increase in the average loan portfolio balances reflects management's strategy of increasing the emphasis on loan originations and the impact of loan purchases made in the later part of the 1996 fiscal year. Interest expense decreased to $3.1 million for the three months ended June 30, 1996 as compared to $3.5 million for the same period in 1995. Interest expense on deposits increased by $20,000 or .98% during the three months ended June 30, 1996 as compared to three months ended June 30, 1995 primarily due to an increase in the average deposit balances by $8.7million offset by a decrease of cost of funds by 8 basis points. Interest on FHLB advances and other borrowings decreased to $1.1 million for the quarter ended June 30, 1996 from $1.4 million, for the same period in 1995. The decrease is attributable to decrease in average borrowings by $7.4 million and a decrease in the average cost of borrowings by 122 basis points. The decrease in average borrowings reflects the Bank's use of excess liquidity to repay a portion of borrowings from the FHLB. The Bank's interest rate spread increased from 2.57% during the quarter ended June 30, 1995 to 2.95% for the quarter ended June 30, 1996 and its net interest margin increased by 30 basis points. These increases are primarily due to an increase in higher yielding mortgage loans, which partially offset the impact of a lower interest rate environment during the three months ended June 30, 1996 as compared to the prior year period. The increased spread also reflects a decrease in cost of deposits and a decrease in the cost of borrowed money as the higher cost advances matured during the lower interest rate environment. The Bank's ratio of interest-earning assets to interest-bearing liabilities decreased from 1.06x to 1.05x. During the three months ended June 30, 1996, the Bank provided $52,000 in loan losses compared to a $19,000 recovery for the three months ended June 30, 1995. $36,000 was for general allowance provision for loan losses and $16,000 was provided for credit card loss. In addition the Bank had net charge-offs during the three months ended June 30, 1996 of $314,000, resulting in a net decrease in the allowance for loan losses from $1.2 million at March 31, 1996 to $944,000 at June 30, 1996. The ratio of the allowance for loan loss to non-performing loans at June 30, 1996 was 38% compared to 37% at March 31, 1996. Non-interest income increased by $197,000, or 150.59%, to $328,000 for the three months ended June 30, 1996 as compared to $131,000 for the three months ended June 30, 1995. The increase was due primarily to a gain of $75,000 on sale of GNMA from securities available for sale portfolio and an increase in depositor service fee income which are included in other income. The increase in non-interest income also reflects $42,000 in interest income recovered in connection with the receipt of funds from the Superintendent that were previously held by Nationar. Non-interest expenses were $2.5 million for the three months ended June 30, 1996, an increase of $319,000 or 14.87%, from $2.14 million in the same period for the previous fiscal period. The increase principally reflects an increase of $88,000, or 9.97% in salaries and employee benefits due to increase in salary and provision for management incentive plan, an increase of $83,000, or 36.62%, in maintenance and depreciation of the new main building, as well as $91,000, or 55.96%, increase in equipments expenses reflecting increased depreciation and maintenance cost for new furniture, 8 fixtures, computers, etc. for the new main building. Furthermore there was an increase of $138,000, or 40.57%, in other expenses, primarily due to a $28,000 fee to EDS to discontinue their contract for data processing services, a $57,000, or 6.33%, increase in other employee expenses, and a $48,000, or 5.33%, increase in employee retirement plan expense. These increases were offset in part by declines in advertising and Federal deposit insurance premium expenses. Income tax expense for the three months ended June 30, 1996 increased to $228,000 from $197,000 for the three months ended June 30, 1995 because of the increase in pre-tax income during the quarter. The Bank's effective tax rates were 46.41% and 42.6% for the three months ended June 30, 1996 and 1995, respectively. LIQUIDITY AND CAPITAL RESOURCES The Bank's primary sources of funds are deposits and principal and interest payments on loans, mortgage-backed securities and investment securities. While maturities and scheduled amortization of loans, mortgage-backed securities and investment securities are predictable sources of funds, deposit flows and loan and mortgage-backed securities prepayments are strongly influenced by changes in general interest rates, economic conditions and competition. The Bank's most liquid assets are cash and cash equivalents and short-term investments including mutual funds. The levels of the Bank's cash and cash equivalents are dependent on the Bank's operating, financing, lending and investing activities during any given period. At June 30, 1996, the Bank's cash and cash equivalents totaled $6.5 million compared to $10.0 million at March 31, 1996. The decrease in cash and cash equivalents reflects primarily decline in federal fund balance and pay off of borrowing when matured. At June 30, 1995, the Bank exceeded all fully phased-in regulatory capital requirements. The table below presents certain information relating to the Bank's capital compliance at June 30, 1996 and March 31, 1996.
