10-Q/A 1 e10-qa.txt CARVER BANCORP INC. 1 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q/A (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-21487 CARVER BANCORP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-3904174 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 75 WEST 125TH STREET, NEW YORK, NEW YORK 10027 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (212) 876-4747 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past thirty days. Yes [X] No [ ] COMMON STOCK, PAR VALUE $.01 2,314,275 CLASS OUTSTANDING AT FEBRUARY 10, 2000
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PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of December 31, 1999 and March 31, 1999 (unaudited)...... 1 Consolidated Statements of Operations for the Three and Nine-Month Periods Ended December 31, 1999 and 1998 (unaudited)........................................... 2 Consolidated Statements of Cash Flows for the Nine-Month Periods Ended December 31, 1999 and 1998 (unaudited)........................................... 3 Notes to Consolidated Financial Statements (unaudited)........................................... 4 Recent Developments.................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 5 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................. 16 Item 2. Changes in Securities and Use of Proceeds......... 17 Item 3. Defaults upon Senior Securities................... 17 Item 4. Submission of Matters to a Vote of Security Holders................................................ 17 Item 5. Other Information................................. 17 Item 6. Exhibits and Reports on Form 8-K.................. 17 SIGNATURES.................................................. 18
i 3 CARVER BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
AS OF AS OF DECEMBER 31, MARCH 31, 1999 1999 ------------ ------------ ASSETS Cash and due from banks..................................... $ 11,588,724 $ 11,120,748 Other interest earning assets............................... 8,600,000 10,200,000 ------------ ------------ Total cash and cash equivalents................... 20,188,724 21,320,748 ------------ ------------ Investment securities held to maturity...................... 24,996,558 -- Securities available for sale............................... 29,832,492 29,918,137 Mortgage-backed securities held to maturity, net (estimated fair values of $53,997,162 and $65,693,568 at December 31, 1999 and March 31, 1999).................................. 56,029,832 66,584,447 Loans receivable............................................ 259,234,734 274,541,950 Less allowance for loan losses............................ (3,227,338) (4,020,099) ------------ ------------ Loans receivable, net..................................... 256,007,396 270,521,851 ------------ ------------ Real estate owned, net...................................... 453,301 184,599 Property and equipment...................................... 11,469,772 11,844,983 Federal Home Loan Bank of New York stock, at cost........... 5,754,600 5,754,600 Accrued interest receivable................................. 2,150,669 2,860,693 Excess of cost over net assets acquired, net................ 870,048 1,029,853 Other assets................................................ 4,755,836 6,422,933 ------------ ------------ Total assets...................................... $412,509,228 $416,482,844 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits.................................................. $277,354,563 $276,999,074 Securities sold under agreement to repurchase............. 31,337,000 35,337,000 Advances from Federal Home Loan Bank of New York.......... 65,693,524 65,708,466 Other borrowed money...................................... 803,076 992,619 Other liabilities......................................... 4,371,401 6,270,419 ------------ ------------ Total liabilities................................. 379,559,564 385,307,578 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value per share; 2,000,000 shares authorized; none issued......................... -- -- Common stock, $0.01 par value per share; 10,000,000 shares authorized; 2,314,275 shares issued and outstanding.... 23,144 23,144 Additional paid-in capital................................ 21,412,879 21,423,574 Retained Earnings-substantially restricted................ 12,316,717 10,721,168 Common stock acquired by Employee Stock Ownership Plan.... (803,076) (992,620) Comprehensive Income, net of Income Tax................... -- -- ------------ ------------ Total stockholders' equity........................ 32,949,664 31,175,266 ------------ ------------ Total liabilities and stockholders' equity........ $412,509,228 $416,482,844 ============ ============
1 4 CARVER BANCORP INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, --------------------------- --------------------------- 1999 1998 1999 1998 ------------ ----------- ------------ ----------- Interest Income: Loans receivable, net............... $4,911,141 $ 4,937,816 $14,649,746 $15,497,439 Mortgage-backed securities.......... 874,361 1,151,518 2,777,144 4,336,632 Investment securities............... 990,012 629,841 2,581,128 1,125,263 Other interest earning assets....... 184,935 212,192 511,993 557,980 ---------- ----------- ----------- ----------- Total interest income....... 6,960,449 6,931,367 20,520,011 21,517,314 ---------- ----------- ----------- ----------- Interest expense: Deposits............................ 2,139,617 2,037,072 6,492,359 6,249,725 Advances and other borrowed money... 1,360,111 1,485,620 4,150,723 4,793,388 ---------- ----------- ----------- ----------- Total interest expense...... 3,499,728 3,522,692 10,643,082 11,043,113 ---------- ----------- ----------- ----------- Net interest income................... 3,460,721 3,408,675 9,876,929 10,474,201 Provision for loan losses............. 225,000 3,060,569 605,000 3,810,469 ---------- ----------- ----------- ----------- Net interest income after provision for loan losses..................... 3,235,721 348,106 9,271,929 6,663,732 ---------- ----------- ----------- ----------- Non interest income: Loan fees and service charges....... 4,093 10,080 21,339 119,191 Gain or (loss) on sale of securities....................... -- -- -- 4,941 Other income........................ 534,528 337,257 1,505,131 1,307,239 ---------- ----------- ----------- ----------- Total non-interest income... 538,621 347,337 1,526,470 1,494,371 ---------- ----------- ----------- ----------- Non-interest expense: Salaries and employee benefits...... 1,266,464 1,378,634 3,750,900 3,982,402 Net occupancy expenses.............. 368,794 286,180 1,033,371 880,142 Equipment........................... 364,771 293,644 1,138,612 1,063,070 Other............................... 1,202,094 6,311,502 3,256,967 8,949,965 ---------- ----------- ----------- ----------- Total non-interest expenses.................. 3,202,123 8,269,960 9,179,850 14,875,579 ---------- ----------- ----------- ----------- Income (loss) before income taxes..... 572,219 (7,574,517) 1,618,549 (6,717,476) Income taxes.......................... 291,943 -- 779,022 345,676 Income taxes (benefit)................ (268,943) (1,851,134) (756,022) (1,851,134) ---------- ----------- ----------- ----------- Net income (loss)..................... $ 549,219 $(5,723,383) $ 1,595,549 $(5,212,018) ========== =========== =========== =========== Net income (loss) per common share.... $ 0.25 $ (2.59) $ 0.72 $ (2.37) ========== =========== =========== =========== Weighted average number of common shares outstanding.................. 2,229,392 2,208,432 2,223,664 2,203,690 ========== =========== =========== ===========
