-----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, LWPejzFArYTOA2gPMhVAA6nds0g0mtK6mXrg0PC41YL20vF8RD6EbImWpp2VV3gg 2sm1NGVK0d1U1vlnT/y/yQ== 0001169232-03-001386.txt : 20030214 0001169232-03-001386.hdr.sgml : 20030214 20030214153526 ACCESSION NUMBER: 0001169232-03-001386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARVER BANCORP INC CENTRAL INDEX KEY: 0001016178 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 133904174 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13007 FILM NUMBER: 03567438 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 d53806_10-q.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------------------------- FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2002 |_| 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 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act). Yes |_| No |X| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, par value $.01 2,296,393 Class Outstanding at January 31, 2003 CONTENTS
Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Statements of Financial Condition as of December 31, 2002 (unaudited) and March 31, 2002.........................................1 Consolidated Statements of Income for the Three Months and Nine Months Ended December 31, 2002 and 2001 (unaudited).............................................2 Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income for the Nine Months Ended December 31, 2002 (unaudited).............3 Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2002 and 2001 (unaudited).............................................4 Notes to Consolidated Financial Statements (unaudited)...................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................................7 Item 3. Quantitative and Qualitative Disclosure About Market Risk........................................18 Item 4. Controls and Procedures..........................................................................18 PART II. OTHER INFORMATION Item 1. Legal Proceedings...............................................................................18 Item 2. Changes in Securities and Use of Proceeds.......................................................19 Item 3. Defaults Upon Senior Securities.................................................................19 Item 4. Submission of Matters to a Vote of Security Holders.............................................19 Item 5. Other Information...............................................................................19 Item 6. Exhibits and Reports on Form 8-K................................................................19 SIGNATURES.......................................................................................................20 CERTIFICATIONS...................................................................................................21 EXHIBITS.........................................................................................................23
PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands, except share data)
December 31, March 31, 2002 2002 ------------ --------- ASSETS (Unaudited) Cash and cash equivalents: Cash and due from banks $ 13,054 $ 13,751 Federal Funds sold 11,400 21,100 --------- --------- Total cash and cash equivalents 24,454 34,851 --------- --------- Securities: Available-for-sale, at fair value (including pledged as collateral of $95,836 at December 31, 2002 and $76,720 at March 31, 2002) 111,310 89,821 Held-to-maturity, at amortized cost (including pledged as collateral of $38,644 at December 31, 2002 and $15,549 at March 31, 2002; fair value of $39,460 at December 31, 2002 and $15,716 at March 31, 2002) 39,193 15,643 --------- --------- Total securities 150,503 105,464 --------- --------- Loans receivable: Real estate mortgage loans 289,981 291,510 Consumer and commercial business loans 2,221 2,328 Allowance for loan losses (4,133) (4,128) --------- --------- Total loans receivable, net 288,069 289,710 --------- --------- Office properties and equipment, net 10,269 10,251 Federal Home Loan Bank of New York ("FHLB-NY") stock, at cost 5,002 3,763 Accrued interest receivable 2,763 2,804 Identifiable intangible assets, net 231 391 Other assets 3,098 3,072 --------- --------- Total assets $ 484,389 $ 450,306 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits $ 334,666 $ 324,954 Advances from the FHLB-NY and other borrowed money 100,297 75,651 Other liabilities 9,568 12,959 --------- --------- Total liabilities 444,531 413,564 --------- --------- Stockholders' equity: Preferred stock (par value $0.01 per share; 1,000,000 shares authorized; 100,000 issued and outstanding) 1 1 Common stock (par value $0.01 per share: 5,000,000 shares authorized; 2,316,358 shares issued; 2,295,731 and 2,300,869 shares outstanding at December 31, 2002 and March 31, 2002 respectively) 23 23 Additional paid-in capital 23,776 23,756 Retained earnings 15,755 13,194 Unallocated common stock held by employee stock ownership plan ("ESOP") (15) (152) Unamortized awards of common stock under management recognition plan ("MRP") (15) (58) Treasury stock, at cost (20,627 shares at December 31, 2002 and 15,489 shares at March 31, 2002) (202) (138) Accumulated other comprehensive income 535 116 --------- --------- Total stockholders' equity 39,858 36,742 --------- --------- Total liabilities and stockholders' equity $ 484,389 $ 450,306 ========= =========
See accompanying notes to consolidated financial statements. 1 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended December 31, December 31, ------------ ------------ 2002 2001 2002 2001 ---- ---- ---- ---- Interest Income: Loans $5,157 $5,801 $15,794 $ 16,946 Mortgage-backed securities 1,132 678 2,995 1,975 Investment securities 409 635 1,198 1,925 Federal funds sold 79 48 266 389 ------ ------ ------- -------- Total interest income 6,777 7,162 20,253 21,235 ------ ------ ------- -------- Interest expense: Deposits 1,373 2,112 4,443 6,422 Advances and other borrowed money 846 847 2,324 3,157 ------ ------ ------- -------- Total interest expense 2,219 2,959 6,767 9,579 ------ ------ ------- -------- Net interest income 4,558 4,203 13,486 11,656 Provision for loan losses -- 225 -- 675 ------ ------ ------- -------- Net interest income after provision for loan losses 4,558 3,978 13,486 10,981 ------ ------ ------- -------- Non-interest income: (1) Depository fees and charges 483 406 1,344 1,136 Loan fees and service charges 266 171 1,069 438 Gain on sale of investments -- 1,399 -- 1,399 Income from sale of branches -- -- -- 987 Loss from sale of loans -- -- -- (101) Other 2 1 7 13 ------ ------ ------- -------- Total non-interest income 751 1,977 2,420 3,872 ------ ------ ------- -------- Non-interest expense: (1) Compensation and benefits 1,542 1,831 4,805 4,852 Net occupancy expense 296 310 953 961 Equipment 403 404 1,175 1,159 Other 1,314 1,291 3,898 3,721 ------ ------ ------- -------- Total non-interest expense 3,555 3,836 10,831 10,693 ------ ------ ------- -------- Income before income taxes 1,754 2,119 5,075 4,160 Income taxes 807 402 2,318 790 ------ ------ ------- -------- Net income $ 947 $1,717 $ 2,757 $ 3,370 ====== ====== ======= ======== Dividends applicable to preferred stock $ 49 $ 49 $ 148 $ 148 ------ ------ ------- -------- Net income available to common stockholders $ 898 $1,668 $ 2,609 $ 3,222 ====== ====== ======= ======== Earnings per common share: Basic $ 0.39 $ 0.73 $ 1.14 $ 1.41 ====== ====== ======= ======== Diluted $ 0.38 $ 0.69 $ 1.09 $ 1.35 ====== ====== ======= ========
(1) Reclassifications have been made to prior year periods to conform with current periods. See accompanying notes to consolidated financial statements. 2 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (Unaudited) (In thousands)
ADDITIONAL PREFERRED COMMON PAID-IN RETAINED STOCK STOCK CAPITAL EARNINGS --------- ----- ---------- -------- Balance-March 31, 2002 $ 1 $ 23 $23,756 $ 13,194 Comprehensive income: Net Income for the period ended December 31, 2002 -- -- -- 2,757 Change in net unrealized gain on securities, net of taxes -- -- -- -- Dividends paid -- -- -- (196) Treasury stock activity -- -- -- -- Allocation of ESOP stock -- -- 20 -- Allocation of shares for MRP -- -- -- -- ----- ------ ------- -------- Balance-December 31, 2002 $ 1 $ 23 $23,776 $ 15,755 ===== ====== ======= ======== ACCUMULATED COMMON COMMON TOTAL OTHER STOCK STOCK STOCK- TREASURY COMPREHENSIVE ACQUIRED ACQUIRED HOLDERS' STOCK INCOME BY ESOP BY MRP EQUITY -------- ------------- -------- -------- -------- Balance-March 31, 2002 ($138) $116 ($152) ($58) $ 36,742 Comprehensive income: Net Income for the period ended December 31, 2002 -- -- -- -- 2,757 Change in net unrealized gain on securities, net of taxes -- 419 -- -- 419 Dividends paid -- -- -- -- (196) Treasury stock activity (64) -- -- -- (64) Allocation of ESOP stock -- -- 137 -- 157 Allocation of shares for MRP -- -- -- 43 43 ----- ---- ----- ---- -------- Balance-December 31, 2002 ($202) $535 ($ 15) ($15) $ 39,858 ===== ==== ===== ==== ========
