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Carver Bancorp (CARV)

Filed: 14 Jul 22, 4:46pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 001-13007
CARVER BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware13-3904174
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
75 West 125th StreetNew YorkNew York10027
(Address of Principal Executive Offices)(Zip Code)
Registrant's telephone number, including area code: (718) 230-2900
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareCARVNASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   o Yes   x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   o Yes   x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes   o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated FilerNon-accelerated FilerSmaller Reporting CompanyEmerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

As of July 13, 2022 there were 4,240,037 shares of common stock of the Registrant outstanding.  The aggregate market value of the Registrant's common stock held by non-affiliates, as of September 30, 2021 (based on the closing sales price of $17.80 per share of the registrant's common stock on September 30, 2021) was approximately $62,278,391.

DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Proxy Statement for the 2022 Annual Meeting of Stockholders. (Part III)




CARVER BANCORP, INC.
2022 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS





FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” “predict,” “continue,” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to, estimates with respect to Carver Bancorp, Inc.'s (the "Company" or "Carver") financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates.  These factors include but are not limited to the following:

the effects of COVID-19, which includes, but is not limited to, the length of time that the pandemic continues, the duration of restrictive orders and the imposition of restrictions on businesses and travel, the remedial actions and stimulus measures adopted by federal, state, and local governments, the health of our employees and the inability of employees to work due to illness, quarantine, or government mandates, the business continuity plans of our customers and our vendors, the increased likelihood of cybersecurity risk, data breaches, or fraud due to employees working from home, the ability of our borrowers to continue to repay their loan obligations, and the effect of the pandemic on the general economy and the business of our borrowers;

the ability of Carver Federal Savings Bank to comply with the Formal Agreement (“Agreement”) between the Bank and the Office of the Comptroller of the Currency, and the effect of the restrictions and requirements of the Formal Agreement on the Bank's non-interest expenses and net income;

the ability of the Company to obtain approval from the Federal Reserve Bank of Philadelphia (the “Federal Reserve Bank”) to distribute interest payments owed to the holders of the Company's subordinated debt securities;

the limitations imposed on the Company which require, among other things, written approval of the Federal Reserve Bank prior to the declaration or payment of dividends, any increase in debt by the Company, or the redemption of Company common stock, and the effect on operations resulting from such limitations;

the market price and trading volume of our shares of common stock has been and may continue to be volatile, and purchasers of our securities could incur substantial losses;

changes in the level of trends of delinquencies and write-offs and in our allowance and provision for loan losses;

changes in interest rates, which may reduce net interest margin and net interest income;

the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

national and/or local changes in economic conditions, which could occur from numerous causes, including political changes, domestic and international policy changes, unrest, war and weather, or conditions in the real estate, securities markets or the banking industry, which could affect liquidity in the capital markets, the volume of loan originations, deposit flows, real estate values, the levels of non-interest income and the amount of loan losses;

adverse changes in the financial industry and the securities, credit, national and local real estate markets (including real estate value);

changes in our existing loan portfolio composition (including reduction in commercial real estate loan concentration) and credit quality or changes in loan loss requirements;

legislative or regulatory changes that may adversely affect the Company’s business, including but not limited to new capital regulations, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, and the resources we have available to address such changes;

changes in the level of government support of housing finance;

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changes to state rent control laws, which may impact the credit quality of multifamily housing loans;

our ability to control costs and expenses;

risks related to a high concentration of loans to borrowers secured by property located in our market area;

increases in competitive pressure among financial institutions or non-financial institutions;

changes in consumer spending, borrowing and savings habits;

technological changes that may be more difficult to implement or more costly than anticipated;

changes in deposit flows, loan demand, real estate values, borrowing facilities, capital markets and investment opportunities, which may adversely affect our business;

changes in accounting standards, policies and practices, as may be adopted or established by the regulatory agencies or the Financial Accounting Standards Board, could negatively impact the Company’s financial results;

litigation or regulatory actions, whether currently existing or commencing in the future, which may restrict our operations or strategic business plan;

the ability to originate and purchase loans with attractive terms and acceptable credit quality; and

the ability to attract and retain key members of management, and to address staffing needs in response to product demand or to implement business initiatives.

Because forward-looking statements are subject to numerous assumptions, risks and uncertainties, actual results or future events could differ possibly materially from those that the company anticipated in its forward-looking statements. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-K, and the Company assumes no obligation to, and expressly disclaims any obligation to, update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements, except as legally required. For a discussion of additional factors that could adversely affect the Company's future performance, see “Item 1A - Risk Factors” and “Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations.”

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PART I

ITEM 1. BUSINESS.

OVERVIEW

Carver Bancorp, Inc., a Delaware corporation (the “Company”), is the holding company for Carver Federal Savings Bank (“Carver Federal” or the “Bank”), a federally chartered savings bank. The Company is headquartered in New York, New York. The Company conducts business as a unitary savings and loan holding company, and the principal business of the Company consists of the operation of its wholly-owned subsidiary, Carver Federal. Carver Federal was founded in 1948 to serve African-American communities whose residents, businesses and institutions had limited access to mainstream financial services. The Bank remains headquartered in Harlem, and predominantly all of its seven branches and four stand-alone 24/7 ATM centers are located in low- to moderate-income neighborhoods. Many of these historically underserved communities have experienced unprecedented growth and diversification of incomes, ethnicity and economic opportunity, after decades of public and private investment.

Carver Federal is among the largest African-American operated banks in the United States. The Bank remains dedicated to expanding wealth-enhancing opportunities in the communities it serves by increasing access to capital and other financial services for consumers, businesses and non-profit organizations, including faith-based institutions. A measure of its progress in achieving this goal includes the Bank's sixth consecutive "Outstanding" rating, issued by the Office of the Comptroller of the Currency (the "OCC") following its most recent Community Reinvestment Act (“CRA”) examination in March 2022. The OCC found that 90% of Carver Federal's loans were made within our assessment area, and the Bank has demonstrated excellent responsiveness to its assessment area's needs through its community development lending, investing and service activities. The Bank had approximately $735.3 million in assets and 107 employees as of March 31, 2022.

Carver Federal engages in a wide range of consumer and commercial banking services.  The Bank provides deposit products, including demand, savings and time deposits for consumers, businesses, and governmental and quasi-governmental agencies in its local market area within New York City.  In addition to deposit products, Carver Federal offers a number of other consumer and commercial banking products and services, including debit cards, online account opening and banking, online bill pay and telephone banking. Carver Federal also offers a suite of products and services for unbanked and underbanked consumers, branded as Carver Community Cash. This includes check cashing, wire transfers, bill payment, reloadable prepaid cards and money orders.

Carver Federal offers loan products covering a variety of asset classes, including commercial and multifamily mortgages, and business loans.  The Bank finances mortgage and loan products through deposits or borrowings.  Funds not used to originate mortgages and loans are invested primarily in U.S. government agency securities and mortgage-backed securities.

The Bank's primary market area for deposits consists of the areas served by its seven branches in the Brooklyn, Manhattan and Queens boroughs of New York City.  The neighborhoods in which the Bank's branches are located have historically been low- to moderate-income areas. The Bank's primary lending market includes Kings, New York, Bronx and Queens Counties in New York City, and lower Westchester County, New York. Although the Bank's branches are primarily located in areas that were historically underserved by other financial institutions, the Bank faces significant competition for deposits and mortgage lending in its market areas. Management believes that this competition has become more intense as a result of increased examination emphasis by federal banking regulators on financial institutions' fulfillment of their responsibilities under the CRA and more recently due to the decline in demand for loans. Carver Federal's market area has a high density of financial institutions, many of which have greater financial resources, name recognition and market presence, and all of which are competitors to varying degrees. The Bank's competition for loans comes principally from commercial banks, savings institutions and mortgage banking companies. The Bank's most direct competition for deposits comes from commercial banks, savings institutions and credit unions. Competition for deposits also comes from money market mutual funds, corporate and government securities funds, and financial intermediaries such as brokerage firms and insurance companies. Many of the Bank's competitors have substantially greater resources and offer a wider array of financial services and products.  This, combined with competitors' larger presence in the New York market, add to the challenges the Bank faces in expanding its current market share and growing its near-term profitability.

Carver Federal's 70-year history in its market area, its community involvement and relationships, targeted products and services and personal service consistent with community banking, help the Bank compete with competitors that have entered its market.

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The Bank formalized its many community focused investments on August 18, 2005, by forming Carver Community Development Corporation ("CCDC"). CCDC oversees the Bank's participation in local economic development and other community-based initiatives, including financial literacy activities. CCDC coordinates the Bank's development of an innovative approach to reach the unbanked customer market in Carver Federal's communities. Importantly, CCDC spearheads the Bank's applications for grants and other resources to help fund these important community activities. In this connection, Carver Federal has successfully competed with large regional and global financial institutions in a number of competitions for government grants and other awards.  

GENERAL

Carver Bancorp, Inc.

    The Company is the holding company for Carver Federal and its other active direct subsidiary, Carver Statutory Trust I (the “Trust”), a Delaware trust.

    The principal business of the Company consists of the operation of its wholly-owned subsidiary, the Bank. The Company's administrative offices are located at 1825 Park Avenue, New York, New York 10034. The home office of the Bank is located at 75 West 125th Street, New York, New York 10027. The Company's telephone number is (718) 230-2900.

Carver Federal Savings Bank

Carver Federal was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally chartered mutual savings and loan association, at which time it obtained federal deposit insurance and became a member of the Federal Home Loan Bank of New York (the “FHLB-NY”). Carver Federal was founded as an African- and Caribbean-American operated institution to provide residents of underserved communities the ability to invest their savings and obtain credit. Carver Federal Savings and Loan Association converted to a federal savings bank in 1986 and changed its name at that time to Carver Federal Savings Bank.

On March 8, 1995, Carver Federal formed CFSB Realty Corp. as a wholly-owned subsidiary to hold real estate acquired through foreclosure pending eventual disposition.  At March 31, 2022, this subsidiary had $267 thousand in total assets. During the fourth quarter of the fiscal year ended March 31, 2003, Carver Federal formed Carver Asset Corporation (“CAC”), a wholly-owned subsidiary which qualifies as a real estate investment trust (“REIT”) pursuant to the Internal Revenue Code of 1986, as amended.  This subsidiary may, among other things, be utilized by Carver Federal to raise capital in the future.  As of March 31, 2022, CAC owned mortgage loans carried at approximately $6.7 million and total assets of $129.3 million.  On August 18, 2005, Carver Federal formed CCDC, a wholly-owned community development entity, to facilitate and develop innovative approaches to financial literacy, address the needs of the unbanked and participate in local economic development and other community-based activities.  As part of its operations, CCDC monitors the portfolio of investments related to NMTC awards and makes application for additional awards.

Carver Statutory Trust I

Carver Statutory Trust (the "Trust") was formed in 2003 for the purpose of issuing $13.0 million aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and $0.4 million of common securities, which are wholly owned by Carver Bancorp, Inc. and the sole voting securities of the Trust. The Company has fully and unconditionally guaranteed the Capital Securities along with all obligations of the Trust under the trust agreement relating to the Capital Securities. In accordance with the Financial Accounting Standards Board's Accounting Standards Codification (“ASC”) 810, "Consolidations," the Trust is not consolidated with the Company for financial reporting purposes. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments on the Carver Statutory Trust I capital securities through September 2016. Such payments were made in September 2016. Debenture interest payments had been deferred beginning with the December 2016 payment, which is permissible under the terms of the Indenture for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior approval from the Federal Reserve Bank. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment was made on June 16, 2021. The Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments. On December 16, 2021, the Company paid the interest deferred from September 16, 2021 and the regular quarterly interest payment due on December 17, 2021. Subsequently, the Company made the regular quarterly interest payment on its outstanding debentures due on March 17, 2022 and June 17, 2022.
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The Company relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders and to engage in share repurchase programs. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to the Company, and the Board of Governors of the Federal Reserve (the "FRB") regulates dividends paid by the Company. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended its regular quarterly cash dividend to the Company. There are no assurances that dividend payments to the Company will resume.

At the Market Offering

In 2021, we entered into a sales agreement with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in an “at the market offering.” As of March 31, 2022, we have sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million. Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent.

Human Capital Resources

    At March 31, 2022, the Company had 107 employees, nearly all of whom are full-time and of which approximately 60% were female and 86% were minorities. The majority of our employees are based in New York. Our goal is to attract, develop, retain and plan for succession of key talent and executives to achieve strategic objectives. We are continually investing in our workforce to further emphasize diversity and inclusion and to foster our employees' growth and career development.

We offer a comprehensive benefits program to our employees and design our compensation programs to attract, retain and motivate employees, as well as to align with Company performance. None of the Company's employees are a member of a collective bargaining agreement and we consider our relations with our employees to be good.

In response to the COVID-19 pandemic, we implemented significant operating environmental changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. This includes implementing a hybrid working model where our employees work in the office 2 to 3 times a week, simultaneously, continuing to implement safety measures for employees while on-site.

The Company team members actively share their talents in their communities through volunteer activities in education, economic development, human and health services, and Community Reinvestment. Additionally, the Company's management team works with leaders of community organizations, community development organizations, and consumer financial educations organizations to identify the credit, investment, and service needs of its community.

Available Information

The Company makes available on or through its internet website, http://www.carverbank.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.  Such reports are available free of charge and as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”).  The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including the Company, at http://www.sec.gov.

In addition, certain other basic corporate documents, including the Company's Corporate Governance Principles, Code of Ethics, the charters of the Company's Finance and Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee and the date of the Company's annual meeting are posted on the Company's website. Printed copies of these documents are also available free of charge to any stockholder who requests them. Stockholders seeking additional information should contact the Corporate Secretary's office by mail at 1825 Park Avenue, New York, New York 10035 or by e-mail at corporatesecretary@carverbank.com. Information provided on the Company's website is not part of this annual report.
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Lending Activities

General.  Carver Federal's loan portfolio consists primarily of mortgage and business loans originated by the Bank's lending teams and secured by commercial real estate including multifamily, mixed-use and owner-occupied properties. Substantially all of the Bank's mortgage loans are secured by properties located within the Bank's market area. From time to time, the Bank may participate or purchase loans that comply with the Bank's underwriting standards from other financial institutions or in contiguous market geographies to achieve loan growth objectives, as well as asset and geographical diversification.

In recent years, Carver Federal has focused on the origination of commercial real estate loans extended primarily to multifamily, as well as owner-occupied and mixed-use commercial loans. These loans generally have higher yields and shorter maturities than one-to-four family residential properties, and include prepayment penalties that the Bank collects if the loans pay in full prior to the contractual maturity. The Bank's increased emphasis remains on effective portfolio management and monitoring of the commercial real estate and multifamily mortgage loans relative to the level of credit risk inherent in this market segment. In fiscal years 2019 and 2020, the Bank's recoveries on previously charged off loans exceeded its charge-offs to such an extent that additional provisions were not necessary. The provision recorded in fiscal year 2020 was primarily related to overdraft deposit charge-offs. During fiscal year 2021, Carver increased its qualitative factors and assessment criteria due to the ongoing pandemic. In fiscal year 2022, the Bank adjusted its qualitative factors and assessment criteria from high to medium based on improving economic factors, such as unemployment, stable interest rates and overall increased activity due to less pandemic related restrictions. The increase in the qualitative reserves was related to the overall increase in our loan portfolio, partially offset by decreases in our quantitative reserve analysis as the rolling 20 quarter historical loss look back period improved for most of our loan categories. The Bank could be required to maintain an allowance for loan losses as a percentage of total loans in excess of the allowance currently maintained. Additionally, Carver Federal continually reviews the composition of its mortgage loan portfolio and underwriting standards to manage the risk in the portfolio. Per the requirements of the Formal Agreement, the Bank has reduced its commercial real estate loan concentration as a percentage of risk-based capital to a level well below that mandated by its regulators.

    Loan Portfolio Composition. Total loans receivable increased $96.0 million, or 20.0%, to $576.5 million at March 31, 2022, compared to $480.5 million at March 31, 2021. Carver Federal's total loans receivable as a percentage of total assets increased to 78.4% at March 31, 2022, compared to 71.0% at March 31, 2021.

    The following is a summary of loans receivable, net of allowance for loan losses, as of:
March 31, 2022March 31, 2021March 31, 2020March 31, 2019March 31, 2018
$ in thousandsAmount%Amount%Amount%Amount%Amount%
Gross loans receivable:
One-to-four family$69,297 12.0 %$76,313 15.9 %$105,532 24.8 %$108,363 25.4 %$121,233 25.6 %
Multifamily160,800 27.9 %103,584 21.6 89,241 21.0 86,177 20.2 103,887 21.9 
Commercial real estate174,270 30.2 %150,114 31.2 141,761 33.3 130,812 30.7 141,835 29.9 
Business170,497 29.6 %148,020 30.8 85,425 20.1 96,430 22.6 102,004 21.5 
Consumer and other (1)
1,623 0.3 %2,439 0.5 3,213 0.8 4,023 0.9 5,238 1.1 
  Total loans receivable$576,487 100.0 %$480,470 100.0 %$425,172 100.0 %$425,805 100.0 %$474,197 100.0 %
Unamortized premiums, deferred costs and fees, net3,017 3,079 3,560 3,023 3,556 
Allowance for loan losses(5,624)(5,140)(4,946)(4,646)(5,126)
  Total loans receivable, net$573,880 $478,409 $423,786 $424,182 $472,627 
(1)Includes personal loans

One-to-four Family Residential Lending. Carver Federal purchases first mortgage loans secured by one-to-four family properties that serve generally as the primary residence of the owner. The Bank purchased $11.3 million and $2.8 million of one-to-four family residential loans during fiscal years 2022 and 2021, respectively. Approximately 21.2% of the one-to-four family residential mortgage loans maturing in greater than one year at March 31, 2022 were adjustable rate and approximately 78.8% were fixed-rate. One-to-four family residential real estate loans decreased $7.0 million, or 9.2%, to $69.3 million at March 31, 2022, compared to $76.3 million at March 31, 2021.

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Carver Federal's fixed-rate, one-to-four family residential mortgage loans are underwritten in accordance with applicable secondary market underwriting guidelines and requirements for sale. From time to time, the Bank has sold such loans to Fannie Mae, the State of New York Mortgage Agency (“SONYMA”) and other third parties. Loans are generally sold with limited recourse on a servicing retained basis except to SONYMA where the sale is made with servicing released. Carver Federal uses a servicing firm to sub-service mortgage loans, whether held in portfolio or sold with servicing retained. At March 31, 2022, the Bank, through its sub-servicer, serviced $14.2 million in loans for FNMA and $341 thousand for other third parties. The Bank has recorded $162 thousand in related mortgage servicing rights.

The retention of adjustable-rate loans in Carver Federal's portfolio helps reduce Carver Federal's exposure to increases in prevailing market interest rates. However, there are credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans. It is possible that during periods of rising interest rates, the risk of default on adjustable-rate loans may increase due to increases in interest costs to borrowers. Although adjustable-rate loans allow the Bank to increase the sensitivity of its interest-earning assets to changes in interest rates, the extent of this interest rate sensitivity is limited by periodic and lifetime interest rate adjustment limitations. Accordingly, there can be no assurance that yields on the Bank's adjustable-rate loans will fully adjust to compensate for increases in the Bank's cost of funds. Adjustable-rate loans increase the Bank's exposure to decreases in prevailing market interest rates, although decreases in the Bank's cost of funds would tend to offset this effect to an extent as well.

The Bank previously originated or purchased a limited amount of subprime loans (which are defined by the Bank as those loans where the borrowers have FICO scores of 660 or less at origination). At March 31, 2022, the Bank had $3.3 million in subprime loans, or 0.6% of its total loan portfolio, of which $1.0 million are non-performing loans. No subprime loans were purchased during fiscal year 2022.

Multifamily Real Estate Lending. Traditionally, Carver Federal originates and purchases multifamily loans. The Bank purchased $15.1 million, $6.9 million and $7.0 million of multifamily loans during fiscal years 2022, 2021 and 2020, respectively. Multifamily property lending entails additional risks compared to one-to-four family residential lending. For example, such loans are dependent on the successful operation of such buildings and can be significantly impacted by supply and demand conditions in the market for multifamily residential units. Carver Federal's multifamily real estate loan portfolio increased $57.2 million, or 55.2%, to $160.8 million in fiscal 2022, or 27.9% of Carver Federal's total loan portfolio at March 31, 2022.

In making multifamily real estate loans, the Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower, when applicable. Carver Federal's multifamily real estate product guidelines generally require that the maximum loan-to-value ("LTV") at origination not exceed 75% based on the appraised value of the mortgaged property on all such loans. The Bank generally requires a debt service coverage ratio at origination of at least 1.20 on multifamily real estate loans, which requires the properties to generate cash flow after expenses and allowances in excess of the principal and interest payment. Carver Federal originates and purchases multifamily real estate loans, which are predominantly adjustable rate loans that generally amortize on the basis of a 15-, 20-, 25-, or 30-year period and require a balloon payment after the first five years, or the borrower may have an option to extend the loan for additional periods. The Bank occasionally originates fixed rate loans with greater than five year terms on a limited basis. Personal guarantees may be obtained for additional comfort and support to these borrowers.

To help ensure continued collateral protection and asset quality for the term of multifamily real estate loans, Carver Federal employs a risk rating system for its loans.  All commercial loans, including multifamily real estate loans, are risk rated internally at the time of origination.  Management continually monitors all commercial loans in order to update risk ratings when necessary (see "Asset Classification and Allowance for Loan and Lease Losses" for additional information on asset classification and risk ratings). In addition, to assist the Bank in evaluating changes in the credit profile of the borrower and the underlying collateral, an independent consulting firm reviews and prepares a written report for a sample of our commercial loan relationships.  Accordingly, on a triannual basis, the independent loan review company i) reviews 70% to 75% of the average commercial loan portfolio, ii) this includes all new and renewed loans greater than $100,000, and iii) all criticized and classified loans. Summary reports documenting the loan reviews are then reviewed by management for changes in the credit profile of individual borrowers and the portfolio as a whole, and regularly presented to Senior Management and the Bank's Asset Liability and Interest Rate Risk Committee for risk assessment and monitoring.

Commercial Real Estate Lending. Commercial real estate lending consists predominantly of originating loans for the purpose of purchasing or refinancing office, mixed-use (properties used for both commercial and residential purposes but predominantly commercial), retail and church buildings in the Bank's market area. Mixed-use loans are secured by properties that are intended for both residential and business use and are classified as commercial real estate ("CRE"). The Bank
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purchased $18.2 million, $6.3 million and $12.6 million of commercial real estate loans during fiscal years 2022, 2021 and 2020, respectively. Although Carver Federal has experienced favorable loss history associated with commercial real estate loans, these loans may entail additional risks compared with one-to-four family residential and multifamily lending. For example, such loans typically involve larger loan balances to single borrowers or groups of related borrowers and the payment experience on such loans typically is dependent on the successful operation of the commercial property.

In originating CRE loans, the Bank primarily considers the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower. Carver Federal's maximum LTV ratio on commercial real estate mortgage loans at origination is generally 75% based on the latest appraised fair market value of the mortgaged property. The Bank generally requires a debt service coverage ratio at origination of at least 1.20 on commercial real estate loans. The Bank also requires the assignment of rents associated with all tenant leases in the mortgaged property and personal guarantees may be obtained for additional security from these borrowers.

At March 31, 2022, commercial real estate mortgage loans totaled $174.3 million, or 30.2% of the total loan portfolio. This balance reflects a year-over-year increase of $24.2 million, or 16.1%, as a result of organic loan originations and purchases.

The Bank offers 5-year terms for our commercial mortgages. At times, we can offer greater than 5 years for terms of up to 15 years and amortization schedules up to 25 years; however, the interest rate generally resets every 5 years. Interest rates currently offered by the Bank are adjusted at the beginning of each adjustment period and are mostly based upon a fixed spread above the FHLB-NY corresponding regular advance rate.

Historically, Carver Federal has been a New York City metropolitan area leader in the origination of loans to churches. At March 31, 2022, loans to churches totaled $18.6 million, or 3.2% of the Bank's gross loan portfolio. These loans generally have five-, seven-, or ten-year terms with 15-, 20- or 25-year amortization periods, a balloon payment due at the end of the term and generally have no greater than a 70% LTV ratio at origination. The Bank has also provided construction financing for churches and generally provides permanent financing upon completion of construction. There are currently 21 church loans in the Bank's loan portfolio.

Loans secured by real estate owned by faith-based organizations generally are larger and involve greater risks than one-to-four family residential mortgage loans and standard commercial real estate transactions. Because payments on loans secured by such properties are often dependent on voluntary contributions by members of the church's congregation, repayment of such loans may be subject to a greater extent to adverse conditions in the economy. The Bank seeks to minimize these risks in a variety of ways, including reviewing the organization's financial condition, limiting the size of such loans and establishing the quality of the collateral securing such loans. The Bank determines the appropriate amount and type of security for such loans based in part upon the governance structure of the particular organization, the length of time the church has been established in the community and a cash flow analysis to determine the church's ability to service the proposed loan. Carver Federal will obtain a first mortgage on the underlying real property and often requires personal guarantees of key members of the congregation and/or key person life insurance that generally includes the pastor at a minimum, depending on the church make-up. The Bank may also require the church to obtain key person life insurance on specific members of the church's leadership. While asset quality in the church loan category historically has been one of the strongest asset classes, recent economic conditions have produced higher delinquencies in this portfolio during the early stages of the pandemic, but have since normalized or leveled off. While management believes that Carver Federal will remain a leading lender to churches in its market area, Carver Federal will continue to conduct disciplined underwriting and maintain focused portfolio management.

Business Loans.  Carver Federal's small business (Commercial and Industrial, or "C&I") lending portfolio increased $22.5 million to $170.5 million, comprising 29.6% of the Bank's gross loan portfolio in fiscal 2022. This includes $17.9 million of PPP loans at March 31, 2022. The Bank purchased $5.6 million and $10.7 million business loans during fiscal years 2022 and 2021, respectively. In a strategic attempt to diversify the Bank's loan portfolio, Carver Federal demonstrated an emphasis on C&I lending, placing particular focus on organic loan growth through the financing of local entrepreneurs beginning in fiscal year 2018. Carver Federal provides revolving credit, working capital and term loan facilities to small businesses with annual sales of approximately $1 million to $25 million in educational, health care, personal services, light industrial and wholesale segments. Business loans are typically personally guaranteed by the owners and may also be secured by additional collateral, including real estate, equipment, accounts receivable and inventory.

Consumer and Other Loans. At March 31, 2022, the Bank had $1.6 million in consumer and other loans, or 0.3%, of the Bank's gross loan portfolio, primarily comprised of $1.5 million of guaranteed graduate medical student loans purchased in fiscal 2017.
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Consumer loans are not typically secured by collateral and therefore involve more risk than first mortgage loans and all other transactions. Collection of a delinquent loan is dependent on the borrower's continuing financial stability and is more likely to be adversely affected by changes in employment, marital status, health and other personal financial factors. Further, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered. These loans may also give rise to claims and defenses by a borrower against Carver Federal, including claims and defenses that the borrower has against the seller of the underlying collateral, if applicable. In underwriting unsecured consumer loans other than secured credit cards, Carver Federal considers the borrower's credit history, an analysis of the borrower's income, expenses and ability to repay the loan. The underwriting for secured credit cards only takes into consideration the value of the underlying collateral. See “Asset Quality-Non-performing Assets.”