2 5 CARVER BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, ------------------------------ 1999 1998 ------------- ------------- Cash flows from operating activities: Net income (loss)........................................... $ 1,595,549 $ (5,212,018) Adjustments: Depreciation and amortization of premises and equipment..... 669,973 563,371 Amortization of intangibles................................. 159,805 162,995 Other amortization and accretion, net....................... 198,889 733,264 Provision for loan losses................................... 605,000 3,810,469 Allocation of ESOP stock.................................... 125,797 152,162 Changes in accrued interest receivable, net................. 710,024 181,722 Decrease in other assets.................................... 1,703,864 1,480,789 Increase (decrease) in other liabilities.................... (1,899,018) 2,726,192 ------------- ------------- Net cash provided by operating activities................... 3,869,883 4,598,946 ------------- ------------- Cash flows from investing activities: Principal repayments on available for sale securities....... -- 3,832,660 Purchases of discount notes................................. (385,000,000) (221,607,869) Proceeds from matured discount notes........................ 385,000,000 175,000,000 Purchase of investment securities held to maturity.......... (25,000,000) -- Proceeds from sale/call of securities held for sale......... -- 23,841,581 Proceeds from maturities and calls of investment securities held to maturity.......................................... -- 1,797,042 Principal repayment of mortgage backed securities held to maturity.................................................. 10,496,098 19,284,289 Net change in loans receivable.............................. 13,645,753 23,948,507 Additions to premises and equipment......................... (294,762) (1,052,218) ------------- ------------- Net cash (used in) provided by investing activities......... (1,152,911) 25,043,992 ------------- ------------- Cash flows from financing activities: Net increase in deposits.................................... 355,489 6,729,396 Net (decrease) in securities sold under agreement to repurchase................................................ (4,000,000) (51,683,000) Repayment of FHLB advances.................................. (14,942) -- Advances from Federal Home Loan Bank of New York............ -- 28,976,622 Repayment of other borrowed money........................... (189,543) (145,705) Dividends paid.............................................. -- (115,714) Advance payments by borrowers for taxes and insurance....... -- 1,102,262 ------------- ------------- Net cash provided by (used in) financing activities......... (3,848,996) (15,136,139) ------------- ------------- Net increase (decrease) in cash and equivalents............. (1,132,024) 14,506,799 Cash and equivalents -- beginning........................... 21,320,748 15,120,071 ------------- ------------- Cash and equivalents -- ending.............................. $ 20,188,724 $ 29,626,870 ============= ============= Unrealized gain (loss) on securities available for sale..... -- 173 Deferred income taxes....................................... -- (82) ============= ============= Supplemental disclosure of cash flow information: Cash paid for: Interest.................................................... $ 10,122,297 $ 11,014,629 ============= ============= Federal, state and city income taxes........................ 27,938 776,829
3 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Carver Bancorp, Inc. (the "Holding Company" or "Bancorp"), have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation have been included. The consolidated results of operations and other data for the three-month and nine-month periods ended December 31, 1999 are not necessarily indicative of results that may be expected for the entire fiscal year ending March 31, 2000 ("fiscal year 2000"). The unaudited consolidated financial statements include the accounts of the Holding Company and its wholly owned subsidiaries, Carver Federal Savings Bank (the "Bank" or "Carver Federal") and Alhambra Holding Corp., a Delaware corporation ("Alhambra Holding") and the Bank's wholly owned subsidiaries, C.F.S.B. Realty Corp. and C.F.S.B. Credit Corp. Carver Federal and the Holding Company are referred to herein collectively as "Carver" or the "Company." All significant inter-company accounts and transactions have been eliminated in consolidation. (2) EARNINGS PER SHARE CALCULATION Net income per share for the three month and nine-month periods ended December 31, 1999 and 1998 are calculated based on the weighted average number of shares outstanding during the period. (3) ALHAMBRA HOLDING CORP. Other assets in the Unaudited Consolidated Statements of Financial Condition includes an investment of $1.4 million in Alhambra Holding. During the third quarter of the fiscal year ended March 31, 1999 ("fiscal year 1999"), Carver established Alhambra Holding to hold 80% of the common stock and 100% of the preferred stock of Alhambra Realty Corp. ("Alhambra Realty"). Alhambra Realty was established to hold title to a certain piece of commercial real property located in the City of New York, borough of Manhattan. Carver acquired a majority interest in Alhambra Realty through Alhambra Holding in connection with a workout with an existing borrower of the Bank whose loan was secured by partially occupied commercial real property. Alhambra Realty is currently attempting to conduct a sale of the property it owns. (4) CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT On December 14, 1999, Carver engaged KPMG LLP ("KPMG") as its independent auditors for the fiscal year ending March 31, 2000. Since November, 1995, Mitchell & Titus LLP ("Mitchell & Titus") has been Carver's independent auditor. The decision to change auditors was recommended by Carver's Audit Committee and was approved by Carver's Board of Directors based on a review by Carver of its accounting and tax service needs for future operations. RECENT DEVELOPMENTS (1) ISSUANCE OF SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE PREFERRED STOCK On January 11, 2000, Carver sold, pursuant to a Securities Purchase Agreement, dated January 11, 2000, in a private placement 40,000 shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock") to Morgan Stanley & Co. Incorporated ("MSDW") and 60,000 Shares of Series B Convertible Preferred Stock (the "Series B Preferred Stock") to Provender Opportunities Fund L.P. ("Provender"). In addition, Carver entered into a Registration Rights Agreement, dated January 11, 2000 with MSDW and Provender. The gross proceeds from the private placement were $2.5 million. 4 7 The Series A Preferred Stock and Series B Preferred Stock (collectively the "Preferred Stock") accrue annual dividends at $1.97 per share. Dividends are payable semi-annually commencing June 15, 2000 and are payable thereafter on June 15 and December 15 of each year. Each share of Preferred Stock is convertible at the option of the holder, at any time, into 2.083 shares of Carver's Common Stock, subject to certain antidilution adjustments. Carver may redeem the Preferred Stock beginning January 15, 2004. In the event of any liquidation, dissolution or winding up of Carver, whether voluntary or involuntary, the holders of the shares of Preferred Stock shall be entitled to receive $25 per share of Preferred Stock plus all dividends accrued and unpaid thereon. Each share of Preferred Stock is entitled to one vote for each share of Common Stock into which the Preferred Stock can be converted. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXPLANATORY NOTE This Quarterly Report on Form 10-Q contains forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause the actual results to differ materially from these estimates. These factors include, without limitation, the Company's ability to improve both its loan operations, including the origination and purchase of loans which meet its underwriting guidelines, and deposit gathering capabilities, changes in general, economic and market, legislative and regulatory conditions and the development of an adverse interest rate environment that adversely affects the interest rate spread or other income anticipated from the Company's operations and investments. GENERAL Carver Bancorp, Inc., (the "Holding Company" or "Bancorp"), a Delaware corporation, is the holding company for Carver Federal Savings Bank (the "Bank" or "Carver Federal"), a federally chartered savings bank. Collectively, the Holding Company and the Bank are referred to herein as the "Company" or "Carver." At this time, the Holding Company conducts business as a unitary savings and loan holding company and the principal business of the Holding Company consists of the operation of its wholly-owned subsidiary, the Bank, which operates seven full service branches in the New York City boroughs of Brooklyn, Queens and Manhattan, and in Nassau County, New York. On January 28, 1998, the Company announced that the Bank had entered into a definitive agreement to sell its branch office located in Roosevelt, New York, to City National Bank of New Jersey ("City National"). The Roosevelt Office is located in Nassau County, New York and had deposits of approximately $8.2 million at December 31, 1999. Due to certain regulatory issues, the transaction, which was expected to close by March 31, 1999, has not yet been consummated. During the third quarter of fiscal year 2000 the Company and City National worked to resolve the issues preventing the transaction from closing. On January 18, 2000, the Company and City National executed an amended agreement containing similar terms and conditions as the original agreement and the transaction is currently expected to close no later than March 31, 2000. ADDITION OF SENIOR EXECUTIVE OFFICER On February 4, 2000, the Company announced the appointment of James Boyle as Senior Vice President and Chief Financial Officer. Mr. Boyle was formerly Senior Vice President and Chief Financial Officer of Broad National Bank, which was recently acquired by Independence Community Bank. Walter Bond, Acting Chief Financial Officer was appointed Senior Vice President, Special Assistant to the President and CEO, focusing on the Company's strategic initiatives. 