See accompanying notes to consolidated financial statements. 3 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended December 31, ------------------------------ 2002 2001 ---- ---- Cash flows from operating activities: Net income $ 2,757 $ 3,370 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses -- 675 ESOP and MRP expense 213 124 Depreciation and amortization expense 904 867 Amortization of intangibles 160 159 Other amortization (accretion) 618 (229) Gain on sale of branches -- (987) Gain on sale of securities -- (1,399) Impairment of foreclosed real estate -- 20 Net gain on foreclosed real estate -- (77) Changes in assets and liabilities: Decrease (Increase) in accrued interest receivable 41 (328) Increase in other assets (26) (399) (Decrease) increase in other liabilities (3,590) 2,103 Increase in accrued interest payable 240 -- -------- --------- Net cash provided by operating activities 1,317 3,899 -------- --------- Cash flows from investing activities: Purchases of securities: Available-for-sale (64,786) (92,922) Held-to-maturity (4,152) (34,035) Proceeds from principal payments, maturities and calls of securities: Available-for-sale 19,475 107,675 Held-to-maturity 3,963 8,336 Disbursements for loan originations (37,508) (46,200) Loans purchased from third parties (34,591) (45,200) Principal collections on loans 72,113 68,108 (Purchase) sale of FHLB-NY stock (1,239) 4 Proceeds from loans sold 1,913 -- Proceeds from sale of fixed assets -- 570 Proceeds from sale of other real estate owned -- 533 Additions to premises and equipment (965) (1,166) -------- --------- Net cash used in investing activities (45,777) (34,297) -------- --------- Cash flows from financing activities: Net increase in deposits 9,712 63,029 Repayment of securities repurchase agreements -- (4,930) Advances from FHLB-NY and other borrowed money 40,300 291,348 Repayment of FHLB-NY advances and other borrowed money (15,654) (313,317) Purchase of treasury stock (99) (99) Cash paid to fund sale of deposits -- (15,802) Dividends paid (196) (196) -------- --------- Net cash provided by financing activities 34,063 20,033 -------- --------- Net decrease in cash and cash equivalents (10,397) (10,365) Cash and cash equivalents at beginning of the period 34,851 31,758 -------- --------- Cash and cash equivalents at end of the period $ 24,454 $ 21,393 ======== ========= Supplemental information: Noncash Transfers- Change in unrealized gain on valuation of held-to-maturity investments, net $ 467 $ -- Cash paid for- Interest paid 6,538 10,194 Income taxes paid 2,686 290 ======== =========
See accompanying notes to consolidated financial statements 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Carver Bancorp, Inc. (the "Holding Company" or "Bancorp"), have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for fair presentation have been included. The unaudited consolidated financial statements presented herein should be read in conjunction with the consolidated financial statements and notes thereto included in the Holding Company's Annual Report on Form 10-K/A, for the year ended March 31, 2002 ("2002 10-K/A"). The consolidated results of operations and other data for the nine-month period ended December 31, 2002 are not necessarily indicative of results that may be expected for the entire fiscal year ending March 31, 2003 ("fiscal 2003"). 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 which is inactive, and the Bank's wholly owned subsidiaries, CFSB Realty Corp. and CFSB Credit Corp. The Holding Company and its consolidated subsidiaries are referred to herein collectively as "Carver" or the "Company." All significant inter-company accounts and transactions have been eliminated in consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. (2) NET INCOME PER COMMON SHARE Basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per common share includes any additional common shares as if all potentially dilutive common shares were issued (e.g., convertible preferred stock and stock options with an exercise price that is less than the average market price of the common shares for the periods stated). For the purpose of these calculations, unreleased ESOP shares are not considered to be outstanding. For each of the nine-month periods ended December 31, 2002 and 2001, preferred dividends of $148,000 were deducted from net income to arrive at the amount of net income available to common stockholders. Additionally, for both the nine-month periods ended December 31, 2002 and 2001, 208,333 shares of common stock potentially issuable from the conversion of preferred stock and 24,068 shares of common stock at December 31, 2002 potentially issuable from the exercise stock options with an exercise price that is less than the average market price of the common shares for the nine-months ended December 31, 2002 were considered in determining the diluted net income per common share. (3) RECENT ACCOUNTING PRONOUNCEMENTS Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtness of Others In November 2002, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtness of Others" ("FIN 45"), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees. FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. FIN 45 requires the guarantor to recognize a liability for the non-contingent component of the guarantee; this is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not 5 probable that payments will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. The Company will adopt the disclosure requirements of FIN 45 and will apply the recognition and measurement provisions for all guarantees entered into or modified after March 31, 2003. As of December 31, 2002 the Company maintains one letter of credit in the amount of $1.9 million and therefore management does not anticipate that the adoption of this interpretation will have a significant effect on the Company's earnings or financial position. Acquisitions of Certain Financial Institutions In October 2002, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 147, "Acquisitions of Certain Financial Institutions." SFAS No. 147 amends SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", and FASB Interpretation No. 9, "Applying APB Opinions Nos. 16 and 17 When a Savings and Loan Association or a Similar Institution is Acquired in a Business Combination Accounted for by the Purchase Method." SFAS No. 147 removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of SFAS No. 72 and FASB Interpretation No. 9. SFAS No. 147 also amends SFAS No. 144 to include long-term customer-relationship intangible assets such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. The provisions of SFAS No. 147 are effective October 1, 2002. Management does not anticipate that the adoption of this statement will have a significant effect on the Company's earnings or financial position. Accounting for Costs Associated with Exit or Disposal Activities In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The Statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by this standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. Previous accounting guidance was provided by Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 replaces EITF Issue No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The Statement updates, clarifies and simplifies existing accounting pronouncements. SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board Opinion ("APB") No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," will now be used to classify those gains and losses. SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," amended SFAS No. 4 and is no longer necessary because SFAS No. 4 has been rescinded. SFAS No. 145 amends SFAS No. 13, "Accounting for Leases," to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. This amendment is consistent with the FASB's goal of requiring similar accounting treatment for transactions that have similar economic effects. SFAS No. 145 also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances they may change accounting practice. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002. Early application of SFAS No. 145 is encouraged. Management does not anticipate that the adoption of this statement will have a significant effect on the Company's earnings or financial position. Accounting for the Impairment or Disposal of Long-Lived Assets 6 In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and resolves accounting and implementation issues related to previous pronouncements. More specifically, it: (a) eliminates the allocation of goodwill to long-lived assets to be tested for impairment; and (b) details both a probability-weighted and primary asset approach to estimate cash flows in testing for impairment of a long-lived asset. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. Management does not anticipate that the adoption of this statement will have a significant effect on the Company's earnings or financial position. Accounting for Asset Retirement Obligations In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. Management does not anticipate that the adoption of this statement will have a significant effect on the Company's earnings or financial position. Goodwill and Other Intangible Assets In June 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses the initial recognition and measurement of intangible assets acquired individually or with a group of other assets not constituting a business combination. In accordance with the provisions of SFAS 142, all goodwill and identifiable intangible assets identified as having an indefinite useful life, including those acquired before its effective date, will no longer be amortized but will be assessed for impairment at least annually by applying a fair-value based test as defined in the Statement. SFAS 142 requires that acquired intangible assets having an estimated useful life be separately recognized and amortized over their estimated useful lives. Intangible assets that remain subject to amortization shall continue to be reviewed for impairment in accordance with previous pronouncements. Additionally, SFAS 142 requires that an initial impairment assessment on all goodwill recognized in the consolidated financial statements be completed within six months of the statement's adoption to determine if a transition impairment charge needs to be recognized. Management has performed the initial impairment assessment as of March 31, 2002 and determined that no impairment charge is warranted. The consolidated balance sheets and consolidated statements of income presented herein disclose the identifiable intangible assets that were originally recognized separate from goodwill. Effective April 1, 2002, goodwill will no longer be amortized; however, identifiable intangible assets will continue to be amortized over the estimated useful lives. Amortization of identifiable intangible assets is estimated to be $213,000 in fiscal 2003. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Explanatory Note This Quarterly Report on Form 10-Q contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "intend," "should," "could," "planned," "estimated," "potential" and similar terms and phrases. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors. Factors which could result in material variations include, but are not limited to, the Company's success in implementing its initiatives, including expanding its product line, successfully opening new ATM centers, successfully rebranding its image and achieving greater operating efficiencies; changes in interest rates which could affect net interest margins and net interest income; competitive factors which could affect net interest income and non-interest income; general economic conditions which could affect the volume of loan origination, deposit flows, real estate values, the levels of non-interest income and the amount of loan losses as well as other factors discussed in documents filed by the Company with the SEC from time to time. The Company undertakes no obligation to update any such forward-looking statements at any time. As used in this Form 10-Q, "we," "us" and "our" refer to Carver Bancorp, Inc. and/or its consolidated subsidiaries, depending on the context. Critical Accounting Policies 7 Note 1 to our Audited Consolidated Financial Statements for the fiscal year ended March 31, 2002 ("fiscal 2002") included in our 2002 10-K/A, as supplemented by this report, contains a summary of our significant accounting policies. We believe our policies with respect to the methodology for our determination of the allowance for loan losses, the valuation of mortgage servicing rights and asset impairment judgments, including the recoverability of goodwill and other than temporary declines in the value of our securities, involve a higher degree of complexity and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. These critical policies and their application are periodically reviewed with our Finance and Audit Committee and our Board of Directors. General The Holding Company, a Delaware corporation, is the holding company for Carver Federal, a federally chartered savings bank. 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 five full-service banking locations in the New York City boroughs of Brooklyn, Queens and Manhattan. Comparison of Financial Condition at December 31, 2002 and March 31, 2002 Assets Total assets increased by $34.1 million, or 7.6%, to $484.4 million at December 31, 2002 compared to $450.3 million at March 31, 2002. The change was primarily attributable to an increase of $45.0 million in securities partially offset by a decrease of $10.4 million in cash and cash equivalents and $1.6 million in total loans receivable, net. The balance in cash and cash equivalents for the nine-month period decreased $10.4 million from that of March 31, 2002. This was due to the utilization of excess liquid assets created by higher than expected mortgage loan and mortgage-backed security repayments. The Bank invested its lower yielding excess liquid assets in the origination and purchase of mortgage loans and the purchase of mortgage-backed securities. As of April 1, 2001, the Bank adopted SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") at which time it transferred $45.7 million of mortgage-backed and investment securities from held-to-maturity to available-for-sale. On November 30, 2002 the Bank transferred $22.8 million of mortgage-backed securities from available-for-sale to held-to-maturity as a result of managements intention to hold these securities in portfolio until maturity. A related unrealized gain of $467,000 as of December 31, 2002 continues to be reported as a separate component of stockholders' equity and is amortized over the remaining lives of the securities as an adjustment to yield. Due to the lower interest rate environment, mortgage loan payoffs in excess of new loans resulted in a decrease of $1.6 million in total loans receivable, net, during the first nine months of fiscal 2003. Loan repayments were $72.1 million, offset in part by loan originations of $37.5 million and loan purchases of $34.6 million during the nine-month period. Loan originations and purchases were concentrated in multifamily and commercial real estate mortgage loans, which accounted for $62.4 million of the $72.1 million originated and purchased during the period. The remaining originations of $9.7 million were for construction loans and one- to four-family loans. The $45.0 million increase in investment securities primarily represents purchases of $68.9 million partially offset by maturities of $11.0 million and principal repayments of $12.4 million that occurred during the first nine months of fiscal 2003. Management will continue to evaluate the balance of earning assets allocated to loan originations and purchases as well as additional purchases of mortgage-backed securities while continuing to assess yields and economic risk. FHLB-NY stock increased $1.2 million due to the Bank borrowing additional funds from the FHLB-NY. The FHLB-NY requires the Bank to purchase and maintain shares of its stock based on the Bank's outstanding borrowing balance. Liabilities