Document
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 September 30, 2016
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
þ  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 November 11, 2016
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)
 
September 30, 2016
 
March 31, 2016
$ in thousands except per share data
 
 
 
ASSETS
 
 
 
Cash and cash equivalents:
 
 
 
Cash and due from banks
$
73,531

 
$
63,156

Money market investments
255

 
504

Total cash and cash equivalents
73,786

 
63,660

Restricted cash
254

 
225

Investment securities:
 
 
 
Available-for-sale, at fair value
53,750

 
56,180

Held-to-maturity, at amortized cost (fair value of $14,890 and $15,653 at September 30, 2016 and March 31, 2016, respectively)
14,458

 
15,311

Total investment securities
68,208

 
71,491

 
 
 
 
Loans held-for-sale (“HFS”)
16,034

 
2,495

 
 
 
 
Loans receivable:
 
 
 
Real estate mortgage loans
462,538

 
517,785

Commercial business loans
66,357

 
71,192

Consumer loans
250

 
42

Loans, net
529,145

 
589,019

Allowance for loan losses
(4,747
)
 
(5,232
)
Total loans receivable, net
524,398

 
583,787

Premises and equipment, net
5,585

 
5,983

Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost
1,946

 
2,883

Accrued interest receivable
3,619

 
3,647

Other assets
7,894

 
7,557

Total assets
$
701,724

 
$
741,728

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
LIABILITIES
 
 
 
Deposits:
 
 
 
Savings
$
98,312

 
$
95,230

Non-interest bearing checking
56,933

 
56,634

Interest-bearing checking
33,131

 
33,106

Money market
147,563

 
163,380

Certificates of deposit
245,505

 
255,854

Escrow
2,155

 
2,537

Total deposits
583,599

 
606,741

Advances from the FHLB-NY and other borrowed money
43,403

 
68,403

Due to broker for unsettled trades
10,079

 
—

Other liabilities
10,230

 
12,369

Total liabilities
647,311

 
687,513

 
 
 
 
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 September 30, 2016 and March 31, 2016, respectively)
61

 
61

Additional paid-in capital
55,470

 
55,470

Accumulated deficit
(45,554
)
 
(45,710
)
Treasury stock, at cost (1,944 shares at September 30, 2016 and March 31, 2016)
(417
)
 
(417
)
Accumulated other comprehensive loss
(265
)
 
(307
)
Total equity
54,413

 
54,215

Total liabilities and equity
$
701,724

 
$
741,728

See accompanying notes to consolidated financial statements

1


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended September 30,
 
Six Months Ended
September 30,
$ in thousands, except per share data
 
2016
 
2015
Restated (1)
 
2016
 
2015
Restated (1)
Interest income:
 
 
 
 
 
 
 
 
Loans
 
$
5,882

 
$
6,174

 
$
12,321

 
$
11,816

Mortgage-backed securities
 
146

 
197

 
316

 
388

Investment securities
 
195

 
341

 
423

 
682

Money market investments
 
61

 
18

 
130

 
52

Total interest income
 
6,284

 
6,730

 
13,190

 
12,938

 
 
 
 
 
 
 
 
 
Interest expense:
 
 
 
 
 
 
 
 
Deposits
 
929

 
781

 
1,864

 
1,557

Advances and other borrowed money
 
472

 
312

 
778

 
594

Total interest expense
 
1,401

 
1,093

 
2,642

 
2,151

 
 
 
 
 
 
 
 
 
Net interest income
 
4,883

 
5,637

 
10,548

 
10,787

Provision for (recovery of) loan losses
 
(160
)
 
643

 
(364
)
 
677

Net interest income after provision for (recovery of) loan losses
 
5,043

 
4,994

 
10,912

 
10,110

 
 
 
 
 
 
 
 
 
Non-interest income:
 
 
 
 
 
 
 
 
Depository fees and charges
 
803

 
809

 
1,605

 
1,477

Loan fees and service charges
 
106

 
170

 
249

 
342

Gain on sale of securities
 
58

 
1

 
58

 
1

Gain (loss) on sale of loans, net
 
(62
)
 
—

 
4

 
194

Gain on sale of real estate owned, net
 
10

 
—

 
10

 
18

Gain on sale of building, net
 
17

 
—

 
34

 
—

Other
 
346

 
151

 
481

 
292

Total non-interest income
 
1,278

 
1,131

 
2,441

 
2,324

 
 