5 8 FINANCIAL CONDITION ASSETS Total assets decreased by $4.0 million or 0.95% to $412.5 million compared to $416.5 million at March 31, 1999. The decrease in total assets was primarily attributable to decreases in loans receivable, net and mortgage-backed securities ("MBSs") held to maturity and other interest earning assets, offset in part by an increase in investment securities held to maturity ("HTM"). Total cash and cash equivalents decreased by $1.1 million or 5.31% to $20.2 million compared to $21.3 million at March 31, 1999. The decrease reflects a $1.6 million or 15.69% reduction in other interest earning assets, consisting primarily of federal funds sold, offset in part by a $468,000 increase in cash and cash equivalents. Investment securities HTM increased by $25.0 million at December 31, 1999, whereas at March 31, 1999 the Company did not carry any investment securities as HTM. The investment in securities HTM reflects the reinvestment of principal and interest received during the first quarter on MBSs and loans receivable. At December 31, 1999, securities held as available for sale ("AFS") totaled $29.8 million, compared to $29.9 million at March 31, 1999. MBSs held to maturity decreased by $10.6 million or 15.85% to $56.0 million compared to $66.6 million at March 31, 1999. These decreases primarily reflect principal repayments on MBSs held to maturity and the Company's strategy to reinvest these repayments directly into loans or short term securities until such time as suitable loans become available for origination or purchase. Loans receivable net, decreased by $14.5 million or 5.37% to $256.0 million at December 31, 1999 compared to $270.5 at March 31, 1999. The decrease in loans receivable, net primarily reflects scheduled loan payments as well as increased loan prepayments. The prepayments primarily reflect the refinancing of loans due to lower market interest rates available during the nine-month period. LIABILITIES AND STOCKHOLDERS' EQUITY Total deposits increased by $355,000 or 0.13% to $277.4 million at December 31, 1999, compared to $277.0 million at March 31, 1999. The increase in total deposits was primarily attributable to increases of $1.6 million in NOW accounts and $927,000 in certificates of deposits, offset in part by decreases of $1.3 million in money market accounts and $880,000 in savings and club accounts. Total borrowings decreased by $4.2 million or 4.12% to $97.8 million at December 31, 1999, compared to $102.0 million at March 31, 1999. The decrease in total borrowings was due to a decrease in securities sold under agreements to repurchase ("repos") of $4.0 million or 11.32% to $31.3 million. The decrease in total borrowings reflects the Company's ability to fund loan originations and loan purchases with repayments on MBSs and loans receivable together with the increase in deposits. Total stockholders' equity increased by $1.8 million, or 5.69% to $32.9 million at December 31, 1999, compared to $31.2 million at March 31, 1999. The increase in stockholders' equity primarily reflects an increase in retained earnings for the nine-month period. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds are deposits and principal and interest payments on loans, MBSs and investment securities. While maturities and scheduled amortization of loans, MBSs and investment securities are predictable sources of funds, deposit flows, loans and prepayments on MBSs are strongly influenced by changes in general interest rates, economic conditions and competition. For the nine-month period ended December 31, 1999 the primary investment activity of the Company was the purchase of loans and the purchase of investment securities. During the nine-month period ended December 31, 1999, the Company purchased approximately $37.7 million of mortgage loans and $25.0 million of investment securities. During the nine-month period ended December 31, 1999, the Company sold no investment securities, mortgage loans or MBSs. 6 9 The Company's most liquid assets are federal funds sold and cash and due from banks. In addition to the liquidity provided by federal funds sold and cash and due from banks, the Company derives liquidity from its line of credit with the FHLB, which equals 30% of total assets. The levels of the Company's cash and cash equivalents are dependent on the Company's operating, financing, lending and investing activities during any given period. At December 31, 1999, the Company's cash and cash equivalents totaled $20.2 million compared to $21.3 million at March 31, 1999. This decrease in cash and cash equivalents is not expected to have a material impact on the Company's operations. The Office of Thrift Supervision (the "OTS"), the Bank's primary federal regulator, requires that the Bank meet minimum tangible, leverage (core) and risk-based capital requirements. As of December 31, 1999, the Bank exceeded all of its regulatory capital requirements. The Bank's required, actual and excess capital levels as of December 31, 1999 are as follows:
AMOUNT % OF ASSETS ------- ----------- (DOLLARS IN THOUSANDS) Tangible capital: Capital level.......................................... $28,196 6.86% Less requirement....................................... 6,152 1.50 ------- ----- Excess................................................. $22,044 5.36% ======= ===== Core capital: Capital level.......................................... $28,228 6.86% Less requirement....................................... 16,406 4.00 ------- ----- Excess................................................. $11,822 2.86% ======= ===== Risk-based capital: Capital level.......................................... $30,631 15.59% Less requirement....................................... 15,619 8.00 ------- ----- Excess................................................. $15,012 7.59% ======= =====
On January 25, 2000, the Holding Company contributed $2.5 million, representing the proceeds from the issuance of the convertible preferred securities to the Bank in the form of additional paid in capital increasing the Bank's tier one capital and core capital to $30.7 million or 7.46% and risk based capital to $33.1 million or 16.86%. See Note 4 to Consolidated Financial Statements. ANALYSIS OF CORE EARNINGS The Company's profitability is primarily dependent upon net interest income, which represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Net income is further affected by provisions for loan losses, non-interest income, non-interest expense and income taxes. The earnings of the Company are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, and to a lesser extent by government policies and actions of regulatory authorities. During the three and nine-month periods ended December 31, 1999 the Company placed primary emphasis on its whole loan portfolio through the purchase of whole loans. It is expected that the Company's future earnings will be derived primarily from direct lending and purchases rather than investing in securities. The following tables set forth certain information relating to Carver's average interest-earning assets and average interest-bearing liabilities and reflect the average yield on assets and the average cost of liabilities for the periods indicated. Such yields and costs are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods shown. Average balances are derived from average month-end balances, except for federal funds, which are derived from daily balances. Management does not believe that the use of average monthly balances instead of average daily balances on all other 7 10 accounts has caused any material difference in information presented. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yield includes fees which are considered adjustments to yields.
