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EX-31.2 - EXHIBIT 31.2 - CARVER BANCORP INCjune30201510qex312.htm
EX-32.1 - EXHIBIT 32.1 - CARVER BANCORP INCjune30201510qex321.htm
EX-32.2 - EXHIBIT 32.2 - CARVER BANCORP INCjune30201510qex322.htm
EX-11 - EXHIBIT 11 - CARVER BANCORP INCjune302015exhibit11.htm
EX-31.1 - EXHIBIT 31.1 - CARVER BANCORP INCjune30201510qex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o
 
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: 1-13007
CARVER BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
 
13-3904174
(I.R.S. Employer Identification No.)
 
 
 
75 West 125th Street, New York, New York
(Address of Principal Executive Offices)
 
10027
(Zip Code)
Registrant’s telephone number, including area code: (718) 230-2900
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.
þ Yes         o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
þ Yes        oNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
o Large Accelerated Filer
o Accelerated Filer
o Non-accelerated Filer
x Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at August 10, 2015
Common Stock, par value $0.01
 
3,696,087



TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Exhibit 11
 
 Exhibit 31.1
 
 Exhibit 31.2
 
 Exhibit 32.1
 
 Exhibit 32.2
 
 Exhibit 101
 



PART I. FINANCIAL INFORMATION

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
 
June 30, 2015
 
March 31, 2015
$ in thousands except per share data
(unaudited)
 
 
ASSETS
 
 
 
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
43,832

 
$
44,864

Money market investments
1,998

 
6,128

Total cash and cash equivalents
45,830

 
50,992

Restricted cash
6,368

 
6,354

Investment securities:
 
 
 
Available-for-sale, at fair value
86,972

 
101,185

Held-to-maturity, at amortized cost (fair value of $16,669 and $12,231 at June 30, 2015 and March 31, 2015, respectively)
16,596

 
11,922

Total investment securities
103,568

 
113,107

 
 
 
 
Loans held-for-sale (“HFS”)
2,576

 
2,576

 
 
 
 
Loans receivable:
 
 
 
Real estate mortgage loans
419,003

 
412,204

Commercial business loans
72,784

 
70,555

Consumer loans
103

 
434

Loans, net
491,890

 
483,193

Allowance for loan losses
(4,107
)
 
(4,477
)
Total loans receivable, net
487,783

 
478,716

Premises and equipment, net
7,016

 
7,075

Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost
2,433

 
3,519

Accrued interest receivable
2,902

 
2,781

Other assets
12,298

 
11,266

Total assets
$
670,774

 
$
676,386

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
LIABILITIES
 
 
 
Deposits:
 
 
 
Savings
$
94,789

 
$
95,009

Non-interest bearing checking
49,822

 
50,731

Interest-bearing checking
31,577

 
30,860

Money market
153,218

 
148,702

Certificates of deposit
215,510

 
200,123

Mortgagors deposit
1,664

 
2,336

Total deposits
546,580

 
527,761

Advances from the FHLB-NY and other borrowed money
58,403

 
83,403

Other liabilities
11,503

 
10,243

Total liabilities
616,486

 
621,407

 
 
 
 
EQUITY
 
 
 
Preferred stock, (par value $0.01 per share: 45,118 Series D shares, with a liquidation preference of $1,000 per share, issued and outstanding)
45,118

 
45,118

Common stock (par value $0.01 per share: 10,000,000 shares authorized; 3,698,031 shares issued; 3,696,087 shares outstanding at June 30, 2015 and March 31, 2015, respectively)
61

 
61

Additional paid-in capital
55,468

 
55,468

Accumulated deficit
(44,029
)
 
(44,206
)
Treasury stock, at cost (1,944 shares at June 30, 2015 and March 31, 2015)
(417
)
 
(417
)
Accumulated other comprehensive loss
(1,913
)
 
(1,045
)
Total equity
54,288

 
54,979

Total liabilities and equity
$
670,774

 
$
676,386

                
See accompanying notes to consolidated financial statements

1



CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended June 30,
 
$ in thousands
 
2015
 
2014
 
Interest income:
 
 
 
 
 
Loans
 
$
5,642

 
$
5,162

 
Mortgage-backed securities
 
191

 
206

 
Investment securities
 
341

 
324

 
Money market investments
 
34

 
66

 
Total interest income
 
6,208

 
5,758

 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
Deposits
 
776

 
722

 
Advances and other borrowed money
 
282

 
270

 
Total interest expense
 
1,058

 
992

 
 
 
 
 
 
 
Net interest income
 
5,150

 
4,766

 
Provision for (recovery) loan losses
 
117

 
(781
)
 
