UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,DECEMBER 31, 2004
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission File Number: 0-21487
CARVER BANCORP, INC.
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-3904174
- ------------------------------------------ ------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
75 WEST 125TH STREET, NEW YORK, NEW YORK 10027
- ------------------------------------------ ------------------------------
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 2,504,747
- ----------------------------------------- ------------------------------------
Class Outstanding at October 31, 2004
COMMON STOCK, PAR VALUE $.01 2,481,372
- ------------------------------------------------------- -----------------------------------------------------
Class Outstanding at January 31, 2005
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial
Condition as of September 30, 2004
(unaudited) and March 31, 2004...........................1
Consolidated Statements of Income for
the Three and Six Months Ended September
30, 2004 and 2003 (unaudited)............................2
Consolidated Statement of Changes in
Stockholders' Equity and Comprehensive
Income for the Six Months Ended
September 30, 2004 (unaudited)...........................3
Consolidated Statements of Cash Flows
for the Six Months Ended September 30,
2004 and 2003 (unaudited)................................4
Notes to Consolidated Financial
Statements (unaudited)...................................5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...............8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..........................................24
Item 4. Controls and Procedures....................................24
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings..........................................24
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds ...........................................25
Item 3. Defaults Upon Senior Securities............................25
Item 4. Submission of Matters to a Vote of Security Holders........25
Item 5. Other Information..........................................26
Item 6. Exhibits...................................................26
SIGNATURES....................................................................27
EXHIBITS.....................................................................E-1
Page
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PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
December 31, 2004 (unaudited) and March 31, 2004.......................................1
Consolidated Statements of Income for the Three and Nine Months
Ended December 31, 2004 and 2003 (unaudited)...........................................2
Consolidated Statement of Changes in Stockholders' Equity and
Comprehensive Income for the Nine Months Ended December 31, 2004 (unaudited) ..........3
Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 2004 and 2003 (unaudited)...........................................4
Notes to Consolidated Financial Statements (unaudited).................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................22
Item 4. Controls and Procedures........................................................................22
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings..............................................................................23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...................................23
Item 3. Defaults Upon Senior Securities................................................................24
Item 4. Submission of Matters to a Vote of Security Holders............................................24
Item 5. Other Information..............................................................................24
Item 6. Exhibits.......................................................................................24
SIGNATURES.......................................................................................................26
EXHIBITS........................................................................................................E-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)(In thousands, except share data)
SEPTEMBER 30,DECEMBER 31, MARCH 31,
2004 2004
------------- ---------
ASSETS------------------ -----------------
(UNAUDITED)
ASSETS Cash and cash equivalents:
Cash and due from banks $ 10,93313,136 $ 11,574
Federal Fundsfunds sold 1,5008,500 8,200
Interest Earning Depositsearning deposits 600 3,000
--------- --------------------------- -----------------
Total cash and cash equivalents 13,03322,236 22,774
Securities:
Available-for-sale, at fair value (including pledged as collateral of
$118,058$114,109 at September 30,December 31, 2004 and $82,325 at March 31, 2004) 124,279119,982 96,403
Held-to-maturity, at amortized cost (including pledged as collateral of
$31,943$31,054 at September 30,December 31, 2004 and $42,189 at March 31, 2004; fair value of $32,795 at September 30, 2004 and
$43,794 at March 31, 2004) 32,74431,830 43,474
--------- --------------------------- -----------------
Total securities 157,023151,812 139,877
Loans receivable:
Real estate mortgage loans 375,706411,509 350,015
Consumer and commercial business loans 5,7211,643 6,010
Allowance for loan losses (4,116)(4,119) (4,125)
--------- --------------------------- -----------------
Total loans receivable, net 377,311409,033 351,900
Office properties and equipment, net 13,22713,323 11,682
Federal Home Loan Bank of New York stock, at cost 4,6255,625 4,576
Accrued interest receivable 2,6562,713 2,489
Other assets 12,54811,326 5,532
--------- --------------------------- -----------------
Total assets $ 580,423616,068 $ 538,830
========= =========================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 426,808436,425 $ 373,665
Advances from the Federal Home Loan Bank of New York and other borrowed money 100,582125,290 104,282
Other liabilities 7,5298,791 16,238
--------- --------------------------- -----------------
Total liabilities 534,919570,506 494,185
Stockholders' equity:
Preferred stock (par value $0.01 per share; 1,000,000 shares authorized;
100,000 issued and outstanding) 10 and 100,000 outstanding December 31, 2004 and
March 31, 2004, respectively) - 1
Common stock (par value $0.01 per share: 5,000,00010,000,000 shares authorized;
2,524,691 and 2,316,358 shares issued; 2,295,366issued at December 31, 2004 and
March 31, 2004, respectively; 2,480,393 and 2,285,267 outstanding at
September 30,December 31, 2004 and March 31, 2004, respectively) 2325 23
Additional paid-in capital 23,91623,913 23,882
Retained earnings 21,85622,536 20,892
Unamortized awards of common stock under management recognition plan ("MRP") (11) (21)
Treasury stock, at cost (20,992(44,298 shares at September 30,December 31, 2004 and 31,091
shares at March 31, 2004) (295)(751) (390)
Accumulated other comprehensive income 14(150) 258
--------- --------------------------- -----------------
Total stockholders' equity 45,50445,562 44,645
--------- --------------------------- -----------------
Total liabilities and stockholders' equity $ 580,423616,068 $ 538,830
========= =========
See accompanying notes to consolidated financial statements.================== =================
1
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,DECEMBER 31, DECEMBER 31,
------------------------------- --------------------------------
(UNAUDITED) (UNAUDITED)
2004 2003 2004 2003
--------- -------- -------- --------
Interest income:-------------- ------------- --------------- --------------
Interest Income:
Loans $ 5,7005,780 $ 5,0615,025 $ 11,11616,897 $ 9,927
Mortgage-backed14,952
Total securities 1,102 1,218 2,129 2,444
Investment securities 189 297 422 6671,411 1,396 3,962 4,507
Federal funds sold 22 26 58 81
-------- -------- -------- --------32 62 89 143
-------------- ------------- --------------- --------------
Total interest income 7,013 6,602 13,725 13,119
-------- -------- -------- --------7,223 6,483 20,948 19,602
Interest expense:
Deposits 1,313 1,143 2,438 2,4191,449 1,140 3,886 3,560
Advances and other borrowed money 1,055 966 2,098 1,920
-------- -------- -------- --------1,036 1,076 3,134 2,996
-------------- ------------- --------------- --------------
Total interest expense 2,368 2,109 4,536 4,339
-------- -------- -------- --------2,485 2,216 7,020 6,556
Net interest income 4,645 4,493 9,189 8,7804,738 4,267 13,928 13,046
Provision for loan losses -- -- -- --
-------- -------- -------- --------- - - -
-------------- ------------- --------------- --------------
Net interest income after provision for loan losses 4,645 4,493 9,189 8,780
-------- -------- -------- --------4,738 4,267 13,928 13,046
Non-interest income:
Depository fees and service charges 535 490 1,055 974600 479 1,655 1,454
Loan fees and service charges 557 492 1,080 1,137466 1,037 1,547 2,175
Gain (loss) on sale of securities -- 31- - 94 31
Impairment of securities - - (1,472) -- (1,472) ---
Gain on sale of loans 44 -- 45 --28 55 74 55
Grant income - - 1,140 -- 1,140 ---
Other 26 561 28 572
-------- -------- -------- --------109 6 135 577
-------------- ------------- --------------- --------------
Total non-interest income 830 1,574 1,970 2,714
-------- -------- -------- --------1,203 1,577 3,173 4,292
Non-interest expense:
CompensationEmployee compensation and benefits 2,068 1,798 4,069 3,6032,365 1,989 6,435 5,592
Net occupancy expense 473 343 876 667526 385 1,402 1,053
Equipment 395 399 764 782400 331 1,165 1,113
Merger related expenses - - 847 -- 847 ---
Other 1,286 1,350 2,452 2,619
-------- -------- -------- --------1,216 1,267 3,667 3,885
-------------- ------------- --------------- --------------
Total non-interest expense 5,069 3,890 9,008 7,671
-------- -------- -------- --------4,507 3,972 13,516 11,643
Income before income taxes 406 2,177 2,151 3,8231,434 1,872 3,585 5,695
Income taxes 151 751 814 1,310
-------- -------- -------- --------514 636 1,328 1,946
-------------- ------------- --------------- --------------
Net income $ 255920 $ 1,4261,236 $ 1,3372,257 $ 2,513
======== ======== ======== ========3,749
============== ============= =============== ==============
Dividends applicable to preferred stock $ 4916 $ 49 $ 98114 $ 98148
Net income available to common stockholders $ 206904 $ 1,3771,187 $ 1,2392,143 $ 2,415
======== ======== ======== ========3,601
============== ============= =============== ==============
Earnings per common share:
Basic $ 0.090.37 $ 0.600.52 $ 0.540.91 $ 1.05
======== ======== ======== ========1.58
============== ============= =============== ==============
Diluted $ 0.09 $ 0.55 $ 0.51 $ 0.98
======== ======== ======== ========0.36 0.47 0.87 1.45
============== ============= =============== ==============
See accompanying notes to consolidated financial statements.
2
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE SIXNINE MONTHS ENDED SEPTEMBER 30,DECEMBER 31, 2004
(IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
COMMON TOTAL
ADDITIONAL OTHER STOCK STOCK-
PREFERRED COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE
ACQUIRED HOLDERS'
STOCK STOCK CAPITAL EARNINGS STOCK INCOME BY MRP EQUITY
--------- ------- ---------- -------- --------(LOSS)
-------------- ----------- ------------- -------- ---------------------- ----------- --------------------
Balance-MarchBALANCE-MARCH 31, 2004 $ 1 $ 23 $ 23,882 $ 20,892$1 $23 $23,882 $20,892 ($390) $ 258 ($ 21) $ 44,645$258
Comprehensive income:
Net Income for the three months
ended June 30, 2004 -- -- --- - - 1,082 -- -- -- $ 1,082- -
Change in net unrealized gain on
securities, net of taxes -- -- -- -- --- - - - - (1,110) -- ($ 1,110)
Dividends paid -- -- --- - - (213) -- -- -- ($ 213)- -
Treasury stock activity -- --- - 6 --- 60 -- (81) ($ 15)-
Allocation of shares for MRP -- --- - 34 -- -- -- -- $ 34
-------- ------- ---------- -------- -------- -------- -------- --------
Balance-June- - -
-------------- ----------- ------------- ------------- ----------- --------------------
BALANCE-JUNE 30, 2004 $ 1 $ 23 $ 23,922 $ 21,761$1 $23 $23,922 $21,761 ($330) ($852) ($ 102) $ 44,423
======== ======= ========== ======== ======== ======== ======== ========
Comprehensive income:
Net Income for the periodthree months
ended September 30, 2004 -- -- --- - - 255 -- -- -- 255- -
Change in net unrealized gain on
securities, net of taxes -- -- -- -- -- 866 --- - - - - 866
Dividends paid -- -- --- - - (160) -- -- -- (160)- -
Treasury stock activity -- --- - (6) --- 35 -- 91 120
-------- ------- ---------- -------- -------- -------- -------- --------
Balance-September-
-------------- ----------- ------------- ------------- ----------- --------------------
BALANCE-SEPTEMBER 30, 2004 $ 1 $ 23 $ 23,916 $ 21,856$1 $23 $23,916 $21,856 ($295) $ 14$14
Comprehensive income:
Net Income for the three months
ended December 31, 2004 - - - 920 - -
Change in net unrealized gain on
securities, net of taxes - - - - - (164)
Dividends paid - - - (240) - -
Treasury stock activity (1) 2 (3) - (456) -
-------------- ----------- ------------- ------------- ----------- --------------------
BALANCE-DECEMBER 31, 2004 $0 $25 $23,913 $22,536 ($ 11) $ 45,504
======== ======= ========== ======== ======== ======== ======== ========751) ($150)
============== =========== ============= ============= =========== ====================
COMMON TOTAL
STOCK STOCK-
ACQUIRED HOLDERS'
BY MRP EQUITY
------------ ---------------
BALANCE-MARCH 31, 2004 ($21) $44,645
Comprehensive income:
Net Income for the three months
ended June 30, 2004 - $1,082
Change in net unrealized gain on
securities, net of taxes - ($1,110)
Dividends paid - ($213)
Treasury stock activity (81) ($15)
Allocation of shares for MRP - $34
------------ ---------------
BALANCE-JUNE 30, 2004 ($102) $44,423
Comprehensive income:
Net Income for the three months
ended September 30, 2004 - 255
Change in net unrealized gain on
securities, net of taxes - 866
Dividends paid - (160)
Treasury stock activity 91 120
------------ ---------------
BALANCE-SEPTEMBER 30, 2004 ($11) $45,504
Comprehensive income:
Net Income for the three months
ended December 31, 2004 - 920
Change in net unrealized gain on
securities, net of taxes - (164)
Dividends paid - (240)
Treasury stock activity - (458)
------------ ---------------
BALANCE-DECEMBER 31, 2004 ($11) $45,562
============ ===============
See accompanying notes to consolidated financial statements.