Loan Processing. Carver Federal's loan originations are derived from a number of sources, including referrals by realtors, builders, depositors, borrowers and mortgage brokers, as well as walk-in and telephone customers. Loans are originated by the Bank's personnel who receive a base salary, commissions and other incentive compensation. Real estate, business and unsecured loan applications are forwarded to the Bank's Lending Department for processing, and to the Credit Group for underwriting pursuant to standards established in Carver Federal's Loan Policy. The underwriting and loan processing for residential one-to-four family loans are performed by an outsourced third party loan originator using lending standards established by the Bank.

A commercial real estate loan application is completed for all multifamily and non-residential properties that the Bank finances. Prior to loan approval, the property is inspected by a loan officer. As part of the loan approval process, consideration is given to an independent appraisal, location, accessibility, stability of the neighborhood, environmental assessment, personal credit history and the financial capacity of the applicant(s). Business loan applications are completed for all business loans. Most business loans are secured by real estate, personal guarantees, and/or guarantees by the United States Small Business Administration (“SBA”), as applicable, along with Uniform Commercial Code (“UCC”) lien filings. The loan approval process considers the credit history of the applicant, collateral, cash flow and purpose and stability of the business.

Upon receipt of a completed loan application from a prospective borrower, a credit report and other verifications are ordered to confirm specific information relating to the loan applicant's income and credit standing.  It is the Bank's policy to obtain an appraisal of the real estate intended to secure a proposed mortgage loan from an independent appraiser approved by the Bank, along with applicable appraisal reviews.

It is Carver Federal's policy to record a lien on the real estate securing the loan and to obtain a title insurance policy that insures that the property is free of prior encumbrances. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood zone or plain as designated by the Department of Housing and Urban Development, obtain flood insurance. Most borrowers are also required to advance funds on a monthly basis, together with each payment of principal and interest, for mortgage payment escrows from which the Bank makes disbursements for items such as real estate taxes and hazard insurance. Written confirmation of the guarantee for SBA loans and evidence of the UCC filing is also required, as applicable.

Loan Approval. Except for real estate and business loans in excess of $6.0 million, mortgage and business loan approval authority has been delegated by the Bank's Board of Directors to the Board's Asset Liability and Interest Rate Risk Committee. The Asset Liability and Interest Rate Risk Committee has delegated to the Bank's Management Loan Committee, which consists of certain members of executive management, loan approval authority up to and including $1.0 million for real estate and business loans. Real estate and business loans above $6.0 million must be approved by the full Board. Purchased loans are subject to the same approval process as originated loans. One-to-four family mortgage loans that conform to FNMA, Federal Housing Administration and Federal Home Loan Mortgage Corporation ("FHLMC") standards and limits may be approved by the outsourced third party loan originator.

Loans-to-One-Borrower. Under the loans-to-one-borrower limits of the OCC, with certain limited exceptions, loans and extensions of credit to a single or related group of borrowers outstanding at one time generally may not exceed 15% of the unimpaired capital and surplus of a savings bank. The Bank includes all outstanding debt and any unfunded commitments under contractually binding commitments for purposes of its legal limit calculation. See “Regulation and Supervision-Federal Banking Regulation-Loans-to-One-Borrower Limitations.” At March 31, 2022, the maximum loans-to-one-borrower under this test was $12.2 million and the Bank had no relationships that exceeded this limit.

Loan Originations and Purchases. Loan originations were $151.5 million in fiscal 2022 compared to $114.5 million in fiscal 2021. There were $50.1 million loan purchases during fiscal 2022 and $26.8 million purchases in fiscal 2021.

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    The following table sets forth certain information with respect to Carver Federal's loan originations and advances, purchases and sales for the fiscal years ended March 31:
202220212020
$ in thousandsAmountPercentAmountPercentAmountPercent
Loans Originated:
One-to-four family$— — %$4,217 3.0 %$— — %
Multifamily42,237 20.9 %15,936 11.3 %14,363 21.0 %
Commercial real estate79,403 39.4 %48,334 34.2 %13,892 20.4 %
Business29,391 14.6 %45,643 32.3 %4,803 7.0 %
Consumer and others (1)
508 0.3 %366 0.2 %394 0.6 %
Total loans originated151,539 75.1 %114,496 81.0 %33,452 49.0 %
Loans purchased (2)
50,144 24.9 %26,814 19.0 %34,780 51.0 %
Total loans originated and purchased201,683 100.0 %141,310 100.0 %68,232 100.0 %
Loans sold/participated (3)
(6,080)— (1,294)
Net additions to loan portfolio$195,603 $141,310 $66,938 
(1)Comprised of personal loans.
(2)Comprised of $11.3 million one-to-four family, $15.1 million multifamily, $18.2 million commercial real estate and $5.6 million business loans.
(3)Comprised of primarily multifamily and commercial real estate loans.

Loans purchased by the Bank entail certain risks not necessarily associated with loans the Bank originates. The Bank's purchased loans are generally acquired without recourse to the seller, with certain exceptions related to the seller's compliance with representations and warranties, and in accordance with the Bank's underwriting criteria for originations. In addition, purchased loans have a variety of terms, including maturities, interest rate caps and indices for adjustment of interest rates, that may differ from those offered at that time by the Bank. The Bank initially seeks to purchase loans in its market area. However, the Bank may purchase loans secured by property outside its market area to meet its financial objectives. The market areas in which the properties that secure the purchased loans are located may differ from Carver Federal's market area and may be subject to economic and real estate market conditions that may significantly differ from those experienced in Carver Federal's market area. There can be no assurance that economic conditions in these out-of-state markets will not deteriorate in the future, resulting in increased loan delinquencies and loan losses among the loans secured by property in these areas.

In an effort to reduce risks, the Bank has sought to ensure that purchased loans satisfy the Bank's underwriting standards and do not otherwise have a higher risk of collection or loss than loans originated by the Bank. A review of each loan is conducted prior to purchase, and the Bank also requires appropriate documentation and further seeks to reduce its risk by requiring, in each buy/sell agreement, a series of warranties and representations as to the underwriting standards and the enforceability of the related legal documents. These warranties and representations remain in effect for the life of the loan. Any misrepresentation must be cured within 90 days of discovery or trigger certain repurchase provisions in the buy/sell agreement.

Loan Maturity Schedule. The following table sets forth information at March 31, 2022 regarding the amount of loans maturing in Carver Federal's portfolio, including scheduled repayments of principal, based on contractual terms to maturity. Demand loans, loans having no schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The table below does not include any estimate of prepayments, which significantly shorten the average life of all mortgage loans and may cause Carver Federal's actual repayment experience to differ significantly from that shown below:

Loan Maturities
$ in thousands<1 Yr.1-5 Yrs.5-15 Yrs15+ Yrs.Total
Gross loans receivable:
One-to-four family$— $205 $13,089 $56,003 $69,297 
Multifamily12,138 44,715 89,827 14,120 160,800 
Commercial real estate13,438 75,595 67,508 17,729 174,270 
Business17,015 60,701 83,694 9,087 170,497 
Consumer1,501 122 — — 1,623 
Total$44,092 $181,338 $254,118 $96,939 $576,487 

    The following table sets forth as of March 31, 2022, amounts in each loan category that are contractually due after March 31, 2023 and whether such loans have fixed or adjustable interest rates. Scheduled contractual principal repayments of
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loans do not necessarily reflect the actual lives of such assets. The average life of long-term loans is substantially less than their contractual terms due to prepayments. In addition, due-on-sale clauses in mortgage loans generally give Carver Federal the right to declare a conventional loan due and payable in the event, among other things, that a borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan market rates are higher than rates on existing mortgage loans and tends to decrease when current mortgage loan market rates are lower than rates on existing mortgage loans:
Due After March 31, 2023
$ in thousandsFixedAdjustableTotal
Gross loans receivable:
One-to-four family$54,591 $14,706 $69,297 
Multifamily47,990 100,672 148,662 
Commercial real estate64,887 95,945 160,832 
Business44,780 108,702 153,482 
Consumer122 — 122 
Total$212,370 $320,025 $532,395 

Asset Quality

General. One of the Bank's key operating objectives continues to be to maintain a high level of asset quality. Through a variety of strategies, including, but not limited to, monitoring loan delinquencies and borrower workout arrangements, the Bank has been proactive in addressing problem loans and non-performing assets.

The underlying credit quality of the Bank's loan portfolio is dependent primarily on each borrower's ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the adequacy of the value of the collateral securing the loan. For non-owner occupied non-residential real estate and multifamily real estate loans, the borrower's ability to pay typically is dependent on rental income, which can be impacted primarily by vacancies and general market conditions. For owner-occupied one-to-four family loans, a borrowers' ability to pay typically is dependent primarily on employment and other sources of income. For owner occupied non-residential real estate, a borrower's ability to pay typically is dependent primarily on the success of the borrower's business. For all of the Bank's loans, a borrower's ability to pay is also impacted by general economic and other factors, such as unanticipated expenditures or changes in the financial markets. Collateral values, particularly real estate values, are also impacted by a variety of factors, including general economic conditions, demographics, maintenance and collection or foreclosure delays. The COVID-19 pandemic has placed additional strains on the economy. The Company has made provisions in its allowance for loans and lease reserves to mitigate any future charge-offs that may be needed.

Non-performing Assets. Non-performing assets consist of nonaccrual loans, loans held-for-sale, and property acquired in settlement of loans (OREO), including foreclosure. When a borrower fails to make a payment on a loan, the Bank and/or its loan servicers take prompt steps to have the delinquency cured and the loan restored to current status. This includes a series of actions such as phone calls, letters, customer visits and, if necessary, legal action. In the event the loan has a guarantee, the Bank may seek to recover on the guarantee, including, where applicable, from the Small Business Administration (“SBA”). Loans that remain delinquent are reviewed for reserve provisions and charge-off. The Bank's collection efforts continue after the loan is charged off, except when a determination is made that collection efforts have been exhausted or are not productive.

The Bank may from time to time agree to modify the contractual terms of a borrower's loan. In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). Loans modified in a TDR are typically placed on nonaccrual status until the Bank 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. At March 31, 2022, loans classified as TDR totaled $6.9 million, of which $5.2 million were classified as performing.

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    The following table sets forth information with respect to Carver Federal's non-performing assets, which includes nonaccrual loans, loans held-for-sale, and property acquired in settlement of loans as of March 31:
$ in thousands20222021202020192018
Loans accounted for on a nonaccrual basis (1):
Gross loans receivable:
One-to-four family$4,892 $3,524 $3,582 $4,488 $4,561 
Multifamily515 369 375 3,214 964 
Commercial real estate4,601 918 — 476 502 
Business1,448 2,290 2,797 2,051 635 
Consumer25 90 22 65 — 
Total nonaccrual loans11,481 7,191 6,776 10,294 6,662 
Other non-performing assets (2)
Real estate owned60 60 120 404 1,145 
Total other non-performing assets60 60 120 404 1,145 
Total non-performing assets (3)
$11,541 $7,251 $6,896 $10,698 $7,807 
Nonaccrual loans to total loans1.98 %1.49 %1.58 %2.40 %1.39 %
Non-performing loans to total loans1.98 %1.49 %1.58 %2.40 %1.39 %
Non-performing assets to total assets1.57 %1.07 %1.19 %1.90 %1.13 %
(1)    Nonaccrual status denotes any loan where the delinquency exceeds 90 days past due, or in the opinion of management, the collection of contractual interest and/or principal is doubtful.  Payments received on a nonaccrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on assessment of the ability to collect on the loan.
(2)    Other non-performing assets generally represent loans that the Bank is in the process of selling and has designated held-for-sale or property acquired by the Bank in settlement of loans less costs to sell (i.e. through foreclosure, repossession or as an in-substance foreclosure).  These assets are recorded at the lower of their cost or fair value.
(3)    Troubled debt restructured loans performing in accordance with their modified terms for less than six months and those not performing in accordance with their modified terms are considered nonaccrual and are included in the nonaccrual category in the table above. TDR loans included in the nonaccrual category above totaled $1.7 million at 2022, $1.8 million at 2021, $2.2 million at 2020, $3.2 million at 2019, and $1.9 million at 2018. TDR loans that have performed in accordance with their modified terms for a period of at least six months are generally considered performing loans and are not presented in the table above. Performing TDR loans were $5.2 million at 2022, $5.8 million at 2021, $1.7 million at 2020, $2.2 million at 2019, and $3.8 million at 2018.


At March 31, 2022, total non-performing assets increased by $4.2 million, or 57.5%, to $11.5 million, compared to $7.3 million at March 31, 2021, as a result of a $4.3 million increase in nonaccrual loans, year over year. Nonaccrual loans at March 31, 2022 consisted of fifteen one-to-four family, one multifamily, two commercial real estate, eight small business and SBA loans, and five consumer loans. Management believes that there may be losses associated with certain delinquent loans in the future, but also notes that the amount of losses may be reduced by the value of properties securing these delinquent loans and the Bank's loan loss reserves. Other non-performing assets at year-end 2022 includes real estate owned assets consisting of one foreclosed residential property. At March 31, 2022, Carver had 8 loans secured by one-to-four family residential real estate properties in the process of foreclosure with a total outstanding balance of $3.1 million.

Although we believe that substantially all risk elements at March 31, 2022 have been disclosed, other factors, including economic conditions and the conditions related to COVID-19, may cause borrowers to be unable to comply with the contractual repayment terms on certain real estate and commercial loans. For additional information about certain factors that may affect the future performance of the Company's loan portfolio, please see "Item 1A - Risk Factors" and "Forward Looking Statements."

Asset Classification and Allowances for Losses. Federal regulations and the Bank's policies require the classification of assets on the basis of credit quality on a quarterly basis. An asset is classified as “substandard” if it is determined to be inadequately protected by the current net worth and paying capacity of the obligor or the current value of the collateral pledged, if any. An asset is classified as “doubtful” if full collection is highly questionable or improbable. An asset is classified as “loss” if it is considered uncollectible, even if a partial recovery could be expected in the future.  The regulations also provide for a “special mention” designation, described as assets that do not currently expose a savings institution to a sufficient degree of risk to warrant substandard classification but do possess credit deficiencies or potential weaknesses deserving management's close attention.  Assets classified as substandard or doubtful result in a higher level of allowances for loan losses recorded in accordance with ASC Subtopic 450-20 “Loss Contingencies.” If an asset or portion thereof is classified as a loss, a savings institution must charge off any amount exceeding the fair value of collateral pursuant to loan impairment guidance in ASC
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Section 310-10-35. If a savings institution does not agree with an examiner's classification of an asset, it may appeal this determination to the OCC Regional Director.

The OCC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan losses and lease losses ("ALLL"). The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the ability to collect the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management is responsible for determining the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements. The evaluation process is undertaken on a quarterly basis, but may increase in frequency should conditions arise that would require management's prompt attention, such as business combinations and opportunities to dispose of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend. Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary. For additional information regarding Carver Federal's ALLL policy, refer to Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

The Board has designated the Management Credit Review Committee for management to perform a review on a quarterly basis of the Bank's asset quality, determine and properly identify and monitor credit risk in the loan portfolio and determine that the Bank's allowance for loan and lease losses is proper and appropriate and submit their report to the Board for review. Carver Federal's methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific loans as well as losses that have not been identified but can be expected to occur.  Further, management reviews the ratio of allowances to total loans and recommends adjustments to the level of allowances accordingly. Although management believes it uses the best information available to make determinations with respect to the allowances for losses, future adjustments may be necessary if economic conditions differ from the economic conditions in the assumptions used in making the initial determinations, or if circumstances pertaining to individual loans change, or new information pertaining to individual loans or the loan portfolio is identified. The Bank has a centralized loan servicing structure that relies upon outside servicers, each of which generates a monthly report of delinquent loans.  The Asset Liability and Interest Rate Risk Committees of the Board establish policy relating to internal classification of loans and also provide input to the Credit Review Committee in its review of classified assets.  In originating loans, Carver Federal recognizes that credit losses will occur and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan.

It is management's policy to maintain a general allowance for loan losses based on, among other things, regular reviews of delinquencies and loan portfolio quality, character and size, the Bank's and the industry's historical and projected loss experience and current and forecasted economic conditions and certain qualitative factors. In addition, considerable uncertainty exists as to the future improvement or deterioration of the real estate market. See “Lending Activities-Loan Purchases and Originations.” Carver Federal increases its allowance for loan losses by charging provisions for possible losses against the Bank's income. General allowances are established by management on at least a quarterly basis based on an assessment of risk in the Bank's loans, taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, the state of the real estate market and economic conditions generally. Specific allowances are provided for individual loans, or portions of loans, when ultimate collection is considered improbable by management based on the current payment status of the loan and the fair value or net realizable value of the security for the loan. A loan is deemed impaired when it is probable the Bank will be unable to collect both principal and interest due according to the contractual terms of the loan agreement.  Loans the Bank individually classifies as impaired include multifamily mortgage loans, commercial real estate loans, construction loans and business loans which have been classified by the Bank's credit review officer as substandard, doubtful or loss for which it is probable that principal and interest will not be collected in accordance with the loan's contractual terms, and certain loans modified in a troubled debt restructuring. A charge off is recognized on collateral dependent loans when the fair value of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan. A valuation allowance for cash flow dependent loans is established when based upon a discounted cash flow analysis, impairment is demonstrated.

At the date of foreclosure or other repossession, the Bank transfers the property to real estate acquired in settlement of loans, or other real estate owned ("OREO"), at fair value less estimated selling costs.  Fair value is defined as the amount in cash or cash-equivalent value of other consideration that a real estate parcel would yield in a current sale between a willing buyer and a willing seller.  Any amount of cost in excess of fair value is charged off against the allowance for loan losses prior
13


to the transfer of the property into OREO.  Carver Federal records an allowance for estimated selling costs of the property immediately after foreclosure.  Subsequent to taking possession of the property, management periodically evaluates the property and an allowance is established if the estimated fair value of the property, less estimated costs to sell, declines.  If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate is recorded, providing the Bank did not provide financing for the sale.

The following table sets forth an analysis of Carver Federal's allowance for loan losses at and for the years ended March 31:
$ in thousands20222021202020192018
Balance at beginning of year$5,140 $4,946 $4,646 $5,126 $5,060 
Less Charge-offs:
One-to-four family— — (12)(151)(96)
Multifamily— — — (164)(104)
Business— (24)(69)(964)(81)
Consumer and other(257)(54)(102)(19)(33)
Total Charge-offs$(257)$(78)$(183)$(1,298)$(314)
Add Recoveries:
One-to-four family13 88 302 190 — 
Multifamily— — — 158 131 
Commercial real estate— — — — 20 
Business102 278 160 705 87 
Consumer and other23 35 
Total Recoveries$138 $372 $464 $1,088 $245 
Net loans charged off(119)294 281 (210)(69)
  Provision for (recovery of) losses603 (100)19 (270)135 
Balance at end of year$5,624 $5,140 $4,946 $4,646 $5,126 
Ratios:
Net (charge-off) recovery to average loans outstanding:
One-to-four family0.02 %0.10 %0.26 %0.03 %(0.07)%
Multifamily— %— %— %(0.01)%0.03 %
Commercial real estate— %— %— %— %0.01 %
Business0.06 %0.23 %0.10 %(0.26)%0.01 %
Consumer and other(11.55)%(1.62)%(2.68)%0.34 %(0.33)%
Total loans(0.02)%0.06 %0.07 %(0.05)%(0.01)%
Allowance to total loans0.97 %1.06 %1.15 %1.08 %1.07 %
Allowance to nonaccrual loans48.99 %71.48 %72.99 %45.13 %76.94 %

The following table allocates the allowance for loan losses by asset category at March 31:
20222021202020192018
$ in thousandsAmount% of
Total ALLL
Amount% of
Total ALLL
Amount% of
Total ALLL
Amount% of
Total ALLL
Amount% of
Total ALLL
One-to-four family$731 13.0 %$1,058 20.6 %$1,055 21.3 %$1,274 27.4 %$1,210 23.6 %
Multifamily1,114 19.8 %880 17.1 %1,011 20.5 %885 19.1 %1,819 35.5 %
Commercial real estate1,157 20.6 %907 17.6 %812 16.4 %766 16.5 %1,052 20.5 %
Business2,497 44.4 %1,855 36.1 %1,567 31.7 %1,330 28.6 %1,003 19.5 %
Consumer and other123 2.2 %165 3.2 %212 4.3 %154 3.3 %18 0.4 %
Unallocated— %275 5.4 %289 5.8 %237 5.1 %24 0.5 %
Total Allowance$5,624 100.0 %$5,140 100.0 %$4,946 100.0 %$4,646 100.0 %$5,126 100.0 %

The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

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Investment Activities

General.  The Bank utilizes mortgage-backed and other investment securities in its asset/liability management strategy.  In making investment decisions, the Bank considers, among other things, its yield and interest rate objectives, its interest rate and credit risk position and its liquidity and cash flow.

Generally, the investment policy of the Bank is to invest funds among categories of investments and maturities based upon the Bank's asset/liability management policies, investment quality, loan and deposit volume and collateral requirements, liquidity needs and performance objectives.  Securities are classified into one of three categories: trading, held-to-maturity, and available-for-sale.  Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value with unrealized gains and losses included in earnings.  Debt securities for which the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost.  All other securities not classified as trading or held-to-maturity are classified as available-for-sale and reported at fair value with unrealized gains and losses included, on an after-tax basis, in a separate component of stockholders' equity.  At March 31, 2022, the Bank had no securities classified as trading.  At March 31, 2022, $67.6 million, or 92.8% of the Bank's mortgage-backed and other investment securities, were classified as available-for-sale.  The remaining $5.3 million, or 7.2%, were classified as held-to-maturity.

    The following table sets forth the amortized cost, fair value and weighted average yields of the Bank's investment portfolio at March 31, 2022, categorized by remaining period to contractual maturity:
Due < 1 YearDue 1 - 5 YearsDue 5 - 10 YearsDue after 10 Years
$ in thousandsAmortized CostFair ValueWeighted Average YieldAmortized CostFair ValueWeighted Average YieldAmortized CostFair ValueWeighted Average YieldAmortized CostFair ValueWeighted Average Yield
Available-for-Sale:
Mortgage-backed securities:
Government National Mortgage Association$— $— — %$— $— — %$— $— — %$439 $448 2.93 %
Federal Home Loan Mortgage Corporation— — — %— — — %— — — %23,744 21,547 1.33 %
Federal National Mortgage Association— — — %— — — %— — — %12,852 11,584 1.36 %
Total mortgage-backed securities— — — %— — — %— — — %37,035 33,579 1.36 %
U.S. Government Agency Securities— — — %— — — %4,243 4,203 1.46 %9,621 9,582 1.27 %
Corporate Bonds— — — %— — — %— — — %5,271 4,121 2.61 %
Muni securities— — — %— — 2,686 2,620 2.67 %15,055 13,148 5.74 %
Asset-backed securities347 343 1.06 %— — — %— — — %— — — %
Total available-for-sale$347 $343 1.06 %$— $— — %$6,929 $6,823 1.92 %$66,982 $60,430 2.39 %
Held-to-Maturity:
Mortgage-backed securities:
Government National Mortgage Association— — — %$139 $143 3.48 %$— $— — %$342 $365 4.17 %
Federal National Mortgage Association2,498 2,507 2.37 %— — — %2,219 2,205 2.50 %56 56 — %
Total held-to-maturity$2,498 $2,507 2.37 %$139 $143 3.48 %$2,219 $2,205 2.50 %$398 $421 3.58 %

Mortgage-Backed Securities. The Bank has invested in mortgage-backed securities to help achieve its asset/liability management goals and collateral needs.  Although mortgage-backed securities generally yield less than whole loans, they present substantially lower credit risk, are more liquid than individual mortgage loans and may be used to collateralize
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obligations of the Bank.  Because Carver Federal receives regular payments of principal and interest from its mortgage-backed securities, these investments provide more consistent cash flows than investments in other debt securities, which generally only pay principal at maturity.  Mortgage-backed securities also help the Bank meet certain definitional tests for favorable treatment under federal banking and tax laws.  See “Regulation and Supervision-Federal Banking Regulation-Qualified Thrift Lender Test” and “Federal and State Taxation.”

Mortgage-backed securities constituted 5.3% of total assets at March 31, 2022, compared to 7.6% at March 31, 2021. Carver Federal maintains a portfolio of mortgage-backed securities in the form of Government National Mortgage Association (“GNMA”) pass-through certificates, FNMA mortgage-backed securities and FHLMC mortgage-backed securities.  GNMA pass-through certificates are guaranteed as to the payment of principal and interest by the full faith and credit of the United States Government, while FNMA and FHLMC securities are each guaranteed by their respective agencies as to principal and interest.  Mortgage-backed securities generally entitle Carver Federal to receive a pro-rata portion of the cash flows from an identified pool of mortgages.  The cash flows from such pools are segmented and paid in accordance with a predetermined priority to various classes of securities issued by the entity.  Carver Federal has also invested in pools of loans guaranteed as to principal and interest by the SBA.

The Bank seeks to manage interest rate risk by investing in adjustable-rate mortgage-backed securities, which at March 31, 2022, constituted $680 thousand, or 1.8%, of the mortgage-backed securities portfolio.  Mortgage-backed securities, however, expose Carver Federal to certain unique risks.  In a declining rate environment, accelerated prepayments of loans underlying these securities expose Carver Federal to the risk that it will be unable to obtain comparable yields upon reinvestment of the proceeds.  In the event the mortgage-backed security has been funded with an interest-bearing liability with maturity comparable to the original estimated life of the mortgage-backed security, the Bank's interest rate spread could be adversely affected.  Conversely, in a rising interest rate environment, the Bank may experience a lower than estimated rate of repayment on the underlying mortgages, effectively extending the estimated life of the mortgage-backed security and exposing the Bank to the risk that it may be required to fund the asset with a liability bearing a higher rate of interest.  For additional information regarding Carver Federal's mortgage-backed securities portfolio and its maturities refer to Note 3 of Notes to Consolidated Financial Statements, “Investment Securities.”

Other Investment Securities.  In addition to mortgage-backed securities, the Bank also invests in assets such as government and agency obligations, corporate bonds and mutual funds. Carver Federal is permitted under federal law to make certain investments, including investments in securities issued by various federal agencies and state and municipal governments, deposits at the FHLB-NY, certificates of deposit in federally insured institutions, certain bankers' acceptances and federal funds.  The Bank may also invest, subject to certain limitations, in commercial paper having one of the two highest investment ratings of a nationally recognized credit rating agency, and certain other types of corporate debt securities and mutual funds (See Note 3 of Notes to Consolidated Financial Statements).

