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Additional risks not presently known also may have a material adverse effect on the Company’s results of operations and financial condition.
−Removed: Risks Related to the COVID-19 Outbreak
−Removed: The economic impact of the COVID-19 outbreak could adversely impact our financial condition and results of operations
−Removed: The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home.
−Removed: This has resulted in an unprecedented slow-down in economic activity, a related increase in unemployment and a significant decline in the value of the stock market, and in particular, bank stocks.
−Removed: In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows.
−Removed: Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).
−Removed: The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.
−Removed: Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.
−Removed: Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.
−Removed: We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.
−Removed: Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business.
−Removed: The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.
−Removed: As the result of the
−Removed: COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
−Removed: • demand for our products and services may decline, making it difficult to grow assets and income;
−Removed: • if the economy is unable to substantially and safely reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
−Removed: • collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
−Removed: • our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
−Removed: • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
−Removed: • as the result of the decline in the Federal Reserve Board's target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;
−Removed: • our cybersecurity risks are increased as a result of an increase in the number of employees working remotely;
−Removed: • we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us;
−Removed: • Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.
−Removed: Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years.
−Removed: The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy.
−Removed: We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
−Removed: Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
−Removed: Risks Related to the Lending Activities
+Added: Risks Related to Lending Activities
Our loan portfolio exhibits a high degree of risk.
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Commercial real estate loans amount to $174.3 million, or 30.2% of our loan portfolio at March 31, 2022.
−Removed: Commercial real estate loans generally are considered to involve a higher degree of risk due to a variety of factors, including generally larger loan balances and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at the stated maturity date.
+Added: Commercial real estate loans generally are considered to involve a higher degree of risk due to a variety of
+Added: factors, including generally larger loan balances and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at the stated maturity date.
Repayment of commercial real estate loans generally is dependent on income being generated by the rental property or underlying business in amounts sufficient to cover operating expenses and debt service.
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Carver is a unitary savings and loan association holding company regulated by the FRB and almost all of its operating assets are owned by Carver Federal.
−Removed: Carver relies primarily on dividends from the Bank 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.
+Added: Carver relies primarily on dividends from the Bank to pay cash dividends to its stockholders, and to engage in share repurchase programs.
The OCC regulates all capital distributions, including dividend payments, by the Bank to the Company, and the FRB regulates dividends paid by the Company.
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There are no assurances that dividend payments to the Company will resume.
−Removed: Debenture interest payments on the Carver Statutory Trust I capital securities had been deferred, which was permissible under the terms of the Indenture for up to twenty consecutive quarterly periods, as the Company was prohibited from making payments without prior approval from the Federal Reserve Bank.
+Added: Debenture interest payments on the Carver Statutory Trust I capital securities had been deferred, which is permissible under the terms of the Indenture for up to twenty consecutive quarterly periods, as the Company was prohibited from making payments without prior approval from the Federal Reserve Bank.
During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016.
Such payments were made in September 2016.
−Removed: Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement, which permitted such deferral for up to twenty consecutive quarters through September 2021.
−Removed: During the fourth quarter of fiscal year 2021, the Company applied for and was granted
−Removed: regulatory approval to settle all outstanding debenture interest payments through June 2021.
+Added: Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement.
+Added: During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021.
Full payment on the outstanding debenture interest was made on June 16, 2021.
−Removed: Carver's results of operations may be adversely affected by loan repurchases from U.S.
−Removed: Government Sponsored entities (“GSE's”).
−Removed: In connection with the sale of loans, Carver as the loan originator is required to make a variety of representations and warranties regarding the originator and the loans that are being sold.
−Removed: If a loan does not comply with the representations and warranties, Carver may be obligated to repurchase the loans, and in doing so, incur any loss directly.
−Removed: Prior to December 31, 2009, the Bank originated and sold loans to the FNMA.
−Removed: During fiscal years 2012 through 2015, the Bank has been obligated to repurchase 20 loans previously sold to FNMA.
−Removed: The Bank has not received any repurchase requests for these loans since the second quarter of fiscal year 2015.
−Removed: There is no assurance that the Bank will not be required to repurchase additional loans in the future.
−Removed: Accordingly, any repurchase obligations to FNMA could materially and adversely affect the Bank's results of operations and earnings in the future.
+Added: The Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments.
+Added: A streamlined process has been developed for the Company to request regulatory approval to make the debenture interest payments.
+Added: Quarterly interest payments are now current, up to and including the most recent one, which was due on June 17, 2022.
+Added: However, there can be no assurance that our regulators will approve future payments on our outstanding trust preferred securities.
The Company and the Bank operate in a highly regulated industry, which limits the manner and scope of business activities.
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Adverse changes in the economy caused by inflation, recession, unemployment, state or local real estate laws and regulations or other factors beyond the Bank's control may also continue to have a negative effect on the ability of borrowers to make timely mortgage or business loan payments, which would have an adverse impact on earnings.
−Removed: Consequently, deterioration in economic conditions in the New York metropolitan area could have a material adverse impact on the quality of the Bank's loan portfolio, which could result in increased delinquencies, decreased interest income results as well as an adverse impact on loan loss experience with probable increased allowance for loan losses.
