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 subsidiaries are Carver Federal Savings Bank (the “Bank” or “Carver Federal”) and Alhambra Holding Corp, an inactive Delaware corporation. Carver Federal's wholly-owned subsidiaries are CFSB Realty Corp., Carver Community Development Corp. (“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 (“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 Orders passed to the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (“OCC”). No assurances can be given that the Bank and the Company will continue to comply with all provisions of the Orders. Failure to comply with these provisions could result in further regulatory actions to be taken by the regulators.
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 on June 30, 2011 to make a capital injection of
$37 million
in the Bank. 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.
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. 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 and nine month periods ended
December 31, 2013
are not necessarily indicative of the results that may be expected for the year ended
March 31, 2014
. The consolidated balance sheet at
December 31, 2013
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
March 31, 2013
Annual Report to Stockholders on Form 10-K. 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.
Investment Securities
When purchased, investment securities are designated as either investment securities held-to-maturity, available-for-sale or trading.
Securities are classified as held-to-maturity and carried at amortized cost only if the Bank has a positive intent and ability to hold such securities to maturity. Securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity.
Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value with unrealized gains and losses included in earnings.
If not classified as held-to-maturity or trading, securities are classified as available-for-sale based upon management's ability to sell in response to actual or anticipated changes in interest rates, resulting prepayment risk or any other factors. Available-for-sale securities are reported at fair value. Estimated fair values of securities are based on either published or security dealers' market value if available. If quoted or dealer prices are not available, fair value is estimated using quoted or dealer prices for similar securities.
The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized holding loss. Unrealized holding gains or losses for securities available-for-sale are excluded from earnings and reported net of deferred income taxes in accumulated other comprehensive (loss) income, a component of Stockholders' Equity. Following Financial Accounting Standards Board (“FASB”) guidance, 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 entity 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, and the remaining difference between the debt security’s amortized cost basis and its fair value would be included in other comprehensive (loss) income.
During the nine months ended
December 31, 2013
and for the fiscal year ended
March 31, 2013
, no other-than-temporary impairment charges were recorded. Gains or losses on sales of securities of all classifications are recognized based on the specific identification method.
Loans Held-for-Sale
Loans are only moved to held-for-sale classification upon the determination by Carver to sell a loan. Held-for-sale loans are carried at the lower of cost or market value. The initial charge off, if any is required, will be taken upon the move to held-for-sale and absorbed through Carver's loan loss reserve. The need to further charge offs is periodically evaluated if the loan remains classified as held-for-sale for an extended period of time using the valuation methodologies identified below. Any subsequently required charge off is processed as a mark to market adjustment. The valuation methodology for loans held-for-sale varies based upon the circumstances. Held-for-sale values may be based upon accepted offer amounts, appraised value of underlying mortgaged premises, prior loan loss experience of Carver in connection with recent loan sales for the loan type in question, and/or other acceptable valuation methods.
Loans Receivable
Loans receivable are carried at unpaid principal balances plus unamortized premiums, purchase accounting mark-to-market adjustments, certain deferred direct loan origination costs and deferred loan origination fees and discounts, less the allowance for loan losses and charge-offs.
The Bank defers loan origination fees and certain direct loan origination costs and amortizes or accretes such amounts as an adjustment of yield over the contractual lives of the related loans using methodologies which approximate the interest method. Premiums and discounts on loans purchased are amortized or accreted as an adjustment of yield over the contractual lives, of the related loans, adjusted for prepayments when applicable, using methodologies which approximate the interest method.
Loans are placed on non-accrual status when they are past due 90 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When a loan is placed on non-accrual status, any interest accrued but not received is reversed against interest income. Payments received on a non-accrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending on an assessment of the ability to collect the loan. A non-accrual loan is restored to accrual status when principal and interest payments become less than 90 days past due and its future collectability is reasonably assured.
If the Bank determines that there is an impairment dollar amount, the Bank next determines whether the amount of impairment is permanent. The amount of impairment determined to be permanent is charged-off within the given fiscal quarter. All other amounts are recorded as a specific valuation allowance (“SVA”) reserve. Generally the amount of the loan and negative escrow in excess of the appraised value, for the fair value of collateral valuation method, is determined to be permanent and charged off. The amount attributable to the expected cost to sell, is recorded as a specific valuation allowance. In the event the Bank is using the collateral dependent determination for the dollar amount of impairment and the Bank does not have an accepted appraisal (for example, the Bank may utilize a broker’s price opinion), the Bank generally will treat all dollar amounts identified as impaired to be other than a permanent impairment and the full impaired amount will be recorded as a specific valuation allowance. For impairment amounts calculated utilizing the present value of expected future cash flows, the dollar amount of impairment is recorded as a specific valuation allowance.
Limitations related to the fair value estimate of financial instruments
The fair value estimates are made at a discrete point in time based on relevant market information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no quoted market value exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
In addition, the fair value estimates are based on existing off-balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.
Allowance for Loan and Lease Losses (
“
ALLL
”
)
The adequacy of the Bank's ALLL is determined in accordance with the Interagency Policy Statement on the Allowance for Loan and Lease Losses (the “Interagency Policy Statement”) released by the OCC on December 13, 2006 and in accordance with FASB Accounting Standards Codification (“ASC”) Subtopics 450-20 “Disclosure of Certain Loss Contingencies” and 310-10 “Accounting by Creditors for Impairment of a Loan.” Compliance with the Interagency Policy Statement includes management's review of the Bank's loan portfolio, including the identification and review of situations that may affect a borrower's ability to repay. In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio.
The ALLL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is a great amount of judgment applied to developing the ALLL. As such, there can never be assurance that the ALLL accurately reflects the actual loss potential inherent in a loan portfolio. Any change in circumstances considered by management to develop the ALLL could necessitate a change to the ALLL, including a change to the loan portfolio, such as a decline in credit quality or an increase in potential problem loans.
General Reserve Allowance
Carver's maintenance of a general reserve allowance in accordance with ASC Subtopic 450-20 includes Carver's evaluating the risk to loss potential of homogeneous pools of loans based upon historical loss factors and a review of nine different factors that are then applied to each pool. The pools of loans (“Loan Type”) are:
|
|
•
|
Other (Consumer and Overdraft Accounts)
|
The pools are further segregated into the following risk rating classes:
The Bank next applies to each pool a risk factor that determines the level of general reserves for that specific pool. The risk factors are comprised of actual losses for the most recent six quarters as a percentage of each respective Loan Type plus qualitative factors. This represents a change in methodology as the Bank previously utilized a four quarter historical trend. The rationale for the change is to adopt a more comprehensive loss period. As the loss experience for a Loan Type increases or decreases, the level of reserves required for that particular Loan Type also increases or decreases. Because actual loss experience may not adequately predict the level of losses inherent in a portfolio, the Bank reviews nine qualitative factors to determine if reserves should be adjusted based upon any of those factors. As the risk ratings worsen some of the qualitative factors tend to increase. The nine qualitative factors the Bank considers and may utilize are:
|
|
1.
|
Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-offs, and recovery practices not considered elsewhere in estimating credit losses (
Policy & Procedures
).
|
|
|
2.
|
Changes in relevant economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (
Economy
).
|
|
|
3.
|
Changes in the nature or volume of the loan portfolio and in the terms of loans (
Nature & Volume
).
|
|
|
4.
|
Changes in the experience, ability, and depth of lending management and other relevant staff (
Management
).
|
|
|
5.
|
Changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified loans (
Problem Assets
).
|
|
|
6.
|
Changes in the quality of the loan review system (
Loan Review
).
|
|
|
7.
|
Changes in the value of underlying collateral for collateral-dependent loans (
Collateral Values
).
|
|
|
8.
|
The existence and effect of any concentrations of credit and changes in the level of such concentrations (
Concentrations
).
|
|
|
9.
|
The effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio (
External Forces
).
|
Specific Reserve Allowance
Carver also maintains a specific reserve allowance for criticized and classified loans individually reviewed for impairment in accordance with ASC Subtopic 310-10 guidelines. The amount assigned to the specific reserve allowance is individually determined based upon the loan. The ASC Subtopic 310-10 guidelines require the use of one of three approved methods to estimate the amount to be reserved and/or charged off for such credits. The three methods are as follows:
|
|
1.
|
The present value of expected future cash flows discounted at the loan's effective interest rate;
|
|
|
2.
|
The loan's observable market price; or
|
|
|
3.
|
The fair value of the collateral if the loan is collateral dependent.
|
The institution determines the appropriate ASC Subtopic 310-10 measurement on a loan-by-loan basis for an individually impaired loan, except for an impaired collateral dependent loan. Guidance requires impairment of a collateral dependent loan to be measured using the fair value of collateral method. A loan is considered "collateral dependent" when the repayment of the debt will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment.
