CARVER BANCORP INC 10-K

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 financial condition of Carver Bancorp, Inc. (the “Company”) as of March 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for each of the two years in the period ended March 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2021 , 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 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 $483.5 million and related allowance for loan losses of $5.1 million as of March 31, 2021. The allowance for loan losses includes a general reserve of $5.0 million and a specific reserve of $0.1 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, national economic trends, and the impact of 54 COVID-19. Auditing these complex 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 June 29, 2021 55 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION $ in thousands except per share data March 31, 2021 March 31, 2020 ASSETS Cash and cash equivalents: Cash and due from banks $ 75,337 $ 47,280 Money market investments 254 260 Total cash and cash equivalents 75,591 47,540 Investment securities: Available-for-sale, at fair value 86,507 65,829 Held-to-maturity, at amortized cost (fair value of $ 8,140 and $ 10,564 at March 31, 2021 and March 31, 2020, respectively) 7,807 10,151 Total investment securities 94,314 75,980 Loans receivable: Real estate mortgage loans 333,422 339,825 Commercial business loans 147,680 85,659 Consumer loans 2,447 3,248 Loans, net of deferred fees and costs 483,549 428,732 Allowance for loan losses ( 5,140 ) ( 4,946 ) Total loans receivable, net 478,409 423,786 Premises and equipment, net 4,611 5,377 Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost 552 568 Accrued interest receivable 2,640 2,052 Right-of-use assets 15,344 17,614 Other assets 5,287 5,853 Total assets $ 676,748 $ 578,770 LIABILITIES AND EQUITY LIABILITIES Deposits: Non-interest bearing checking $ 110,525 $ 57,489 Interest-bearing deposits Interest-bearing checking 45,605 24,016 Savings 108,199 97,812 Money market 137,230 112,634 Certificates of deposit 152,723 194,287 Escrow 2,277 2,577 Total interest-bearing deposits 446,034 431,326 Total deposits 556,559 488,815 Advances from the FHLB-NY and other borrowed money 37,222 13,573 Operating lease liability 16,003 18,153 Other liabilities 14,663 9,335 Total liabilities 624,447 529,876 EQUITY Preferred stock (par value $ 0.01 per share: 17,601 and 45,118 Series D shares, with a liquidation preference of $ 1,000 per share, issued and outstanding at March 31, 2021 and 2020, respectively) 17,601 45,118 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, 2021) 3,177 — Preferred stock (par value $ 0.01 per share: 5,000 Series F shares, with a liquidation preference of $ 1,000 per share, issued and outstanding at March 31, 2021) 5,000 — Common stock (par value $ 0.01 per share: 10,000,000 shares authorized; 5,837,071 and 3,701,449 issued; 3,333,268 and 3,699,505 shares outstanding at March 31, 2021 and 2020, respectively) 58 61 Additional paid-in capital 75,204 55,476 Accumulated deficit ( 42,656 ) ( 52,285 ) Treasury stock, at cost ( 2,503,803 and 1,944 shares at March 31, 2021 and 2020, respectively) ( 2,908 ) ( 408 ) Accumulated other comprehensive (loss) income ( 3,175 ) 932 Total equity 52,301 48,894 Total liabilities and equity $ 676,748 $ 578,770 See accompanying notes to consolidated financial statements 56 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended March 31, $ in thousands except per share data 2021 2020 Interest income: Loans $ 18,552 $ 18,959 Mortgage-backed securities 708 1,230 Investment securities 953 868 Money market investments 94 570 Total interest income 20,307 21,627 Interest expense: Deposits 3,770 4,640 Advances and other borrowed money 650 991 Total interest expense 4,420 5,631 Net interest income 15,887 15,996 (Recovery of) provision for loan losses ( 100 ) 19 Net interest income after (recovery of) provision for loan losses 15,987 15,977 Non-interest income: Depository fees and charges 2,637 3,147 Loan fees and service charges 357 342 Gain on sale of securities, net 1,193 — Gain on sale of loans, net — 66 Other 2,011 184 Total non-interest income 6,198 3,739 Non-interest expense: Employee compensation and benefits 11,180 11,372 Net occupancy expense 4,402 4,529 Equipment, net 1,719 1,502 Data processing 2,871 1,753 Consulting fees 160 244 Federal deposit insurance premiums 355 133 Other 5,394 5,606 Total non-interest expense 26,081 25,139 Loss before income tax expense ( 3,896 ) ( 5,423 ) Income tax expense — — Net loss $ ( 3,896 ) $ ( 5,423 ) Loss per common share: Basic $ ( 1.14 ) $ ( 1.47 ) Diluted $ ( 1.14 ) $ ( 1.47 ) See accompanying notes to consolidated financial statements 57 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years Ended March 31, $ in thousands 2021 2020 Net loss $ ( 3,896 ) $ ( 5,423 ) Other comprehensive (loss) income, net of tax: Change in unrealized (loss) gain of securities available-for-sale, net of income tax expense of $ 0 ( 5,300 ) 1,871 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) income, net of tax ( 4,107 ) 1,871 Total comprehensive loss, net of tax $ ( 8,003 ) $ ( 3,552 ) See accompanying notes to consolidated financial statements 58 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY $ in thousands Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Loss Total Equity Balance—March 31, 2019 45,118 61 55,514 ( 52,201 ) ( 417 ) ( 939 ) 47,136 Net loss — — — ( 5,423 ) — — ( 5,423 ) Other comprehensive income, net of tax — — — — — 1,871 1,871 Cumulative effect adjustment for adoption of ASU 2016-02 — — — 5,339 — — 5,339 Treasury stock activity — — 9 — — — 9 Stock based compensation expense ( 47 ) 9 ( 38 ) Balance—March 31, 2020 45,118 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 — 4 3,193 — — — 3,197 Issuance of Series E preferred stock 3,177 — — — — — 3,177 Issuance of Series F preferred stock 5,000 — — — — — 5,000 Stock based compensation expense — ( 22 ) 58 — — — 36 Balance—March 31, 2021 $ 25,778 $ 58 $ 75,204 $ ( 42,656 ) $ ( 2,908 ) $ ( 3,175 ) $ 52,301 See accompanying notes to consolidated financial statements 59 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, $ in thousands 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 3,896 ) $ ( 5,423 ) Adjustments to reconcile net loss to net cash provided by operating activities: (Recovery of) provision for loan losses ( 100 ) 19 Stock based compensation expense 36 ( 38 ) Depreciation and amortization expense 1,017 965 Gain on sale of real estate owned, net of market value adjustment ( 80 ) ( 208 ) Gain on sale of securities, net ( 1,193 ) — Gain on sale of loans, net — ( 66 ) Amortization and accretion of loan premiums and discounts and deferred charges 641 501 Amortization and accretion of premiums and discounts - securities 590 989 Increase in accrued interest receivable ( 588 ) ( 33 ) Decrease in other assets 593 3,397 Increase (decrease) in other liabilities 5,192 ( 134 ) Net cash provided by (used in) operating activities 2,212 ( 31 ) 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-sale 12,530 14,937 Proceeds from principal payments, maturities and calls of investments: Held-to-maturity 2,303 949 Loans held-for-investment, net of (originations) and repayments/payoffs and maturities ( 28,350 ) 34,391 Loans purchased from third parties ( 26,814 ) ( 35,496 ) Proceeds on sale of loans — 1,360 Redemption of FHLB-NY stock 16 358 Purchase of premises and equipment ( 256 ) ( 1,286 ) Proceeds from sale of real estate owned 260 511 Net cash (used in) provided by investing activities ( 76,984 ) 15,724 CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 67,744 8,619 Net increase (decrease) in FHLB-NY advances and other borrowings 23,705 ( 8,000 ) Contribution of capital 2,500 — Repurchase of common stock ( 2,500 ) — Issuance of common stock 3,197 — Issuance of preferred stock 8,177 — Net cash provided by financing activities 102,823 619 Net increase in cash and cash equivalents 28,051 16,312 Cash and cash equivalents at beginning of period 47,540 31,228 Cash and cash equivalents at end of period $ 75,591 $ 47,540 Supplemental cash flow information: Noncash financing and investing activities Recognition of right-of-use asset $ — $ 19,951 Recognition of operating lease liability — 20,335 Recognition of finance lease asset 13 216 Recognition of finance lease liability 13 206 Retirement of preferred stock 13,523 — Retirement of common stock 2 — Cash paid for: Interest $ 3,904 $ 4,867 Income taxes 57 53 See accompanying notes to consolidated financial statements 60 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 has 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 interest rate was 3.23 % and the total amount of deferred interest was $ 3.1 million at March 31, 2021. Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, to engage in share repurchase programs and to pay principal and interest on its trust preferred debt obligation. 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. 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. 61 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 further described in the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on May 27, 2016. 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. 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 writedowns 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. In addition, the OCC, Carver Federal's regulator, as an integral part of its examination process, periodically reviews Carver Federal's allowance for loan losses and, if applicable, real estate owned valuations. The OCC may require Carver Federal to recognize additions to the allowance for loan losses or additional writedowns of real estate owned based on their judgments about information available to them at the time of their examination. 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 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. At this time, it is unknown if the easing of restrictions on individuals and businesses will continue and if and when businesses and their employees will be able to fully resume normal activities. 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 making 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, including reviewing the industries that the Company believes are most likely to be impacted by emerging COVID-19 events. 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. 62 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 adopted ASU 2016-01 on April 1, 2018; this standard required that all equity securities are measured at fair value with unrealized holding gains and losses reflected in net income. In the prior fiscal year, equity securities measured at fair value reported any change in unrealized gains and losses through other comprehensive income. 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. Following Financial Accounting Standards Board ("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). There were no other-than-temporary impairment charges recorded during the fiscal year ended March 31, 2021. 