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EX-32.2 - EXHIBIT 32.2 - CARVER BANCORP INCdecember31201710qex322.htm
EX-32.1 - EXHIBIT 32.1 - CARVER BANCORP INCdecember31201710qex321.htm
EX-31.2 - EXHIBIT 31.2 - CARVER BANCORP INCdecember31201710qex312.htm
EX-31.1 - EXHIBIT 31.1 - CARVER BANCORP INCdecember31201710qex311.htm
EX-11 - EXHIBIT 11 - CARVER BANCORP INCdecember312017exhibit11.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 December 31, 2017
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: 001-13007
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
o Large Accelerated Filer
o Accelerated Filer
o Non-accelerated Filer
þ  Smaller Reporting Company
 
 
 
o Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
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 February 12, 2018
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
(Unaudited)
 
December 31, 2017
 
March 31, 2017
$ in thousands except per share data
 
 
 
ASSETS
 
 
 
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
76,383

 
$
58,428

Money market investments
258

 
258

Total cash and cash equivalents
76,641

 
58,686

Restricted cash

 
283

Investment securities:
 
 
 
Available-for-sale, at fair value
55,087

 
59,011

Held-to-maturity, at amortized cost (fair value of $12,416 and $13,497 at December 31, 2017 and March 31, 2017, respectively)
12,394

 
13,435

Total investment securities
67,481

 
72,446

 
 
 
 
Loans held-for-sale (HFS)

 
944

 
 
 
 
Loans receivable:
 
 
 
Real estate mortgage loans
421,422

 
471,444

Commercial business loans
69,357

 
65,114

Consumer loans
5,929

 
8,994

Loans, gross
496,708

 
545,552

Allowance for loan losses
(5,070
)
 
(5,060
)
Total loans receivable, net
491,638

 
540,492

Premises and equipment, net
5,970

 
5,427

Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost
1,768

 
2,171

Accrued interest receivable
1,728

 
1,583

Other assets
10,734

 
5,829

Total assets
$
655,960

 
$
687,861

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
LIABILITIES
 
 
 
Deposits:
 
 
 
Non-interest bearing checking
$
62,868

 
$
61,576

Interest-bearing deposits
 
 
 
Interest-bearing checking
23,866

 
37,180

Savings
100,219

 
100,913

Money market
105,174

 
140,807

Certificates of deposit
267,119

 
236,342

Escrow
1,475

 
2,358

Total interest-bearing deposits
497,853

 
517,600

Total deposits
560,721

 
579,176

Advances from the FHLB-NY and other borrowed money
38,403

 
49,403

Other liabilities
11,411

 
11,884

Total liabilities
610,535

 
640,463

 
 
 
 
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)
61

 
61

Additional paid-in capital
55,477

 
55,474

Accumulated deficit
(53,077
)
 
(50,898
)
Treasury stock, at cost (1,944 shares)
(417
)
 
(417
)
Accumulated other comprehensive loss
(1,737
)
 
(1,940
)
Total equity
45,425

 
47,398

Total liabilities and equity
$
655,960

 
$
687,861

See accompanying notes to consolidated financial statements

1



CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended December 31,
 
Nine Months Ended
December 31,
$ in thousands, except per share data
 
2017
 
2016
Restated (1)
 
2017
 
2016
Restated (1)
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
5,471

 
$
5,685

 
$
16,920

 
$
18,062

Mortgage-backed securities
 
238

 
223

 
733

 
539

Investment securities
 
163

 
174

 
477

 
597

Money market investments
 
181

 
65

 
433

 
195

Total interest income
 
6,053

 
6,147

 
18,563

 
19,393

 
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
1,073

 
966

 
2,961

 
2,830

Advances and other borrowed money
 
291

 
316

 
873

 
937

Total interest expense
 
1,364

 
1,282

 
3,834

 
3,767

 
 
 
 
 
 
 
 
 
Net interest income
 
4,689

 
4,865

 
14,729

 
15,626

Provision for (recovery of) loan losses
 
6

 
(128
)
 
130

 
(492
)
Net interest income after provision for (recovery of) loan losses
 
4,683

 
4,993

 
14,599

 
16,118

 
 