Criticized and Classified loans with at risk balances of $500,000 or more and loans below $500,000 that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment in accordance with ASC Topic 310. Carver also performs impairment analysis for all troubled debt restructurings (“TDRs”). If it is determined that it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement, the loan is categorized as impaired.
If the loan is determined to be not impaired, it is then placed in the appropriate pool of Criticized & Classified loans to be evaluated collectively for impairment. Loans determined to be impaired are evaluated to determine the amount of impairment based on one of the three measurement methods noted above. The Bank then determines whether the impairment amount is permanent, in which case the loan is written down by the amount of the impairment, or if it is other than permanent, in which case the Bank establishes a specific valuation reserve that is included in the total ALLL. In accordance with guidance, if there is no impairment amount, no reserve is established for the loan.
Troubled Debt Restructured Loans
TDRs are those loans whose terms have been modified because of deterioration in the financial condition of the borrower and a concession is made. Modifications could include extension of the terms of the loan, reduced interest rates, and forgiveness of accrued interest and/or principal. Once an obligation has been restructured because of such credit problems, it continues to be considered restructured until paid in full. For cash flow dependent loans, the Company records a specific valuation allowance (“SVA”) reserve equal to the difference between the present value of estimated future cash flows under the restructured terms discounted at the loan's original effective interest rate, and the loan's original carrying value. For a collateral dependent loan, the Company records an impairment charge when the current estimated fair value of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan. TDR loans remain on non-accrual status until they have performed in accordance with the restructured terms for a period of at least six months.
Representation and Warranty Reserve
During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”). The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities (GSEs). The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been
foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral.
Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable. These reserves are reported in our consolidated statement of financial condition as a component of other liabilities. The calculation of the reserve is based on estimates, which are uncertain, and require the application of judgment. In establishing the reserves, we consider a variety of factors, including those loans that are under review by FNMA that have not yet received a repurchase request. The Bank tracks the FNMA claims monthly and evaluates the reserve on a quarterly basis.
NOTE 3. EARNINGS (LOSS) PER COMMON SHARE
The following table reconciles the (loss) / earnings available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted (loss) / earnings per share for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Nine Months Ended
December 31,
|
$ in thousands
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
(Loss) / earnings per common share
|
|
|
|
|
|
|
|
|
Net (loss) / income available to common shareholders of Carver Bancorp, Inc.
|
|
$
|
(107
|
)
|
|
$
|
474
|
|
|
$
|
647
|
|
|
$
|
(26
|
)
|
Weighted average common shares outstanding
|
|
3,696,225
|
|
|
3,695,653
|
|
|
3,696,123
|
|
|
3,695,616
|
|
Basic (loss) / earnings per common share
|
|
$
|
(0.03
|
)
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
(0.01
|
)
|
Diluted (loss) / earnings per common share
|
|
$
|
(0.03
|
)
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
(0.01
|
)
|
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 Orders, the Bank and Company are also prohibited from paying any dividends without prior regulatory approval, and, as such, suspended the regularly quarterly cash dividend payments on the Company's Series B preferred stock issued under the Trouble Asset Relief Program Capital Purchase Program (“TARP CPP”) to the United States Department of Treasury (“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 dividends on the common stock 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 before the regulators precluded future payments without prior approval. The expense continues to be accrued and the payments remain on deferral status.
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 Stockholder's equity. 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 (LOSS) INCOME
The following table sets forth changes in each component of accumulated other comprehensive (loss) / income, net of tax for the nine months ended
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Nine months ended December 31, 2013
|
|
At
|
|
Comprehensive
|
|
At
|
$ in thousands
|
|
March 31, 2013
|
|
Income
|
|
December 31, 2013
|
Net unrealized gain (loss) on securities available-for-sale
|
|
$
|
1,064
|
|
|
$
|
(7,486
|
)
|
|
$
|
(6,422
|
)
|
Net unrealized loss on pension liability
|
|
(501
|
)
|
|
501
|
|
|
—
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
563
|
|
|
$
|
(6,985
|
)
|
|
$
|
(6,422
|
)
|
The following table sets forth information about amounts reclassified from accumulated other comprehensive income (loss) to the consolidated statement of operations and the affected line item in the statement where net income is presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
|
$ in thousands
|
|
Three Months Ended December 31, 2013
|
|
Nine Months Ended December 31, 2013
|
|
Affected Line Item in the Consolidated Statement of Operations
|
Reclassification adjustment for sales of available for-sale securities, net of tax
|
|
$
|
—
|
|
|
$
|
507
|
|
|
Gain on sale of securities
|
|
|
|
|
|
|
|
Reclassification adjustment for termination of pension plan, net of tax
|
|
(432
|
)
|
|
(432
|
)
|
|
Employee compensation and benefits
|
|
|
|
|
|
|
|
Total reclassifications for the period
|
|
$
|
(432
|
)
|
|
$
|
75
|
|
|
|
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 Subtopics 320-942 requires that securities be classified into three categories: trading, held-to-maturity, and available-for-sale. At
December 31, 2013
,
$84.6 million
, or
87.5%
, of the Bank’s mortgage-backed and other investment securities were classified as available-for-sale, and the remaining
$12.1 million
, or
12.5%
, were classified as held-to-maturity. The Bank had no securities classified as trading at
December 31, 2013
.
The following table sets forth the amortized cost and estimated fair value of securities available-for-sale and held-to-maturity at
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross Unrealized
|
|
|
$ in thousands
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair-Value
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
6,036
|
|
|
$
|
—
|
|
|
$
|
(369
|
)
|
|
$
|
5,667
|
|
Federal Home Loan Mortgage Corporation
|
|
13,642
|
|
|
—
|
|
|
(662
|
)
|
|
12,980
|
|
Federal National Mortgage Association