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 63 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 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 the Interagency Policy Statement on the Allowance for Loan and Lease Losses (the “Interagency Policy Statement”) released by the OCC on December 13, 2006 and in accordance with ASC Subtopics 450-20 "Loss Contingencies" and 310-10 "Accounting by Creditors for Impairment of a Loan." Compliance with the Interagency Policy Statement includes management's review of the Bank's loan portfolio, including the identification and review of 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 a review of regulatory examinations, 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. General Reserve Allowance Carver's maintenance of a general reserve allowance in accordance with ASC Subtopic 450-20 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 • 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 64 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 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 ). 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 borrower. • Commercial - Commercial real estate ("CRE") 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 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 borrower. The Bank also requires the assignment of rents of all tenants' leases in the mortgaged property and 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 65 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. 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. 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 probably loss, determined in accordance with GAAP, and is properly supported. Troubled Debt Restructured Loans TDRs are those loans whose terms have been modified because of deterioration in the financial condition of the borrower and a concession is made. Modifications could include extension of the terms of the loan, reduced interest rates, capitalization of interest 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 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. 66 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 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 mgay 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 67 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 one 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 computed using the straight-line method over the following estimated useful lives: Buildings and improvements 10 to 25 years Furnishings and equipment 3 to 5 years Leasehold improvements Lesser of useful life or remaining term of lease Maintenance, repairs and minor improvements are charged to non-interest expense in the period incurred. 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, 2021. The Bank carries this investment at historical cost. Mortgage Servicing Rights All separately recognized servicing assets totaled $ 147 thousand and $ 145 thousand, respectively, at March 31, 2021 and 2020, and are included in Other Assets in the consolidated statements of financial condition and measured at fair value. Servicing fee income of $ 38 thousand and $ 44 thousand, respectively, was recognized during the years ended March 31, 2021 and 2020, 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. 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. As of March 31, 2021, 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, 2021 and 2020, we had residential loans with a carrying value of $ 2.5 million 68 and $ 3.0 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 not likely 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. 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. See Item 1 - Business - Regulation and Supervision - Enforcement Actions. 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 recognized in financial statements. Compensation cost for all stock awards is calculated and recognized over a defined vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite vesting period for the entire award. A 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 . NMTC fee income The fee income the Company receives related to the transfers of its New Market Tax Credits ("NMTC") varies with each transaction, but all are similar in nature. There are two basic types of fees associated with these transactions. The first is a “sub-allocation fee” that is paid to CCDC when the tax credits are allocated to a subsidiary entity at the time a qualified equity 69 investment is made. This fee is recognized by the Company at the time of allocation. The second type of fee is paid to cover the administrative and servicing costs associated with CCDC's compliance with NMTC reporting requirements. This fee is recognized as the services are rendered. 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 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, 2019, the Company adopted ASC Topic 842, Leases (Topic 842). From the lessee's perspective, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor does not convey risks and rewards or control, an operating lease results. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company elected to apply the guidance as of the beginning of the period of adoption (April 1, 2019) and not restate comparative periods. The Company also elected certain optional practical expedients, which allow the Company to forego a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. Topic 842 also provides certain accounting policy elections for an entity’s ongoing accounting. For operating leases wherein the Company is the lessee, the Company has elected the practical expedient to not separate lease and non-lease components. Upon adoption, the Company recorded ROU assets and corresponding operating lease liabilities totaling $ 20.0 million. In addition, a $ 5.3 million cumulative effect adjustment to retained earnings was recorded to recognize the total deferred gain from the sale of buildings at the adoption date. As the implicit rate in each of the Company’s leases is not readily determinable, the Company is required to apply the Company’s incremental borrowing rate (“IBR”) to calculate the lease liability and ROU asset for its leasing arrangements. The Company has used the FHLB borrowing rate to calculate the IBR. The Company will also consider lease renewal options reasonably certain of exercise for purposes of determining the term of the underlying borrowing. The Company has considered various other factors, including, economic environment and determined that these factors do not currently impact the Company’s IBR calculation. The Company will continue to assess the appropriateness of the conclusions reached herein with respect to each of the factors discussed above and will determine the appropriate IBR for each new lease arrangement or modification, as required. See Note 6 “Leases” for further information. 70 On April 1, 2019, the Company adopted ASU No. 2017-08, "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. 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, 2019, the Company adopted ASU No. 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220)," which allows a reclassification for stranded tax effects from accumulated other comprehensive income to retained earnings, to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments addressed concerns regarding the guidance that requires deferred tax assets and liabilities to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting periods that include the enactment date. As the Company has provided a full valuation allowance against its net deferred tax assets, the change in tax rates resulted in a writedown of the deferred tax assets, which was offset by a reduction in the deferred tax valuation allowance. On April 1, 2018, the Company adopted ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting," which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations. 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 December 2019, the FASB issued ASU No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," as 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 simplify the accounting for income taxes and improve consistent application of GAAP by removing certain exceptions and clarifying and amending existing guidance for areas of Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020 (for the Company, the fiscal year ending March 31, 2022), and interim periods within those fiscal years. ASU 2019-12 is not expected to have a material impact on the Company's 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 71 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. 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. GAAP requires that debt securities be classified into three categories: trading, held-to-maturity, and available-for-sale. At March 31, 2021, securities with fair value of $ 86.5 million, or 91.7 %, of the Bank’s total securities were classified as available-for-sale, and the remaining securities with amortized cost of $ 7.8 million, or 8.3 %, were classified as held-to-maturity. The Bank had no securities classified as trading at March 31, 2021 and March 31, 2020. Other investments as of March 31, 2021 primarily consists of the Bank's investment in a limited partnership Community Capital Fund. These securities are measured at fair value with unrealized holding gains and losses reflected in net income. Other investments totaled $ 948 thousand at March 31, 2021 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, 2021 and March 31, 2020: At March 31, 2021 Amortized Gross Unrealized $ in thousands Cost Gains Losses Fair Value Available-for-Sale: Mortgage-backed securities: Government National Mortgage Association $ 987 $ 39 $ — $ 1,026 Federal Home Loan Mortgage Corporation 28,458 88 761 27,785 Federal National Mortgage Association 15,120 — 510 14,610 Total mortgage-backed securities 44,565 127 1,271 43,421 U.S. Government Agency Securities 18,744 — 113 18,631 Corporate Bonds 5,274 — 793 4,481 Muni Securities 17,763 — 1,153 16,610 Asset-backed Securities 3,336 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 Association 7,124 264 — 7,388 Total held-to-maturity $ 7,807 $ 333 $ — $ 8,140 72 At March 31, 2020 Amortized Gross Unrealized $ in thousands Cost Gains Losses Fair Value Available-for-Sale: Mortgage-backed securities: Government National Mortgage Association $ 3,510 $ 77 $ — $ 3,587 Federal Home Loan Mortgage Corporation 9,244 312 18 9,538 Federal National Mortgage Association 21,495 673 — 22,168 Total mortgage-backed securities 34,249 1,062 18 35,293 U.S. Government Agency Securities 26,616 20 155 26,481 Corporate Bonds 4,032 33 10 4,055 Total available-for-sale $ 64,897 $ 1,115 $ 183 $ 65,829 Held-to-Maturity: Mortgage-backed securities: Government National Mortgage Association $ 972 $ 76 $ — $ 1,048 Federal National Mortgage Association and Other 8,179 342 — 8,521 Total held-to-maturity mortgage-backed securities 9,151 418 — 9,569 Corporate Bonds 1,000 — 5 995 Total held-to-maturity $ 10,151 $ 418 $ 5 $ 10,564 The following is a summary regarding proceeds, gross gains and gross losses realized from the sale of securities from the available-for-sale portfolio for the year ended March 31, 2021. There were no sales of available-for-sale securities and held-to-maturity securities for the year ended March 31, 2020. $ in thousands March 31, 2021 Proceeds $ 37,802 Gross gains 1,193 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”) participation certificates. 