Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. CARVER BANCORP INC (1016178) 10-Q published on Nov 13, 2019 at 4:02 pm
Reporting Period: Sep 29, 2019
In certain circumstances, the Bank will modify a loan as part of a TDR under GAAP. Situations around these modifications 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. Loans modified in TDRs are placed on nonaccrual 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 were no loan modifications made during the three and six month periods ended September 30, 2019. There was one loan modification made during the three and six month periods ended September 30, 2018. The modification set a schedule of principal repayments with an interest rate concession and maturity date extension. The following table presents an analysis of the loan modification that was classified as a TDR during the three and six month periods ended September 30, 2018.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Loss," which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019 (for the Company, the fiscal year ending March 31, 2021), including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," to provide transition relief by providing entities with an option to irrevocably elect the fair value option for certain financial assets measured at amortized cost upon adoption of ASU 2016-13. The fair value election option is applied on an instrument-by-instrument basis and does not apply to held-to-maturity debt securities. In August 2019, the FASB issued a proposal which would extend the CECL implementation date for smaller reporting companies, as defined by the SEC. In October 2019, the FASB approved this proposal, changing the effective date for smaller reporting companies to fiscal years beginning after December 31, 2023 (for the Company, the fiscal year ending March 31, 2024). The Company is currently in the implementation stage of ASU 2016-13 and has engaged two vendors to assist management in evaluating the requirements of the new standard, modeling requirements and assessment of the potential impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations.
On June 29, 2011, the Company raised $55 million of capital, which resulted in a $51.4 million increase in equity after considering the effect of various expenses associated with the capital raise. The capital raise triggered a change in control under Section 382 of the Internal Revenue Code. Generally, Section 382 limits the utilization of an entity's net operating loss carryforwards, general business credits, and recognized built-in losses, upon a change in ownership. The Company is currently subject to an annual limitation of approximately $900 thousand. A valuation allowance for the net deferred tax asset of $21.8 million has been recorded as of September 30, 2019. The valuation allowance was initially recorded during fiscal year 2011, and has remained through September 30, 2019, as management concluded and continues to conclude that it is "more likely than not" that the Company will not be able to fully realize the benefit of its deferred tax assets. However, tax legislation passed during the Company's fiscal year 2018 now permits a corporation to receive refunds for AMT credits even if there is no taxable income As a result, at March 31, 2018, the valuation allowance was reduced by $340 thousand, the amount of the Company's AMT credits. The amount of the AMT credits was $127 thousand at September 30, 2019, and $170 thousand at March 31, 2019.
In accordance with the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, will be eligible to opt into a “Community Bank Leverage Ratio” framework. The framework will first be available for use in the Bank’s March 31, 2020 Call Report. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the “well capitalized” ratio requirements under the Prompt Corrective Action statutes. The agencies reserved the authority to disallow the use of the Community Bank Leverage Ratio by a financial institution or holding company based on the risk profile of the organization.
Non-interest expense decreased $1.2 million, or 16.4%, to $6.1 million for the three months ended September 30, 2019, compared to $7.3 million for the prior year quarter. For the six months ended September 30, 2019, non-interest expense decreased $1.7 million, or 12.1%, to $12.4 million, compared to $14.1 million for the prior year period. The Company's employee compensation and benefits expense decreased $302 thousand and $752 thousand for the three and six months ended September 30, 2019, compared to the prior year periods due to a strategic reduction in force. In addition, FDIC premiums were significantly lower in the current fiscal year ($335 thousand and $497 thousand, respectively, for the three and six month periods) as a result of the Bank's commitment to improve its regulatory position. The Bank was also eligible for the FDIC small bank assessment credit that was applied beginning in the current quarter. Operating efficiencies and improvement in the control environment and in the regulatory infrastructure created additional year-over-year savings in the Bank's regulatory assessment, audit expense, legal fees, insurance and various others. In addition, outsourced service fees declined in both comparative periods as Company personnel became knowledgeable in and assumed responsibility for various processes formerly performed by external vendors.