|
|
11,124
|
|
|
—
|
|
|
(582
|
)
|
|
10,542
|
|
Other
|
|
49
|
|
|
—
|
|
|
—
|
|
|
49
|
|
Total mortgage-backed securities
|
|
30,851
|
|
|
—
|
|
|
(1,613
|
)
|
|
29,238
|
|
U.S. Government Agency Securities
|
|
50,187
|
|
|
—
|
|
|
(4,300
|
)
|
|
45,887
|
|
CRA investment fund
|
|
10,000
|
|
|
—
|
|
|
(523
|
)
|
|
9,477
|
|
Total available-for-sale
|
|
91,038
|
|
|
—
|
|
|
(6,436
|
)
|
|
84,602
|
|
Held-to-Maturity
*
:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
4,069
|
|
|
230
|
|
|
—
|
|
|
4,299
|
|
Federal Home Loan Mortgage Corporation
|
|
1,794
|
|
|
66
|
|
|
—
|
|
|
1,860
|
|
Federal National Mortgage Association
|
|
6,226
|
|
|
68
|
|
|
(361
|
)
|
|
5,933
|
|
Total held-to-maturity mortgage-backed securities
|
|
12,089
|
|
|
364
|
|
|
(361
|
)
|
|
12,092
|
|
Total securities
|
|
$
|
103,127
|
|
|
$
|
364
|
|
|
$
|
(6,797
|
)
|
|
$
|
96,694
|
|
* 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, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross Unrealized
|
|
Estimated
|
$ in thousands
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
Available-for-Sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
$
|
23,164
|
|
|
$
|
676
|
|
|
$
|
—
|
|
|
$
|
23,840
|
|
Federal Home Loan Mortgage Corporation
|
|
16,059
|
|
|
104
|
|
|
(104
|
)
|
|
16,059
|
|
Federal National Mortgage Association
|
|
4,186
|
|
|
117
|
|
|
—
|
|
|
4,303
|
|
Other
|
|
50
|
|
|
—
|
|
|
—
|
|
|
50
|
|
Total mortgage-backed securities
|
|
43,459
|
|
|
897
|
|
|
(104
|
)
|
|
44,252
|
|
U.S. Government Agency Securities
|
|
44,363
|
|
|
139
|
|
|
(177
|
)
|
|
44,325
|
|
Asset-backed securities
|
|
15,268
|
|
|
251
|
|
|
—
|
|
|
15,519
|
|
Small Business Administration
|
|
1,919
|
|
|
45
|
|
|
—
|
|
|
1,964
|
|
CRA investment fund
|
|
10,000
|
|
|
—
|
|
|
(9
|
)
|
|
9,991
|
|
Total available-for-sale
|
|
115,009
|
|
|
1,332
|
|
|
(290
|
)
|
|
116,051
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
*
:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
5,335
|
|
|
404
|
|
|
—
|
|
|
5,739
|
|
Federal Home Loan Mortgage Corporation
|
|
2,387
|
|
|
103
|
|
|
—
|
|
|
2,490
|
|
Federal National Mortgage Association
|
|
1,321
|
|
|
79
|
|
|
—
|
|
|
1,400
|
|
Total held-to-maturity mortgage-backed securities
|
|
9,043
|
|
|
586
|
|
|
—
|
|
|
9,629
|
|
Total securities
|
|
$
|
124,052
|
|
|
$
|
1,918
|
|
|
$
|
(290
|
)
|
|
$
|
125,680
|
|
* 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 at
December 31, 2013
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
|
|
$
|
(1,082
|
)
|
|
$
|
20,773
|
|
|
$
|
(531
|
)
|
|
$
|
8,415
|
|
|
$
|
(1,613
|
)
|
|
$
|
29,188
|
|
U.S. Government Agency Securities
|
|
(3,253
|
)
|
|
38,961
|
|
|
(1,047
|
)
|
|
6,926
|
|
|
(4,300
|
)
|
|
45,887
|
|
CRA investment fund
|
|
(523
|
)
|
|
9,477
|
|
|
—
|
|
|
—
|
|
|
(523
|
)
|
|
9,477
|
|
Total available-for-sale securities
|
|
(4,858
|
)
|
|
69,211
|
|
|
(1,578
|
)
|
|
15,341
|
|
|
(6,436
|
)
|
|
84,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
|
(361
|
)
|
|
4,742
|
|
|
—
|
|
|
—
|
|
|
(361
|
)
|
|
4,742
|
|
Total held-to-maturity
|
|
(361
|
)
|
|
4,742
|
|
|
—
|
|
|
—
|
|
|
(361
|
)
|
|
4,742
|
|
Total securities
|
|
$
|
(5,219
|
)
|
|
$
|
73,953
|
|
|
$
|
(1,578
|
)
|
|
$
|
15,341
|
|
|
$
|
(6,797
|
)
|
|
$
|
89,294
|
|
The following table sets forth the unrealized losses and fair value of securities in an unrealized loss position at
March 31, 2013
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
|
|
$
|
(104
|
)
|
|
$
|
10,298
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(104
|
)
|
|
$
|
10,298
|
|
U.S. Government Agency Securities
|
|
(177
|
)
|
|
25,290
|
|
|
—
|
|
|
—
|
|
|
(177
|
)
|
|
25,290
|
|
CRA investment fund
|
|
(9
|
)
|
|
9,991
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
9,991
|
|
Total available-for-sale securities
|
|
$
|
(290
|
)
|
|
$
|
45,579
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(290
|
)
|
|
$
|
45,579
|
|
A total of
33
securities had an unrealized loss at
December 31, 2013
compared to
13
at
March 31, 2013
. The majority of the securities in an unrealized loss position were U.S. Government Agency securities and mortgage-backed securities, representing
46.1%
and
24.6%
of total securities in an unrealized loss position that had an unrealized loss for less than 12 months at
December 31, 2013
.
Two
mortgage-backed securities and
four
U.S. Government Agency securities representing
10.0%
and
8.2%
of total securities in an unrealized loss position had an unrealized loss for more than 12 months at
December 31, 2013
. Given the U.S. government's guarantees of the mortgage-backed and agency securities, there is no reason to believe that these securities will experience credit related losses. 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 entity will not be required to sell the security prior to the recovery of the non-credit impairment, that is attributable to the credit loss would be recognized in earnings, and the remaining difference between the debt security’s amortized cost basis and its fair value would be included in other comprehensive (loss) income. At
December 31, 2013
, 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
December 31, 2013
, 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
|
$
|
2,000
|
|
|
$
|
1,967
|
|
|
1.50
|
%
|
Five through ten years
|
24,387
|
|
|
22,823
|
|
|
1.65
|
%
|
After ten years
|
64,651
|
|
|
59,812
|
|
|
1.70
|
%
|
Total
|
$
|
91,038
|
|
|
$
|
84,602
|
|
|
1.69
|
%
|
|
|
|
|
|
|
Held-to-maturity:
|
|
|
|
|
|
One through five years
|
$
|
113
|
|
|
$
|
115
|
|
|
2.68
|
%
|
Five through ten years
|
5,209
|
|
|
4,860
|
|
|
2.49
|
%
|
After ten years
|
6,767
|
|
|
7,117
|
|
|
3.63
|
%
|
Total
|
$
|
12,089
|
|
|
$
|
12,092
|
|
|
3.13
|
%
|
NOTE 7. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES
The loans receivable portfolio is segmented into One-to-Four Family, Multifamily Mortgage, Commercial Real Estate, Construction, Business (including Small Business Administration), and Consumer Loans.
The 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. For further details on the ALLL, please reference Note 2 "Summary of Significant Accounting Policies."
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, and loans held-for-sale at
December 31, 2013
and
March 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
March 31, 2013
|
$ in thousands
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
Gross loans receivable:
|
|
|
|
|
|
|
|
|
One-to-four family
|
|
$
|
117,182
|
|
|
30
|
%
|
|
$
|
73,625
|
|
|
20
|
%
|
Multifamily
|
|
47,431
|
|
|
12
|
%
|
|
56,427
|
|
|
15
|
%
|
Commercial real estate
|
|
194,737
|
|
|
50
|
%
|
|
203,813
|
|
|
55
|
%
|
Construction
|
|
5,100
|
|
|
1
|
%
|
|
1,228
|
|
|
—
|
%
|
Business
|
|
28,432
|
|
|
7
|
%
|
|
35,795
|
|
|
10
|
%
|
Consumer
(1)
|
|
155
|
|
|
—
|
%
|
|
247
|
|
|
—
|
%
|
Total loans receivable
|
|
$
|
393,037
|
|
|
100
|
%
|
|
$
|
371,135
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Add:
|
|
|
|
|
|
|
|
|
Premium on loans
|
|
996
|
|
|
|
|
728
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Deferred fees and loan discounts,net
|
|
(870
|
)
|
|
|
|
(1,741
|
)
|
|
|
Allowance for loan losses
|
|
(8,415
|
)
|
|
|
|
(10,989