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, 2021, the Bank pledged mortgage-backed and agency securities of $ 9.0 million as collateral for advances from the FHLB-NY. The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at March 31, 2021 and March 31, 2020 for less than 12 months and 12 months or longer: At March 31, 2021 Less than 12 months 12 months or longer Total $ in thousands Unrealized 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 bonds 793 4,481 — — 793 4,481 Muni securities 1,153 16,609 — — 1,153 16,609 Total available-for-sale securities $ 3,217 $ 60,110 $ 113 $ 18,631 $ 3,330 $ 78,741 73 At March 31, 2020 Less than 12 months 12 months or longer Total $ in thousands Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Available-for-Sale: Mortgage-backed securities $ — $ — $ 18 $ 619 $ 18 $ 619 U.S. Government Agency Securities — — 155 21,494 155 21,494 Corporate bonds 10 1,999 — — 10 1,999 Total available-for-sale securities $ 10 $ 1,999 $ 173 $ 22,113 $ 183 $ 24,112 Held-to-Maturity: Corporate bonds $ 5 995 — — $ 5 $ 995 Total held-to-maturity securities $ 5 $ 995 $ — $ — $ 5 $ 995 A total of 15 securities had an unrealized loss at March 31, 2021, compared to 7 at March 31, 2020. Mortgage-backed securities, U.S. government agency securities and muni securities represented 49.6%, 23.7 % and 21.1 %, respectively, of total available-for-sale securities in an unrealized loss position at March 31, 2021. There were three U.S. government agency securities that had an unrealized loss position for more than 12 months at March 31, 2021. 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 securities which are backed by the U.S. government's guarantees, the high credit quality and strong financial performance of the municipal securities, and the corporate securities which are all reputable institutions 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, 2021. The following is a summary of the amortized cost and fair value of debt securities at March 31, 2021, 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. $ in thousands Amortized Cost Fair Value Weighted Average Yield Available-for-Sale: One through five years 3,336 3,364 3.18 % Five through ten years 5,655 5,612 1.37 % After ten years 36,126 34,110 1.93 % Mortgage-backed securities 44,565 43,421 1.47 % $ 89,682 $ 86,507 1.71 % Held-to-maturity: Mortgage-backed securities $ 7,807 $ 8,140 2.37 % NOTE 4. LOANS RECEIVABLE, NET 74 The following is a summary of loans receivable, net of allowance for loan losses at March 31: March 31, 2021 March 31, 2020 $ in thousands Amount % Amount % Gross loans receivable: One-to-four family $ 76,313 15.9 % $ 105,532 24.8 % Multifamily 103,584 21.6 % 89,241 21.0 % Commercial real estate 149,472 31.1 % 141,761 33.3 % Business (1) 148,662 30.9 % 85,425 20.1 % Consumer (2) 2,439 0.5 % 3,213 0.8 % Total loans receivable 480,470 100.0 % 425,172 100.0 % Unamortized premiums, deferred costs and fees, net 3,079 3,560 Allowance for loan losses ( 5,140 ) ( 4,946 ) Total loans receivable, net $ 478,409 $ 423,786 ( 1) Includes PPP loans of $36.0 million as of March 31, 2021 and business overdrafts of $ 10 thousand as of March 31, 2021 and 2020 (2) Includes consumer overdrafts of $ 44 thousand and $ 15 thousand as of March 31, 2021 and 2020, 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 $ 16.8 million and $ 18.3 million at March 31, 2021 and 2020, respectively. At March 31, 2021 the Bank pledged $ 42.8 million in total real estate mortgage loans as collateral for advances from the FHLB-NY. The Bank is participating 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") is authorized to temporarily guarantee loans under this new 7(a) loan program. Under the PPP, small businesses and other entities and individuals can 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, 2021, the Bank has approved and funded approximately 304 applications totaling $ 42.9 million of loans under the PPP. The Bank has begun to receive debt forgiveness payments on PPP loans closed during the first round 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 will continue to be considered current and not be reported as TDRs. For the fiscal year ended March 31, 2021, the Bank received 83 applications for payment deferrals on approximately $ 90.4 million of loans. This total includes 61 commercial loans totaling $ 83.5 million and 22 residential loans totaling $ 6.9 million. As of March 31, 2021, we have 15 loans remaining that are on deferment with outstanding principal balances totaling $8.3 million. 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. 75 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 thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total Allowance for loan losses: Beginning Balance $ 1,055 $ 1,011 $ 812 $ 1,567 $ 212 $ 289 $ 4,946 Charge-offs — — — ( 24 ) ( 54 ) — ( 78 ) Recoveries 88 — — 278 6 — 372 Provision for (Recovery of) Loan Losses ( 85 ) ( 131 ) 95 34 1 ( 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 impairment 32 — — 126 — — 158 Loan Receivables Ending Balance $ 78,213 $ 106,400 $ 148,809 $ 147,680 $ 2,447 $ — $ 483,549 Ending Balance: collectively evaluated for impairment 74,387 106,031 147,891 139,925 2,447 — 470,681 Ending Balance: individually evaluated for impairment 3,826 369 918 7,755 — — 12,868 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, 2020: $ in thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total Allowance for loan losses: Beginning Balance $ 1,274 $ 885 $ 766 $ 1,330 $ 154 $ 237 $ 4,646 Charge-offs ( 12 ) — — ( 69 ) ( 102 ) — ( 183 ) Recoveries 302 — — 160 2 — 464 Provision for (Recovery of) Loan Losses ( 509 ) 126 46 146 158 52 19 Ending Balance $ 1,055 $ 1,011 $ 812 $ 1,567 $ 212 $ 289 $ 4,946 Allowance for Loan Losses Ending Balance: collectively evaluated for impairment $ 899 $ 1,011 $ 812 $ 1,557 $ 212 $ 289 $ 4,780 Allowance for Loan Losses Ending Balance: individually evaluated for impairment 156 — — 10 — — 166 Loan Receivables Ending Balance $ 107,528 $ 89,887 $ 142,410 $ 85,659 $ 3,248 $ — $ 428,732 Ending Balance: collectively evaluated for impairment 102,902 89,512 142,410 82,210 3,248 — 420,282 Ending Balance: individually evaluated for impairment 4,626 375 — 3,449 — — 8,450 76 The following is a summary of nonaccrual loans at March 31, 2021 and 2020. $ in thousands March 31, 2021 March 31, 2020 Loans accounted for on a nonaccrual basis: Gross loans receivable: One-to-four family $ 3,524 $ 3,582 Multifamily 369 375 Commercial real estate 918 — Business 2,290 2,797 Consumer 90 22 Total nonaccrual loans $ 7,191 $ 6,776 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, 2021, other non-performing assets totaled $ 60 thousand, which consisted of other real estate owned comprised of one foreclosed residential property, compared to $ 120 thousand comprised of two foreclosed residential properties at March 31, 2020. 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, 2021 or March 31, 2020. 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. As of March 31, 2021, and based on the most recent analysis performed in the current quarter, the risk category by class of loans is as follows: $ in thousands Multifamily Commercial Real Estate Business Credit Risk Profile by Internally Assigned Grade: Pass $ 101,212 $ 142,168 $ 137,447 Special Mention — 5,531 1,585 Substandard 5,188 1,110 8,648 Total $ 106,400 $ 148,809 $ 147,680 One-to-four family Consumer Credit Risk Profile Based on Payment Activity: Performing $ 74,689 $ 2,356 Non-Performing 3,524 91 Total $ 78,213 $ 2,447 77 As of March 31, 2020, the risk category by class of loans was as follows: $ in thousands Multifamily Commercial Real Estate Business Credit Risk Profile by Internally Assigned Grade: Pass $ 89,512 $ 141,793 $ 80,016 Special Mention — 617 2,184 Substandard 375 — 3,459 Total $ 89,887 $ 142,410 $ 85,659 One-to-four family Consumer Credit Risk Profile Based on Payment Activity: Performing $ 103,946 $ 3,225 Non-Performing 3,582 23 Total $ 107,528 $ 3,248 The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2021. $ in thousands 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Receivable One-to-four family $ 1,188 $ — $ 2,950 $ 4,138 $ 74,075 $ 78,213 Multifamily 798 — — 798 105,602 106,400 Commercial real estate 5,263 — — 5,263 143,546 148,809 Business 671 400 271 1,342 146,338 147,680 Consumer 2 33 91 126 2,321 2,447 Total $ 7,922 $ 433 $ 3,312 $ 11,667 $ 471,882 $ 483,549 The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2020. $ in thousands 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Receivable One-to-four family $ 1,410 $ — $ 3,202 $ 4,612 $ 102,916 $ 107,528 Multifamily 490 — — 490 89,397 89,887 Commercial real estate 6,621 — — 6,621 135,789 142,410 Business 1,360 3 700 2,063 83,596 85,659 Consumer 103 1 23 127 3,121 3,248 Total $ 9,984 $ 4 $ 3,925 $ 13,913 $ 414,819 $ 428,732 At March 31, 2021 and 2020, 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, 2021 and 2020. 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 $ 161 thousand and $ 119 thousand for fiscal years 2021 and 2020 respectively, would have been recorded on impaired loans had they performed in accordance with their original terms. 78 Impaired Loans by Class At March 31, 2021 2020 $ in thousands Recorded Investment Unpaid Principal Balance Associated Allowance Recorded Investment Unpaid Principal Balance Associated Allowance With no specific allowance recorded: One-to-four family $ 3,750 $ 4,409 $ — $ 3,819 $ 4,566 $ — Multifamily 369 369 — 375 376 — Commercial real estate 918 918 — — — — Business 2,332 2,527 — 2,797 2,917 — With an allowance recorded: One-to-four family 76 72 32 807 803 156 Business 5,423 5,423 126 652 652 10 Total $ 12,868 $ 13,718 $ 158 $ 8,450 $ 9,314 $ 166 The following table presents information on average balances on impaired loans and the interest income recognized for the years ended March 31, 2021 and 2020. For the years ended March 31, 2021 2020 $ in thousands Average Balance Interest Income recognized Average Balance Interest Income recognized With no specific allowance recorded: One-to-four family $ 4,119 $ 64 $ 4,153 $ 65 Multifamily 1,791 16 1,795 48 Commercial real estate 697 10 238 — Business 2,153 102 2,385 47 With an allowance recorded: One-to-four family 503 — 868 — Multifamily — — — — Business 3,355 — 970 — Total $ 12,618 $ 192 $ 10,409 $ 160 In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a modification. In cases where the Bank grants any significant concessions to a troubled borrower, the Bank accounts for the modification as a TDR under ASC Subtopic 310-40 and the related allowance under ASC Section 310-10-35. 