and Stockholders' Equity 8 Liabilities At December 31, 2002, total liabilities increased by $31.0 million, or 7.5%, to $444.5 million compared to $413.6 million at March 31, 2002. The increase in liabilities primarily reflects an increase of $24.6 million in advances from the FHLB-NY and other borrowed money, and an increase of $9.7 million in deposits offset in part by a decrease of $3.4 million in other liabilities. The $9.7 million increase in deposit balances is primarily attributable to increases of $6.8 million in certificates of deposit, $5.0 million of which was an individual government deposit, $3.5 million in money market accounts, and $956,000 in NOW accounts partially offset by a decrease of $1.6 million in regular savings and club accounts. Stockholders' Equity Total stockholders' equity increased $3.1 million, or 8.5%, to $39.9 million at December 31, 2002 compared to $36.7 million at March 31, 2002. The increase in stockholders' equity was primarily attributable to a $2.6 million increase in retained earnings for the nine months ended December 31, 2002 and an increase of $419,000 in accumulated other comprehensive income resulting from the recognition of unrealized gains, net of taxes, relating to certain investment and mortgage-backed securities. Investment and mortgage-backed securities accounted for as held-to-maturity are carried at cost while such securities designated as available-for-sale are carried at market with an adjustment to stockholders' equity, net of taxes. During the second quarter ended September 30, 2002, the Holding Company purchased 9,100 shares of its common stock in open market transactions at an average price of $11.01 per share as part of its repurchase program announced on August 6, 2002. During the quarter ended December 31, 2002 the Company did not purchase any additional shares of its common stock. The Holding Company intends to use repurchased shares to fund its stock-based benefit and compensation plans and for any other purpose the Board of Directors of the Holding Company deems advisable in compliance with applicable law. Liquidity and Capital Resources Liquidity is a measure of the Bank's ability to generate adequate cash to meet financial obligations. The principal cash requirements of a financial institution are to cover downward fluctuations in deposit accounts and increases in its loan and investment portfolio. The Company's primary sources of funds are deposits, borrowed funds and principal and interest payments on loans, mortgage-backed securities and investment securities. While maturities and scheduled amortization of loans, mortgage-backed securities and investment securities are predictable sources of funds, deposit flows and loan and mortgage-backed securities prepayments are strongly influenced by changes in general interest rates, economic conditions and competition. During fiscal 2002, the Federal Open Market Committee reduced the federal funds rate on eight separate occasions by a total of 325 basis points, resulting in a lower interest rate environment in fiscal 2002 compared to the fiscal year ended March 31, 2001. During the first six months of fiscal 2003 the federal funds rate was unchanged and in the third quarter of fiscal 2003 the federal funds rate was reduced an additional 50 basis points. The increase in loan and securities repayments was primarily the result of the increase in mortgage loan refinancing activity caused by this lower interest rate environment. The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During the nine months ended December 31, 2002, total cash and cash equivalents decreased by $10.4 million. Net cash provided by operating activities during this period was $1.3 million, primarily representing a decrease in other liabilities, offset by depreciation and amortization expense, other amortization or accretion and an increase in accrued interest payable. Net cash used in investing activities was $45.8 million, primarily representing the net proceeds from principal payments, maturities and calls of securities available-for-sale and held-to-maturity and principal collections on loans, offset in part by disbursements made for the origination and purchase of loans and the purchase of securities. Net cash provided by financing activities was $34.1 million, primarily representing a net increase of $24.6 million in advances from the FHLB-NY and an increase in deposits of $9.7 million. The Bank is required to maintain sufficient liquidity to ensure its safe and sound operation. Management believes the Bank's short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements. The Bank monitors its liquidity utilizing guidelines that are contained in a policy developed by management of the Bank and approved by the Bank's Board of Directors. 9 The Bank's several liquidity measurements are evaluated on a frequent basis. The Bank was in compliance with this policy as of December 31, 2002. The levels of the Bank's short-term liquid assets are dependent on the Bank's operating, financing and investing activities during any given period. The most significant liquidity challenge the Bank faces is the variability in cash flows as a result of mortgage refinance activity. As mortgage interest rates decline, customers' refinance activities tend to accelerate, causing the cash flow from both the mortgage loan portfolio and the mortgage-backed securities portfolio to accelerate. When mortgage interest rates increase, the opposite effect tends to occur. In addition, as mortgage interest rates decrease, customers generally tend to prefer fixed rate mortgage loan products over variable rate products. Since the Bank generally sells its fifteen-year and thirty-year fixed rate loan production into the secondary mortgage market, the origination of such products for sale does not significantly reduce the Bank's liquidity. The Office of Thrift Supervision, the Bank's primary federal regulator, requires that the Bank meet minimum capital requirements. Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. At December 31, 2002, the Bank exceeded all regulatory minimum capital requirements and qualified as a well-capitalized institution. The table below presents certain information relating to the Bank's capital compliance at December 31, 2002. REGULATORY CAPITAL As of December 31, 2002
Amount % of Assets ------ ----------- Total capital (to risk-weighted assets): Capital level $42,282 13.98% Less requirement 24,202 8.00 ------- ----- Excess $18,080 5.98% ======= ===== Tier 1 capital (to risk-weighted assets): Capital level $38,496 12.72% Less requirement 12,101 4.00 ------- ----- Excess $26,395 8.72% ======= ===== Tier 1 Leverage capital (to adjusted total assets): Capital level $38,496 7.96% Less requirement 19,353 4.00 ------- ----- Excess $19,143 3.96% ======= =====
Analysis of Earnings The Company's profitability is primarily dependent upon net interest income, which represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income is dependent on the difference between the average balances and rates earned on interest-earning assets and the average balances and rates paid on interest-bearing liabilities. Provisions for loan losses, non-interest income, non-interest expense and income taxes further affect net income. The earnings of the Company are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, and to a lesser extent by government policies and actions of regulatory authorities. The following tables set forth, for the periods indicated, certain information relating to Carver's average interest-earning assets, average interest-bearing liabilities, net interest income, interest rate spread and interest rate margin. It reflects the average yield on assets and the average cost of liabilities. Such yields and costs are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the 10 periods shown. Average balances are derived from daily or month-end balances as available. Management does not believe that the use of average monthly balances instead of average daily balances has caused any material difference in information presented. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yield and cost include fees, which are considered adjustments to yields. 11
