Carver Bancorp(CARV) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Carver Bancorp, Inc.'s unaudited consolidated financial statements and detailed notes for the periods ended September 30, 2019 Consolidated Statements of Financial Condition Total assets increased to $587.0 million, driven by new right-of-use assets, while total equity rose to $51.3 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Mar 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $586,992 | $563,713 | +4.1% | | Total cash and cash equivalents | $38,229 | $31,228 | +22.4% | | Total loans receivable, net | $428,659 | $424,182 | +1.1% | | Right-of-use assets | $18,783 | $0 | N/A | | Total Liabilities | $535,683 | $516,577 | +3.7% | | Total deposits | $473,121 | $480,196 | -1.5% | | Operating lease liability | $19,254 | $0 | N/A | | Total Equity | $51,309 | $47,136 | +8.8% | Consolidated Statements of Operations The company reported a reduced net loss of $1.05 million for the quarter and $2.19 million for the six-month period, primarily due to lower non-interest expenses Quarterly Performance (Three Months Ended Sep 30, in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Interest Income | $3,844 | $4,316 | | Total Non-interest Income | $1,198 | $1,079 | | Total Non-interest Expense | $6,085 | $7,297 | | Net Loss | ($1,050) | ($2,017) | | Basic & Diluted EPS | ($0.28) | ($0.55) | Six-Month Performance (Six Months Ended Sep 30, in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Interest Income | $8,016 | $8,814 | | Total Non-interest Income | $2,158 | $2,383 | | Total Non-interest Expense | $12,355 | $14,124 | | Net Loss | ($2,189) | ($3,047) | | Basic & Diluted EPS | ($0.59) | ($0.82) | Consolidated Statements of Cash Flows Cash and cash equivalents increased by $7.0 million for the six months ended September 30, 2019, driven by financing and operating activities Cash Flow Summary (Six Months Ended Sep 30, in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1,555 | ($2,615) | | Net cash provided by investing activities | $372 | $4,092 | | Net cash provided by (used in) financing activities | $5,074 | ($75,506) | | Net increase (decrease) in cash | $7,001 | ($74,029) | - The company recognized a non-cash right-of-use asset of $19.95 million and an operating lease liability of $20.34 million upon adopting a new lease accounting standard[23] Notes to Consolidated Financial Statements These notes detail the company's organization, regulatory constraints, accounting policies, financial instruments, and the impact of new accounting standards - The Bank is subject to a Formal Agreement with the OCC, restricting dividend payments and requiring approval for changes in key personnel[32][33] - The company adopted ASU 2016-02 (Leases) on April 1, 2019, recognizing a $20 million right-of-use asset and a corresponding lease liability, with a $5.3 million cumulative effect adjustment to retained earnings[121] - The effective date for implementing the new CECL model has been deferred for the company to fiscal years beginning after December 31, 2023[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, balance sheet changes, asset quality, and capital adequacy, highlighting a reduced net loss and compliance with regulatory capital requirements - The company reported a net loss of $1.1 million for Q2 2019, an improvement from a $2.0 million loss in Q2 2018, primarily due to decreased non-interest expense[213] - Total assets increased by $23.3 million (4.1%) since March 31, 2019, primarily due to the adoption of ASU 2016-02, adding a $20 million Right-of-Use asset[199] - Non-interest expense decreased by $1.2 million (16.4%) for the quarter, driven by strategic reductions in force, lower FDIC premiums, and improved operating efficiencies[250] Liquidity and Capital Resources The company maintains strong liquidity and exceeds all regulatory capital requirements, including higher IMCRs, with a Tier 1 leverage ratio of 11.45% and total risk-based capital of 16.90% Bank Capital Ratios vs. Requirements (Sep 30, 2019) | Capital Ratio | Actual Ratio | Individual Minimum Requirement | | :--- | :--- | :--- | | Tier 1 Leverage Capital | 11.45% | 9.00% | | Common Equity Tier 1 | 15.75% | 7.00% | | Tier 1 Risk-Based Capital | 15.75% | 8.50% | | Total Risk-Based Capital | 16.90% | 12.00% | - The Bank is eligible to opt into the 'Community Bank Leverage Ratio' framework starting March 31, 2020, potentially simplifying capital requirements[185] - The company maintains a representation and warranty reserve of $234 thousand for potential losses on mortgage loans sold to FNMA[196] Comparison of Financial Condition Total assets grew by 4.1% to $587.0 million due to new lease accounting, while total equity rose 8.9% to $51.3 million, despite a 1.5% decrease in deposits - Total assets increased by $23.3 million (4.1%) to $587.0 million, primarily due to ASU 2016-02 adoption, which added a $20 million ROU asset[199] - Deposits decreased by $7.1 million (1.5%) due to a strategic decision not to retain certain higher-cost certificate of deposit accounts[204] - Total equity increased by $4.2 million (8.9%), mainly due to a $5.3 million cumulative effect adjustment from recognizing a deferred gain on a sale/leaseback under ASU 2016-02[207][206] Comparison of Operating Results The company's net loss narrowed for both the three and six-month periods, driven by significant reductions in non-interest expenses despite a decline in net interest income Selected Operating Ratios | Ratio | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Return on average assets | (0.73)% | (1.28)% | | Net interest margin | 2.81% | 2.78% | | Efficiency ratio | 120.69% | 135.25% | - Net interest income decreased by 11.6% for the quarter and 9.1% for the six-month period year-over-year, primarily due to a decline in average loan balances[225] - Non-performing assets decreased to $7.8 million (1.3% of total assets) at Sep 30, 2019, from $10.7 million (1.9% of total assets) at March 31, 2019[244] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - The company is a smaller reporting company and is therefore not required to provide this disclosure[251] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[253] - No material changes occurred in the company's internal control over financial reporting during the fiscal quarter[254] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, which management believes will not materially affect its financial condition or operations - As of September 30, 2019, management does not expect any pending legal proceedings to have a material adverse effect on the company's financial condition or operations[256] Item 1A. Risk Factors No material changes to the previously disclosed risk factors were reported for the quarter ended September 30, 2019 - No material changes in risk factors were reported for the company's second quarter ended September 30, 2019[257] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell any unregistered securities or repurchase any of its own securities during the quarter ended September 30, 2019 - No unregistered securities were sold by the company during the quarter ended September 30, 2019[258] - The company did not repurchase any of its securities during the quarter ended September 30, 2019[260] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the reporting period - No defaults upon senior securities occurred during the reporting period[261]