 
 
 
 
 
 
 
Non-interest income:
 
 
 
 
 
 
 
 
Depository fees and charges
 
817

 
847

 
2,563

 
2,452

Loan fees and service charges
 
172

 
82

 
414

 
287

Gain on sale of securities
 

 

 

 
58

Gain on sale of loans, net
 

 

 

 
4

Gain on sale of real estate owned, net of market value adjustment
 
184

 

 
250

 

Gain on sale of building, net
 
18

 
18

 
52

 
52

Lower of cost or market adjustment on loans held-for-sale
 

 
(26
)
 

 
(26
)
Other
 
155

 
150

 
415

 
641

Total non-interest income
 
1,346

 
1,071

 
3,694

 
3,468

 
 
 
 
 
 
 
 
 
Non-interest expense:
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
3,204

 
3,112

 
9,335

 
9,042

Net occupancy expense
 
856

 
812

 
2,555

 
2,353

Equipment, net
 
242

 
173

 
626

 
561

Data processing
 
385

 
379

 
1,203

 
1,078

Consulting fees
 
186

 
218

 
620

 
486

Federal deposit insurance premiums
 
163

 
186

 
460

 
515

Other
 
1,906

 
2,077

 
5,582

 
6,333

Total non-interest expense
 
6,942

 
6,957

 
20,381

 
20,368

 
 
 
 
 
 
 
 
 
Loss before income taxes
 
(913
)
 
(893
)
 
(2,088
)
 
(782
)
   Income tax expense
 
31

 

 
91

 
37

Net loss
 
$
(944
)
 
$
(893
)
 
$
(2,179
)
 
$
(819
)
 
 
 
 
 
 
 
 
 
Net loss per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.26
)
 
$
(0.24
)
 
$
(0.59
)
 
$
(0.22
)
Diluted
 
(0.26
)
 
(0.24
)
 
(0.59
)
 
(0.22
)
(1) December 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Note 1 for further detail.


See accompanying notes to consolidated financial statements






2


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
 
 
Three Months Ended December 31,
 
Nine Months Ended December 31,
$ in thousands
 
2017
 
2016
Restated (1)
 
2017
 
2016
Restated (1)
Net loss
 
$
(944
)
 
$
(893
)
 
$
(2,179
)
 
$
(819
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Change in unrealized loss of securities available-for-sale, net of income tax expense of $0
 
(305
)
 
(1,836
)
 
203

 
(1,736
)
Less: Reclassification adjustment for gains on sale of available-for-sale securities, net of income tax expense of $0
 

 

 

 
58

Total other comprehensive income (loss), net of tax
 
(305
)
 
(1,836
)
 
203

 
(1,794
)
Total comprehensive loss, net of tax
 
$
(1,249
)
 
$
(2,729
)
 
$
(1,976
)
 
$
(2,613
)
(1) December 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Note 1 for further detail.


See accompanying notes to consolidated financial statements


3


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Nine Months Ended December 31, 2017 and 2016
(Unaudited)
$ in thousands
 
Preferred Stock
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Treasury Stock
 
Accumulated Other Comprehensive Loss
 
Total Equity
Balance — March 31, 2017
 
$
45,118

 
$
61

 
$
55,474

 
$
(50,898
)
 
$
(417
)
 
$
(1,940
)
 
$
47,398

Net loss
 

 

 

 
(2,179
)
 

 

 
(2,179
)
Other comprehensive income, net of taxes
 

 

 

 

 

 
203

 
203

Stock based compensation expense
 

 

 
3

 

 

 

 
3

Balance — December 31, 2017
 
$
45,118

 
$
61

 
$
55,477

 
$
(53,077
)
 
$
(417
)
 
$
(1,737
)
 
$
45,425

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — March 31, 2016 Restated (1)
 
$
45,118

 
$
61

 
$
55,470

 
$
(48,045
)
 
$
(417
)
 
$
(307
)
 
$
51,880

Net loss  Restated (1)
 

 

 

 
(819
)
 

 

 
(819
)
Other comprehensive income, net of taxes
 

 

 

 

 

 
(1,794
)
 
(1,794
)
Balance — December 31, 2016 Restated (1)
 
$
45,118

 
$
61

 
$
55,470

 
$
(48,864
)
 
$
(417
)
 
$
(2,101
)
 
$
49,267

(1) December 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Note 1 for further detail.