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 was one loan modification made during the twelve months ended March 31, 2021. There were no loan modifications made during the twelve months ended March 31, 2020. The following table presents an analysis of the loan modifications that were classified as TDRs during the twelve month period ended March 31, 2021, Modifications to loans during the years ended March 31, 2021 $ in thousands Number of loans Pre-Modification Recorded Investment Post-Modification Recorded investment Pre-Modification rate Post-Modification rate Business 1 $ 4,949 $ 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, 2021 and 2020, there were no modified loans that defaulted within the last 12 months of modification. Total TDR loans at March 31, 2021 were $ 7.5 79 million, $ 1.8 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, 2020, total TDR loans were $ 3.9 million, of which $ 2.2 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 $ 60 thousand at March 31, 2021 and $ 70 thousand at March 31, 2020. During fiscal year 2021, there were no advances and principal repayments totaled $ 10 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. NOTE 5. PREMISES AND EQUIPMENT, NET The details of premises and equipment as of March 31 are as follows: $ in thousands 2021 2020 Leasehold improvements $ 6,909 $ 7,120 Furniture, equipment, and other 14,278 14,212 21,187 21,332 Less accumulated depreciation and amortization ( 16,576 ) ( 15,955 ) Premises and equipment, net $ 4,611 $ 5,377 Depreciation and amortization charged to operations for fiscal years 2021 and 2020 amounted to $ 1.0 million and $ 965 thousand, respectively. NOTE 6. LEASES On April 1, 2019, the Company adopted Topic 842 and all subsequent ASUs that modified Topic 842. 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 840. ASC 842 does not require previous sale and leaseback transactions accounted for under ASC 840 to be reassessed. Because the transactions had no off-market terms, the Company recorded a $ 5.3 million cumulative effect adjustment to retained earnings to recognize the total deferred gain balance at the adoption date. The implementation of the new standard resulted in the recognition of $ 20.0 million right-of-use ("ROU") assets and corresponding operating lease liabilities upon adoption. As of March 31, 2021, operating ROU lease assets and related lease liabilities totaled $ 15.3 million and $ 16.0 million, respectively. As the implicit rates of the Company's existing leases are not readily determinable, the discount 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, 2021, the Company had $ 121 thousand and $ 114 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, 2021: 80 March 31, 2021 Weighted-average remaining lease term Operating leases 7.1 years Finance lease 2.3 years Weighted-average discount rate Operating leases 3.01 % Finance lease 1.78 % $ in thousands March 31, 2021 March 31, 2020 Operating lease expense $ 2,856 $ 2,925 Finance lease cost Amortization of right-of use asset 73 34 Interest on lease liability 3 2 Cash paid for amounts included in the measurement of lease liabilities Operating leases 2,734 2,770 Finance lease 66 44 Maturities of lease liabilities at March 31, 2021 are as follows: $ in thousands Operating Leases Finance Leases Year ending March 31, 2022 $ 2,619 $ 72 2023 2,479 30 2024 2,535 11 2025 2,318 3 2026 2,309 — Thereafter 5,604 — Total lease payments 17,864 116 Interest ( 1,861 ) ( 2 ) Lease liability $ 16,003 $ 114 NOTE 7. ACCRUED INTEREST RECEIVABLE The details of accrued interest receivable as of March 31 are as follows: $ in thousands 2021 2020 Loans receivable $ 2,246 $ 1,649 Mortgage-backed securities 93 112 Investments and other interest-bearing assets 301 291 Total accrued interest receivable $ 2,640 $ 2,052 NOTE 8. DEPOSITS 81 Deposit balances and weighted average interest rates as of March 31 are as follows: 2021 2020 $ in thousands Amount Percent of Total Deposits Weighted Average Rate Amount Percent of Total Deposits Weighted Average Rate Non-interest-bearing demand $ 110,525 19.86 % — % $ 57,489 11.76 % — % Interest-bearing checking 45,605 8.19 0.08 24,016 4.91 0.12 Savings 108,199 19.44 0.22 97,812 20.01 0.26 Money market savings account 137,230 24.66 0.42 112,634 23.04 0.53 Certificates of deposit 152,723 27.44 1.54 194,287 39.75 2.03 Loan escrow deposits 2,277 0.41 0.28 2,577 0.53 1.04 Total $ 556,559 100.00 % 0.58 % $ 488,815 100.00 % 0.91 % Scheduled maturities of certificates of deposit for the year ended March 31, 2021 are as follows: $ in thousands Amount Maturing years ending March 31: 2022 $ 114,018 2023 21,543 2024 6,807 2025 5,852 2026 4,407 2027 and beyond 96 Total $ 152,723 The following table represents the amount of certificates of deposit of $100,000 or more at March 31, 2021 maturing during the periods indicated: $ in thousands Maturing: April 1, 2021 to June 30, 2021 $ 56,160 July 1, 2021 to September 30, 2021 12,831 October 1, 2021 to March 31, 2022 23,197 April 1, 2022 and beyond 27,656 Total $ 119,844 Interest expense on deposits is as follows for the years ended March 31: $ in thousands 2021 2020 Interest-bearing checking $ 30 $ 29 Savings and clubs 235 256 Money market savings 525 533 Certificates of deposit 2,974 3,799 Loan escrow deposits 6 23 Total interest expense $ 3,770 $ 4,640 The following table presents additional information about our year-end deposits: $ in thousands 2021 2020 Deposits from the Certificate of Deposit Account Registry Service (CDARS) $ 43,209 $ 40,171 Deposits from brokers 30,149 41,743 Certificates of deposit individually greater than $250,000 26,388 53,956 Deposits from certain directors, executive officers and their affiliates 216 64 82 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 $ 203.0 million at March 31, 2021. 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, 2021. At March 31, 2021, the Bank's collateral included its investment in FHLB-NY capital stock totaling $ 552 thousand, and a blanket assignment of pledged qualifying mortgage loans of $ 42.8 million and mortgage-backed and investment securities with a market value of $ 9.0 million. The Bank has sufficient collateral at the FHLB-NY to be able to borrow $ 42.7 million from the FHLB-NY at March 31, 2021. 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 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 has 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 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. The accrued interest payable on subordinated debt securities was $ 2.5 million and the interest expense was $ 815 thousand for the year ended March 31, 2020. 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 accrued interest payable on PPPLF advances was $73 thousand and the interest expense was $85 thousand for the year ended March 31, 2021. 83 The following table sets forth certain information regarding Carver Federal's borrowings as of and for the years ended March 31: $ in thousands 2021 2020 Amounts outstanding at the end of year: Subordinated debt securities 13,403 13,403 PPPLF 23,705 — Rate paid at year end: Subordinated debt securities 3.23 % 3.89 % PPPLF 0.35 % — % Maximum amount of borrowing outstanding at any month end: FHLB advances $ — $ 23,000 Subordinated debt securities 13,403 13,403 PPPLF 28,293 — Approximate average amounts outstanding for year: FHLB advances $ — $ 8,115 Subordinated debt securities 13,403 13,403 PPPLF 24,453 — Approximate weighted average rate paid during year: FHLB advances — % 2.15 % Subordinated debt securities 4.19 % 6.08 % PPPLF 0.35 % — % NOTE 10. INCOME TAXES The following is a reconciliation of the expected Federal income tax rate to the consolidated effective tax rate for the years ended March 31: 2021 2020 $ in thousands Amount Percent Amount Percent Statutory Federal income tax expense (benefit) $ ( 818 ) 21.0 % $ ( 1,139 ) 21.0 % State and local income tax, net of Federal tax benefit ( 70 ) 12.0 ( 719 ) 13.2 Impact of income tax rate changes ( 25 ) 0.6 186 ( 3.4 ) Change in valuation allowance 917 ( 33.5 ) 1,661 ( 30.6 ) Other ( 4 ) ( 0.1 ) 11 ( 0.2 ) Total income tax expense (benefit) $ — — % $ — — % Tax effects of existing temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are included in other assets at March 31 as follows: 84 $ in thousands 2021 2020 Deferred Tax Assets: Allowance for loan losses $ 1,723 $ 1,689 Compensation and benefits 16 — Nonaccrual loan interest 54 40 Net operating loss carryforward 18,890 18,732 New markets tax credit 3,434 3,452 Depreciation ( 916 ) ( 5 ) Unrealized loss (gain) on available-for-sale securities 667 ( 313 ) Other 248 124 Total Deferred Tax Assets 24,116 23,719 Deferred Tax Liabilities: Other 370 1,098 Total Deferred Tax Liabilities 370 1,098 Deferred Tax Assets, net 23,746 22,621 Valuation Allowance ( 23,746 ) ( 22,621 ) Deferred Tax Assets, net of valuation allowance $ — $ — On June 29, 2011, the Company raised $ 55.0 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 carryforwards, general business credits, and recognized built-in losses upon a change in ownership. The Company is currently subject to an annual limitation of approximately $ 870 thousand , but has accumulated availability of $8.5 million as of March 31, 2021. The total cumulative availability over the carryover period (20 years) is $18.1 million. The Company has a net deferred tax asset (“DTA”) of approximately $ 23.7 million. Based on management's calculations, the Section 382 limitation has resulted in previous reductions of the deferred tax asset of $ 5.8 million. A valuation allowance for net deferred tax asset of $ 23.7 million has been recorded. The valuation allowance was initially recorded during fiscal year 2011, and has remained through March 31, 2020, as management concluded, and continues to conclude, that it is “more likely than not” that the Company will not be able to fully realize the benefit of its deferred tax assets. The Tax Cuts and Jobs Act, that was passed during the Company's fiscal year 2018, now permits a corporation to receive refunds for AMT credits even if there is no taxable income. As a result, at March 31, 2018, the valuation allowance was reduced by $340 thousand, the amount of the Company's AMT credits. The amount of the AMT credits recorded as a deferred tax asset was $ 0 as of March 31, 2020. The AMT credit was $143 thousand as of March 31, 2020, which the Company requested to be refunded from its recently filed fiscal year 2020 federal tax return. At March 31, 2021, the Company had net operating carryforwards for federal purposes of approximately $ 51.2 million, for state purposes of approximately $ 70.9 million and for city purposes of approximately $ 58.5 million which are available to offset future federal, state and city income and which expire over varying periods from March 2030 through March 2040. Federal net operating carryforwards of $ 17.4 million do not expire. The Company has no uncertain tax positions. The Company and its subsidiaries are subject to federal, New York State and New York City income taxation. The Company is no longer subject to examination by taxing authorities for years before March 31, 2017. 