|
)
|
|
|
Total loans receivable, net
|
|
$
|
384,748
|
|
|
|
|
$
|
359,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held-for-sale
|
|
$
|
7,678
|
|
|
|
|
$
|
13,107
|
|
|
|
(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 nine month period ended
December 31, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
One-to-four
family
Residential
|
|
Multi-Family
Mortgage
|
|
Commercial Real
Estate
|
|
Construction
|
|
Business
|
|
Consumer
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
3,496
|
|
|
$
|
408
|
|
|
$
|
3,298
|
|
|
$
|
—
|
|
|
$
|
3,759
|
|
|
$
|
28
|
|
|
$
|
10,989
|
|
Charge-offs
|
|
1,619
|
|
|
98
|
|
|
570
|
|
|
—
|
|
|
572
|
|
|
15
|
|
|
2,874
|
|
Recoveries
|
|
515
|
|
|
23
|
|
|
—
|
|
|
149
|
|
|
326
|
|
|
13
|
|
|
1,026
|
|
Provision for Loan Losses
|
|
1,675
|
|
|
48
|
|
|
(508
|
)
|
|
(149
|
)
|
|
(1,748
|
)
|
|
(44
|
)
|
|
(726
|
)
|
Ending Balance
|
|
$
|
4,067
|
|
|
$
|
381
|
|
|
$
|
2,220
|
|
|
$
|
—
|
|
|
$
|
1,765
|
|
|
$
|
(18
|
)
|
|
$
|
8,415
|
|
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
|
|
3,636
|
|
|
329
|
|
|
1,971
|
|
|
—
|
|
|
1,212
|
|
|
16
|
|
|
7,164
|
|
Allowance for Loan Losses Ending Balance: individually evaluated for impairment
|
|
431
|
|
|
52
|
|
|
249
|
|
|
—
|
|
|
519
|
|
|
—
|
|
|
1,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivables Ending Balance
|
|
$
|
118,187
|
|
|
$
|
47,544
|
|
|
$
|
194,019
|
|
|
$
|
5,068
|
|
|
$
|
28,083
|
|
|
$
|
262
|
|
|
$
|
393,163
|
|
Ending Balance: collectively evaluated for impairment
|
|
110,268
|
|
|
46,181
|
|
|
181,435
|
|
|
5,068
|
|
|
23,022
|
|
|
261
|
|
|
366,235
|
|
Ending Balance: individually evaluated for impairment
|
|
7,919
|
|
|
1,363
|
|
|
12,584
|
|
|
—
|
|
|
5,061
|
|
|
1
|
|
|
26,928
|
|
The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the nine month period ended
December 31, 2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
One-to-four family Residential
|
|
Multi-Family Mortgage
|
|
Commercial Real Estate
|
|
Construction
|
|
Business
|
|
Consumer and Other
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
4,305
|
|
|
$
|
5,409
|
|
|
$
|
6,709
|
|
|
$
|
1,532
|
|
|
$
|
1,786
|
|
|
$
|
80
|
|
|
$
|
19,821
|
|
Charge-offs
|
|
2,103
|
|
|
226
|
|
|
1,149
|
|
|
151
|
|
|
2,152
|
|
|
3
|
|
|
5,784
|
|
Recoveries
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
34
|
|
|
4
|
|
|
60
|
|
Provision for Loan Losses
|
|
2,394
|
|
|
(4,155
|
)
|
|
(921
|
)
|
|
(1,403
|
)
|
|
4,521
|
|
|
(50
|
)
|
|
386
|
|
Ending Balance
|
|
$
|
4,596
|
|
|
$
|
1,028
|
|
|
$
|
4,639
|
|
|
$
|
—
|
|
|
$
|
4,189
|
|
|
$
|
31
|
|
|
$
|
14,483
|
|
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
|
|
4,217
|
|
|
1,028
|
|
|
4,182
|
|
|
—
|
|
|
2,368
|
|
|
31
|
|
|
11,826
|
|
Allowance for Loan Losses Ending Balance: individually evaluated for impairment
|
|
379
|
|
|
—
|
|
|
457
|
|
|
—
|
|
|
1,821
|
|
|
—
|
|
|
2,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivables Ending Balance:
|
|
$
|
61,726
|
|
|
$
|
67,058
|
|
|
$
|
200,641
|
|
|
$
|
1,230
|
|
|
$
|
33,519
|
|
|
$
|
280
|
|
|
$
|
364,454
|
|
Ending Balance: collectively evaluated for impairment
|
|
54,939
|
|
|
67,058
|
|
|
184,742
|
|
|
—
|
|
|
27,757
|
|
|
280
|
|
|
334,776
|
|
Ending Balance: individually evaluated for impairment
|
|
6,787
|
|
|
—
|
|
|
15,899
|
|
|
1,230
|
|
|
5,762
|
|
|
—
|
|
|
29,678
|
|
The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended
March 31, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
One-to-four family Residential
|
|
Multi-Family Mortgage
|
|
Commercial Real Estate
|
|
Construction
|
|
Business
|
|
Consumer and Other
|
|
Total
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
4,305
|
|
|
$
|
5,409
|
|
|
$
|
6,709
|
|
|
$
|
1,532
|
|
|
$
|
1,786
|
|
|
$
|
80
|
|
|
$
|
19,821
|
|
Charge-offs
|
|
2,103
|
|
|
226
|
|
|
1,148
|
|
|
151
|
|
|
2,274
|
|
|
1
|
|
|
5,903
|
|
Recoveries
|
|
15
|
|
|
91
|
|
|
—
|
|
|
22
|
|
|
265
|
|
|
5
|
|
|
398
|
|
Provision for Loan Losses
|
|
1,279
|
|
|
(4,866
|
)
|
|
(2,263
|
)
|
|
(1,403
|
)
|
|
3,982
|
|
|
(56
|
)
|
|
(3,327
|
)
|
Ending Balance
|
|
$
|
3,496
|
|
|
$
|
408
|
|
|
$
|
3,298
|
|
|
$
|
—
|
|
|
$
|
3,759
|
|
|
$
|
28
|
|
|
$
|
10,989
|
|
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment
|
|
3,179
|
|
|
409
|
|
|
3,103
|
|
|
—
|
|
|
1,959
|
|
|
28
|
|
|
8,678
|
|
Allowance for Loan Losses Ending Balance: individually evaluated for impairment
|
|
317
|
|
|
—
|
|
|
194
|
|
|
—
|
|
|
1,800
|
|
|
—
|
|
|
2,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Receivables Ending Balance:
|
|
$
|
73,987
|
|
|
$
|
56,607
|
|
|
$
|
202,771
|
|
|
$
|
1,230
|
|
|
$
|
35,277
|
|
|
$
|
250
|
|
|
370,122
|
|
Ending Balance: collectively evaluated for impairment
|
|
67,619
|
|
|
55,991
|
|
|
186,336
|
|
|
—
|
|
|
28,904
|
|
|
250
|
|
|
339,100
|
|
Ending Balance: individually evaluated for impairment
|
|
6,368
|
|
|
616
|
|
|
16,435
|
|
|
1,230
|
|
|
6,373
|
|
|
—
|
|
|
31,022
|
|
The following is a summary of non-accrual loans at
December 31, 2013
and
March 31, 2013
.
|
|
|
|
|
|
|
|
|
$ in thousands
|
December 31, 2013
|
|
March 31, 2013
|
Gross loans receivable:
|
|
|
|
One-to-four family
|
$
|
3,736
|
|
|
$
|
7,642
|
|
Multifamily
|
1,363
|
|
|
423
|
|
Commercial real estate
|
8,702
|
|
|
14,788
|
|
Construction
|
—
|
|
|
1,230
|
|
Business
|
1,120
|
|
|
6,505
|
|
Consumer and other
|
1
|
|
|
38
|
|
Total non-accrual loans
|
$
|
14,922
|
|
|
$
|
30,626
|
|
Non-accrual loans decreased
$15.7 million
, or
51.3%
, to
$14.9 million
at
December 31, 2013
from
$30.6 million
at
March 31, 2013
. The majority of the decline during the current nine month period ended
December 31, 2013
related to
fifteen
non-performing loans with a balance of
$8.2 million
that were moved to held-for-sale,
ten
TDR loans with a balance of
$6.4 million
that were upgraded to accrual status as they had performed in accordance with their modified terms for six months and
one
multifamily loan with a balance of
$1.1 million
that was paid off.
Non-performing loans at
December 31, 2013
, were comprised of
$9.6 million
of loans 90 days or more past due and non-accruing,
$3.3 million
of loans classified as a troubled debt restructuring and either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months, and
$2.0 million
of loans that are either performing or less than 90 days past due and have been classified as impaired.
Non-performing loans at
March 31, 2013
, were comprised of
$9.1 million
of loans 90 days or more past due and non-accruing,
$16.7 million
of loans classified as a troubled debt restructuring and either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months, and
$4.9 million
of loans that were either performing or less than 90 days past due and had been classified as impaired.
At
December 31, 2013
, other non-performing assets totaled
$9.1 million
which consists of other real estate owned and held-for-sale loans. At
December 31, 2013
, other real estate owned valued at
$1.4 million
comprised of
ten
foreclosed properties,
compared to
$2.4 million
comprised of
nine
properties at
March 31, 2013
. At
December 31, 2013
, held-for-sale loans totaled
$7.7 million
, compared to
$13.1 million
at
March 31, 2013
.