See accompanying notes to consolidated financial statements

4



CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine Months Ended December 31,
$ in thousands
 
2017
 
2016
Restated (1)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net loss (1)
 
$
(2,179
)
 
$
(819
)
 
 
 
 
 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
 
Provision for (recovery of) loan losses
 
130

 
(492
)
Stock based compensation expense
 
3

 

Depreciation and amortization expense
 
602

 
646

Gain on sale of real estate owned, net of market value adjustment
 
(250
)
 

Gain on sale of securities, net
 

 
(58
)
Gain on sale of loans, net
 

 
(4
)
Gain on sale of building
 
(52
)
 
(52
)
Amortization and accretion of loan premiums and discounts and deferred charges
 
171

 
176

Amortization and accretion of premiums and discounts — securities
 
255

 
259

Market adjustment on held-for-sale loans
 

 
26

(Increase) decrease in accrued interest receivable (1)
 
(145
)
 
343

(Increase) decrease in other assets (1)
 
(4,739
)
 
1,140

(Decrease) in other liabilities (1)
 
(473
)
 
(1,632
)
Net cash used in operating activities
 
(6,677
)
 
(467
)
CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 
Purchases of investments: Available-for-sale
 

 
(30,761
)
Proceeds sales of investments: Available-for-sale
 

 
7,259

Proceeds from principal payments, maturities and calls of investments: Available-for-sale
 
3,916

 
17,569

Proceeds from principal payments, maturities and calls of investments: Held-to-maturity
 
998

 
1,340

Originations of loans held-for-investment, net of repayments
 
46,768

 
44,944

Loans purchased from third parties
 

 
(13,896
)
Proceeds from sale of loans held-for-sale
 

 
4,645

Proceeds on sale of loans
 
1,986

 
5,401

Decrease (increase) in restricted cash
 
283

 
(44
)
Redemption of FHLB-NY stock, net
 
403

 
307

Purchase of premises and equipment
 
(1,145
)
 
(132
)
Proceeds from sales of real estate owned
 
878

 
169

Net cash provided by investing activities
 
54,087

 
36,801

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Net decrease in deposits
 
(18,455
)
 
(28,583
)
Net decrease in FHLB-NY advances and other borrowings
 
(11,000
)
 
(10,000
)
Net cash used in financing activities
 
(29,455
)
 
(38,583
)
Net increase (decrease) in cash and cash equivalents
 
17,955

 
(2,249
)
Cash and cash equivalents at beginning of period
 
58,686

 
63,188

Cash and cash equivalents at end of period
 
$
76,641

 
$
60,939

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Noncash financing and investing activities
 
 
 
 
Transfers (from) to held-for-sale loans (to) from portfolio loans
 
$
(944
)
 
$
18,518

Transfers to real estate owned
 
$
867

 
$
462

 
 
 
 
 
Cash paid for:
 
 
 
 
Interest
 
$
3,305

 
$
5,818

Income taxes
 
$
225

 
$
57

(1) December 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Note 1 for further detail.

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 real estate investment trust, Carver Asset Corporation ("CAC"), that was 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.

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 nine branches located throughout the City of New York that primarily serve the communities in which they operate.

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. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities.  Gross proceeds from the sale of these trust preferred debt securities of $13 million, and proceeds from the sale of the trust's common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033.  The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures has been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval.

Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, to engage in share repurchase programs and to pay principal and interest on its trust preferred debt obligation. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to Carver, and the FRB regulates dividends paid by Carver. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended Carver’s regular quarterly cash dividend on its common stock. There are no assurances that dividend payments to Carver will resume.

Regulation

On October 23, 2015, the Board of Directors of the Company adopted resolutions requiring, among other things, written approval from the Federal Reserve Bank of Philadelphia prior to the declaration or payment of dividends, any increase in debt by the Company, or the redemption of Company common stock.