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. NOTE 11. LOSS PER COMMON SHARE 85 The following table reconciles the loss available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted loss per share for the years ended March 31: $ in thousands except per share data 2021 2020 Net loss attributable to Carver Bancorp, Inc. $ ( 3,896 ) $ ( 5,423 ) Weighted average common shares outstanding – basic 3,415,154 3,699,278 Weighted average common shares outstanding – diluted 3,415,154 3,699,278 Basic loss per common share $ ( 1.14 ) $ ( 1.47 ) Diluted loss per common share $ ( 1.14 ) $ ( 1.47 ) For the years ended March 31, 2021 and March 31, 2020, all restricted shares and outstanding stock options were anti-dilutive. For details of restricted shares and stock options, please refer to Note 14. "Employee Benefit and Stock Compensation Plans." NOTE 12. STOCKHOLDERS' EQUITY Conversion and Stock Offering. On October 24, 1994, the Bank issued in an initial public offering 2,314,375 shares of common stock, par value $ 0.01 (the “Common Stock”), at a price of $ 10 per share resulting in net proceeds of $ 21.5 million. As part of the initial public offering, the Bank established a liquidation account at the time of conversion, in an amount equal to the surplus and reserves of the Bank at September 30, 1994. In the unlikely event of a complete liquidation of the Bank (and only in such event), eligible depositors who continue to maintain accounts shall be entitled to receive a distribution from the liquidation account. The total amount of the liquidation account may be decreased if the balances of eligible deposits decreased as measured on the annual determination dates. The Bank is not permitted to pay dividends to the Company on its capital stock if the effect thereof would cause its net worth to be reduced below either: (i) the amount required for the liquidation account, or (ii) the amount required for the Bank to comply with applicable minimum regulatory capital requirements. In 2011 the stockholders approved a 1-for-15 reverse stock split pursuant to which each 15 shares of the Company’s Common Stock would be converted into one share of Common Stock. The 1-for-15 reverse stock split was effective as of October 27, 2011, resulting in a reduction in the number of outstanding shares of the Company’s Common Stock from 2,492,415 to 166,161 , an increase of the conversion price of the Series C Preferred Stock and the Series D Preferred Stock and the exchange ratio of the Series B Preferred Stock from $0.5451 to $8.1765, and a corresponding decrease in the number of shares of Common Stock issued to the Investors and Treasury. During the year ended March 31, 2012, all outstanding shares of Series B Preferred Stock were converted to Common Stock and all outstanding shares of Series C preferred Stock were converted to Series D Preferred Stock. As of March 31, 2021, there were 3,333,268 shares of Company common stock outstanding. Series D Preferred Stock ranks senior to the Common Stock. The holders of Series D Preferred Stock are entitled to receive dividends, on an as-converted basis, simultaneously to the payment of any dividends on the Company's common stock. Dividends on the Series D Preferred Stock are not cumulative. If the Company's board of directors does not declare a dividend with respect to any dividend period, the holders of the Series D Preferred Stock will have no right to receive any dividend for that period. The Company may not declare, pay or set apart for payment any dividend or make any distribution on common stock, unless at the time of such dividend or distribution the Company simultaneously pays a non-cumulative dividend or makes a distribution on each outstanding share of Series D Preferred Stock on an as-converted basis. The holders of Series D preferred Stock are generally not entitled to vote, except with respect to amendments to the Company's certificate of incorporation that would change the rights and preferences of the Series D Preferred Stock, the creation or increase of any class of securities senior to the Series D Preferred Stock, the consummation of certain mergers, consolidations or other transactions where the holders of the Series D Preferred Stock are not converted into or exchanged for preference securities of the surviving entity, and as otherwise required by applicable law. . The Series D Preferred Stock shall automatically convert into shares of Common Stock only upon the following transfers to third parties (“Eligible Transfers”): • a transfer in a widespread public distribution; • a transfer in which no transferee (together with its affiliates and other transferees acting in concert with it) acquires more than 2% of the Company’s common stock or any other class or series of the Company’s voting stock; or • a transfer to a transferee that (together with its affiliates and other transferees acting in concert with it) owns or controls more than 50% of the Company’s common stock, without regard to the transfer. 86 The conversion price of the Series D Preferred Stock is $8.1765, and is subject to adjustment in the event of stock splits, subdivisions or combinations, dividends and distributions, issuance of certain rights, spin-offs, self-tenders and exchange offers as set forth under the agreement. The Series D Preferred Stock is not convertible at the option of the holders. As of March 31, 2021, there were 17,601 shares of Series D Preferred Stock outstanding. 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, 2021, 11,744 shares of its common stock have been repurchased in open market transactions. As a result of the Company's participation in the TARP CDCI, the United States Department of the Treasury's (the "U.S. Treasury") prior approval was required to make further repurchases. On August 6, 2020, the Company entered into a Securities Purchase Agreement with the U.S. Treasury to repurchase 2,321,286 shares of the common stock of the Company, par value $0.01 per share, owned by the U.S. Treasury for an aggregate purchase price of $ 2.5 million. The stock repurchase provided for in the Securities Purchase Agreement was completed on August 6, 2020. Upon completion of the repurchase pursuant to the Securities Purchase Agreement, the U.S. Treasury was no longer a stockholder in the Company. In connection with the repurchase, Morgan Stanley provided a grant to the Company of $ 2.5 million to fund the repurchase transaction. In June 2020, The Goldman Sachs Group, Inc., an institutional investor, notified the Company of their intention to effect a series of transfers of up to all its holdings of Series D Preferred Stock. The conversion and subsequent sale of shares were completed on July 2, 2020: 13,519 Series D Preferred Stock shares were converted into 1,653,397 shares of Common Stock, which were subsequently sold in the open market. The conversion and sale had no impact on the Company's total capital. On July 9, 2020, the Company received notice that Morgan Stanley International Holdings Inc., an institutional investor, relinquished its ownership of 180,573 shares of Company common stock and 13,523 shares of Company Preferred Series D Stock to the Company at no cost to the Company. On October 15, 2020, the Company entered into an agreement with Banc of America Strategic Investments Corporation, under which it issued and sold 147,227 shares of its common stock, par value $0.01, at a price of $ 6.62 per share. The shares were issued on October 15, 2020, in a private placement exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and Regulation D of the rules and regulations promulgated thereunder. On January 22, 2021, Prudential Insurance Company of America, an institutional investor, notified the Company of its intention to cancel 475 of its holdings of Series D Preferred Stock and convert them into 58,093 shares of Common Stock. The conversion had no impact on the Company's total capital. On February 1, 2021, the Company entered into an agreement with Wells Fargo Central Pacific Holdings, Inc., under which it sold: (i) 157,806 shares of its common stock, par value $0.01 per share, at a purchase price of $ 7.75 per share, and (ii) 3,177 shares of a new series of preferred stock, Series E non-cumulative non-voting participating preferred stock, par value $0.01 per share, at a purchase price of $ 1,000 per share, in a private placement for gross proceeds of approximately $ 4.4 million. Upon the completion of certain eligible transfers of the Series E preferred stock by Wells Fargo Central Pacific Holdings, Inc., the Series E preferred stock would be convertible into common stock at a conversion price of $7.96 per share. The issuance of the shares is exempt from registration pursuant to the exemption provided under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The offering was made only to accredited investors as that term is defined in Rule 501(a) of Regulation D under the Act. Series E Preferred Stock is perpetual and has no maturity date. The Company may redeem the shares of Series E Preferred Stock, in whole or in part, on any date on or after February 1, 2026. The holders of Series E Preferred Stock will be entitled to receive, if declared by the Company's board of directors, noncumulative cash dividends on each date that dividends or other distributions are payable. The holders of the Series E Preferred Stock will not have voting rights except for any vote required by law or by the Company's Certificate of Incorporation, or for effecting or validating: (i) any increase or decrease in the authorized number of shares of Series E Preferred Stock or issuance of shares of Series E Preferred Stock after the original issue date; (ii) any amendment, alteration or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company that would adversely affect the voting powers, preferences, privileges or special rights of the Series E Preferred Stock; (iii) any amendment or alteration of the Certificate of Incorporation or Bylaws of the Company to authorize or create, or increase the authorized amount of any shares of any class or series or any securities convertible into shares of any class or series of capital stock of the Company ranking senior to Series E Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Company; or (iv) a merger or consolidation of the Company with 87 another entity (whether or not a corporation), unless in each case (A) the shares of Series E Preferred Stock remain outstanding and (B) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions, and limitations and restrictions thereof as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and restrictions and limitations thereof, of the Series E Preferred Stock immediately prior to such consummation. On February 16, 2021, the Company entered into an agreement with J.P. Morgan Chase Community Development Corporation, under which it sold: (i) 112,612 shares of its common stock, par value $0.01 per share, at a purchase price of $ 8.88 per share, and (ii) 5,000 shares of a new series of preferred stock, Series F non-cumulative non-voting non-convertible preferred stock, par value $0.01 per share, at a purchase price of $ 1,000 per share, in a private placement for gross proceeds of approximately $ 6.0 million. The issuance of the shares is exempt from registration pursuant to the exemption provided under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The offering was made only to accredited investors as that term is defined in Rule 501(a) of Regulation D under the Act. Series F Preferred Stock is perpetual and has no maturity date. The shares are not convertible. The Company may redeem the shares of Series F