Other Earning Assets. Federal regulations require the Bank to maintain an investment in FHLB-NY stock and a sufficient amount of liquid assets which may be invested in cash and specified securities.  For additional information, see “Regulation and Supervision-Federal Banking Regulation-Liquidity.”

Securities Impairment.  The Bank’s available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income (loss). Securities that the Bank has the intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. The fair values of securities in the Bank's portfolio are based on published or securities dealers’ market values and are affected by changes in interest rates. On a quarterly basis, the Bank reviews and evaluates the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. The Bank generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience. Following FASB guidance, the amount of an other-than-temporary impairment when there are credit and non-credit losses on a debt security which management does not intend to sell, and for which it is more likely than not that the Bank will not be required to sell the security prior to the recovery of the non-credit impairment, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings. The remaining difference between the debt security’s amortized cost basis and its fair value would be included in other comprehensive income (loss). This guidance also requires additional disclosures about investments in an unrealized loss position and the methodology and significant inputs used in determining the recognition of other-than-temporary impairment. The Bank does not have any securities that are classified as having other-than-temporary impairment in its investment portfolio at March 31, 2022.

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Sources of Funds

General.  Deposits are the primary source of Carver Federal's funds for lending and other investment purposes.  In addition to deposits, Carver Federal derives funds from loan principal repayments, loan and investment interest payments, maturing investments and fee income.  Loan and mortgage-backed securities repayments and interest payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by prevailing market interest rates, pricing of deposits, competition and general economic conditions.  Borrowed money may be used to supplement the Bank's available funds, and from time to time the Bank borrows funds from the FHLB-NY and has borrowed funds through trust preferred debt securities.

Deposits.  Carver Federal attracts deposits from consumers, businesses, non-profit organizations and public entities through its seven branches principally from within its market area by offering a variety of deposit instruments, including passbook and statement accounts and certificates of deposit, which range in term from 6 months to five years.  Deposit terms vary, principally on the basis of the minimum balance required, the length of time the funds must remain on deposit and the interest rate.  Carver Federal also offers Individual Retirement Accounts.  Carver Federal's policies are designed primarily to attract deposits from local residents and businesses through the Bank's branches.  In fiscal year 2021 the Bank launched a program introducing new products and expanded its digital online account openings into nine states across the Northeast and in Washington D.C. Carver Federal also holds deposits from various governmental agencies or authorities and corporations.

Carver Federal utilizes brokered deposits as an additional funding source and to assist in the management of the Bank's interest rate risk. Carver Federal has obtained brokered certificates of deposit when the interest rate on these deposits is below the prevailing interest rate for non-brokered certificates of deposit with similar maturities in our market, or when obtaining them allowed us to extend the maturities of our deposits at favorable rates compared to borrowing funds with similar maturities, or when we are seeking to extend the maturities of our funding to assist in the management of our interest rate risk. Carver has obtained brokered deposits from a variety of brokerage firms.  In addition, Carver has obtained brokered deposits through the Depository Trust Company.  This allows us to better manage the maturity of our deposits and our interest rate risk. Carver Federal has also utilized brokers to obtain money market account deposits. The rate we pay on brokered money market accounts is the same or below the rate we pay on non-brokered money market accounts. These accounts are similar to brokered certificates of deposit accounts in that we only maintain one account for the total deposit per broker, with the broker maintaining the detailed records of each depositor. As of March 31, 2022, Carver had a total of $64.2 million in brokered deposits, compared to $73.4 million as of March 31, 2021. 

    As of March 31, 2022, the Bank has $46.4 million of reciprocal deposits acquired through its participation in the Certificate of Deposit Account Registry Service (“CDARS”). The Bank's CDARS deposits totaled $43.2 million as of March 31, 2021. The CDARS network arranges for placement of Carver Federal's customer funds into certificate of deposit accounts issued by other CDARS member banks. The certificate of deposit accounts are in increments of less than the individual FDIC insurance limit amount, to ensure that both principal and interest are eligible for full FDIC deposit insurance. This allows the Bank to maintain its customer relationship while still providing its customers with FDIC insurance for the full amount of their deposits, up to $50 million per customer. In exchange, Carver Federal receives from other member banks their customers' deposits in like amounts. Depositors are allowed to withdraw funds early, with a penalty, from these accounts. Carver Federal may elect to participate in the program by making or receiving deposits without making or receiving a reciprocal deposit. As a result of the Dodd-Frank Act, the standard maximum deposit insurance amount is $250,000.

Deposit interest rates, maturities, service fees and withdrawal penalties on deposits are established based on the Bank's funds acquisition and liquidity requirements, the rates paid by the Bank's competitors, current market rates, the Bank's growth goals and applicable regulatory restrictions and requirements.  For additional information regarding the Bank's deposit accounts and the related weighted average interest rates paid, and amount and maturities of certificates of deposit in specified weighted average interest rate categories, refer to Note 8 of the Notes to Consolidated Financial Statements, “Deposits.”

Borrowed Funds.  While deposits are the primary source of funds for Carver Federal's lending, investment and general operating activities, Carver Federal is authorized to use advances from the FHLB-NY and securities sold under agreements to repurchase (“Repos”) from approved primary dealers to supplement its supply of funds and to meet deposit withdrawal requirements.  The FHLB-NY functions as a central bank providing credit for savings institutions and certain other member financial institutions.  As a member of the FHLB system, Carver Federal is required to own stock in the FHLB-NY and is authorized to apply for advances.  Advances are made pursuant to several different programs, each of which has its own interest rate and range of maturities.  Advances from the FHLB-NY are secured by Carver Federal's stock in the FHLB-NY and a pledge of Carver Federal's mortgage loan and mortgage-backed and agency securities portfolios. The Bank takes into consideration the term of borrowed money with the repricing cycle of the mortgage loans on the balance sheet.  

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On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities.  Gross proceeds from the sale of these trust preferred debt securities of $13 million, and proceeds from the sale of the trust's common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033.  The trust preferred debt securities are redeemable at par quarterly at the option of the Company and have a mandatory redemption date of September 17, 2033.  Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment on the outstanding debenture interest was made on June 16, 2021. The Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments. On December 16, 2021, the Company paid the interest deferred from September 17, 2021 and the regular quarterly interest payment due on December 17, 2021. Subsequently, the Company made the regular quarterly interest payments on its outstanding debentures due on March 17, 2022. The interest rate was 4.0% at March 31, 2022 and June 17, 2022.

    Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders and to engage in share repurchase programs. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to the Company, and the FRB regulates dividends paid by the Company. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Formal Agreement defined directly below, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended its regular quarterly cash dividend to the Company. There are no assurances that dividend payments to Carver will resume.

REGULATION AND SUPERVISION

Enforcement Actions

On May 24, 2016, the Bank entered into a formal agreement (the "Formal Agreement") with the OCC to undertake certain compliance-related and other actions as further described in the Company’s Current Report on Form 8-K as filed with the SEC on May 27, 2016. As a result of the Formal Agreement, the Bank must obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers. The Bank may not declare or pay dividends or make any other capital distributions, including to the Company, without first filing an application with the OCC and receiving the prior approval of the OCC. Furthermore, the Bank must seek the OCC's written approval and the FDIC's written concurrence before entering into any "golden parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12 C.F.R. Part 359.

As a result of the Formal Agreement, the OCC established higher minimum capital requirements for the Bank. For further information with respect to the Individual Minimum Capital Ratios (“IMCR”), effective June 29, 2016, refer to “Capital and Liquidity - Carver Federal’s Capital Position.”

The Company is subject to similar requirements as the Bank. The Company must provide notice to the FRB prior to affecting any change in its directors or senior executive officers. The Company is also subject to the restrictions on golden parachute and indemnification payments, as set forth in 12 C.F.R. Part 359. Written approval of the Federal Reserve Bank is required prior to: (1) the declaration or payment of dividends by the Company to its stockholders, (2) the declaration or payment of dividends by the Bank to the Company, (3) any distributions of interest or principal by the Company on subordinated debentures or trust preferred securities, (4) any purchases or redemptions of the Company’s stock and (5) the Company incurring, increasing or guaranteeing certain long-term debt outside the ordinary course of business. These limitations could affect our operations and financial performance.

General

The Bank is subject to extensive regulation, examination and supervision by its primary regulator, the OCC. The Bank's deposit accounts are insured up to applicable limits by the FDIC under the Deposit Insurance Fund. The Bank is a member of the FHLB-NY. The Bank must file reports with the OCC concerning its activities and financial condition, and it
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must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions. The Company, as a unitary savings and loan holding company, is subject to regulation, examination and supervision by the FRB and is required to file certain reports with, and otherwise comply with, the rules and regulations of the FRB and of the SEC under the federal securities laws. The OCC periodically performs safety and soundness examinations of the Bank and tests compliance with various regulatory requirements. The OCC has primary enforcement responsibility over federally chartered savings banks and has substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements. In addition, the FDIC has the authority to recommend to the Director of the OCC that enforcement action be taken with respect to a particular federally chartered savings bank and, if action is not taken by the Director, the FDIC has authority to take such action under certain circumstances.

The description of statutory provisions and regulations applicable to federally chartered savings banks and their holding companies and of tax matters set forth in this document does not purport to be a complete description of all such statutes and regulations and their effects on the Bank and the Company. Any change in such laws and regulations whether by the OCC, the FDIC, the FRB or through legislation could have a material adverse impact on the Bank and the Company and their operations and stockholders.

Capital and Liquidity

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the OCC is authorized and, in some cases, required to take supervisory actions against undercapitalized savings banks. For this purpose, a savings bank would be placed in one of the following five categories based on the bank's regulatory capital: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized.

The severity of the action authorized or required to be taken under the prompt corrective action regulations increases as a bank's capital decreases within the three undercapitalized categories. All banks are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the bank would be undercapitalized. Generally, a capital restoration plan must be filed with the OCC within 45 days of the date a bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, various mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion.

Under OCC regulations, a federally chartered savings bank is treated as well-capitalized if its total risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 8% or greater, its common equity Tier 1 capital ratio is 6.5% or greater, and its leverage ratio is 5% or greater, and it is not subject to any order or directive by the OCC to meet a specific capital level. In assessing an institution's capital adequacy, the OCC takes into consideration not only these numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions as they deem necessary.  

The Federal Deposit Insurance Corporation Improvement Act, or FDICIA, required that the OCC and other federal banking agencies revise their risk-based capital standards to ensure that the standards take into account interest rate risk ("IRR") concentration of risk and the risks of non-traditional activities.  The OCC monitors the IRR of individual institutions through a variety of means, including an analysis of the change in net portfolio value ("NPV").  NPV is defined as the net present value of the expected future cash flows of an entity's assets and liabilities and, therefore, hypothetically represents the value of an institution's net worth.  The OCC has also used this NPV analysis as part of its evaluation of certain applications or notices submitted by thrift institutions.  In addition, OCC Bulletin 2010-1 provides guidance on the management of IRR and the responsibility of boards of directors in that area.  The OCC, through its general oversight of the safety and soundness of savings associations, retains the right to impose minimum capital requirements on individual institutions to the extent the institution is not in compliance with certain written guidelines established by the OCC regarding NPV analysis.  

Carver Federal's Capital Position. Federal regulations require depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8%, and a Tier 1 capital to total assets leverage ratio of 4%. Federal savings banks must also meet a tangible capital ratio of 1.5%.

For purposes of the regulatory capital requirements, a higher risk weight (150%) is assigned to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. Unrealized gains and losses on certain “available-for-sale” securities holdings are required to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. Carver Federal has
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chosen to opt-out and, therefore, does not include accumulated other comprehensive income (AOCI) in its regulatory capital determinations. Additional constraints are also imposed on the inclusion in regulatory capital of certain mortgage-servicing assets, deferred tax assets and minority interests. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the OCC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions when deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the regulations limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

Legislation enacted in May 2018 required the federal banking agencies, including the OCC, to establish for qualifying institutions with assets of less than $10 billion a “community bank leverage ratio” that ranges between 8 to 10% of consolidated assets. Institutions with capital complying with the ratio and otherwise meeting the specified requirements (including off-balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. Such institutions are also considered "well-capitalized" for prompt corrective action purposes.

The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. Pursuant to federal legislation enacted in 2020, the community bank leverage ratio was temporarily lowered to 8% for 2020. Another rule was issued to increase the ratio to 8.5% for calendar year 2021 and to 9% thereafter. A qualifying bank may opt in and out of the community bank leverage ratio framework on its quarterly call report. A bank that ceases to meet any qualifying criteria is provided with a two-quarter grace period to comply with the community bank leverage ratio requirements or the general capital regulations by the federal regulators. As of March 31, 2022, the Bank has not opted into the alternative framework.

Carver Federal, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed minimum requirements and are consistent with Carver Federal’s risk profile. The IMCR established by the OCC on June 29, 2016, as a result of the previously described Formal Agreement, requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio. At March 31, 2022, Carver Federal exceeded the capital regulatory requirements and its IMCR requirements with a common equity Tier 1 ratio of 13.75%, Tier 1 leverage ratio of 10.45%, total risk-based capital ratio of 14.78% and a Tier 1 risk-based capital ratio of 13.75%.

Limitation on Capital Distributions.  There are various restrictions on a bank's ability to make capital distributions, including cash dividends, payments to repurchase or otherwise acquire its shares and other distributions charged against capital. A savings institution that is the subsidiary of a savings and loan holding company, such as the Bank, must file a notice with the FRB at least 30 days before making a capital distribution and receive the FRB's nonobjection. The Bank must also file an application or notice for prior approval with the OCC if the total amount of its capital distributions (including each proposed distribution), for the applicable calendar year would exceed the Bank's net income for that year plus the Bank's retained net income for the previous two years, if the Bank is not an "eligible savings association" as defined in OCC regulations or the capital distributions would violate a prohibition contained in any statute, regulation or agreement.

The Bank may be prohibited from making capital distributions and its application or notice disapproved if:

(1)    the Bank would be undercapitalized following the distribution;

(2)    the proposed capital distribution raises safety and soundness concerns; or

(3)    the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

Liquidity.  The Bank maintains a liquidity policy to maintain sufficient liquidity to ensure its safe and sound operations. In the normal course of business, the levels of liquid assets during any given period are dependent on operating, investing and financing activities.  Cash and due from banks, federal funds sold and repurchase agreements with maturities of three months or less are the Bank's most liquid assets.  Management believes Carver Federal’s short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements, including interest payments on our subordinated debt securities.

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Standards for Safety and Soundness

Standards for Safety and Soundness.  The OCC has adopted guidelines prescribing safety and soundness standards.  The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, compensation, fees and benefits.  In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.  OCC regulations authorize the OCC to order an institution that has been given notice that it is not satisfying these safety and soundness standards to submit a compliance plan.  If, after being so notified, an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement an accepted compliance plan, the OCC must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized association is subject under the “prompt corrective action” provisions of federal law.  If an institution fails to comply with such an order, the OCC may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Enforcement.  The OCC has primary enforcement responsibility over the Bank.  This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers.  In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.

TARP

The Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008 and authorized the U.S. Department of the Treasury (“Treasury”) to establish the Troubled Asset Relief Program (“TARP”) to purchase certain troubled assets from financial institutions, including banks and thrifts.  

On October 14, 2008, the Treasury announced that it would purchase equity stakes in a wide variety of banks and thrifts. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the "TARP CPP"), the Treasury made $250 billion of capital available (from the $700 billion authorized by the EESA) to U.S. financial institutions in the form of preferred stock. On January 20, 2009, the Company announced that it completed the sale of $18.98 million in preferred stock to the Treasury in connection with Carver's participation in the TARP CPP.

The Treasury announced in February 2010 the implementation of the Community Development Capital Initiative (“CDCI”). This new capital program invested lower cost capital in CDFIs that lend to small businesses in the country's most economically depressed communities. On August 27, 2010, Carver completed with the Treasury the exchange of the $18.98 million of TARP preferred stock for an equivalent amount of CDCI Series B preferred stock. On October 28, 2011, the U.S. Treasury exchanged the CDCI Series B preferred stock for 2,321,286 shares of Company common stock.

    On August 6, 2020, the Company entered into a Share Purchase Agreement with the Treasury to repurchase the 2,321,286 shares of Company common stock held by the Treasury. As a result, the Company is no longer a participant in the CDCI program and is not bound by any TARP restrictions as the Treasury is no longer a common stockholder of the Company. For more information concerning the Bank's repurchase of treasury shares, see Note 12 of the Notes to the Consolidated Financial Statements.

Other Supervision and Regulation

Activity Powers.  The Bank derives its lending and investment powers from the Home Owners' Loan Act (“HOLA”), as amended, and federal regulations.  Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities and certain other assets.  The Bank may also establish service corporations that may engage in certain activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage.  The Bank's authority to invest in certain types of loans or other investments is limited by federal law. These investment powers are subject to various limitations, including (1) a prohibition against the acquisition of any corporate debt security that is not rated in one of the four highest rating categories, (2) a limit of 400% of an association's capital on the aggregate amount of loans secured by non-residential real estate property, (3) a limit of 20% of an association's assets on commercial loans, with the amount of commercial loans in excess of 10% of assets being limited to small business loans, (4) a limit of 35% of an association's assets on the aggregate amount of consumer loans and acquisitions of certain debt securities, (5) a limit of 5% of assets on non-conforming loans (certain loans in excess of the specific limitations of HOLA), and (6) a limit of the greater of 5% of assets or
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an association's capital on certain construction loans made for the purpose of financing what is or is expected to become residential property.

Loans-to-One Borrower Limitations.  The Bank is generally subject to the same limits on loans-to-one borrower as a national bank.  With specified exceptions, the Bank's total loans or extension of credit to a single borrower or group of related borrowers may not exceed 15% of the Bank's unimpaired capital and unimpaired surplus, which does not include accumulated other comprehensive income.  The Bank currently complies with applicable loans-to-one borrower limitations.  At March 31, 2022, the Bank's limit on loans-to-one borrower based on its unimpaired capital and surplus was $12.2 million.

Qualified Thrift Lender Test.  Under HOLA, the Bank must comply with a Qualified Thrift Lender (“QTL”) test.  Under this test, the Bank is required to maintain at least 65% of its “portfolio assets” in certain “qualified thrift investments” on a monthly basis in at least nine months of the most recent twelve-month period.  “Portfolio assets” means, in general, an association's total assets less the sum of (a) specified liquid assets up to 20% of total assets, (b) goodwill and other intangible assets and (c) the value of property used to conduct the Bank's business.  “Qualified thrift investments” include various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities and consumer loans.  If the Bank fails the QTL test, it must operate under certain restrictions on its activities. The Dodd-Frank Act made noncompliance potentially subject to agency enforcement action for violation of law.  At March 31, 2022, the Bank maintained approximately 98% of its portfolio assets in qualified thrift investments.  The Bank had also met the QTL test in each of the prior 12 months and was, therefore, a qualified thrift lender.

    Branching.  Subject to certain limitations, federal law permits the Bank to establish branches in any state of the United States.  The authority for the Bank to establish an interstate branch network would facilitate a geographic diversification of the Bank's activities.  This authority under federal law and regulations preempts any state law purporting to regulate branching by federal savings associations.

Community Reinvestment.  Under the CRA, as amended, as implemented by OCC regulations, the Bank has a continuing and affirmative obligation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.  The CRA does not establish specific lending requirements or programs for the Bank nor does it limit the Bank's discretion to develop the types of products and services that it believes are best suited to its particular community.  The CRA does, however, require the OCC, in connection with its examination of the Bank, to assess the Bank's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the Bank.

In particular, the system focuses on three tests:

(1)a lending test, to evaluate the institution's record of making loans in its assessment areas;

(2)an investment test, to evaluate the institution's record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses; and

(3)a service test, to evaluate the institution's delivery of banking services through its branches, ATM centers and other offices.

The CRA also requires all institutions to make public disclosure of their CRA ratings.  The Bank received an “Outstanding” CRA rating in its most recent examination conducted in March 2022.

Regulations require that Carver Federal publicly disclose certain agreements that are in fulfillment of the CRA.  The Company has no such agreements in place at this time.

In June 2020, the OCC issued amendments to its CRA regulations. The final rule clarifies and expands the activities that qualify for CRA credit, updates where activities count for such credit and, according to the agency, seeks to create a more consistent and objective method for evaluating CRA performance. The final rule was effective October 1, 2020 but compliance with the certain of the revised requirements is not mandatory for the Association until January 1, 2023.

Transactions with Related Parties.  The Bank's authority to engage in transactions with its “affiliates” is limited by federal regulations and by Sections 23A and 23B of the Federal Reserve Act.  In general, these transactions must be on terms which are as favorable to the Bank as comparable transactions with non-affiliates.  Additionally, certain types of these transactions are restricted to an aggregate percentage of the Bank's capital.  Collateral in specified amounts must usually be provided by affiliates to receive loans from the Bank.  In addition, OCC regulations prohibit a savings bank from lending to any
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affiliate that is engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate other than a subsidiary.

The Bank's authority to extend credit to its directors, executive officers, and 10% shareholders ("insiders"), as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.  Among other things, these provisions require that all loans or extensions of credit to insiders (a) be made on terms that are substantially the same as and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (b) not exceed certain limitations, individually and in the aggregate, which limits are based, in part, on the amount of the Bank's capital.  In addition, extensions of credit in excess of certain limits must be approved by the Bank's Board.  The aggregate amount of related party deposits were $432 thousand and there was one related party loan totaling $30 thousand at March 31, 2022.

Assessment. The OCC charges assessments to recover the cost of examining savings associations and their affiliates.  These assessments are based on three components: the size of the association, on which the basic assessment is based; the association's supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings institution with a composite rating of 3, 4, or 5 in its most recent safety and soundness examination; and the complexity of the association's operations, which results in an additional assessment based on a percentage of the basic assessment for any savings association that managed over $1 billion in trust assets, serviced for others loans aggregating more than $1 billion, or had certain off-balance sheet assets aggregating more than $1 billion.  For fiscal 2022, Carver paid $216 thousand in regulatory assessments.

Insurance of Deposit Accounts

Under the FDIC's risk-based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions of less than $10 billion of assets are now based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years.

The Dodd-Frank Act required the FDIC to revise its procedures to base assessments upon each insured institution's total assets less tangible equity instead of deposits. The current assessment range (inclusive of possible adjustments) for insured institutions of less than $10 billion of total assets is 1.5 basis points to 30 basis points.

The FDIC has authority to further increase insurance assessments and therefore management cannot predict what insurance assessment rates will be in the future. A significant increase in insurance premiums may have an adverse effect on the operating expenses and results of operations of the Bank. For fiscal 2022, Carver paid $363 thousand in FDIC insurance.

Anti-Money Laundering and Customer Identification

The Bank is subject to federal regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”).  The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.  By way of amendments to the Bank Secrecy Act ("BSA"), Title III of the USA PATRIOT Act took measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies.  Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the United States Commodity Exchange Act of 1936, as amended.

Title III of the USA PATRIOT Act and the related federal regulations imposed the following requirements with respect to financial institutions:

Establish a Board approved policy and perform a risk assessment of BSA, Anti-Money Laundering and Office of Foreign Assets Control;

Designate a qualified BSA officer;

Establish an effective training program;

Establish anti-money laundering programs;

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Establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time;

Establish enhanced due diligence policies, procedures and controls designed to detect and report money laundering; and

Prohibit correspondent accounts for foreign shell banks and compliance with record keeping obligations with respect to correspondent accounts of foreign banks

    In addition, bank regulators were directed to consider a holding company's effectiveness in combating money laundering when ruling on certain corporate applications.

Federal Home Loan Bank System  

The Bank is a member of the FHLB-NY, which is one of the eleven regional banks composing the FHLB System.  Each regional bank provides a central credit facility primarily for its member institutions.  The Bank, as a FHLB-NY member, is required to acquire and hold shares of capital stock in the FHLB-NY in specified amounts.  The Bank was in compliance with this requirement with an investment in the capital stock of the FHLB-NY at March 31, 2022 of $584 thousand.  Any advances from the FHLB-NY must be secured by specified types of collateral, and all long-term advances may be obtained only for the purpose of providing funds for residential housing finance.

FHLB-NY is required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs.  These requirements could reduce the amount of earnings that the FHLB-NY can pay as dividends to its members and could also result in the FHLB-NY imposing a higher rate of interest on advances to its members.  If dividends were reduced, or interest on future FHLB-NY advances increased, the Bank's net interest income would be adversely affected.  Dividends from FHLB-NY to the Bank amounted to $26 thousand and $33 thousand for fiscal years 2022 and 2021, respectively.  The dividend rate paid on FHLB-NY stock at March 31, 2022 was 4.75%.

Privacy Protection

Carver Federal is subject to OCC regulations implementing the privacy protection provisions of federal law.  These regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “nonpublic personal information” to customers at the time of establishing the customer relationship and annually thereafter.  The regulations also require the Bank to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices.  In addition, to the extent its sharing of such information is not exempted, the Bank is required to provide its customers with the ability to opt-out of having the Bank share their nonpublic personal information with unaffiliated third parties before they can disclose such information, subject to certain exceptions.

The Bank is subject to regulatory guidelines establishing standards for safeguarding customer information.  These regulations implement certain provisions of the Gramm-Leach-Bliley Act, as amended ("GLB").  The guidelines describe the agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities.  The standards set forth in the guidelines are intended to insure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.  The Bank has a policy to comply with the foregoing guidelines.

Holding Company Regulation

The Company is a savings and loan holding company regulated by the FRB. As such, the Company is registered with and subject to FRB examination and supervision, as well as certain reporting requirements. The FRB has enforcement authority over the Company and its subsidiaries. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary savings institution.

The GLB restricts the powers of new unitary savings and loan holding companies. Unitary savings and loan holding companies that are “grandfathered,” i.e., unitary savings and loan holding companies in existence or with applications filed with the regulator on or before May 4, 1999, such as the Company, retain their authority under the prior law. All other unitary savings and loan holding companies are limited to financially related activities permissible for financial holding companies and
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certain other activities specified by FRB regulations. GLB also prohibits nonfinancial companies from acquiring grandfathered unitary savings and loan holding companies.

Restrictions Applicable to All Savings and Loan Holding Companies.  Federal law prohibits a savings and loan holding company, including the Company, directly or indirectly, from acquiring:

(1)control (as defined under the HOLA), of another savings institution (or a holding company parent) without prior FRB approval;

(2)through merger, consolidation, or purchase of assets, another savings institution or a holding company thereof, or acquiring all or substantially all of the assets of such institution (or a holding company), without prior FRB approval; or

(3)control of any depository institution not insured by the FDIC.

A savings and loan holding company may not acquire as a separate subsidiary an insured institution that has a principal office outside of the state where the principal office of its subsidiary institution is located, except:

(1)in the case of certain emergency acquisitions approved by the FDIC;

(2)if such holding company controls a savings institution subsidiary that operated a home or branch office in such additional state as of March 5, 1987; or

(3)if the laws of the state in which the savings institution to be acquired is located specifically authorize a savings institution chartered by that state to be acquired by a savings institution chartered by the state where the acquiring savings institution or savings and loan holding company is located or by a holding company that controls such a state chartered association.