AT JUNE 30, 1996 AT MARCH 31, 1996 ---------------- ----------------- % of % of AMOUNT ASSETS AMOUNT ASSETS ------ ------ ------ ------ (Dollars in thousands) Tangible Capital............ $ 33,563 9.29% $ 33,462 9.13% Core Capital................ 33,621 9.31 33,522 9.15 Risk Based Capital.......... 33,846 27.60 33,801 28.06
9 IMPACT OF PROPOSED LEGISLATION During the quarter ended June 30, 1996, representatives of the federal banking agencies and other interested parties continued to work for legislative action to recapitalize the Savings Association Insurance Fund ("SAIF"), which insures the deposits of the Bank, and to resolve the disparity between the deposit insurance assessments paid by institutions insured under the SAIF and those insured under the Bank Insurance Fund ("BIF"). The various legislative proposals discussed by Congress have generally followed the features of the recapitalization legislation that are part of the Balanced Budget Act of 1995, which was vetoed by the President for reasons unrelated to the SAIF recapitalization. A continuing feature of the legislative proposals is a special one-time SAIF assessment to be paid with respect to deposits subject to SAIF assessments. Estimates of the special assessment have ranged from 80 to 90 basis points such SAIF-assessable deposits as of March 31, 1995. For the Bank, such a special assessment would range from $1.1 million at 80 basis points to $1.2 million at 90 basis points, each after taxes. Various holding companies with SAIF-insured institutions are continuing to implement plans to establish BIF-insured subsidiaries in order to facilitate the migration of deposits from its SAIF-insured subsidiaries to its BIF-insured institutions, and the federal regulators have begun to approve such BIF-insured subsidiaries. In the absence of a legislative recapitalization of the SAIF, any significant reduction in SAIF-assessable deposits could result in an increase of the SAIF assessment rates. At this time, the Bank cannot predict whether any legislative proposal to recapitalize the BIF-SAIF assessment disparity will be adopted, or, if so, in what form. Until such time as such legislation is adopted, it is expected that the Bank will continue to be assessed deposit insurance assessments at rates substantially in excess of those assessed comparably rated BIF-insured institutions, primarily commercial banks. Based upon the Company's June 30, 1996 assessment base, the SAIF premium paid by the Bank on an annualized basis would equal approximately $579,000. A comparably rated and sized BIF-insured institution would pay approximately $2,000 for the same deposit insurance coverage. Under the Section 593 of the Internal Revenue Code, thrift institutions such as the Bank, which meet certain definational tests, primarily relating to their assets and the nature of their business, are permitted to establish a tax reserve for bad debts and to make annual additions thereto, which additions may, within specified limitations, be deducted in arriving at their taxable income. The Bank's deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, may currently be computed using an amount based on the Bank's actual loss experience (the "Experience Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI Method"), computed without regard to this deduction and with additional modifications and reduced by the amount of any permitted addition to the non-qualifying reserve. Similar deductions for additions to the Bank's bad debt reserve are permitted under the New York State Bank Franchise Tax and the New York City Banking Corporation Tax; however, for purposes of these taxes, the effective allowable percentage under the PTI method is 32% rather than 8%. Under the Small Business Job Protection Act of 1996 (the "1996 Act"), as passed by the House and Senate on August 2, 1996, section 593 of the Code would be amended and the Bank, for its current and future taxable years, will be permitted to use only the Experience Method of computing additions to its tax bad debt reserve. In addition, the Bank is required to recapture (i.e., take into income) over a six-year period, beginning with the Bank's current taxable year the 10 excess of the balance of its tax bad debt reserves (other than its supplemental reserve) as of March 31, 1996 over the greater of (a) the balance of such reserves as of March 31, 1988) or (b) an amount that would have been the balance of such reserves as of March 31, 1996 had the Bank always computed the additions to its reserves using the Experience Method. However, under the 1996 