Preferred Stock, in whole or in part, on any date on or after February 16, 2026. The holders of Series F Preferred Stock will be entitled to receive, if declared by the Company's board of directors, noncumulative cash dividends on each date that dividends or other distributions are payable. The holders of the Series F Preferred Stock will not have voting rights except for any vote required by law or by the Company's Certificate of Incorporation, or for effecting or validating: (i) any amendment, alteration or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company that would significantly and adversely affect the voting powers, preferences, privileges or special rights of the Series F Preferred Stock; (ii) any amendment or alteration of the Certificate of Incorporation or Bylaws of the Company to authorize or create, or increase the authorized amount of any shares of any class or series or any securities convertible into shares of any class or series of capital stock of the Company ranking senior to Series F Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Company; or (iii) a merger or consolidation of the Company with another entity (whether or not a corporation), unless in each case (A) the shares of Series F Preferred Stock remain outstanding and (B) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers , and limitations and restrictions, and limitations and restrictions thereof as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and restrictions and limitations thereof, of the Series F Preferred Stock immediately prior to such consummation. Regulatory Capital . The operations and profitability of the Bank are significantly affected by legislation and the policies of the various regulatory agencies. In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule, which became effective for the Bank on January 1, 2015, established a minimum Common Equity Tier 1 (CET1) ratio, a minimum leverage ratio and increases in the Tier 1 and Total risk-based capital ratios. The rule also limits 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 CET1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in annually beginning January 1, 2016. On January 1, 2019, the full capital conservation buffer requirement of 2.5% became effective, making its minimum CET1 plus buffer 7%, its minimum Tier 1 capital plus buffer 8.5% and its minimum total capital plus buffer 10.5%. In accordance with the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, will be eligible to opt into a “Community Bank Leverage Ratio” framework. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the “well capitalized” ratio requirements under the Prompt Corrective Action statutes. The CARES Act and implementing rules temporarily reduced the Community Bank Leverage Ratio to 8%, to be gradually increased back to 9% by 2022. The CARES Act also provides that, during the same time period, if a qualifying community banking organization falls no more than 1% below the community bank leverage ratio, it will have a two quarter grace period to satisfy the community bank leverage ratio. The agencies reserved the authority to disallow the use of the Community Bank Leverage Ratio by a financial institution or holding company based on the risk profile of the organization. 88 Carver Federal, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with Carver Federal's risk profile. In assessing an institution's capital adequacy, the OCC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary. 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, 2021, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage ratio of 10.01 %, Common Equity Tier 1 capital ratio of 14.41 %, Tier 1 risk-based capital ratio of 14.41 %, and a total risk-based capital ratio of 15.56 %. The table below presents the Bank's regulatory capital ratios at March 31, 2021 and 2020. March 31, 2021 March 31, 2020 ($ in thousands) Amount Ratio Amount Ratio Tier 1 leverage capital Regulatory capital $ 66,644 10.01 % $ 63,683 11.25 % Individual minimum capital requirement 59,946 9.00 % 50,948 9.00 % Minimum capital requirement 26,643 4.00 % 22,643 4.00 % Excess 40,001 6.01 % 41,040 7.25 % Common equity Tier 1 Regulatory capital $ 66,644 14.41 % $ 63,683 15.23 % Minimum capital requirement 32,383 7.00 % 29,268 7.00 % Excess 34,261 7.41 % 34,415 8.23 % Tier 1 risk-based capital Regulatory capital $ 66,644 14.41 % $ 63,683 15.23 % Minimum capital requirement 39,323 8.50 % 35,540 8.50 % Excess 27,321 5.91 % 28,143 6.73 % Total risk-based capital Regulatory capital $ 71,989 15.56 % $ 68,904 16.48 % Individual minimum capital requirement 55,514 12.00 % 50,174 12.00 % Minimum capital requirement 48,575 10.50 % 43,902 10.50 % Excess 23,414 5.06 % 25,002 5.98 % NOTE 13. OTHER COMPREHENSIVE INCOME (LOSS) The following tables set forth changes in each component of accumulated other comprehensive income (loss), net of tax for the years ended March 31, 2021 and 2020: $ in thousands At March 31, 2020 Other Comprehensive Income At March 31, 2021 Net unrealized income (loss) on securities available-for-sale $ 932 $ ( 4,107 ) $ ( 3,175 ) $ in thousands At March 31, 2019 Other Comprehensive Income At March 31, 2020 Net unrealized (loss) income on securities available-for-sale $ ( 939 ) $ 1,871 $ 932 The following table sets forth information about amounts reclassified from accumulated other comprehensive loss to the consolidated statement of operations and the affected line item in the statement where net income is presented. For the Twelve Months Ended March 31, Affected Line Item in the Consolidated Statement of Operations $ in thousands 2021 2020 Reclassification adjustment for sales of available for-sale securities, net of tax $ 1,193 $ — Gain on sale of securities, net 89 Comprehensive Income (Loss). Comprehensive income (loss) represents net income (loss) and certain amounts reported directly in stockholders' equity, such as net unrealized gain or loss on securities available-for-sale. The balance at March 31, 2021 included $ 4.1 million of unrealized losses for the year ended March 31, 2021. The balance at March 31, 2020 included $ 1.9 million of unrealized gains for the year ended March 31, 2020. NOTE 14. EMPLOYEE BENEFIT AND STOCK COMPENSATION PLANS Savings Incentive Plan. Carver has a savings incentive plan, pursuant to Section 401(k) of the Code, for all eligible employees of the Bank. The Bank matches contributions to the 401(k) Plan equal to 100 % of pre-tax contributions made by each employee up to a maximum of 3 % of their pay, subject to IRS limitations. All such matching contributions are fully vested and non-forfeitable at all times regardless of the years of service with the Bank. The 401(k) match was temporarily suspended effective October 1, 2020. Compensation expense recognized for the savings incentive plan was $ 118 thousand and $ 254 thousand, respectively, for fiscal 2021 and 2020. Stock Option Plans. In September 2006, Carver stockholders approved the 2006 Stock Incentive Plan (the "2006 Incentive Plan") which provides for the grant of stock options, stock appreciation rights and restricted stock to employees and directors who are selected to receive awards by the Committee. The 2006 Incentive Plan authorizes Carver to grant awards with respect to 20,000 shares, but no more than 10,000 shares of restricted stock may be granted. Options are granted at a price not less than fair market value of Carver common stock at the time of the grant for a period not to exceed 10 years. Shares generally vest in 20% increments over 5 years, however, the Committee may specify a different vesting schedule. At March 31, 2021, there were 3,733 options outstanding under the 2006 Incentive Plan and 3,733 were exercisable. All options are exercisable immediately upon a participant's disability, death or a change in control, as defined in the 2006 Incentive Plan, if the person is employed on that date. If the person is terminated (voluntary or involuntarily) from the Bank, all unvested shares are forfeited. Pursuant to the plan, the Bank recognized $ 1 thousand and $ 3 thousand as expense for fiscal years 2021 and 2020, respectively. In September 2014, Carver stockholders approved the Carver Bancorp, Inc. 2014 Equity Incentive Plan (the "2014 Incentive Plan") which provides for the grant of stock options, stock appreciation rights and restricted stock to executive officers and directors who are selected to receive awards by the Committee. The 2014 Incentive Plan authorizes Carver to grant awards with respect to 250,000 shares. All of the shares may be issued pursuant to stock options (all of which may be incentive stock options) or all of which may be issued pursuant to restricted stock awards or restricted stock units. Unless the Committee determines otherwise, the award agreements will specify that no award will vest more rapidly than 25% per year over a four-year period, with the first installment vesting one year after the date of grant, subject to acceleration upon the occurrence of specific events. During fiscal 2021 51,000 restricted stock awards were issued and 31,000 restricted stock awards were issued.in fiscal 2020. At March 31, 2021, there were 3,000 options outstanding under the 2014 Incentive Plan and 750 were exercisable. All options are exercisable immediately upon a participant's disability, death or change in control, as defined in the 2014 Incentive Plan, if the person is employed on that date. If the person is terminated (voluntary or involuntarily) from the Bank, all unvested shares are forfeited. Pursuant to the plan, the Bank recognized $ 88 thousand as expense for fiscal year 2021 and $24 thousand in fiscal year 2020. Information regarding nonvested shares of restricted stock awards outstanding for the years ended March 31 is as follows: 2021 2020 Shares Weighted Average Grant Price Shares Weighted Average Grant Price Outstanding, beginning of year 32,100 $ 3.09 1,950 $ 4.76 Granted 51,000 5.84 31,000 3.04 Vested ( 10,350 ) 3.02 ( 850 ) 4.95 Forfeited — — — — Outstanding, end of year 72,750 $ 5.00 32,100 $ 3.09 Unrecognized compensation expense on unvested restricted shares as of March 31, 2021 totaled $ 257 thousand. This amount will be recognized over the remaining vesting period of 2.28 years (weighted average). 90 Information regarding stock options as of and for the years ended March 31 is as follows: 2021 2020 Options Weighted Average Exercise Price Options Weighted Average Exercise Price Outstanding, beginning of year 4,733 $ 7.71 4,733 $ 7.71 Granted 2,000 5.70 — — Exercised — — — — Expired/Forfeited 133 97.50 — — Outstanding, end of year 6,600 $ 5.42 4,733 $ 7.71 Exercisable, at year end 4,350 3,633 Information regarding stock options as of March 31, 2021 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices Shares Weighted Average Remaining Life Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 3.00 $ 5.00 1,000 6.70 $ 3.48 750 $ 3.48 5.00 $ 5.59 3,600 4.23 5.56 3,600 5.56 5.60 $ 5.99 2,000 9.33 5.70 — 5.70 Total 6,600 4,350 As of March 31, 2021, unrecognized compensation expense on unvested stock options totaled $ 10 thousand. This amount will be recognized over the remaining vesting period of 2.15 years (weighted average). There were 2,000 stock options awarded to employees or directors during the year ended March 31, 2021. At March 31, 2021, all outstanding options had no intrinsic value. The fair value of the option grants was estimated on the date of the grant using the Black-Scholes option pricing model applying the following weighted average assumptions for the year ended March 31, 2021: 2021 Fair value of options granted $ 3.44 Risk-free interest rate 0.01 % Volatility 10 % Expected life of option grants (years) 9.25 The Company recorded stock compensation expense of $ 3 thousand in fiscal 2021 and $4 thousand in 2020. NOTE 15. COMMITMENTS AND CONTINGENCIES Credit Related Commitments. 