THREE MONTHS ENDED DECEMBER 31, ------------------------------------------------------------------------------- 1999 1998 -------------------------------------- -------------------------------------- AVERAGE QUARTERLY ANNUALIZED AVERAGE QUARTERLY ANNUALIZED BALANCE INTEREST AVG. YIELD/COST BALANCE INTEREST AVG. YIELD/COST -------- --------- --------------- -------- --------- --------------- (DOLLARS IN THOUSANDS) ASSETS INTEREST EARNING ASSETS Loans(1)......................... $249,726 $4,911 7.87% $256,575 $4,937 7.70% Investment securities(2)......... 66,041 990 6.00 46,849 630 5.38 Mortgage-backed securities....... 57,155 874 6.12 74,454 1,152 6.19 Other interest earning assets.... 11,575 185 6.39 15,475 212 5.48 -------- ------ ----- -------- ------ ----- Total interest earning assets.................. 384,497 $6,960 7.24% 393,353 $6,931 7.05% ------ ------ Non-interest earning assets...... 28,444 35,384 -------- -------- Total Assets.............. $412,941 $428,737 ======== ======== LIABILITIES INTEREST BEARING LIABILITIES Deposits DDA.............................. $ 11,025 $ -- --% $ 7,193 $ -- --% NOW.............................. 16,755 76 1.81 21,016 82 1.56 Savings and clubs................ 144,132 919 2.55 144,154 900 2.50 Money market accounts............ 19,558 123 2.52 21,479 130 2.42 Certificates of deposit.......... 86,493 1,022 4.73 80,483 925 4.60 -------- ------ ----- -------- ------ ----- Total Deposits............ 277,963 2,140 3.08 274,325 2,037 2.97 Borrowed money..................... 97,906 1,360 5.56 104,750 1,486 5.67 -------- ------ ----- -------- ------ ----- Total interest-bearing liabilities...................... 375,869 3,500 3.72% 379,075 3,523 3.72% ------ ------ Non-interest-bearing liabilities... 4,060 13,408 -------- -------- Total liabilities.................. 379,929 392,483 Stockholders' equity............... 33,012 36,253 -------- -------- Total liabilities and stockholders' equity........................... $412,941 $428,736 ======== ======== Net interest income................ $3,460 $3,408 ====== ====== Interest rate spread............... 3.52% 3.33% ===== ===== Net interest margin................ 3.60% 3.47% ===== ===== Ratio of average interest earning assets to interest-bearing liabilities...................... 102.3x 103.8x ===== =====
--------------- (1) Includes non-accrual loans. (2) Includes FHLB stock and fair value of investments available for sale of $29.8 million at December 31, 1999. 8 11
NINE MONTHS ENDED DECEMBER 31, --------------------------------------------------------------------- 1999 1998 --------------------------------- --------------------------------- AVERAGE ANNUALIZED AVERAGE ANNUALIZED BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST -------- --------- ---------- -------- --------- ---------- (DOLLARS IN THOUSANDS) ASSETS INTEREST EARNING ASSETS Loans(1)................................ $254,857 $14,650 7.66% $268,113 $15,497 7.71% Investment securities(2)................ 58,795 2,581 5.85 25,846 1,125 5.81 Mortgage-backed securities.............. 60,504 2,777 6.12 90,747 4,337 6.37 Other interest earning assets........... 11,359 512 6.01 14,375 558 5.18 -------- ------- ----- -------- ------- ----- Total interest earning assets.... 385,515 $20,520 7.10% 399,081 $21,517 7.19% ------- ------- Non-interest earning assets............. 31,349 28,933 -------- -------- Total Assets..................... $416,864 $428,014 ======== ======== LIABILITIES INTEREST BEARING LIABILITIES: Deposits DDA..................................... $ 11,467 $ -- --% $ 9,546 $ -- --% NOW..................................... 16,753 233 1.85 19,130 248 1.73 Savings and clubs....................... 145,568 2,755 2.52 145,553 2,721 2.49 Money market accounts................... 20,601 476 3.08 21,822 459 2.80 Certificates of deposit................. 86,284 3,028 4.68 80,371 2,822 4.68 -------- ------- ----- -------- ------- ----- Total Deposits................... 280,673 6,492 3.08 276,422 6,250 3.01 Borrowed money............................ 99,966 4,151 5.54 108,329 4,793 5.90 -------- ------- ----- -------- ------- ----- Total interest-bearing liabilities........ 380,639 10,643 3.73% 384,751 11,043 3.83% ------- ------- Non-interest-bearing liabilities.......... 3,904 7,372 -------- -------- Total liabilities......................... 384,543 392,123 Stockholders' equity...................... 32,321 35,893 -------- -------- Total liabilities and stockholders' equity.................................. $416,864 $428,016 ======== ======== Net interest income....................... $ 9,877 $10,474 ======= ======= Interest rate spread...................... 3.37% 3.36% ===== ===== Net interest margin....................... 3.42% 3.50% ===== ===== Ratio of average interest earning assets to interest-bearing liabilities......... 101.3x 103.7x ===== =====
--------------- (1) Includes non-accrual loans. (2) Includes FHLB stock and fair value of investments available for sale of $29.8 million at December 31, 1999. Comparison of Operating Results for the Three Months Ended December 31, 1999 and 1998 General The Company reported net income of $549,000, for the three month period ended December 31, 1999, compared to a loss of $5.7 million, for the three month period ended December 31, 1998. Earnings for the third quarter of the prior fiscal year included non-recurring pre-tax charges of $7.8 million reflecting a $2.5 million special provision for loan losses, $4.1 million in reconciliation adjustments and $1.2 million in related consulting fees. Excluding these charges and the related partial tax benefits, net income for the third quarter of 9 12 fiscal year 1999 was $173,000. The increase in net income primarily reflects an income tax benefit, an increase in non-interest income and decreases in the provision for loan losses and non-interest expense. Interest Income Interest income increased by $29,000, or 0.42% to $7.0 million for the three month period ended December 31, 1999 compared to $6.9 million for the same period last year. The increase in interest income primarily reflects a 19 basis point increase in the average yield on interest-earning assets to 7.24% compared to 7.05% for the same period last year, offset in part by an $8.9 million decrease in the average balance of interest earning assets to $384.5 million. The increase in the average yield for the three month period is primarily attributable to an increase in the yield on adjustable rate and short term assets due to higher market interest rates during the third quarter compared to the same period last year. Interest income on loans receivable net was stable at $4.9 million for the three month period ended December 31, 1999 compared to same period last year. The average balance of loans receivable net decreased by approximately $6.8 million or 2.67% to $249.7 million for the three month period ended December 31, 1999 compared to $256.6 million for the same period last year, which was offset by a 17 basis point increase in the average yield on the loan portfolio to 7.87%. The decrease in the average balance of the loan portfolio primarily reflects an increase in loan prepayments and a decrease in loan originations. The increase in the average yield on loans receivable net primarily reflects an increase in the yield on adjustable rate loans due to higher market interest rates during the third quarter compared to the same period last year. Interest income on MBSs