Act, such recapture requirements will be suspended for each of two successive taxable years beginning with the Bank's current taxable year in which the Bank originates a minimum amount of certain residential loans based upon the average of the principal amounts of such loans made by the Bank during its six taxable years preceding it current taxable year. It is anticipated that the President will sign the 1996 Act in the near future, in which case the Bank anticipates it will not incur additional tax liability. Since the Bank has already provided a deferred income tax liability for this tax, such recapture will not adversely impact the Bank's results of operations. The New York State tax law has been amended to prevent a similar recapture of the Bank's bad debt reserve, and to permit continued future use of the bad debt reserve methods, for purposes of determining the Bank's New York State tax liability. The Bank's officers and industry leaders continue to seek such amendments to the New York City tax law, however, the Bank cannot predict whether such changes to New York City law will be adopted and, if so, in what form. 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, 1996, except as set forth below, there were no legal proceedings to which the Bank or its subsidiaries was a party, or to which any of their property was subject, which were expected by management to result in a material loss. On January 2, 1996, the United States District Court for the Southern District of New York dismissed the class action encaptioned DOUGHERTY V. CARVER FEDERAL SAVINGS BANK for lack of subject matter jurisdiction. The class action complaint contained allegations of material misrepresentations and omissions of material facts in the Bank's prospectus for its initial public offering and the failure to have the appraisal of the Bank's shares prepared by an independent appraiser. By separate order on the same date, the court made its ruling applicable to GOMBERG V. CARVER FEDERAL SAVINGS BANK and UMINER V. CARVER FEDERAL SAVINGS BANK, two other class actions filed in the Southern District of New York which asserted claims essentially identical to those asserted in the Dougherty suit. The plaintiffs in DOUGHERTY V. CARVER FEDERAL SAVINGS BANK have filed notice in the United States Court of Appeals for the Second Circuit of their intent to appeal. The case(s) are now pending appeal in the United State Court of appeal for the Second Circuit. On September 19, 1995, Carver filed an action for declaratory judgment, for damages for breach of contract, and for breach of a contractual trust, against Nationar and the Superintendent, in the Supreme Court of New York State, County of New York. When the Superintendent sold Carver's ESOP loan to a third party purchaser, it did not transfer Carver's $1,966,000 in collateral along with the loan. The $1,966,000 in collateral consisted of two separate sums in the amounts of $1,366,000 and $600,000. The purpose of the lawsuit was to secure the return of the entire $1,966,000 in collateral rather than a portion of it .The Bank believes that it has adequate reserves at 13.0% of the claims, against possible loss on these claims. By order entered April 10, 1996, on the recommendations of the Superintendent, the Court directed the return of the $600,000 in collateral. The Bank received these funds, plus interest, in early June 1996. As a result, the Bank will recover the valuation allowance of 13.0% on the $600,000 amount. Since the Bank expects that it will receive 90% of the $1,366,000 amount as a general creditor, the lawsuit has been discontinued. Subsequently, the Bank received 40% of the $1,366,000 plus interest in July, 1996 as part of first distribution. 11 ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Incorporated by reference to Item 5 of the Bank's Current Report on Form 8-K dated July 29, 1996. Filed on August 7, 1996. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11 - Computation of Earnings Per Share Exhibit 99 - Current Report on Form 8-K dated July 29, 1996 filed on August 7, 1996 (b) Reports on Form 8-K Current Report on Form 8-K dated July 29, 1996, filed on August 7, 1996 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 13, 1996 CARVER FEDERAL SAVINGS BANK /s/ Thomas L. Clark, Jr. ------------------------ Thomas L. Clark, Jr. President and Chief Executive Officer (Duly Authorized Representative) Date: August 13, 1996 /s/ Biswarup Mukherjee ------------------------- Biswarup Mukherjee Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 13 -----END PRIVACY-ENHANCED MESSAGE-----