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's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments. 91 The following table reflects the Bank's outstanding commitments as of March 31: $ in thousands 2021 2020 Commitments to fund mortgage loans $ 2,179 $ 5,557 Commitments to fund commercial and consumer loans — 4,500 Lines of credit 1,677 2,702 Commitment to fund private equity investment 253 253 $ 4,109 $ 13,012 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Mortgage Representation & Warranty Liabilities 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 (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. 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 following table presents information on open requests from FNMA. The amounts presented are based on outstanding loan principal balances. $ in thousands Loans sold to FNMA Open claims as of March 31, 2020 (1) $ 1,952 Gross new demands received — Loans repurchased/made whole — Demands rescinded — Advances on open claims — Principal payments received on open claims ( 265 ) Open claims as of March 31, 2021 (1) $ 1,687 (1) The open claims include all open requests received by the Bank where either FNMA has requested loan files for review, where FNMA has not formally rescinded the repurchase request or where the Bank has not agreed to repurchase the loan. The amounts reflected in this table are the unpaid principal balance and do not incorporate any losses the Bank would incur upon the repurchase of these loans. The table below summarizes changes in our representation and warranty reserves during fiscal 2021. $ in thousands March 31, 2021 Representation and warranty repurchase reserve, March 31, 2020 (1) $ 226 Net adjustment to reserve for repurchase losses (2) ( 45 ) Representation and warranty repurchase reserve, March 31, 2021 (1) $ 181 (1) Reported in consolidated statements of financial condition as a component of other liabilities . ( 2) Component of other non-interest expense. The Bank also has, in the normal course of business, commitments for services and supplies. 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, 2021, certain claims, suits, complaints and investigations (collectively “proceedings”) involving the Company and the Bank or a subsidiary, arising in the ordinary course of business, 92 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 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. NOTE 16. FAIR VALUE MEASUREMENTS Fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is thus a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are categorized in a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: • Level 1— Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2— Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3— Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of March 31, 2021 and 2020, and that are included in the Company's Consolidated Statements of Financial Condition at these 93 dates: Fair Value Measurements at March 31, 2021, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Mortgage servicing rights $ — $ — $ 147 $ 147 Investment securities Available-for-sale: Mortgage-backed securities: Government National Mortgage Association — 1,026 — 1,026 Federal Home Loan Mortgage Corporation — 27,785 — 27,785 Federal National Mortgage Association — 14,610 — 14,610 U.S. Government Agency securities — 18,631 — 18,631 Corporate bonds — 4,481 — 4,481 Muni securities — 16,610 — 16,610 Asset-backed securities — 3,364 — 3,364 Total available-for-sale securities — 86,507 — 86,507 Total assets $ — $ 86,507 $ 147 $ 86,654 Fair Value Measurements at March 31, 2020, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Mortgage servicing rights $ — $ — $ 145 $ 145 Investment securities Available-for-sale: Mortgage-backed securities: Government National Mortgage Association — 3,587 — 3,587 Federal Home Loan Mortgage Corporation — 9,538 — 9,538 Federal National Mortgage Association — 22,168 — 22,168 U.S. Government Agency securities — 26,481 — 26,481 Corporate bonds — 4,055 — 4,055 Total available-for-sale securities — 65,829 — 65,829 Total assets $ — $ 65,829 $ 145 $ 65,974 Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights ("MSR") and other investments. Level 3 assets accounted for 0.02 % and 0.03 % of the Company's total assets measured at fair value at March 31, 2021 and 2020, respectively. The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next that are related to the observable inputs to a fair value measurement may result in a reclassification from one hierarchy level to another. Below is a description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities and MSR: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to market information, models also incorporate transaction details, such as 94 maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt. During the fiscal year ended March 31, 2021, there were no transfers of investments into or out of each level of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing certain securities, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Quoted price information for the MSRs is not available. Therefore, MSRs are valued using market-standard models to model the specific cash flow structure. Key inputs to the model consist of principal balance of loans being serviced, servicing fees and discount and prepayment rates. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The following table includes a rollforward of assets classified by the Company within Level 3 of the valuation hierarchy for the years ended March 31, 2021 and 2020: $ in thousands Beginning balance, April 1, 2020 Total Realized/Unrealized Gains/(Losses) Recorded in Income (1) Issuances / (Settlements) Transfers to/(from) Level 3 Ending balance, March 31, 2021 Change in Unrealized Gains/(Losses) Related to Instruments Held at March 31, 2021 Mortgage Servicing Rights 145 2 — — 147 2 $ in thousands Beginning balance, April 1, 2019 Total Realized/Unrealized Gains/(Losses) Recorded in Income (1) Issuances / (Settlements) Transfers to/(from) Level 3 Ending balance, March 31, 2020 Change in Unrealized Gains/(Losses) Related to Instruments Held at March 31, 2020 Mortgage Servicing Rights 180 ( 35 ) — — 145 ( 33 ) (1) Includes net servicing cash flows and the passage of time. For Level 3 assets measured at fair value on a recurring basis as of March 31, 2021 and 2020, the significant unobservable inputs used in the fair value measurements were as follows: $ in thousands Fair Value at March 31, 2021 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Mortgage Servicing Rights 147 Discounted Cash Flow Weighted Average Constant Prepayment Rate (1) 13.33 % Option Adjusted Spread ("OAS") applied to Treasury curve 1200 basis points $ in thousands Fair Value at March 31, 2020 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Mortgage Servicing Rights 145 Discounted Cash Flow Weighted Average Constant Prepayment Rate (1) 15.64 % Option Adjusted Spread ("OAS") applied to Treasury curve 1200 basis points (1) Represents annualized loan repayment rate assumptions Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of March 31, 2021 and 2020, and that are included in the Company's Consolidated Statements of Financial Condition at these dates: 95 Fair Value Measurements at March 31, 2021, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Impaired loans $ — $ — $ 5,341 $ 5,341 Other real estate owned $ — $ — $ 60 $ 60 Fair Value Measurements at March 31, 2020, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Impaired loans $ — $ — $ 1,293 $ 1,293 Other real estate owned $ — $ — $ 120 $ 120 For Level 3 assets measured at fair value on a non-recurring basis as of March 31, 2021 and 2020, the significant unobservable inputs used in the fair value measurements were as follows: $ in thousands Fair Value at March 31, 2021 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Impaired loans $ 5,341 Appraisal of collateral Appraisal adjustments 7.5% cost to sell Other real estate owned 60 Appraisal of collateral Appraisal adjustments 7.5% cost to sell $ in thousands Fair Value at March 31, 2020 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Impaired loans $ 1,293 Appraisal of collateral Appraisal adjustments 7.5% cost to sell Other real estate owned 120 Appraisal of collateral Appraisal adjustments 7.5% cost to sell The fair values of collateral dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data. Other real estate owned represents 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. At the time of acquisition of the real estate owned, the real property value is adjusted to its current fair value. Any subsequent adjustments will be to the lower of cost or fair value. NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS Disclosures regarding the fair value of financial instruments are required to include, in addition to the carrying value, the fair value of certain financial instruments, both assets and liabilities recorded on and off-balance sheet, for which it is practicable to estimate fair value. Accounting guidance defines financial instruments as cash, evidence of ownership of an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. The fair value of a financial instrument is discussed below. In cases where quoted market prices are not available, estimated fair values have been determined by the Bank using the best available data and estimation methodology suitable for each such category of financial instruments. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate their recorded carrying value. The Bank's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact the Bank's fair value of all interest-earning assets and interest-bearing liabilities, other than those which are short-term in maturity. The carrying amounts and estimated fair values of the Bank's financial instruments and estimation methodologies at March 31 are as follows: 96 March 31, 2021 $ in thousands Carrying Amount Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and cash equivalents $ 75,591 $ 75,591 $ 75,591 $ — $ — Securities available-for-sale 86,507 86,507 — 86,507 — Securities held-to-maturity 7,807 8,140 — 8,140 — Loans receivable 478,409 487,806 — — 487,806 Accrued interest receivable 2,640 2,640 — 2,640 — Mortgage servicing rights 147 147 — — 147 Financial Liabilities: Deposits $ 556,559 $ 557,049 $ 402,843 $ 154,206 $ — Other borrowed money 37,108 37,150 — 37,150 — Accrued interest payable 3,212 3,212 — 3,212 — March 31, 2020 $ in thousands Carrying Amount Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and cash equivalents $ 47,540 $ 47,540 $ 47,540 $ — $ — Securities available-for-sale 65,829 65,829 — 65,829 — Securities held-to-maturity 10,151 10,564 — 10,564 — Loans receivable 423,786 438,017 — — 438,017 Accrued interest receivable 2,052 2,052 — 2,052 — Mortgage servicing rights 145 145 — — 145 Other assets - Interest-bearing deposits 981 981 — 981 — Financial Liabilities: Deposits $ 488,815 $ 489,309 $ 291,951 $ 197,358 $ — Other borrowed money 13,403 13,386 — 13,386 — Accrued interest payable 2,695 2,695 — 2,695 — NOTE 18. VARIABLE INTEREST ENTITIES The Company's subsidiary, Carver Statutory Trust I, is not consolidated with Carver Bancorp, Inc. for financial reporting purposes. 