Three months ended December 31, ------------------------------------------------------------------------------- 2002 2001 ---------------------------------------- ----------------------------------- Average Annualized Avg. Average Annualized Avg. Balance Interest Yield/Cost Balance Interest Yield/Cost -------- -------- ---------------- --------- -------- --------------- (Dollars in thousands) Loans receivable (1) $278,626 $5,157 7.40% $312,526 $5,801 7.42% Investment securities (2) 36,881 409 4.43% 39,621 635 6.41% Mortgage-backed securities 103,322 1,132 4.38% 49,274 678 5.50% Federal funds 22,598 79 1.39% 8,939 48 2.15% -------- ------ ---- -------- ------ ---- Total interest earning assets 441,427 6,777 6.14% 410,360 7,162 6.98% Non-interest earning assets 29,823 28,392 -------- -------- Total assets $471,250 $438,752 ======== ======== Liabilities and Equity Deposits NOW $ 17,019 $ 24 0.56% $ 17,051 $ 58 1.36% Savings and clubs 125,655 331 1.05% 123,120 513 1.67% Money market accounts 16,357 45 1.10% 16,249 65 1.60% Certificates of deposit 157,972 973 2.46% 154,021 1,476 3.83% -------- ------ ---- -------- ------ ---- Total deposits 317,003 1,373 1.73% 310,441 2,112 2.72% Borrowed money 90,763 846 3.73% 72,449 847 4.68% -------- ------ ---- -------- ------ ---- Total interest-bearing liabilities 407,766 2,219 2.18% 382,890 2,959 3.09% Non-interest-bearing liabilities 25,052 21,356 -------- -------- Total liabilities 432,818 404,246 Stockholders' equity 38,432 34,507 -------- -------- Total liabilities and stockholders' equity $471,250 $438,752 ======== ------ ======== ------ Net interest income $4,558 $4,203 ====== ====== Interest rate spread 3.96% 3.89% ==== ==== Net interest margin 4.13% 4.10% ==== ==== Ratio of average interest-earning assets to deposits and interest-bearing liabilities 1.08x 1.07x ====== ======
(1) Includes non-accrual loans. (2) Includes FHLB-NY stock. 12
Nine months ended December 31, ----------------------------------------------------------------------------- 2002 2001 -------------------------------------- ----------------------------------- Average Annualized Avg. Average Annualized Avg. Assets Balance Interest Yield/Cost Balance Interest Yield/Cost ------- -------- --------------- ------- -------- --------------- (Dollars in thousands) Loans receivable (1) $280,695 $15,794 7.50% $296,745 $16,946 7.61% Investment securities (2) 36,322 1,198 4.40% 39,190 1,925 6.55% Mortgage-backed securities 82,216 2,995 4.86% 44,824 1,975 5.87% Federal funds 22,322 266 1.59% 14,952 389 3.47% -------- ------- ---- -------- ------- ---- Total interest-earning assets 421,555 20,253 6.41% 395,711 21,235 7.16% Non-interest-earning assets 30,259 25,246 -------- -------- Total assets $451,814 $420,957 ======== ======== Liabilities and Equity Deposits NOW $18,213 $ 106 0.78% $16,690 $ 191 1.53% Savings and clubs 127,032 1,146 1.20% 126,595 1,848 1.95% Money market accounts 15,607 140 1.20% 16,305 239 1.95% Certificates of deposit 154,122 3,051 2.64% 127,498 4,144 4.33% -------- ------- ---- -------- ------- ---- Total deposits 314,974 4,443 1.88% 287,088 6,422 2.98% Borrowed money 74,360 2,324 4.17% 80,333 3,157 5.24% -------- ------- ---- -------- ------- ---- Total interest-bearing liabilities 389,334 6,767 2.32% 367,421 9,579 3.48% Non-interest-bearing liabilities 24,573 19,838 -------- -------- Total liabilities 413,907 387,259 Stockholders' equity 37,907 33,698 -------- -------- Total liabilities and stockholders' equity $451,814 $420,957 ======== ------- ======== ------- Net interest income $13,486 $11,656 ======= ======= Interest rate spread 4.09% 3.68% ==== ==== Net interest margin 4.27% 3.93% ==== ==== Ratio of average interest-earning assets to deposits and interest-bearing liabilities. 1.08x 1.08x ======= =======
(1) Includes non-accrual loans. (2) Includes FHLB-NY stock. 13 Comparison of Operating Results for the Three Months Ended December 31, 2002 and 2001 General Net income for the three-month period ended December 31, 2002 was $947,000 compared to net income of $1.7 million for the corresponding prior year period. Net income available to common stockholders (after adjustment for dividends payable on the Company's preferred stock) was $898,000, or $0.38 per diluted common share, compared to $1.7 million, or $0.69 per diluted common share, for the corresponding prior year period. Net income available to common stockholders declined $770,000 primarily due to a $1.4 million gain on the sale of investment securities recognized in fiscal 2002, and the Company's fiscal 2003 obligation to begin to accrue for federal taxes. For most of fiscal 2002, the Company utilized a tax loss carryforward and therefore no federal taxes were applied to earnings for the comparable prior year period. Interest Income Interest income decreased by $385,000, or 5.4%, to $6.8 million for the three months ended December 31, 2002 compared to $7.2 million in the corresponding prior year period. Interest income decreased as a result of the current lower interest rate environment compared to the corresponding prior year period. The change in total interest income was attributable to a decrease of 84 basis points in the annualized average yield on interest-earning assets to 6.14% for the three months ended December 31, 2002 compared to 6.98% for the corresponding prior year period. This was partially offset by an increase in the average balance of interest-earning assets of $31.1 million, or 7.6%, to $441.4 million for the three months ended December 31, 2002 compared with $410.4 million for the corresponding prior year period. Interest income on loans decreased by $644,000, or 11.1%, to $5.2 million for the three months ended December 31, 2002 compared to $5.8 million for the corresponding prior year period. The change was primarily due to a decrease in average mortgage loan balances of $33.9 million, or 10.8%, to $278.6 million from $312.5 million, partially offset by an escalation in the recognition of deferred loan fee income of $72,000 resulting from higher than expected mortgage loan prepayments. Management does not expect this level of deferred loan fee income to continue. Interest income on mortgage-backed securities increased by $454,000, or 67.0%, to $1.1 million for the three months ended December 31, 2002 compared to $678,000 for the corresponding prior year period. The change was primarily due to an increase in the average balance of mortgage-backed securities of $54.0 million, or 109.7%, to $103.3 million compared to $49.3 million in the corresponding prior year period, partially offset by a 112 basis point decrease in the annualized average yield on mortgage-backed securities to 4.38% from 5.50% in the corresponding prior year period. Interest income on investment securities decreased by $226,000, or 35.6%, to $409,000 for the three months ended December 31, 2002 compared to $635,000 for the corresponding prior year period. Due to the decline in the interest rate environment there was a 199 basis point decrease in the annualized average yield to 4.42% for the three months ended December 31, 2002 compared to 6.41% for the corresponding prior year period. Further contributing to the decrease in interest income on investment securities was a decline in the average balance of investment securities of $2.7 million, or 6.9%, to $36.9 million for the three months ended December 31, 2002 compared to $39.6 million for the corresponding prior year period. Interest income on federal funds sold increased by $31,000, or 64.6%, to $79,000 for the three months ended December 31, 2002 compared to $48,000 for the corresponding prior year period. The increase was primarily attributable to an increase in the average balance of federal funds of $13.7 million, or 152.8%, to $22.6 million from $8.9 million for the corresponding prior year period. The increase was partially offset by the annualized yield on federal funds sold which declined 76 basis points to 1.39% for the three months ended December 31, 2002 compared to 2.15% for the corresponding prior year period due to a lower short-term interest rate environment. Interest Expense Total interest expense decreased by $740,000, or 25.0%, to $2.2 million for the three months ended 14 December 31, 2002 compared to $3.0 million for the corresponding prior year period. The change in interest expense is primarily due to the lower interest rate environment cited above. The annualized average cost of liabilities decreased 91 basis points to 2.18% from 3.09% for the corresponding prior year period. The decrease in interest expense was partially offset