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
December 31, 2013
, the risk category by class of loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Multi-Family
Mortgage
|
|
Commercial
Real Estate
|
|
Construction
|
|
Business
|
Credit Risk Profile by Internally Assigned Grade:
|
|
|
|
|
|
|
|
|
Pass
|
|
$
|
45,006
|
|
|
$
|
163,983
|
|
|
$
|
5,068
|
|
|
$
|
19,827
|
|
Special Mention
|
|
—
|
|
|
12,879
|
|
|
—
|
|
|
2,044
|
|
Substandard
|
|
2,538
|
|
|
17,157
|
|
|
—
|
|
|
6,212
|
|
Total
|
|
$
|
47,544
|
|
|
$
|
194,019
|
|
|
$
|
5,068
|
|
|
$
|
28,083
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
One-to-four family
Residential
|
|
Consumer and
Other
|
Credit Risk Profile Based on Payment Activity:
|
|
|
|
|
Performing
|
|
$
|
114,451
|
|
|
$
|
261
|
|
Non-Performing
|
|
3,736
|
|
|
1
|
|
Total
|
|
$
|
118,187
|
|
|
$
|
262
|
|
As of
March 31, 2013
, and based on the most recent analysis performed, the risk category by class of loans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
Multi-Family Mortgage
|
|
Commercial Real Estate
|
|
Construction
|
|
Business
|
Credit Risk Profile by Internally Assigned Grade:
|
|
|
|
|
|
|
Pass
|
$
|
53,419
|
|
|
$
|
165,965
|
|
|
$
|
—
|
|
|
$
|
23,651
|
|
Special Mention
|
—
|
|
|
3,400
|
|
|
—
|
|
|
2,922
|
|
Substandard
|
3,188
|
|
|
33,406
|
|
|
1,230
|
|
|
8,704
|
|
Total
|
$
|
56,607
|
|
|
$
|
202,771
|
|
|
$
|
1,230
|
|
|
$
|
35,277
|
|
|
|
|
$ in thousands
|
|
|
|
|
One-to-four family Residential
|
|
Consumer and Other
|
Credit Risk Profile Based on Payment Activity:
|
|
|
|
|
Performing
|
|
$
|
66,344
|
|
|
$
|
212
|
|
Non-Performing
|
|
7,643
|
|
|
38
|
|
Total
|
|
$
|
73,987
|
|
|
$
|
250
|
|
The following table presents an aging analysis of the recorded investment of past due financing receivable as of
December 31, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater Than
90 Days
|
|
Total Past
Due
|
|
Non-performing TDR
|
|
Performing TDR
(1)
|
|
Impaired
(2)
|
|
Current
|
|
Total Financing
Receivables
|
One-to-four family residential
|
|
$
|
1,304
|
|
|
$
|
248
|
|
|
$
|
2,239
|
|
|
$
|
3,791
|
|
|
$
|
1,497
|
|
|
$
|
3,189
|
|
|
—
|
|
|
$
|
109,710
|
|
|
$
|
118,187
|
|
Multi-family mortgage
|
|
—
|
|
|
—
|
|
|
1,363
|
|
|
1,363
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,181
|
|
|
47,544
|
|
Commercial real estate
|
|
293
|
|
|
—
|
|
|
5,541
|
|
|
5,834
|
|
|
1,798
|
|
|
3,882
|
|
|
1,363
|
|
|
181,142
|
|
|
194,019
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,068
|
|
|
5,068
|
|
Business
|
|
321
|
|
|
—
|
|
|
468
|
|
|
789
|
|
|
33
|
|
|
3,941
|
|
|
619
|
|
|
22,701
|
|
|
28,083
|
|
Consumer and other
|
|
1
|
|
|
1
|
|
|
1
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
259
|
|
|
262
|
|
Total
|
|
$
|
1,919
|
|
|
$
|
249
|
|
|
$
|
9,612
|
|
|
$
|
11,780
|
|
|
$
|
3,328
|
|
|
11,012
|
|
|
$
|
1,982
|
|
|
$
|
365,061
|
|
|
$
|
393,163
|
|
(1)
The performing TDR category details those loans that the Company has determined that the future collection of principal and interest is reasonably assured, this generally represents those borrowers who have performed according to the restructured terms for a period of at least six months.
(2)
Consists of loans which are less than 90 days past due but impaired due to other risk characteristics.
The following table presents an aging analysis of the recorded investment of past due financing receivable as of
March 31, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
30-59 Days
Past Due
|
|
60-89 Days
Past Due
|
|
Greater Than 90 Days
|
|
Total Past
Due
|
|
Non-performing TDR
|
|
Performing TDR
(1)
|
|
Impaired
(2)
|
|
Current
|
|
Total Financing Receivables
|
One-to-four family residential
|
|
$
|
348
|
|
|
$
|
28
|
|
|
$
|
4,501
|
|
|
$
|
4,877
|
|
|
$
|
3,141
|
|
|
$
|
2,670
|
|
|
$
|
—
|
|
|
63,299
|
|
|
73,987
|
|
Multi-family mortgage
|
|
238
|
|
|
1,142
|
|
|
423
|
|
|
1,803
|
|
|
—
|
|
|
616
|
|
|
—
|
|
|
54,188
|
|
|
56,607
|
|
Commercial real estate
|
|
220
|
|
|
846
|
|
|
2,671
|
|
|
3,737
|
|
|
9,097
|
|
|
1,290
|
|
|
3,020
|
|
|
185,627
|
|
|
202,771
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,230
|
|
|
—
|
|
|
1,230
|
|
Business
|
|
261
|
|
|
148
|
|
|
1,439
|
|
|
1,848
|
|
|
4,447
|
|
|
464
|
|
|
619
|
|
|
27,899
|
|
|
35,277
|
|
Consumer and other
|
|
6
|
|
|
1
|
|
|
38
|
|
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
205
|
|
|
250
|
|
Total
|
|
$
|
1,073
|
|
|
$
|
2,165
|
|
|
$
|
9,072
|
|
|
$
|
12,310
|
|
|
$
|
16,685
|
|
|
$
|
5,040
|
|
|
$
|
4,869
|
|
|
$
|
331,218
|
|
|
$
|
370,122
|
|
(1)
The performing TDR category details those loans that the Company has determined that the future collection of principal and interest is reasonably assured. This generally represents those borrowers who have performed according to the restructured terms for a period of at least six months.
(2)
Consists of loans which are less than 90 days past due but impaired due to other risk characteristics.
The following table presents information on impaired loans with the associated allowance amount, if applicable, at
December 31, 2013
and
March 31, 2013
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
March 31, 2013
|
$ in thousands
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Associated
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Associated
Allowance
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
2,667
|
|
|
3,052
|
|
|
—
|
|
|
$
|
1,319
|
|
|
$
|
1,460
|
|
|
—
|
|
Multi-family mortgage
|
|
1,038
|
|
|
1,038
|
|
|
—
|
|
|
616
|
|
|
616
|
|
|
—
|
|
Commercial real estate
|
|
9,548
|
|
|
9,724
|
|
|
—
|
|
|
11,070
|
|
|
11,270
|
|
|
—
|
|
Construction
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,230
|
|
|
1,492
|
|
|
—
|
|
Business
|
|
2,176
|
|
|
2,249
|
|
|
—
|
|
|
1,080
|
|
|
2,002
|
|
|
—
|
|
Consumer and other
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
5,252
|
|
|
5,377
|
|
|
431
|
|
|
$
|
5,049
|
|
|
$
|
5,244
|
|
|
$
|
317
|
|
Multi-family mortgage
|
|
324
|
|
|
423
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
|
3,036
|
|
|
3,248
|
|
|
249
|
|
|
5,365
|
|
|
5,913
|
|
|
194
|
|
Business
|
|
2,885
|
|
|
2,885
|
|
|
519
|
|
|
5,293
|
|
|
5,293
|
|
|
1,800
|
|
Total
|
|
26,927
|
|
|
27,997
|
|
|
1,251
|
|
|
31,022
|
|
|
33,290
|
|
|
2,311
|
|
The following tables presents information on average balances on impaired loans and the interest income recognized for the three and nine month periods ended
December 31, 2013
and
2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
December 31, 2013
|
|
December 31, 2012
|
$ in thousands
|
|
Average Balance
|
|
Interest Income Recognized
|
|
Average Balance
|
|
Interest Income Recognized
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
1,793
|
|
|
$
|
4
|
|
|
$
|
659
|
|
|
$
|
11
|
|
Multi-family mortgage
|
|
1,206
|
|
|
5
|
|
|
—
|
|
|
—
|
|
Commercial real estate
|
|
9,086
|
|
|
65
|
|
|
7,402
|
|
|
40
|
|
Construction
|
|
38
|
|
|
—
|
|
|
2,743
|
|
|
—
|
|
Business
|
|
1,953
|
|
|
40
|
|
|
1,064
|
|
|
—
|
|
Consumer and other
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
$
|
5,210
|
|
|
$
|
58
|
|
|
$
|
4,197
|
|
|
$
|
26
|
|
Multi-family mortgage
|
|
162
|
|
|
—
|
|
|
339
|
|
|
—
|
|
Commercial real estate
|
|
3,041
|
|
|
32
|
|
|
6,732
|
|
|
40
|
|
Business
|
|
2,870
|
|
|
78
|
|
|
4,593
|
|
|
55
|
|
Total
|
|
25,360
|
|
|
282
|
|
|
27,729
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
December 31, 2013
|
|
December 31, 2012
|
$ in thousands
|
|
Average Balance
|
|
Interest Income Recognized
|
|
Average Balance
|
|
Interest Income Recognized
|
With no specific allowance recorded:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
1,889
|
|
|
$
|
5
|
|
|
1,646
|
|
|
38
|
|
Multi-family mortgage
|
|
519
|
|
|
6
|
|
|
98
|
|
|
5
|
|
Commercial real estate
|
|
9,104
|
|
|
127
|
|
|
8,553
|
|
|
191
|
|
Construction
|
|
615
|
|
|
—
|
|
|
2,515
|
|
|
53
|
|
Business
|
|
1,684
|
|
|
47
|
|
|
3,346
|
|
|
41
|
|
Consumer and other
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
One-to-four family residential
|
|
5,464
|
|
|
$
|
98
|
|
|
6,341
|
|
|
54
|
|
Multi-family mortgage
|
|
162
|
|
|
—
|
|
|
984
|
|
|
—
|
|
Commercial real estate
|
|
5,138
|
|
|
37
|
|
|
11,838
|
|
|
155
|
|
Construction
|
|
—
|
|
|
—
|
|
|
556
|
|
|
—
|
|
Business
|
|
3,728
|
|
|
114
|
|
|
3,076
|
|
|
254
|
|
Total
|
|
28,304
|
|
|
434
|
|
|
38,953
|
|
|
791
|
|
In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a modification. Situations around modifications involving troubled borrowers may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. In cases where the Bank grants any significant concessions to a troubled borrower, the Bank accounts for the modification as a TDR under ASC Subtopic 310-40 and the related allowance under ASC Subtopic 310-10-35. Loans modified in TDRs are placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months.