3
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIXNINE MONTHS ENDED SEPTEMBER 30,
--------------------------------DECEMBER 31,
----------------------------------------
2004 2003
-------- --------------------------- ------------------
Cash flows from operating activities:
Net income $ 1,3372,257 $ 2,5133,749
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses -- --- -
ESOP and MRP expense 114 18
Depreciation and amortization expense 696 5701,070 850
Amortization of intangibles -- 107- 160
Other amortization 2,731 2,3493,313 1,688
Gain from sale of securities (94) ---
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable (167) 362
Increase(224) 930
(Increase) decrease in other assets (7,121) (4,238)(6,020) 7,200
Decrease in other liabilities (8,580) (4,710)
(Decrease) increase in accrued interest payable (100) 4
-------- --------(7,404) (4,986)
------------------- ------------------
Net cash used in operating activities (11,184) (3,025)
-------- --------(6,988) 9,609
------------------- ------------------
Cash flows from investing activities:
Purchases of securities:
Available-for-sale (68,479) (36,925)(78,125) (58,429)
Held-to-maturity -- (19,880)- (19,860)
Proceeds from principal payments, maturities and calls
of securities:
Available-for-sale 31,109 37,44244,661 60,193
Held-to-maturity 10,592 4,45211,482 6,959
Proceeds from sales of available-for-sale securities 7,288 23,871
Disbursements for loan originations (49,878) (36,683)(77,351) (69,540)
Loans purchased from third parties (31,480) (38,751)(78,020) (69,158)
Principal collections on loans 51,612 53,389
Purchase90,778 87,365
(Purchase) redemption of FHLB-NY stock (49) (162)(1,049) 564
Proceeds from loans sold 4,042 --6,999 6,512
Additions to premises and equipment (2,241) (846)
-------- --------(2,711) (1,526)
------------------- ------------------
Net cash used in investing activities (47,484) (14,093)
-------- --------(76,048) (33,049)
------------------- ------------------
Cash flows from financing activities:
Net increase in deposits 53,143 14,05662,760 21,112
Net repayment of FHLB advances and
other borrowed money (3,729) (11,352)20,966 (11,404)
Issuance of junior subordinated debentures -- 12,740- 12,728
Common stock repurchased (114)(615) (303)
Dividends paid (373) (327)
-------- --------(613) (540)
------------------- ------------------
Net cash provided by financing activities 48,927 14,814
-------- --------82,498 21,593
------------------- ------------------
Net decrease in cash and cash equivalents (9,741) (2,304)(538) (1,847)
Cash and cash equivalents at beginning of the period 22,774 23,160
-------- --------------------------- ------------------
Cash and cash equivalents at end of the period $ 13,033 $ 20,856
======== ========22,236 21,313
=================== ==================
Supplemental information:
Noncash Transfers-
Change in unrealized gain on valuation of
available-for-sale investments, net $ (244) $ (669)(775)
Cash paid for-
Interest $ 4,6367,048 $ 4,3006,584
Income taxes 1,9402,394 2,825
See accompanying notes to consolidated financial statements
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Carver
Bancorp, Inc. (the "Holding Company") have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange
Commission ("SEC"). Accordingly, they do not include all of the information and
footnotes required by GAAP for complete consolidated financial statements.
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.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the financial
condition, results of operations, changes in stockholders' equity and cash flows
of the Holding Company and its subsidiaries on a consolidated basis as of and
for the periods shown have been included.
The unaudited consolidated financial statements presented herein should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Holding Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2004 ("2004 10-K") previously filed with the SEC.
The consolidated results of operations and other data for the three-month or
six-monthnine-month periods ended September 30,December 31, 2004 are not necessarily indicative of
results that may be expected for the entire fiscal year ending March 31, 2005
("fiscal 2005").
The accompanying 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"), Alhambra Holding Corp.,
an inactive Delaware corporation, and the Bank's wholly-owned subsidiaries, CFSB
Realty Corp. and CFSB Credit Corp., and the Bank's majority owned subsidiary,
Carver Asset Corporation. The Holding Company and its consolidated subsidiaries
are referred to herein collectively as "Carver" or the "Company." All
significant inter-company accounts and transactions have been eliminated in
consolidation.
In addition, the Holding Company ownshas a subsidiary, Carver Statutory
Trust I, which is not consolidated with Carver for financial reporting purposes
as a result of our adoption of Financial Accounting Standards Board ("FASB"),
revised Interpretation No. 46, "CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AND
INTERPRETATION OF ACCOUNTING RESEARCH BULLETIN NO. 51" ("FIN 46R"), effective January 1,
2004. Carver Statutory Trust I was formed in 2003 for the purpose of issuing
13,000 shares, liquidation amount $1,000 per share, of floating rate capital
securities ("trust preferred securities"). Gross proceeds from the sale of these
trust preferred securities were $13.0 million, and, together with the proceeds
from the sale of the trust's common securities, were used to purchase
approximately $13.4 million aggregate principal amount of the Holding Company's
floating rate junior subordinated debt securities due 2033. The trust preferredjunior
subordinated debt securities are redeemablerepayable quarterly at the option of the
Holding Company, beginning on or after July 7, 2007, and have a mandatory
redemptionrepayment date of September 17, 2033. Cash distributionsInterest on the trust preferredjunior subordinated debt
securities areis cumulative and payable at a floating rate per annum (reset
quarterly) equal to 3.05% over three-month LIBOR, with a rate of 4.93%5.55% as of
September 30,December 31, 2004. The Holding Company has fully and unconditionally guaranteed
the obligations of Carver Statutory Trust I to the trust's capital security
holders. See Note 68 for further discussion of the impact of our adoption of FIN
46R.
(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.outstanding over the period of determination. Diluted earnings per common share
include any additional common shares as if all potentially dilutive common
shares were issued (for instance, convertible preferred stock and stock options
with an exercise price that is less than the average market price of the common
shares for the periods stated). For the purpose of these calculations,
unreleased ESOP shares are not considered to be outstanding. For each of the
three-month periods ended September 30,December 31, 2004 and 2003, preferred dividends of
$49,000$15,837 and $49,250, respectively, were deducted from net income to arrive at
the amount of net income available to common stockholders. Additionally, for
both the three-month periods ended September 30,December 31, 2004 and 2003, 33,967 and
208,333 shares of common stock, respectively, were potentially issuable from the
conversion of preferred stock and
89,018stock. Also, 90,770 shares of common stock at September 30,December
31, 2004 and 81,384112,358 shares of common stock at September 30,December 31, 2003 were
potentially issuable from the exercise of stock options with an exercise price
that is less than the average market price of the common shares for the
three-months ended September 30,December 31, 2004 and September 30,December 31, 2003, respectively,respectively. The
effects of both of these potentially dilutive common shares were considered in
determining the diluted net income per common share.
5
(3) STOCK OPTION PLAN
ACCOUNTING FOR STOCK BASED COMPENSATION
The Holding Company grants "incentive stock options" only to its
employees and grants "nonqualified stock options" to employees and non-employee
directors. Under Accounting Principle Board Opinion No. 25 "ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES", no compensation expense is recognized if the exercise
price of the option is greater than or equal to the fair market value of the
underlying stock on the date of grant. Since we have elected to apply the
intrinsic value method of accounting for stock-based compensation, we are
required to disclose the pro-forma impact on net income and earnings per share
that the fair value-based method would have had if it were applied rather than
the intrinsic value method. Our policy with regard to stock-based compensation
has been to grant employee stock options and restricted stock awards after
fiscal year-end. Since most stock options are typically awarded after fiscal
year-end and contain a nominal vesting period, no pro-forma compensation expense
andor its related effect on net income and earnings per share have been reported
herein. In December 2004, the FASB has adopted SFAS No. 123R which will require
the fair value method to be used to account for stock based compensation and
will require recognizing compensation expense in the financial statements after
June 15, 2005. Further disclosure is presented in Note 1 - "Summary of
Significant Accounting Policies -- Stock Based Compensation Plans" of our
audited consolidated financial statements in Carver's 2004 10-K which is
incorporated herein by reference.
(4) EMPLOYEE BENEFIT PLANS
PENSION PLAN
Carver Federal has a non-contributory defined benefit pension plan
covering all eligible employees. The benefits are based on each employee's term
of service. Carver Federal's policy is to fund the plan with contributions which
equal the maximum amount deductible for federal income tax purposes. The pension
plan was curtailed and future benefit accruals ceased as of December 31, 2000.
DIRECTORS' RETIREMENT PLAN
Concurrent with the conversion to a stock form of ownership, Carver
Federal adopted a retirement plan for non-employee directors. The directors'
retirement plan was curtailed during the fiscal year ended March 31, 2001. The
benefits are payable based on the term of service as a director.
The following table sets forth the components of net periodic pension
expense for the pension plan and directors' retirement plan for the three months
ended September 30December 31 of the fiscalcalendar years indicated.
EMPLOYEE PENSION PLAN NON-EMPLOYEE DIRECTORS' PLAN
2004 2003 2004 2003
------ ------ ------ ----------------------- --------------- ----------------- -----------------
(IN THOUSANDS)
Interest Cost $ 42 $ 43 $ 2 $ 3
Expected Return on Assets (59) (56) -- --
------ ------ ------ ------- -
--------------- --------------- ----------------- -----------------
Net Periodic Benefit Expense / (Credit) $4 (17) $ (13) $ 2 $ 3
====== ====== ====== ===================== =============== ================= =================
(5) SUBSEQUENT EVENTSCONVERTIBLE PREFERRED STOCK
On September 15, 2004, the Holding Company issued a press release and mailed a
Notice of Redemption and a related Letter of Transmittal to the holders of its
Series A and Series B Convertible Preferred Stock (the "Preferred Shares"), par
value $0.01 per share, stating that it would redeem all 40,000 outstanding
shares of its Series A Convertible Preferred Stock and all 60,000 outstanding
shares of its Series B Convertible Preferred Stock. The Preferred Shares were to
be redeemed on October 15, 2004 ("Redemption Date") at a redemption price of
$26.97 per share plus $0.65 in accrued and unpaid dividends to, but excluding,
the Redemption Date for an aggregate redemption price of $27.62 per Preferred
Share. Dividends on the Preferred Shares would ceasehave ceased to accrue on the
Redemption Date. On October 20, 2004 the Holding Company announced that the
holders of all 40,000 outstanding shares of Carver'sits Series A Convertible Preferred
Stock and all 60,000 outstanding shares of
6
its Series B Convertible Preferred Stock had elected prior to the Redemption
Date, pursuant to the Certificate of Designations, Preferences and Rights of the
Preferred Shares, to convert their Preferred Shares into shares of Carver's
common stock, par value $0.01 (the "Common Stock"). Upon conversion of their
Preferred Shares, the holders were issued an aggregate of 208,333 shares of
Common Stock.
(6) COMMON STOCK DIVIDEND
On October 15, 2004 the Holding Company was advised by the Office of
Thrift Supervision ("OTS") that the OTS has denied Carver's application to
consummate the merger agreement between the Holding Company, the Bank and
Independence Federal Savings Bank of Washington, D.C. ("IFSB"). That merger
agreement was subject to, among other things, approval by the OTS. Among the
reasons communicated to Carver by the OTS for its position was the OTS's concern
6
related to the financial resources and future prospects of the combined company,
including concerns about the capitalization of the combined company and its
future profitability. As a result of the OTS decision, on October 26, 2004 the
Holding Company, the Bank and IFSB announced their mutual agreement to terminate
the merger agreement and to release each other party from all related
liabilities.
On October 26, 2004,January 25, 2005, the Board of Directors of the Holding Company declared, for
the quarter ended September 30,December 31, 2004, a cash dividend of seven cents ($0.07) per
common share outstanding. The dividend is payable on November
23, 2004February 24, 2005 to
stockholders of record at the close of business on November 9, 2004.
(6)February 10, 2005.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING AND DISCLOSURE REQUIREMENT RELATED TO THE MEDICARE PRESCRIPTION DRUG,
IMPROVEMENT AND MODERNIZATION ACT OF 2003
In January 2004, FASB issued FASB Staff position ("FSP") No. 106-1
"ACCOUNTING AND DISCLOSURE REQUIREMENTS RELATED TO MEDICARE PRESCRIPTION DRUG,
IMPROVEMENT AND MODERNIZATION ACT OF 2003" ("Medicare Act") for annual financial
statements of fiscal years ending after December 7, 2003. The Medicare Act
introduced both a Medicare prescription-drug benefit and federal subsidy to
sponsors of retiree health-care plans that provide a benefit at least
"actuarially equivalent" to the Medicare benefit.
In May 2004, the FASB issued FSP No. 106-2 "ACCOUNTING AND DISCLOSURE
REQUIREMENTS RELATED TO THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT AND
MODERNIZATION ACT OF 2003" ("Revised Medicare Act")," which supersedes FSP No.
106-1 of the same name. The Company is not affected by the Revised Medicare Act
since it does not provide retiree health-care benefits.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITBENEFITS
In December 2003, the FASB issued a revised SFASStatement of Financial
Accounting Standards ("SFAS") No. 132, "EMPLOYERS' DISCLOSURES ABOUT PENSIONS
AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF FASB STATEMENTS NOS. 87, 88
AND 106" ("SFAS No. 132(R)"). SFAS No. 132(R) requires additional disclosures to
those in the original statement about the assets, obligations, cash flows and
net periodic benefit cost of defined benefit pension plans and other defined
postretirement plans. SFAS No. 132(R) also amends Accounting Principles Board
("APB") Opinion No. 28, "INTERIM FINANCIAL REPORTING," to require interim
disclosure of the components of net periodic benefit cost and, if significantly
different from previously disclosed amounts, the amounts of contributions and
projected contributions to fund pension plans and other postretirement benefit
plans. SFAS No. 132(R) is effective for financial statements for fiscal years
ending after December 15, 2003, except for disclosure of estimated future
benefit payments, which is effective for fiscal years ending after June 15,
2004. The Company has adopted the disclosure provisions of SFAS No. 132(R).
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In December 2003, the FASB issued FIN46R."CONSOLIDATION OF VARIABLE INTEREST
ENTITIES, AND INTERPRETATION OF ACCOUNTING RESEARCH BULLETIN NO. 51" ("FIN46R").
FIN46R addresses how a business enterprise should evaluate whether it has a
controlling financial interest in an entity through means other than voting
rights and, accordingly, should consolidate the variable interest entity ("VIE").entity. FIN46R
replaces FIN46an earlier version that was issued in January 2003. All public
companies, such as Carver, arewere required to fully implement FIN46R no later than
the end of the first reporting period ending after March 15, 2004. The adoption
of FIN46R resulted in the deconsolidation of Carver Statutory Trust I, which did
not have a material impact on the Company's financial condition or results of
operations.
ACCOUNTING FOR CERTAIN LOANS OR DEBT SECURITIES ACQUIRED IN A TRANSFER
In December 2003, the American Institute of Certified Public
Accountants issued Statement of Position No. 03-3, "ACCOUNTING FOR CERTAIN LOANS
OR DEBT SECURITIES ACQUIRED IN A TRANSFER" ("SOP No. 03-3"). SOP No. 03-3
addresses accounting for differences between contractual cash flows and cash
flows expected to be collected from an investor's initial investment in loans or
debt securities acquired in a transfer if those differences are attributable, at
least in part, to credit quality. SOP No. 03-3 prohibits "carry over" or
creation of valuation allowances in the initial accounting of all loans acquired
in transfers within the scope of SOP No. 03-3, which includes loans acquired in
a business combination. SOP No. 03-3 is effective for loans acquired in fiscal
years beginning after December 15, 2004. The adoption of SOP No. 03-3 is not
expected to have ana material impact on the Company's financial condition or
results of operations.