by an increase in the average balance of interest-bearing liabilities of $24.9 million, or 6.5%, to $407.8 million from $382.9 million compared to the corresponding prior year period. Interest expense on deposits decreased $739,000, or 35.0%, to $1.4 million for the three months ended December 31, 2002 compared to $2.1 million for the corresponding prior year period. The decrease in interest expense on deposits was due primarily to a 99 basis point decline in the rate paid on deposits to 1.73% for the three months ended December 31, 2002 compared to 2.72% for the corresponding prior year period. This was partially offset by a $6.6 million increase in the average balance of interest-bearing deposits to $317.0 million for the three months ended December 31, 2002 from $310.4 million for the corresponding prior year period. Interest expense on advances and other borrowed money remained relatively unchanged at $846,000, for the three months ended December 31, 2002 compared to $847,000 for the corresponding prior year period. This was primarily due to a decrease of 94 basis points in the cost of borrowings to 3.73% from 4.67% for the corresponding prior year period partially offset by an $18.3 million, or 25.3%, increase in the average balance of borrowed money to $90.8 million from $72.4 million. Net Interest Income Before Provision for Loan Losses Net interest income before the provision for loan losses increased by $355,000, or 8.4%, to $4.6 million for the three months ended December 31, 2002 compared to $4.2 million for the corresponding prior year period. Total interest income decreased by $385,000 and total interest expense decreased by $740,000 for the three months ended December 31, 2002. The Company's annualized average interest rate spread increased by 7 basis points to 3.96% for the three months ended December 31, 2002 compared to 3.89% for the corresponding prior year period. Provision for Loan Losses and Asset Quality The Company did not provide for additional loan loss reserves for the three months ended December 31, 2002 compared to $225,000 for the corresponding prior year period. The provision for loan losses was not increased during the three-month period as the Company considers the overall reserve for loan losses to be adequate at December 31, 2002 as explained below. During the third quarter of fiscal 2003, Carver recorded net loan charge-offs of $39,000 compared to $104,000 for the corresponding prior year period. At December 31, 2002, the Bank's allowance for loan losses at $4.1 million remained substantially unchanged from March 31, 2002. At December 31, 2002, non-performing loans totaled $2.3 million, or 0.81% of total loans, compared to $2.8 million, or 0.96% of total loans, at March 31, 2002, a decrease of $481,000 or 17.0%. The reduction in non-performing loans improved the ratio of the allowance for loan losses to non-performing loans to 176.1% at December 31, 2002 compared to 146.0% at March 31, 2002. The ratio of the allowance for loan losses to total loans was unchanged at 1.41% compared to March 31, 2002. Management's judgment in determining the adequacy of the allowance for loan losses is based on an evaluation of individual loans, the risk characteristics and size of the loan portfolio, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, past loan loss experience, review of regulatory authority examination reports and other relevant factors. Based on the process employed, management believes that the allowance for loan losses is adequate under prevailing economic conditions to absorb losses on existing loans that may become uncollectible. While management estimates loan losses using the best available information, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, identification of additional problem loans and other factors, both within and outside of management's control. Non-Interest Income Total non-interest income, excluding a gain of $1.4 million on the sale of investment securities in the third quarter of fiscal 2002, increased $173,000, or 29.9%, to $751,000 for the three-month period ended December 31, 2002 compared to $578,000 for the corresponding prior year period. The change was primarily attributable to a net 15 increase in depository fee income of $77,000 and an increase in loan fees and service charges of $95,000. The increase in depository fees can be attributed to increased ATM fees and a restructuring of banking fees during the second quarter of fiscal 2003. Loan fees and service charges increased as a result of the recognition of higher mortgage prepayment penalties, including $71,000 received from one loan during the quarter, and a restructuring of the Bank's loan fees in the second quarter of fiscal 2003. Non-interest income represented 14.1% of operating income (net interest income plus non-interest income, excluding any non-recurring gain and loss) for the third quarter of fiscal 2003 compared with 12.1% for the corresponding prior year period. Non-Interest Expense Total non-interest expense decreased $281,000, or 7.3%, to $3.6 million for the quarter ended December 31, 2002 compared to $3.8 million for the corresponding prior year period. The decrease was primarily attributable to a decline in compensation and benefits expense. Occupancy and other expenses further contributed to the decline in non-interest expense, partially offset by an increase in other non-interest expense consisting primarily of marketing and advertising expenses. Compensation and employee benefits decreased $295,000 to $1.5 million for the quarter ended December 31, 2002 compared to $1.8 million for the corresponding prior year period. This decrease is primarily attributable to compensation and benefits expenses recognized in the third quarter of fiscal 2002 for severance payments and annual compensation plans that to date have not been incurred in this fiscal year partially offset by higher salary expenses. Income Tax Expense In comparison to the corresponding prior year period, the Company has fully utilized its tax loss carryforward resulting from prior period losses and is now accruing for federal taxes. For the three-month period ended December 31, 2002, estimated Federal, New York State and New York City income tax expense was $807,000. For the three-month period ended December 31, 2001, the Company applied a federal tax loss carryforward resulting from prior period losses and therefore no federal income taxes were payable for the period. The accrual for taxes of $402,000 for the three-months ended December 31, 2001 represents an estimate of New York State and New York City income taxes only. Comparison of Operating Results for the Nine Months Ended December 31, 2002 and 2001 General The Company reported net income for the nine-month period ended December 31, 2002 of $2.8 million compared to net income of $3.4 million for the corresponding prior year period. Net income available to common stockholders (after adjustment for dividends payable on the Company's preferred stock) was $2.6 million, or $1.09 per diluted common share, compared to $3.2 million, or $1.35 per diluted common share, for the corresponding prior year period. Income for the nine-months ended December 31, 2001 includes non-recurring non-interest income of approximately $2.3 million which includes a gain of $1.4 million recognized from the sale of investment securities, $987,000 realized on the sale of deposits of the Bank's East New York branch offset in part by a loss of $101,000 from the sale of the Bank's automobile loan portfolio. Additionally, for most of fiscal 2002, the Company was able to utilize its tax loss carryforward, which eliminated the Company's federal tax liability. Interest Income Interest income decreased by $982,000, or 4.6%, to $20.3 million for the nine months ended December 31, 2002 compared to $21.2 million in the corresponding prior year period. The decrease in interest income is due to a lower interest rate environment during the nine-month period ended December 31, 2002 compared to the corresponding prior year period. The change in total interest income was attributable to a decrease of 75 basis points in the annualized average yield on interest-earning assets to 6.41% for the nine months ended December 31, 2002 compared to 7.16% for the corresponding prior year period. This was partially offset by an increase in the average balance of interest-earning assets of $25.8 million, or 6.5%, to $421.6 million for the nine months ended December 31, 2002 compared with $395.7 million for the corresponding prior year period. 