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CB

CARVER BANCORP INC (CARV)·Q3 2016 Earnings Summary

Executive Summary

  • Profitability improved: Net income rose to $0.44M and EPS to $0.12, up from $0.11M and $0.03 YoY; the efficiency ratio improved to 85.64% from 119.95% YoY, aided by stronger net interest income and a one‑time $1.203M branch sale‑leaseback gain in non‑interest income .
  • Balance sheet strength and funding: Loans grew $39M QoQ (+7%), core deposits rose 5% to $361M, and Tier 1 leverage was 10.15%; deposit costs held steady at 0.63% .
  • Margin and credit: Net interest margin was 3.25% (up YoY but down QoQ from 3.37%); provision increased to $0.73M vs a $(1.15)M recovery YoY as portfolio expanded; NPL ratio ticked up QoQ to 1.69% (from 1.15%) driven by a single CRE loan’s tenancy approval delay .
  • Corporate updates: CFO transition announced Jan 12, 2016; successor appointed Mar 3, 2016—potential execution focus area into FY2016 .
  • Estimates: Wall Street consensus via S&P Global was unavailable for Q3 FY2016; no estimate comparisons this quarter due to data limitations (likely limited coverage).

What Went Well and What Went Wrong

What Went Well

  • Loan growth and funding: “Loan portfolio increasing by $39 million, or 7% over the prior quarter… core deposits increased 5% to $361 million,” providing low‑cost funding and supporting NII growth; Tier 1 leverage 10.15% .
  • Non‑interest income uplift and efficiency: Non‑interest income nearly doubled YoY to $2.74M, driven by a $1.203M gain on a branch sale‑leaseback and gains on loans/REO; efficiency ratio improved to 85.64% from 119.95% YoY .
  • Net interest income strength: NII rose 37.3% YoY to $5.84M on 40.9% higher average loan balances; deposit costs remained flat at 0.63% .

What Went Wrong

  • Credit costs normalized higher: Provision increased to $0.73M vs a $(1.15)M recovery YoY as the larger portfolio required higher reserves; net charge‑offs were $0.10M vs net recoveries YoY .
  • QoQ margin compression: NIM eased to 3.25% from 3.37% in Q2 (though up from 2.82% YoY), a modest headwind to core earnings momentum .
  • Expense optics: Non‑interest expense rose 8.2% YoY to $7.35M, including accelerated costs tied to a branch closure as part of site rationalization .

Financial Results

MetricQ3 FY2015 (Dec 2014)Q1 FY2016 (Jun 2015)Q2 FY2016 (Sep 2015)Q3 FY2016 (Dec 2015)
Net Interest Income ($M)$4.25 $5.15 $5.64 $5.84
Non-Interest Income ($M)$1.41 $1.19 $1.13 $2.74
Provision for (Recovery of) Loan Losses ($M)$(1.15) $0.12 $0.64 $0.73
Non-Interest Expense ($M)$6.79 $6.04 $6.21 $7.35
Pre-Tax Income ($M)$0.02 $0.19 $(0.09) $0.50
Net Income ($M)$0.11 $0.18 $(0.17) $0.44
Diluted EPS ($)$0.03 $0.05 ($0.04) $0.12
Net Interest Margin (%)2.82% 3.14% 3.37% 3.25%
Efficiency Ratio (%)119.95% 95.14% 91.77% 85.64%
ROA (%)0.07% 0.10% (0.09%) 0.23%
ROE (%)0.82% 1.30% (1.21%) 3.18%

Notes and drivers:

  • Q3 non‑interest income benefited from a $1.203M gain on a branch sale‑leaseback and additional gains on loans/REO; normalize run‑rate accordingly .
  • QoQ NIM moderation (3.25% vs 3.37%) follows strong loan growth and mix shifts; deposit costs remained flat at 0.63% .

Segment breakdown: Not disclosed.