7
ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY
In May 2003, the FASB issued StatementSFAS No. 150, "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY"
("SFAS No. 150"). The SFAS No. 150 requires issuers to classify as liabilities
(or assets in some circumstances) three classes of freestanding financial
instruments that embody obligations for the issuer. Generally, the statement is
effective for financial instruments entered into or modified after May 31, 2003
and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption and implementation of SFAS No. 150
did not have a material impact on the Company's earnings or financial position.
AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In April 2003, the FASB issued StatementSFAS No. 149, "AMENDMENT OF STATEMENT
133 ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,"ACTIVITIES" ("SFAS NO. 149"), which
amends and clarifies financial accounting and reporting of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under FASB Statement No. 133, "ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"("SFAS NO. 133)133")." SFAS No. 149
is generally effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003, and should
generally be applied prospectively. The provisions of SFAS No. 149 that relate
to SFAS No. 133 implementation issues that have been effective for fiscal
quarters that began prior to June 15, 2003 should continue to be appliedapplicable in
accordance with their respective effective dates. In addition, the provisions of
SFAS No. 149 whichthat relate to forward purchases or sales of when-issued
securities, or other securities that do not yet exist, should be appliedare applicable to both
existing contracts and new contracts entered into after June 30, 2003. The
adoption of SFAS No. 149 did not have a material impact on our financial
condition or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXPLANATORY NOTEFORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q,
which are not historical facts, are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). In addition, senior management may make
forward-looking statements orally to analysts, investors, the media and others.
These forward-looking statements may be identified by the use of such words as
"believe," "expect," "anticipate," "intend," "should," "will," "would," "could,"
"may," "planned," "estimated," "potential," "outlook," "predict," "project" and
similar terms and phrases, including references to assumptions. Forward-looking
statements are based on various assumptions and analyses made by the Company in
light of the management's experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors
believed to be appropriate under the circumstances. These statements are not
guarantees of future performance and are subject to risks, uncertainties and
other factors, many of which are beyond the Company's control, that could cause
actual results to differ materially from future results expressed or implied by
such forward-looking statements. Factors which could result in material
variations include, without limitation, the Company's success in implementing
its initiatives, including expanding its product line, adding new branches and
ATM centers, successfully re-branding its image and achieving greater operating
efficiencies; increases in competitive pressure among financial institutions or
non-financial institutions; legislative or regulatory changes which may
adversely affect the Company's business or the cost of doing business;
technological changes which may be more difficult or expensive than we
anticipate; changes in interest rates which may reduce net interest margins and
net interest income; changes in deposit flows, loan demand or real estate values
which may adversely affect the Company's business; changes in accounting
principles, policies or guidelines which may cause the Company's condition to be
perceived differently; litigation or other matters before regulatory agencies,
whether currently existing or commencing in the future, which may delay the
occurrence or non-occurrence of events longer than anticipated; the ability of
the Company to originate and purchase loans with attractive terms and acceptable
credit quality; and general economic conditions, either nationally or locally in
some or all areas in which the Company does business, or conditions in the
securities markets or the banking industry which could affect decreased
liquidity in the capital markets, the volume of loan origination, deposit flows,
real estate values, the levels of non-interest income and the amount of loan
losses.
The forward-looking statements contained herein are made as of the date
of this Form 10-Q, and the Company assumes no obligation to, and expressly
disclaims any obligation to, update these forward-looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
such forward-looking statements or to update the reasons why actual results
could differ from those projected in the forward-looking statements. You should
consider these risks and uncertainties in evaluating forward-looking statements
and you should not place undue reliance on these statements.
8
As used in this Form 10-Q, "we," "us" and "our" refer to the Holding
Company and its consolidated subsidiaries, unless the context otherwise
requires.
8
OVERVIEW
The Holding Company, a Delaware corporation, is the holding company for
Carver Federal, a federally chartered savings bank, and, on a parent-only basis,
had minimal results of operations. The Holding Company is headquartered in New
York, New York. The Holding Company conducts business as a unitary savings and
loan holding company, and the principal business of the Holding Company consists
of the operation of its wholly-owned subsidiary, Carver Federal, which, as of
January 31, 2005, operates seveneight full-service banking locations in the New York
City boroughs of Brooklyn, Queens and Manhattan.Manhattan and three standalone 24/7 ATM
centers.
The Holding Company is dependent on dividends from the Bank, its own
earnings, capital raised and borrowings for sources of funds. The information
below reflects principally the financial condition and results of operations of
the Bank. The Bank's results of operations are primarily dependent on its net
interest income, which is the difference between the interest earned on ourits
assets, primarily ourits loans and securities, and the interest paid on ourits
deposits and borrowings. OurThe Bank's earnings are also affected by general
economic and competitive conditions, particularly changes in market interest
rates and government and regulatory policies.
Net incomeThroughout the fiscal year ended March 31, 2004 ("fiscal 2004"), the
Bank was impacted by the low interest rate environment, which held steady within
historically low ranges. The low interest rate environment accelerated
repayments of our mortgage loans and mortgage-backed securities and also allowed
for lowering the three and six months ending September 30, 2004
decreased compared toBank's cost of funds, the three and six months ended September 30, 2003. The
decreasenet effect of which resulted in net income was primarily due an increasea
decline in non-interest expense and
a decrease in non-interest income, partially offset by an increase inour net interest income. The increase in non-interest expense was primarily due to
merger related charges and increases in employee compensation and benefit and
occupancy expenses as a result of new branch openings. Non-interest income
decreased primarily as a result of the recognition in fiscal 2004 of a recovery
of previously unrecognized mortgage loan income. Additionally, non-interest
income declined in the second quarter ofmargin. Throughout fiscal 2005 dueinterest rates began
to an impairment chargeincrease, which further negatively impacted our net interest margin as
interest rates paid on IFSB stock owned by the Holding Company partially offset by grant income
received by the Bank. Net interest incomeliabilities increased primarily as a result of
higher mortgage loan income partially offset by higher deposit expenses.more quickly than yields earned on
assets.
The Bank pursues typical thrift activities through originating and
purchasing mortgage loans and funds that activity with the gathering of
deposits. The Bank supplements these mortgage lending activities with additional
interest-earning assets such as mortgage-backed securities and funding sources
such as advances from the Federal Home Loan Bank of New York ("FHLB-NY'). The
Bank also generates other income such as fee income on deposit and loan accounts
and, to a lesser extent, ATM fees, debit card interchange fees and, depending on
market conditions, net gains on sales of securities and loans. The level of its
expenses such as salaries and benefits, occupancy and equipment costs, other
general and administrative expenses, net losses on sales of securities and loans
and income tax expense further affects the Bank's net income. As the largest
publicly-traded African- and Caribbean-American run bank in the United States,
ourOur goal is to
build a solid banking franchisecontinue profitable growth by focusingincreasing our loan and deposit market share in
our existing markets, closely managing the yields on growingearning assets and rates on
interest-bearing liabilities, introducing new financial products and services,
increasing non-interest income from investment and insurance brokerage services,
and controlling the core
businessesgrowth of mortgagenon-interest expenses.
The Bank's results reflect momentum building in our lending and retail
banking while maintaining superior
asset quality and maximizing shareholder value. This discussion and analysisdepartments, which produced gains in total loans receivable as well as deposits.
While interest income increased year over year, the progress was not enough to
eliminate the impact of margin compression experienced throughout our industry,
as the Company's financial condition should be read in conjunction with the audited
Consolidated Financial Statements, the notes thereto and other financial
information included in the Company's 2004 10-K. Each of these elements is
discussed in the analysis of our financial results.
Throughout the fiscal year ended March 31, 2004 ("fiscal 2004"), the
Bank has beenU.S. Treasury yield curve continued to flatten. In addition, non-interest
income was negatively impacted by the low interest rate environment, which held steady
within historically low ranges. The low interest rate environment accelerated
repayments of our mortgage loans and mortgage-backed securities and also allowed
for lowering the Bank's cost of funds, the net effect of which resulted in a
decline in ourmortgage refinance activity,
significantly reducing income from mortgage prepayment penalties. As expected,
non-interest expense increased as a result of the successful launch of new
branches and 24/7 ATM centers during the year.
Net income for the three and nine months ended December 31, 2004
decreased compared to the three and nine months ended December 31, 2003. The
decrease in net income was primarily due to an increase in non-interest expense
and a decrease in non-interest income, partially offset by an increase in net
interest margin. Inincome. The increase in non-interest expense was primarily due to
merger-related charges and increases in employee compensation and benefits and
occupancy expenses as a result of new branch and ATM center openings.
Non-interest income was lower this period primarily as a result of the
first two quartersrecognition in fiscal 2004 of a recovery of previously unrecognized mortgage
loan income. The decline in non-interest income for the nine-month period also
reflects the decline in the second quarter of fiscal 2005 due to an impairment
charge on Independence Federal Savings Bank ("IFSB") stock owned by the Holding
Company partially offset by grant income received by the Bank. Net interest
rates began to increase, which can negatively impact net interest
marginincome increased primarily as interest rates paid on liabilities increases more quickly than yields
earned on assets.a result of higher mortgage loan income partially
offset by higher deposit expenses.
At September 30,December 31, 2004, total assets increased by $41.6$77.2 million to $580.4$616.1
million compared to $538.8 million at March 31, 2004. The asset growth primarily
reflects increases in net loans receivable and securities. Loans increased as
new mortgage loan originations and purchases exceeded mortgage loan repayments.
The increase in securities was attributable to the purchase of mortgage-backed
securities to meet the collateral requirements for the New York State deposits
received in our Jamaica Center branch.
9
At September 30,December 31, 2004, total liabilities increased by $40.7$76.3 million to
$534.9$570.5 million compared to $494.2 million at March 31, 2004. The increase in liabilities isLiabilities
increased mainly theas a result of $53.1$62.8 million in deposit growth, $50.0 million
of which was deposited into various Bank branches by the City and State of New
York under the Banking Development District program.program and the remainder of which
was retail deposit growth. Additionally, advances from the FHLB-NY and other
borrowed money increased $21.0 million. The increase in deposits was partially
offset by repayments of
matured borrowings and a decrease in other liabilities of $7.4 million, resulting primarily
from the payment of bank checks and income taxes and bank checks.taxes. The increase in liabilities
was primarily used to fund loan growth.
At September 30,December 31, 2004, total stockholders' equity increased $859,000$917,000 to
$45.5$45.6 million compared to $44.6 million at March 31, 2004. The increase in total
stockholders' equity was primarily attributable to an increasegrowth in retained earnings
of $964,000$1.6 million generated from fiscal 2005 year-to-date earnings, partially
offset by a decrease in accumulated other comprehensive income of $408,000
related to the mark-to-market of the Bank's available-for-sale securities.
9
securities and a
reduction of $361,000 related to the Bank's repurchase of its outstanding common
stock through its stock repurchase program.
Asset quality of the Bank's loan portfolio remained strong. The Company
did not provide for additional loan loss reserves as the Company considers the
current overall allowance for loan losses to be adequate.
Net income available to common stockholders decreased $1.2 million,$283,000 to
$206,000$904,000 compared to $1.4$1.2 million for the same three-month period last year.
These results were affected by two significant events this quarter. Results were impacted by charges related to the terminationdeclines in non-interest income and higher operating
expenses offset by increases in net interest income.
This discussion and analysis of the Company's merger agreementfinancial condition
should be read in conjunction with IFSBthe audited Consolidated Financial
Statements, the notes thereto and impairment charges on IFSB stock owned byother financial information included in the
Holding Company,
offset in part by an award to the Bank by the Community Development Financial
Institutions ("CDFI") Fund of the Department of the Treasury.Company's 2004 10-K.
CRITICAL ACCOUNTING POLICIES
Note 1 to our audited Consolidated Financial Statements for fiscal 2004
included in our 2004 10-K, as supplemented by this report, contains a summary of
our significant accounting policies and is incorporated herein. We believe our
policies with respect to the methodology for our determination of the allowance
for loan losses and asset impairment judgments, including other than temporary
declines in the value of our securities, involve a high degree of complexity and
require management to make difficult and subjective judgments which often require assumptions
or estimates about highly uncertain matters. Changes in these judgments,
assumptions or estimates could cause reported results to differ materially. The
description of these policies should be read in conjunction with the
corresponding section of our 2004 10-K.
ALLOWANCE FOR LOAN LOSSES
AnCarver Federal maintains a loan review system to monitor the overall
quality of its loan portfolio, which allows for a periodic review of its loan
portfolio and the early identification of potential problem loans. Such system
takes into consideration, among other things, delinquency status, size and
concentration of loans, type of collateral and financial condition of the
borrowers. Loan loss allowances are established, using the methodology described
below. Although management believes that adequate loan loss allowances have been
established, actual losses are dependent upon future events and, as such,
further adjustments to the level of the loan loss allowance may be necessary in
the future.
The allowance for loan losses is maintained at a level considered
adequate to provide for potential loan losses.losses in the loan portfolio. Management
is responsible for determining the adequacy of the allowance for loan losses and
the periodic provisioning for estimated losses included in the consolidated
financial statements. The evaluation process is undertaken on a quarterly basis,
but may increase in frequency should conditions arise that would require
management's prompt attention, such as business combinations and opportunities
to dispose of non-performing and marginally performing loans by bulk sale or any
development which may indicate an adverse trend. The Asset/Liability and
Interest Rate Risk Committee of Carver Federal's Board of Directors reviews
management's determination on a quarterly basis.
The methodology employed for assessing the appropriateness of the
allowance for loan losses consists of the following criteria:
o Establishment of reserveallowance amounts for all
specifically identified criticized loans that have
been designated as requiring attention by
management's internal loan review program, bank
regulatory examinations or the external auditors.
o An average loss factor is applied to smaller balance
homogenous types of loans not subject to specific
review. These loans include residential one- to
four-family, multifamily, nonresidential and
construction properties, which also includes consumer
and business loans.
o An allocation to the remaining loans giving effect to
historical loss experience over several years and
linked to cyclical trends.
Recognition is also given to the changed risk profile brought about by
business combinations, customer knowledge, the results of ongoing credit quality
monitoring processes and the cyclical nature of economic and business
conditions. An important consideration in applying these methodologies is the
concentration of real estate related loans located in the New York City
metropolitan area.