Net interest income after provision for loan losses
 
5,033

 
5,547

 
 
 
 
 
 
 
Non-interest income:
 
 
 
 
 
Depository fees and charges
 
668

 
896

 
Loan fees and service charges
 
172

 
95

 
Gain on sale of securities
 

 
4

 
Gain on real estate owned
 
18

 
4

 
Other
 
335

 
204

 
Total non-interest income
 
1,193

 
1,203

 
 
 
 
 
 
 
Non-interest expense:
 
 
 
 
 
Employee compensation and benefits
 
2,781

 
2,787

 
Net occupancy expense
 
996

 
885

 
Equipment, net
 
162

 
175

 
Data processing
 
349

 
277

 
Consulting fees
 
168

 
88

 
Federal deposit insurance premiums
 
122

 
238

 
Other
 
1,457

 
2,094

 
Total non-interest expense
 
6,035

 
6,544

 
 
 
 
 
 
 
Income before income taxes
 
191

 
206

 
   Income tax expense
 
13

 
16

 
Consolidated net income
 
178

 
190

 
Less: Net income attributable to non-controlling interest
 

 
17

 
Net income attributable to Carver Bancorp, Inc.
 
$
178

 
$
173

 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Basic
 
$
0.05

 
$
0.05

 
Diluted
 
0.05

 
0.05

 
                
See accompanying notes to consolidated financial statements









2


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
 
 
Three Months Ended June 30,
 
$ in thousands
 
2015
 
2014
 
Net income attributable to Carver Bancorp, Inc.
 
$
178

 
$
173

 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
Change in unrealized loss of securities available-for-sale
 
(868
)
 
1,562

 
Less: Reclassification adjustment for sales of available-for-sale securities, net of tax
 

 
4

 
Total other comprehensive (loss) income, net of tax
 
(868
)
 
1,558

 
 
 
 
 
 
 
Total comprehensive (loss) income, net of tax attributable to Carver Bancorp, Inc.
 
$
(690
)
 
$
1,731

 

See accompanying notes to consolidated financial statements


3


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the three months ended June 30, 2015
(Unaudited)
($ in thousands)
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated deficit
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total Equity
Balance — March 31, 2015
 
$
45,118

 
$
61

 
$
55,468

 
$
(44,206
)
 
$
(417
)
 
$
(1,045
)
 
$
54,979

Net income attributable to Carver Bancorp, Inc.
 

 

 

 
178

 

 

 
178

Other comprehensive income (loss), net of taxes
 

 

 

 

 

 
(868
)
 
(868
)
Stock based compensation expense
 

 

 

 
(1
)
 

 

 
(1
)
Balance — June 30, 2015
 
$
45,118

 
$
61

 
$
55,468

 
$
(44,029
)
 
$
(417
)
 
$
(1,913
)
 
$
54,288


See accompanying notes to consolidated financial statements

4



CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Three Months Ended June 30,
($ in thousands)
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income before attribution to noncontrolling interest
 
$
178

 
$
190

Net income attributable to noncontrolling interest, net of taxes
 

 
17

Net income attributable to Carver Bancorp, Inc.
 
178

 
173

 
 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for (recovery of) loan losses
 
117

 
(781
)
Stock based compensation expense
 
(1
)
 
1

Depreciation and amortization expense
 
245

 
122

Gain on real estate owned
 
(18
)
 
(4
)
Gain on sale of securities, net
 

 
(4
)
Amortization and accretion of loan premiums and discounts and deferred charges
 
(41
)
 
(111
)
Amortization and accretion of premiums and discounts — securities
 
(29
)
 
66

Increase in accrued interest receivable
 
(121
)
 
(33
)
(Increase) decrease in other assets
 
(1,240
)
 
2,303

Increase in other liabilities
 
1,692

 
1,140

Net cash provided by operating activities
 
782

 
2,872

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Purchases of investments: Available-for-sale
 
(5,118
)
 
(5,534
)
Proceeds from principal payments, maturities, calls and sales of investments: Available-for-sale
 
13,278

 
784

Proceeds from principal payments, maturities and calls of investments: Held-to-maturity
 
539

 
192

Originations of loans held-for-investment
 
(23,248
)
 
(14,721
)
Loans purchased from third parties
 
(7,416
)
 

Principal collections on loans
 
20,682

 
13,519

Increase in restricted cash
 
(14
)
 

Redemption of FHLB-NY stock
 
1,086

 
330

Purchase (Dispositions) of premises and equipment
 
(187
)
 
13

Proceeds from sale of real estate owned
 
636

 

Net cash provided by (used in) investing activities
 
238

 
(5,417
)
CASH FLOW FROM FINANCING ACTIVITIES
 
 
 
