Business
Largest U.S. Black-Owned Bank Reports Loss of $39.5 million for FY 2011
Carver Bancorp, Inc. the holding company for Carver Federal Savings Bank, the largest African- and Caribbean-American run bank in the United States, announced this week financial results for its fiscal year ended March 31, 2011 and fourth quarter of fiscal year ended March 31, 2011 (“fiscal 2011”).
The Company reported a net loss of $39.5 million, or loss per share of $16.15, for fiscal 2011 compared to a net loss of $1.0 million, or loss per share of $0.79, for fiscal 2010. The loss in fiscal 2011 is primarily due to $27.1 million in provisions for loan losses and an $18.9 million valuation allowance recorded against the Company’s deferred tax asset.
For the fourth quarter of fiscal 2011, the Company reported a net loss of $5.5 million compared to a net loss of $2.2 million for the fourth quarter of fiscal 2010 and a loss of $8.2 million for the third quarter of fiscal 2011. On a per share basis, the net loss per share for the quarter was $2.21 compared to a net loss per share of $0.97 for the fourth quarter of fiscal 2010 and a net loss per share of $3.30 for the third quarter of fiscal 2011.
“This has obviously been among the most challenging periods we’ve faced at Carver,” said Deborah C. Wright, Carver Bancorp, Inc.’s Chairman and CEO. “Our loss in fiscal 2011 reflects the impact of charge offs and provisions required to address troubled loans in our loan portfolio as well as the substantial reserve taken against our deferred tax asset. Our team has focused for the better part of the year on raising capital, restructuring our loan portfolio and putting strategies in place to increase revenues. I’m pleased that our capital goals have been achieved and exceeded, as noted in a press release yesterday. While we are disappointed in our financial results this year, and the impact that it has had on our stockholders, our success in raising Carver’s capital ratios well beyond regulatory requirements will provide strength and flexibility as we accelerate progress in resolving credit issues in the period ahead. On the deposit front, we take heart in the fact that core deposits grew over the course of the year, and we made progress on the credit front, as non-performing loans declined to $77.4 million from $90.1 million in the quarter ended December 31, 2010,” said Ms. Wright.
“We are also focusing on revenues with the launch of “Carver Community Cash”, our new product line to meet the daily transactional needs of residents of our community who do not have a bank relationship. In the communities Carver serves, as many as 25% of residents obtain their financial services at check cashers, rather than banks. With our product line and community credibility, we hope to provide a welcoming place for this customer base to bank with us, and allow us to introduce them to all the financial industry has to offer, including savings and other products that allow them to prepare for a brighter future. We believe this product line will be a core plank in expanding our relevance to consumers and the institutions they count on, many of whom are Carver’s customers as well.”
“We understand that to substantially boost revenue we need to get back to lending. As we do, later this year, our focus will be on increasing loans to non-profits and small businesses in our community. While we are cognizant of the fact that the economy continues to present significant risks and unemployment remains high in the communities in we serve, we embrace the significant work ahead and are upbeat about our future,” Ms. Wright concluded.
As announced on July 1, 2011, Carver raised $55 million of equity via a private placement of mandatorily convertible non-voting participating preferred stock with seven institutional investors, including: The Goldman Sachs Group, Inc,. Morgan Stanley, Citigroup Inc., The Prudential Insurance Company of America, American Express Company, First Republic Bank and National Community Investment Fund. Additionally the U.S. Department of the Treasury has agreed to exchange the $18.98 million of the Company’s Series B Preferred Stock that it acquired in connection with the Company’s participation in the Trouble Asset Relief Program’s Community Development Capital Initiative for common stock, subject to shareholder approval. For additional information regarding the capital raise please see the Form 8-K filed with the Securities and Exchange Commission on June 29, 2011.
Income Statement Highlights
Fourth Quarter Results
The Company reported a net loss for the quarter ended March 31, 2011 of $5.5 million compared to a net loss of $2.2 million for the prior year quarter. The net loss is primarily the result of $6.8 million in provision for loan losses which is $2.2 million more than the provision set aside in the prior year quarter.
Net Interest Income
Interest income decreased $1.2 million in the fourth quarter, compared to the prior year quarter, as the average balance of interest earning assets decreased $67.5 million, primarily due to a $78.0 million decrease in the average balance of loans, offset by a $10.5 million net increase in the average balance of mortgage-backed securities, investment securities and other investments. The decline in average loans was the result of management’s efforts to reduce the Company’s concentration of real estate assets in its loan portfolio. The reduction in real estate assets will continue over the next several quarters until the Company’s level of real estate assets are within regulatory guidelines. The current low interest rate environment combined with elevated levels of non-performing assets and a reduction in interest earning assets continues to constrain net interest income.