TheThis initial allocation or specific-allowance
methodology commences with loan officers and underwriterscredit
officers grading the quality of their loans on an
eight-category risk classification scale. Loans
identified from this process as below investment
grade are referred to themanagement's Internal Asset
Quality Review Committee for further analysis and
identification of those factors that may ultimately
affect the full recovery or collectibility of
principal and/or interest. These loans are subject to
continuous review and monitoring while they remain in
the criticized category. Additionally, the Internal
Asset Quality Review Committee is responsible for
performing periodic reviews of the loan
10
portfolio that are independent from the
identification process employed by loan officers and underwriters.credit
officers. Gradings that fall into criticized
categories are further evaluated and reserve amounts
are established for each loan.
The second allocation or loss factor approach to common or homogeneous
loans is made by applying theo An average loss factor is applied to the outstanding balances in
each loan category.
The final allocationsmaller balance
homogenous types of loans not subject to specific
review. These loans include residential one- to
four-family, multifamily, nonresidential and
construction properties, which also includes consumer
and business loans.
o Determination of the individual allowance is made by applying several years
ofamounts and
average loss factors considers actual loss
experience, to categories of loans. It gives recognition to the loss
experience of acquired businesses, business cycle changes and the real
estate components of loans. Since many loans depend
uponon the sufficiency of collateral, any adverse trend
in the real estate markets could seriously affect
underlying values available to protect against loss.
10
Recognition is also given to the changed risk profile
brought about by customer knowledge, the results of
ongoing credit quality monitoring processes and the
cyclical nature of economic and business conditions.
An important consideration in applying these
methodologies is the concentration of real estate
related loans located in the New York City
metropolitan area. Other evidence used to support the
amount of the allowance and its components are as
follows:
o Regulatory examinationsexaminations;
o Amount and trend of criticized
loans
o Actual lossesloans;
o Peer comparisons with other
financial institutionsinstitutions;
o Economic data associated with the
real estate market in the
Company's market areaCarver
Federal's lending areas; and
o Opportunities to dispose of
marginally performing loans for
cash consideration
Carver Federal maintainsconsideration.
In applying the methodology above, a loan review system, which allows for a
periodic review of its loan portfolio and the early identification of potential
problem loans. Such system takes into consideration, among other things,
delinquency status, size of loans, type of collateral and financial condition of
the borrowers. Loan loss allowances are established for problem loans based on a
review of such information and/or appraisals of the underlying collateral. On
the remainder of its loan portfolio, loan loss allowances are based upon a
combination of factors including, but not limited to, actual loan loss
experience, composition of loan portfolio, current economic conditions and
management's judgment. Although management believes that adequate loan loss
allowances have been established, actual losses are dependent upon future events
and, as such, further additions to the level of the loan loss allowance may be
necessary in the future.
A loan is considered to be impaired,
as defined by Statement of
Financial Accounting Standards ("SFAS")SFAS No. 114, "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN"
("SFAS 114"), when it is probable that Carver Federal will be unable to collect
all principal and interest amounts due according to the contractual terms of the
loan agreement. Carver FederalManagement tests loans covered under SFAS 114 for impairment if
they are on non-accrual status or have been restructured. Consumer credit
non-accrual loans are not tested for impairment because they are included in
large groups of smaller-balance homogeneous loans that, by definition along with
leases, are excluded from the scope of SFAS 114. Impaired loans are required to
be measured based upon the present value of expected future cash flows,
discounted at the loan's initial effective interest rate, or at the loan's
market price or fair value of the collateral if the loan is collateral
dependent. If the loan valuation is less than the recorded value of the loan, an
impairment reserve must be established for the difference. The impairment
reserve is established by either an allocation of the reserve for credit losses
or by a provision for credit losses, depending on various circumstances.
Impairment reserves are not needed when credit losses have been recorded so that
the recorded investment in an impaired loan is less than the loan valuation.
AWARD FROM CDFI
The CDFI Fund of the Department of the Treasury selected the Bank to
receive a $1.5 million grant as part of its Bank Enterprise Award Program, which
seeks to expand financing activities in economically distressed areas throughout
the nation. Carver Federal was one of only five institutions to receive the
maximum grant. A portion of these funds were shared with Carver Federal's
non-profit lending partners, and the remaining $1.1 million was recognized as
non-interest income in the second quarter of fiscal 2005.
TERMINATION OF MERGER AGREEMENT
On October 15, 2004 the Holding Company was advised by the
OTSOffice of Thrift Supervision ("OTS") that the OTS hashad denied Carver's
application to consummate the merger agreement between the Holding Company, the
Bank and IFSB. That merger agreement was subject to, among other things,
approval by the OTS. Among the reasons communicated to Carver by the OTS for its
position was its concern related to the financial resources and future prospects
of the combined company, including concerns about the capitalization of the
combined company and its future profitability. As a result, on October 26, 2004
the Holding Company, the Bank and IFSB announced their mutual agreement to
terminate the merger agreement and to release each other party from all related
liabilities. The Company recognized an impairment charge deemed other than
temporary of $1.5 million resulting from the decline in market price of the
150,000 shares of common stock of IFSB that the Holding Company owns and reports
as a part of its available-for-sale securities portfolio. The market value of
the Bank's position in IFSB common stock was $1.6 million as of December 31,
2004. In addition, the Company recognized an $847,000 charge resulting from
expensing previously capitalized costcosts related to the proposed merger.
11
NEW BRANCH OPENED
In July 2004CONVERSION OF CONVERTIBLE PREFERRED STOCK
The holders of all 40,000 outstanding shares of the Bank opened its seventh branch at Atlantic Terminal in
Fort Greene, Brooklyn as partCompany's Series A
Convertible Preferred Stock and all 60,000 outstanding shares of its growth strategy in its core markets. The
branch is located inSeries B
Convertible Preferred Stock elected to convert their preferred shares on October
15, 2004 into shares of the Atlantic Terminal Mall, a 373,000 square foot retail
complex built above Brooklyn's busiest transportation hub, traveled by more than
15 million riders annually.
COMMUNITY REINVESTMENT PERFORMANCE
DuringCompany's Common Stock. Upon conversion of their
preferred shares, the second quarterholders were issued an aggregate of fiscal 2005, the OTS, the Bank's primary
federal regulator, advised Carver Federal that as208,333 shares of
its most recent examination
Carver Federal's Community Reinvestment Act performance has been rated
"Outstanding."Common Stock.
11
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of the Bank's ability to generate adequate cash
to meet its financial obligations. The principal cash requirements of a
financial institution are to cover potential deposit outflows, fund its
increases in
its loan and investment portfolios and cover its ongoing operating expenses. The
Company's primary sources of funds are deposits, borrowed funds and principal
and interest payments on loans, mortgage-backed securities and investment
securities. While maturities and scheduled amortization of loans,
mortgage-backed securities and investment securities are predictable sources of
funds, deposit flows and loan and mortgage-backed securities prepayments are
strongly influenced by changes in general interest rates, economic conditions
and competition.
Other sources of liquidity include the ability to borrow under
repurchase agreements, FHLB-NY advances utilizing unpledged mortgage-backed
securities and certain mortgage loans, the sale of available-for-sale securities
and the sale of loans. The Bank can borrow up to 30% of its total assets or up
to $184.8 million as of December 31, 2004. At September 30,December 31, 2004, based on
available collateral held at the FHLB-NY the Bank had the ability to borrow from
the FHLB-NY an additional $20.0$16.7 million on a secured basis, utilizing
mortgage-related loans and securities as collateral.
The unaudited Consolidated Statements of Cash Flows present the change
in cash from operating, investing and financing activities. During the threenine
months ended September 30,December 31, 2004, total cash and cash equivalents decreased by
$9.7
million,$538,000, reflecting cash used in operating and investing activities being
partially offset by cash provided by financing activities. Net cash used in
operating activities during this period was $11.2$7.0 million, primarily representing
decreases in other liabilities and an increase in other assets offset by
adjustments to the balances of depreciation and amortization expense and other
amortization. Net cash used in investing activities was $47.4$76.0 million, primarily
representing the purchase of securities and mortgage loans and the disbursements
for loan originations offset in part by the payment of principal on and the
maturities of securities, the sale of available-for-sale securities and
principal collections on loans. Net cash provided by financing activities was
$48.9$82.5 million, primarily representing a net increase in deposits partially
offset by a decreaseand an increase
in advances from the FHLB-NY. See "Liabilities and Stockholders
Equity--Liabilities" for a discussion of the changes in deposits and FHLB-NY
deposits.
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. In addition, as
previously discussed, the Bank has the ability to borrow funds from the FHLB-NY
to further meet any liquidity needs. The Bank monitors its liquidity utilizing
guidelines that are contained in a policy developed by management of the Bank
and approved by the Bank's Board of Directors. The Bank's several liquidity
measurements are evaluated by management on a frequent basis. The Bank was in
compliance with this policy as of September 30,December 31, 2004.
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 currently faces is the
variability in its cash flows as a result of mortgage refinance activity, which
until recently has resulted in a lag in redeploying lower yielding federal funds
into higher yielding mortgage loans and has had a negative impact on the
Company's net interest margin and net interest income. 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. In addition,contrast, as mortgage interest rates
decrease, customers generally tend to prefer fixed rate mortgage loan products
over variable rate products. Since the Bank generally sells its 15-year and
30-year fixed rate loan production into the secondary mortgage market, the
origination of such products for sale does not significantly reduce the Bank's
liquidity.
In the first quarter of fiscal 2005, the Federal Open Market Committee
raised the federal funds rate 25 basis points for the first time since fiscal
2002. In the second quarter of fiscal 2005 the federal funds rate was again
raised another 50 basis points and in the third quarter it was raised another 50
basis points. Although short-term rates have increased, mortgage loans and
mortgage-backed securities are typically tied to longer-term rates which have
not increased dramatically over the last three quarters. When mortgage interest
rates increase, customers' refinance activities tend to decelerate, causing the
cash flow from both the mortgage loan portfolio and the mortgage-backed
securities portfolio to decline. Although short-term rates have increased, mortgage loans and
mortgage-backed securities are typically tied to longer-term rates which have
not
12
increased dramatically over the last two quarters. As a result, refinance
activity has remained stable deterring early repayments and enabling loan
portfolio growth through originations and purchases.
The OTS requires that the Bank meet minimum capital requirements.
Capital adequacy is one of the most important factors used to determine the
safety and soundness of individual banks and the banking system. At September
30,December 31,
2004, the Bank exceeded all regulatory minimum capital requirements and
qualified, under OTS regulations, as a well-capitalized institution. The table
below presents certain information relating to the Bank's capital compliance at
September 30,December 31, 2004.
12
REGULATORY CAPITAL
AT SEPTEMBER 30,DECEMBER 31, 2004
(DOLLARS IN THOUSANDS)
% OF
AMOUNT ASSETS
Total capital (to risk-weighted assets):
Capital level $59,895 15.95 %
Less requirement 30,058 8.00
------- -----
Excess $29,837 7.95
======= =====
Tier 1 capital (to risk-weighted assets):
Capital level $55,779 14.85 %
Less requirement 15,029 4.00
------- -----
Excess $40,750 10.85
======= =====
Tier 1 Leverage capital (to adjusted total assets):
Capital level $55,779 9.62 %
Less requirement 23,207 4.00
------- -----
Excess $32,572 5.62 %
======= =====
Amount % of Assets
------ -----------
Total capital (to risk-weighted assets):
Capital level $61,211 15.45 %
Less requirement 31,702 8.00
------------ -------------
Excess $29,509 7.45
============ =============
Tier 1 capital (to risk-weighted assets):
Capital level $57,092 14.41 %
Less requirement 15,851 4.00
------------ -------------
Excess $41,241 10.41
============ =============
Tier 1 Leverage capital (to adjusted total assets):
Capital level $57,092 9.26 %
Less requirement 24,666 4.00
------------ -------------
Excess $32,426 5.26 %
============ =============
On August 24,November 23, 2004, the Company paid a dividend of $0.07 per common
share for the quarter ended JuneSeptember 30, 2004.
On October 26, 2004,January 25, 2005, the Board of Directors declared a dividend of
$0.07 per common share for the quarter ended September 30,December 31, 2004. The dividend
will be payable on November 23, 2004February 24, 2005 to stockholders of record at the close of
business on November 9, 2004.February 10, 2005.
During the quarter ended December 31, 2004, the Holding Company
purchased shares of its Common Stock under its stock repurchase program. See
"Comparison of Financial Condition at December 31, 2004 and March 31,
2004--Liabilities and Stockholders' Equity--Stockholders' Equity."
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30,DECEMBER 31, 2004 AND MARCH 31, 2004
ASSETS
Total assets increased by $41.6$77.2 million, or 7.7%14.3%, to $580.4$616.1 million at
September 30,December 31, 2004 compared to $538.8 million at March 31, 2004. The asset growth
was primarily attributable to increases of $25.4$57.1 million in total loans
receivable, net, $17.1$11.9 million in total securities, $7.0$5.8 million in other
assets, and $1.5$1.6 million in office properties and equipment.equipment and $1.0 million in
additional FHLB-NY stock. The increase in total assets was partially offset by a
decrease of $9.7 million$538,000 in total cash and cash equivalents.
Cash and cash equivalents for the six-monthnine-month period decreased $9.7
million,$538,000,
or 42.8%2.4%, to $13.0$22.2 million at September 30,December 31, 2004 compared to $22.8 million at
March 31, 2004. The decrease was primarily a result of the Bank using its liquid
assets to fund mortgage loan originations and mortgage-backed security
purchases.
Total securities increased $17.1$11.9 million, or 12.3%8.5%, to $157.0$151.8 million
from $139.9 million at March 31, 2004 as new security purchases exceeded
repayments, maturities and sales. The increase is primarily attributed to the
purchase of additional GNMA mortgage-backed securities to collateralize $35
million of New York State deposits in the Jamaica Center branch. New purchases of investment securities were
$68.5$78.1 million of which $2.7 million was the purchase of 127,785 shares of Independence's stock.IFSB
common stock and $35 million was for the purchase of additional GNMA
mortgage-backed securities to collateralize New York State deposits in the
Jamaica Center branch. This increase was offset in part by principal repayments
on investment securities of $25.3$33.5 million, maturities of $16.4$22.6 million, sales of
$7.3 million and a $470,000$408,000 reduction in net unrealized gains on securities.
Additionally, the Company recognized a $1.5 million impairment charge on the
150,000 IFSB common shares it currently owns.
The Company has not experienced any significant change since March 31, 2004 in
the unrealized loss on securities which have been in a continuous unrealized
loss position.