 
Net increase in deposits
 
18,818

 
9,390

Net decrease in FHLB-NY advances and other borrowings
 
(25,000
)
 
(8,000
)
Net cash provided by (used in) financing activities
 
(6,182
)
 
1,390

Net decrease in cash and cash equivalents
 
(5,162
)
 
(1,155
)
Cash and cash equivalents at beginning of period
 
50,992

 
122,554

Cash and cash equivalents at end of period
 
$
45,830

 
$
121,399

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Noncash financing and investing activities
 
 
 
 
Transfers to real estate owned
 
$

 
$
2,434

 
 
 
 
 
Cash paid for:
 
 
 
 
Interest
 
$
934

 
$
881

Income taxes
 
$
30

 
$
20


See accompanying notes to consolidated financial statements

5


CARVER BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1. ORGANIZATION

Nature of operations

Carver Bancorp, Inc. (on a stand-alone basis, the “Company” or “Registrant”), was incorporated in May 1996 and its principal wholly owned subsidiary is Carver Federal Savings Bank (the “Bank” or “Carver Federal”). Carver Federal's wholly owned subsidiaries are CFSB Realty Corp., Carver Community Development Corporation (“CCDC”) and CFSB Credit Corp., which is currently inactive. The Bank has a majority-owned interest in Carver Asset Corporation, a real estate investment trust formed in February 2004.

“Carver,” the “Company,” “we,” “us” or “our” refers to the Company along with its consolidated subsidiaries. The Bank was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally-chartered mutual savings and loan association. The Bank converted to a federal savings bank in 1986. On October 24, 1994, the Bank converted from a mutual holding company structure to stock form and issued 2,314,375 shares of its common stock, par value 0.01 per share. On October 17, 1996, the Bank completed its reorganization into a holding company structure (the “Reorganization”) and became a wholly owned subsidiary of the Company.

In September 2003, the Company formed Carver Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Company. In accordance with Accounting Standards Codification (“ASC”) 810, “Consolidations,” Carver Statutory Trust I is unconsolidated for financial reporting purposes.

Carver Federal’s principal business consists of attracting deposit accounts through its branches and investing those funds in mortgage loans and other investments permitted by federal savings banks. The Bank has ten branches located throughout the City of New York that primarily serve the communities in which they operate.

On February 7, 2011, Carver Federal Savings Bank and Carver Bancorp, Inc. consented to enter into Cease and Desist Orders (the “Bank Order” and the "Company Order," respectively, and together the "Orders") with the Office of Thrift Supervision (“OTS”). The OTS issued these Orders based upon its findings that the Company was operating with an inadequate level of capital for the volume, type and quality of assets held by the Company, that it was operating with an excessive level of adversely classified assets, and earnings inadequate to augment its capital. Effective July 21, 2011, supervisory authority for the Company Order passed to the Board of Governors of the Federal Reserve System and supervisory authority for the Bank Order passed to the Office of the Comptroller of the Currency (“OCC”). On November 3, 2014, the OCC notified the Bank that the OCC had determined that the Bank had satisfied all of the requirements of the Bank Order and directed that the Bank Order be terminated. In addition, the OCC notified the Bank that the OCC had determined that the Bank was no longer in “troubled condition” and was relieved of all prior conditions imposed on the Bank by the OTS as a result of its troubled condition designation. The Company Order has not been terminated.

On June 29, 2011, the Company raised $55 million of capital by issuing 55,000 shares of mandatorily convertible non-voting participating preferred stock, Series C (the “Series C preferred stock”). The issuance resulted in a $51.4 million increase in equity after considering the effect of various expenses associated with the capital raise. The capital raise enabled the Company to make a capital injection of $37 million in the Bank on June 30, 2011. In December 2011, another $7 million capital injection was made in the Bank. The remainder of the net capital raised is retained by the Company for future strategic purposes or to downstream into the Bank, if necessary. No assurances can be given that the amount of capital raised is sufficient to absorb the expected losses in the Bank's loan portfolio. Should the losses be greater than expected, additional capital may be necessary in the future.

On October 25, 2011, Carver's stockholders voted to approve a 1-for-15 reverse stock split. A separate vote of approval was given to convert the Series C preferred stock to non-cumulative non-voting participating preferred stock, Series D (“the Series D preferred stock”) and to common stock and to exchange the U.S. Treasury's (“Treasury”) Community Development Capital Initiative (“CDCI”) Series B preferred stock for common stock.

On October 27, 2011, the 1-for-15 reverse stock split was effected, which reduced the number of outstanding shares of common stock from 2,492,415 to 166,161.