KPIs and Balance Sheet

KPIQ1 FY2016 (Jun 2015)Q2 FY2016 (Sep 2015)Q3 FY2016 (Dec 2015)
Total Assets ($M)$670.77 $736.74 $754.13
Total Loans Receivable, Net ($M)$487.78 $558.20 $596.40
Deposits ($M)$546.58 $586.29 $597.61
Core Deposits ($M)$330 $344 $361
NPLs / Total Loans (%)1.74% 1.15% 1.69%
NPAs / Total Assets (%)2.22% 1.74% 1.79%
Allowance / Total Loans (%)0.83% 0.81% 0.86%
Tier 1 Leverage Ratio (%)10.41% 10.35% 10.15%
CET1 Capital Ratio (%)14.78% 13.42% 12.72%
Total Risk-Based Capital Ratio (%)16.34% 14.92% 14.06%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quantitative guidance (revenue, margins, opex, tax)FY2016Not providedNot providedMaintained (no formal guidance)
DividendsOngoingNot specifiedBoard resolution requires prior written approval from the FRB Philadelphia before declaring/paying dividends; also approval required for debt increases and stock redemptions Restriction formalized (Oct 23, 2015)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Loan growthQ1: Emphasis on growth; loans up $98M since Jun 2014; Q2: +$71M QoQ (+14%) +$39M QoQ (+7%) on originations/purchases Strong, moderating QoQ
Core deposits$330M (Q1); +4% to $344M (Q2) +5% to $361M; low-cost funding Improving
Net interest margin3.14% (Q1) 3.37% (Q2) 3.25% (Q3), up YoY but down QoQ
Asset qualityNPAs: 2.22% (Q1) → 1.74% (Q2) NPAs 1.79%; NPLs up to 1.69% on single CRE loan delay Improved then slight uptick
Non-interest incomeQ1 flat; Q2 down YoY Boosted by $1.203M branch sale; gains on loans/REO Elevated (nonrecurring)
Expenses/EfficiencyEfficiency 95.14% (Q1) → 91.77% (Q2) 85.64%; some branch closure acceleration Improving
Regulatory/governanceBoard requires FRB approval for dividends/debt/redemptions (Oct 2015) Unchanged Ongoing
Management—CFO resignation (Jan 12) and new CFO appointed (Mar 3) Transition

No earnings call transcript was available in our document set for Q3 FY2016; therefore, no call-specific Q&A themes could be assessed.

Management Commentary

  • “During the quarter our lending results continued to show positive momentum, with our loan portfolio increasing by $39 million, or 7% over the prior quarter… our core deposits increased 5% to $361 million… At the close of the quarter, our capital ratios remained strong with a Tier 1 capital ratio of 10.15%.” — Michael T. Pugh, President & CEO .
  • Community focus: Plans to “formally rollout a new loan program for borrowers who need access to capital of up to $15,000,” and continued engagement with MWBEs as a growth engine in Carver’s communities .
  • Strategy and tone: “We are pleased with the direction of our banking franchise and the operational improvements that are underway… well-positioned for continued improvement and positive growth.” .

Q&A Highlights

  • No earnings call transcript was found for Q3 FY2016; no Q&A highlights available.

Estimates Context

  • Wall Street consensus (S&P Global) for Q3 FY2016 EPS and revenue was unavailable via our data connection (likely limited analyst coverage for this micro-cap community bank); as a result, no formal beat/miss assessment versus estimates is provided this quarter.
  • Implication: Given the $1.203M nonrecurring gain boosting non‑interest income, investors should normalize forward run‑rate earnings when updating models .

Key Takeaways for Investors

  • Core momentum with caveats: Strong loan growth and flat deposit costs drove NII up 37% YoY, but NIM dipped QoQ (3.25% vs 3.37%); monitor margin trajectory as growth scales .
  • One-time uplift: Non‑interest income benefited from a $1.203M branch sale‑leaseback; adjust valuation/multiples for nonrecurring items .
  • Credit normalizing: Provision rose to $0.73M with portfolio growth, and NPLs ticked up to 1.69% due to a single CRE issue—watch for resolution and any spillover into charge‑offs .
  • Efficiency improving: Expense discipline and revenue mix aided efficiency ratio improvement to 85.64% from 119.95% YoY; branch rationalization creates both gains and near‑term expense acceleration .
  • Funding strength: Core deposits grew 5% QoQ to $361M, supporting continued loan growth without pressuring funding costs (deposit cost 0.63%) .
  • Capital remains solid: Tier 1 leverage 10.15%; CET1 12.72%; Total risk‑based 14.06%—adequate to support balance sheet growth .
  • Governance/returns: Dividend capacity subject to FRB approval per Board resolution; investors should not expect near‑term capital returns without regulatory clearance .

Supporting Detail and Additional Context:

  • Q3 highlights included gains on sales of loans and real estate owned, alongside the branch sale‑leaseback; non‑interest expense reflected accelerated costs from a branch closing .
  • Asset quality context: NPAs fell meaningfully vs FY2015 year‑end but rose slightly QoQ; allowance coverage to NPLs was ~51% at Dec 31, 2015 .