There was
one
modification made during the three month period ended
December 31, 2013
.
The following table presents an analysis of those loan modifications that were classified as TDRs during the nine month period ended
December 31, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modifications to loans during the three month period ended
|
|
Modifications to loans during the nine month period ended
|
|
|
December 31, 2013
|
|
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
|
Number of loans
|
|
Pre- modification outstanding recorded investment
|
|
Post modification recorded investment
|
|
Pre-Modification rate
|
|
Post-Modification rate
|
|
Number of loans
|
|
Pre- modification outstanding recorded investment
|
|
Post modification recorded investment
|
|
Pre-Modification rate
|
|
Post-Modification rate
|
One-to-four family residential
|
|
1
|
|
|
$
|
429
|
|
|
$
|
428
|
|
|
6.50
|
%
|
|
4.50
|
%
|
|
2
|
|
|
$
|
913
|
|
|
$
|
975
|
|
|
7.03
|
%
|
|
5.06
|
%
|
Business
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
1
|
|
|
919
|
|
|
719
|
|
|
6.00
|
%
|
|
6.00
|
%
|
|
|
1
|
|
|
$
|
429
|
|
|
$
|
428
|
|
|
|
|
|
|
3
|
|
|
$
|
1,832
|
|
|
$
|
1,694
|
|
|
|
|
|
There were no modifications made during the three month period ended
December 31, 2012
. The following table presents an analysis of those loan modifications that were classified as TDRs during the nine month period ended
December 31, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modifications to loans during the nine month period ended
|
|
December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
Number of loans
|
|
Pre- modification outstanding recorded investment
|
|
Post modification recorded investment
|
|
Pre-Modification rate
|
|
Post-Modification rate
|
One-to-four family residential
|
2
|
|
|
$
|
1,415
|
|
|
$
|
536
|
|
|
6.52
|
%
|
|
6.31
|
%
|
Commercial real estate
|
2
|
|
|
1,061
|
|
|
1,060
|
|
|
12.02
|
%
|
|
12.02
|
%
|
Business
|
4
|
|
|
2,242
|
|
|
2,210
|
|
|
7.44
|
%
|
|
7.44
|
%
|
Total
|
8
|
|
|
$
|
4,718
|
|
|
$
|
3,806
|
|
|
|
|
|
In an effort to proactively manage delinquent loans, Carver has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the three month period ended
December 31, 2013
,
one
loan of
$429 thousand
was modified with an interest rate concession of
2.00%
. For the nine month period ended
December 31, 2013
, two loans of
$1.0 million
were modified with interest rate concessions of
2.00%
and
one
loan of
$0.7 million
was extended. For the three month period ended
December 31, 2012
,
no
loans were modified. For the nine month period ended
December 31, 2012
,
one
loan of
$0.5 million
was modified with an interest rate concession of
1.25%
.
For the period ended
December 31, 2013
, there were
no
loans that had been modified and subsequently defaulted within the last twelve months. For the period ended
December 31, 2012
, Carver had
one
commercial real estate loans with an outstanding balance of
$2.4 million
that had been modified and subsequently defaulted within the 12 month period.
At
December 31, 2013
there were
eighteen
loans in the TDR portfolio totaling
$11.0 million
that were on accrual status as the Company has determined that the future collection of the principal and interest is reasonably assured, this generally represents those borrowers who have performed according to the restructured terms for a period of at least six months. At
March 31, 2013
, there were
nine
loans in the performing TDR portfolio totaling
$5.0 million
.
At
December 31, 2013
and
2012
, there were
no
loans to officers or directors of the Company.
NOTE 8. FAIR VALUE MEASUREMENTS
ASC 820 clarifies that fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
|
•
|
Level 1— Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2— Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3— Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of
December 31, 2013
and
March 31, 2013
, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013, Using
|
$ in thousands
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Total Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
281
|
|
|
$
|
281
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Government National Mortgage Association
|
|
—
|
|
|
5,667
|
|
|
—
|
|
|
5,667
|
|
Federal Home Loan Mortgage Corporation
|
|
—
|
|
|
12,980
|
|
|
—
|
|
|
12,980
|
|
Federal National Mortgage Association
|
|
—
|
|
|
10,542
|
|
|
—
|
|
|
10,542
|
|
U.S. Government Agency Securities
|
|
—
|
|
|
45,887
|
|
|
—
|
|
|
45,887
|
|
CRA investment fund
|
|
—
|
|
|
9,477
|
|
|
49
|
|
|
9,526
|
|
Total available-for-sale securities
|
|
—
|
|
|
84,553
|
|
|
49
|
|
|
84,602
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
84,553
|
|
|
$
|
330
|
|
|
$
|
84,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2013, Using
|
$ in thousands
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
|
Assets:
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
275
|
|
|
$
|
275
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
Mortgage-backed securities:
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
—
|
|
|
23,840
|
|
|
—
|
|
|
23,840
|
|
Federal Home Loan Mortgage Corporation
|
|
—
|
|
|
16,059
|
|
|
—
|
|
|
16,059
|
|
Federal National Mortgage Association
|
|
—
|
|
|
4,303
|
|
|
—
|
|
|
4,303
|
|
Asset-backed Securities
|
|
—
|
|
|
15,519
|
|
|
—
|
|
|
15,519
|
|
U.S. Government Agency Securities
|
|
—
|
|
|
44,325
|
|
|
—
|
|
|
44,325
|
|
Small Business Association
|
|
—
|
|
|
1,964
|
|
|
—
|
|
|
1,964
|
|
CRA investment fund
|
|
—
|
|
|
9,991
|
|
|
50
|
|
|
10,041
|
|
Total available-for-sale securities
|
|
—
|
|
|
116,001
|
|
|
50
|
|
|
116,051
|
|
Total assets
|
|
$
|
—
|
|
|
$
|
116,001
|
|
|
$
|
325
|
|
|
$
|
116,326
|
|
Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights (“MSR”) and other available-for-sale securities. Level 3 assets accounted for
0.1%
of the Company’s total assets at
December 31, 2013
and
March 31, 2013
.
The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next that are related to the observable inputs to a fair value measurement may result in a reclassification from one hierarchy level to another.
Below is a description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities and MSR:
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.
If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to market information, models also incorporate transaction details, such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt.
In the nine month period ended
December 31, 2013
, there were
no
transfers of investments between the Level 1 and Level 2 categories.