6


On October 28, 2011, the Treasury exchanged the CDCI Series B preferred stock for 2,321,286 shares of Carver common stock and the Series C preferred stock converted into 1,208,039 shares of Carver common stock and 45,118 shares of Series D preferred stock.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidated financial statement presentation

The consolidated financial statements include the accounts of the Company, the Bank and the Bank’s wholly owned or majority-owned subsidiaries, Carver Asset Corporation, CFSB Realty Corp., CCDC, and CFSB Credit Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ended March 31, 2016. The consolidated balance sheet at June 30, 2015 has been derived from the unaudited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the period then ended. These unaudited consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended March 31, 2015. Amounts subject to significant estimates and assumptions are items such as the allowance for loan losses, valuation of real estate owned, realization of deferred tax assets, and the fair value of financial instruments. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses or future writedowns of real estate owned may be necessary based on changes in economic conditions in the areas where Carver Federal has extended mortgages and other credit instruments. Actual results could differ significantly from those assumptions. Current market conditions increase the risk and complexity of the judgments in these estimates.

In addition, the OCC, Carver Federal's regulator, as an integral part of its examination process, periodically reviews Carver Federal's allowance for loan losses and, if applicable, real estate owned valuations. The OCC may require Carver Federal to recognize additions to the allowance for loan losses or additional writedowns of real estate owned based on their judgments about information available to them at the time of their examination.

In addition, no assurances can be given that the Company will continue to comply with all provisions of the Order. Failure to comply with these provisions could result in further regulatory actions to be taken by the regulators.

NOTE 3. EARNINGS PER COMMON SHARE

The following table reconciles the earnings available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted earnings per share for the following periods:

 
 
Three Months Ended
June 30,
 
$ in thousands except per share data
 
2015
 
2014
 
Earnings per common share
 
 
 
 
 
Net income available to common shareholders of Carver Bancorp, Inc.
 
$
178

 
$
173

 
Weighted average common shares outstanding
 
3,696,420

 
3,696,225

 
Basic earnings per common share
 
$
0.05

 
$
0.05

 
Diluted earnings per common share
 
0.05

 
0.05

 

NOTE 4. COMMON STOCK DIVIDENDS


7


As previously disclosed in a Form 8-K filed with the SEC on October 29, 2010, the Company’s Board of Directors announced that, based on highly uncertain economic conditions and the desire to preserve capital, Carver suspended payment of the quarterly cash dividend on its common stock. In accordance with the Order, the Company is also prohibited from paying any dividends without prior regulatory approval, and, as such, suspended the regularly quarterly cash dividend payments on the Company's CDCI Series B preferred stock to the Treasury. On October 18, 2011, Carver received approval from the Federal Reserve Bank to pay all outstanding dividend payments (which included $192 thousand accrued during the six month period ended September 30, 2011) on the Company's Series B preferred stock issued under the TARP CPP. There are no assurances that the payments of common stock dividends will resume.

Debenture interest payments which had previously been deferred in March 2011 and June 2011 on the Carver Statutory Trust I trust preferred securities (“TruPS”) were brought current in September 2011. The Company is prohibited from making future payments without prior approval. The expense continues to be accrued and the payments remain on deferral status. The Company has requested approval from the Federal Reserve to reinstate the debenture interest payment. As of June 30, 2015, the request remains pending.
 
On October 28, 2011, the Treasury exchanged the CDCI Series B preferred stock for 2,321,286 shares of Carver common stock and the Series C preferred stock converted into 1,208,039 shares of Carver common stock and 45,118 shares of Series D preferred stock. Series C stock was previously reported as mezzanine equity, and upon conversion to common and Series D preferred stock is now reported as equity attributable to Carver Bancorp, Inc. The holders of the Series D Preferred Stock are entitled to receive dividends, on an as-converted basis, simultaneously to the payment of any dividends on the common stock.

NOTE 5. OTHER COMPREHENSIVE INCOME (LOSS)

The following tables set forth changes in each component of accumulated other comprehensive loss, net of tax for the three months ended June 30, 2015 and 2014:
 
 
 
 
Other
 
 
Three months ended June 30, 2015
 
At
 
Comprehensive
 
At
$ in thousands
 
March 31, 2015
 
Income, net of tax
 
June 30, 2015
Net unrealized loss on securities available-for-sale
 
$
(1,045
)
 
$
(868
)
 
$
(1,913
)
Accumulated other comprehensive loss, net of tax
 
$
(1,045
)
 
$
(868
)
 
$
(1,913
)


 
 
 
 
Other
 
 
Three months ended June 30, 2014
 
At
 
Comprehensive
 
At
$ in thousands
 
March 31, 2014
 
Income, net of tax
 
June 30, 2014
Net unrealized loss on securities available-for-sale
 
$
(4,768
)
 
$
1,558

 
$
(3,210
)
Accumulated other comprehensive loss, net of tax
 
$
(4,768
)
 
$
1,558

 
$
(3,210
)


The following table sets forth information about amounts reclassified from accumulated other comprehensive loss to the consolidated statement of operations and the affected line item in the statement where net income is presented.
 