In evaluating applications by holding companies to acquire savings associations, the FRB must consider issues such as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

The FRB has promulgated consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to their subsidiary depository institutions, including a community bank leverage ratio alternative. However, holding companies with less than $3.0 billion of consolidated assets, such as the Company, are generally not subject to consolidated capital requirements unless otherwise advised by the FRB.

The FRB promulgated regulations implementing the “source of strength” policy that requires holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The FRB has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies that it has made applicable to savings and loan holding companies as well. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends’ previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also provides for regulatory consultation prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

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Federal Securities Laws

 The Company is subject to the periodic reporting, proxy solicitation, tender offer, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Delaware Corporation Law

The Company is incorporated under the laws of the State of Delaware.  Thus, it is subject to regulation by the State of Delaware and the rights of its shareholders are governed by the General Corporation Law of the State of Delaware.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) and stimulate the economy. The law had several provisions relevant to financial institutions, including:

Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructurings and also allowing them to suspend the corresponding impairment determination for accounting purposes.

The ability of a borrower of a federally backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance could be granted for up to 180 days, with an extension for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract would accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, which period was subsequently extended several times by administrative action..

The ability of a borrower of a multi-family federally backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance to the borrower’s servicer affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. A forbearance could be granted for up to 30 days, with an extension for up to two additional 30-day periods upon the request of the borrower. During the time of the forbearance, the multifamily borrower cannot evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent. Additionally, a multifamily borrower that receives a forbearance may not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on which the borrower provides the tenant notice to vacate and may not issue a notice to vacate until after the expiration of the forbearance. Federal mortgage backing agencies have extended this program.

The Paycheck Protection Program

The Paycheck Protection Program (“PPP”), established as part of the CARES Act, provided 100% federally guaranteed loans to eligible small businesses through the Small Business Administration’s (“SBA”) 7(a) loan guaranty program for amounts up to 2.5 times the average monthly “payroll costs” of the business. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible for PPP loan forgiveness so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses, including, but not limited to, mortgage interest, rent and utilities. In May 2021, the SBA announced that PPP funding has been exhausted and the SBA stopped accepting new PPP loan applications.

FEDERAL AND STATE TAXATION

Federal Taxation

General. The Company and the Bank currently file a consolidated federal income tax return on the basis of a taxable year ending March 31 using the accrual method of accounting, and are subject to federal income taxation in the same manner as other corporations with some exceptions, including in particular the Bank's tax reserve for bad debts. The Bank has a subsidiary which files a REIT tax return which reports its income for tax purposes on the basis of a taxable year ending
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December 31. The REIT does not join in the consolidated return and it pays tax on its undistributed taxable income. The REIT has and intends to continue to distribute its taxable income and therefore not pay tax at the REIT level. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company.

Distributions. To the extent that the Bank makes “non-dividend distributions” to shareholders, such distributions will be considered to result in distributions from the Bank's “base year reserve,” i.e., its reserve as of March 31, 1988, to the extent thereof and then from its supplemental reserve for losses on loans, and an amount based on the amount distributed will be included in the Bank's taxable income. Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation. However, dividends paid out of the Bank's current or accumulated earnings and profits, as calculated for federal income tax purposes, will not constitute non-dividend distributions and, therefore, will not be included in the Bank's taxable income.

The amount of additional taxable income created from a non-dividend distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution.  Thus, approximately 1.2 times the non-dividend distribution would be includable in gross income for federal income tax purposes, assuming a 21% federal corporate income tax rate.

In December 2017, "The Tax Cuts and Jobs Act" was signed into law. At March 31, 2018, the Company made a reasonable estimate and recorded a remeasurement of the Company’s net deferred income tax assets and liabilities based on the new reduced U.S. corporate income tax rate.  The impact on the net deferred tax asset before valuation allowances was a reduction of $3.1 million, which was offset by a corresponding decrease in the valuation allowance of the same amount.  The Company recorded a benefit of $0.3 million for alternative minimum tax credits which, under the new tax law, are refundable.  As of March 31, 2022, the Company has a pending AMT credit refund of $143 thousand, related to the AMT credits, from its filed fiscal year 2020 federal tax return.
State and Local Taxation

State of New York.  The Bank and the Company (including the REIT) file tax returns on a combined basis and are subject to New York State franchise tax on their entire net income or one of several alternative bases, whichever results in the highest tax.  “Entire net income” means federal taxable income with adjustments.  If, however, the application of an alternative tax (based on capital allocated to New York or a fixed minimum fee) results in a greater tax, the alternative tax will be imposed.  The Company was subject to tax based upon capital for New York State for fiscal 2022. In addition, New York State imposes a tax surcharge of 30% of the New York State Franchise Tax allocable to business activities carried on in the Metropolitan Commuter Transportation District. For fiscal 2022, the New York State franchise tax rate computed on capital was 0.1875%.  

New York City.  The Bank and the Company (including the REIT) file on a combined basis and are also subject to a similarly calculated New York City banking corporation tax on capital allocated to New York City.  For fiscal 2022, the New York City banking corporation tax rate computed on capital is 0.15%.

Delaware Taxation.  As a Delaware holding company not earning income in Delaware, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.

ITEM 1A.RISK FACTORS.

The material risks that management believes affect the Company are described below. You should carefully consider the risks as described below, together with all of the information included herein. The risks described below are not the only risks the Company faces. Additional risks not presently known also may have a material adverse effect on the Company’s results of operations and financial condition.

Risks Related to Lending Activities

Our loan portfolio exhibits a high degree of risk.

We have a significant amount of commercial real estate loans that have a higher risk of default and loss than single-family residential mortgage loans. Commercial real estate loans amount to $174.3 million, or 30.2% of our loan portfolio at March 31, 2022. Commercial real estate loans generally are considered to involve a higher degree of risk due to a variety of
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factors, including generally larger loan balances and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at the stated maturity date. Repayment of commercial real estate loans generally is dependent on income being generated by the rental property or underlying business in amounts sufficient to cover operating expenses and debt service. Failure to adequately underwrite and monitor these loans may result in significant losses to Carver Federal.

The allowance for loan losses could be insufficient to cover Carver's actual loan losses.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. Material additions to the allowance would materially decrease net income.

In addition, the OCC periodically reviews the allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. A material increase in the allowance for loan losses or loan charge-offs as required by the regulatory authorities would have a material adverse effect on the Company's financial condition and results of operations. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of additional impaired loans and leases and other factors, both within and outside of our control. Additions to the allowance could have a negative impact on our results of operations.

Risks Related to Laws and Regulation and Their Enforcement

Failure to comply with the Formal Agreement could adversely affect our business, financial condition and operating results.

In May 2016, the Bank entered into a Formal Agreement with the OCC. The Formal Agreement required the Bank to reduce its concentration of commercial real estate and required that the Bank undertake several actions to improve compliance matters and overall profitability. Based on an updated report of examination, the Bank's CRE concentration was at appropriate levels and there were no issues surrounding any compliance matters. Failure to comply with the Formal Agreement could result in additional supervisory and enforcement actions against the Bank, its directors, or senior executive officers, including the issuance of a cease and desist order or the imposition of civil money penalties. The Bank's compliance efforts may have an adverse impact on its non-interest expense and net income.

Carver is subject to more stringent capital requirements, which may adversely impact the Company's return on equity, or constrain it from paying dividends or repurchasing shares.

In July 2013, the FDIC and the FRB approved a new rule that substantially amended the regulatory risk-based capital rules applicable to the Bank and the Company. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

    The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Bank and the Company on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also established a “capital conservation buffer” of 2.5%, and the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions. Regardless of Basel III's minimum requirements, Carver, as a result of the previously described Formal Agreement, was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio. At March 31, 2022, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage ratio of 10.45%, Common Equity Tier 1 capital ratio of 13.75%, Tier 1 risk-based capital ratio of 13.75%, and a total risk-based capital ratio of 14.78%.
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There can be no assurance that our regulator will approve payment of our deferred interest on our outstanding trust preferred securities.

    Carver is a unitary savings and loan association holding company regulated by the FRB and almost all of its operating assets are owned by Carver Federal. Carver relies primarily on dividends from the Bank to pay cash dividends to its stockholders, and to engage in share repurchase programs. The OCC regulates all capital distributions, including dividend payments, by the Bank to the Company, and the FRB regulates dividends paid by the Company. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in the Bank’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement, the Bank is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended its regular quarterly cash dividend to the Company. There are no assurances that dividend payments to the Company will resume.
    
    Debenture interest payments on the Carver Statutory Trust I capital securities had been deferred, which is permissible under the terms of the Indenture for up to twenty consecutive quarterly periods, as the Company was prohibited from making payments without prior approval from the Federal Reserve Bank. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment on the outstanding debenture interest was made on June 16, 2021. The Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make the debenture interest payments. Quarterly interest payments are now current, up to and including the most recent one, which was due on June 17, 2022. However, there can be no assurance that our regulators will approve future payments on our outstanding trust preferred securities.

The Company and the Bank operate in a highly regulated industry, which limits the manner and scope of business activities.  

Carver Federal is subject to extensive supervision, regulation and examination by the OCC, as the Bank's chartering authority and, to a lesser extent, by the FDIC, as insurer of its deposits. The Company is subject to extensive supervision, regulation and examination by the FRB, as regulator of the holding company. As a result, Carver Federal and the Company are limited in the manner in which Carver Federal and the Company conducts its business, undertakes new investments and activities and obtains financing. This regulatory structure is designed primarily for the protection of the deposit insurance funds and depositors, and not to benefit the Company's stockholders. This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. In addition, Carver Federal must comply with significant anti-money laundering and anti-terrorism laws. Government agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws.

The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. It also provides that the listing standards of the national securities exchanges shall require listed companies to implement and disclose “clawback” policies mandating the recovery of incentive compensation paid to executive officers in connection with accounting restatements. The legislation also directs the FRB to promulgate rules prohibiting excessive compensation paid to bank holding company executives.

The Financial Accounting Standards Board, the SEC and other regulatory entities, periodically change the financial accounting and reporting guidance that governs the preparation of the Company's consolidated financial statements. These changes can be difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply new or revised guidance retroactively.

Risks Related to the Economic Conditions

Carver's results of operations are affected by economic conditions in the New York metropolitan area.  
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At March 31, 2022, a significant majority of the Bank's lending portfolio was concentrated in the New York metropolitan area.  As a result of this geographic concentration, Carver's results of operations are largely dependent on economic conditions in this area.  Decreases in real estate values could adversely affect the value of property used as collateral for loans to our borrowers.  Adverse changes in the economy caused by inflation, recession, unemployment, state or local real estate laws and regulations or other factors beyond the Bank's control may also continue to have a negative effect on the ability of borrowers to make timely mortgage or business loan payments, which would have an adverse impact on earnings.  Over the past several months: (1) Russia declared war on Ukraine, (2) the annual inflation rate for the United States reached 8.6% for the twelve-month period ended May 31, 2022 (the largest annual increase since December 1981) and (3) as of June 14, 2022, the national average gas price hit a record high. As of that date, the national average price for a gallon of gas was $5.01, the highest number ever recorded. Additionally, COVID-19 has impacted businesses in New York more severely than in the rest of the nation, according to a report from the Office of the New York State Comptroller. Since the U.S. Census Bureau began collecting and reporting data through the Small Business Pulse Survey, New York’s small businesses have consistently reported experiencing a negative effect from the pandemic at rates that exceed the national average. Consequently, deterioration in economic conditions in the New York metropolitan area, including the continued out-sized negative impact of COVID-19 in the New York metropolitan area, could have a material adverse impact on the quality of the Bank's loan portfolio, which could result in increased delinquencies, decreased interest income results as well as an adverse impact on loan loss experience with probable increased allowance for loan losses. Such deterioration also could adversely impact the demand for products and services, and, accordingly, further negatively affect results of operations.

The soundness of other financial institutions could negatively affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

Risks Related to the COVID-19 Outbreak

The economic impact of the COVID-19 outbreak could adversely impact our financial condition and results of operations

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments had ordered non-essential businesses to close and residents to shelter in place at home. This resulted in an unprecedented slow-down in economic activity, a related increase in unemployment and a significant decline in the value of the stock market, and in particular, bank stocks. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes declined to historic lows. Various state governments and federal agencies required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies encouraged financial institutions to prudently work with affected borrowers and passed legislation provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries were particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. The spread of the coronavirus has caused the Company to modify its business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.

Given the ongoing and dynamic nature of the circumstances, it was difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact is dependent upon future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy would reopen.

As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

demand for our products and services may decline, making it difficult to grow assets and income;
if the economy is unable to substantially and safely reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
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collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
our cybersecurity risks are increased as a result of an increase in the number of employees working remotely;
we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and
Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

Risks Related to Market Interest Rates

Changes in interest rates may adversely affect our profitability and financial condition.

We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income. From an interest rate risk perspective, for many years the Company was liability sensitive, which indicated that liabilities were generally re-pricing faster than assets. For the past several years, Carver has been asset sensitive, which indicates that assets generally re-price faster than liabilities. In a rising rate environment, asset sensitivity is preferable as it results in improvement to our net interest margin.

In response to improving economic conditions, the Federal Open Market Committee ("FOMC") had slowly increased its federal funds rate target from a range of 0.00% - 0.25% that was in effect for several years to the target range of 2.25% - 2.50% that was in effect at March 31, 2019. However, as the result of the COVID-19 pandemic and the related adverse local and economic consequences, the target range was decreased to the range of 0.00% - 0.25% at March 31, 2020.  Citing strong job gains, a falling unemployment rate and "elevated" inflation, the Federal Reserve approved the first interest rate hike in more than three years on March 16, 2022, increasing the target range to 0.25% - 0.50%. On May 5, 2022, the FOMC voted approval for a 50 basis-point increase in the primary credit rate up to 1.00%. In their most recent meeting in June 2022, the FOMC approved a 75 basis-point increase to 1.75%, which was the first 0.75% rate hike issued by the FOMC since 1994.

Interest rates also affect how much money we lend. For example, when interest rates rise, the cost of borrowing increases and loan originations tend to decrease. A rising rate environment can also negatively impact the Company if the higher debt service costs on adjustable-rate loans lead to borrowers' inability to pay contractual obligations. In addition, changes in interest rates can affect the average life of loans and securities. For example, a reduction in interest rates generally results in increased prepayments of loans and mortgage-backed securities, as borrowers refinance their debt in order to reduce their borrowing cost. This causes reinvestment risk, because we generally are not able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities in a declining rate environment.

Changes in market interest rates also impact the value of our interest-earning assets and interest-bearing liabilities.  In particular, the unrealized gains and losses on securities available for sale are reported, net of taxes, as accumulated other comprehensive income which is a component of stockholders’ equity.  Consequently, declines in the fair value of these instruments resulting from changes in market interest rates may adversely affect stockholders’ equity.

Risks Related to the Bank's Business

Uncertainty surrounding the elimination of LIBOR and the proposed transition to SOFR may adversely affect our business.

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The U.S. dollar-denominated London Interbank Offered Rate ("LIBOR") is used to calculate interest rates for numerous types of debt obligations, including personal and commercial loans, interest rate swaps, and other derivative products, making it a primary metric in the global banking system. The U.K. Financial Conduct Authority ("FCA") has determined that LIBOR should no longer be used as a benchmark rate. In anticipation of the elimination of LIBOR, the U.S. Federal Reserve established the Alternative Reference Rates Committee ("ARRC") to select a replacement index for U.S. Dollar LIBOR. ARRC, comprised of a group of large domestic banks and regulators, has voted to use a benchmark, known as the Secured Overnight Financing Rate ("SOFR"). SOFR is based on short-term loans backed by Treasury securities, known as repurchase agreements or "repo" trades. ARRC has announced a paced transition plan for this new rate, including specific steps and timelines designed to encourage adoption of SOFR. As of March 31, 2022, we have exposure to approximately $16.1 million of financial assets and liabilities, including off-balance sheet instruments, which are LIBOR-based. We do not yet know whether, and if so the extent to which, the elimination of LIBOR and the transition to SOFR will have any material impact on these instruments.

Risks Related to the Bank's Operations

Failure to maintain effective systems of internal and disclosure controls could have a material adverse effect on the Company’s results of operation and financial condition.

    Effective internal and disclosure controls are necessary for the Company to provide reliable financial reports and effectively prevent fraud, and to operate successfully as a public company. If the Company cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of the Company’s ongoing monitoring of internal controls, it may discover material weaknesses or significant deficiencies in its internal controls that require remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

    The Company continually works on improving its internal controls. However, the Company cannot be certain that these measures will ensure that it implements and maintains adequate controls over its financial processes and reporting. Any failure to maintain effective controls or to timely implement any necessary improvement of the Company’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm the Company’s reputation, or cause investors to lose confidence in the Company’s reported financial information, all of which could have a material adverse effect on the Company’s results of operation and financial condition.

The Company is subject to certain risks with respect to liquidity.

Liquidity refers to the Company's ability to generate sufficient cash flows to support its operations and to fulfill its obligations, including commitments to originate loans, to repay wholesale borrowings and other liabilities, and to satisfy the withdrawal of deposits by its customers.

The Company's primary sources of liquidity are the cash flows generated through the repayment of loans and securities, cash flows from the sale of loans and securities, deposits gathered organically through the Bank's branch network, from socially motivated depositors, city and state agencies and deposit brokers and borrowed funds, primarily in the form of wholesale borrowings from the FHLB-NY.  In addition, and depending on current market conditions, the Company has the ability to access the capital markets from time to time.

Deposit flows, calls of investment securities and wholesale borrowings, and prepayments of loans and mortgage-related securities are strongly influenced by such external factors as the direction of interest rates, whether actual or perceived, local and national economic conditions and competition for deposits and loans in the markets the Bank serves. Furthermore, changes to the FHLB-NY's underwriting guidelines for wholesale borrowings may limit or restrict the Bank's ability to borrow, and could therefore have a significant adverse impact on liquidity.

A decline in available funding could adversely impact the Bank's ability to originate loans, invest in securities, and meet expenses, or to fulfill such obligations as repaying borrowings or meeting deposit withdrawal demands.

Carver may not be able to utilize its income tax benefits.

The Company's ability to utilize the deferred tax asset generated by New Markets Tax Credit income tax benefits as well as other deferred tax assets depends on its ability to meet the NMTC compliance requirements and its ability to generate sufficient taxable income from operations in the future. Since the Bank has not generated sufficient taxable income to utilize
32


tax credits as they were earned, a deferred tax asset has been recorded in the Company's financial statements. For additional information regarding Carver's NMTC, refer to Item 7, "Variable Interest Entities."

The future recognition of Carver's deferred tax asset is highly dependent upon Carver's ability to generate sufficient taxable income. A valuation allowance is required to be maintained for any deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the time the estimate is made. In assessing Carver's need for a valuation allowance, we rely upon estimates of future taxable income. Although we use the best available information to estimate future taxable income, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances influencing our projections. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory rates, and future taxable income levels. The Company determined that it would not be able to realize all of its net deferred tax assets in the future, as such a charge to income tax expense in the second quarter of fiscal 2011 was made. Conversely, if the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, the Company would decrease the recorded valuation allowance through a decrease in income tax expense in the period in which that determination was made.

On June 29, 2011, the Company raised $55 million of equity. 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 carry forwards, general business credits, and recognized built-in losses upon a change in ownership. The Company is subject to an annual limitation of approximately $0.9 million. The Company has a net deferred tax asset (“DTA”) of approximately $23.9 million.  Based on management's calculations, the Section 382 limitation has resulted in previous reductions of the deferred tax asset of $5.8 million. The Company also continues to maintain a valuation allowance for the remaining net deferred tax asset of $23.9 million. The Company is unable to determine how much, if any, of the remaining DTA will be utilized.

Risks associated with cyber-security could negatively affect our earnings.

The financial services industry has experienced an increase in both the number and severity of reported cyber attacks aimed at gaining unauthorized access to bank systems as a way to misappropriate assets and sensitive information, corrupt and destroy data, or cause operational disruptions

We have established policies and procedures to prevent or limit the impact of security breaches, but such events may still occur or may not be adequately addressed if they do occur. Although we rely on security safeguards to secure our data, these safeguards may not fully protect our systems from compromises or breaches.

We also rely on the integrity and security of a variety of third party processors, payment, clearing and settlement systems, as well as the various participants involved in these systems, many of which have no direct relationship with us. Failure by these participants or their systems to protect our customers' transaction data may put us at risk for possible losses due to fraud or operational disruption.

Our customers are also the target of cyber attacks and identity theft. Large scale identity theft could result in customers' accounts being compromised and fraudulent activities being performed in their name. We have implemented certain safeguards against these types of activities but they may not fully protect us from fraudulent financial losses.

The occurrence of a breach of security involving our customers' information, regardless of its origin, could damage our reputation and result in a loss of customers and business and subject us to additional regulatory scrutiny, and could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

System failure or breaches of Carver’s network security could subject it to increased operating costs as well as litigation and other liabilities.
 
The computer systems and network infrastructure Carver and its third-party service providers use has been, and in the future, could be vulnerable to unforeseen problems. Carver’s operations are dependent upon its ability to protect its computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in Carver’s operations could have a material adverse effect on its financial condition and results of operations. Computer break-ins, phishing and other disruptions may occur, and in infrequent cases have occurred, and could jeopardize the security of information stored in and transmitted through Carver’s computer systems and network infrastructure, which may result in significant liability to Carver and may cause existing and potential customers to refrain from doing business with Carver. Although Carver, with the help of third-party service providers, intends to continue to
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implement security technology and establish operational procedures designed to prevent such damage, its security measures may not be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms Carver and its third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on Carver’s financial condition and results of operations.
 
It is possible that a significant amount of time and money may be spent to rectify the harm caused by a breach or hack. While Carver has general liability insurance, there are limitations on coverage as well as dollar amount. Furthermore, cyber incidents carry a greater risk of injury to Carver’s reputation. Finally, depending on the type of incident, banking regulators can impose restrictions on Carver’s business and consumer laws may require reimbursement of customer loss.

We are subject to risks and losses resulting from fraudulent activities that could adversely impact our financial performance and results of operations.

As a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, checking transactions, and debit cards that we have issued to our customers and through our online banking portals.

The Company's business could suffer if it fails to retain skilled people.  

The Company's success depends on its ability to attract and retain key employees reflecting current market opportunities and challenges.  Competition for the best people is intense, and the Company's size and limited resources may present additional challenges in being able to retain the best possible employees, which could adversely affect the results of operations.

Risks Related to Future Stock Issuances

We may be limited in our ability to access sufficient funding through a public or private equity offering or convertible debt offering.

Nasdaq rules impose restrictions on our ability to raise funds through a private offering of our common stock, convertible debt or similar instruments without obtaining stockholder approval. Under Nasdaq rules, an offering of more than 20% of our total shares outstanding at a price per share less than (i) the closing price of our common stock on the Nasdaq Capital Market immediately preceding the signing of the binding agreement, or (ii) the average closing price of our common stock on the Nasdaq Capital Market for the five trading days immediately preceding the signing of the binding agreement requires stockholder approval unless the offering qualifies as a “public offering” for purposes of the Nasdaq rules. As of March 31, 2022, we had 4,216,815 shares of common stock outstanding. SEC rules impose restrictions on our ability to raise funds through the registered offering of our securities pursuant to a “shelf” registration statement on Form S-3. Under SEC rules, we are prohibited from selling securities under such a registration statement if the aggregate market value of the securities sold thereunder in any twelve-month period exceeds one-third of the market value of our outstanding common stock held by non-affiliates. In 2021, we entered into a sales agreement, with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in one or more “at the market offerings.” As of March 31, 2022, we have sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million. Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent. In the future, we may be limited in our ability to access sufficient funding through a public or private equity offering or convertible debt offering.

A future issuance of stock could dilute the value of our common stock.

We may sell additional shares of common stock, or securities convertible into or exchangeable for such shares, in subsequent public or private offerings. As of March 31, 2022, there were 4,216,815 shares of our common stock outstanding. Future issuance of any new shares could cause further dilution in the value of our outstanding shares of common stock. We cannot predict the size of future issuances of our common stock, or securities convertible into or exchangeable for such shares, or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock.

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Risks Related to the Competitive Matters

Strong competition within the Bank's market areas could adversely affect profits and slow growth.

The New York metropolitan area has a high density of financial institutions, of which many are significantly larger than Carver Federal and with greater financial resources.  Additionally, various large out-of-state financial institutions may continue to enter the New York metropolitan area market.  All are considered competitors to varying degrees.

Carver Federal faces intense competition both in making loans and attracting deposits. Competition for loans, both locally and in the aggregate, comes principally from mortgage banking companies, commercial banks, savings banks and savings and loan associations. Most direct competition for deposits comes from commercial banks, savings banks, savings and loan associations and credit unions.   The Bank also faces competition for deposits from money market mutual funds and other corporate and government securities funds, as well as from other financial intermediaries, such as brokerage firms and insurance companies.  Market area competition is a factor in pricing the Bank's loans and deposits, which could reduce net interest income.  Competition also makes it more challenging to effectively grow loan and deposit balances. The Company's profitability depends upon its continued ability to successfully compete in its market areas.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

    Not Applicable.

ITEM 2.PROPERTIES.

    The Bank currently conducts its business through one administrative office and seven branches (including the Harlem West 125th Street Main branch) and four separate ATM locations. The following table sets forth certain information regarding Carver Federal's offices and other material properties at March 31, 2022.  The Bank believes that such facilities are suitable and adequate for its operational needs.
BranchesAddressCity/StateYear OpenedOwned or
Leased
Lease
Expiration Date
Main Branch75 West 125th StreetNew York, NY1996Leased2/2028
Crown Heights Branch1009-1015 Nostrand AvenueBrooklyn, NY1975Leased12/2025
St. Albans Branch115-02 Merrick BoulevardJamaica, NY1996Leased2/2026
Malcolm X Blvd. Branch142 Malcolm X BoulevardNew York, NY2001Leased4/2026
Atlantic Terminal Branch4 Hanson PlaceBrooklyn, NY2003Leased4/2024
Flatbush Branch833 Flatbush AvenueBrooklyn, NY2009Leased8/2022
Restoration Plaza1392 Fulton StreetBrooklyn, NY2009Leased10/2023
ATM Centers
Fulton Street1950 Fulton StreetBrooklyn, NY2005Leased1/2023
ATM Machines
Atlantic Terminal Mall139 Flatbush AvenueBrooklyn, NY2004Leased4/2024
Atlantic Center625 Atlantic AvenueBrooklyn, NY2006Leased3/2023
Brooklyn Navy Yard141-07 Flushing AvenueBrooklyn, NY2019Leased10/2023
Administrative Office
1825 Park Avenue1825 Park AvenueNew York, NY2018Leased12/2028

ITEM 3.LEGAL PROCEEDINGS

    From time to time, the Company and the Bank or one of its wholly-owned subsidiaries are parties to various legal proceedings incident to their business. At March 31, 2022, certain claims, suits, complaints and investigations (collectively “proceedings”) involving the Company and the Bank or a subsidiary, arising in the ordinary course of business, have been filed or are pending.  The Company is unable at this time to determine the ultimate outcome of each proceeding, but believes, after discussions with legal counsel representing the Company and the Bank or the subsidiary in these proceedings, that it has
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meritorious defenses to each proceeding and appropriate measures have been taken to defend the interests of the Company, Bank or subsidiary. There were no legal proceedings pending or known to be contemplated against us that in the opinion of management, would be expected to have a material adverse effect on the financial condition or results of operations of the Company or the Bank.