16 Interest income on loans decreased by $1.2 million, or 6.8%, to $15.8 million for the nine months ended December 31, 2002 compared to $16.9 million for the corresponding prior year period. The change was due to a decline in average mortgage loan balances of $16.1 million, or 5.4%, to $280.7 million for the nine months ending December 31, 2002 compared to $296.7 million for the corresponding prior year period. Adding to the decline in interest income was a decrease in the annualized average yield on mortgage loans to 7.50% compared to 7.61% for the nine months ended December 31, 2001. The decrease in interest income was partially offset by an acceleration in the recognition of deferred loan fees of $284,000 resulting from higher than anticipated mortgage loan prepayments. Interest income on mortgage-backed securities increased by $1.0 million, or 51.6%, to $3.0 million for the nine months ended December 31, 2002 compared to $2.0 million for the corresponding prior year period. The change was primarily due to an increase in the average balance of mortgage-backed securities of $37.4 million, or 83.4%, to $82.2 million for the nine months ended December 31, 2002 compared to $44.8 million for the corresponding prior year period, partially offset by a decrease in the annualized average yield on mortgage-backed securities of 101 basis points to 4.86% from 5.87% during the same period. Interest income on investment securities decreased by $727,000, or 37.8%, to $1.2 million for the nine months ended December 31, 2002 compared to $1.9 million for the corresponding prior year period. The decline was primarily due to a 215 basis point decrease in the annualized average yield to 4.40% for the nine months ended December 31, 2002 compared to 6.55% for the corresponding prior year period. In addition, the balance of average investment securities decreased by $2.9 million, or 7.3%, to $36.3 million for the nine months ended December 31, 2002 compared to $39.2 million for the corresponding prior year period. Interest income on federal funds sold decreased by $123,000, or 31.6%, to $266,000 for the nine months ended December 31, 2002 compared to $389,000 for the corresponding prior year period. The annualized yield on federal funds sold declined 188 basis points to 1.59% for the nine months ended December 31, 2002 compared to 3.47% for the corresponding prior year period due to a lower short-term interest rate environment. The decrease was partially offset by an increase in the average balance of federal funds of $7.4 million, or 49.3%, to $22.3 million from $15.0 million for the corresponding prior year period. Interest Expense Total interest expense decreased by $2.8 million, or 29.4%, to $6.8 million for the nine months ended December 31, 2002 compared to $9.6 million for the corresponding prior year period. The change in interest expense is primarily due to the lower interest rate environment cited above. The annualized average cost of interest-bearing liabilities decreased 116 basis points to 2.32% from 3.48% for the corresponding prior year period. The decrease in interest expense was partially offset by an increase in the average balance of interest-bearing liabilities of $21.9 million, or 6.0%, to $389.3 million from $367.4 million compared to the corresponding prior year period. Interest expense on deposits decreased $2.0 million, or 30.8%, to $4.4 million for the nine months ended December 31, 2002 compared to $6.4 million for the corresponding prior year period. The decrease in interest expense on deposits was due primarily to a 110 basis point decline in the rate paid on deposits to 1.88% for the nine months ended December 31, 2002 compared to 2.98% for the corresponding prior year period. This was partially offset by a $27.9 million increase in the average balance of interest-bearing deposits to $315.0 million from $287.1 million for the corresponding prior year period. Interest expense on advances and other borrowed money decreased $833,000, or 26.4%, to $2.3 million for the nine months ended December 31, 2002 compared to $3.2 million for the corresponding prior year period. This decrease in interest expense was primarily due to a $6.0 million, or 7.4%, decline in the average balance of borrowed money to $74.4 million from $80.3 million coupled with a decrease of 107 basis points in the cost of borrowings to 4.17% from 5.24% for the corresponding prior year period. Net Interest Income Before Provision for Loan Losses Net interest income before the provision for loan losses increased by $1.8 million, or 15.7%, to $13.5 million for the nine months ended December 31, 2002 compared to $11.7 million for the corresponding prior year period. Total interest income decreased by $982,000 while total interest expense decreased by $2.8 million for the nine months ended December 31, 2002. The Company's annualized average interest rate spread increased by 41 17 basis points to 4.09% for the nine months ended December 31, 2002 compared to 3.68% for the corresponding prior year period. Provision for Loan Losses and Asset Quality The Company did not provide for additional loan losses for the nine months ended December 31, 2002, compared to $675,000 for the corresponding prior year period. The provision for loan losses was not increased during the nine-month period due to the current credit quality of the loan portfolio and an overall reserve that the Company believes to be adequate at December 31, 2002 as explained below. During the first nine months of fiscal 2003, Carver applied net loan recoveries of $5,000 to the allowance for loan losses compared to net loan charge-offs of $262,000 for the corresponding prior year period. At December 31, 2002, the Bank's allowance for loan losses at $4.1 million remained substantially unchanged from March 31, 2002. At December 31, 2002, non-performing loans totaled $2.3 million, or 0.81% of total loans, compared to non-performing loans of $2.8 million, or 0.96% of total loans, at March 31, 2002, a decrease of $481,000 or 17.0%. The reduction in non-performing loans improved the ratio of the allowance for loan losses to non-performing loans to 176.1% at December 31, 2002 compared to 146.0% at March 31, 2002. The ratio of the allowance for loan losses to total loans at December 31, 2002 was unchanged at 1.41% compared to March 31, 2001. Management's judgment in determining the adequacy of the allowance for loan losses is based on an evaluation of individual loans, the risk characteristics and size of the loan portfolio, an assessment of current economic and real estate market conditions, estimates of the current value of underlying collateral, past loan loss experience, review of regulatory authority examination reports and other relevant factors. Based on the process employed, management believes that the allowance for loan losses is adequate under prevailing economic conditions to absorb losses on existing loans that may become uncollectible. While management estimates loan losses using the best available information, no assurance can be made that future adjustments to the allowance will not be necessary based on changes in economic and real estate market conditions, further information obtained regarding known problem loans, identification of additional problem loans and other factors, both within and outside of management's control. Non-Interest Income Total non-interest income decreased $1.5 million, or 37.5%, to $2.4 million for the nine-month period ended December 31, 2002 compared to $3.9 million for the corresponding prior year period. The change was primarily attributable to a net decrease in non-recurring income of $2.3 million for the nine-month period ended December 31, 2002, partially offset by a net increase in depository and loan fees. The non-recurring income of $2.3 million for the nine months ended December 31, 2001 represented a gain on the sale of investment securities of $1.4 million, a gain of $987,000 on the sale of the Bank's East New York branch offset in part by a loss of $101,000 on the sale of the Bank's automobile loan portfolio. Non-interest income, excluding non-recurring items, increased $833,000, or 52.5%, to $2.4 million for the nine-month period ended December 31, 2002 compared to $1.6 million for the