 
For the Three Months Ended June 30,
 
Affected Line Item in the Consolidated Statement of Income
$ in thousands
 
2015
 
2014
 
Reclassification adjustment for sales of available-for-sale securities, net of tax
 

 
4

 
Gain on sale of securities
Total reclassifications for the period
 
$

 
$
4

 
 
 
 
 
 
 
 
 

NOTE 6. INVESTMENT SECURITIES

The Bank utilizes mortgage-backed and other investment securities in its asset/liability management strategy. In making investment decisions, the Bank considers, among other things, its yield and interest rate objectives, its interest rate and credit risk position, and its liquidity and cash flow.

8



Generally, the investment policy of the Bank is to invest funds among categories of investments and maturities based upon the Bank’s asset/liability management policies, investment quality, loan and deposit volume and collateral requirements, liquidity needs and performance objectives. ASC Subtopic 320-10-25 requires that securities be classified into three categories: trading, held-to-maturity, and available-for-sale. At June 30, 2015, $87.0 million, or 84.0%, of the Bank’s mortgage-backed and other investment securities were classified as available-for-sale, and the remaining $16.6 million, or 16.0%, were classified as held-to-maturity. The Bank had no securities classified as trading at June 30, 2015 and March 31, 2015.

The following table sets forth the amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at June 30, 2015:
 
 
Amortized
 
Gross Unrealized
 
Estimated
$ in thousands
 
Cost
 
Gains
 
Losses
 
Fair-Value
Available-for-Sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
5,310

 
$
5

 
$
(94
)
 
$
5,221

Federal Home Loan Mortgage Corporation
 
10,156

 
6

 
(218
)
 
9,944

Federal National Mortgage Association
 
10,600

 
2

 
(206
)
 
10,396

Other
 
46

 

 

 
46

Total mortgage-backed securities
 
26,112

 
13

 
(518
)
 
25,607

U.S. Government Agency Securities
 
51,791

 
5

 
(1,088
)
 
50,708

Other investments
 
10,982

 

 
(325
)
 
10,657

Total available-for-sale
 
88,885

 
18

 
(1,931
)
 
86,972

Held-to-Maturity*:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
2,896

 
180

 

 
3,076

Federal National Mortgage Association and Other
 
12,700

 

 
(107
)
 
12,593

Total held-to-maturity mortgage-backed securities
 
15,596

 
180

 
(107
)
 
15,669

Corporate Bonds
 
1,000

 

 

 
1,000

Total held-to maturity
 
16,596

 
180

 
(107
)
 
16,669

Total securities
 
$
105,481

 
$
198

 
$
(2,038
)
 
$
103,641

* The carrying amount and amortized cost are the same for all held-to-maturity securities, as no OTTI has been recorded.

The following table sets forth the amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at March 31, 2015:
 
 
Amortized
 
Gross Unrealized
 
Estimated
$ in thousands
 
Cost
 
Gains
 
Losses
 
Fair Value
Available-for-Sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
5,575

 
$
9

 
$
(57
)
 
$
5,527

Federal Home Loan Mortgage Corporation
 
10,705

 
10

 
(127
)
 
10,588

Federal National Mortgage Association
 
10,925

 
35

 
(103
)
 
10,857

Other
 
47

 

 

 
47

Total mortgage-backed securities
 
27,252

 
54

 
(287
)
 
27,019

U.S. Government Agency Securities
 
58,464

 
48

 
(662
)
 
57,850

Other investments
 
16,514

 

 
(198
)
 
16,316

Total available-for-sale
 
102,230

 
102

 
(1,147
)
 
101,185

Held-to-Maturity*:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
3,100

 
232

 

 
3,332

Federal National Mortgage Association and Other
 
8,822

 
77

 

 
8,899

Total held-to-maturity mortgage-backed securities
 
11,922

 
309

 

 
12,231

Total held-to-maturity
 
11,922

 
309

 

 
12,231

Total securities
 
$
114,152

 
$
411

 
$
(1,147
)
 
$
113,416

* The carrying amount and amortized cost are the same for all held-to-maturity securities, as no OTTI has been recorded.