ITEM 4.MINE SAFETY DISCLOSURES.

    Not Applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

    Our shares of common stock are traded on the NASDAQ Capital Market under the symbol “CARV". At March 31, 2022, there were 4,216,815 shares of common stock outstanding, held by approximately 512 stockholders of record.  

As previously disclosed in a Current Report on Form 8-K filed with the SEC on October 29, 2010, the Company’s Board of Directors announced that Carver suspended payment of the quarterly cash dividend on its common stock.

Under OCC regulations, the Bank will not be permitted to pay dividends to the Company on its capital stock if its regulatory capital would be reduced below applicable regulatory capital requirements or if its stockholders' equity would be reduced below the amount required to be maintained for the liquidation account, which was established in connection with the Bank's conversion to stock form.  The OCC capital distribution regulations applicable to savings institutions (such as the Bank) that meet their regulatory capital requirements permit, after not less than 30 days prior notice to and non-objection by the FRB, capital distributions during a calendar year that do not exceed the Bank's net income for that year plus its retained net income for the prior two years. For information concerning the Bank's liquidation account, see Note 12 of the Notes to the Consolidated Financial Statements. In addition, the Company is subject to restrictions under the Agreement that affect their ability to pay dividends. See Item 1 - Overview - Enforcement Actions.

On August 6, 2002, the Company announced a stock repurchase program to repurchase up to 15,442 shares of its outstanding common stock.  As of March 31, 2022, 11,744 shares of its common stock have been repurchased in open market transactions at an average price of $235.80 per share (as adjusted for 1-for-15 reverse stock split that occurred on October 27, 2011).  The Company reissued shares as restricted stock in accordance with their management recognition plan. No shares were repurchased pursuant to the stock repurchase program during fiscal 2022. As a result of the Company's participation in the TARP CDCI, the Treasury's prior approval was required to make further repurchases. The Treasury converted its preferred stock into common stock, which the Treasury continued to hold. On August 6, 2020, the Company repurchased all 2,321,286 shares of its common stock held by the Treasury for an aggregate purchase price of $2.5 million. The purchase price was funded by a third party grant. As of this date, the Company is not bound by the TARP CDCI restrictions as the Treasury is no longer a common stockholder of the Company.  
 
Carver has the following equity compensation plans:

(1) The 2006 Stock Incentive Plan became effective in September 2006 and provides for discretionary option grants, stock appreciation rights and restricted stock to those employees and directors so selected by the Compensation Committee.

(2) The Carver Bancorp, Inc. 2014 Equity Incentive Plan became effective in September 2014 and provides for discretionary option grants, stock appreciation rights and restricted stock to those officers and directors selected by the Company’s Compensation Committee.

Additional information regarding Carver's equity compensation plans is incorporated by reference from the section entitled "Securities Authorized for Issuance Under Equity Compensation Plans" in the Proxy Statement (as defined below in Item 10).

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

    There were no unregistered securities to report which have not been previously included in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

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ITEM 6.[RESERVED]
    
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements presented elsewhere in this report.  

Executive Summary

Carver concluded fiscal 2022 with a net loss of $0.8 million compared to net loss of $3.9 million for the prior year period. The change in our results of operations was primarily driven by increases in net interest income and non-interest income, partially offset by an increase in non-interest expense.

The business climate continues to present significant challenges as banks continue to absorb heightened regulatory costs and compete for limited loan demand. Goods and services saw rapid growth in May and there was a large rise in food and energy prices. Additionally, the Federal Reserve has increased the federal funds rate, and will likely continue to increase the federal funds rate in order to bring down inflation that is at a 40-year high.

COVID-19 has impacted businesses in New York more severely than in the rest of the nation, according to a report from the Office of the New York State Comptroller. Since the U.S. Census Bureau began collecting and reporting data through the Small Business Pulse Survey, New York’s small businesses have consistently reported experiencing a negative effect from the pandemic at rates that exceed the national average. Despite the fact that one in five New York small businesses reported a return to normal operations in October 2021, the negative impacts on small businesses with less than 500 employees persist. Small businesses account for the overwhelming majority of firms in most industry sectors in New York. They also employ the majority of workers in industry sectors such as accommodation and food services; wholesale trade; real estate; construction; professional, scientific and technical services; and arts, entertainment and recreation. Carver continues to focus on diversifying its loan portfolio with C&I lending to local small businesses and strives to generate new loan production and to purchase loans at suitable prices.

The prolonged pandemic, or any other epidemic of this sort that ultimately harms the global economy, the U.S. economy or the markets in which we operate could adversely affect Carver’s operations. The long-term effects of COVID-19 on the Company’s business cannot be ascertained as there remains significant uncertainty regarding the breadth and duration of business disruptions related to the virus. In addition, new information may emerge regarding the severity of COVID-19 or the effectiveness of the vaccines developed, causing federal, state and local governments to take additional actions to contain COVID-19 or to treat its impact. Even after formal restrictions have been lifted, changes in the behavior of customers, businesses and their employees – including social distancing – as a result of the pandemic, are unknown. The Company is closely monitoring its asset quality, liquidity, and capital positions. Management is actively working to minimize the current and future impact of this unprecedented situation, and is continuing to make adjustments to operations where appropriate or necessary to help slow the spread of the virus. In addition, as a result of further actions that may be taken to contain or reduce the impact of the COVID-19 pandemic, the Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms. The Company is actively managing the credit risk in its loan portfolio. These and similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers.

At the Market Offering

In 2021, we entered into a sales agreement with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in an “at the market offering.” As of March 31, 2022, we have sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million. Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent.

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SELECTED FINANCIAL DATA

The following selected consolidated financial and other data is as of and for the years ended March 31 and is derived in part from, and should be read in conjunction with the Company's Consolidated Financial Statements and related notes:
$ in thousands20222021202020192018
Selected Financial Condition Data:
Assets$735,314 $676,748 $578,770 $563,713 $693,910 
Total loans receivable, net573,880 478,409 423,786 424,182 472,627 
Investment securities72,850 94,314 75,980 90,982 72,784 
Cash and cash equivalents61,018 75,591 47,540 31,228 134,558 
Deposits628,117 556,559 488,815 480,196 586,883 
Advances from the FHLB-NY and other borrowed money15,949 37,222 13,573 21,403 38,403 
Equity55,087 52,301 48,894 47,136 51,971 
Number of deposit accounts29,950 33,400 30,496 31,447 31,972 
Number of branches
Operating Data:
Interest income22,865 20,307 21,627 23,230 24,359 
Interest expense2,399 4,420 5,631 6,141 5,280 
Net interest income before provision for (recovery of) loan losses20,466 15,887 15,996 17,089 19,079 
Provision for (recovery of) loan losses603 (100)19 (270)135 
Net interest income after provision for (recovery of) loan losses19,863 15,987 15,977 17,359 18,944 
Non-interest income7,354 6,198 3,739 4,649 14,359 
Non-interest expense28,064 26,081 25,139 27,944 27,982 
(Loss) income before income tax (benefit) expense(847)(3,896)(5,423)(5,936)5,321 
Income tax (benefit) expense— — — — (33)
Net (loss) income attributable to Carver Bancorp, Inc.(847)(3,896)(5,423)(5,936)5,354 
Basic (loss) earnings per common share(0.24)(1.14)(1.47)(1.60)0.58 
Diluted (loss) earnings per common share(0.24)(1.14)(1.47)(1.60)0.58 
Selected Statistical Data:
Return on average assets (1)
(0.12)%(0.58)%(0.95)%(0.96)%0.81 %
Return on average stockholders' equity (2) (10)
(1.54)%(8.24)%(10.51)%(12.93)%11.17 %
Return on average stockholders' equity, excluding AOCI (2) (10)
(1.49)%(8.25)%(10.52)%(12.31)%10.77 %
Net interest margin (3)
3.01 %2.49 %2.95 %2.80 %2.94 %
Average interest rate spread (4)
2.88 %2.30 %2.69 %2.57 %2.78 %
Efficiency ratio (5)
100.88 %118.09 %127.38 %128.55 %83.68 %
Operating expense to average assets (6)
3.98 %3.91 %4.39 %4.51 %4.23 %
Average stockholders' equity to average assets (7) (10)
7.77 %7.09 %9.00 %7.41 %7.24 %
Average stockholders' equity, excluding AOCI, to average assets (7) (10)
8.05 %7.08 %9.00 %7.79 %7.51 %
Dividend payout ratio (8)
— — — — — 
Asset Quality Ratios:
Non-performing assets to total assets (9)
1.57 %1.07 %1.19 %1.90 %1.13 %
Non-performing loans to total loans receivable (9)
1.98 %1.49 %1.58 %2.40 %1.39 %
Allowance for loan losses to total loans, excluding PPP loans1.00 %1.15 %1.15 %1.08 %1.07 %
(1)Net income (loss) divided by average total assets.
(2)Net income (loss) divided by average total stockholders' equity.
(3)Net interest income divided by average interest-earning assets.
(4)Combined weighted average interest rate earned less combined weighted average interest rate cost.
(5)Operating expense divided by sum of net interest income and non-interest income.
(6)Non-interest expense divided by average total assets.
(7)Average stockholders' equity divided by average assets for the period ended.
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(8)Dividends paid to common stockholders as a percentage of net income available to common stockholders.
(9)Non-performing assets consist of nonaccrual loans and real estate owned.
(10)See Non-GAAP Financial Measures disclosure below for comparable GAAP measures.

Non-GAAP Financial Measures

    In addition to evaluating the Company's results of operations in accordance with U.S. generally accepted accounting principles (“GAAP”), management routinely supplements their evaluation with an analysis of certain non-GAAP financial measures, such as the return on average stockholders' equity excluding average accumulated other comprehensive income (loss) ("AOCI"), and average stockholders' equity excluding AOCI to average assets. Management believes these non-GAAP financial measures provide information that is useful to investors in understanding the Company's underlying operating performance and trends, and facilitates comparisons with the performance of other banks and thrifts.

    Return on equity measures how efficiently we generate profits from the resources provided by our net assets. Return on average stockholders' equity is calculated by dividing annualized net income (loss) attributable to Carver by average stockholders' equity, excluding AOCI. Management believes that this performance measure explains the results of the Company's ongoing businesses in a manner that allows for a better understanding of the underlying trends in the Company's current businesses. For purposes of the Company's presentation, AOCI includes the changes in the market or fair value of its investment portfolio. These fluctuations have been excluded due to the unpredictable nature of this item and is not necessarily indicative of current operating or future performance.
$ in thousands20222021202020192018
Average Stockholders' Equity
Average Stockholders' Equity$54,858 $47,306 $51,609 $45,920 $47,943 
Average AOCI(1,940)57 43 (2,315)(1,779)
Average Stockholders' Equity, excluding AOCI$56,798 $47,249 $51,566 $48,235 $49,722 
Return on Average Stockholders' Equity(1.54)%(8.24)%(10.51)%(12.93)%11.17 %
Return on Average Stockholders' Equity, excluding AOCI(1.49)%(8.25)%(10.52)%(12.31)%10.77 %
Average Stockholders' Equity to Average Assets7.77 %7.09 %9.00 %7.41 %7.24 %
Average Stockholders' Equity, excluding AOCI, to Average Assets8.05 %7.08 %9.00 %7.79 %7.51 %

Critical Accounting Estimates

Various elements of accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.  Carver's policy with respect to the methodologies used to determine the allowance for loan and lease losses is the most critical accounting policies.  These policies are important to the presentation of Carver's financial condition and results of operations, and involve a high degree of complexity, requiring management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters.  Such assumptions and estimates are susceptible to significant changes in today's economic environment. Changes in these judgments, assumptions or estimates could result in material differences in the Company's results of operations or financial condition.

Allowance for Loan and Lease Losses

The ALLL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio.  There is significant judgment applied in estimating the ALLL.  These assumptions and estimates are susceptible to significant changes based on the current environment. Citing strong job gains, the Federal Reserve approved the first interest rate hike in more than three years on March 16, 2022 and has intimated that rate hikes will continue the remainder of the year. A rising rate environment can negatively impact the Company if the higher debt service costs on adjustable-rate loans lead to borrowers' inability to pay contractual obligations. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALLL even though there may not be a decline in credit quality or an increase in potential problem loans. As such, there can never be assurance that the ALLL accurately reflects the actual loss potential inherent in a loan portfolio.

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General Reserve Allowance

Carver's maintenance of a general reserve allowance in accordance with ASC Subtopic 450-20 includes the Bank's evaluating the risk to loss potential of homogeneous pools of loans based upon historical loss factors and a review of nine different environmental factors that are then applied to each pool.  The main pools of loans (“Loan Type”) are:

One-to-four family
Multifamily
Commercial Real Estate
Business Loans
Consumer (including Overdraft Accounts)

The Bank next applies to each pool a risk factor that determines the level of general reserves for that specific pool.  The Bank estimates its historical charge-offs via a lookback analysis. The actual historical loss experience by major loan category is expressed as a percentage of the outstanding balance of all loans within the category. As the loss experience for a particular loan category increases or decreases, the level of reserves required for that particular loan category also increases or decreases. The Bank’s historical charge-off rate reflects the period over which the charge-offs were confirmed and recognized, not the period over which the earlier losses occurred. That is, the charge-off rate measures the confirmation of losses over a period that occurs after the earlier actual losses. During the period between the loss-causing events and the eventual confirmations of losses, conditions may have changed. There is always a time lag between the period over which average charge-off rates are calculated and the date of the financial statements. During that period, conditions may have changed. Another factor influencing the General Reserve is the Bank’s loss emergence period ("LEP") assumptions which represent the Bank’s estimate of the average amount of time from the point at which a loss is incurred to the point at which the loss is confirmed, either through the identification of the loss or a charge-off. Based upon adequate management information systems and effective methodologies for estimating losses, management has established a LEP floor of one year on all pools.  In some pools, such as in its Commercial Real Estate, Multifamily and Business pools, the Bank demonstrates a LEP in excess of 12 months. The Bank also recognizes losses in accordance with regulatory charge-off criteria.

Because actual loss experience may not adequately predict the level of losses inherent in a portfolio, the Bank reviews nine qualitative factors to determine if reserves should be adjusted based upon any of those factors.  As the risk ratings worsen, some of the qualitative factors tend to increase.  The nine qualitative factors the Bank considers and may utilize are:

1.Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses (Policy & Procedures).
2.Changes in relevant economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (Economy).
3.Changes in the nature or volume of the loan portfolio and in the terms of loans (Nature & Volume).
4.Changes in the experience, ability, and depth of lending management and other relevant staff (Management).
5.Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans (Problem Assets).
6.Changes in the quality of the loan review system (Loan Review).
7.Changes in the value of underlying collateral for collateral dependent loans (Collateral Values).
8.The existence and effect of any concentrations of credit and changes in the level of such concentrations (Concentrations).
9.The effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio (External Forces).

Specific Reserve Allowance

Carver also maintains a specific reserve allowance for criticized and classified loans individually reviewed for impairment in accordance with ASC Subtopic 310-10 guidelines. The amount assigned to the specific reserve allowance is individually determined based upon the loan. The ASC Subtopic 310-10 guidelines require the use of one of three approved methods to estimate the amount to be reserved and/or charged off for such credits. The three methods are as follows:

1.The present value of expected future cash flows discounted at the loan's effective interest rate,
2.The loan's observable market price; or
3.The fair value of the collateral if the loan is collateral dependent.

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The Bank may choose the appropriate ASC Subtopic 310-10 measurement on a loan-by-loan basis for an individually impaired loan, except for an impaired collateral dependent loan.  Guidance requires impairment of a collateral dependent loan to be measured using the fair value of collateral method. A loan is considered "collateral dependent" when the repayment of the debt will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment.

All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment in accordance with ASC Subtopic 310-10. Loans rated Substandard have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. These loans are inadequately protected by the current sound worth, paying capacity of the obligor, or of the collateral pledged, if any. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Carver also performs impairment analysis for all TDRs.  If it is determined that it is probable the Bank will be unable to collect all amounts due according with the contractual terms of the loan agreement, the loan is categorized as impaired.  Loans determined to be impaired are evaluated to determine the amount of impairment based on one of the three measurement methods noted above.  In accordance with guidance, if there is no impairment amount, no reserve is established for the loan.

Financial institutions were not required to comply with ASU No. 2016-13, "Financial Instruments - Credit Loss," which updates the guidance on recognition and measurement of credit losses for financial assets, from the enactment date of the CARES Act until the earlier of the end of the President's declaration of a National Emergency or December 31, 2020. The new methodology requirements, know as the current expected credit loss model ("CECL"), will require entities to adopt an impairment model based on expected losses, rather than incurred losses. The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022. For smaller reporting companies, as defined by the SEC, the FASB further extended the CECL implementation date. The new effective date is for fiscal years beginning after December 15, 2022 (for the Company, the fiscal year ending March 31, 2024), including interim periods within those fiscal years.

Asset/Liability Management

The Company's primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship between the rates on interest-earning assets and interest-bearing liabilities, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and assets, and the credit quality of earning assets. Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize the Company's capital effectively without taking undue risks, to maintain adequate liquidity and to manage its exposure to changes in interest rates.

The economic environment is uncertain regarding long-term interest rate trends. Management monitors the Company's cumulative gap position, which is the difference between the sensitivity to rate changes on the Company's interest-earning assets and interest-bearing liabilities.  In addition, the Company uses various tools to monitor and manage interest rate risk, such as a model that projects net interest income based on increasing or decreasing interest rates.

Discussion of Market Risk-Interest Rate Sensitivity Analysis

As a financial institution, the Bank's primary component of market risk is interest rate volatility.  Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Company's assets and liabilities, and the market value of all interest-earning assets, other than those which are short-term in maturity.  Based upon the Company's nature of operations, it is not subject to foreign currency exchange or commodity price risk.  The Company does not own any trading assets.

The Company seeks to manage its interest rate risk by monitoring and controlling the variation in repricing intervals between its assets and liabilities.  To a lesser extent, it also monitors its interest rate sensitivity by analyzing the estimated changes in market value of its assets and liabilities assuming various interest rate scenarios.  As discussed more fully below, there are a variety of factors that influence the repricing characteristics of any given asset or liability.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution's interest rate sensitivity gap.  An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period.  The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific period of time and the amount of interest-bearing liabilities maturing or repricing within that same time period.  A gap is considered positive when the
41


amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.  Generally, during a period of falling interest rates, a negative gap could result in an increase in net interest income, while a positive gap could adversely affect net interest income.  Conversely, during a period of rising interest rates a negative gap could adversely affect net interest income, while a positive gap could result in an increase in net interest income.  As illustrated below, the Company had a positive one-year gap equal to 6.57% of total rate sensitive assets at March 31, 2022.  As a result, the Company's net interest income may be positively affected by rising interest rates and may be negatively affected by falling interest rates.

The following table sets forth information regarding the projected maturities, prepayments and repricing of the major rate-sensitive asset and liability categories of the Company as of March 31, 2022.  Maturity repricing dates have been projected by applying estimated prepayment rates based on the current rate environment.  The repricing and other assumptions are not necessarily representative of the Company's actual results.  Classifications of items in the table below are different from those presented in other tables and the financial statements and accompanying notes included herein and do not reflect non-performing loans:
$ in thousands<3 Mos.3-12 Mos.1-3 Yrs.3-5 Yrs.5-10 Yrs.10+ Yrs.Non-Interest BearingTotal
Rate Sensitive Assets:
Loans$42,470 $70,633 $143,625 $116,816 $154,729 $50,007 $— $578,280 
Short-term investments57,587 — — — — — — 57,587 
Long-term investments1,330 6,899 8,972 7,381 15,571 32,117 — 72,270 
Other assets— — — — — — 27,177 27,177 
 Total assets$101,387 $77,532 $152,597 $124,197 $170,300 $82,124 $27,177 $735,314 
Rate Sensitive Liabilities:
Non-maturity deposits$4,415 $12,976 $32,712 $30,165 $65,723 $342,921 $— $488,912 
Term deposits45,530 69,499 19,844 4,332 50 — — 139,255 
Borrowings— — — 1,000 — — — 1,000 
Other liabilities— — — — — — 51,060 51,060 
Equity— — — — — — 55,087 55,087 
Total liabilities and equity$49,945 $82,475 $52,556 $35,497 $65,773 $342,921 $106,147 $735,314 
Interest sensitivity gap$51,442 $(4,943)$100,041 $88,700 $104,527 $(260,797)$(78,970)$— 
Cumulative interest sensitivity gap$51,442 $46,499 $146,540 $235,240$339,767$78,970 $— $— 
Ratio of cumulative gap to total rate sensitive assets7.26 %6.57 %20.69 %33.22 %47.98 %11.15 %— — 

    The table above assumes that fixed maturity deposits are not withdrawn prior to maturity and that transaction accounts will decay as disclosed in the table above.

Certain shortcomings are inherent in the method of analysis presented in the table above.  Although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in the market interest rates.  The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates.  Certain assets, such as adjustable-rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset.  In the event of a change in interest rates, prepayments and early withdrawal levels would likely deviate significantly from those assumed in calculating the table.  Additionally, credit risk may increase as many borrowers may experience an inability to service their debt in the event of a rise in interest rate.  Virtually all of the adjustable-rate loans in the Company's portfolio contain conditions that restrict the periodic change in interest rate.

Economic Value of Equity (“EVE”) Analysis.  As part of its efforts to maximize net interest income while managing risks associated with changing interest rates, management also uses the EVE methodology.  EVE is the present value of expected net cash flows from existing assets less the present value of expected cash flows from existing liabilities plus the present value of net expected cash inflows from existing financial derivatives and off-balance sheet contracts. At March 31, 2022, the Company did not report any holdings in financial derivative contracts.
42



Under this methodology, interest rate risk exposure is assessed by reviewing the estimated changes in EVE that would hypothetically occur if interest rates rapidly rise or fall along the yield curve.  Projected values of EVE at both higher and lower interest rate risk scenarios are compared to base case values (no change in rates) to determine the sensitivity to changing interest rates.

Presented below, as of March 31, 2022, is an analysis of the Company's interest rate risk as measured by changes in EVE for instantaneous parallel shifts of +400/-200 basis points change in market interest rates.  Such limits have been established with consideration of the impact of various rate changes and the Company's current capital position.
$ in thousandsEconomic Value of Equity
Change in Rate$ Amount$ Change% Change
+400 bps101,000 26,000 34.7 %
+300 bps98,000 23,000 30.7 %
+200 bps94,000 19,000 25.3 %
+100 bps87,000 12,000 16.0 %
    0 bps75,000 
-100 bps58,000 (17,000)(22.7)%
-200 bps34,000 (41,000)(54.7)%

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements.  Modeling changes in EVE requires the making of certain assumptions, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.  In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Company's net interest income and may differ from actual results.

Average Balance, Interest and Average Yields and Rates

The following table sets forth certain information relating to Carver Federal's average interest-earning assets and average interest-bearing liabilities, and their related average yields and costs for the years ended March 31, 2022, 2021, and 2020.  The table also presents information for the fiscal years indicated with respect to the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, or “interest rate spread,” which savings institutions have traditionally used as an indicator of profitability.  Another indicator of an institution's profitability is its “net interest margin,” which is its net interest income divided by the average balance of interest-earning assets.  Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities.  When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income:
43


202220212020
$ in thousandsAverage BalanceInterestAverage
Yield/
Cost
Average BalanceInterestAverage
Yield/
Cost
Average BalanceInterestAverage
Yield/
Cost
Interest-Earning Assets:
Loans (1)
$516,687 $21,335 4.13 %$456,112 $18,552 4.07 %$423,454 $18,959 4.48 %
Mortgage-backed securities45,371 710 1.56 %41,513 708 1.71 %49,407 1,230 2.49 %
Investment securities42,278 714 1.69 %50,727 953 1.88 %37,717 868 2.30 %
Other investments75,833 106 0.14 %90,857 94 0.10 %32,364 570 1.76 %
Total interest-earning assets680,169 22,865 3.36 %639,209 20,307 3.18 %542,942 21,627 3.99 %
Non-interest-earning assets25,526 27,704 30,207 
Total assets$705,695 $666,913 $573,149 
Interest-Bearing Liabilities:
Deposits
Interest-bearing checking$53,180 $30 0.06 %$37,313 $30 0.08 %$23,765 $29 0.12 %
Savings and clubs112,094 123 0.11 %107,820 235 0.22 %97,453 256 0.26 %
Money market155,719 378 0.24 %125,867 525 0.42 %100,796 533 0.53 %
Certificates of deposit152,803 1,349 0.88 %192,637 2,974 1.54 %188,285 3,799 2.02 %
Mortgagors deposits2,786 10 0.36 %2,257 0.27 %2,219 23 1.04 %
Total deposits476,582 1,890 0.40 %465,894 3,770 0.81 %412,518 4,640 1.12 %
Borrowed money22,923 509 2.22 %38,005 650 1.71 %21,600 991 4.59 %
Total interest-bearing liabilities499,505 2,399 0.48 %503,899 4,420 0.88 %434,118 5,631 1.30 %
Non-interest-bearing liabilities:
   Demand deposits123,493 85,890 58,548 
   Other liabilities27,839 29,818 28,874 
Total liabilities650,837 619,607 521,540 
Stockholders' equity54,858 47,306 51,609 
Total liabilities & equity$705,695 $666,913 $573,149 
Net interest income$20,466 $15,887 $15,996 
Average interest rate spread2.88 %2.30 %2.69 %
Net interest margin3.01 %2.49 %2.95 %
Ratio of average interest-earning assets to interest-bearing liabilities136.17 %126.85 %125.07 %
(1) Includes nonaccrual loans.
(2) Includes FHLB-NY stock.