Interest expense decreased by $0.5 million, or 18.5%, to $2.1 million for the fourth quarter, compared to $2.6 million for the prior year quarter. The decrease was primarily due to a decline in deposit interest expense of $0.3 million. The decrease in interest expense reflects a 10 basis point decrease in the average cost of interest-bearing liabilities to 1.41% for the fourth quarter, compared to an average cost of 1.49% for the prior year period. The decrease in the average cost of interest bearing liabilities was primarily due to the continued downward re-pricing of certificates of deposits.
Provision for Loan Losses
The Company recorded a $6.8 million provision for loan losses for the fourth quarter compared to $4.6 million for the prior year quarter. For the three months ended March 31, 2011, net charge-offs were $5.0 million compared to net charge-offs of $1.5 million for the prior year period. The increase in provision reflects the Company’s continued high levels of delinquencies and non-performing loans, the overall inherent risk in the portfolio and the uncertainty caused by the uneven economic recovery in local real estate markets and the New York City economy.
Non-interest Income
Non-interest income decreased $0.1 million, or 8.8%, to $1.5 million for the fourth quarter, compared to $1.6 million for the prior year quarter primarily due to lower fees on New Market Tax Credit (NMTC) transactions in the current period.
Non-interest Expense
Non-interest expense increased $0.4 million, or 4.96%, to $8.0 million compared to $7.6 million for the prior year quarter primarily due to higher FDIC insurance premiums.
Income Taxes
The income tax benefit was $1.3 million for the fourth quarter compared to $1.1 million benefit for the prior year period. The benefit for the three month period ending March 31, 2011 is primarily related to loan write-offs taken in the quarter.
Fiscal Year 2011 Results
The Company reported a net loss for fiscal 2011 of $39.5 million, compared to a net loss of $1.0 million for the prior fiscal year. The decrease is primarily due to $27.1 million in higher provisions for loan losses and an $18.9 million valuation allowance recorded against the Company’s deferred tax asset.
Net Interest Income
Net interest income decreased $2.7 million to $26.8 million compared to $29.5 million for the prior year period. This change is due to a decline of $4.2 million in interest income offset by a decline of $1.6 million in interest expense.
Interest income on loans was the primary driver of the decline in interest income, decreasing $3.5 million or 9.5% from the prior year period. The change reflects a year over year decline of $51.9 million in the average balance as well as a reduction in the average yield on loans of 11 basis points to 5.38%, compared to the prior year period of 5.49%. Also contributing to the decline in interest income was the yield on the mortgage backed securities portfolio. The average yield decreased 109 basis points to 2.97% compared to the prior year period of 4.07%, primarily reflecting the current low interest rate environment.
Interest expense decreased $1.6 million or 14.1% from the prior year period. The decline is primarily the result of lower interest expense on deposits of $1.4 million. This decline reflects a 16 basis point decrease in the average cost of interest bearing liabilities to 1.47% from 1.63% for the prior year period. The decrease in the average cost of interest bearing liabilities was primarily due to decreases in rates on money market balances and the downward re-pricing of certificates of deposits.
Provision for Loan Losses
For the twelve month period ending March 31, 2011 the Company recorded a $27.1 million provision for loan losses compared to $7.8 million for the prior year period. Net charge-offs totaled $16 million for the twelve months ended March 31, 2011 compared to net charge-offs of $2.9 million for the prior year period. The Company determined that an increase in provision was warranted given its current level of delinquencies and realized charge offs, coupled with continued uncertainty in the real estate market.
Non-Interest Income
Non- interest income increased $2.2 million during the twelve month period ending March 31, 2011 to $7.3 million compared to $5.1 million in the prior year period. The higher income is primarily due to a reduction of $1.9 million in the amount required to reflect loans held for sale at the lower of cost or fair value and $1.0 million in higher fees on NMTC transactions partially offset by higher losses on disposals of real estate owned.
Non-interest Expense
Non-interest expense increased $0.2 million during the twelve month period ending March 31, 2011 to $30.8 million compared to $30.6 million in the prior year period. The increase is related to higher consulting and legal expenses related to sale of the Company’s equity interests in certain NMTC investments and costs related to managing the Company’s non-performing loans partially offset by lower employee compensation and benefit costs and lower net occupancy and equipment charges.
Income Taxes
The income tax expense recorded for the fiscal period ended March 31, 2011 consists of a tax expense of $15.7 million primarily due to a valuation allowance of $18.9 million recorded against the net deferred tax asset (DTA) during the fiscal year. This valuation allowance does not preclude the Company from utilizing the accumulated deferred tax asset to offset taxes on future earnings.
Financial Condition Highlights
At March 31, 2011, total assets decreased $96.3 million, or 12.0% , to $709.2 million compared to $805.5 million at March 31, 2010. Cash and cash equivalents increased $5.7 million, investment securities increased $15.9 million, loans held for sale increased by $9.2 million and other assets increased $0.5 million. These increases were partially offset by total loans receivable which decreased $89.7 million, loan loss provision increasing $11.1 million, surrender of the Bank owned life insurance (BOLI) of $9.8 million and the deferred tax asset decreased $14.3 million.