On May 24, 2016, the Bank entered into a Formal Agreement with the OCC to undertake certain compliance-related and other actions as further described in the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on May 27, 2016. As a result of the Formal Agreement (“the Agreement”), the Bank must obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers. The Bank may not declare or pay dividends

6


or make any other capital distributions, including to the Company, without first filing an application with the OCC and receiving the prior approval of the OCC. Furthermore, the Bank must seek the OCC's written approval and the FDIC's written concurrence before entering into any "golden parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12 C.F.R. Part 359.

Restatement

On July 7, 2017, the Finance and Audit Committee of the Board of Directors of Carver Bancorp, Inc., after consultation with BDO USA, LLP, our independent registered public accounting firm, determined that our consolidated financial statements as of and for the fiscal year ended March 31, 2016, and each of the quarters during the 2016 and 2017 fiscal years should no longer be relied upon.

The Company's audited results as of and for the year ended March 31, 2016, as well as the unaudited condensed consolidated financial information for the quarterly periods in 2017 and 2016 were restated in the Annual Report on Form 10-K for the year ended March 31, 2017 (the "Restatement"). The Restatement corrected material errors related to reconciling items that were identified as uncollectable that should have been written off in prior periods, as well as adjustments related to loan system maintenance items and payment applications that were not timely processed by the Bank on to its core provider system. In addition to these errors, adjustments were made related to other individually immaterial errors including certain corrections that had been previously identified but not recorded because they were not material to our consolidated financial statements. These corrections included adjustments to other liabilities, interest expense and certain reclassification entries. The cumulative impact of the Restatement and error corrections on the quarter ended December 31, 2016 was an increase in interest income of $43 thousand and decreases in other non-interest expense of $254 thousand and non-interest income of $34 thousand. For the nine months ended December 31, 2016, the impact of the restatement was increases in interest income of $99 thousand, and decreases in interest expense of $157 thousand, non-interest income of $78 thousand and other non-interest expense of $3 thousand. The impact of the Restatement and error corrections decreased basic and diluted loss per share by $0.07 and $0.05 for the three and nine months ended December 31, 2016, respectively. All applicable amounts relating to this Restatement have been reflected in the consolidated financial statements and disclosed in the notes to the consolidated financial statements in this Form 10-Q.

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 and nine month periods ended December 31, 2017 are not necessarily indicative of the results that may be expected for the year ended March 31, 2018. The consolidated balance sheet at December 31, 2017 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, 2017. Amounts subject to significant estimates and assumptions are items such as the allowance for loan losses, realization of deferred tax assets, assessment of other-than-temporary impairment of securities, 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.

Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders' equity.


7


NOTE 3. EARNINGS PER COMMON SHARE

The following table reconciles the earnings (loss) available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted earnings (loss) per share for the following periods:
 
 
Three Months Ended December 31,
 
Nine Months Ended
December 31,
$ in thousands except per share data
 
2017
 
2016
Restated (1)
 
2017
 
2016
Restated (1)
Net loss (1)
 
$
(944
)
 
$
(893
)
 
(2,179
)
 
(819
)
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic
 
3,698,020

 
3,697,220

 
3,697,753

 
3,696,968

Weighted average common shares outstanding – diluted
 
3,698,020

 
3,697,220

 
3,697,753

 
3,696,968

 
 
 
 
 
 
 
 
 
Basic loss per common share (1)
 
$
(0.26
)
 
$
(0.24
)
 
$
(0.59
)
 
$
(0.22
)
Diluted loss per common share (1)
 
$
(0.26
)
 
$
(0.24
)
 
$
(0.59
)
 
$
(0.22
)
(1) December 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Note 1 for further detail.