In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing certain securities, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Quoted price information for the MSRs is not available. Therefore, MSRs are valued using market-standard models to model the specific cash flow structure. Key inputs to the model consist of principal balance of loans being serviced, servicing fees and prepayment rates.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
The following table includes a roll-forward of assets classified by the Company within Level 3 of the valuation hierarchy for the nine months ended
December 31, 2013
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized Gains/(Losses) Recorded in Income
(1)
|
|
|
|
|
|
|
|
Change in Unrealized Gains and (Losses) Related to Instruments Held at December 31, 2013
|
$ in thousands
|
Beginning balance, April 1, 2013
|
|
|
Issuances / (Settlements)
|
|
Transfers to/(from) Level 3
|
|
Ending balance, December 31, 2013
|
|
Securities Available-for-Sale
|
$
|
51
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
49
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
275
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
281
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Realized/Unrealized Gains/(Losses) Recorded in Income
(1)
|
|
|
|
|
|
|
|
Change in Unrealized Gains and (Losses) Related to Instruments Held at December 31, 2012
|
$ in thousands
|
Beginning balance, April 1, 2012
|
|
|
Issuances / (Settlements)
|
|
Transfers to/(from) Level 3
|
|
Ending balance, December 31, 2012
|
|
Securities Available-for-Sale
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
—
|
|
|
$
|
50
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage servicing rights
|
491
|
|
|
(72
|
)
|
|
—
|
|
|
—
|
|
|
419
|
|
|
(68
|
)
|
(1)
Includes net servicing cash flows and the passage of time.
Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of
December 31, 2013
and
March 31, 2013
and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2013, Using
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant
Unobservable
|
|
Total Fair
|
$ in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
Inputs (Level 3)
|
|
Value
|
Loans held-for-sale
|
|
$
|
—
|
|
|
$
|
7,678
|
|
|
$
|
—
|
|
|
$
|
7,678
|
|
Impaired loans with a specific reserve allocated
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,246
|
|
|
$
|
10,246
|
|
Other real estate owned
|
|
$
|
—
|
|
|
1,423
|
|
|
—
|
|
|
$
|
1,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2013, Using
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
|
|
Significant Other
Observable Inputs
|
|
Significant
Unobservable
|
|
Total Fair
|
$ in thousands
|
|
(Level 1)
|
|
(Level 2)
|
|
Inputs (Level 3)
|
|
Value
|
Loans held-for-sale
|
|
$
|
—
|
|
|
$
|
13,107
|
|
|
$
|
—
|
|
|
$
|
13,107
|
|
Impaired loans with a specific reserve allocated
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,397
|
|
|
$
|
13,397
|
|
Other real estate owned
|
|
$
|
—
|
|
|
$
|
2,386
|
|
|
$
|
—
|
|
|
$
|
2,386
|
|
Loans held-for-sale are carried at the lower of cost or market value. The valuation methodology for loans held-for-sale for the period ended
December 31, 2013
was based upon amounts offered, or other acceptable valuation methods and, in some instances, prior loan loss experience of Carver in connection with recent note sales.
The fair values of collateral dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data.
Other real estate owned represents property acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure). These assets are recorded at the lower of their cost or fair value.
NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures regarding the fair value of financial instruments are required to include, in addition to the carrying value, the fair value of certain financial instruments, both assets and liabilities recorded on and off-balance sheet, for which it is practicable to estimate fair value. Accounting guidance defines financial instruments as cash, evidence of ownership of an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. The fair value of a financial instrument is discussed below. In cases where quoted market prices are not available, estimated fair values have been determined by the Bank using the best available data and estimation methodology suitable for each such category of financial instruments. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate their recorded carrying value. The Bank's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact the Bank's fair value of all interest-earning assets and interest-bearing liabilities, other than those which are short-term in maturity.
The carrying amounts and estimated fair values of the Bank’s financial instruments and estimation methodologies at
December 31, 2013
and
March 31, 2013
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
$ in thousands
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
118,297
|
|
|
$
|
118,297
|
|
|
$
|
118,297
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
|
6,556
|
|
|
6,556
|
|
|
—
|
|
|
6,556
|
|
|
—
|
|
Securities available-for-sale
|
|
84,602
|
|
|
84,602
|
|
|
—
|
|
|
84,553
|
|
|
49
|
|
FHLB Stock
|
|
4,226
|
|
|
4,226
|
|
|
—
|
|
|
4,226
|
|
|
—
|
|
Securities held-to-maturity
|
|
12,089
|
|
|
12,092
|
|
|
—
|
|
|
12,092
|
|
|
—
|
|
Loans receivable
|
|
384,748
|
|
|
386,446
|
|
|
—
|
|
|
—
|
|
|
386,446
|
|
Loans held-for-sale
|
|
7,678
|
|
|
7,678
|
|
|
—
|
|
|
7,678
|
|
|
—
|
|
Accrued interest receivable
|
|
2,620
|
|
|
2,620
|
|
|
—
|
|
|
2,620
|
|
|
—
|
|
Mortgage servicing rights
|
|
281
|
|
|
281
|
|
|
—
|
|
|
—
|
|
|
281
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
483,983
|
|
|
$
|
469,712
|
|
|
$
|
278,377
|
|
|
$
|
191,335
|
|
|
$
|
—
|
|
Advances from FHLB of New York
|
|
77,000
|
|
|
78,460
|
|
|
—
|
|
|
78,460
|
|
|
—
|
|
Other borrowed money
|
|
18,403
|
|
|
18,912
|
|
|
—
|
|
|
18,912
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2013
|
$ in thousands
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
104,646
|
|
|
$
|
104,646
|
|
|
$
|
104,646
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
|
10,666
|
|
|
10,666
|
|
|
—
|
|
|
10,666
|
|
|
—
|
|
Securities available-for-sale
|
|
116,051
|
|
|
116,051
|
|
|
—
|
|
|
116,001
|
|
|
50
|
|
FHLB Stock
|
|
3,503
|
|
|
3,503
|
|
|
—
|
|
|
3,503
|
|
|
—
|
|
Securities held-to-maturity
|
|
9,043
|
|
|
9,629
|
|
|
—
|
|
|
9,629
|
|
|
—
|
|
Loans receivable
|
|
359,133
|
|
|
366,433
|
|
|
—
|
|
|
—
|
|
|
366,433
|
|
Loans held-for-sale
|
|
13,107
|
|
|
13,107
|
|
|
—
|
|
|
13,107
|
|
|
—
|
|
Accrued interest receivable
|
|
2,247
|
|
|
2,247
|
|
|
—
|
|
|
2,247
|
|
|
—
|
|
Mortgage servicing rights
|
|
275
|
|
|
275
|
|
|
—
|
|
|
—
|
|
|
275
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
495,716
|
|
|
$
|
488,323
|
|
|
$
|
287,625
|
|
|
$
|
200,698
|
|
|
$
|
—
|
|
Advances from FHLB of New York
|
|
58,000
|
|
|
58,697
|
|
|
—
|
|
|
58,697
|
|
|
—
|
|
Other borrowed money
|
|
18,403
|
|
|
18,900
|
|
|
—
|
|
|
18,900
|
|
|
—
|
|
Cash and cash equivalents
The carrying amounts for cash and cash equivalents approximate fair value and are classified as Level 1 because they mature in three months or less.
Restricted cash
The carrying amounts for restricted cash approximates fair value and are classified as Level 2 because they represent short-term interest-bearing deposits.
Securities
The fair values for securities available-for-sale, and securities held-to-maturity are based on quoted market or dealer prices, if available. If quoted market or dealer prices are not available, fair value is estimated using quoted market or dealer prices for similar securities. Available-for-sale securities are classified across Levels 2 and 3. Held-to-maturity securities are classified as Level 2.
FHLB Stock
Ownership in equity securities of the FHLB is restricted and there is no established market for resale. The carrying amount, which is at cost, approximates fair value and is classified as Level 2.
Loans receivable
The fair value of loans receivable is estimated by discounting future cash flows, using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities of such loans. The method used to estimate the fair value of loans is extremely sensitive to the assumptions and estimates used. While management has attempted to use assumptions and estimates that best reflect the Company's loan portfolio and current market conditions, a greater degree of objectivity is inherent in these values than in those determined in active markets. The loan valuations thus determined do not necessarily represent an “exit” price that would be achieved in an active market. Loans receivable are classified as Level 3.