 
 
 
 
 
 
 
Non-interest expense:
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
3,037

 
2,729

 
5,973

 
5,510

Net occupancy expense
 
797

 
1,125

 
1,541

 
2,121

Equipment, net
 
200

 
164

 
388

 
326

Data processing
 
371

 
223

 
699

 
446

Consulting fees
 
76

 
145

 
268

 
290

Federal deposit insurance premiums
 
163

 
133

 
329

 
255

Other
 
1,929

 
1,683

 
3,962

 
3,105

Total non-interest expense
 
6,573

 
6,202

 
13,160

 
12,053

 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(252
)
 
(77
)
 
193

 
381

   Income tax expense
 
—

 
79

 
37

 
92

Net income (loss)
 
$
(252
)
 
$
(156
)
 
$
156

 
$
289

 
 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.07
)
 
$
(0.04
)
 
$
0.02

 
$
0.03

Diluted
 
(0.07
)
 
(0.04
)
 
0.02

 
0.03

(1) September 30, 2015 amounts have been restated from previously reported results to correct for a 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 INCOME (LOSS)
(Unaudited)
 
 
Three Months Ended September 30,
 
Six Months Ended September 30,
$ in thousands
 
2016
 
2015
Restated (1)
 
2016
 
2015
Restated (1)
Net income (loss)
 
$
(252
)
 
$
(156
)
 
$
156

 
$
289

 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Change in unrealized gain (loss) of securities available-for-sale
 
(259
)
 
1,096

 
100

 
228

Less: Reclassification adjustment for sales of available-for-sale securities, net of tax
 
58

 
1

 
58

 
1

Total other comprehensive income (loss), net of tax
 
(317
)
 
1,095

 
42

 
227

 
 
 
 
 
 
 
 
 
Total comprehensive income (loss), net of tax
 
$
(569
)
 
$
939

 
$
198

 
$
516

(1) September 30, 2015 amounts have been restated from previously reported results to correct for a 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 six months ended September 30, 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, 2016
 
$
45,118

 
$
61

 
$
55,470

 
$
(45,710
)
 
$
(417
)
 
$
(307
)
 
$
54,215

Net income
 
—

 
—

 
—

 
156

 
—

 
—

 
156

Other comprehensive income, net of taxes
 
—

 
—

 
—

 
—

 
—

 
42

 
42

Balance — September 30, 2016
 
$
45,118

 
$
61

 
$
55,470

 
$
(45,554
)
 
$
(417
)
 
$
(265
)
 
$
54,413


See accompanying notes to consolidated financial statements

4


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Six Months Ended September 30,
$ in thousands
 
2016
 
2015
Restated (1)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
156

 
$
289

 
 
 
 
 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
(Recovery of) provision for loan losses
 
(364
)
 
677

Stock based compensation expense
 
—

 
2

Depreciation and amortization expense
 
431

 
498

Gain on sale of real estate owned
 
(10
)
 
(18
)
Gain on sale of securities, net
 
(58
)
 
(1
)
Gain on sale of loans, net
 
(4
)
 
(194
)
Gain on sale of building
 
(34
)
 
—

Amortization and accretion of loan premiums and discounts and deferred charges
 
88

 
(1,664
)
Amortization and accretion of premiums and discounts — securities
 
150

 
24

Decrease (increase) in accrued interest receivable
 
28

 
(735
)
Decrease in other assets
 
300

 
649

Increase (decrease) in other liabilities
 
(2,139
)
 
2,008

Net cash (used in) provided by operating activities
 
(1,456
)
 
1,535

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 
Purchases of investments: Available-for-sale
 
(10,606
)
 
—

Purchases of securities: Held-to-maturity
 
—

 
(5,117
)
Proceeds sales of investments: Available-for-sale
 
7,259

 
4,951

Proceeds from principal payments, maturities and calls of investments: Available-for-sale
 
15,730

 
20,603

Proceeds from principal payments, maturities and calls of investments: Held-to-maturity
 
817

 
1,028

Originations of loans held-for-investment, net of repayments
 
35,443

 
(18,096
)
Loans purchased from third parties
 
—

 
(63,978
)
Proceeds from sale of loans held-for-sale
 
4,645

 
730

Proceeds on sale of loans
 
5,401

 
—

(Increase) decrease in restricted cash
 
(29
)
 