NOTE 4. COMMON STOCK DIVIDENDS

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 income (loss), net of tax for the nine months ended December 31, 2017 and 2016:
$ in thousands
 
At
March 31, 2017
 
Other
Comprehensive
Income, net of tax
 
At
December 31, 2017
Net unrealized loss on securities available-for-sale
 
$
(1,940
)
 
$
203

 
$
(1,737
)

$ in thousands
 
At
March 31, 2016
 
Other
Comprehensive
Income, net of tax
 
At
December 31, 2016
Net unrealized loss on securities available-for-sale
 
$
(307
)
 
$
(1,794
)
 
$
(2,101
)

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 December 31,
 
For the Nine Months Ended December 31,
 
Affected Line Item in the Consolidated Statement of Operations
$ in thousands
 
2017
 
2016
 
2017
 
2016
 
Reclassification adjustment for gain on sale of available-for-sale securities, net of tax
 
$

 
$

 
$

 
$
58

 
Gain on sale of securities


8


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. GAAP requires that securities be classified into three categories: trading, held-to-maturity, and available-for-sale. At December 31, 2017, $55.1 million, or 81.6%, of the Bank’s total securities were classified as available-for-sale, and the remaining $12.4 million, or 18.4%, were classified as held-to-maturity. The Bank had no securities classified as trading at December 31, 2017 and March 31, 2017.

The following tables set forth the amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at December 31, 2017 and March 31, 2017:
 
 
At December 31, 2017
 
 
Amortized
 
Gross Unrealized
 
Estimated
$ in thousands
 
Cost
 
Gains
 
Losses
 
Fair-Value
Available-for-Sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
2,218

 
$

 
$
69

 
$
2,149

Federal Home Loan Mortgage Corporation
 
6,903

 

 
167

 
6,736

Federal National Mortgage Association
 
25,275

 

 
785

 
24,490

Other
 
45

 

 

 
45

Total mortgage-backed securities
 
34,441

 

 
1,021

 
33,420

U.S. Government Agency Securities
 
6,952

 

 
124

 
6,828

Corporate Bonds
 
5,085

 

 
96

 
4,989

Other investments (1)
 
10,346

 

 
496

 
9,850

Total available-for-sale
 
$
56,824

 
$

 
$
1,737

 
$
55,087

Held-to-Maturity*:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
1,517

 
$
59

 
$

 
$
1,576

Federal National Mortgage Association and Other
 
9,877

 

 
72

 
9,805

Total held-to-maturity mortgage-backed securities
 
11,394

 
59

 
72

 
11,381

Corporate Bonds
 
1,000

 
35

 

 
1,035

Total held-to maturity
 
$
12,394

 
$
94

 
$
72

 
$
12,416




9


 
 
At March 31, 2017
 
 
Amortized
 
Gross Unrealized
 
Estimated
$ in thousands
 
Cost
 
Gains
 
Losses
 
Fair Value
Available-for-Sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
2,576

 
$

 
$
89

 
$
2,487

Federal Home Loan Mortgage Corporation
 
8,053

 

 
195

 
7,858

Federal National Mortgage Association
 
27,241

 

 
928

 
26,313

Other
 
45

 

 

 
45

Total mortgage-backed securities
 
37,915

 

 
1,212

 
36,703

U.S. Government Agency Securities
 
7,574

 

 
92

 
7,482

Corporate Bonds
 
5,104

 

 
140

 
4,964

Other investments (1)
 
10,358

 

 
496

 
9,862

Total available-for-sale
 
$
60,951

 
$

 
$
1,940

 
$
59,011

Held-to-Maturity*:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
1,797

 
$
86

 
$

 
$
1,883

Federal National Mortgage Association and Other
 
10,638

 
12

 
60

 
10,590

Total held-to-maturity mortgage-backed securities
 
12,435

 
98

 
60

 
12,473

Corporate Bonds
 
1,000

 
24

 

 
1,024

Total held-to-maturity
 
$
13,435

 
$
122

 
$
60

 
$
13,497

* The carrying amount and amortized cost are the same for all held-to-maturity securities, as no OTTI has been recorded.
(1) Primarily comprised of an investment in a CRA fund with 95% of its underlying investments consisting of government and agency-backed securities.

