CARVER BANCORP INC (CARV)·Q2 2017 Earnings Summary

Executive Summary

• CARVER BANCORP reported a Q2 FY2017 net loss of $0.252M ($0.07/share) vs. a loss of $0.156M ($0.04/share) in Q2 FY2016 and vs. Q1 FY2017 net income of $0.408M ($0.04/share); net interest margin compressed to 2.89% and the efficiency ratio deteriorated to 106.7% on higher legal/audit and compliance staffing costs .
• Asset quality improved: non-performing assets fell to 1.55% of assets (from 2.36% in Q1), non-performing loans declined to $8.6M, and the bank sold $4.6M of held-for-sale loans at par during the quarter; management also reduced non-owner occupied CRE concentration from 494% (3/31/16) to 449% (9/30/16) .
• Interest expense rose partly due to a discrete $0.183M charge to bring deferred debenture dividends current, while net interest income declined on lower loan yields; non-interest expense increased on legal/audit and regulatory compliance investments tied to prior restatement and going concern matters (since eliminated) .
• No formal guidance or earnings call transcript was available in filings; near-term stock narrative likely centers on ongoing compliance execution, CRE de-risking, and sustaining deposit momentum from community initiatives (e.g., IDNYC outreach) .

What Went Well and What Went Wrong

• What Went Well

  • Asset quality strengthened: NPAs fell to $10.9M (1.55% of assets) and NPLs declined to $8.6M; the bank sold $4.6M of HFS loans at par in Q2, improving credit metrics .
  • Strategic de-risking: management reduced non-owner occupied CRE concentration to 449% (from 494% at 3/31/16) as part of a portfolio diversification plan and transferred $15.0M to HFS for sale to further lower CRE exposure .
  • Community engagement supported franchise health: IDNYC initiatives helped open ~100 accounts; earlier, Carver saw ~1,200 new accounts and ~$4.0M in July 2016 deposits, highlighting brand momentum in core communities .

• What Went Wrong

  • Margin and earnings pressure: Net interest margin fell to 2.89% (vs. 3.17% in Q1 and 3.37% YoY), while efficiency ratio worsened to 106.69%, driving a net loss in Q2 .
  • Elevated operating costs: Non-interest expense rose to $6.57M (+6.0% YoY) driven by legal/audit tied to the FY2015 restatement and upgraded compliance infrastructure; data processing and other line items also increased .
  • Higher interest expense: Q2 included $0.183M of additional interest to settle 19 quarters of deferred debenture dividends; deposit mix (more CDs) also lifted funding costs .

Financial Results

KPIs and Balance Sheet/Capital

Notes: “Total Net Revenue” shown for comparability equals net interest income + total non-interest income (bank convention).

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Strengthening our asset quality by reducing non-performing loans and other assets is a key element of our plan… non-performing loans to total loans declined to 1.62%… non-performing assets to total assets declined to 1.55%” — Michael T. Pugh, President & CEO .
• “We have sought to diversify our loan portfolio and to reduce our concentrations in commercial real estate… non-owner occupied CRE loan concentration declined from 494% at March 31, 2016 to 449% at September 30, 2016” .
• “We are pleased to report that approximately 100 bank accounts have been opened at Carver branches using IDNYC” .
• Prior quarter context: “We are pleased with the first quarter… results were driven by… grow[ing] interest income through loans, while… mindful of asset quality” .
• Prior quarter community momentum: “For the month of July 2016, Carver opened approximately 1,200 new accounts and took in approximately $4.0 million in new deposits” .

Q&A Highlights

• Not included; the Q2 FY2017 filing set contains the earnings press release but does not include an earnings call transcript .

Estimates Context

• We were unable to retrieve S&P Global consensus estimates for CARV’s Q2 FY2017 EPS and revenue; as such, no beat/miss analysis versus Wall Street is included.
• Given micro-cap coverage and bank-specific reporting (NII/non-interest income vs. “revenue”), sell-side coverage may be limited, and estimate revisions will likely focus on margin trajectory, credit costs, and compliance-related expense run-rate .

Key Takeaways for Investors

• Asset quality inflected positively (NPA and NPL down; HFS sales at par), which should lower loss content and support capital over time if sustained .
• Earnings pressure near term stems from lower loan yields, NIM compression (2.89%), and elevated compliance/legal costs (efficiency ratio 106.7%); watch for normalization of one-time trust debenture interest and progress on cost control .
• Strategic CRE de-risking (449% N-O-O CRE concentration vs. 494% at FY start) reduces concentration risk but weighs on loan balances near term; monitor loan growth resumption post-optimization .
• Capital remains adequate (CET1 13.38%; Total RBC 14.73%); improved asset quality and lower NPAs enhance flexibility, though deposit mix and funding costs bear watching .
• Community initiatives (IDNYC, prior account/deposit inflows) reinforce franchise relevance and could support low-cost deposit growth, aiding NIM stabilization longer term .
• With limited or no published guidance, focus on sequential NIM, efficiency, and credit metrics as the key drivers for estimate recalibration and potential stock catalysts .

Citations:

• Q2 FY2017 earnings press release and financial tables
• Q1 FY2017 earnings press release and financial tables
• OCC Formal Agreement summary (regulatory backdrop)