6,200

Redemption (purchase) of FHLB-NY stock
 
937

 
(39
)
Purchase of premises and equipment
 
(33
)
 
(305
)
Proceeds from sale of real estate owned
 
160

 
636

Net cash provided by (used in) investing activities
 
59,724

 
(53,387
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Net (decrease) increase in deposits
 
(23,142
)
 
58,532

Net decrease in FHLB-NY advances and other borrowings
 
(25,000
)
 
—

Net cash (used in) provided by financing activities
 
(48,142
)
 
58,532

Net increase in cash and cash equivalents
 
10,126

 
6,680

Cash and cash equivalents at beginning of period
 
63,660

 
50,992

Cash and cash equivalents at end of period
 
$
73,786

 
$
57,672

 
 
 
 
 
Supplemental cash flow information:
 
 
 
 
Noncash financing and investing activities
 
 
 
 
Securities purchased but not yet paid for
 
$
10,079

 
$
—

Transfers to real estate owned
 
$
462

 
$
—

 
 
 
 
 
Cash paid for:
 
 
 
 
Interest
 
$
4,692

 
$
1,927

Income taxes
 
$
57

 
$
86

(1) September 30, 2015 amounts have been restated from previously reported results to correct for a 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 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.

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.

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 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.


6

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.

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.

Restatement

On July 12, 2016, the Finance and Audit Committee of the Board of Directors of Carver Bancorp, Inc.,  after consultation with KPMG LLP, our independent registered public accounting firm at the time, determined that our consolidated financial statements for the fiscal year ended March 31, 2015, and each of the quarters of 2015 and 2016 should no longer be relied upon.

The Company's audited results as of and for the year ended March 31, 2015, as well as the unaudited condensed consolidated financial information for the quarterly periods in 2016 and 2015 were restated in the Annual Report on Form 10-K for the year ended March 31, 2016 (the "Restatement"). The Restatement corrected a material error related to the accrual of data processing and other expenses related to invoices paid to the Bank's core system service provider. In fiscal 2016, Carver Bancorp recognized expenses on invoices paid to its core system provider, and during the course of preparation of the fiscal 2016 consolidated financial statements and audit, management determined that $613 thousand of expenses should have been recognized in fiscal 2015. The impact of the restatement for the three months ended September 30, 2015 was a decrease in data processing expense of $9 thousand. For the six months ended September 30, 2015, the impact of the restatement was decreases in the provision for loan losses of $83 thousand, data processing expense of $134 thousand, consulting fees of $23 thousand and other non-interest expense of $36 thousand. Management also identified an accounting error related to the reporting of earnings per share (EPS). Under the two class method of computing EPS, the Company has two classes of stock to which undistributed earnings are allocated.  Previously, the impact of the undistributed earnings allocated to the shares of the Company’s Series D convertible preferred stock had not been considered in this computation.  Basic and Diluted EPS amounts were updated for all periods in a net income position to include 45,118 shares of Series D Preferred Stock which, under certain circumstances, could convert to 5,518,006 shares of common stock. 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 accrued liabilities, provision for loan losses and certain reclassification entries. 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., Carver Community Development Corporation ("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

7

opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month period ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ended March 31, 2017. The consolidated balance sheet at September 30, 2016 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, 2016. 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.

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.

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.

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
September 30,
 
Six Months Ended
September 30,
$ in thousands except per share data
 
2016
 
2015
Restated (1)
 
2016
 
2015
Restated (1)
Earnings per common share
 
 
 
 
 
 
 
 
Net (loss) income as reported
 
$
(252
)
 
$
(156
)
 
156

 
289

Less: Participated securities share of undistributed earnings
 
—

 
—

 
94

 
173

Net (loss) income available to common shareholders of Carver Bancorp, Inc.
 
$
(252
)
 
$
(156
)
 
$
62

 
$
116

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
3,696,420

 
3,696,420

 
3,696,420

 
3,696,420

Effect of dilutive MRP shares
 
4,000

 
4,000

 
4,000

 
4,000

Weighted average common shares outstanding – diluted
 
3,700,420

 
3,700,420

 
3,700,420

 
3,700,420

 
 
 
 
 
 
 
 
 
Basic (loss) earnings per common share
 
$
(0.07
)
 
$
(0.04
)
 
$
0.02

 
$
0.03

Diluted (loss) earnings per common share
 
$
(0.07
)
 
$
(0.04
)
 
$
0.02

 
$
0.03

(1) September 30, 2015 amounts have been restated from previously reported results to correct for a 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.