decreased $277,000, or 24.07% to $874,000 for three month period ended December 31, 1999 compared to $1.2 million for the same period last year. The decrease in interest income on MBSs primarily reflects a decrease of approximately $17.3 million or 23.23% in the average balance of mortgage-backed securities to $57.2 million compared to $74.5 million for the same period last year coupled with a 7 basis point decrease in the average yield to 6.12%. The decrease in the average balance of MBSs primarily reflects a shift during the second quarter of fiscal 1999 of approximately $24.0 million from MBSs to loans and the Company's strategy to reinvest principal repayments on MBSs into higher yielding loans. Interest income on investment securities increased by $360,000, or 57.18% to $990,000 for the three month period ended December 31, 1999 compared to $630,000 for the same period last year. The increase in interest income on investment securities consisting of short and intermediate term agency securities primarily reflects a $19.2 million or 40.97% increase in the average balance of such securities to $66.0 million for the three month period ended December 31, 1999 compared to $46.8 million for the same period last year coupled with a 62 basis point increase in the average yield to 6.00%. The increase in the average balance of investment securities reflects an investment of repayments from loan and MBSs into intermediate term securities. The increase in the average yield on investment securities primarily reflects the higher yield earned by shifting assets from short term securities to intermediate term securities and generally higher market rates. Interest income on other interest-earning assets decreased by $27,000, or 12.85% to $185,000 for the three month period ended December 31, 1999 compared to $212,000 for the same period last year. The decrease in interest income on other interest earning assets primarily reflects a $3.9 million or 25.20% decrease in the average balance of such securities to $11.6 million for the three month period ended December 31, 1999 compared to $15.5 million for the same period last year, offset in part by a 91 basis point increase the average yield to 6.39%. The decrease in the average balance of other interest earning assets primarily reflects a decrease in short term investments held during the third quarter. The increase in the average yield on other interest earning assets primarily reflects generally higher market rates. Interest Expense Interest expense was stable at $3.5 million for the three month period ended December 31, 1999 compared to same period last year. Interest expense on deposits increased by $103,000 or 5.03% to $2.1 million for the three month period ended December 31, 1999 compared to $2.0 million for the same period last year. The increase in the cost of 10 13 deposits primarily reflects a $3.6 million increase in the average balance of deposits to $278.0 million compared to $274.3 million for the same period last year coupled with an 11 basis point increase in the cost of deposits to 3.08%. The increase in the cost of deposits primarily reflects higher market interest rates during the third quarter. The increase in deposit cost also reflects an increase of $6.0 million or 7.47% in the average balance of certificates of deposits to $86.5 million coupled with a 13 basis point increase in the average cost of these deposits. Interest expense on borrowings decreased by $126,000 or 8.45% to $1.4 million for the three month period ended December 31, 1999 compared to $1.5 million for the same period last year. The decrease primarily reflects an 11 basis point decrease in the average cost of borrowings to 5.56% compared to 5.67% for the same period last year coupled with a $6.8 million decrease in the average balance of borrowings to $97.9 million. The decrease in the average balance of borrowings primarily reflects the Company's ability to fund investments and loan purchases with deposits and principal and interest receipts on loans and MBSs. The decrease in the cost of borrowings primarily reflects the replacement of higher cost borrowings with lower cost borrowings during fiscal year 1999. Net Interest Income Before Provisions for Loan Losses Net interest income increased $52,000 or 1.53%, to $3.5 million for the three month period ended December 31, 1999 compared to $3.4 million for the same period last year. The increase in net interest income primarily reflects an increase in the average yield of average interest earning assets while the average cost of interest bearing liabilities was stable for the third quarter. The Company's interest rate spread increased by 19 basis points to 3.52% for the three month period ended December 31, 1999 compared to 3.33% for the three month period ended December 31, 1998. The Company's net interest margin increased by 13 basis point to 3.60% for the three month period ended December 31, 1999 compared to 3.47% for the same period last year. The increase in interest rate spread and net interest margin primarily reflects a 19 basis point increase in the average yield on interest earning assets to 7.24% while the average cost of interest bearing liabilities was stable at 3.72%. The increase in the average yield of interest earning assets was partially offset by a decrease in the average balance of interest earning assets. The increase in interest rate spread and net interest margin was primarily attributable to increases in the average yield on loans, investment securities and other interest earning assets. The Company's ratio of average interest-earning assets to average interest-bearing liabilities was 102.3x for the three month period ended December 31, 1999 compared to 103.8x for the same period last year. Provision for Loan Losses The Company provided $225,000 for loan losses for the three month period ended December 31, 1999, compared to $3.1 million for the same period of the prior year. The provision for loan losses for the third quarter of the prior year reflected a special provision of approximately $2.5 million taken in response to an increase in non-performing consumer loans and to maintain an adequate level of allowance consistent with the Bank's policies. The decrease in the provision for the third quarter of the current fiscal year reflects an overall decrease in non-performing assets, which includes non-performing consumer loans. During the third quarter of fiscal year 2000, the Bank charged off approximately $512,000 in previously reserved non-performing consumer loans and $169,000 in previously reserved assets. At December 31, 1999, non-performing loans totaled $3.0 million or 1.16% of total loans compared to $4.1 million or 1.63% at September 30, 1999. At December 31, 1999, Carver's allowance for loan losses was $3.2 million compared to $3.6 million at September 30, 1999, resulting in a ratio of allowance to non-performing loans of 108.97% at December 31, 1999 compared to 82.26% at September 30, 1999 and a ratio of allowances for loan losses to total loans of 1.26% and 1.41% respectively. The decrease in the allowance for loan losses and the ratio of allowance for loan losses to total loans reflects loan charge offs during the third quarter. Management believes that the allowance for loan losses is adequate. While management estimates loan losses using the best available information, no assurance can be made that future adjustments to the allowance 11 14 