9



The following table sets forth the unrealized losses and fair value of securities in an unrealized loss position at June 30, 2015 for less than 12 months and 12 months or longer:
 
 
Less than 12 months
 
12 months or longer
 
Total
$ in thousands
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
(3
)
 
$
1,215

 
$
(515
)
 
$
20,982

 
$
(518
)
 
$
22,197

U.S. Government Agency Securities
 
(241
)
 
17,721

 
(847
)
 
25,981

 
(1,088
)
 
43,702

Other investments (1)
 

 

 
(325
)
 
9,675

 
(325
)
 
9,675

Total available-for-sale securities
 
(244
)
 
18,936

 
(1,687
)
 
56,638

 
(1,931
)
 
75,574

 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
(107
)
 
12,428

 

 

 
(107
)
 
12,428

  Total held-to-maturity securities
 
(107
)
 
12,428

 

 

 
(107
)
 
12,428

  Total securities
 
$
(351
)
 
$
31,364

 
$
(1,687
)
 
$
56,638

 
$
(2,038
)
 
$
88,002

(1) CRA fund comprised of over 95% agency securities.


The following table sets forth the unrealized losses and fair value of securities in an unrealized loss position at March 31, 2015 for less than 12 months and 12 months or longer:
 
 
Less than 12 months
 
12 months or longer
 
Total
$ in thousands
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
Available-for-Sale:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$

 
$

 
$
(287
)
 
$
22,297

 
$
(287
)
 
$
22,297

U.S. Government Agency Securities
 
(57
)
 
12,943

 
(605
)
 
26,400

 
(662
)
 
39,343

Other investments (1)
 

 

 
(198
)
 
9,802

 
(198
)
 
9,802

Total available-for-sale securities
 
(57
)
 
12,943

 
(1,090
)
 
58,499

 
(1,147
)
 
71,442

Total securities
 
$
(57
)
 
$
12,943

 
$
(1,090
)
 
$
58,499

 
$
(1,147
)
 
$
71,442

(1) CRA fund comprised of over 95% agency securities.

A total of 31 securities had an unrealized loss at June 30, 2015 compared to 23 at March 31, 2015. The majority of the securities in an unrealized loss position were U.S. Government Agency securities and mortgage-backed securities, representing 70.6% and 29.4%, respectively, of total available-for-sale securities in an unrealized loss position at June 30, 2015. There were ten U.S. Government Agency securities and eight mortgage-backed securities in an unrealized loss position that had an unrealized loss for more than 12 months at June 30, 2015. Given the high credit quality of the securities which are backed by the U.S. government's guarantees, the risk of credit loss is minimal. Management believes that these unrealized losses are a direct result of the current rate environment and has the ability and intent to hold the securities until maturity or the valuation recovers.

The amount of an other-than-temporary impairment when there are credit and non-credit losses on a debt security which management does not intend to sell, and for which it is more likely than not that the Company will not be required to sell the security prior to the recovery of the non-credit impairment, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings. The remaining difference between the debt security’s amortized cost basis and its fair value would be included in other comprehensive income (loss). At June 30, 2015, the Bank does not have any securities that are classified as having other-than-temporary impairment in its investment portfolio.

The following is a summary of the carrying value (amortized cost) and fair value of securities at June 30, 2015, by remaining period to contractual maturity (ignoring earlier call dates, if any).  Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their obligations.  The table below does not consider the effects of possible prepayments or unscheduled repayments.

10


$ in thousands
Amortized Cost
 
Fair Value
 
Weighted
Average Yield
Available-for-Sale:
 
 
 
 
 
One through five years
15,982

 
15,897

 
1.38
%
Five through ten years
21,694

 
21,183

 
1.97
%
After ten years
51,208

 
49,892

 
2.02
%
Total
$
88,884

 
$
86,972

 
1.89
%
 
 
 
 
 
 
Held-to-maturity:
 
 
 
 
 
Five through ten years
$
6,211

 
$
6,237

 
2.56
%
After ten years
10,385

 
10,432

 
2.53
%
Total
$
16,596


$
16,669

 
2.54
%

NOTE 7. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The loans receivable portfolio is segmented into one-to-four family, multifamily, commercial real estate, construction, business (including Small Business Administration loans), and consumer loans.

The allowance for loan and lease losses ("ALLL") reflects management’s judgment in the evaluation of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to calculate the ALLL each quarter. To determine the total ALLL, management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.

From time to time, events or economic factors may affect the loan portfolio, causing management to provide additional amounts or release balances from the ALLL. The ALLL is sensitive to risk ratings assigned to individually evaluated loans and economic assumptions and delinquency trends. Individual loan risk ratings are evaluated based on the specific facts related to that loan. Additions to the ALLL are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the ALLL, while recoveries of previously charged off amounts are credited to the ALLL.