Rate/Volume Analysis

The following table sets forth information regarding the extent to which changes in interest rates and changes in volume of interest related assets and liabilities have affected the Company's interest income and expense during the fiscal years ended March 31, 2022, 2021, and 2020 (in thousands). For each category of interest-earning assets and interest-bearing liabilities, information is provided for changes attributable to: (1) changes in volume (changes in volume multiplied by prior rate); (2) changes in rate (change in rate multiplied by old volume).  Changes in rate/volume variance are allocated proportionately between changes in rate and changes in volume.
44


2022 vs. 2021
Increase (Decrease) due to
2021 vs. 2020
Increase (Decrease) due to
$ in thousandsVolumeRateTotalVolumeRateTotal
Interest-Earning Assets:
Loans$2,464 $319 $2,783 $1,463 $(1,870)$(407)
Mortgage-backed securities66 (64)(196)(326)(522)
Investment securities(159)(80)(239)299 (214)85 
Other investments(16)28 12 1,031 (1,507)(476)
Total interest-earning assets2,355 203 2,558 2,597 (3,917)(1,320)
Interest-Bearing Liabilities:
Deposits
Interest-bearing checking13 (13)— 17 (16)
Savings and clubs(121)(112)27 (48)(21)
Money market savings125 (272)(147)132 (140)(8)
Certificates of deposit(615)(1,010)(1,625)88 (913)(825)
Mortgagors deposits— (17)(17)
Total deposits(466)(1,414)(1,880)264 (1,134)(870)
Borrowed money(258)117 (141)753 (1,094)(341)
Total interest-bearing liabilities(724)(1,297)(2,021)1,017 (2,228)(1,211)
Net change in net interest income$3,079 $1,500 $4,579 $1,580 $(1,689)$(109)

Comparison of Financial Condition at March 31, 2022 and 2021

Assets

At March 31, 2022, total assets were $735.3 million, reflecting an increase of $58.6 million, or 8.7%, from total assets of $676.7 million at March 31, 2021. The increase was primarily attributable to a $95.5 million increase in the Bank's net loan portfolio, partially offset by decreases of $21.4 million in the investment portfolio and $14.6 million in cash and cash equivalents.

Total cash and cash equivalents decreased $14.6 million, or 19.3%, from $75.6 million at March 31, 2021 to $61.0 million at March 31, 2022. The decrease in cash was primarily due to the funding of net loan activity and repayment of advances on the PPPLF. In addition, the Company made a payment of approximately $3.2 million to settle deferred interest on the subordinated debt associated with its trust preferred securities during the first quarter of the fiscal year. These cash outflows were partially offset by an increase in total deposits and paydowns received on investment securities.

    Total investment securities decreased $21.4 million, or 22.7%, to $72.9 million at March 31, 2022, compared to $94.3 million at March 31, 2021 due to scheduled principal payments received, and early payoffs of a $1.7 million mortgage-backed security in the held-to-maturity portfolio during the first quarter of the fiscal year, and a $2.5 million asset-backed security in the available-for-sale portfolio during the second quarter of the fiscal year.

    Gross portfolio loans increased $96.0 million to $579.5 million at March 31, 2022, compared to $483.5 million at March 31, 2021, primarily due to loan pool purchases of $50.1 million and new loan originations of $151.5 million, of which $14.9 million were part of the SBA's PPP. The new volume was partially offset by attrition and payoffs of $99.5 million and loans participated of $6.1 million.

Liabilities and Equity

Liabilities

    Total liabilities increased $55.8 million, or 8.9%, to $680.2 million at March 31, 2022, compared to $624.4 million at March 31, 2021, primarily due to increases in total deposits, partially offset by a decrease in other borrowings related to the PPP.

    Deposits increased $71.5 million, or 12.8%, to $628.1 million at March 31, 2022, compared to $556.6 million at March 31, 2021, due primarily to PPP loan funds deposited by the program borrowers into their accounts at the Bank (a
45


majority of which have been retained as new customers) and new deposit account relationships established as the Bank continued to expand its digital online account openings into nine states across the Northeast and Washington D.C. As of March 31, 2022 and 2021, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $187.4 million and $104.4 million, respectively. These uninsured balances disclosed do not consider that FDIC insurance can be further extended by claimant within certain law firm deposit accounts. In addition, as of March 31, 2022, the aggregate amount of all our uninsured certificates of deposit was $36.9 million. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. See Note 8 to Consolidated Financial Statements for additional information on our deposits.

    Advances from the FHLB-NY and other borrowed money decreased $21.3 million to $15.9 million at March 31, 2022, compared to $37.2 million at March 31, 2021. The Bank paid down $23.7 million of its PPPLF at the Federal Reserve as it continued to receive forgiveness payments from the SBA on the PPP loan portfolio. The Company borrowed $2.5 million in low-rate unsecured loans from third parties to finance eligible loans offered through the Bank's community investment initiatives loan program. At March 31, 2022, the Bank had no outstanding borrowings from the FHLB-NY.

Other liabilities increased $7.1 million to $21.8 million at March 31, 2022, compared to $14.7 million at March 31, 2021 due to an increase in retail liabilities, primarily attributed to an outstanding teller check at March 31, 2022.

Equity

Total equity increased $2.8 million, or 5.4%, to $55.1 million at March 31, 2022, compared to $52.3 million at March 31, 2021. The increase was primarily due to $4.0 million raised in net proceeds from the issuance of preferred stock during the second quarter. During fiscal year 2022, a series of transfers was effected to convert $3.8 million Series D Preferred Stock into common stock, resulting in a transfer between preferred shares and paid in capital. These conversions had no impact on the Company's total capital. The Company also raised approximately $3.0 million in net proceeds through the sale of common stock under the ATM offering during the third and fourth quarters of fiscal year 2022. These were partially offset by an increase of $3.5 million in unrealized losses on securities available-for-sale and a net loss of $0.8 million for the fiscal year.

Comparison of Operating Results for the Years Ended March 31, 2022 and 2021

Net Loss

    The Company reported a net loss of $0.8 million for fiscal year 2022, compared to net loss of $3.9 million for the prior year period. The change in our results was primarily driven by increases in net interest income and non-interest income, partially offset by an increase in non-interest expense and a provision for loan loss compared to a recovery of loan loss in the prior fiscal year.

Net Interest Income

    Net interest income increased $4.6 million, or 28.9%, to $20.5 million for fiscal year 2022, compared to $15.9 million for the prior year period. The increase was attributable to a $2.6 million increase in interest income and $2.0 million decrease in interest expense for the period.

    Interest income increased $2.6 million, or 12.8%, to $22.9 million, compared to $20.3 million for the prior year period. Interest income on loans increased $2.7 million, or 14.5%, primarily due to a $60.6 million, or 13.3%, increase in average loan balances coupled with an increase in the average yield on the portfolio of 6 basis points. The increase in the loan portfolio was driven by a restructured lending team and funded by an increase in total deposits. Interest income on investment securities decreased $0.3 million, or 30.0%, due to a decrease in average balances and yields compared to the prior fiscal year.

    Interest expense decreased $2.0 million, or 45.5%, to $2.4 million compared to $4.4 million for the prior year period. Interest expense on deposits decreased $1.9 million, or 50.0%, primarily due to a decrease in the average balances and rates paid on certificates of deposit. The Company strategically exited its high-cost DTC brokered deposits, as well as many of its large high-rate non-relationship time deposits, and replaced them with demand deposits, savings and money market accounts (core deposits). Interest expense on borrowings decreased $0.2 million, or 28.6%, from the prior fiscal year despite an increase in the average rates, due to a decrease in average borrowings as the Bank paid down advances on its PPPLF at the Federal Reserve.

46


Provision for Loan Losses

    The Bank recorded a $603 thousand provision for loan losses for fiscal year 2022, compared to a $100 thousand recovery of loan losses for the prior year period. The provision was primarily due to the overall increase in the Bank's loan portfolio during fiscal year 2022. For the year ended March 31, 2022, net charge-offs of $119 thousand were recognized, compared to net recoveries of $294 thousand in the prior year period. Total charge-offs of $257 thousand were recognized for fiscal year 2022, compared to total charge-offs of $78 thousand for the prior fiscal year. At March 31, 2022, nonaccrual loans totaled $11.5 million, or 1.6% of total assets, compared to $7.2 million, or 1.1% of total assets at March 31, 2021. The ALLL was $5.6 million at March 31, 2022, which represents a ratio of the ALLL to nonaccrual loans of 49.0%, compared to 71.5% at March 31, 2021. The ratio of the allowance for loan losses to total loans receivable, excluding PPP loans, was 1.00% at March 31, 2022, compared to 1.15% at March 31, 2021.

Non-interest Income

    Non-interest income for the twelve months ended March 31, 2022 increased $1.2 million, or 19.4%, to $7.4 million compared to $6.2 million in the prior year period. Non-interest income included grant income of $2.1 million and $0.5 million for fiscal years 2022 and 2021, respectively. For the twelve months ended March 31, 2022, the Bank recognized $0.2 million and $1.8 million grant income from the CDFI Fund's Bank Enterprise Award and Rapid Response Program, respectively. In addition, other non-interest income for the current fiscal year included $2.6 million correspondent banking fees, which was $1.3 million higher compared to the prior fiscal year due to higher volume related to the Bank's servicing of PPPLF activity for the correspondent bank. The increases in the current fiscal year were partially offset by a reduction of $0.5 million, or 19.2%, in depository fees and charges as the Bank partnered with Wells Fargo and Chase to offer no-charge ATM access to our customers. The prior fiscal year included $1.2 million gains recognized from the sales of securities, as management restructured the Bank's investment portfolio to improve the overall yield.

Non-interest Expense

    Non-interest expense for the twelve months ended March 31, 2022 increased $2.0 million, or 7.7%, to $28.1 million compared to $26.1 million for the prior year period. Compensation and benefits increased $0.3 million, or 2.7%, due primarily to annual merit increases. Consulting fees increased as the Bank hired consultants to support the higher loan production. Other non-interest expense included additional audit and legal fees related to a wire fraud matter that occurred during the first quarter of fiscal year 2022. In addition, security services were higher as the Bank continues to address the need for security guards in our branches in response to the ongoing homeless crisis in New York City. These increases were partially offset by lower data processing costs for the current fiscal year as the Company was able to utilize flex credits received from conversion costs associated with the Bank's upgrade to a new core banking system during the prior fiscal year.

Income Taxes

    The Company did not have any federal, state and local income tax expense as of March 31, 2022 and 2021. State and local capital tax expenses of $0.2 million and $0.1 million for fiscal years 2022 and 2021, respectively, were included in other non-interest expense on the statements of operations.

Liquidity and Capital Resources

Liquidity is a measure of the Bank's ability to generate adequate cash to meet its financial obligations.  The principal cash requirements of a financial institution are to cover potential deposit outflows, fund increases in its loan and investment portfolios and ongoing operating expenses.  The Bank's primary sources of funds are deposits, borrowed funds and principal and interest payments on loans, mortgage-backed securities and investment securities.  While maturities and scheduled amortization of loans, mortgage-backed securities and investment securities are predictable sources of funds, deposit flows and loan and mortgage-backed securities prepayments are strongly influenced by changes in general interest rates, economic conditions and competition. Carver Federal monitors its liquidity utilizing guidelines that are contained in a policy developed by its management and approved by its Board of Directors.  Carver Federal's several liquidity measurements are evaluated on a frequent basis.  

Management believes Carver Federal’s short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements, including interest payments on our subordinated debt securities. Additionally, Carver Federal has other sources of liquidity including the ability to borrow from the Federal Home Loan Bank of New York ("FHLB-NY") utilizing unpledged mortgage-backed securities and certain mortgage loans, the sale of available-for-sale securities and the sale of certain mortgage loans. Net borrowings decreased $21.3 million
47


during fiscal year 2022 as the Bank paid down $23.7 million of its PPP liquidity facility ("PPPLF") at the Federal Reserve. The Bank had no advances outstanding from the FHLB-NY at March 31, 2022. At March 31, 2022, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $50.0 million on a secured basis, utilizing mortgage-related loans and securities as collateral. The Bank has the ability to pledge additional loans as collateral in order to borrow up to 30% of its total assets. The Company also had $13.4 million in long-term subordinated debt securities and added $2.5 million in low interest loans during fiscal year 2022.

The Bank's most liquid assets are cash and short-term investments. The level of these assets is dependent on the Bank's operating, investing and financing activities during any given period.  At March 31, 2022 and 2021, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $61.0 million and $75.6 million, respectively.

In 2021, we entered into a sales agreement with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in an “at the market offering.” As of March 31, 2022, we have sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million. Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent.

The most significant potential liquidity challenge the Bank faces is variability in its cash flows as a result of mortgage refinance activity. When mortgage interest rates decline, customers’ refinance activities tend to accelerate, causing the cash flow from both the mortgage loan portfolio and the mortgage-backed securities portfolio to accelerate. In contrast, when mortgage interest rates increase, refinance activities tend to slow, causing a reduction of liquidity. However, in a rising rate environment, customers generally tend to prefer fixed rate mortgage loan products over variable rate products. Carver Federal is also at risk to deposit outflows due to a competitive interest rate environment.

The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During fiscal year 2022, total cash and cash equivalents decreased $14.6 million to $61.0 million reflecting cash used in investing activities of $79.1 million, partially offset by cash provided by financing activities of $57.4 million and cash provided by operating activities of $7.2 million. Net cash used in investing activities of $79.1 million was attributable to loan originations and purchases, net of principal repayments and payoffs, offset by investment paydowns. Net cash provided by financing activities of $57.4 million resulted from net increases in deposits of $71.6 million, partially offset by a decrease of $21.2 million in FHLB-NY advances and other borrowings. The net increase in deposits was primarily due to PPP loan funds deposited by the program borrowers into their accounts at the Bank and new deposit account relationships established as the Bank continues to expand its digital online account openings into nine states across the Northeast. The $21.2 million decrease in other borrowings was attributable to $23.7 million paydowns on the Bank's PPP liquidity facility at the Federal Reserve, offset by $2.5 million in unsecured low interest loans provided by third parties to finance eligible loans offered through the Bank's community investment initiatives loan program. In addition, cash provided by financing activities included $4.0 million capital raised from the issuance of preferred stock during the second quarter and $3.0 million net proceeds from the ATM offerings during the third and fourth quarters of fiscal year 2022.

Potential Mortgage Representation and Warranty Liabilities

During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the FNMA. The loans were sold to FNMA with the standard representations and warranties for loans sold to the GSE's.  The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral.

Through fiscal 2011, none of the loans sold to FNMA were repurchased by the Bank.  During the periods from fiscal 2012 through 2015, 20 loans that had been sold to FNMA were repurchased by the Bank.  No loans have been repurchased by the Bank subsequent to fiscal 2015. At March 31, 2022 the Bank continues to service 90 loans with a principal balance of $14.2 million for FNMA that were sold with standard representations and warranties.

Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable. These reserves are reported in the consolidated statement of financial condition as a component of other liabilities. The Bank has not received a request to repurchase any of these loans since the second quarter of fiscal 2015, and there have not been any additional requests from FNMA for loans to be reviewed. The reserves totaled $123 thousand as of March 31, 2022. The table below summarizes changes in our representation and warranty reserves in fiscal 2022:
48


$ in thousandsMarch 31, 2022
Representation and warranty repurchase reserve, as of March 31, 2021 (1)
$181 
Net adjustment to reserve for repurchase losses (2)
(58)
Representation and warranty repurchase reserve, as of March 31, 2022 (1)
$123 
(1) Reported in consolidated statements of financial condition as a component of other liabilities.
(2) Component of other non-interest expense.
    Additional information related to the representation and warranty reserve, including factors that may impact the adequacy of the reserves and the ultimate amount of losses incurred is found in “Note 15 Commitments and Contingencies.”

Off-Balance Sheet Arrangements and Contractual Obligations

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and in connection with its overall investment strategy.  These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are not recorded in the consolidated financial statements.  Such instruments primarily include lending obligations, including commitments to originate mortgage and consumer loans and to fund unused lines of credit. The Bank also has contractual obligations related to operating leases.  See Note 15 of Notes to Consolidated Financial Statements for the Bank's outstanding lending commitments and contractual obligations at March 31, 2022.

The Bank has contractual obligations at March 31, 2022 as follows:
$ in thousandsPayments due by period
Contractual ObligationsTotalLess than
1 year
1 - 3
years
3 - 5
years
More than
5 years
Certificates of deposit$139,304 $110,298 $21,051 $6,665 $1,290 
Debt obligations:
Other borrowings2,565 17 29 2,519 — 
Guaranteed preferred beneficial interest in junior subordinated debentures13,425 — — — 13,425 
Total debt obligations15,990 17 29 2,519 13,425 
Operating lease obligations:
Lease obligations for rental properties15,815 2,618 5,132 4,642 3,423 
Total contractual obligations$171,109 $112,933 $26,212 $13,826 $18,138 

Variable Interest Entities ("VIEs")

The Company's subsidiary, Carver Statutory Trust I, is not consolidated with Carver Bancorp Inc. for financial reporting purposes in accordance with the FASB's ASC Topic 810 regarding the consolidation of variable interest entities. Carver Statutory Trust I was formed in 2003 for the purpose of issuing $13 million aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and $0.4 million of common securities (which are the only voting securities of Carver Statutory Trust I), which are 100% owned by Carver Bancorp Inc., and using the proceeds to acquire junior subordinated debentures issued by Carver Bancorp, Inc. Carver Bancorp, Inc. has fully and unconditionally guaranteed the Capital Securities along with all obligations of Carver Statutory Trust I under the trust agreement relating to the Capital Securities.

The Bank's unconsolidated VIEs, in which the Company holds significant variable interests or has continuing involvement through servicing a majority of assets in a VIE are presented in the table below.
 Involvement with SPE (000s)Funded ExposureUnfunded ExposureTotal
 Recognized Gain (Loss) (000's) Total Rights transferred Significant unconsolidated VIE assets Total Involvement with SPE assetDebt InvestmentsEquity InvestmentsFunding CommitmentsMaximum exposure to loss
Carver Statutory Trust I(1)
$— $— $13,403 $13,403 $13,022 $403 $— $— $13,425 
.
1 Carver Statutory Trust debt investment includes deferred interest of $22 thousand.

49


Regulatory Capital Position

The Bank must satisfy minimum capital standards established by the OCC.  For a description of the OCC capital regulation, see “Item 1-Regulation and Supervision-Federal Banking Regulation-Capital Requirements.” Regardless of Basel III's minimum requirements, Carver, as a result of the Formal Agreement, was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio.

 At March 31, 2022, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a common equity Tier 1 ratio, Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio of 13.75%, 10.45%, 13.75% and 14.78%, respectively.  For additional information regarding Carver Federal's Regulatory Capital and Ratios, refer to Note 12 of Notes to Consolidated Financial Statements, “Stockholders' Equity.”

Impact of Inflation and Changing Prices

The financial statements and accompanying notes appearing elsewhere herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation.  The impact of inflation is reflected in the increased cost of Carver Federal's operations.  Unlike most industrial companies, nearly all the assets and liabilities of the Bank are monetary in nature.  As a result, interest rates have a greater impact on Carver Federal's performance than do the effects of the general level of inflation.  Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See discussion of Market Risk-Interest Rate Sensitivity Analysis in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.


50


ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


Report of Independent Registered Public Accounting Firm


Shareholders and Board of Directors
Carver Bancorp, Inc.
New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial condition of Carver Bancorp, Inc. (the “Company”) as of March 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, change in equity, and cash flows for each of the two years in the period ended March 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for loan losses

As described in Notes 2 and 4 to the Company’s consolidated financial statements, the Company has a gross loan portfolio of $579.5 million and related allowance for loan losses of $5.6 million as of March 31, 2022. The allowance for loan losses includes a general reserve of $5.5 million and a specific reserve of $0.07 million. In calculating the general reserve component of the allowance for loan losses, the Company segregates the loan portfolio by loan pools and utilizes nine qualitative factors in addition to quantitative factors (historical loss experience).

We identified the qualitative factors used by management to estimate the general reserve portion of the allowance for loan losses, specifically the economic factor, as a critical audit matter. Significant management judgment is required in the evaluation of the economic factor, which include consideration of local, and national economic trends. Auditing these complex
51


judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters.

The primary procedures we performed to address this critical audit matter included:

Evaluating the reasonableness of assumptions used by management in forming the economic factor, by assessing whether the assumptions reflected relevant considerations and were reasonable and reliable for the purpose used.
Evaluating the appropriateness of the data used by management in developing the economic factor by comparing it to third-party data and evaluating any contradictory evidence identified.


/s/ BDO USA, LLP

We have served as the Company's auditor since 2016.

New York, New York
July 14, 2022



52


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
$ in thousands except per share dataMarch 31, 2022March 31, 2021
ASSETS
Cash and cash equivalents:
Cash and due from banks$60,764 $75,337 
Money market investments254 254 
Total cash and cash equivalents61,018 75,591 
Investment securities:
Available-for-sale, at fair value67,596 86,507 
Held-to-maturity, at amortized cost (fair value of $5,276 and $8,140 at March 31, 2022 and March 31, 2021, respectively)5,254 7,807 
Total investment securities72,850 94,314 
Loans receivable:
Real estate mortgage loans407,835 333,422 
Commercial business loans170,031 147,680 
Consumer loans1,638 2,447 
Loans, net of deferred fees and costs579,504 483,549 
Allowance for loan losses(5,624)(5,140)
Total loans receivable, net573,880 478,409 
Premises and equipment, net3,775 4,611 
Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost584 552 
Accrued interest receivable2,414 2,640 
Right-of-use assets13,637 15,344 
Other assets7,156 5,287 
Total assets$735,314 $676,748 
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Non-interest bearing checking$107,472 $110,525 
Interest-bearing deposits
Interest-bearing checking57,985 45,605 
Savings112,305 108,199 
Money market208,122 137,230 
Certificates of deposit139,255 152,723 
Escrow2,978 2,277 
Total interest-bearing deposits520,645 446,034 
Total deposits628,117 556,559 
Advances from the FHLB-NY and other borrowed money15,949 37,222 
Operating lease liability14,393 16,003 
Other liabilities21,768 14,663 
Total liabilities680,227 624,447 
EQUITY
Preferred stock (par value $0.01 per share: 13,751 and 17,601 Series D shares, with a liquidation preference of $1,000 per share, issued and outstanding at March 31, 2022 and 2021, respectively)13,751 17,601 
Preferred stock (par value $0.01 per share: 3,177 Series E shares, with a liquidation preference of $1,000 per share, issued and outstanding at March 31, 2022 and 2021)3,177 3,177 
Preferred stock (par value $0.01 per share: 9,000 and 5,000 Series F shares, with a liquidation preference of $1,000 per share, issued and outstanding at March 31, 2022 and 2021, respectively)9,000 5,000 
Common stock (par value $0.01 per share: 10,000,000 shares authorized; 6,720,618 and 5,837,071 issued; 4,216,815 and 3,333,268 shares outstanding at March 31, 2022 and 2021, respectively)67 58 
Additional paid-in capital82,165 75,204 
Accumulated deficit(43,503)(42,656)
Treasury stock, at cost (2,503,803 shares at March 31, 2022 and 2021)(2,908)(2,908)
Accumulated other comprehensive loss(6,662)(3,175)
Total equity55,087 52,301 
Total liabilities and equity$735,314 $676,748 
See accompanying notes to consolidated financial statements
53


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
$ in thousands except per share data20222021
Interest income:
Loans$21,335 $18,552 
Mortgage-backed securities710 708 
Investment securities714 953 
Money market investments106 94 
Total interest income22,865 20,307 
Interest expense:
Deposits1,890 3,770 
Advances and other borrowed money509 650 
Total interest expense2,399 4,420 
Net interest income20,466 15,887 
Provision for (recovery of) loan losses603 (100)
Net interest income after provision for (recovery of) for loan losses19,863 15,987 
Non-interest income:
Depository fees and charges2,141 2,637 
Loan fees and service charges243 357 
Gain on sale of securities, net— 1,193 
Grant income2,089 500 
Other2,881 1,511 
Total non-interest income7,354 6,198 
Non-interest expense:
Employee compensation and benefits11,516 11,180 
Net occupancy expense4,460 4,402 
Equipment, net1,806 1,719 
Data processing2,205 2,871 
Consulting fees505 160 
Federal deposit insurance premiums363 355 
Other7,209 5,394 
Total non-interest expense28,064 26,081 
Loss before income tax expense(847)(3,896)
Income tax expense— — 
Net loss$(847)$(3,896)
Loss per common share:
Basic$(0.24)$(1.14)
Diluted$(0.24)$(1.14)



See accompanying notes to consolidated financial statements
54


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended March 31,
$ in thousands20222021
Net loss$(847)$(3,896)
Other comprehensive loss, net of tax:
Change in unrealized loss of securities available-for-sale, net of income tax expense of $0 (due to full valuation allowance)(3,487)(5,300)
Less: Reclassification adjustment for realized gains on sales of available-for-sale securities, net of income tax expense of $0 (due to full valuation allowance)— 1,193 
Total other comprehensive loss, net of tax(3,487)(4,107)
Total comprehensive loss, net of tax$(4,334)$(8,003)



See accompanying notes to consolidated financial statements

55


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
$ in thousandsPreferred StockCommon StockAdditional Paid-In CapitalAccumulated DeficitTreasury StockAccumulated Other Comprehensive LossTotal
Equity
Balance—March 31, 202045,118 61 55,476 (52,285)(408)932 48,894 
Net loss— — — (3,896)— — (3,896)
Other comprehensive income, net of tax— — — — — (4,107)(4,107)
Conversion of Series D preferred stock to common stock(13,994)17 13,977 — — — — 
Stock relinquishment(13,523)(2)13,525 — — — 
Capital contribution— — 2,500 — — — 2,500 
Repurchase of common stock— — — — (2,500)— (2,500)
Issuance of common stock— 3,193 — — — 3,197 
Issuance of Series E preferred stock3,177 — — — — — 3,177 
Issuance of Series F preferred stock5,000 — — — — — 5,000 
Stock based compensation expense(22)58 — 36 
Balance—March 31, 202125,778 58 75,204 (42,656)(2,908)(3,175)52,301 
Net loss— — — (847)— — (847)
Other comprehensive income, net of tax— — — — — (3,487)(3,487)
Conversion of Series D preferred stock to common stock(3,850)3,846 — — — — 
Issuance of common stock, net of issuance costs— 2,994 2,998 
Issuance of Series F preferred stock4,000 — — — — — 4,000 
Stock based compensation expense— 121 — — — 122 
Balance—March 31, 2022$25,928 $67 $82,165 $(43,503)$(2,908)$(6,662)$55,087 

See accompanying notes to consolidated financial statements


56


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
$ in thousands20222021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(847)$(3,896)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for (recovery of) loan losses603 (100)
Stock based compensation expense122 36 
Depreciation and amortization expense1,029 1,017 
Gain on sale of real estate owned, net of market value adjustment— (80)
Gain on sale of securities, net— (1,193)
Amortization and accretion of loan premiums and discounts and deferred charges(335)641 
Amortization and accretion of premiums and discounts - securities609 590 
Decrease (increase) in accrued interest receivable226 (588)
(Increase) decrease in other assets(1,301)593 
Increase in other liabilities7,046 5,192 
Net cash provided by operating activities7,152 2,212 
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments: Available-for-sale— (74,475)
Proceeds from sales of investments: Available-for-sale— 37,802 
Proceeds from principal payments, maturities and calls of investments: Available-for-sale14,775 12,530 
Proceeds from principal payments, maturities and calls of investments: Held-to-maturity2,524 2,303 
Loans held-for-investment, net of (originations) and repayments/payoffs and maturities(51,977)(28,350)
Loans purchased from third parties(50,257)(26,814)
Proceeds from participation loans sold6,080 — 
(Purchase) redemption of FHLB-NY stock(32)16 
Purchase of premises and equipment(192)(256)
Proceeds from sale of real estate owned— 260 
Net cash used in investing activities(79,079)(76,984)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits71,558 67,744 
Net (decrease) increase in FHLB-NY advances and other borrowings(21,202)23,705 
Contribution of capital— 2,500 
Repurchase of common stock— (2,500)
Issuance of common stock2,998 3,197 
Issuance of preferred stock4,000 8,177 
Net cash provided by financing activities57,354 102,823 
Net (decrease) increase in cash and cash equivalents(14,573)28,051 
Cash and cash equivalents at beginning of period75,591 47,540 
Cash and cash equivalents at end of period$61,018 $75,591 
Supplemental cash flow information:
Noncash financing and investing activities
Recognition of finance lease asset— 13 
Recognition of finance lease liability— 13 
Conversion of preferred stock to common stock3,850 13,994 
Retirement of preferred stock— 13,523 
Retirement of common stock— 
Cash paid for:
  Interest$5,520 $3,904 
  Income taxes211 57 


See accompanying notes to consolidated financial statements
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CARVER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

Nature of operations

Carver Bancorp, Inc. (on a stand-alone basis, the “Company” or “Registrant”), was incorporated in May 1996 and its principal wholly-owned subsidiaries are Carver Federal Savings Bank (the “Bank” or “Carver Federal”) and Alhambra Holding Corp., an inactive Delaware corporation. Carver Federal's wholly-owned subsidiaries are CFSB Realty Corp., Carver Community Development Corporation (“CCDC”) and CFSB Credit Corp., which is currently inactive. The Bank has a real estate investment trust, Carver Asset Corporation ("CAC"), that was formed in February 2004.