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 Non-interest income increased by $191,000 or 55.07% to $539,000 for the three month period ended December 31, 1999 compared to $347,000 for the same period of the prior year. The increase in non-interest income for the third quarter primarily reflects a $197,000 or 58.49% increase in other income which consist of bank service charges and mortgage loan prepayment fees, offset in part by a $6,000 or 59.39% decrease in loan fees due to a decrease in loan originations. Non-Interest Expense Non-interest expense decreased by approximately $5.1 million or 61.28% to $3.2 million for the three month period ended December 31, 1999 compared to $8.3 million for the three month period ended December 31, 1998. Non-interest expense for the third quarter of the prior fiscal year included non-recurring charges of approximately $5.3 million. Excluding the non-recurring charges non-interest expense increased by $232,000 or 8.10%. The increase in non-interest expense for the three-month period excluding the non-recurring charges primarily reflects increase of $83,000 or 28.87% in occupancy expense due to major branch repairs, $120,000 or 289.87% in FDIC expense, related to the Bank's OTS rating, $100,000 or 290.30% advertising expense due to increased marketing expenses and $38,000 or 97.39% in expenses for legal services, offset in part by decreases of $112,000 or 8.14% in salaries and benefit expense, $53,000 or 47.96% in security service, $17,000 or 17.88% in Bank charges and $22,000 or 4.06% in other expenses. Income Tax Expense In connection with a loss from operations incurred during the three month period ended December 31, 1998, the Company has reflected a tax benefit reflecting the carry forward of the loss for the income taxes paid. The Company utilized a net operating loss deduction to reduce income tax expense for the three month period ended December 31, 1999 to $23,000. The Company's effective tax rate for the three-month period ended December 31, 1999 was 4.02%. Comparison of Operating Results for the Nine Months Ended December 31, 1999 and 1998 General The Company reported net income for the nine-month period ended December 31, 1999 of $1.6 million compared to a net loss of $5.2 million for the same period of the prior year. Earnings for the nine-month period for the prior fiscal year included non-recurring pre-tax charges of $7.8 million. Earnings excluding those charges were $685,000. The increase in net income primarily reflects an income tax benefit, an increase in non-interest income and decreases in provision for loan losses and non-interest expense. Interest Income Interest income decreased by approximately $997,000 million or 4.63% to $20.5 million for the nine-month period ended December 31, 1999 compared to $21.5 million for the nine-month period ended December 31, 1998. The decrease in interest income for the nine-month period ended December 31, 1999 primarily reflects a 9 basis point decrease in the average yield of interest earning assets to 7.10% compared to 7.19% for the same period last year and a $13.6 million or 3.40% decrease in the average balance of interest earning assets to $385.5 million. The decrease in the average yield for nine-month period is primarily attributable to a shift in assets from loans and MBSs to lower yielding investment securities. 12 15 Interest income on loans receivable net decreased by $848,000 or 5.47% to $14.6 million for the nine-month period ended December 31, 1999 compared to $15.5 million for the same period last year. The decrease in interest income on loans receivable net primarily reflects a $13.3 million or 4.94% decrease in the average balance of loans receivable to $254.9 million for the nine-month period ended December 31, 1999 compared to $268.1 million for the same period last year, coupled with a decrease of 5 basis points in the average yield on the loan portfolio. The decrease in the average balances of the loan portfolio primarily reflects the impact of increased loan prepayments and to a lesser extent, a decrease in loan originations. The decrease in average yield primarily reflects the repayment of higher yielding loans and lower market interest rates during the first two quarters of the fiscal year compared to the same period last year. Interest income on MBSs decreased $1.6 million, or 35.96% to $2.8 million for the nine-month period ended December 31, 1999 compared to $4.3 million for the same period last year. The decrease in interest income on MBSs primarily reflects a decrease of $30.2 million or 33.33% in the average balance of mortgage-backed securities to $60.5 million for the nine-month period ended December 31, 1999 compared to $90.7 million for the same period last year coupled with a decrease of 25 basis points in the average yield on MBSs to 6.12% compared to 6.37%. The decrease in the average balance of MBSs primarily reflects the shift of approximately $24.0 million from MBSs to loans and the Company's strategy to reinvest principal repayments on MBSs into higher yielding loans. Interest income on investment securities increased by $1.5 million or 129.38%, to $2.6 million for the nine-month period ended December 31, 1999 compared to $1.1 million for the same period last year. The increase in interest income on investment securities consisting of short term and intermediate term agency securities primarily reflects a $33.0 million or 127.48% increase in the average balance of investment securities to $58.8 million for the nine-month period ended December 31, 1999 compared to $25.8 million for the same period last year coupled with a 4 basis point increase in the average yield to 5.85%. The increase in the average balance of investment securities reflects an investment of repayments from loan and MBSs into intermediate term securities. The increase in the average yield on investment securities primarily reflects the higher yield earned by shifting assets from short-term securities to intermediate term securities. Interest income on other interest-earning assets decreased by $46,000 or 8.24%, to $512,000 for the nine-month period ended December 31, 1999 compared to $558,000 for the same period last year. The decrease in interest income on other interest earning assets primarily reflects a $3.0 million decrease in the average balance of other interest earning assets, offset in part by an 83 basis point increase in the average yield to 6.01%. The decrease in the average balance of other interest earning assets primarily reflects a decrease in short-term investments held during the nine-month period. The increase in the average yield on other interest earning assets primarily reflects higher market rates on such assets. Interest Expense Interest expense decreased by $400,000 or 3.62% to $10.6 million for the nine-month period ended December 31, 1999 compared to $11.0 million for the same period of the prior year. The decrease in interest expense primarily reflects a 10 basis point decrease in the cost of interest bearing liabilities to 3.73% coupled with a $4.1 million decrease in the average balance of interest bearing liabilities to $380.6 million. Interest expense on deposits increased by $243,000 or 3.88% to $6.5 million for the nine-month period ended December 31, 1999 compared to $6.2 million for the same period last year. The increase in interest expense on deposits primarily reflects a $4.3 million or 1.54% increase in the average balance of