Cash and cash equivalents increased $5.7 million, or 15.0%, to $44.1 million at March 31, 2011, compared to $38.3 million at March 31, 2010. This increase was driven by a $6.5 million increase in money market investments, partially offset by a $0.8 million decrease in cash and due from banks. Total securities increased $15.9 million, or 28.6%, to $71.2 million at March 31, 2011, compared to $55.4 million at March 31, 2010, reflecting an increase of $10.5 million in available-for-sale securities and a $5.4 million increase in held-to-maturity securities as the Company invested the cash inflows from loan activities.
Total loans receivable decreased $89.5 million, or 13.4%, to $580.3 million at March 31, 2011, compared to $670.0 million at March 31, 2010. Principal repayments across all loan classifications contributed to the majority of the decrease, with the largest impact from Commercial Real Estate, Construction and Business loans. Additionally $9.4 million of loans were transferred from held for investment to held for sale as the Company works down its problem loans.
The Company’s deferred tax asset at March 31, 2010 was $14.3 million. The components of the deferred tax asset are primarily related to the allowance for loan losses and new market tax credits recorded in prior periods. The deferred tax asset before valuation allowance increased $4.6 million during the fiscal year due primarily to loan write downs and additional provision for loan losses. Realization of the deferred tax asset is dependent upon the existence of, or generation of, sufficient taxable income to utilize the deferred tax asset. In assessing the need for a valuation allowance, management considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is “more likely than not” the deferred tax assets will not be realized, management records a valuation allowance. Based on the expected future taxable income of the Company and considering the uncertainties in the current market conditions, management concluded that it is more likely than not that the Company will not be able to fully realize the benefit of its deferred tax assets and thus a $18.9 million valuation allowance was recorded during the fiscal year ended March 31, 2011. This valuation allowance does not preclude the Company from utilizing the accumulated deferred tax asset to offset taxes on future earnings.
The Company divested its interest in several NMTC tax investments during the fiscal year. The divestiture resulted in an increase in stockholders’ equity of $6.7 million which is classified in stockholders’ equity as a non-controlling interest. The investments, if the Company had not sold them, would have generated $7.8 million in tax credits through the period ending March 31, 2014. The Company’s ability to utilize any deferred tax asset generated by these investments would have been dependent on its ability to generate sufficient taxable income from operations or from potential tax strategies to generate taxable income in the future, prior to expiration of the tax credits.
Total liabilities decreased $62.3 million, or 8.4%, to $681.5 million at March 31, 2011, compared to $743.8 million at March 31, 2010.
Deposits decreased $42.6 million, or 7.1%, to $560.7 million at March 31, 2011, compared to $603.2 million at March 31, 2010. Certificates of deposit and NOW balances have declined due to reductions in institutional deposits. These declines have been partially offset by increased core customer relationship account balances during the fiscal year.
Advances from the FHLB-NY and other borrowed money decreased $18.9 million, or 14.4%, to $112.6 million at March 31, 2011, compared to $131.6 million at March 31, 2010, as two fixed-rate borrowings matured during the fiscal year.
Total stockholders’ equity decreased $34.0 million, or 55.1%, to $27.7 million at March 31, 2011, compared to $61.7 million at March 31, 2010. Key components of this change include a $39.5 million loss recorded for the fiscal year ended March 31, 2011, partially offset by a $6.7 million increase from the transaction to sell certain of the Company’s NMTC investments. Of this $6.7 million increase, $4.0 million was reflected as a non-controlling interest and $2.7 million was an increase in Additional Paid-in Capital.
Asset Quality
At March 31, 2011, non-performing assets totaled $78.0 million, or 11.0% of total assets compared to $47.6 million or 5.9% of total assets at March 31, 2010. Non-performing assets at March 31, 2011 were comprised of $48.8 million of loans 90 days or more past due and non-accruing, $23.8 million of loans classified as a troubled debt restructuring and either not consistently performing in accordance with modified terms or not performing in accordance with modified terms for at least six months and $4.9 million of loans that are either performing or less than 90 days past due and have been deemed to be impaired and $0.6 million of Real Estate Owned (REO). Of the $4.9 million of impaired loans included in non-performing assets, approximately $0.9 million, while having experienced some payment difficulties in the past, are presently current with regard to their payments. These loans are considered impaired however due to other risk characteristics and therefore on non-accrual status, due primarily to declines in collateral values. The Company continues to proactively work with borrowers to address delinquent loans and their impact.
The allowance for loan losses was $23.1 million at March 31, 2011, which represents a ratio of the allowance for loan losses to non-performing loans of 29.9% compared to 25.2% at March 31, 2010. The ratio of the allowance for loan losses to total loans was 4.0% at March 31, 2011 up from 1.8% at March 31, 2010.
Source: Emerging Minds