The following is a summary of loans receivable, net of allowance for loan losses, and loans held-for-sale at June 30, 2015 and March 31, 2015:
 
 
June 30, 2015
 
March 31, 2015
$ in thousands
 
Amount
 
Percent
 
Amount
 
Percent
Gross loans receivable:
 
 
 
 
 
 
 
 
One-to-four family
 
$
119,799

 
24
%
 
$
125,020

 
26
%
Multifamily
 
96,458

 
20
%
 
93,780

 
19
%
Commercial real estate
 
196,003

 
40
%
 
186,443

 
39
%
Construction
 
5,096

 
1
%
 
5,107

 
1
%
Business
 
72,831

 
15
%
 
70,679

 
15
%
Consumer (1)
 
103

 
%
 
434

 
%
Total loans receivable
 
$
490,290

 
100
%
 
$
481,463

 
100
%
 
 
 
 
 
 
 
 
 
Add:
 
 
 
 
 
 
 
 
Premium on loans
 
2,089

 
 
 
2,233

 
 
Less:
 
 
 
 
 
 
 
 
Deferred fees and loan discounts,net
 
(489
)
 
 
 
(503
)
 
 
Allowance for loan losses
 
(4,107
)
 
 
 
(4,477
)
 
 
Total loans receivable, net
 
$
487,783

 
 
 
$
478,716

 
 
 
 
 
 
 
 
 
 
 
Loans HFS
 
$
2,576

 
 
 
$
2,576

 
 
(1) Includes personal loans






11


The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three month periods ended June 30, 2015 and 2014, and the fiscal year ended March 31, 2015.

Three months ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four
family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,989

 
$
534

 
$
1,029

 
99

 
$
813

 
$
13

 
$
4,477

Charge-offs
 
230

 
238

 

 

 
112

 
1

 
581

Recoveries
 

 

 

 

 
93

 
1

 
94

Provision for (Recovery of) Loan Losses
 
(100
)
 
229

 
3

 

 
(3
)
 
(12
)
 
117

Ending Balance
 
$
1,659

 
$
525

 
$
1,032

 
$
99

 
$
791

 
$
1

 
$
4,107

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
 
1,557

 
525

 
949

 
99

 
788

 
1

 
3,919

Allowance for Loan Losses Ending Balance: individually evaluated for impairment
 
102

 

 
83

 
 
3

 

 
188

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Receivables Ending Balance:
 
$
121,165

 
$
97,366

 
$
195,408

 
$
5,065

 
$
72,783

 
$
103

 
$
491,890

Ending Balance: collectively evaluated for impairment
 
113,822

 
96,119

 
192,806

 
5,065

 
67,001

 
103

 
474,916

Ending Balance: individually evaluated for impairment
 
7,343

 
1,247

 
2,602

 

 
5,782

 

 
16,974



Fiscal year ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
3,377

 
$
308

 
$
1,835

 
$

 
$
1,705

 
$
8

 
$
7,233

Charge-offs
 
687

 

 

 

 
320

 
279

 
1,286

Recoveries
 
380

 
83

 
256

 

 
816

 
5

 
1,540

Provision for (Recovery of) Loan Losses
 
(1,081
)
 
143

 
(1,062
)
 
99

 
(1,388
)
 
279

 
(3,010
)
Ending Balance
 
$
1,989

 
$
534

 
$
1,029

 
$
99

 
$
813

 
$
13

 
$
4,477

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
 
1,702

 
353

 
953

 
99

 
801

 
13

 
3,921

Allowance for Loan Losses Ending Balance: individually evaluated for impairment
 
287

 
181

 
76

 

 
12

 

 
556

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Receivables Ending Balance:
 
$
126,527

 
$
94,706

 
$
185,851

 
$
5,076

 
$
70,599

 
$
434

 
483,193

Ending Balance: collectively evaluated for impairment
 
119,480

 
93,218

 
183,230

 
5,076

 
65,243

 
434

 
466,681

Ending Balance: individually evaluated for impairment
 
7,047

 
1,488

 
2,621

 

 
5,356

 

 
16,512



12


Three months ended June 30, 2014
 
 
 
 
 
 
 
 
 
 
                                                                                                                      
 
One-to-four family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
3,377

 
$
308

 
$
1,835

 
$

 
$
1,705

 
$
8

 
$
7,233

Charge-offs
 
83

 

 

 

 

 

 
83

Recoveries
 
354

 
8

 
201

 

 
133

 
1

 
697

Provision for (Recovery of) Loan Losses
 
275

 
20

 
(1,223
)
 