deposits to $280.7 million compared to $276.4 million for the same period last year coupled with a 7 basis point increase in the average cost of deposits to 3.08%. Interest expense on borrowings decreased by $643,000 or 13.41% to $4.2 million for the nine-month period ended December 31, 1999 compared to $4.8 million. The decrease in interest expense in borrowings primarily reflects a 36 basis point decrease in the average cost of borrowings to 5.54% coupled with an $8.4 million or 7.72% decrease in the average balance of borrowings to $100.0 million. The decrease in the average balance of borrowings primarily reflects the Company's ability to fund investments and loans with deposits and 13 16 principal and interest receipts. The decrease in the cost of borrowings primarily reflects the replacement of higher cost borrowings with lower cost borrowings during fiscal year 1999. Net Interest Income Before Provisions for Loan Losses Net interest income before provision for loan losses decreased by $597,000, or 5.70% to $9.9 million for the nine-month period ended December 31, 1999 compared to $10.5 million for the same period last year. The decrease in net interest income primarily reflects a decrease in the average yield of average interest earning assets, offset in part by a decrease in the average cost of interest bearing liabilities. The Company's interest rate spread increased by 1 basis point to 3.37% for the nine-month period ended December 31, 1999 compared to 3.36% for the nine-month period ended December 31, 1998. The Company's net interest margin decreased by 8 basis points to 3.42% for the nine-month period ended December 31, 1999 compared to 3.50% for the same period last year. The increase in interest rate spread primarily reflects a 10 basis point decrease in the average cost of interest bearing liabilities to 3.73%, offset in part by a 9 basis point decrease in the average yield on interest earning assets to 7.10%. The decrease in net interest margin primarily reflects decreases in the yield on interest earning assets and the ratio of interest earning assets to interest bearing liabilities. The Company's ratio of average interest-earning assets to average interest-bearing liabilities was 101.3x for the nine-month period ended December 31, 1999 compared to 103.7x for the same period last year. Provision for Loan Losses The Company provided $605,000 for loan losses for the nine-month period ended December 31, 1999, compared to $3.8 million for the same period of the prior year. Provision for loan losses for the nine-month period of the prior year reflected a special provision of approximately $2.5 million taken in response to an increase in non-performing consumer loans and to maintain an adequate level of allowance consistent with the Bank's policies. The decrease in the provision for the current nine-month period reflects an overall decrease in non-performing assets, which includes non-performing consumer loans. During the nine-month period, the Bank charged off approximately $960,000 in previously reserved non-performing consumer loans and $763,000 in previously reserved assets. Management believes that the allowance for loan losses is adequate. While management estimates loan losses using the best available information, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, identification of additional problem loans, and other factors, both within and outside of management's control. Non-Interest Income Non-interest income was stable at $1.5 million for the nine-month period ended December 31, 1999. The increase in non-interest income for the nine-month period primarily reflects a $135,000 or 9.84% increase in other income which consists of bank service charges and mortgage loan prepayment fees, offset in part by a $98,000 or 82.10% decrease in loan fees due to a decrease in loan originations. Non-Interest Expenses Non-interest expense decreased by approximately $5.7 million or 38.29% to $9.2 million for the nine-month period ended December 31, 1999 compared to $14.9 million for the nine-month period ended December 31, 1998. Non-interest expense for the nine-month period of the prior fiscal year included non-recurring charges of approximately $5.3 million. Excluding the non-recurring charges non-interest expense decreased by $396,000 or 4.13%. The decrease in non-interest expense for the nine-month period excluding the non-recurring charges primarily reflects decreases of $232,000 or 5.81% in salaries and benefits expense, $52,000 or 18.44% bank charges and $82,000 or 27.23% security service, offset in part by increases of $79,000 or 71.13% in advertising 14 17 expense, $87,000 or 18.67% in net occupancy expenses, $107,000 or 76.75% in legal expense, and $328,000 or 220.08% in FDIC insurance expense. Income Tax Expense In connection with a loss from operations incurred during the three month period ended December 31, 1998, the Company has reflected a tax benefit reflecting the carry forward of the loss for the income taxes paid. The Company utilized a net operating loss deduction to reduce income tax expense for the nine-month period ended December 31, 1999 to $23,000. The Company's effective tax rate for the nine-month period ended December 31, 1999 was 1.42%. THE YEAR 2000 ISSUE Over the past several quarters, we had reported, on a regular basis, concerns relating to the "Year 2000 Issue," which centered upon the inability of computer systems to recognize the change into the year 2000. Carver did not experience any significant interruptions in any computer operations related to the Year 2000 Issue. Carver's loan and deposit functions were not effected by the change into the year 2000. Carver estimates that total costs related to the Year 2000 Issue, from inception to date, did not exceed $200,000 and we do not anticipate any additional costs to be incurred related to this matter. Additionally, we did not encounter any significant delays in loan payments from our borrowers due to difficulties they may have encountered as a result of the Year 2000 Issue. IMPACT OF ENACTMENT OF THE GRAMM-LEACH-BLILEY ACT On November 12, 1999, President Clinton signed the Gramm-Leach Bliley Act, which among other things, establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies and securities firms. Generally, the new law (i) repeals the historical restrictions and eliminates many federal and state law barriers to affiliations among banks and securities firms, insurance companies and other financial service providers, (ii) provides a uniform framework for the activities of banks, savings institutions and their holding companies, (iii) broadens the activities that may be conducted by subsidiaries of national banks and state banks, (iv) provides an enhanced framework for protecting the privacy of information gathered by financial institutions regarding their customers and consumers, (v) adopts a number of provisions related to the capitalization, membership, corporate governance and other measures designed to modernize the Federal Home Loan Bank System, (vi) requires public disclosure of certain agreements relating to funds expended in connection with an institution's compliance with the Community Retirement Act, (vii) addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions, including the functional regulation of bank securities and insurance activities. The Act also restricts the powers of new unitary savings and loan association holding companies. Unitary savings