13
Total loans receivable, net, increased $25.4$57.1 million, or 7.2%16.2%, to
$377.3$409.0 from $351.9 million at March 31, 2004. The increase resulted from
mortgage loan originations and purchases exceeding loan repayments during the
first sixnine months of fiscal 2005. During the six-monthnine-month period ended September 30,December
31, 2004, loan originations and purchases were $49.9of $77.4 million and $31.5loan
13
purchases of $78.0 million respectively,were offset in part by loan repayments of $51.6$90.8
million and loan sales of $4.0$7.0 million. The $81.4 million in total loan originations and purchases for
the period was comprised of $27.2 million in one- to four-family loans, $25.1
million in non-residential real estate mortgage loans, $24.8 million in
construction loans, $4.2 million in multifamily loans and $64,000 in business
and consumer loans combined. Management has evaluated yields and loan
quality in the competitive New York metropolitan area market and in certain
instances has decided to purchase loans to supplement internal originations.
Management will continue to assess yields and economic risk as it determines the
balance of interest-earning assets allocated to loan originations and purchases
compared to additional purchases of mortgage-backed securities. The $155.4
million in aggregate loan originations and purchases for the period was
comprised of $68.0 million in one- to four-family loans, $36.7 million in
non-residential real estate mortgage loans, $39.8 million in construction loans,
$10.8 million in multifamily loans and $96,000 in business and consumer loans.
Office properties and equipment, net, increased $1.5$1.6 million, or 13.2%14.1%,
to $13.2$13.3 million from $11.7 million at March 31, 2004 primarily due to capital
purchases related to the building of the Bank's new Atlantic Terminal branch in Brooklyn.
Other assets increased $7.0$5.8 million, or 126.8%104.7%, to $12.5$11.3 million from
$5.5 million at March 31, 2004. The increase is primarily due to the Bank
investing $8.0 million in a bank owned life insurance ("BOLI") program for it's
officers, partially offset by a reduction of $884,000$1.7 million in the Bank's deferred
tax asset.
The Bank's BOLI was purchased in September 2004. The BOLI is invested
in the general accounts of two insurance companies that Standard and Poor's
rated as AA+ or better. Interest earnings increase the cash surrender value of
these policies. Interest earnings for the BOLI are based on interest rates that
reset each year. The increases in cash surrender value of these policies offsets
a portion of employee benefits costs. These increases were recognized in other
income and are not subject to income taxes. Borrowing on or surrendering the
policy may subject the Bank to income tax expense on the increase in cash
surrender value. For these reasons, management considers BOLI an illiquid asset.
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
At September 30,December 31, 2004, total liabilities increased by $40.7$76.3 million, or
8.2%15.4%, to $534.9$570.5 million compared to $494.2 million at March 31, 2004. The
increase in liabilities primarily reflects an increaseincreases of $53.1$62.8 and $21.0 million
in deposits offset by a decrease of $3.7 million inand advances from the FHLB-NY and other borrowed money,
andrespectively, offset by a decrease of $8.7$7.4 million in other liabilities.
The increase in deposit balances was largely attributable to a $54.1$58.9
million increase in certificates of deposit accounts, primarily due to deposits of
$15.0 million deposited by the City of New York and $35.0 million deposited by the State of New York
under New York State's Banking Development District program. Of these funds,
$45.0 million was deposited in our Jamaica Center branch in Queens and $5.0
million was deposited in our Malcolm X BoulevardBlvd. branch located at Lenox Avenue and 116th Street in Manhattan.Harlem. In addition,
deposits increased by $1.9$1.8 million in savings and club accounts and $3.1 million
in NOW accounts, partially offset by declines in money market accounts of $2.4 million and $513,000 in NOW
accounts.$1.1
million. Other factors contributing to deposit growth include ana continued
emphasis on developing depository relationships with borrowers and the offer of
special promotions and campaigns to attract new depositors. At September 30,December 31,
2004, the Bank had seven branches and twothree stand-alone 24/7 ATM centers. During July, the Bankcenters, and in
January 2005 opened its seventheighth branch in the Fort Greene section of Brooklyn.northern Harlem. We believe that
deposits will continue to grow with the addition of new branches and 24/7 ATM
centers in
Brooklyn and Manhattan coupled with our business development efforts.
The decreaseincrease of $3.7$21.0 million in advances from the FHLB-NY and other
borrowed money resulted from repayment of maturingwas primarily additional FHLB-NY borrowings using cash
flow primarily fromneeded to fund loan
growth during the repayment of mortgage loans and mortgage-backed
securities.period. The decrease in other liabilities of $8.7$7.4 million was
primarily the result of payments of outstanding bank checks in the amount of
$5.9$4.0 million and a decline in the liability for income taxes of $2.0$2.8 million as
tax payments were remitted to taxing authorities.
Included in other borrowed money are gross proceeds from the saleissuance
of $13.0 million of trust preferred securities.junior subordinated debt. The trust preferredjunior subordinated debt
securities are redeemablerepayable quarterly at the option of the Company, beginning on or
after July 7, 2007, and have a mandatory redemptionrepayment date of September 17, 2033.
Cash
distributionsInterest on the trust preferredjunior subordinated debt securities areis cumulative and payable at
a floating rate per annum (reset quarterly) equal to 3.05% over three-month
LIBOR, with a rate of 4.93%5.55% as of September 30,December 31, 2004. The $12.8 million net
proceeds from the issuance of trust preferredjunior subordinated debt securities are included
as other borrowed money and were contributed to the Bank to enhance regulatory
capital.
STOCKHOLDERS' EQUITY
Total stockholders' equity increased $859,000,$917,000, or 1.9%2.1%, to $45.5$45.6
million at September 30,December 31, 2004 compared to $44.6 million at March 31, 2004. The
increase in total stockholders' equity was primarily attributable to an increase
in retained earnings of $964,000$1.6 million from net income derived during the first
sixnine months of fiscal 2005, partially offset by a decrease in accumulated other
comprehensive income of $244,000.$408,000. Accumulated other comprehensive income
decreased as a result of net unrealized losses, net of taxes, relating to
certain investment and mortgage-backed securities. As required by SFAS No. 115
"ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY 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
14
market with an adjustment directly to stockholders' equity, net of taxes, and
does not impact the unaudited Consolidated Statements of Income.
During the quarter ended September 30,December 31, 2004, the Holding Company
purchased 4,70026,400 additional shares of its common stockCommon Stock under its stock
repurchase program announced on August 6, 2002. As a part ofUnder its repurchase program, to
date the Holding Company has purchased 35,15061,550 shares of its common stockCommon Stock in open
market or privately negotiated transactions at an average price of $14.71$16.55 per
share to date.share. The Holding Company intends to use repurchased shares to fund its
stock-based benefit and compensation plans and for any other purpose the Board
of Directors of the Holding Company deems advisable in compliance with
applicable law.
ASSET/LIABILITY MANAGEMENT
The Company's primary earnings source is net interest income, which is
affected by changes in the level of interest rates, the relationship between the
rates on interest-earning assets and interest-bearing liabilities, the impact of
interest rate fluctuation on asset prepayments, the level and composition of
deposits and the credit quality of earning assets. Management's asset/liability
objectives are to maintain a strong, stable net interest margin, to utilize its
capital effectively without taking undue risks, to maintain adequate liquidity
and to manage its exposure to changes in interest rates.
The Company's Asset/Liability and Interest Rate Risk Committee,
("ALCO"), comprised of members of the Board of Directors, meets periodically with senior
management to evaluate the impact of changes in market interest rates on assets
and liabilities, net interest margin, capital and liquidity. Risk assessments
are governed by policies and limits established by senior management.
The economic environment is uncertain regarding future interest rate
trends. Management regularly monitors the Company's cumulative gap position,
which is the difference between the sensitivity to rate changes on our
interest-earning assets and interest-bearing liabilities. In addition, the
Company uses various tools to monitor and manage interest rate risk, such as a
model that projects net interest income based on increasing or decreasing
interest rates, in order to respond effectively to changes in interest rates.
OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business in order to meet the financing needs of
ourits customers and in connection with our overall interest rate risk management
strategy. These instruments involve, to varying degrees, elements of credit,
interest rate and liquidity risk. In accordance with GAAP, these instruments are
not recorded in the consolidated financial statements. Such instruments
primarily include lending commitments.
Lending commitments include commitments to originate mortgage and
consumer loans and commitments to fund unused lines of credit. The Bank also has
contractual obligations related to operating leases. Additionally, the Bank has
a contingent liability related to a standby letter of credit. The Bank has
outstanding commitments and contractual obligations as follows:
The bank has outstanding loan commitments as follows:
SEPTEMBER 30,DECEMBER 31,
2004
---------------
(IN THOUSANDS)
Commitments to originate mortgage loans $ 64,23588,610
Commitments to originate consumer loans 2,4892,563
Letters of Credit 1,908
-------------------------------
Total $ 68,632
================93,081
===============
15
PAYMENTS DUE BY PERIOD
----------------------------------------------------
LESS MORE
CONTRACTUAL THAN---------------------------------------------------------------------------------
Contractual Less than 1 - 3 3 - 5 THAN
OBLIGATIONS TOTALMore than
Obligations Total 1 YEAR YEARS YEARSyear years years 5 YEARSyears
- --------------------------------------------- -------- -------- -------- -------- --------------------------------------------------------- -------------- -------------- --------------- --------------- --------------
(IN THOUSANDS)
Long term debt obligations:
FHLB advances $ 87,812112,506 $ 19,30053,000 $ 56,47446,874 $ 11,80712,407 $ 231225
Guaranteed preferred beneficial interest in
junior subordinated debentures 12,770 -- -- -- 12,770
-------- -------- -------- -------- --------12,784 12,784
-------------- -------------- --------------- --------------- --------------
Total long term debt obligations 100,582 19,300 56,474 11,807 13,001125,290 53,000 46,874 12,407 13,009
Operating lease obligations:
Lease obligations for rental properties 4,499 576 1,140 1,016 1,767
-------- -------- -------- -------- ---------------------- -------------- --------------- --------------- --------------
Total contractual obligations $105,081 $ 19,876129,789 $ 57,61453,576 $ 12,82348,014 $ 14,768
======== ======== ======== ======== ========13,423 $ 14,776
============== ============== =============== =============== ==============
ANALYSIS OF EARNINGS
The Company's profitability is primarily dependent upon net interest
income, which mainly represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is dependent on the difference between the average balances and
rates earned on interest-earning assets and the average balances and rates paid
on interest-bearing liabilities. Provisions for loan losses, non-interest
income, non-interest expense and income taxes further affect net income. The
earnings of the Company, which are principally earnings of the Bank, are
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, and to a lesser extent by
government policies and actions of regulatory authorities.
The following tables set forth, for the periods indicated, certain
information relating to Carver's average interest-earning assets, average
interest-bearing liabilities, net interest income, interest rate spread and
interest rate margin. It reflects the average yield on assets and the average
cost of liabilities. Such yields and costs are derived by dividing annualized
income or expense by the average balances of assets or liabilities,
respectively, for the periods shown. Average balances are derived from daily or
month-end balances as available. Management does not believe that the use of
average monthly balances instead of average daily balances has caused any
material difference in information presented. The average balance of loans
includes loans on which the Company has discontinued accruing interest. The
yield and cost include fees, which are considered adjustments to yields.
16
THREE MONTHS ENDED SEPTEMBER 30, 2004
-------------------------------------------------------------------------DECEMBER 31,
------------------------------------------------------------------------------------
2004 2003
--------------------------------- ------------------------------------------------------------------------------ ---------------------------------------
Average Annualized AnnualizedAvg. Average Avg. AverageAnnualized Avg.
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- --------------------- ------------- --------------- ------------ ---------- --------- ---------- -------------------------
(Dollars in thousands)
Loans receivable (1) $380,052 $5,700 6.00% $305,391 $5,061 6.57%$389,757 $5,780 5.93% $313,293 $5,025 6.42%
Investment securities (2) 159,616 1,291 3.24% 172,311 1,515 3.49%160,168 1,411 3.52% 156,186 1,396 3.57%
Federal funds 6,579 22 1.34% 11,622 26 0.89%
-------- ------ ------- -------- ------ -----6,626 32 1.92% 27,114 62 0.91%
------------- ------------- --------------- ------------ ---------- ---------------
Total interest-earning assets 546,247 7,013 5.14% 489,324 6,602 5.36%556,551 7,223 5.19% 496,593 6,483 5.23%
Non-interest-earning assets 26,593 31,459
-------- --------34,309 27,797
------------- ------------
Total assets $572,840 $520,783
======== ========
LIABILITIES AND EQUITY$590,860 $524,390
============= ============
Liabilities and Equity
- ----------------------
Deposits:
NOW accounts $20,549 $ 17 0.34% $ 25,472 $ 23 0.35%$21,792 $16 0.29% $23,400 $20 0.33%
Savings and club accounts 132,848 202132,066 203 0.61% 131,435 243129,796 240 0.73%
Money market accounts 29,621 70 0.95% 27,341 54 0.78%28,547 74 1.03% 28,324 59 0.82%
Certificates of deposit 204,125 1,018 2.00% 161,118 813 2.00%
-------- ------ ------- -------- ------ -----223,199 1,149 2.04% 162,690 816 1.99%
------------- ------------- --------------- ------------ ---------- ---------------
Total deposits 387,143 1,307 1.35% 345,366 1,133 1.30%405,604 1,442 1.41% 344,210 1,135 1.31%
Mortgagor's deposits 2,846 6 0.90% 1,183 10 3.35%2,091 7 1.27% 1,736 5 1.17%
Guaranteed beneficial interest in junior
subordinated debentures 12,760 170 5.34% 1,904 23 4.79%12,775 181 5.64% 12,735 152 4.73%
Borrowed money 92,930 885 3.82% 104,927 943 3.57%
-------- ------ ------- -------- ------ -----96,021 855 3.53% 97,638 924 3.76%
------------- ------------- --------------- ------------ ---------- ---------------
Total interest-bearing liabilities 495,679 2,368 1.92% 453,380 2,109 1.85%516,491 2,485 1.91% 456,319 2,216 1.93%
Non-interest-bearing DDA accounts 24,568 18,31922,553 19,073
Other non-interest-bearing liabilities 6,820 6,873
-------- --------5,999 5,818
------------- ------------
Total liabilities 527,067 478,572545,043 481,210
Stockholders' equity 45,773 42,211
-------- --------45,817 43,180
------------- ------------
Total liabilities and stockholders'
equity $572,840 $520,783
======== ------ ======== ------$590,860 $524,390
============= ------------- ============ ----------
Net interest income $4,645 $4,493
====== ======$4,738 $4,267
============= ==========
Interest rate spread 3.22% 3.51%
======= =====3.28% 3.30%
=============== ================
Net interest margin 3.40% 3.64%
======= =====3.42% 3.45%
=============== ================
Ratio of average interest-earning assets to
deposits and interest-bearing liabilities 1.10x 1.08x ====== ======1.09x
============= ==========
(1) Includes non-accrual loans
(2) Includes FHLB-NY stock
17
SIXNINE MONTHS ENDED SEPTEMBER 30, 2004
-------------------------------------------------------------------------DECEMBER 31,
------------------------------------------------------------------------------------
2004 2003
--------------------------------- ------------------------------------------------------------------------------ ---------------------------------------
Average Annualized AnnualizedAvg. Average Avg. AverageAnnualized Avg.