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 subsidiary, Carver Community Development Corporation (“CCDC”), was formed to facilitate its participation in local economic development and other community-based initiatives. Per the NMTC Award's Allocation Agreement between the CDFI Fund and CCDC, CCDC is permitted to form and sub-allocate credits to subsidiary Community Development Entities (“CDEs”) to facilitate investments in separate development projects. In June 2006, CCDC received a NMTC award of $ 59 million. CCDC received a second NMTC award of $ 65 million in May 2009, and a third award of $ 25 million in August 2011. During the period from December 2009 to September 2012, CCDC transferred rights to investors in NMTC projects (entities CDEs 13-21). CCDC has a contingent obligation to reimburse the investors for any losses or shortfalls incurred as a result of the NMTC projects not being in compliance with certain regulations that would void the 97 investors' ability to otherwise utilize tax credits stemming from the award. The NMTC compliance period was completed for all these entities, and CDEs 2-21 have been dissolved. CCDC established various special purpose entities (CDEs 22-25) through which its investments in NMTC eligible activities will be conducted. As of March 31, 2021, there have been no activities in these entities. The variable interest entities (“VIEs”) are consolidated, as required, where 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 of the following characteristics: (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. As none of the Bank's VIEs meet the above criteria, there are no consolidated VIEs at March 31, 2021. 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 at March 31, 2021 are presented below: Involvement with SPE (000's) Funded Exposure Unfunded Exposure Total Recognized Gain (Loss) (000's) Total Rights transferred Significant unconsolidated VIE assets Total Involvement with SPE asset Debt Investments Equity Investments Funding Commitments Maximum exposure to loss Carver Statutory Trust 1 (1) $ — $ — $ 13,400 $ 13,400 $ 16,110 $ 400 $ — $ — $ 16,510 1 Carver Statutory Trust debt investment includes deferred interest of $ 3.1 million, which was paid on June 16, 2021. NOTE 19. NON-INTEREST REVENUE AND EXPENSE Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as gains on sales of residential mortgage and SBA loans, income associated with servicing assets, and loan fees, including residential mortgage originations to be sold and prepayment and late fees charged across all loan categories are also not in scope of the new guidance. Topic 606 is applicable to non-interest revenue streams, such as depository fees, service charges and commission revenues. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Non-interest revenue streams in-scope of Topic 606 are discussed below. Depository fees and charges Depository fees and charges primarily relate to service fees on deposit accounts and fees earned from debit cards and check cashing transactions. Service fees on deposit accounts consist of ATM fees, NSF fees, account maintenance charges and other deposit related fees. The revenue is recognized monthly when the Bank's performance obligations are complete, or as incurred for transaction-based fees in accordance with the fee schedules for the Bank's deposit products and services. Loan fees and service charges Loan fees and service charges primarily relate to program management fees and fees earned in accordance with the Bank's standard lending fees (such as inspection and late charges). These standard lending fees are earned on a monthly basis upon receipt. Other non-interest income Other non-interest income includes correspondent banking fees, and income associated with an advertising services agreement covering marketing and use of the Bank's office space with a third party. The revenue is recognized on a monthly basis. Interchange income 98 The Company earns interchange fees from debit card holder transactions conducted through various payment networks. Interchangee fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided by an outsource technology solution and are presented on a net basis. The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended March 31, 2021 and 2020: Years Ended March 31, $ in thousands 2021 2020 Non-interest income In-scope of Topic 606 Depository fees and charges $ 2,637 $ 3,147 Loan fees and service charges 288 307 Other non-interest income 1,279 55 Non-interest income (in-scope of Topic 606) 4,204 3,509 Non-interest income (out-of-scope of Topic 606) 1,994 230 Total non-interest income $ 6,198 $ 3,739 The following table sets forth other non-interest income and expense totals exceeding 1% of the aggregate of total interest income and non-interest income for any of the years presented: Years Ended March 31, $ in thousands 2021 2020 Other non-interest income: Grant income $ 500 $ — Correspondent banking fees 1,235 — Other 276 184 Total non-interest income $ 2,011 $ 184 Other non-interest expense: Advertising $ 380 $ 281 Legal expense 498 611 Insurance and surety 766 621 Audit expense 378 537 Outsourced service 100 304 Data lines / internet 432 412 Retail expenses 825 733 Director's fees 366 331 Other 1,649 1,776 Total non-interest expense $ 5,394 $ 5,606 NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables set forth certain unaudited financial data for our quarterly operations in fiscal 2021 and 2020. The following information has been prepared on the same basis as the annual information presented elsewhere in this report and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarterly periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. 99 $ in thousands, except per share data June 30, 2020 September 30, 2020 December 31, 2020 March 31, 2021 Fiscal 2021 Interest income $ 4,788 $ 5,072 $ 5,239 $ 5,208 Interest expense 1,242 1,198 1,100 880 Net interest income 3,546 3,874 4,139 4,328 Provision for (recovery of) loan losses ( 102 ) ( 1 ) 4 ( 1 ) Non-interest income 1,683 1,973 899 1,643 Non-interest expense 6,143 6,657 6,344 6,937 Net loss $ ( 812 ) $ ( 809 ) $ ( 1,310 ) $ ( 965 ) Loss per common share Basic $ ( 0.22 ) $ ( 0.21 ) $ ( 0.44 ) $ ( 0.27 ) Diluted $ ( 0.22 ) $ ( 0.21 ) $ ( 0.44 ) $ ( 0.27 ) $ in thousands, except per share data June 30, 2019 September 30, 2019 December 31, 2019 March 31, 2020 Fiscal 2020 Interest income $ 5,585 $ 5,288 $ 5,492 $ 5,262 Interest expense 1,413 1,444 1,463 1,311 Net interest income 4,172 3,844 4,029 3,951 Provision for loan losses 1 7 8 3 Non-interest income 941 1,009 965 824 Non-interest expense 6,251 5,896 6,422 6,570 Net loss $ ( 1,139 ) $ ( 1,050 ) $ ( 1,436 ) $ ( 1,798 ) Loss per common share Basic $ ( 0.31 ) $ ( 0.28 ) $ ( 0.39 ) $ ( 0.49 ) Diluted $ ( 0.31 ) $ ( 0.28 ) $ ( 0.39 ) $ ( 0.49 ) NOTE 21. CARVER BANCORP, INC. - PARENT COMPANY ONLY CONDENSED STATEMENTS OF FINANCIAL CONDITION As of March 31, $ in thousands 2021 2020 Assets Cash on deposit with subsidiaries $ 12,374 $ 496 Investment in subsidiaries 63,871 65,018 Other assets 363 161 Total assets $ 76,608 $ 65,675 Liabilities and Stockholders' Equity Borrowings $ 13,403 $ 13,403 Accounts payable to subsidiaries 7,656 739 Other liabilities 3,248 2,639 Total liabilities 24,307 16,781 Stockholders’ equity 52,301 48,894 Total liabilities and stockholders’ equity $ 76,608 $ 65,675 100 CONDENSED STATEMENTS OF OPERATIONS Years Ended March 31, $ in thousands 2021 2020 Income Equity in net loss from subsidiaries $ ( 3,039 ) $ ( 4,499 ) Other income 21 26 Grant income 500 — Total (loss) income ( 2,518 ) ( 4,473 ) Expense Interest expense on borrowings 562 815 Salaries and employee benefits 168 — Shareholder expense 223 32 Other 425 103 Total expense 1,378 950 Net loss $ ( 3,896 ) $ ( 5,423 ) Comprehensive loss $ ( 8,003 ) $ ( 3,552 ) CONDENSED STATEMENTS OF CASH FLOW Years Ended March 31, $ in thousands 2021 2020 Cash Flows From Operating Activities Net loss $ ( 3,896 ) $ ( 5,423 ) Adjustments to reconcile net loss to net cash from operating activities: Equity in net loss of subsidiaries 3,039 4,499 Increase in account receivable from subsidiaries ( 164 ) ( 4 ) Increase in other assets ( 38 ) ( 36 ) Increase in accounts payable to subsidiaries 917 176 Increase in other liabilities 609 785 Net cash provided by (used in) operating activities 467 ( 3 ) Cash Flows From Financing Activities Capital contribution 2,500 — Redemption of treasury stock, net ( 2,500 ) — Issuance of common stock 3,197 — Issuance of preferred stock 8,177 — Restricted stock vesting 37 4 Net cash provided by financing activities 11,411 4 Net increase in cash 11,878 1 Cash and cash equivalents – beginning 496 495 Cash and cash equivalents – ending $ 12,374 $ 496 NOTE 22. SUBSEQUENT EVENTS On May 6, 2021, the Company entered into an agreement with Spectrum Communications Indemnity Inc., in which Spectrum would provide the Company with an unsecured and subordinated long-dated, below-market-rate loan in the amount of $ 1.5 million to finance eligible loans offered through the Bank's community investment initiatives loan program. On May 13, 2021, the Company received a non-objection letter from the Federal Reserve Bank of Philadelphia to make a total payment of approximately $ 3.2 million in settlement of deferred interest on the subordinated debt associated with its trust preferred securities due. Payment in full was sent to the trustee on June 16, 2021 for distribution to all securities holders the following day. On June 7, 2021, the Bank became aware of a possible fraud incident involving the unauthorized use of a borrower’s account through a third-party vendor’s online cash management system. The Bank’s preliminary investigation of this matter indicates that unauthorized wires totaling $ 2.1 million were fraudulently withdrawn from the borrower’s money market account 101 at the Bank from May 12, 2021 through June 1, 2021. The preliminary investigation indicates that an unauthorized person or entity was provided access to the borrower’s account through a third party online banking system. The Bank contacted the appropriate regulatory and law enforcement agencies, as well as its insurance provider. The total exposure to the Bank as a result of this incident is $ 2.1 million. However, the Bank is pursuing all available sources of recovery and other means of mitigating the potential loss. If any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations. 102 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.