The following is a summary regarding proceeds, gross gains and gross losses realized from the sale of securities from the available-for-sale portfolio for the three and nine months ended December 31, 2017 and 2016:
 
 
For the Three Months Ended December 31,
 
For the Nine Months Ended
December 31,
$ in thousands
 
2017
 
2016
 
2017
 
2016
Proceeds
 
$

 
$

 
$

 
$
7,259

Gross Gains
 

 

 

 
58

Gross Losses
 

 

 

 


The following table sets forth the unrealized losses and fair value of securities in an unrealized loss position at December 31, 2017 and March 31, 2017 for less than 12 months and 12 months or longer:
 
 
At December 31, 2017
 
 
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
 
$
29

 
$
3,819

 
$
992

 
$
29,556

 
$
1,021

 
$
33,375

U.S. Government Agency Securities
 

 

 
124

 
6,828

 
124

 
6,828

Corporate Bonds
 

 

 
96

 
4,989

 
96

 
4,989

Other investments (1)
 

 

 
496

 
9,504

 
496

 
9,504

Total available-for-sale securities
 
$
29

 
$
3,819

 
$
1,708

 
$
50,877

 
$
1,737

 
$
54,696

 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
35

 
$
7,968

 
$
37

 
$
1,728

 
$
72

 
$
9,696

  Total held-to-maturity securities
 
$
35

 
$
7,968

 
$
37

 
$
1,728

 
$
72

 
$
9,696


10


 
 
At March 31, 2017
 
 
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
 
$
1,171

 
$
34,716

 
$
41

 
$
1,942

 
$
1,212

 
$
36,658

U.S. Government Agency Securities
 
92

 
7,482

 

 

 
92

 
7,482

Corporate bonds
 
140

 
4,964

 

 

 
140

 
4,964

Other investments (1)
 

 

 
496

 
9,504

 
496

 
9,504

Total available-for-sale securities
 
$
1,403

 
$
47,162

 
$
537

 
$
11,446

 
$
1,940

 
$
58,608

 
 
 
 
 
 
 
 
 
 
 
 
 
Held-to-Maturity:
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
 
$
60

 
$
7,623

 
$

 
$

 
$
60

 
$
7,623

Total held-to-maturity securities
 
$
60

 
$
7,623

 
$

 
$

 
$
60

 
$
7,623

(1) Primarily comprised of an investment in a CRA fund with 95% of its underlying investments consisting of government and agency-backed securities.

A total of 34 securities had an unrealized loss at December 31, 2017 compared to 33 at March 31, 2017. Mortgage-backed securities represented 61.0% of total available-for-sale securities in an unrealized loss position at December 31, 2017. There were 19 mortgage-backed securities, two U.S. government agency securities, five corporate bonds and one investment in a CRA fund that had an unrealized loss position for more than 12 months at December 31, 2017. Given the high credit quality of the securities which are backed by the U.S. government's guarantees, and the corporate securities which are all reputable institutions in good financial standing, 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 until 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 is accounted for as follows: (1) the portion of the total impairment that is attributable to the credit loss would be recognized in earnings, and (2) the remaining difference between the debt security's amortized cost basis and its fair value would be included in other comprehensive income (loss). During the quarter ended December 31, 2017, the Bank recognized an impairment of less than $500 on a security.

The following is a summary of the carrying value (amortized cost) and fair value of securities at December 31, 2017, 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
$
7,387

 
$
7,212

 
1.66
%
Five through ten years
12,142

 
11,859

 
2.04
%
After ten years
37,295

 
36,016

 
1.47
%
Total
$
56,824

 
$
55,087

 
1.62
%
 
 
 
 
 
 
Held-to-maturity:
 
 
 
 
 
Five through ten years
$
9,075

 
$
9,099

 
2.81
%
After ten years
3,319

 
3,317

 
2.64
%
Total
$
12,394


$
12,416

 
2.77
%

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.