and loan holding companies that are "grandfathered," i.e., unitary savings and loan holding companies in existence or with applications filed with the OTS on or before May 4, 1999, such as the Holding Company, retain their authority under the prior law. All other unitary savings and loan holding companies are limited to financially related activities permissible for bank holding companies, as defined under the Act. The Act also prohibits non-financial companies from acquiring grandfathered unitary savings and loan association holding companies. The Act also requires financial institutions to disclose, on ATM machines, any non-customer fees and to disclose to their customers upon the issuance of an ATM card any fees that may be imposed by the institutions on ATM users. For other ATMs, financial institutions will have until December 31, 2004 to provide such notices. Bank holding companies are permitted to engage in a wider variety of financial activities than permitted under the prior law, particularly with respect to insurance and securities activities. In addition, in a change from the prior law, bank holding companies are in a position to be owned, controlled or acquired by any company engaged in financially related activities. 15 18 The OTS has recently proposed regulations implementing the privacy protection provision of the Act. The proposed regulations would require each financial institution to adopt procedures to protect customers' and consumers' "nonpublic personal information" by November 13, 2000. We would be required to disclose our privacy policy, including identifying with whom we share "nonpublic personal information," to customers at the time of establishing the customer relationship and annually thereafter. In addition, we would be required to provide our customers with the ability to "opt-out" of having us share their personal information with unaffiliated third parties. The Act also provides for the ability of each state to enact legislation that is more protective of consumers' personal information. Currently, there are a number of privacy bills pending in the New York Assembly. No action has been taken on any of these bills, and we cannot predict what impact, if any, these bills would have. We do not believe that the new law will have a material adverse affect upon our operations in the near term. However, to the extent the new law permits banks, securities firms and insurance companies to affiliate, the financial services industry may experience further consolidation. This could result in a growing number of larger financial institutions that offer a variety of financial services than we currently offer and that can aggressively compete in the markets we currently serve. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Quantitative and qualitative disclosure about market risk is presented at March 31, 1999 in Carver's Annual Report on Form 10-K, as amended and filed with the Securities and Exchange Commission on July 29, 1999. There have been no material changes in our market risk at December 31, 1999 compared to March 31, 1999. The following is an update of the discussion provided therein: GENERAL. Our largest component of market risk continues to be interest rate risk. Virtually all of this risk continues to reside at the Bank level. The Bank still is not subject to foreign currency exchange or commodity price risk. At December 31, 1999, we owned no trading assets, nor did we utilize hedging transactions such as interest rate swaps and caps. ASSETS, DEPOSIT LIABILITIES AND WHOLESALE FUNDS. There has been no change in the composition of assets, deposit liabilities or wholesale funds from March 31, 1999 to December 31, 1999 that would result in a material adverse effect on the Bank's interest rate risk. GAP ANALYSIS. The one-year and five-year cumulative interest sensitivity gap as a percentage of total assets have not materially changed from their levels at March 31, 1999 utilizing the same assumptions as at March 31, 1999. INTEREST RATE RISK COMPLIANCE. We continue to monitor the impact of interest rate volatility upon net interest income and net portfolio value in the same manner as at March 31, 1999. There have been no changes in our board approved limits of acceptable variance in net interest income and net portfolio value at December 31, 1999 compared to March 31, 1999, and the projected changes continue to fall within the board approved limits at all levels of potential interest rate volatility. 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 December 31, 1999, 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. In addition, on November 9, 1999, a shareholder of the Company, BBC Capital Market, Inc., filed a suit in the Court of Chancery of Delaware against the Holding Company to require the Holding Company to hold an annual meeting of stockholders. The action is encaptioned BBC Capital Market, Inc. v. Carver Bancorp, Inc. The Holding Company announced on November 11, 1999 that the stockholders meeting for the fiscal year 16 19 ended March 31, 1999 would be held on Thursday, February 24, 2000 and stockholders of record as of January 11, 2000 would be eligible to vote thereat. The suit was settled on December 8, 1999. As part of the settlement, the parties stipulated that the annual meeting would be held on February 24, 2000, that Kevin Cohee and Teri Williams, BBC's nominees for the Company's Board of Directors, were validly nominated in compliance with the Company's Bylaws and that the Company would provide BBC with a list of its shareholders of record as of January 11, 2000, within five business days of such record date. On January 19, 2000, BBC Capital Market, Inc. filed a suit in the Delaware Court of Chancery encaptioned BBC Capital Market, Inc. v. Carver Bancorp, Inc., et al. in connection with the Company's issuance of two series of convertible voting preferred stock to Morgan Stanley & Co. Inc. ("Morgan Stanley") and Provender Opportunities Fund, L.P. ("Provender") on January 11, 2000. The suit also names Morgan Stanley, Provender and the directors of the Company as defendants. Among other things, the suit sought (i) a preliminary injunction to enjoin Morgan Stanley and Provender from voting their shares at the Company's annual meeting of stockholders, (ii) to rescind the issuance of the preferred stock and (iii) to enjoin Carver, Morgan Stanley and Provender from taking certain actions in connection with such annual meeting. The suit also seeks reimbursement for the plaintiff's costs and disbursements, including reasonable attorney's fees and experts' fees. On February 16, 2000 the Delaware Court of Chancery denied BBC's request for a preliminary injunction to prevent Carver from counting Morgan Stanley and Provender's votes. See Part I, "Recent Developments" for a description of the terms of the preferred stock. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 11. Net income (loss) per share. Exhibit 27. Financial Data Schedule (b) Reports on Form 8-K. Form 8-K, dated December 21, 1999, reporting change in certifying accountant. Form 8-K, dated January 14, 2000, reporting issuance of preferred stock. 17 20 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. /s/ DEBORAH C. WRIGHT -------------------------------------- Deborah C. Wright President and Chief Executive Officer Date: July 14, 2000 /s/ JAMES BOYLE -------------------------------------- James Boyle Chief Financial Officer Date: July 14, 2000 18