“Carver,” the “Company,” “we,” “us” or “our” refers to the Company along with its consolidated subsidiaries. The Bank was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally-chartered mutual savings and loan association. The Bank converted to a federal savings bank in 1986. On October 24, 1994, the Bank converted from a mutual holding company structure to stock form and issued 2,314,375 shares of its common stock, par value $0.01 per share. On October 17, 1996, the Bank completed its reorganization into a holding company structure (the “Reorganization”) and became a wholly-owned subsidiary of the Company.

Carver Federal’s principal business consists of attracting deposit accounts through its branches and investing those funds in mortgage loans and other investments permitted by federal savings banks. The Bank has seven branches located throughout the City of New York that primarily serve the communities in which they operate.

In September 2003, the Company formed Carver Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Company. In accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation,” Carver Statutory Trust I is unconsolidated for financial reporting purposes. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities.  Gross proceeds from the sale of these trust preferred debt securities of $13 million, and proceeds from the sale of the trust's common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033.  The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment was made on June 16, 2021. The Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments. On December 16, 2021, the Company paid the deferred interest that was due on September 17, 2021 and the interest scheduled for December 17, 2021. Subsequently, the Company made the regular quarterly interest payment on its outstanding debentures due on March 17, 2022 and June 17, 2022. The interest rate was 3.97% and the total amount of deferred interest was $22 thousand at March 31, 2022.

    Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, and to engage in share repurchase programs. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to Carver, and the FRB regulates dividends paid by Carver. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement defined directly below, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended Carver’s regular quarterly cash dividend on its common stock. There are no assurances that dividend payments to Carver will resume.


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Regulation

On October 23, 2015, the Board of Directors of the Company adopted resolutions requiring, among other things, written approval from the Federal Reserve Bank of Philadelphia prior to the declaration or payment of dividends, any increase in debt by the Company, or the redemption of Company common stock.

On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions. As a result of the Agreement, the Bank must obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers. The Bank may not declare or pay dividends or make any other capital distributions, including to the Company, without first filing an application with the OCC and receiving the prior approval of the OCC. Furthermore, the Bank must seek the OCC's written approval and the FDIC's written concurrence before entering into any "golden parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12 C.F.R. Part 359. As a result of the Formal Agreement, Carver was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio.

NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidated financial statement presentation

The consolidated financial statements include the accounts of the Company, the Bank and the Bank's wholly-owned or majority-owned subsidiaries, Carver Asset Corporation, CFSB Realty Corp., CCDC, and CFSB Credit Corp., which is currently inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.

Variable interest entities (“VIEs”) are consolidated, as required, when Carver has controlling financial interest in these entities and is deemed to be the primary beneficiary. Carver is normally deemed to have a controlling financial interest and be the primary beneficiary if it has both (a) the power to direct activities of a VIE that most significantly impact the entities economic performance; and (b) the obligation to absorb losses of the entity that could benefit from the activities that could potentially be significant to the VIE.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the period then ended. Amounts subject to significant estimates and assumptions are items such as the allowance for loan losses, realization of deferred tax assets, assessment of other-than-temporary impairment of securities, and the fair value of financial instruments. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses or future write-downs of real estate owned may be necessary based on changes in economic conditions in the areas where Carver Federal has extended mortgages and other credit instruments. Actual results could differ significantly from those assumptions. Current market conditions increase the risk and complexity of the judgments in these estimates.

Recent Events

COVID-19 continues to have a significant, negative effect on families and businesses in New York and throughout the United States. While New York State went through a phased reopening upon expiration of an earlier executive order to shelter in place, maintain social distancing and close all non-essential businesses statewide, there remains a significant amount of uncertainty as certain geographic areas continue to experience surges in COVID-19 cases and governments at all levels continue to react to changes in circumstances. The impact of new restrictive measures and mandates taken or issued by governments, businesses and individuals have caused uncertainty in the financial markets. The prolonged pandemic, or any other epidemic of this sort that ultimately harms the global economy, the U.S. economy or the markets in which we operate could adversely affect Carver’s operations. The long-term effects of COVID-19 on the Company’s business cannot be ascertained as there remains significant uncertainty regarding the breadth and duration of business disruptions related to the virus. In addition, new information may emerge regarding the severity of COVID-19 or the effectiveness of the vaccines developed, causing federal, state and local governments to take additional actions to contain COVID-19 or to treat its impact. Even after formal restrictions have been lifted, changes in the behavior of customers, businesses and their employees – including social distancing – as a result of the pandemic, are unknown. The Company is closely monitoring its asset quality, liquidity, and capital positions. Management is actively working to minimize the current and future impact of this unprecedented situation, and is continuing to make adjustments to operations where appropriate or necessary to help slow the spread of the virus. In addition, as a result of further actions that may be taken to contain or reduce the impact of the COVID-19 pandemic, the Company may experience changes in the value of collateral securing outstanding loans, reductions in
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the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms. The Company is actively managing the credit risk in its loan portfolio. These and similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers.

Cash and cash equivalents

For the purpose of reporting cash flows, cash and cash equivalents include cash, amounts due from depository institutions and other short-term instruments with an original maturity of three months or less.  The amounts due from depository institutions include an interest-bearing account held at the Federal Reserve Bank where any additional cash reserve required on demand deposits would be maintained.  Currently, this reserve requirement is zero since the Bank's vault cash satisfies cash reserve requirements for deposits.

Investment Securities

When purchased, debt securities are designated as either investment securities held-to-maturity, available-for-sale or trading.  

Securities are classified as held-to-maturity and carried at amortized cost only if the Bank has a positive intent and ability to hold such securities to maturity.  Securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity.

If not classified as held-to-maturity or trading, securities are classified as available-for-sale based upon management's ability to sell in response to actual or anticipated changes in interest rates, resulting prepayment risk or any other factors. Available-for-sale securities are reported at fair value. Estimated fair values of securities are based on either published or security dealers' market value if available. If quoted or dealer prices are not available, fair value is estimated using quoted or dealer prices for similar securities.

Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value with unrealized gains and losses included in earnings.

The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized holding loss. Unrealized holding gains or losses for securities available-for-sale are excluded from earnings and reported net of deferred income taxes in accumulated other comprehensive loss, a component of Stockholders' Equity. The amount of an other-than-temporary impairment when there are credit and non-credit losses on a debt security that management does not intend to sell, and for which it is more likely than not that the Bank will not be required to sell the security prior to the recovery of the non-credit impairment, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings. The remaining difference between the debt security's amortized cost basis and its fair value would be included in other comprehensive income (loss). There were no other-than-temporary impairment charges recorded during the fiscal year ended March 31, 2022.  Gains or losses on sales of securities of all classifications are recognized based on the specific identification method.

Loans Held-for-Sale

    Loans are only transferred to held-for-sale classification upon the determination by Carver to sell a loan. Held-for-sale loans are carried at the lower of cost or fair value.  The initial charge-off, if any is required, will be taken upon the transfer to held-for-sale and absorbed through Carver's loan loss reserve.  Subsequent changes in fair value are recognized in earnings as a valuation allowance. The valuation methodology for loans held-for-sale varies based upon the circumstances.  Held-for-sale values may be based upon accepted offer amounts, appraised value of underlying mortgaged premises, prior loan loss experience of Carver in connection with recent loan sales for the loan type in question, and/or other acceptable valuation methods.

Loans Receivable

Loans receivable are carried at unpaid principal balances plus unamortized premiums, certain deferred direct loan origination costs and deferred loan origination fees and discounts, less the allowance for loan losses and charge-offs.

The Bank defers loan origination fees and certain direct loan origination costs and amortizes or accretes such amounts as an adjustment of yield over the contractual lives of the related loans using methodologies which approximate the interest method.  Premiums and discounts on loans purchased are amortized or accreted as an adjustment of yield over the contractual
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lives of the related loans, adjusted for prepayments when applicable, using methodologies which approximate the interest method.

Loans are placed on nonaccrual status when they are past due 90 days or more as to contractual obligations or when other circumstances indicate that collection is not probable.  When a loan is placed on nonaccrual status, any interest accrued but not received is reversed against interest income.  Payments received on a nonaccrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending on an assessment of the ability to collect the loan.  A nonaccrual loan may be restored to accrual status when principal and interest payments have been brought current and the loan has performed in accordance with its contractual terms for a reasonable period (generally six months).

If the Bank determines, after considering factors such as payment status and collateral value, that a loan is impaired, the Bank next determines the amount of the impairment.  The amount of impairment on collateral dependent loans is charged off within the given fiscal quarter.  Generally the amount of the loan and negative escrow in excess of the appraised value less estimated selling costs, for the fair value of collateral valuation method, is charged off.  For all other loans, impairment is measured as described below in Allowance for Loan and Lease Losses.

Allowance for Loan and Lease Losses ("ALLL")

The adequacy of the Bank's ALLL is determined in accordance with ASC Subtopics 450-20 "Loss Contingencies" and 310-10 "Accounting by Creditors for Impairment of a Loan."  Management reviews the Bank's loan portfolio to identify and review individual problem situations that may affect a borrower's ability to repay.  In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio. 

The ALLL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio.  There is significant judgment applied in estimating the ALLL.  These assumptions and estimates are susceptible to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALLL even though there may not be a decline in credit quality or an increase in potential problem loans.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories. Loans may be classified as "Pass," “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. They represent a moderate credit risk and some degree of financial stability. Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Loans rated Special Mention have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date. Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged off immediately to the allowance for loan losses.
One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.

General Reserve Allowance

Carver's maintenance of a general reserve allowance includes the Bank evaluating the risk of potential loss on homogeneous pools of loans based upon historical loss factors and a review of nine different environmental factors that are then applied to each pool.  The pools of loans (“Loan Type”) are:

One-to-four family
Multifamily
Commercial Real Estate
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Business Loans
Consumer (including Overdraft Accounts)

The Bank next applies to each pool a risk factor that determines the level of general reserves for that specific pool.  The Bank estimates its historical charge-offs via a lookback analysis. The actual historical loss experience by major loan category is expressed as a percentage of the outstanding balance of all loans within the category. As the loss experience for a particular loan category increases or decreases, the level of reserves required for that particular loan category also increases or decreases. The Bank’s historical charge-off rate reflects the period over which the charge-offs were confirmed and recognized, not the period over which the earlier losses occurred. That is, the charge-off rate measures the confirmation of losses over a period that occurs after the earlier actual losses. During the period between the loss-causing events and the eventual confirmations of losses, conditions may have changed. There is always a time lag between the period over which average charge-off rates are calculated and the date of the financial statements. During that period, conditions may have changed. Another factor influencing the General Reserve is the Bank’s loss emergence period ("LEP") assumptions which represent the Bank’s estimate of the average amount of time from the point at which a loss is incurred to the point at which the loss is confirmed, either through the identification of the loss or a charge-off. Based upon adequate management information systems and effective methodologies for estimating losses, management has established a LEP floor of one year on all pools. In some pools, such as Commercial Real Estate, Multifamily and Business pools, the Bank demonstrates a LEP in excess of 12 months. The Bank also recognizes losses in accordance with GAAP.

Because actual loss experience may not adequately predict the level of losses inherent in a portfolio, the Bank reviews nine qualitative factors to determine if reserves should be adjusted based upon any of those factors.  As the risk ratings worsen, some of the qualitative factors tend to increase.  The nine qualitative factors the Bank considers and may utilize are:

1.Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses (Policy & Procedures).
2.Changes in relevant economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (Economy).
3.Changes in the nature or volume of the loan portfolio and in the terms of loans (Nature & Volume).
4.Changes in the experience, ability, and depth of lending management and other relevant staff (Management).
5.Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans (Problem Assets).
6.Changes in the quality of the loan review system (Loan Review).
7.Changes in the value of underlying collateral for collateral dependent loans (Collateral Values).
8.The existence and effect of any concentrations of credit and changes in the level of such concentrations (Concentrations).
9.The effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio (External Forces).

The following discussion describes the general risks associated with the Bank’s lending activities:

One-to-four family - Carver Federal purchases first mortgage loans secured by one-to-four family properties that serve as the primary residence of the owner. The loans are underwritten in accordance with applicable secondary market underwriting guidelines and requirements for sale. These loans present a moderate level of risk due primarily to general economic conditions. During fiscal year 2021, the Bank also started purchasing non-qualified mortgages for one-to-four family residential loans. The Bank has approved guidelines for these loans.

Multifamily - Carver Federal originates and purchases recourse and non-recourse multifamily loans. These loans can be affected by economic conditions and the value of the underlying properties. The Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the owner/guarantor.

Commercial - Commercial real estate ("CRE") lending consists predominantly of originating loans for the purpose of purchasing or refinancing office, mixed-use properties, retail and church buildings in the Bank's market area.  Mixed-use loans are secured by properties that are intended for both commercial and residential use, but predominantly commercial, and are classified as CRE. In originating CRE loans, the Bank primarily considers the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the owner/guarantor. The Bank also requires the assignment of rents of all tenants' leases in the mortgaged property and
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personal guarantees may be obtained for additional security from these borrowers. CRE loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral.

Business - The Bank originates and purchases business and SBA loans primarily to businesses located in its primary market area and surrounding areas. Business loans are typically personally guaranteed by the owners and may also be secured by additional collateral, including real estate, equipment and inventory. Business loans are also subject to increased risk from the effect of general economic conditions. SBA loans are guaranteed by the U.S. government based on the percentage of each individual program.

Consumer - The majority of the Consumer portfolio are student loans to medical students enrolled in several Caribbean schools.

Specific Reserve Allowance

Carver also maintains a specific reserve allowance for criticized and classified loans individually reviewed for impairment. The amount assigned to the specific reserve allowance is individually determined based upon the loan. Carver uses one of three methods to estimate the amount to be reserved and/or charged off for such credits. The three methods are as follows:

1.The present value of expected future cash flows discounted at the loan's effective interest rate;
2.The loan's observable market price; or
3.The fair value of the collateral if the loan is collateral dependent.

The Bank may choose the appropriate method on a loan-by-loan basis for an individually impaired loan, except for an impaired collateral dependent loan.  Impairment of a collateral dependent loan is measured using the fair value of collateral method. A loan is considered "collateral dependent" when the repayment of the debt will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment.

All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment. Carver also performs impairment analysis for all troubled debt restructurings (“TDRs”).  All TDRs are classified as impaired. For non-TDRs, if it is determined that it is probable the Bank will be unable to collect all amounts due according with the contractual terms of the loan agreement, the loan is categorized as impaired. Loans determined to be impaired are evaluated to determine the amount of impairment based on one of the three measurement methods noted above.  In accordance with guidance, if there is no impairment amount, no reserve is established for the loan.

An unallocated loan loss allowance is appropriate when it reflects an estimate of probable loss, determined in accordance with GAAP, and is properly supported.

Troubled Debt Restructured Loans

TDRs are those loans where the borrower is experiencing financial difficulty and a concession is made. A concession could include extension of the terms of the loan, reduced interest rates, capitalization of interest, a significant delay in payment terms and forgiveness of accrued interest and/or principal. Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full. For a collateral dependent loan, the Bank records an impairment charge when the current estimated fair value (less estimated costs of disposal) of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan. For all other TDRs, the Bank records a specific valuation allowance reserve equal to the difference between the present value of estimated future cash flows under the restructured terms discounted at the loan's original effective interest rate, and the loan's recorded investment. TDR loans remain on nonaccrual status until they have performed in accordance with the restructured terms for a period of at least six months.

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

On March 22, 2020, the federal banking agencies issued an interagency statement to provide additional guidance to financial institutions who are working with borrowers affected by COVID-19. The statement provided that agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”). The agencies have confirmed with staff of the
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Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

The statement further provided that working with borrowers that are current on existing loans, either individually or as part of a program for creditworthy borrowers who are experiencing short-term financial or operational problems as a result of COVID-19, generally would not be considered TDRs. For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

The statement indicated that the agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs.

In addition, the statement noted that efforts to work with borrowers of one-to-four family residential mortgages, where the loans are prudently underwritten, and not past due or carried on nonaccrual status, will not result in the loans being considered restructured or modified for the purposes of their risk-based capital rules. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed to provide emergency economic relief to individuals and businesses impacted by the coronavirus (“COVID-19”) pandemic. The law had several provisions relevant to financial institutions, including:

Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring and also allowing them to suspend the corresponding impairment determination for accounting purposes.

The ability of a borrower of a federally backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance will be granted for up to 180 days, which can be extended for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract will accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally backed mortgage is prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020.

The ability of a borrower of a multifamily federally backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance to the borrower’s servicer affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. A forbearance will be granted for up to 30 days, which can be extended for up to two additional 30-day periods upon the request of the borrower. During the time of the forbearance, the multifamily borrower cannot evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent. Additionally, a multifamily borrower that receives a forbearance may not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on which the borrower provides the tenant notice to vacate and may not issue a notice to vacate until after the expiration of the forbearance.

Consistent with regulatory guidance and the provisions of the CARES Act, loans less than 30 days past due at December 31, 2019 that were granted COVID-19 related payment deferrals will continue to be considered current and not be reported as TDRs.

Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (the “CRRSA Act”)

On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 ("CRRSA Act") was signed into law, which also contains provisions that could directly impact financial institutions including extending
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the time that insured depository institutions and depository institution holding companies have to comply with the current expected credit losses (CECL) accounting standard and extending the authority granted to banks under the CARES Act to elect to temporarily suspend the requirements under U.S. GAAP applicable to troubled debt restructurings for loan modifications related to the COVID-19 pandemic for any loan that was not more than 30 days past due as of December 31, 2019.

Representation and Warranty Reserve

During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”).  The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities (GSEs). The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral.

Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable.  These reserves are reported in the consolidated statement of financial condition as a component of other liabilities.  The calculation of the reserve is based on estimates, which are uncertain, and require the application of judgment.  In establishing the reserves, we consider a variety of factors, including those loans that are under review by FNMA that have not yet received a repurchase request. The Bank tracks the FNMA claims monthly and evaluates the reserve on a quarterly basis.

Segment Reporting

The Company has determined that all of its activities constitute 1 reportable operating segment.

Concentration of Risk

The Bank's principal lending activities are concentrated in loans secured by real estate, a substantial portion of which are located in New York City.  Accordingly, the ultimate collectability of a substantial portion of the Company's loan portfolio is susceptible to changes in New York's real estate market conditions. Qualitative factors in the ALLL calculation considers the Bank's concentration risk.

Premises and Equipment

Premises and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost less accumulated depreciation and amortization.  Depreciation and amortization charges are included in Non-Interest Expense in the consolidated statements of operations and are computed using the straight-line method over the following estimated useful lives:
Buildings and improvements10 to 25 years
Furnishings and equipment3 to 5 years
Leasehold improvementsLesser of useful life or remaining term of lease

Maintenance, repairs and minor improvements are charged to non-interest expense in the period incurred.

Leases

Leases are classified as operating or finance leases at the lease commencement date. The Company includes lease renewal options in the lease term if it is reasonably certain the option will be exercised. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. The Company uses its incremental borrowing rate, which is the rate for a fully collateralized and fully amortizing loan with a maturity date that is similar to the lease term, at lease commencement to calculate the present value of lease payments when the implicit rate in a lease is not readily determinable.

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Federal Home Loan Bank Stock

The FHLB-NY has assigned to the Bank a mandated membership stock purchase, based on the Bank's asset size. In addition, for all borrowing activity, the Bank is required to purchase shares of FHLB-NY non-marketable capital stock at par. Such shares are redeemed by FHLB-NY at par with reductions in the Bank's borrowing levels. FHLB stock does not have a readily determinable fair value and we do not consider these shares to be other-than-temporarily impaired at March 31, 2022. The Bank carries this investment at historical cost.

Mortgage Servicing Rights

All separately recognized servicing assets totaled $162 thousand and $147 thousand, respectively, at March 31, 2022 and 2021, and are included in Other Assets in the consolidated statements of financial condition and measured at fair value. Changes in fair value is included in Non-Interest Income in the consolidated statements of operations. Servicing fee income of $41 thousand and $38 thousand, respectively, was recognized during the years ended March 31, 2022 and 2021, and is included in Non-Interest Income in the consolidated statements of operations.

Other Real Estate Owned

Real estate acquired by foreclosure or deed-in-lieu of foreclosure is recorded at fair value at the date of acquisition less estimated selling costs. Any subsequent adjustments will be to the lower of cost or fair value and included in Non-Interest Expense in the consolidated statements of operations. The fair value of such assets is determined based primarily upon independent appraisals and other relevant factors. The amounts ultimately recoverable from real estate owned could differ from the net carrying value of these properties because of economic conditions. Costs incurred to improve properties or prepare them for sale are capitalized. Revenues and expenses related to the holding and operating of properties are recognized in operations as earned or incurred. Gains or losses on sale of properties are recognized as incurred and are included in Non-Interest Expense in the consolidated statements of operations. As of March 31, 2022, the Bank held $60 thousand in a foreclosed residential real estate property as a result of obtaining physical possession. In addition, as of March 31, 2022 and 2021, we had residential loans with a carrying value of $3.1 million and $2.5 million, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.

Income Taxes

The Company records income taxes using the asset and liability method. Income tax expense (benefit) consists of income taxes currently payable (receivable) and deferred income taxes.  Temporary differences between the basis of assets and liabilities for financial reporting and tax purposes are measured as of the balance sheet date.  Deferred tax liabilities or recognizable deferred tax assets are calculated on such differences, using current statutory rates, which result in future taxable or deductible amounts.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Where applicable, deferred tax assets are reduced by a valuation allowance for any portion determined more likely than not to be realized. This valuation allowance would subsequently be adjusted by a charge or credit to income tax expense as changes in facts and circumstances warrant.  A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Any interest expense or penalties would be recorded as interest expense.

Earnings (Loss) per Common Share

The Company has preferred stock which are entitled to receive dividends if declared on the Company's common stock and are therefore considered to be participating securities. Basic earnings (loss) per share (“EPS”) is computed using the two class method. This calculation divides net income (loss) available to common stockholders after the allocation of undistributed earnings to the participating securities by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These potentially dilutive shares are then included in the weighted average number of shares outstanding for the period. Dilution calculations are not applicable to net loss periods.

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Preferred and Common Dividends

    The Company is prohibited from paying any dividends without prior regulatory approval pursuant to the terms of the Formal Agreement and Resolution to which it is subject, and is generally subject to regulations governing the payment of dividends.  There are no assurances that the payments of common stock dividends will resume.

Treasury Stock

Treasury stock is recorded at cost and is presented as a reduction of stockholders' equity.

Stock Compensation Plans

The Company currently has multiple stock plans in place for employees and directors of the Company. The compensation cost related to share-based payment transactions is included in Employee Compensation and Benefits in the consolidated statements of operations. Compensation cost for all stock awards is calculated and recognized over a defined vesting period. Forfeitures are accounted for as they occur. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite vesting period for the entire award. The Black-Scholes model is used to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for restricted stock awards.

Off-Balance Sheet Financial Instruments

    In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the consolidated statements of condition when they are funded. Reserves for unfunded lending commitments are included in Other Liabilities in the consolidated statements of financial condition.

Grant Income

Designated as a Community Development Financial Institution ("CDFI") by the U.S. Department of the Treasury, the Bank is eligible for, and on occasion receives, assistance from the government and other financial institutions in the form of grants. The Company earns these grants through compliance with their conditions and by meeting the stated obligations. The Company therefore recognizes the grant income over the periods that bear the cost of meeting the obligations.

Advertising Costs

    The Company follows the policy of charging the costs of advertising to expense as incurred.

Transfers of Financial Assets

    Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Recent Accounting Standards

Accounting Standards Recently Adopted

On April 1, 2020, the Company adopted ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which improved the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of an entity's financial statements. The amendments removed the disclosure requirements for (1) transfers between Levels 1 and 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. Additionally, the amendments modified the disclosure requirements for investments in certain entities that calculate net asset value and measurement uncertainty. Finally, the amendments added disclosure requirements for (1) the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, and (2) the range and weighted average of significant
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unobservable inputs used to develop Level 3 measurements. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations.

On April 1, 2021, the Company adopted ASU No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which was part of the FASB's simplification initiative to reduce complexity, while maintaining or improving the usefulness of information provided to users of financial statements. The amendments in this update simplified the accounting for income taxes and improved consistent application of GAAP by removing certain exceptions and clarifying and amending existing guidance for areas of Topic 740. The adoption of the standard did not have a material impact on the Company's financial statements.

Accounting Standards Not Yet Adopted

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): Target Transition Relief," to provide transition relief by giving entities an option to irrevocably elect the fair value option for certain financial assets measured at amortized cost upon adoption of ASU 2016-13. In November 2019, the FASB issued ASU No. 2019-10, which extended the CECL implementation date for smaller reporting companies, as defined by the SEC. The new effective date is for fiscal years beginning after December 15, 2022 (for the Company, the fiscal year ending March 31, 2024), including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," to amend or clarify guidance regarding expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables, and financial assets secured by collateral maintenance provisions. 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 impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations. In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures," which eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. The amendments also require disclosure of current period gross writeoffs by year of origination. The effective dates for the amendments in ASU 2022-02 are the same as the effective dates in ASU 2016-13. The Company is evaluating the impacts of this ASU and does not believe it will have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is evaluating the impacts of this ASU and has not yet determined whether LIBOR transition and this ASU will have a material impact on the Company's consolidated statements of financial condition and results of operations.

In November 2021, the FASB issued ASU No. 2021-10 "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance," to improve the financial reporting of government assistance received by business entities by requiring the disclosure of (1) the types of assistance received, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for all entities for financial
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statements issued for annual periods beginning after December 15, 2021 (for the Company, the fiscal year ending March 31, 2023). Early application of the guidance is permitted. The Company is evaluating the impacts of this ASU to determine whether it will have a material impact on the Company's consolidated statements of financial condition and results of operations.