11


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 at December 31, 2017 and March 31, 2017:
 
 
December 31, 2017
 
March 31, 2017
$ in thousands
 
Amount
 
Percent
 
Amount
 
Percent
Gross loans receivable:
 
 
 
 
 
 
 
 
One-to-four family
 
$
123,506

 
25.1
%
 
$
132,679

 
24.5
%
Multifamily
 
75,106

 
15.2
%
 
87,824

 
16.2
%
Commercial real estate
 
218,998

 
44.4
%
 
241,794

 
44.7
%
Construction
 

 
%
 
4,983

 
0.9
%
Business (1)
 
69,361

 
14.1
%
 
65,151

 
12.0
%
Consumer (2)
 
5,874

 
1.2
%
 
8,994

 
1.7
%
Total loans receivable
 
$
492,845

 
100.0
%
 
$
541,425

 
100.0
%
 
 
 
 
 
 
 
 
 
Unamortized premiums, deferred costs and fees, net
 
3,863

 
 
 
4,127

 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
(5,070
)
 
 
 
(5,060
)
 
 
Total loans receivable, net
 
$
491,638

 
 
 
$
540,492

 
 
 
 
 
 
 
 
 
 
 
Loans HFS
 
$

 
 
 
$
944

 
 
(1) Includes business overdrafts
(2) Includes personal loans and consumer overdrafts


12


The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three and nine month periods ended December 31, 2017 and 2016, and the fiscal year ended March 31, 2017.
Three months ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Unallocated
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,179

 
$
1,369

 
$
1,692

 

 
$
832

 
$
20

 
34

 
$
5,126

Charge-offs
 

 
36

 

 

 
27

 
7

 

 
70

Recoveries
 

 

 
5

 

 
3

 

 

 
8

Provision for (recovery of) Loan Losses
 
(52
)
 
(25
)
 
(25
)
 

 
(31
)
 
8

 
131

 
6

Ending Balance
 
$
1,127

 
$
1,308

 
$
1,672

 
$

 
$
777

 
$
21

 
$
165

 
$
5,070


Nine months ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four
family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Unallocated
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,663

 
$
1,213

 
$
1,496

 
$
106

 
$
573

 
$
9

 
$

 
$
5,060

Charge-offs
 
93

 
42

 

 

 
47

 
29

 

 
211

Recoveries
 

 

 
15

 

 
72

 
4

 

 
91

Provision for (recovery of) Loan Losses
 
(443
)
 
137

 
161

 
(106
)
 
179

 
37

 
165

 
130

Ending Balance
 
$
1,127

 
$
1,308

 
$
1,672

 
$

 
$
777

 
$
21

 
$
165

 
$
5,070

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
 
976

 
1,172

 
1,672

 

 
720

 
21

 
165

 
4,726

Allowance for Loan Losses Ending Balance: individually evaluated for impairment
 
151

 
136

 

 
 
57

 

 

 
344

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Receivables Ending Balance:
 
$
125,678

 
$
75,805

 
$
219,939

 
$

 
$
69,357

 
$
5,929

 
$

 
$
496,708

Ending Balance: collectively evaluated for impairment
 
119,226

 
74,160

 
219,431

 

 
64,980

 
5,929

 

 
483,726

Ending Balance: individually evaluated for impairment
 
6,452

 
1,645

 
508

 

 
4,377

 

 

 
12,982


Fiscal year ended March 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,697

 
$
622

 
$
1,808

 
$
62

 
$
1,022

 
$
21

 
$
5,232

Charge-offs
 
106

 
338

 

 

 

 
85

 
529

Recoveries
 

 

 
20

 

 
304

 
4

 
328

Provision for (recovery of) Loan Losses
 
72

 
929

 
(332
)
 
44

 
(753
)
 
69

 
29

Ending Balance
 
$
1,663

 
$
1,213

 
$
1,496

 
$
106

 
$
573

 
$
9

 
$
5,060

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
 
1,357

 
1,207

 
1,490

 
106

 
532

 
7

 
4,699

Allowance for Loan Losses Ending Balance: individually evaluated for impairment
 
306

 
6

 
6

 

 
41

 
2

 
361

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Receivables Ending Balance:
 
$
134,927

 
$
88,750

 
$
242,818

 
$
4,949

 
$
65,114

 
$
8,994

 
$
545,552

Ending Balance: collectively evaluated for impairment
 
129,420

 
87,148

 
239,323

 
4,949

 
61,027

 
8,992

 
530,859

Ending Balance: individually evaluated for impairment
 
5,507

 
1,602

 
3,495