corresponding prior year period, primarily attributable to an increase in loan fees and service charges that resulted from the recognition of substantially higher mortgage prepayment penalties and increases in loan origination, ATM and other depository fees as discussed in the quarterly results. Mortgage prepayment penalty income was greater due to significantly higher than usually experienced penalties of approximately $361,000 received from three loans. Excluding the non-recurring gain and loss, non-interest income represented 15.2% of operating income (net interest income plus non-interest income, excluding the non-recurring gain and loss) for the nine-month period ended December 31, 2002 compared with 12.6% for the corresponding prior year period. Non-Interest Expense Total non-interest expense increased $138,000, or 1.3%, to $10.8 million for the nine months ended December 31, 2002 compared to $10.7 million for the corresponding prior year period. The increase was primarily attributable to other expenses, consisting primarily of consulting fees and marketing and advertising expenses. Salaries and employee benefits decreased $47,000 to $4.8 million for the nine months ended December 31, 2002 compared to $4.9 million for the corresponding period last year. The decrease in compensation and benefits is primarily attributable to expenses recognized in the third quarter of fiscal 2002 for severance payments and annual 18 compensation plans that to date have not been incurred in this fiscal year. Marketing and advertising expenses increased by $78,000 to $579,000 for the nine-month period ended December 31, 2002 compared to $501,000 for the corresponding prior year period. The increase in marketing and advertising expenses is primarily attributable to the launch of the Company's new brand image, as well as the introduction of its new online banking and debit card products. Income Tax Expense In comparison to the prior year period, the Company has fully utilized its tax loss carryforward resulting from prior period losses and is now accruing for federal taxes. For the nine-month period ended December 31, 2002, estimated Federal, New York State and New York City income tax expense was $2.3 million. For the nine-month period ended December 31, 2001, the Company applied a federal tax loss carryforward resulting from prior period losses and therefore no federal income taxes were payable for the period. The accrual for taxes of $790,000 for the nine months ended December 31, 2001 represents an estimate of New York State and New York City income taxes only. ITEM 3. Quantitative and Qualitative Disclosure About Market Risk Quantitative and qualitative disclosure about market risk is presented at March 31, 2002 in Item 7 of the Company's 2002 10-K/A, as filed with the SEC. The Company believes that there have been no material changes in the Company's market risk at December 31, 2002 compared to March 31, 2002. ITEM 4. Controls and Procedures Evaluation of disclosure controls and procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective and timely in alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings. Changes in internal controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive Officer and Chief Financial Officer. PART II. OTHER INFORMATION ITEM 1. Legal Proceedings Disclosure regarding legal proceedings that the Company is a party to is presented in Note 13 to our audited consolidated financial statements in Carver's 2002 10-K/A as filed with the SEC and Item 1 of Part II of Carver's Form 10-Q for the quarterly period ended September 30, 2002. Except as set forth below, there have been no material changes with regard to such legal proceedings since the filing of the 2002 10-K/A and the Form 10-Q for the quarterly period ended September 30, 2002. On or about December 28, 2000, plaintiff Thomas L. Clark ("Clark"), the former President and CEO of Carver Federal, filed suit against Carver Federal and certain individual defendants in the Supreme Court of the State of New York, County of New York (the "Clark Action"), claiming that the defendants should have been forced to obtain approval from the OTS to pay severance benefits that Clark believed Carver owed him under an employment agreement. Clark sought injunctive relief and asserted claims for breach of contract, equitable estoppel and estoppel by contract. On or about March 30, 2001, the defendants moved to dismiss the compliant in its entirety and, on 19 November 27, 2001, the court dismissed the breach of contract claim against the individual defendants and the equitable estoppel and estoppel by contract claims against all defendants. Carver Federal appealed the lower court's failure to dismiss the breach of contract claim against Carver Federal. On September 26, 2002, the Appellate Division of the Supreme Court reversed the lower court and granted Carver Federal's motion in its entirety. On September 30, 2002, a Notice of Entry of the Appellate Division's decision was filed with the court and on October 30, 2002 judgment was entered in favor of Carver Federal and the individual defendants dismissing the Clark Action as to all defendants. Clark cannot appeal the Appellate Division's decision or the judgment as of right. Clark's time to move for permission to appeal has run. ITEM 2. Changes in Securities and Use of Proceeds None. ITEM 3. Defaults Upon Senior Securities None. ITEM 4. Submission of Matters to a Vote of Security Holders None. ITEM 5. Other Information None. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit 11. Net income per share. (b) Reports on Form 8-K. None. 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. Date: February 14, 2003 /s/ Deborah C. Wright --------------------------------------- Deborah C. Wright President and Chief Executive Officer Date: February 14, 2003 /s/ William C. Gray --------------------------------------- William C. Gray Senior Vice President and Chief Financial Officer 21 CERTIFICATIONS I, Deborah C. Wright, President and Chief Executive Officer of Carver Bancorp, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Carver Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 /s/ Deborah C. Wright ----------------- ----------------------- Deborah C. Wright President and Chief Executive Officer 22 CERTIFICATIONS I, William C. Gray, Senior Vice President and Chief Financial Officer of Carver Bancorp, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Carver Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 /s/ William C. Gray ----------------- ------------------------- William C. Gray Senior Vice President and Chief Financial Officer 23 EX-11 3 d53806_ex-11.txt NET INCOME PER SHARE EXHIBIT 11 COMPUTATION OF NET INCOME PER SHARE FOR THREE AND NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001 (Unaudited) (In thousands, except share data)
Three Months Ended Nine Months Ended December 31, December 31, ----------------------------- ----------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Earnings per common share - basic Net income $ 947 $ 1,717 $ 2,757 $ 3,370 Preferred dividends (49) (49) (148) (148) ----------- ----------- ----------- ----------- Net income - basic $ 898 $ 1,668 $ 2,609 $ 3,222 ----------- ----------- ----------- ----------- Weighted average common shares outstanding - basic 2,290,354 2,282,153 2,289,786 2,281,431 ----------- ----------- ----------- ----------- Earning per common share - basic $ 0.39 $ 0.73 $ 1.14 $ 1.41 =========== =========== =========== =========== Earnings per common share - diluted Net income - basic $ 898 $ 1,668 $ 2,609 $ 3,222 Impact of potential conversion of convertible preferred stock to common stock 49 49 148 148 ----------- ----------- ----------- ----------- Net income- diluted $ 947 $ 1,717 $ 2,757 $ 3,370 =========== =========== =========== =========== Weighted average common shares outstanding - basic 2,290,354 2,282,153 2,289,786 2,281,431 Effect of dilutive securities - convertible preferred stock 208,333 208,333 208,333 208,333 Effect of dilutive securities - options 18,671 -- 24,068 -- ----------- ----------- ----------- ----------- Weighted average shares outstanding - diluted 2,517,358 2,490,486 2,522,187 2,489,764 =========== =========== =========== =========== Earning per common share-diluted $ 0.38 $ 0.69 $ 1.09 $ 1.35 =========== =========== =========== ===========
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