Balance Interest Yield/Cost Balance Interest Yield/Cost
--------- --------------------- ------------- --------------- ------------ ---------- --------- ---------- -------------------------
(Dollars in thousands)
Loans receivable (1) $370,276 $11,116 6.00% $301,287 $9,927 6.59%$376,783 $16,897 5.98% $304,967 $14,952 6.54%
Investment securities (2) 153,990 2,551 3.31% 169,599 3,111 3.67%156,054 3,962 3.39% 165,382 4,507 3.63%
Federal funds 11,294 58 1.02% 15,289 81 1.05%
-------- ------- ----- -------- ------ -----9,731 89 1.21% 19,245 143 0.99%
------------- ------------- --------------- ------------ ---------- ---------------
Total interest-earning assets 535,560 13,725 5.11% 486,175 13,119 5.40%542,568 20,948 5.15% 489,594 19,602 5.34%
Non-interest-earning assets 24,837 35,280
-------- --------28,012 29,444
------------- ------------
Total assets $560,397 $521,455
======== ========
LIABILITIES AND EQUITY$570,580 $519,038
============= ============
Liabilities and Equity
Deposits:
NOW accounts $ 11,763 $ 36 0.59% $ 24,478 $ 48 0.39%$23,286 $51 0.29% $23,549 $68 0.38%
Savings and club accounts 132,867 400132,601 603 0.60% 130,543 563 0.86%130,724 803 0.82%
Money market accounts 30,197 136 0.90% 26,421 115 0.87%29,645 210 0.94% 27,057 174 0.86%
Certificates of deposit 192,270 1,854 1.92% 162,253 1,678 2.06%
-------- ------- ----- -------- ------ -----202,027 3,004 1.97% 161,969 2,495 2.04%
------------- ------------- --------------- ------------ ---------- ---------------
Total deposits 367,097 2,426387,559 3,868 1.32% 343,694 2,404 1.40%343,299 3,540 1.37%
Mortgagor's deposits 2,472 12 0.94% 1,711 15 1.75%1,623 18 1.48% 1,719 20 1.54%
Guaranteed beneficial interest in junior
subordinated debentures 12,753 322 5.04% 957 23 4.79%12,760 504 5.24% 4,909 175 4.73%
Borrowed money 92,270 1,776 3.84% 102,574 1,897 3.69%
-------- ------- ----- -------- ------ -----93,530 2,630 3.73% 101,027 2,821 3.71%
------------- ------------- --------------- ------------ ---------- ---------------
Total interest-bearing liabilities 474,592 4,536 1.91% 448,935 4,339495,472 7,020 1.88% 450,954 6,556 1.93%
Non-interest-bearing DDA accounts 33,209 18,44821,658 19,225
Other non-interest-bearing liabilities 7,247 12,759
-------- --------7,950 6,703
------------- ------------
Total liabilities 515,048 480,142525,080 476,882
Stockholders' equity 45,349 41,312
-------- --------45,500 42,156
------------- ------------
Total liabilities and stockholders'
equity $560,397 $521,454
======== ------- ======== ------$570,580 $519,038
============= ------------- ============ ----------
Net interest income $ 9,189 $8,780
======= ======$13,928 $13,046
============= ==========
Interest rate spread 3.20% 3.47%
===== =====
^^^^^3.27% 3.41%
=============== ================
Net interest margin 3.44% 3.62%
===== =====3.43% 3.56%
=============== ================
Ratio of average interest-earning assets to
deposits and interest-bearing liabilities 1.13x 1.08x
======= ======1.10x 1.09x
============= ==========
(1) Includes non-accrual loans
(2) Includes FHLB-NY stock
18
COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,DECEMBER 31,
2004 AND 2003
OVERVIEW. NetThe Company reported consolidated net income for the
three-month period ended September 30,December 31, 2004 was $255,000,of $920,000, a decline of $1.2$316,000
from the corresponding prior year period. These results primarily reflect an
increase in interest expense of $269,000, a decline in non-interest income of
$374,000 and an increase in non-interest expense of $535,000, partially offset
by increased interest income of $740,000 and a decrease in income tax expense of
$122,000. Net income available to common stockholders (after adjustment for
dividends payable on the Company's preferred stock) was $904,000, or $0.36 per
diluted common share, a decrease of $283,000, or $0.11 per diluted common share.
Net income for the nine-month period ended December 31, 2004 was $2.3
million, a decline of $1.5 million from the corresponding prior year period.
These results primarily reflect an increase in interest expense of $259,000,$464,000, a
decline in non-interest income of $744,000$1.1 million and an increase in non-interest
expense of $1.2$1.9 million, partially offset by increased interest income of $411,000$1.3
million and a decrease in income tax expense of $600,000.$618,000. The decline in
non-interest income was primarily a result of a $1.5 million impairment charge
resulting from the decline in the market value of IFSB common stock the company
holds. Additionally, included in the increase in non-interest expense was an
$847,000 charge that resulted from expensing previously capitalized costs
pertaining to the terminated merger with IFSB. Excluding the charges related to
the terminated merger with IFSB, net income available to common stockholders
(after adjustment for dividends payable on the Company's preferred stock) would
have been $3.6 million. Net income available to common stockholders (after
adjustment for dividends payable on the Company's preferred stock) was $206,000,$2.1
million, or $0.09$0.87 per diluted common share, a decrease of $1.2$1.5 million, or $0.46$0.58
per diluted common share.
Selected operating ratios for the three and nine months ended September 30,December
31, 2004 and 2003 are set forth in the table below. Thebelow and the following analysis
discusses the changes in components of operating results giving rise to net
income. THREE MONTHS ENDED
Selected Operating Ratios: September 30,
2004 2003
------ ------The decline in the return on average equity was primarily due to lower
net income for the current quarter and nine-month period. Return on average
assets (1) 0.18% 1.10%
Return on average equity (1) 2.23 13.51
Interest rate spread (1) 3.22 3.51
Net interest margin (1) 3.40 3.64
Operating expenses todecreased as a result of lower net income coupled with an increase in
average assets (1,2) 3.54 3.01
Equity-to-assets 7.84 8.12
Efficiency ratio (3) 92.58 64.25for both the current quarter and nine-month period.
THREE MONTHS ENDED NINE MONTHS ENDED
SELECTED OPERATING RATIOS: DECEMBER 31, DECEMBER 31,
2004 2003 2004 2003
--------------- ------------ ------------ ------------
Return on average assets (1) 0.62 % 0.94 % 0.53 % 0.96 %
Return on average equity (1) 8.03 11.45 6.61 11.86
Interest rate spread (1) 3.28 3.30 3.27 3.41
Net interest margin (1) 3.42 3.45 3.43 3.56
Operating expenses to average assets (1,2) 3.05 3.15 3.16 3.04
Equity-to-assets 7.40 8.18 7.40 8.18
Efficiency ratio (3) 75.86 68.78 79.04 67.48
Average interest-earning assets to
interest-bearing liabilities 1.10x 1.08x 1.09x 1.10x 1.09x
(1) Annualized
(2) Excluding merger related expenses the ratio would be 2.95%2.96% for the
nine-month period ended December 31, 2004
(3) Excluding the stock impairment charge, grant income and merger related
expenses the ratio would be 72.71%72.67% for the nine-month period ended December
31, 2004
INTEREST INCOME. Interest income increased by $411,000,$740,000, or 6.2%11.4%, to
$7.0$7.2 million for the three months ended September 30,December 31, 2004 compared to $6.6$6.5
million in the prior year period. Interest income increased primarily as a
result of higher average real estate mortgage loan and investment securities
balances partially offset by a decline in average securitiesfederal funds balances compared to the
prior year period. The average balance of interest-earning assets increased by
$56.9$60.0 million, or 11.7%12.1%, to $546.2$556.6 million for the three months ended September 30,December
31, 2004 compared to $489.3$496.6 million for the prior year period. The changeincrease in
total interest income was also impactedoffset by the 22a four basis point decrease in the
annualized average yield on interest-earning assets to 5.14%5.19% for the three
months ended September 30,December 31, 2004 compared to 5.36%5.23% for the prior year period,
reflecting yield declines in mortgage loans and investment securities. Net
interest margin declined three basis points to 3.42% for the three months ended
December 31, 2004 compared to 3.45% for the prior year period.
19
Similarly, interest income for the nine-month period ended December 31,
2004 increased by $1.3 million, or 6.9%, to $20.9 million compared to $19.6
million in the prior year period. The increase was primarily a result of higher
average real estate mortgage loan balances partially offset by a decline in both
the average balance of investment securities and federal funds compared to the
prior year period. Partially offsetting the increase in total interest income
was a 19 basis point decrease in the annualized average yield on
interest-earning assets to 5.15% for the nine months ended December 31, 2004
compared to 5.34% for the prior year period. Net interest margin declined 2413
basis points to 3.40%3.43% for the threenine months ended September 30,December 31, 2004 compared to
3.64%3.56% for the prior year period, resulting from lower interest rates.period.
Interest income on loans increased by $639,000,$755,000, or 12.6%15.0%, to $5.7$5.8
million for the three months ended September 30,December 31, 2004 compared to $5.1$5.0 million
for the prior year period. The change was primarily due to an increase in
average mortgage loan balances of $74.7$76.5 million to $380.1$389.8 million compared to
$305.4$313.3 million for the prior year period partially offset by lower interest
rates, which resulted in decreased yields in
the loan portfolio. The annualized average yield on loans for the three months
ended September 30,December 31, 2004 declined 5749 basis points to 6.00%5.93% compared to 6.57%6.42% for
the prior year period. For the nine-month period ended December 31, 2004
interest income on loans increased by $1.9 million, or 13.0%, to $16.9 million
compared to $15.0 million for the prior year period. Again, this change was
primarily due to an increase in average mortgage loan balances of $71.8 million
to $376.8 million compared to $305.0 million for the prior year period partially
offset by decreased yields in the loan portfolio. The annualized average yield
on loans for the nine months ended December 31, 2004 declined 56 basis points to
5.98% compared to 6.54% for the prior year period.
Interest income on investment securities decreased by $224,000, or
14.8%, to $1.3was substantially unchanged at
$1.4 million for the three months ended September 30,December 31, 2004 compared to $1.5the prior
year period, primarily due to an increase of $4.0 million, or 2.5%, in the
average balance of investment securities to $160.2 million compared to $156.2
million in the prior year period related to the purchase of additional mortgage
backed securities for collateral purposes partially offset by a five basis point
decrease in the annualized average yield on securities to 3.52% from 3.57% in
the prior year period. For the nine-month period ended December 31, 2004
interest income on investment securities decreased $545,000, or 12.1%, to $4.0
million compared to $4.5 million for the prior year period. The change was
primarily due to a 25decrease of $9.3 million, or 5.6%, in the average balance of
investment securities to $156.1 million compared to $165.4 million in the prior
year period. Further contributing to the decline was a 24 basis point decrease
in the annualized average yield on securities to 3.24%3.39% from 3.49% in the prior year period and a decrease of $12.7 million, or 7.4%, in the
average balance of investment securities to $159.6 million compared to $172.3
million3.63% in the prior
year period. The decrease in the average balance of securities, primarily
mortgage-backed securities, reflects the execution of our strategy to invest
cash flows from securities into higher yielding mortgage loans when prudent to
do so. Additionally, yields and income were impacted by prepayment activity,
which has shortened the anticipated life of mortgage-backed securities and
accelerated premium amortization.
Interest income on federal funds sold decreased by $4,000,$30,000, or 15.4%48.4%,
to $22,000$32,000 for the three months ended September 30,December 31, 2004 compared to $26,000$62,000 for
the prior year period. The decline was primarily attributable to a decrease in
the average balance of federal funds of $5.0$20.5 million, or 43.4%75.6%, to $6.6 million
from $11.6$27.1 million in the prior year period partially offset by an increase of
45101 basis points in the annualized yield on federal funds sold. Similarly,
interest income on federal funds sold for the nine months ended December 31,
2004 decreased by $54,000, or 37.8%, to $89,000 compared to $143,000 for the
prior year period. The decline was also primarily attributable to a decrease in
the average balance of federal funds of $9.5 million, or 49.4%, to $9.7 million
from $19.2 million in the prior year period partially offset by an increase of
22 basis points in the annualized yield on federal funds sold. The decline in
the average balance of federal funds
19
sold was a result of using liquid funds
primarily to fund loan growth.
INTEREST EXPENSE. Total interest expense increased by $259,000,$269,000, or
12.3%12.1%, to $2.4$2.5 million for the three months ended September 30,December 31, 2004 compared to
$2.1$2.2 million for the prior year period. The increase resulted primarily from an
increase in the average balance of interest-bearing liabilities of $42.3$60.2
million, or 9.4%13.2%, to $495.7$516.5 million from $453.4$456.3 million during the prior year
period. Further adding toModestly offsetting the increase, the annualized average cost of
interest-bearing liabilities increased 7decreased two basis points to 1.92%1.91% from 1.85%1.93% for
the prior year period. Similarly, interest expense for the nine months ended
December 31, 2004 increased by $464,000, or 7.1%, to $7.0 million compared to
$6.6 million for the prior year period as a resultand the annualized average cost of
the recent rise in short-term interest
rates.interest-bearing liabilities decreased five basis points to 1.88% from 1.93%.
