CARVER BANCORP INC - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - CARVER BANCORP INC	june30201510qex312.htm
EX-32.1 - EXHIBIT 32.1 - CARVER BANCORP INC	june30201510qex321.htm
EX-32.2 - EXHIBIT 32.2 - CARVER BANCORP INC	june30201510qex322.htm
EX-11 - EXHIBIT 11 - CARVER BANCORP INC	june302015exhibit11.htm
EX-31.1 - EXHIBIT 31.1 - CARVER BANCORP INC	june30201510qex311.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



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
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Financial Condition as of June 30, 2015 (unaudited) and March 31, 2015	1

	Consolidated Statements of Income for the Three Months Ended June 30, 2015 and 2014 (unaudited)	2

	Consolidated Statements of Comprehensive (Loss) Income for the Three Months Ended June 30, 2015 and 2014 (unaudited)	3

	Consolidated Statement of Changes in Equity for the Three Months Ended June 30, 2015 (unaudited)	4

	Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2015 and 2014 (unaudited)	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3.	Defaults Upon Senior Securities	38

Item 4.	Mine Safety Disclosures	38

Item 5.	Other Information	38

Item 6.	Exhibits	38

SIGNATURES		40

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

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

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

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

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

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.

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

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		Affected Line Item in the Consolidated Statement of Income
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.

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.

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.



$ 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

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



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.

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

CARVER BANCORP INC - FORM 10-Q - August 11, 2015

Attached files