201

 
(58
)
 
4

 
(781
)
Ending Balance
 
$
3,923

 
$
336

 
$
813

 
$
201

 
$
1,780

 
$
13

 
$
7,066



The following is a summary of nonaccrual loans at June 30, 2015 and March 31, 2015.
$ in thousands
June 30, 2015
 
March 31, 2015
Gross loans receivable:
 
 
 
One-to-four family
$
3,654

 
$
3,664

Multifamily
1,247

 
1,053

Commercial real estate
1,784

 
2,817

Business
1,883

 
861

Total nonaccrual loans
$
8,568

 
$
8,395


Nonaccrual loans increased $173 thousand, or 2.1%, to $8.6 million at June 30, 2015 from $8.4 million at March 31, 2015.

Non-performing loans at June 30, 2015, were comprised of $5.1 million of loans 90 days or more past due and non-accruing, $0.5 million of impaired loans and $3.0 million of loans classified as a troubled debt restructuring which had either not consistently performed in accordance with their modified terms or were not performing in accordance with their modified terms for at least six months.

Non-performing loans at March 31, 2015, were comprised of $5.9 million of loans 90 days or more past due and non-accruing, and included $3.6 million of loans classified as a troubled debt restructuring which had either not consistently performed in accordance with their modified terms or were not performing in accordance with their modified terms for at least six months.

At June 30, 2015, other non-performing assets totaled $6.3 million which consisted of other real estate owned and held-for-sale loans. At June 30, 2015, other real estate owned valued at $3.7 million comprised of eight foreclosed properties, compared to $4.3 million comprised of ten properties at March 31, 2015. At June 30, 2015, held-for-sale loans remained unchanged at $2.6 million, compared to March 31, 2015.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories. Loans may be classified as "Pass," “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. They represent a moderate credit risk and some degree of financial stability. Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Loans rated Special Mention have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date. Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged off immediately to the allowance for loan losses.

One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.

13



As of June 30, 2015, the risk category by class of loans is as follows:
$ in thousands
 
Multifamily
 
Commercial
Real Estate
 
Construction
 
Business
Credit Risk Profile by Internally Assigned Grade:
 
 
 
 
 
 
 
 
Pass
 
$
96,119

 
$
190,574

 
$
5,065

 
$
64,933

Special Mention
 

 
2,232

 

 
1,056

Substandard
 
1,247

 
2,602

 

 
6,794

Doubtful
 

 

 

 

Loss
 

 

 

 

Total
 
$
97,366

 
$
195,408

 
$
5,065

 
$
72,783

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
 
Consumer
Credit Risk Profile Based on Payment Activity:
 
 
 
 
 
 
 
 
Performing
 
 
 
 
 
$
117,511

 
$
103

Non-Performing
 
 
 
 
 
3,654

 

Total
 
 
 
 
 
$
121,165

 
$
103



As of March 31, 2015, and based on the most recent analysis performed, the risk category by class of loans is as follows:
$ in thousands
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
Credit Risk Profile by Internally Assigned Grade:
 
 
 
 
 
 
 
 
Pass
 
$
93,218

 
$
181,340

 
$
5,076

 
$
62,419

Special Mention
 

 
1,890

 

 
1,065

Substandard
 
1,488

 
2,621

 

 
7,115

Doubtful
 

 

 

 

Loss
 

 

 

 

Total
 
$
94,706

 
$
185,851

 
$
5,076

 
$
70,599

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
 
Consumer
Credit Risk Profile Based on Payment Activity:
 
 
 
 
 
 
 
 
Performing
 
 
 
 
 
$
122,689

 
$
434

Non-Performing
 
 
 
 
 
3,838

 

Total
 
 
 
 
 
$
126,527

 
$
434



The following table presents an aging analysis of the recorded investment of past due financing receivable as of June 30, 2015 and March 31, 2015.
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
30-59 Days
Past Due
 
60-89 Days
Past Due
 
90 or More Days Past Due
 
Total Past
Due
 
Current
 
Total Financing
Receivables
One-to-four family
 
$
390

 
$

 
$
3,333

 
$
3,723

 
$
117,442

 
$
121,165

Multifamily
 

 
428

 
819

 
1,247

 
96,119

 
97,366

Commercial real estate
 
2,351

 

 
813

 
3,164

 
192,244

 
195,408

Construction
 

 

 

 

 
5,065

 
5,065

Business
 

 

 
1,883

 
1,883

 
70,900

 
72,783

Consumer
 

 

 

 

 
103

 
103

Total
 
$
2,741

 
$
428

 
$
6,848

 
$
10,017