Interest expense on deposits increased $170,000,$309,000, or 14.9%27.1%, to $1.3$1.4
million for the three months ended September 30,December 31, 2004 compared to $1.1 million
for the prior year period. The increase in interest expense on deposits was due
primarily to a $41.8$61.4 million increase in the average balance of interest-bearing
deposits to $390.0$405.6 million for the three months ended September 30,December 31, 2004 from
$346.5$344.2 million for the prior year period. Additionally, a 510 basis point rise in
the rate paid on deposits to 1.35%1.41% compared to 1.30%1.31% for the prior year period
added to the increase. Interest expense on deposits also increased $326,000, or
9.2% for the nine months ended December 31, 2004 to $3.9 million compared to
$3.6 million for the prior year period. Customer deposits have historically
provided Carver with a relatively low cost funding source from which its net
interest income and net interest margin have benefited. The Bank has grown core
deposits, including new deposits from the two new branches opened in 2004, thereby benefitingwhich
has benefited net interest income and net interest margin. See "Liabilities
20
and Stockholders' Equity--Liabilities."
Interest expense on advances and other borrowed money increased
$89,000,decreased
$40,000, or 9.2%3.7%, to $1.1$1.0 million for the three months ended September 30,December 31, 2004
compared to $966,000$1.1 million for the prior year period. This was primarily due to a
23 basis point reduction in the cost of borrowed money from FHLB-NY advances to
3.53% from 3.76% for the prior year period as higher costing matured advances
were replaced at lower rates. Partially offsetting the decline was an increase
in the cost of $147,000 for debt service of 91 basis points to 5.64% from 4.73% for the prior
year period related to the issuance of $13 million in subordinated debentures
raised by the Company through an issuance of trust preferred securities by
Carver Statutory Trust I in September 20032003. Conversely, interest expense on
advances and other borrowed money for the nine months ended December 31, 2004
increased $138,000, or 4.6%, to $3.1 million compared to $3.0 million for the
prior year period. The increase was primarily related an increase of $7.9
million in the average balance and an increase of 2551 basis points in the cost of
borrowed money from FHLB-NY advances to 3.82% from 3.57%the subordinated debentures for the prior
yearnine-month period. See "Liabilities and Stockholders' Equity--Liabilities." ThisPartially offsetting this
increase was
partially offset by a decrease of $12.0$7.5 million in the average balance of borrowed money
from FHLB-NY advances. The decrease in the average balance of FHLB-NY advances
reflects the execution of our strategy to $92.9 million from $104.9 million for
the corresponding prior year period.replace matured FHLB-NY advances with
lower costing deposits when prudent to do so. See "Liabilities and Stockholders'
Equity--Liabilities."
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest
income before the provision for loan losses increased $152,000,$471,000, or 3.4%11.0%, to
$4.6$4.7 million for the three months ended September 30,December 31, 2004 compared to $4.5$4.3
million for the prior year period asperiod. Similarly, for the nine months ended December
31, 2004 net interest income before the provision for loan losses increased
$882,000, or 6.8%, to $13.9 million compared to $13.0 million for the prior year
period. The increase resulted from the average balance of interest-earning
assets grewgrowing faster than our deposits and short termshort-term borrowings. These
deposits and borrowings which repriced at higher rates.rates than our interest earning
assets. The Company's annualized average interest rate spread decreased by 29
basis points to 3.22% for the three
months ended September 30,December 31, 2004 decreased by two basis points to 3.28% compared
to 3.51%3.30% for the corresponding prior year period. Our netNet interest margin,
represented by annualized net interest income divided by average total
interest-earning assets, decreased 24three basis points to 3.40%3.42% for the three
months ended September 30,December 31, 2004 from 3.64%3.45% for the corresponding prior year
period. The annualized average interest rate spread for the nine months ended
December 31, 2004 decreased by 14 basis points to 3.27% compared to 3.41% for
the corresponding prior year period. Net interest margin decreased 13 basis
points to 3.43% for the nine months ended December 31, 2004 from 3.56% 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 monthsor nine-month period
ended September
30,December 31, 2004 or 2003 as the Company considers the overall allowance
for loan losses to be adequate. For the three months ended December 31, 2004, we
have not changed our overall approach in the determination of the allowance for
loan losses; however, since the construction loan portfolio balances have
increased over the course of the fiscal year and now represent $48.0 million, or
11.6% of the total loan portfolio, we have segregated this portfolio into
various types of construction loans for the purpose of determining the adequacy
of the allowance for these types of assets. Other than the segregation of the
construction loan portfolio, there have been no material changes in the
assumptions or estimation techniques compared to prior periods in determining
the adequacy of the allowance for loan losses. During the secondthird quarter of
fiscal 2005, the Company recorded net recoveries of $11,000$13,000 compared to $10,000
in net charge-offs for the prior year period. At September 30,December 31, 2004, the Bank's
allowance for loan losses was $4.1 million, substantially unchanged from March
31, 2004. The ratio of the allowance for loan losses to non-performing loans was
254.1% at December 31, 2004 compared to 194.3% at March 31, 2004. The ratio of
the allowance for loan losses to total loans was 1.00% at December 31, 2004
compared to 1.16% at March 31, 2004.
At September 30,December 31, 2004, non-performing assets totaled $1.8$1.6 million, or
0.47%0.39% of total loans receivable, compared to $2.1 million, or 0.60% of total
loans receivable, at March 31, 2004. Non-performing assets include loans 90 days
past due, non-accrual loans and other real estate owned. Other real estate owned
consists of property acquired through foreclosure or deed in lieu of
foreclosure. The Bank had no foreclosed real estate as of September 30, 2004. As
a result of a property tax redemption, the Bank tookDecember 31, 2004
other than fee ownership of a vacant tract of land in Bayshore, NY.NY, a result of
a property tax redemption. Future levels of non-performing assets will be
influenced by economic conditions, including the impact of those conditions on
our customers, interest rates and other internal and external factors existing
at the time.
At September 30, 2004, the allowance for loan losses of $4.1 million
decreased $9,000 from March 31, 2004 due to net charge-offs in fiscal 2005. The
ratio of the allowance for loan losses to non-performing loans was 229.0% at
September 30, 2004 compared to 194.3% at March 31, 2004. The ratio of the
allowance for loan losses to total loans was 1.08% at September 30, 2004
compared to 1.16% at March 31, 2004.
Management's judgment in determining the adequacy of the allowance for
loan losses is based on an evaluation of certain 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 guidance and other relevant factors. Based on the process employed,
management believes that the allowanceSee also "Critical
Accounting Policies - 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 growth and change in composition of the
loan portfolio, changes in economic and real estate market conditions, further
information obtained regarding known problem loans, identification of additional
problem loans, results of regulatory examinations and other factors, both within
and outside of management's control.
20
Loan Losses."
NON-INTEREST INCOME. Total non-interest income for the quarter ended
September 30,December 31, 2004 decreased $744,000,$374,000, or 47.3%23.7%, to $830,000$1.2 million, compared to
$1.6 million for the prior year period. The primary reasonLoan fees and service charges decreased
$571,000, to $466,000 for the three months ended December 31, 2004, compared to
$1.0 million for the prior year period primarily as a result of a decline in
mortgage prepayment penalty income. Partially offsetting the quarterly decline
was an
21
increase in depository fees and charges of $121,000 and an increase in other
non-interest income of $103,000. The increase in depository fees and charges
resulted from increased ATM and debit card fees as well as income from the sale
of annuities and life insurance. The increase in other non-interest income was
primarily the result of $82,000 of income earned from an $8.0 million investment
in the BOLI. Total non-interest income for the nine months ended December 31,
2004 decreased $1.1 million, or 26.1%, to $3.2 million compared to $4.3 million
for the prior year period. Loan fees and service charges declined largely as the
result of a reduction in mortgage prepayment penalty income in the first nine
months of fiscal 2005 in the amount of $821,000. Other non-interest income
during the nine-month period ended December 31, 2003 contained an additional
$558,000 that
$558,000 was established for the recognition of previously unrecognized
mortgage loan income during the period ended September 30, 2003.income. Further contributing to the decrease in non-interest
income was an impairment charge deemed other than temporary of $1.5 million,
resulting from the decline in the market price of 150,000 shares of common stock
of IFSB that the Holding Company owns. Partially offsetting the decreases in
non-interest income were the receipt of a net $1.1 million CDFICommunity Development
Financial Institutions grant from the Department of the Treasury, a gain in loan fees and charges of
$65,000, additional
deposit fees and service charges of $45,000$201,000 and an increase of $44,000 resulting$82,000 from
gains on the sale of securities and fixed rate loans. The $65,000
rise in loan fees and charges was largely attributable to increased mortgage
prepayment penalty income amounting to $83,000 and the recognition of $39,000 of
income from mortgage servicing rights on prior period sales of fixed rate loans
where servicing rights were retained. Declines in fee income from loan closings
and modification fees partially offset the increase in loan fees and charges. The additional deposit
fees and services charges resulted from increases in ATM and debit card fees
arising from greater transaction volume. The addition of twothree new ATM centers
and two new branches contributed to the increased ATM transaction volume.
Non-interest income represented 10.6%14.3% of revenue (interest income plus
non-interest income) for the secondthird quarter of fiscal 2005 compared to 19.3%19.6% for
the corresponding prior year period. Similarly, non-interest income represented
13.2% of revenue for the nine months ended December 31, 2004 compared to 18.0%
for the corresponding prior year period.
NON-INTEREST EXPENSE. For the quarter ended September 30,December 31, 2004, total
non-interest expense increased $1.2 million,$535,000, or 30.3%13.5%, to $5.1$4.5 million compared to
$3.9$4.0 million for the prior year period. The increase in non-interest expense for
the quarter was primarily due to higher employee compensation and benefits
expense which rose $376,000 as a result of new hires, including staffing for the
new branches, annual/merit increases that were effective as of September 1, 2004
and increases in the costs to provide employee benefits. Net occupancy expense
increased $141,000 primarily as a result of additional expenses incurred for the
new Jamaica Center and Atlantic Terminal branches. In the nine-month period
ended December 31, 2004, total non-interest expense increased $1.9 million, or
16.1%, to $13.5 million compared to $11.6 million for the prior year period. The
increase in non-interest expense over the first nine months of fiscal 2005 was
primarily due to an $847,000 charge resulting from expensing previously
capitalized costs related tofollowing termination of the unsuccessful merger with IFSB. In addition,
employee compensation and benefit expense rose $270,000$843,000 resulting from salary
increases that were effective as of September 1, 2004, new hires, including
staffing for the new branches and increases in the costs to provide employee
benefits. Net occupancy and advertisingexpense increased $130,000 and $21,000,
respectively,$349,000, primarily as a result of
additional expenses incurred for the new Jamaica Center and Atlantic Terminal
branch. Thesebranches. The increases in non-interest expense were partially offset by
$32,000$238,000 lower consulting fees and a decrease in loan expenses of $64,000,$112,000,
primarily due to a decline in collection expenses, compared to the prior year
period.
INCOME TAX EXPENSE. For the three-month period ended September 30,December 31, 2004,
income before taxes decreased $1.8 million,$438,000, or 81.4%23.4%, to $406,000$1.4 million compared to
$2.2$1.9 million for the prior year period. Income tax expense decreased $600,000,$122,000,
or 79.9%19.2%, to $151,000$514,000 compared to $751,000$636,000 for the prior year period. Similarly,
for the nine-month period ended December 31, 2004, income before taxes decreased
$2.1 million, or 37.1%, to $3.6 million compared to $5.7 million for the prior
year period. Income tax expense for the nine-month period decreased $618,000, or
31.8%, to $1.3 million compared to $1.9 million for the prior year period.
Income tax expense for both the three and nine months ended December 31, 2004
declined primarily as a result of the declinereduction in income before taxes.
Additionally, for the three-month periodthree- and nine-month periods ended September 30,December 31, 2004, the
Company accrued Federal,federal, New York State and New York City income tax expense at
a combined total tax rate of 38%. For the three-month periodthree and nine-month periods ended
September 30,December 31, 2003, the Company's combined tax rate was 34%, or 4% lower than the
current year, which at the time enabled the Company to reduce its tax provision
to be in line withreflect anticipated income tax liabilities. 21
COMPARISON OF OPERATING RESULTS FOR THE
SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
OVERVIEW
Selected operating ratiosIncluded in the results for the
six monthsthree and nine-months ended September 30,December 31, 2004 and 2003 are set forth in the table below. The following analysis discusses the
changes in components of operating results giving rise to net income.
SIX MONTHS ENDED
SELECTED OPERATING RATIOS: SEPTEMBER 30,
2004 2003
------ ------
Return on average assets (1) 0.48% 0.97%
Return on average equity (1) 5.90 12.07
Interest rate spread (1) 3.20 3.47
Net interest margin (1) 3.44 3.62
Operating expenses to average assets (1,2) 3.21 2.98
Equity-to-assets 7.84 8.12
Efficiency ratio (3) 80.72 66.81
Average interest-earning assets to
interest-bearing liabilities 1.13x 1.08x
(1) Annualized
(2) Excluding merger related expenses the ratio would be 2.91%
(3) Excluding the IFSB stock impairment charge, grant income and merger
related expenses the ratio would be 71.02%
NET INCOME. The Company reported net income for the six-month period
ended September 30, 2004 of $1.3 million compared to net income of $2.5 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 $1.2 million, or $0.51 per diluted common share, compared to $2.4
million, or $0.98 per diluted common share, for the corresponding prior year
period. Income for the six months ended September 30, 2004 includesis a grant from
the Department of the Treasury of $1.1 million offset by a $1.5 million
impairment charge for IFSB stock deemed other than temporary and an $847,000
charge for the unsuccessful merger with IFSB. Net income available to common
stockholders decreased $1.2 million primarily due to an increase in non-interest
expense of $1.3 million, a reduction in non-interest income of $744,000,
partially offset by an increase in net interest income of $409,000 and a
reduction in income tax expense of $496,000.
INTEREST INCOME. Interest income increased by $606,000, or 4.6%, to
$13.7 million for the six months ended September 30, 2004 compared to $13.1
million in the corresponding prior year period. The rise in interest income was
primarily due to an increase in the average balance of interest-earning assets
of $49.4 million, or 10.2%, to $535.6 million for the six months ended September
30, 2004 compared with $486.2 million for the corresponding prior year period.
Partially offsetting the increase was a decrease of 29 basis points in the
annualized average yield on interest-earning assets to 5.11% for the six months
ended September 30, 2004 compared to 5.40% for the corresponding prior year
period.