8

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 Bank may not declare or pay dividends 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.

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 three and six months ended September 30, 2016 and 2015:
 
 
 
 
Other
 
 
Six months ended September 30, 2016
 
At
 
Comprehensive
 
At
$ in thousands
 
March 31, 2016
 
Income, net of tax
 
September 30, 2016
Net unrealized loss on securities available-for-sale
 
$
(307
)
 
$
42

 
$
(265
)
Accumulated other comprehensive loss, net of tax
 
$
(307
)
 
$
42

 
$
(265
)

 
 
 
 
Other
 
 
Six months ended September 30, 2015
 
At
 
Comprehensive
 
At
$ in thousands
 
March 31, 2015
 
Income, net of tax
 
September 30, 2015
Net unrealized loss on securities available-for-sale
 
$
(1,045
)
 
$
227

 
$
(818
)
Accumulated other comprehensive loss, net of tax
 
$
(1,045
)
 
$
227

 
$
(818
)

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 September 30,
 
For the Six Months Ended September 30,
 
Affected Line Item in the Consolidated Statement of Operations
$ in thousands
 
2016
 
2015
 
2016
 
2015
 
Reclassification adjustment for sales of available-for-sale securities, net of tax
 
$
58

 
$
1

 
$
58

 
$
1

 
Gain on sale of securities
Total reclassifications for the period
 
$
58

 
$
1

 
$
58

 
$
1

 
 

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 September 30, 2016, $53.8 million, or 78.8%, of the Bank’s total securities were classified as available-for-sale, and the remaining $14.5 million, or 21.2%, were classified as held-to-maturity. The Bank had no securities classified as trading at September 30, 2016 and March 31, 2016.

The following table sets forth the amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at September 30, 2016:

9

 
 
Amortized
 
Gross Unrealized
 
Estimated
$ in thousands
 
Cost
 
Gains
 
Losses
 
Fair-Value
Available-for-Sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
3,344

 
$
—

 
$
15

 
$
3,329

Federal Home Loan Mortgage Corporation
 
6,782

 
13

 
43

 
6,752

Federal National Mortgage Association
 
22,520

 
28

 
56

 
22,492

Other
 
45

 
—

 
—

 
45

Total mortgage-backed securities
 
32,691

 
41

 
114

 
32,618

U.S. Government Agency Securities
 
5,849

 
22

 
—

 
5,871

Corporate bonds
 
5,116

 
—

 
25

 
5,091

Other investments
 
10,360

 
—

 
190

 
10,170

Total available-for-sale
 
$
54,016

 
$
63

 
$
329

 
$
53,750

Held-to-Maturity*:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
2,068

 
$
153

 
$
—

 
$
2,221

Federal National Mortgage Association and Other
 
11,390

 
254

 
—

 
11,644

Total held-to-maturity mortgage-backed securities
 
13,458

 
407

 
—

 
13,865

Corporate Bonds
 
1,000

 
25

 
—

 
1,025

Total held-to maturity
 
14,458

 
432

 
—

 
14,890

Total securities
 
$
68,474

 
$
495

 
$
329

 
$
68,640

* 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, 2016:
 
 
Amortized
 
Gross Unrealized
 
Estimated
$ in thousands
 
Cost
 
Gains
 
Losses
 
Fair Value
Available-for-Sale:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
4,578

 
$
45

 
$
—

 
$
4,623

Federal Home Loan Mortgage Corporation
 
7,778

 
—

 
100

 
7,678

Federal National Mortgage Association
 
7,860

 
—

 
36

 
7,824

Other
 
45

 
—

 
—

 
45

Total mortgage-backed securities
 
20,261

 
45

 
136

 
20,170

U.S. Government Agency Securities
 
26,077

 
27

 
35

 
26,069

Other investments
 
10,148

 
—

 
207

 
9,941

Total available-for-sale
 
$
56,486

 
$
72

 
$
378

 
$
56,180

Held-to-Maturity*:
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
Government National Mortgage Association
 
$
2,379

 
$
150

 
$
—

 
$
2,529

Federal National Mortgage Association and Other
 
11,932

 
192

 
—

 
12,124

Total held-to-maturity mortgage-backed securities
 
14,311

 
342

 
—

 
14,653

Corporate Bonds
 
1,000

 
—

 
—

 
1,000

Total held-to-maturity
 
15,311

 
342

 
—

 
15,653

Total securities
 
$
71,797

 
$
414

 
$
378

 
$
71,833

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

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 six months ended September 30, 2016 and 2015:

10

 
 
For the Three Months Ended September 30,
 
For the Six Months Ended
September 30,
$ in thousands
 
2016
 
2015
 
2016
 
2015
Proceeds
 
$
7,259

 
$
4,951

 
$
7,259

 
$
4,951

Gross Gains
 
58

 
2

 
58

 
2

Gross Losses
 
—

 
1

 
—

 
1


The following table sets forth the unrealized losses and fair value of securities in an unrealized loss position at September 30, 2016 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
 
$
71

 
$
8,080

 
$
43

 
$
2,181

 
$
114

 
$
10,261

U.S. Government Agency Securities
 
—

 
1,999

 
—

 
—

 
—

 
1,999

Corporate bonds
 
25

 
5,091

 
—

 
—

 
25

 
5,091

Other investments (1)
 
—

 
—

 
190

 
9,811

 
190

 
9,811

Total available-for-sale securities
 
$
96

 
$
15,170

 
$
233

 
$
11,992

 
$
329

 
$
27,162

(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, 2016 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
 
$
—

 
$
—

 
$
136

 
$
15,502

 
$
136

 
$
15,502

U.S. Government Agency Securities
 
3

 
2,996

 
32

 
11,242

 
35

 
14,238

Other investments (1)
 
—

 
—

 
207

 
9,793

 
207

 
9,793

Total available-for-sale securities
 
$
3

 
$
2,996

 
$
375

 
$
36,537

 
$
378

 
$
39,533

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

A total of 12 securities had an unrealized loss at September 30, 2016 compared to 13 at March 31, 2016. There was one mortgage-backed security and one investment in a CRA fund that had an unrealized loss position for more than 12 months at September 30, 2016. 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 September 30, 2016, 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 September 30, 2016, 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.

11

$ in thousands
Amortized Cost
 
Fair Value
 
Weighted
Average Yield
Available-for-Sale:
 
 
 
 
 
One through five years
$
10,608

 
$
10,595

 
1.71
%
Five through ten years
12,655

 
12,651

 
1.91
%
After ten years
30,753

 
30,504

 
1.12
%
Total
$
54,016

 
$
53,750

 
1.43
%
 
 
 
 
 
 
Held-to-maturity:
 
 
 
 
 
Five through ten years
$
6,705

 
$
6,934

 
3.00
%
After ten years
7,753

 
7,956

 
2.39
%
Total
$
14,458


$
14,890

 
2.67
%

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, gross of allowance for loan losses, and net of loans held-for-sale at September 30, 2016 and March 31, 2016:
 
 
September 30, 2016
 
March 31, 2016
$ in thousands
 
Amount
 
Percent
 
Amount
 
Percent
Gross loans receivable:
 
 
 
 
 
 
 
 
One-to-four family
 
$
128,459

 
24
%
 
$
141,243

 
24
%
Multifamily
 
73,495

 
14
%
 
94,202

 
16
%
Commercial real estate
 
251,084

 
48
%
 
272,497

 
47
%
Construction
 
5,008

 
1
%
 
5,033

 
1
%
Business (1)
 
66,417

 
13
%
 
71,277

 
12
%
Consumer (2)
 
250

 
—
%
 
42

 
—
%
Total loans receivable
 
$
524,713

 
100
%
 
$
584,294

 
100
%
 
 
 
 
 
 
 
 
 
Unamortized premiums, deferred costs and fees, net
 
4,432

 
 
 
4,725

 
 
 
 
 
 
 
 
 
 
 
Allowance for loan losses
 
(4,747
)
 
 
 
(5,232
)
 
 
Total loans receivable, net
 
$
524,398

 
 
 
$
583,787

 
 
 
 
 
 
 
 
 
 
 
Loans HFS
 
$
16,034

 
 
 
$
2,495

 
 
(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 month periods ended September 30, 2016 and 2015, and the fiscal year ended March 31, 2016.
Three months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four
family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Unallocated
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,875

 
$
530

 
$
1,858

 
$
62

 
$
856

 
$
2

 
$
—

 
$
5,183

Charge-offs
 
59

 
244

 
—

 
—

 
—

 
41

 
—

 
344

Recoveries
 
—

 
—

 
5

 
—

 
63

 
—

 
—

 
68

Provision for (Recovery of) Loan Losses
 
(162
)
 