NOTE 3.INVESTMENT SECURITIES

The Bank utilizes mortgage-backed and other investment securities in its asset/liability management strategy. In making investment decisions, the Bank considers, among other things, its yield and interest rate objectives, its interest rate and credit risk position, and its liquidity and cash flow.

    Generally, the investment policy of the Bank is to invest funds among categories of investments and maturities based upon the Bank’s asset/liability management policies, investment quality, loan and deposit volume and collateral requirements, liquidity needs and performance objectives. Debt securities are classified into three categories: trading, held-to-maturity, and available-for-sale. At March 31, 2022, securities with fair value of $67.6 million, or 92.8%, of the Bank’s total securities were classified as available-for-sale, and the remaining securities with amortized cost of $5.3 million, or 7.2%, were classified as held-to-maturity. The Bank had no securities classified as trading at March 31, 2022 and March 31, 2021.

Other investments as of March 31, 2022 primarily consists of the Bank's investment in a limited partnership Community Capital Fund. These securities are measured at fair value with changes in fair value reflected in net income. Other investments totaled $1.1 million at March 31, 2022 and are included in Other Assets on the Statements of Financial Condition.

The following tables set forth the amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2022 and March 31, 2021:

At March 31, 2022
AmortizedGross Unrealized
$ in thousandsCostGainsLossesFair Value
Available-for-Sale:
Mortgage-backed securities:
Government National Mortgage Association$439 $$— $448 
Federal Home Loan Mortgage Corporation23,744 — 2,197 21,547 
Federal National Mortgage Association12,852 — 1,268 11,584 
Total mortgage-backed securities37,035 3,465 33,579 
U.S. Government Agency Securities13,864 — 79 13,785 
Corporate Bonds5,271 — 1,150 4,121 
Muni Securities17,741 — 1,973 15,768 
Asset-backed Securities347 — 343 
Total available-for-sale$74,258 $$6,671 $67,596 
Held-to-Maturity:
Mortgage-backed securities:
Government National Mortgage Association$481 $27 $— $508 
Federal National Mortgage Association4,773 14 4,768 
Total held-to-maturity$5,254 $36 $14 $5,276 



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At March 31, 2021
AmortizedGross Unrealized
$ in thousandsCostGainsLossesFair Value
Available-for-Sale:
Mortgage-backed securities:
  Government National Mortgage Association$987 $39 $— $1,026 
  Federal Home Loan Mortgage Corporation28,458 88 761 27,785 
  Federal National Mortgage Association15,120 — 510 14,610 
    Total mortgage-backed securities44,565 127 1,271 43,421 
U.S. Government Agency Securities18,744 — 113 18,631 
Corporate Bonds5,274 — 793 4,481 
Muni Securities17,763 — 1,153 16,610 
Asset-backed Securities3,336 28 — 3,364 
    Total available-for-sale$89,682 $155 $3,330 $86,507 
Held-to-Maturity:
Mortgage-backed securities:
  Government National Mortgage Association$683 $69 $— $752 
  Federal National Mortgage Association7,124 264 — 7,388 
Total held-to-maturity$7,807 $333 $— $8,140 

There were no sales of available-for-sale securities and held-to-maturity securities for the year ended March 31, 2022. The following is a summary regarding proceeds and gross gains realized from the sale of securities from the available-for-sale portfolio for the year ended March 31, 2021.
$ in thousandsMarch 31, 2021
Proceeds$37,802 
Gross gains1,193 

Carver maintains a portfolio of mortgage-backed securities in the form of Government National Mortgage Association (“GNMA”) pass-through certificates, Federal National Mortgage Association (“FNMA”) mortgage-backed securities and Federal Home Loan Mortgage Corporation (“FHLMC”) mortgage-backed securities. GNMA pass-through certificates are guaranteed as to the payment of principal and interest by the full faith and credit of the United States Government, while FNMA and FHLMC securities are each guaranteed by their respective agencies as to principal and interest. Based on the high quality of the Bank's investment portfolio, current market conditions have not significantly impacted the pricing of the portfolio or the Bank's ability to obtain reliable prices.

At March 31, 2022, the Bank pledged mortgage-backed and asset-backed securities of $5.9 million as collateral for advances from the FHLB-NY.

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The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at March 31, 2022 and March 31, 2021 for less than 12 months and 12 months or longer:
At March 31, 2022
Less than 12 months12 months or longerTotal
$ in thousandsUnrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Available-for-Sale:
Mortgage-backed securities$519 $7,057 $2,946 $26,128 $3,465 $33,185 
U.S. Government Agency Securities— — 79 13,785 79 13,785 
Corporate bonds— — 1,150 4,121 1,150 4,121 
Muni securities1,640 13,512 333 2,256 1,973 15,768 
Asset-backed securities343 — — 343 
  Total available-for-sale securities$2,163 $20,912 $4,508 $46,290 $6,671 $67,202 
Held-to-Maturity:
Mortgage-backed securities$14 $2,204 $— $— $14 $2,204 
Total held-to-maturity securities$14 $2,204 $— $— $14 $2,204 

At March 31, 2021
Less than 12 months12 months or longerTotal
$ in thousandsUnrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Available-for-Sale:
Mortgage-backed securities$1,271 $39,020 $— $— $1,271 $39,020 
U.S. Government Agency Securities— — 113 18,631 113 18,631 
Corporate bonds793 4,481 — — 793 4,481 
Muni securities1,153 16,609 — — 1,153 16,609 
  Total available-for-sale securities$3,217 $60,110 $113 $18,631 $3,330 $78,741 


A total of 23 securities had an unrealized loss at March 31, 2022, compared to 15 at March 31, 2021. Mortgage-backed securities, municipal securities, U.S. government agency securities and a corporate bond security represented 49.4%, 23.5%, 20.5% and 6.1%, respectively, of total available-for-sale securities in an unrealized loss position at March 31, 2022. There were 4 mortgage-backed securities, 3 U.S. government agency securities, 1 corporate bond and 1 municipal security that had an unrealized loss position for more than 12 months at March 31, 2022. The cause of the temporary impairment is directly related to changes in interest rates. In general, as interest rates decline, the fair value of securities will rise, and conversely as interest rates rise, the fair value of securities will decline.  Management considers fluctuations in fair value as a result of interest rate changes to be temporary, which is consistent with the Bank's experience.  The impairments are deemed temporary based on the direct relationship of the change in fair value to movements in interest rates, the life of the investments and their high credit quality. Given the high credit quality of the mortgage-backed securities which are backed by the U.S. government's guarantees, the high credit quality and strong financial performance of the U.S. Government Agency and municipal securities, and the corporate security that is a reputable institution in good financial standing, the risk of credit loss is minimal. Management believes that these unrealized losses are a direct result of the current rate environment and the Company has the ability and intent to hold the securities until maturity or the valuation recovers.

The Bank did not have any securities that were classified as having other-than-temporary impairment in its investment portfolio at March 31, 2022.

The following is a summary of the amortized cost and fair value of debt securities at March 31, 2022, by remaining period to contractual maturity (ignoring earlier call dates, if any).  Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their obligations.  The table below does not consider the effects of possible prepayments or unscheduled repayments.
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$ in thousandsAmortized CostFair ValueWeighted
Average Yield
Available-for-Sale:
Less than one year$347 $343 1.06 %
One through five years— — — %
Five through ten years6,929 6,823 1.92 %
After ten years29,947 26,851 1.96 %
Mortgage-backed securities37,035 33,579 1.36 %
$74,258 $67,596 2.19 %
Held-to-maturity:
Mortgage-backed securities$5,254 $5,276 2.55 %

NOTE 4.LOANS RECEIVABLE, NET

The following is a summary of loans receivable, net of allowance for loan losses at March 31:
March 31, 2022March 31, 2021
$ in thousandsAmount%Amount%
Gross loans receivable:
One-to-four family$69,297 12.0 %$76,313 15.9 %
Multifamily160,800 27.9 %103,584 21.6 %
Commercial real estate174,270 30.2 %150,114 31.2 %
Business (1)
170,497 29.6 %148,020 30.8 %
Consumer (2)
1,623 0.3 %2,439 0.5 %
Total loans receivable576,487 100.0 %480,470 100.0 %
Unamortized premiums, deferred costs and fees, net3,017 3,079 
Allowance for loan losses(5,624)(5,140)
Total loans receivable, net$573,880 $478,409 
(1) Includes business overdrafts of $5 thousand and $10 thousand as of March 31, 2022 and 2021, respectively
(2) Includes consumer overdrafts of $31 thousand and $44 thousand as of March 31, 2022 and 2021, respectively

Substantially all of the Bank's real estate loans receivable are principally secured by properties located in New York City. Accordingly, as with most financial institutions in the market area, the ultimate collectability of a substantial portion of the Company's loan portfolio is susceptible to changes in market conditions in this area.

Real estate mortgage loan portfolios (one-to-four family) serviced for Federal National Mortgage Association (“FNMA”) and other third parties are not included in the accompanying consolidated financial statements.  The unpaid principal balances of these loans aggregated $14.5 million and $16.8 million at March 31, 2022 and 2021, respectively.

At March 31, 2022 the Bank pledged $58.3 million in total real estate mortgage loans as collateral for advances from the FHLB-NY.

The Bank participated as a lender in the Paycheck Protection Program ("PPP"), which opened on April 3, 2020. As part of the CARES Act, the Small Business Administration ("SBA") was authorized to temporarily guarantee loans under this new 7(a) loan program. Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. Since the PPP loans are fully guaranteed by the SBA, there are no additional ALLL reserves required. As of March 31, 2022, the Bank had approved and funded approximately 420 applications totaling $57.1 million of loans under the PPP. Business loans included PPP loans outstanding totaling $17.9 million as of March 31, 2022. The net loan origination fees on these loans totaled approximately $399 thousand and are being recognized into interest income on loans over the 2-year and 5-year stated maturity terms of the PPP loans using the straight-line deferral method. The Bank has begun to receive debt forgiveness payments on PPP loans closed during the first and second rounds of the program.

Consistent with regulatory guidance and the provisions of the CARES Act, loans less than 30 days past due at December 31, 2019 that were granted COVID-19 related payment deferrals continued to be considered current and not reported as TDRs. For the fiscal year ended March 31, 2021, the Bank received 83 applications for payment deferrals on approximately
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$90.4 million of loans. The Bank has been working with the borrowers to determine if there is a risk of any losses associated with repayment and if any additional reserves would have to be allocated to this portfolio. At March 31, 2022, no loans were on COVID-related deferrals as the remaining 90-day loan deferments expired and borrowers became current.

    The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended March 31, 2022:
$ in thousandsOne-to-four familyMultifamilyCommercial Real EstateBusinessConsumerUnallocatedTotal
Allowance for loan losses:
Beginning Balance$1,058 $880 $907 $1,855 $165 $275 $5,140 
Charge-offs— — — — (257)— (257)
Recoveries13 — — 102 23 — 138 
Provision for (Recovery of) Loan Losses(340)234 250 540 192 (273)603 
Ending Balance$731 $1,114 $1,157 $2,497 $123 $$5,624 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment$731 $1,114 $1,157 $2,428 $123 $$5,555 
Allowance for Loan Losses Ending Balance: individually evaluated for impairment— — — 69 — — 69 
Loan Receivables Ending Balance$70,261 $162,261 $175,313 $170,031 $1,638 $— $579,504 
Ending Balance: collectively evaluated for impairment65,369 161,746 175,313 163,991 1,638 — 568,057 
Ending Balance: individually evaluated for impairment4,892 515 — 6,040 — — 11,447 

    The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended March 31, 2021:
$ in thousandsOne-to-four familyMultifamilyCommercial Real EstateBusinessConsumerUnallocatedTotal
Allowance for loan losses:
Beginning Balance$1,055 $1,011 $812 $1,567 $212 $289 $4,946 
Charge-offs— — — (24)(54)— (78)
Recoveries88 — — 278 — 372 
Provision for (Recovery of) Loan Losses(85)(131)95 34 (14)(100)
Ending Balance$1,058 $880 $907 $1,855 $165 $275 $5,140 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment$1,026 $880 $907 $1,729 $165 $275 $4,982 
Allowance for Loan Losses Ending Balance: individually evaluated for impairment32 — — 126 — — 158 
Loan Receivables Ending Balance$78,213 $106,400 $148,809 $147,680 $2,447 $— $483,549 
Ending Balance: collectively evaluated for impairment74,387 106,031 147,891 139,925 2,447 — 470,681 
Ending Balance: individually evaluated for impairment3,826 369 918 7,755 — — 12,868 

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The following is a summary of nonaccrual loans at March 31, 2022 and 2021.
$ in thousandsMarch 31, 2022March 31, 2021
Loans accounted for on a nonaccrual basis: 
Gross loans receivable: 
One-to-four family$4,892 $3,524 
Multifamily515 369 
Commercial real estate4,601 918 
Business1,448 2,290 
Consumer25 90 
Total nonaccrual loans$11,481 $7,191 

Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments.  Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. TDR loans consist of modified loans where borrowers have been granted concessions in regards to the terms of their loans due to financial or other difficulties, which rendered them unable to repay their loans under the original contractual terms.

At March 31, 2022 and March 31, 2021, other non-performing assets totaled $60 thousand, which consisted of other real estate owned comprised of 1 foreclosed residential property. Other real estate loans is included in other assets in the consolidated statements of financial condition. There were no held-for-sale loans at March 31, 2022 and March 31, 2021.
One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.

As of March 31, 2022, and based on the most recent analysis performed in the current quarter, the risk category by class of loans is as follows:
$ in thousandsMultifamilyCommercial Real EstateBusiness
Credit Risk Profile by Internally Assigned Grade:
Pass$155,274 $164,543 $155,196 
Special Mention897 8,157 6,302 
Substandard6,090 2,613 8,533 
Total$162,261 $175,313 $170,031 
One-to-four familyConsumer
Credit Risk Profile Based on Payment Activity:
Performing$65,369 $1,613 
Non-Performing4,892 25 
Total$70,261 $1,638 

As of March 31, 2021, the risk category by class of loans was as follows:
$ in thousandsMultifamilyCommercial Real EstateBusiness
Credit Risk Profile by Internally Assigned Grade:
Pass$101,212 $142,168 $137,447 
Special Mention— 5,531 1,585 
Substandard5,188 1,110 8,648 
Total$106,400 $148,809 $147,680 
One-to-four familyConsumer
Credit Risk Profile Based on Payment Activity:
Performing$74,689 $2,356 
Non-Performing3,524 91 
Total$78,213 $2,447 

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The following tables presents an aging analysis of the recorded investment of past due loans receivable at March 31, 2022 and 2021.
March 31, 2022
$ in thousands30-59 Days Past Due60-89 Days Past Due90 or More Days Past DueTotal Past DueCurrentTotal Loans Receivable
One-to-four family$1,943 $— $5,229 $7,172 $63,089 $70,261 
Multifamily4,435 115 515 5,065 157,196 162,261 
Commercial real estate4,010 — 4,601 8,611 166,702 175,313 
Business923 40 664 1,627 168,404 170,031 
Consumer84 45 25 154 1,484 1,638 
Total$11,395 $200 $11,034 $22,629 $556,875 $579,504 

March 31, 2021
$ in thousands30-59 Days Past Due60-89 Days Past Due90 or More Days Past DueTotal Past DueCurrentTotal Loans Receivable
One-to-four family$1,188 $— $2,950 $4,138 $74,075 $78,213 
Multifamily798 — — 798 105,602 106,400 
Commercial real estate5,263 — — 5,263 143,546 148,809 
Business671 400 271 1,342 146,338 147,680 
Consumer33 91 126 2,321 2,447 
Total$7,922 $433 $3,312 $11,667 $471,882 $483,549 

    At March 31, 2022 and 2021, there were no loans 90 or more days past due and accruing interest.

The following tables present information on impaired loans with the associated allowance amount, if applicable, at March 31, 2022 and 2021. Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the specific allowance recorded. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. Interest income of $266 thousand and $161 thousand for fiscal years 2022 and 2021 respectively, would have been recorded on impaired loans had they performed in accordance with their original terms.
Impaired Loans by Class
At March 31,
20222021
$ in thousandsRecorded InvestmentUnpaid Principal BalanceAssociated AllowanceRecorded InvestmentUnpaid Principal BalanceAssociated Allowance
With no specific allowance recorded:
One-to-four family$4,892 $5,576 $— $3,750 $4,409 $— 
Multifamily515 515 — 369 369 — 
Commercial real estate— — — 918 918 — 
Business837 909 — 2,332 2,527 — 
With an allowance recorded:
One-to-four family— — — 76 72 32 
Business5,203 5,203 69 5,423 5,423 126 
Total$11,447 $12,203 $69 $12,868 $13,718 $158 

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    The following table presents information on average balances on impaired loans and the interest income recognized for the years ended March 31, 2022 and 2021.
For the years ended March 31,
20222021
$ in thousandsAverage BalanceInterest Income recognizedAverage BalanceInterest Income recognized
With no specific allowance recorded:
One-to-four family$4,321 $50 $4,119 $64 
Multifamily442 16 1,791 16 
Commercial real estate459 697 10 
Business1,585 33 2,153 102 
With an allowance recorded:
One-to-four family38 — 503 — 
Business5,313 217 3,355 — 
Total$12,158 $323 $12,618 $192 

In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a concession. In cases where the Bank grants any significant concessions to a troubled borrower, the Bank accounts for the modification as a TDR. 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 twelve months ended March 31, 2022. There was 1 loan modification made during the twelve months ended March 31, 2021. The following table presents an analysis of the loan modification that was classified as a TDR during the twelve month period ended March 31, 2021,

Modifications to loans during the years ended March 31, 2021
$ in thousandsNumber of loansPre-Modification Recorded InvestmentPost-Modification Recorded investmentPre-Modification ratePost-Modification rate
Business4,949 4,949 6.68 %5.50 %

    In an effort to proactively resolve delinquent loans, Carver has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the fiscal years ended March 31, 2022 and 2021, there were no modified loans that defaulted within the last 12 months of modification. Total TDR loans at March 31, 2022 were $6.9 million, $1.7 million of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. At March 31, 2021, total TDR loans were $7.5 million, of which $1.8 million were non-performing.
    
Transactions With Certain Related Persons

    Federal law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features.

The aggregate amount of loans outstanding to related parties was $30 thousand at March 31, 2022 and $60 thousand at March 31, 2021. During fiscal year 2022, there were no advances and principal repayments totaled $30 thousand.

Furthermore, loans above the greater of $25,000, or 5% of Carver Federal’s capital and surplus (up to $500,000), to Carver Federal’s directors and executive officers must be approved in advance by a majority of the disinterested members of Carver Federal’s Board of Directors.




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NOTE 5.PREMISES AND EQUIPMENT, NET

The details of premises and equipment as of March 31 are as follows:
$ in thousands20222021
Leasehold improvements$6,940 $6,909 
Furniture, equipment, and other14,439 14,278 
21,379 21,187 
Less accumulated depreciation and amortization(17,604)(16,576)
Premises and equipment, net$3,775 $4,611 

Depreciation and amortization charged to operations was $1.0 million for both fiscal years 2022 and 2021.

NOTE 6.LEASES

The Company applies Accounting Standards Codification ("ASC") Topic 842, Leases ("ASC 842") to its leases. The Company has operating leases related to its administrative offices, seven retail branches and four ATM centers. Two of the operating leases are for branch locations where the Company had entered into a sale and leaseback transaction. The gain had been calculated utilizing the profit on sale in excess of the present value of the minimum lease payments, and the profit on the sale was deferred from gain recognition to be amortized into income over the terms of the leases in accordance with ASC Topic 840, Leases ("ASC 840"). ASC 842 does not require previous sale and leaseback transactions accounted for under ASC 840 to be reassessed.

    As the implicit rates of the Company's existing leases are not readily determinable, the incremental borrowing rate used in determining the lease liability obligation for each individual lease was the FHLB-NY fixed-rate advance rates based on the remaining lease terms as of April 1, 2019.

    As of March 31, 2022, the Company had $51 thousand and $43 thousand of ROU asset and lease liability, respectively, for finance leases related to equipment. The ROU asset is included in Premises and Equipment, net, and the lease liability is included in Advances from the FHLB-NY and Other Borrowed Money on the statements of financial condition.

    The following tables present information about the Company's leases and the related lease costs as of and for the year ended March 31, 2022:
March 31, 2022
Weighted-average remaining lease term
Operating leases6.1 years
Finance lease1.5 years
Weighted-average discount rate
Operating leases2.95 %
Finance lease1.77 %
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$ in thousandsMarch 31, 2022March 31, 2021
Operating lease expense$2,871 $2,856 
Finance lease cost
Amortization of right-of use asset70 73
Interest on lease liability3
Cash paid for amounts included in the measurement of lease liabilities
Operating leases2,765 2,734 
Finance lease77 66 

Maturities of lease liabilities at March 31, 2022 are as follows:
$ in thousandsOperating LeasesFinance Leases
Year ending March 31,
2023$2,618 $30 
20242,674 11 
20252,458 
20262,449 — 
20272,193 — 
Thereafter3,423 — 
Total lease payments15,815 44 
Interest(1,422)(1)
Lease liability$14,393 $43 

NOTE 7.ACCRUED INTEREST RECEIVABLE

The details of accrued interest receivable as of March 31 are as follows:
$ in thousands20222021
Loans receivable$2,166 $2,246 
Mortgage-backed securities72 93 
Investments and other interest-bearing assets176 301 
Total accrued interest receivable$2,414 $2,640 

NOTE 8.DEPOSITS

Deposit balances and weighted average interest rates as of March 31 are as follows:
20222021
$ in thousandsAmountPercent of Total DepositsWeighted Average RateAmountPercent of Total DepositsWeighted Average Rate
Non-interest-bearing demand$107,472 17.11 %— %$110,525 19.86 %— %
Interest-bearing checking57,985 9.23 0.06 45,605 8.19 0.08 
Savings112,305 17.88 0.11 108,199 19.44 0.22 
Money market savings account208,122 33.14 0.24 137,230 24.66 0.42 
Certificates of deposit139,255 22.17 0.88 152,723 27.44 1.54 
Loan escrow deposits2,978 0.47 0.36 2,277 0.41 0.28 
Total$628,117 100.00 %0.30 %$556,559 100.00 %0.58 %

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Scheduled maturities of certificates of deposit for the year ended March 31, 2022 are as follows:
$ in thousandsAmount
Maturing years ending March 31:
2023$110,251 
202413,523 
20257,527 
20264,792 
20271,873 
2028 and beyond1,289 
   Total$139,255 

The following table represents the amount of certificates of deposit of $250,000 or more at March 31, 2022 maturing during the periods indicated:
$ in thousands
Maturing:
April 1, 2022 to June 30, 2022$21,957 
July 1, 2022 to September 30, 20226,851 
October 1, 2022 to March 31, 2023751 
April 1, 2023 and beyond7,360 
Total$36,919 

Interest expense on deposits is as follows for the years ended March 31:
$ in thousands20222021
Interest-bearing checking$30 $30 
Savings and clubs123 235 
Money market savings378 525 
Certificates of deposit1,349 2,974 
Loan escrow deposits10 
    Total interest expense$1,890 $3,770 

    The following table presents additional information about our year-end deposits:
$ in thousands20222021
Deposits from the Certificate of Deposit Account Registry Service (CDARS)$46,421 $43,209 
Deposits from brokers17,788 30,149 
Certificates of deposit individually greater than $250,00036,919 26,388 
Deposits from certain directors, executive officers and their affiliates432 216 

NOTE 9.ADVANCES FROM THE FHLB-NY AND OTHER BORROWED MONEY

Federal Home Loan Bank Advances. As a member of the FHLB-NY, the Bank may have outstanding FHLB-NY borrowings in a combination of term advances and overnight funds of up to 30% of its total assets, or approximately $220.6 million at March 31, 2022. Borrowings are secured by the Bank's investment in FHLB-NY stock and by a blanket security agreement. This agreement requires the Bank to maintain as collateral certain qualifying assets (principally mortgage loans and securities) not otherwise pledged. The Bank had no outstanding advances from the FHLB-NY at March 31, 2022. At March 31, 2022, the Bank's collateral included its investment in FHLB-NY capital stock totaling $584 thousand, and a blanket assignment of pledged qualifying mortgage loans of $58.3 million and mortgage-backed and investment securities with a market value of $5.9 million. The Bank has sufficient collateral at the FHLB-NY to be able to borrow $50.0 million from the FHLB-NY at March 31, 2022.

Subordinated Debt Securities. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities.  Gross proceeds from the sale of these trust preferred debt securities
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of $13 million, and proceeds from the sale of the trust's common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033.  The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments totaling $2.5 million were made in September 2016. Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment was made on June 16, 2021. The Company has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments. All quarterly interest payments subsequent to the June 2021 payment up to and including the June 2022 payment have been made.
The accrued interest payable on subordinated debt securities was $22 thousand and the interest expense was $462 thousand for the year ended March 31, 2022. The accrued interest payable on subordinated debt securities was $3.1 million and the interest expense was $562 thousand for the year ended March 31, 2021.

Paycheck Protection Program Liquidity Facility (PPPLF). The Federal Reserve established the PPPLF to support the PPP program by extending credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. The interest rate on PPPLF advances is fixed at 0.35% and the maturity date is equal to the maturity date of the PPP loans pledged to secure the extension of credit. The interest expense was $27 thousand for the year ended March 31, 2022. The accrued interest payable on PPPLF advances was $73 thousand and the interest expense was $85 thousand for the year ended March 31, 2021.

Other Borrowings. During fiscal year 2022, the Company entered into $2.5 million in unsecured low interest loans provided by third parties at a fixed interest rate of 1.00% to finance eligible loans offered through the Bank's community investment initiatives loan program. The accrued interest payable and interest expense on these notes was $19 thousand for the year ended March 31, 2022.

The following table presents expected maturities of the Company's long-term borrowings at March 31, 2022:
$ in thousands
Year ending March 31,
2023$
2024— 
2025— 
2026— 
20272,500 
Thereafter13,403 
Total$15,906 
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The following table sets forth certain information regarding Carver Federal's borrowings as of and for the years ended March 31:
$ in thousands20222021
Amounts outstanding at the end of year:
Subordinated debt securities$13,403 $13,403 
PPPLF23,705 
Other2,500 — 
Rate paid at year end:
Subordinated debt securities3.97 %3.23 %
PPPLF0.35 %0.35 %
Other1.00 %— %
Maximum amount of borrowing outstanding at any month end:
FHLB advances$2,000 $— 
Subordinated debt securities13,403 13,403 
PPPLF23,705 28,293 
Other2,500 — 
Approximate average amounts outstanding for year:
FHLB advances$22 $— 
Subordinated debt securities13,403 13,403 
PPPLF7,647 24,453 
Other1,757 — 
Approximate weighted average rate paid during year:
FHLB advances0.09 %— %
Subordinated debt securities3.45 %4.19 %
PPPLF0.35 </