Interest income on loans increased by $1.2 million, or 12.0%, to $11.1
million for the six months ended September 30, 2004 compared to $9.9 million for
the corresponding prior year period. The increase in interest income on loans
was due primarily to an increase in average mortgage loan balances of $69.0
million, or 22.9%, to $370.3 million for the six months ending September 30,
2004 compared to $301.3 million for the corresponding prior year period. The
increase in interest income on loans was partially offset by a decrease of 59
basis points in the annualized average yield on mortgage loans to 6.00% compared
to 6.59% for the six months ended September 30, 2003.
Interest income on total securities decreased by $560,000, or 18.0%, to
$2.6 million for the six months ended September 30, 2004 compared to $3.1
million for the corresponding prior year period. The change was primarily due to
a decrease in the average balance of total securities of $15.6 million, or 9.2%,
to $154.0 million for the six months ended September 30, 2004 compared to $169.6
million for the corresponding prior year period, coupled with a decrease in the
annualized average yield on investment securities of 36 basis points to 3.31%
from 3.67% during the same period.
Interest income on federal funds sold decreased by $23,000, or 28.4%,
to $58,000 for the six months ended September 30, 2004 compared to $81,000 for
the corresponding prior year period. The average balance of federal funds
decreased $4.0 million, or 26.2%, to $11.3 million from $15.3 million for the
corresponding prior year period. In addition,
22
the annualized yield on federal funds sold declined 3 basis points to 1.02% for
the six months ended September 30, 2004 compared to 1.05% for the corresponding
prior year period.
INTEREST EXPENSE. Total interest expense increased by $197,000, or
4.5%, to $4.5 million for the six months ended September 30, 2004 compared to
$4.3 million for the corresponding prior year period. The increase in interest
expense is primarily due to growth in the average balance of interest-bearing
liabilities of $25.7 million, or 5.7%, to $474.6 million from $448.9 million
comparedbenefit pertaining to the
corresponding prior year period. The annualized average cost of
interest-bearing liabilities was partially offset by a decrease of 2 basis
points to 1.91% from 1.93% for the corresponding prior year period.
Interest expense on deposits increased $19,000, or 0.8%, to $2.4
million for the six months ended September 30, 2004 relatively unchanged
compared to the corresponding prior year period. The increase in interest
expense on deposits was due primarily to a $24.2 million increase in the average
balance of interest-bearing deposits to $369.6 million from $345.4 million for
the corresponding prior year period partially offset by an 9 basis point decline
in the rate paid on deposits to 1.32% for the six months ended September 30,
2004 compared to 1.41% for the corresponding prior year period.
Interest expense on advances and other borrowed money increased
$178,000, or 9.3%, to $2.1 million for the six months ended September 30, 2004
compared to $1.9 million for the corresponding prior year period. This was
primarily due to an increase in the average balance for debt service of $11.8
million related to the issuance of $13 million in subordinated debentures raised
by the Company through an issuance of trust preferred securities in September
2003 and an increase of 15 basis points in the cost of borrowed money from
FHLB-NY advances to 3.84% from 3.69% for the prior year period. See "Liabilities
and Stockholders' Equity--Liabilities." This was partially offset by a decrease
of $10.3 million in the average balance of borrowed money from FHLB-NY advances
to $92.3 million from $102.6 million 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 $409,000, or 4.7%, to
$9.2 million for the six months ended September 30, 2004 compared to $8.8
million for the corresponding prior year period. Total interest income increased
by $606,000 while total interest expense increased by $197,000 for the six
months ended September 30, 2004. The Company's annualized average interest rate
spread decreased by 27 basis points to 3.20% for the six months ended September
30, 2004 compared to 3.47% for the corresponding prior year period. Our net
interest margin, represented by annualized net interest income divided by
average total interest-earning assets, decreased 18 basis points to 3.44% for
the six months ended September 30, 2004 from 3.62% for the corresponding prior
year period.
PROVISION FOR LOAN LOSSES AND ASSET QUALITY. The Company did not
provide for additional loan losses for each six-month period ended September 30,
2004 and 2003. Due to the credit quality of the loan portfolio at period end,
the Company believed the total loan loss allowance to be adequate. During the
first six months of fiscal 2005, Carver recorded net loan charge-offs of $9,000
to the allowance for loan losses compared to net recoveries of $45,000 for the
corresponding prior year period. At September 30, 2004, and March 31, 2004 the
Bank's allowance for loan losses was $4.1 million.
NON-INTEREST INCOME. Total non-interest income decreased $744,000, or
27.4%, to $2.0 million for the six-month period ended September 30, 2004
compared to $2.7 million for the corresponding prior year period. The decrease
in non-interest income resulted primarily from $558,000 that was established
during the period ended September 30, 2003 for the recognition of previously
unrecognized mortgage loan income. Additionally, an impairment charge deemed
other than temporary of $1.5 million was reflected, resulting from the decline
in market price of 150,000 shares of IFSB common stock that the Holding Company
owns. Further adding to the decline was a decrease in loan fees and charges of
$57,000 primarily due to lower mortgage prepayment penalties and loan fees of
$163,000 and $34,000, respectively, partially offset by the recognition of
$155,000 of income from mortgage servicing rights. Partially offsetting the
decreases in non-interest income were the receipt of a net $1.1 million CDFI
grant from the Department of the Treasury, an increase of $81,000 in depository
fees and service charges, an increase in the gain on sale of securities of
$63,000 and an increase of $45,000 on the gain on sale of fixed rate mortgage
loans. Depository fees and service charges rose as a result of increases in ATM
and debit card fees arising from greater transaction volume. The addition of two
new ATM centers and two new branches contributed to the increased ATM
transaction volume. In an effort to reposition the balance sheet, the Company
sold investment securities during the first quarter of fiscal 2005 that
generated a net gain on sale of securities of $94,000.
23
NON-INTEREST EXPENSE. Total non-interest expense increased $1.3
million, or 17.4%, to $9.0 million for the six months ended September 30, 2004
compared to $7.7 million for the corresponding prior year period. The increase
was primarily attributable to an $847,000 charge resulting from expensing
previously capitalized costs related to the unsuccessful merger with IFSB. In
addition, employee compensation and benefits increased $466,000 due to salary
increases that became effective as of September 1, 2004, new hires including
staffing for the new branches and the increased cost of benefit plans. Net
occupancy expense increased by $209,000 primarily as a result of additional
expenses relating to the new Jamaica Center and Atlantic Terminal branches.
Other non-interest expense decreased $167,000 primarily due to a decline in
consulting expense that was incurred in the prior year period when the Bank
established a real estate investment trust.
INCOME TAX EXPENSE. For the six-month period ended September 30, 2004,
income before taxes decreased $1.7 million, or 43.7%, to $2.2 million compared
to $3.8 million for the prior year period. Income tax expense decreased
$496,000, or 37.9%, to $814,000 compared to $1.3 million for the prior year
period, primarily as a result of the decline in income before taxes.
Additionally, for the six-month period ended September 30, 2004, the Company
accrued for Federal,trust ("REIT"). The proposed New York State and New York City incomebudget
for fiscal 2005-06 includes a proposal which would prohibit banks from claiming
tax expense at a
combined totaldeductions for dividends received from REIT's that are owned over 50 percent
by the taxpayer or members of an affiliated group. If the legislation were to
pass, this tax rate of 38%. For the six-month period ended September 30,
2003, the Company's combined tax rate was 34%, or 4% lower than the current
year, which at the time enabled the Company to reduce its tax provision to be in
line with anticipated income tax liabilities.benefit may not continue for periods beyond December 31, 2004.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented
at March 31, 2004 in Item 7A of the Company's 2004 10-K and is incorporated
herein by reference. The Company believes that there have been no material
changes in the Company's market risk at September 30,December 31, 2004 compared to March 31,
2004.
22
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 ("Exchange Act") is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC. As of September 30,December 31, 2004, 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 (the Company's principal executive officer and principal financial
officer, respectively), of the effectiveness of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures were effective to ensure
that information required to be disclosed in the reports we file and submit
under the Exchange Act is recorded, processed, summarized and reported as and
when required and that such information is accumulated and communicated to our
management as appropriate to allow timely decisions regarding required
disclosure.
There were no changes in our internal control over financial reporting
that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Disclosure regarding legal proceedings that the Company is a party to
is presented in Note 13 to our audited Consolidated Financial Statements in the
2004 10-K and is incorporated herein by reference. Except as set forth below,
there have been no material changes with regard to such legal proceedings since
the filing of the 2004 10-K.
In January 2004, Michael Lee & Company ("Michael Lee"), former
accountants for Hale House Center, Inc., filed an action against Carver Federal
in New York County Supreme Court, asserting a single claim for contribution
against Carver Federal. The complaint alleges that Carver Federal should be
liable to Michael Lee in the event that Michael Lee is found liable to
non-parties Hale House Center, Inc. and its affiliated corporations ("Hale House
plaintiffs") in a separate action that the Hale House plaintiffs have filed
against Michael Lee asserting claims of professional malpractice and breach of
contract due to Michael Lee's alleged provision of deficient accounting services
to Hale House. The basis of Michael Lee's contribution claim against Carver
Federal is that Carver Federal allegedly breached a legal duty it owed Hale
House by improperly opening and maintaining a checking account on behalf of one
of the Hale House affiliates. Michael Lee seeks 24
contribution from Carver Federal
in the amount of at least $8.5 million or the amount of any money judgment
entered against Michael Lee in favor of the Hale House plaintiffs. On February
4, 2004 Carver Federal filed a motion to dismiss the complaint in its entirety
and, on February 11, 2004, Michael Lee served a cross-motion for summary
judgment against Carver Federal. In May 2004, the court ruled in favor of Carver
Federal and judgment was entered in Carver Federal's favor on June 14, 2004.
Michael Lee has appealed the judgment. Carver Federal opposes the appeal as
untimely. Michael Lee opposed Carver Federal's application and requested
additional time to cure any defects or omissions with respect to the service or
filing of the appeal. The matter has been referred to the Office of Referees for
an evidentiary hearing to resolve the issue but noand a hearing date
has been set as ofwas held on January
13, 2005. Carver Federal awaits the date of the filing of this 10-Q.referee's decision. If Michael Lee's appeal
is granted Carver Federal intends to defend itself vigorously. In the opinion of
management, after consultation with legal counsel, the lawsuit is without merit
and the ultimate outcome of this matter is not expected to have a material
adverse effect on the Company's results of operations, business operations or
consolidated financial condition.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30,December 31, 2004, the Holding Company
purchased 4,70026,400 additional shares of its common stock under its stock
repurchase program announced on August 6, 2002.2002 at an average price of $18.99 per
share. As a part of its repurchase program, the Board of Directors of the
Holding Company approved the purchase of up to 231,635 shares of its common stock.Common
Stock. To date, Carver has purchased 35,15061,550 shares of its common stock in the
open market or through privately negotiated transactions at an average price of
$14.71$16.55 per share. 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. The following table sets forth the Holding Company's purchases
of its equity securities during the secondthird quarter of fiscal 2005.
23
ISSUER PURCHASES OF EQUITY SECURITIES
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total number of Maximum number
shares as part of of shares that may
Total number of Average price of publicly yet be purchased
Period shares purchased paid per share announced plan under the plan
- ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
JulyOctober 1, 2004 to JulyOctober 31, 2004 -- -- -- 201,185
August- - - 196,485
November 1, 2004 to August 31,November 30, 2004 4,400 18.39 4,400 196,785
September6,000 18.99 6,000 190,485
December 1, 2004 to September 30,December 31, 2004 300 18.40 300 196,48520,400 18.99 20,400 170,085
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Holding Company held its Annual Meeting on September 21, 2004 for
the fiscal year ended March 31, 2004.
The purpose of the Annual Meeting was to vote on the following
proposals:
1. the election of three directors for terms of three years each;
and
2. the ratification of the appointment of KPMG, LLP as
independent auditors of the Holding Company for the fiscal
year ended March 31, 2005.
25
The results of voting were as follows:
Proposal 1: Election of Directors:
Holding Company Nominees
David L. Hinds For 2,182,425
Withheld 33,597
Pazel G. Jackson, Jr. For 2,181,446
Withheld 34,576
Deborah C. Wright For 2,179,970
Withheld 36,052
Proposal 2: Ratification of Appointment For 2,206,373
of Independent Auditors
Withheld 8,604
Abstain 1,045
In addition to the nominees elected at the Annual Meeting, the
following persons' terms of office as directors continued after the Annual
Meeting: Carol Baldwin Moody, Robert Holland, Jr., Edward B. Ruggiero, Strauss
Zelnick and Frederick O. Terrell.Not applicable
ITEM 5. OTHER INFORMATION
Effective July 30, 2004, Devon Woolcock, Senior Vice President and
Chief of Retail Banking, resigned from the Holding Company and Carver Federal to
pursue other opportunities. Effective October 4, 2004, David Hargraves, a 15
year Citibank veteran became the new Senior Vice President and Chief of Retail
Banking.
On November 15, 2004, the Holding Company issued a press release
stating that the financial results for the second quarter of the fiscal year
ending March 31, 2005 had been revised from what was earlier reported in the
Company's earnings press release, dated October 28, 2004. The revised results
are reported in this quarterly report filed on Form 10-Q. The press release has
been filed as an exhibit to this report.Not applicable
ITEM 6. EXHIBITS
(a)
The following exhibits are submitted with this report:
Exhibit 11. Computation of Net Income Per Share.
Exhibit 20.1 Press Release dated November 15, 2004.
Exhibit 31.1 Certification of Chief Executive Officer.
Exhibit 31.2 Certification of Chief Financial Officer.
Exhibit 32.1(*) Written Statement of Chief Executive Officer
furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
Exhibit 32.2(*) Written Statement of Chief Financial Officer
furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
* Pursuant to SEC rules, this exhibit will not be deemed filed for
purposes of Section 18 of the Exchange Act or be otherwise subject to
the liability of that section.
2624
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARVER BANCORP, INC.
Date: November 15, 2004 /S/ DEBORAH C. WRIGHT
------------------------------------------------February 14, 2005 /s/ Deborah C. Wright
-------------------------------------------------
Deborah C. Wright
Chairman, President and Chief Executive Officer
Date: November 15, 2004 /S/ WILLIAMFebruary 14, 2005 /s/ William C. GRAYGray
-------------------------------------------------
William C. Gray
Senior Vice President and Chief Financial Officer
27