Loans held-for-sale
Loans held-for-sale are carried at the lower of cost or market value and are classified as Level 2. The valuation methodology for loans held-for-sale are based upon amounts offered or other acceptable valuation methods and, in some instances, prior loan loss experience of Carver in connection with recent note sales.
Accrued interest receivable
The carrying amounts of accrued interest approximate fair value resulting in a Level 2 classification.
Mortgage servicing rights
The fair value of mortgage servicing rights is determined by discounting the present value of estimated future servicing cash flows using current market assumptions for prepayments, servicing costs and other factors and are classified as Level 3.
Deposits
The fair value of demand, savings and club accounts is equal to the amount payable on demand at the reporting date. These deposits are classified as Level 1. The fair value of certificates of deposit is estimated using rates currently offered for deposits of similar remaining maturities resulting in a Level 2 classification. The fair value estimates do not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market.
Advances from FHLB-NY and Other borrowed money
The fair values of advances from the Federal Home Loan Bank of New York and other borrowed money are estimated using the rates currently available to the Bank for debt with similar terms and remaining maturities and are classified as Level 2.
Commitments to Extend Credits, Commercial, and Standby Letters of Credit
The fair value of the commitments to extend credit was estimated to be immaterial as of
December 31, 2013
and
March 31, 2013
. The fair value of commitments to extend credit and standby letters of credit was evaluated using fees currently charged to enter into similar agreements, taking into account the risk characteristics of the borrower, and estimated to be insignificant as of the reporting date.
NOTE 10. VARIABLE INTEREST ENTITIES
The Company's subsidiary, Carver Statutory Trust I, is not consolidated with Carver Bancorp, Inc. for financial reporting purposes. Carver Statutory Trust I was formed in 2003 for the purpose of issuing
$13 million
aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and
$0.4 million
of common securities (which are the only voting securities of Carver Statutory Trust I), which are
100%
owned by Carver Bancorp Inc., and using the proceeds to acquire Junior Subordinated Debentures issued by Carver Bancorp, Inc. Carver Bancorp, Inc. has fully and unconditionally guaranteed the Capital Securities along with all obligations of Carver Statutory Trust I under the trust agreement relating to the Capital Securities.
The Bank's subsidiary, CCDC, was formed to facilitate its participation in local economic development and other community-based activities. Per the NMTC Award's Allocation Agreement between the CDFI Fund and CCDC, CCDC is permitted to form and sub-allocate credits to subsidiary Community Development Entities (“CDEs”) to facilitate investments in separate development projects.
The variable interest entities (“VIEs”) such as the CDE's and Carver Statutory Trust I are consolidated, as required, where Carver has controlling financial interest in these entities and is deemed to be the primary beneficiary. Carver is normally deemed to have a controlling financial interest and be the primary beneficiary if it has both of the following characteristics:
(a) the power to direct activities of a VIE that most significantly impact the entities economic performance; and
(b) the obligation to absorb losses of the entity that could benefit from the activities that could potentially be significant to the VIE.
The Bank's involvement with VIEs, consolidated and unconsolidated, in which the company holds significant variable interests or has continuing involvement through servicing a majority of assets in a VIE is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ in thousands
|
Involvement with SPE (000's)
|
Funded Exposure
|
Unfunded Exposure
|
Total
|
|
Recognized Gain (Loss) (000's)
|
Total Rights transferred
|
Consolidated assets
|
Significant unconsolidated VIE assets
|
Total Involvement with SPE asset
|
Debt Investments
|
Equity Investments
(1)
|
Funding Commitments
|
Maximum exposure to loss
|
|
Carver Statutory Trust 1
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
13,400
|
|
$
|
13,400
|
|
$
|
13,000
|
|
$
|
400
|
|
$
|
—
|
|
$
|
—
|
|
$
|
13,400
|
|
CDE 1-9, CDE 11-12
|
—
|
|
40,000
|
|
15,957
|
|
—
|
|
15,957
|
|
—
|
|
—
|
|
—
|
|
7,800
|
|
7,800
|
|
CDE 10
|
1,700
|
|
19,000
|
|
—
|
|
15,312
|
|
15,312
|
|
—
|
|
—
|
|
—
|
|
7,410
|
|
7,410
|
|
CDE 13
|
500
|
|
10,500
|
|
—
|
|
10,568
|
|
10,568
|
|
—
|
|
1
|
|
—
|
|
4,095
|
|
4,096
|
|
CDE 14
|
400
|
|
10,000
|
|
—
|
|
10,004
|
|
10,004
|
|
—
|
|
1
|
|
—
|
|
3,900
|
|
3,901
|
|
CDE 15, CDE 16, CDE 17
|
900
|
|
20,500
|
|
—
|
|
20,917
|
|
20,917
|
|
—
|
|
2
|
|
—
|
|
7,995
|
|
7,997
|
|
CDE 18
|
600
|
|
13,254
|
|
—
|
|
13,282
|
|
13,282
|
|
—
|
|
1
|
|
—
|
|
5,169
|
|
5,170
|
|
CDE 19
|
500
|
|
10,746
|
|
—
|
|
10,871
|
|
10,871
|
|
—
|
|
1
|
|
—
|
|
4,191
|
|
4,192
|
|
CDE 20
|
625
|
|
12,500
|
|
—
|
|
12,330
|
|
12,330
|
|
—
|
|
1
|
|
—
|
|
4,875
|
|
4,876
|
|
CDE 21
|
625
|
|
12,500
|
|
—
|
|
12,382
|
|
12,382
|
|
—
|
|
1
|
|
—
|
|
4,875
|
|
4,876
|
|
Total
|
$
|
5,850
|
|
$
|
149,000
|
|
$
|
15,957
|
|
$
|
119,066
|
|
$
|
135,023
|
|
$
|
13,000
|
|
$
|
408
|
|
$
|
—
|
|
$
|
50,310
|
|
$
|
63,718
|
|
(1)
Excludes any proceeds realized from exchange of equity interest in CDEs as detailed below.
|
The Bank was originally awarded
$59 million
of NMTC. In fiscal 2008, the Bank transferred
$19 million
of rights to an investor in a NMTC project. The entity was called CDE 10.
With respect to the remaining
$40 million
of the original NMTC award, the Bank has established various special purpose entities (CDEs 1-9,11-12) through which its investments in NMTC eligible activities are conducted. As the Bank is exposed to all of the expected losses and residual returns from these investments under ASC topic 810, the Bank has determined it has a controlling financial interest and is the primary beneficiary of these entities. During December 2010, Carver transferred its equity ownership in the CDEs and the associated rights to an investor in exchange for
$6.7 million
in cash.
As a result of Carver financing the purchase note, the CDEs continue to be consolidated and the investor's equity investment of
$6.7 million
was reflected as non-controlling interest in the Statement of Financial Condition. The sale of the equity interest in the CDEs provides the investor with rights to the new markets tax credits on a prospective basis. A portion of non-controlling interest is transferred to the controlling interest as the investor earns the tax credits. Under the current arrangement, the Bank has a contingent obligation to reimburse the investor for any loss or shortfall incurred as a result of the NMTC project not being in compliance with certain regulations that would void the investor's ability to otherwise utilize tax credits stemming from the award.
In May 2009, the Bank received a second NMTC award in the amount of
$65 million
. During the period from December 2009 to December 2010, the Bank transferred rights to investors in NMTC projects (entities CDEs 13-19). The Bank has a contingent obligation to reimburse the investors for any losses or shortfalls incurred as a result of the NMTC projects not being in compliance with certain regulations that would void the investors' ability to otherwise utilize tax credits stemming from the award.
In August 2011, the Bank received a third NMTC award in the amount of
$25 million
. In January 2012 and September 2012, the Bank transferred rights to investors in NMTC projects (CDEs 20 and 21). The Bank has a contingent obligation to reimburse the investors for any losses or shortfalls incurred as a result of the NMTC projects not being in compliance with certain regulations that would void the investors' ability to otherwise utilize tax credits stemming from the award.
The Bank has established various special purpose entities (CDEs 22-25) through which its investments in NMTC eligible activities will be conducted. As of
December 31, 2013
there have been no activities in these entities.
NOTE 11. IMPACT OF ACCOUNTING STANDARDS AND INTERPRETATIONS
In February 2013, the FASB issued ASU No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” (“ASU 2013-02”). ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in financial statements. The amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of ASU 2013-02 did not have any effect on the Company's consolidated statement of financial condition or results of operations. Information required by ASU 2013-02 is presented in note 5 to the financial statements.