386

 
(120
)
 
(12
)
 
(342
)
 
41

 
49

 
(160
)
Ending Balance
 
$
1,654

 
$
672

 
$
1,743

 
$
50

 
$
577

 
$
2

 
$
49

 
$
4,747


Six months ended September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four
family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Unallocated
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,697

 
$
622

 
$
1,808

 
$
62

 
$
1,022

 
$
21

 
$
—

 
$
5,232

Charge-offs
 
62

 
251

 
—

 
—

 
—

 
41

 
—

 
354

Recoveries
 
—

 
—

 
10

 
—

 
219

 
4

 
—

 
233

Provision for (Recovery of) Loan Losses
 
19

 
301

 
(75
)
 
(12
)
 
(664
)
 
18

 
49

 
(364
)
Ending Balance
 
$
1,654

 
$
672

 
$
1,743

 
$
50

 
$
577

 
$
2

 
$
49

 
$
4,747

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
 
$
1,423

 
$
672

 
$
1,722

 
$
50

 
$
370

 
$
2

 
$
49

 
$
4,288

Allowance for Loan Losses Ending Balance: individually evaluated for impairment
 
231

 
—

 
20

 
—
 
208

 
—

 
—

 
459

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Receivables Ending Balance:
 
$
130,687

 
$
74,818

 
$
252,058

 
$
4,975

 
$
66,357

 
$
250

 
$
—

 
$
529,145

Ending Balance: collectively evaluated for impairment
 
125,366

 
73,208

 
249,215

 
4,975

 
60,001

 
250

 
—

 
513,015

Ending Balance: individually evaluated for impairment
 
5,321

 
1,610

 
2,843

 
—

 
6,356

 
—

 
—

 
16,130



13

Fiscal year ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,970

 
$
502

 
$
1,029

 
$
99

 
$
813

 
$
15

 
$
4,428

Charge-offs
 
389

 
340

 
—

 
—

 
176

 
517

 
1,422

Recoveries
 
113

 
—

 
9

 
—

 
578

 
31

 
731

Provision for (Recovery of) Loan Losses
 
3

 
460

 
770

 
(37
)
 
(193
)
 
492

 
1,495

Ending Balance
 
$
1,697

 
$
622

 
$
1,808

 
$
62

 
$
1,022

 
$
21

 
$
5,232

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
 
1,602

 
622

 
1,787

 
62

 
548

 
21

 
4,642

Allowance for Loan Losses Ending Balance: individually evaluated for impairment
 
95

 
—

 
21

 
—

 
474

 
—

 
590

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan Receivables Ending Balance:
 
$
143,667

 
$
95,648

 
$
273,470

 
$
5,000

 
$
71,192

 
$
42

 
$
589,019

Ending Balance: collectively evaluated for impairment
 
139,031

 
93,879

 
267,176

 
5,000

 
64,326

 
42

 
569,454

Ending Balance: individually evaluated for impairment
 
4,636

 
1,769

 
6,294

 
—

 
6,866

 
—

 
19,565


Three months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance (restated)
 
$
1,640

 
$
410

 
$
1,032

 
$
99

 
$
791

 
$
3

 
$
3,975

Charge-offs
 
13

 
3

 
—

 
—

 
8

 
259

 
283

Recoveries
 
1

 
—

 
3

 
—

 
95

 
5

 
104

Provision for (Recovery of) Loan Losses (restated)
 
(52
)
 
50

 
401

 
—

 
(35
)
 
279

 
643

Ending Balance (restated)
 
$
1,576

 
$
457

 
$
1,436

 
$
99

 
$
843

 
$
28

 
$
4,439

Six months ended September 30, 2015
 
 
 
 
 
 
 
 
 
 
$ in thousands
 
One-to-four family
 
Multifamily
 
Commercial Real Estate
 
Construction
 
Business
 
Consumer
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
 
$
1,970

 
$
502

 
$
1,029

 
$
99

 
$
813

 
$
15

 
$
4,428

Charge-offs
 
243

 
241

 
—

 
—

 
120

 
260

 
864

Recoveries
 
1

 
—

 
3

 
—

 
188

 
6

 
198

Provision for (Recovery of) Loan Losses
 
(152
)