+Added: Over the past several months:
+Added: (1) Russia declared war on Ukraine, (2) the annual inflation rate for the United States reached 8.6% for the twelve-month period ended May 31, 2022 (the largest annual increase since December 1981) and (3) as of June 14, 2022, the national average gas price hit a record high.
+Added: As of that date, the national average price for a gallon of gas was $5.01, the highest number ever recorded.
+Added: Additionally, COVID-19 has impacted businesses in New York more severely than in the rest of the nation, according to a report from the Office of the New York State Comptroller.
+Added: Since the U.S.
+Added: Census Bureau began collecting and reporting data through the Small Business Pulse Survey, New York’s small businesses have consistently reported experiencing a negative effect from the pandemic at rates that exceed the national average.
+Added: Consequently, deterioration in economic conditions in the New York metropolitan area, including the continued out-sized negative impact of COVID-19 in the New York metropolitan area, could have a material adverse impact on the quality of the Bank's loan portfolio, which could result in increased delinquencies, decreased interest income results as well as an adverse impact on loan loss experience with probable increased allowance for loan losses.
Such deterioration also could adversely impact the demand for products and services, and, accordingly, further negatively affect results of operations.
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There is no assurance that any such losses would not materially and adversely affect our results of operations.
+Added: Risks Related to the COVID-19 Outbreak
+Added: The economic impact of the COVID-19 outbreak could adversely impact our financial condition and results of operations
+Added: The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments had ordered non-essential businesses to close and residents to shelter in place at home.
+Added: This resulted in an unprecedented slow-down in economic activity, a related increase in unemployment and a significant decline in the value of the stock market, and in particular, bank stocks.
+Added: In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes declined to historic lows.
+Added: Various state governments and federal agencies required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).
+Added: The federal banking agencies encouraged financial institutions to prudently work with affected borrowers and passed legislation provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.
+Added: Certain industries were particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.
+Added: The spread of the coronavirus has caused the Company to modify its business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.
+Added: Given the ongoing and dynamic nature of the circumstances, it was difficult to predict the full impact of the COVID-19 outbreak on our business.
+Added: The extent of such impact is dependent upon future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy would reopen.
+Added: As a result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
+Added: • demand for our products and services may decline, making it difficult to grow assets and income;
+Added: • if the economy is unable to substantially and safely reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
+Added: • collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
+Added: • our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
+Added: • the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
+Added: • our cybersecurity risks are increased as a result of an increase in the number of employees working remotely;
+Added: • we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us;
+Added: • Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.
+Added: Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years.
+Added: The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy.
+Added: We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.
+Added: Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
Risks Related to Market Interest Rates
4 unchanged sentences
This can cause decreases in our spread and can adversely affect our income.
−Removed: From an interest rate risk perspective, we have generally been liability sensitive, which indicates that liabilities generally re-price faster than assets.
−Removed: In response to improving economic conditions, the FRB’s Open Market Committee had slowly increased its federal funds rate target from a range of 0.00% - 0.25% that was in effect for several years to the target range of 2.25% - 2.50% that was in effect at March 31, 2019.
+Added: From an interest rate risk perspective, for many years the Company was liability sensitive, which indicated that liabilities were generally re-pricing faster than assets.
+Added: For the past several years, Carver has been asset sensitive, which indicates that assets generally re-price faster than liabilities.
+Added: In a rising rate environment, asset sensitivity is preferable as it results in improvement to our net interest margin.
+Added: In response to improving economic conditions, the Federal Open Market Committee ("FOMC") had slowly increased its federal funds rate target from a range of 0.00% - 0.25% that was in effect for several years to the target range of 2.25% - 2.50% that was in effect at March 31, 2019.
However, as the result of the COVID-19 pandemic and the related adverse local and economic consequences, the target range was decreased to the range of 0.00% - 0.25% at March 31, 2020.
+Added: Citing strong job gains, a falling unemployment rate and "elevated" inflation, the Federal Reserve approved the first interest rate hike in more than three years on March 16, 2022, increasing the target range to 0.25% - 0.50%.
+Added: On May 5, 2022, the FOMC voted approval for a 50 basis-point increase in the primary credit rate up to 1.00%.
+Added: In their most recent meeting in June 2022, the FOMC approved a 75 basis-point increase to 1.75%, which was the first 0.75% rate hike issued by the FOMC since 1994.
Interest rates also affect how much money we lend.
For example, when interest rates rise, the cost of borrowing increases and loan originations tend to decrease.
+Added: A rising rate environment can also negatively impact the Company if the higher debt service costs on adjustable-rate loans lead to borrowers' inability to pay contractual obligations.
In addition, changes in interest rates can affect the average life of loans and securities.
34 unchanged sentences
The Company's ability to utilize the deferred tax asset generated by New Markets Tax Credit income tax benefits as well as other deferred tax assets depends on its ability to meet the NMTC compliance requirements and its ability to generate sufficient taxable income from operations in the future.
−Removed: Since the Bank has not generated sufficient taxable income to utilize tax credits as they were earned, a deferred tax asset has been recorded in the Company's financial statements.
+Added: Since the Bank has not generated sufficient taxable income to utilize
+Added: tax credits as they were earned, a deferred tax asset has been recorded in the Company's financial statements.
For additional information regarding Carver's NMTC, refer to Item 7, "Variable Interest Entities."
26 unchanged sentences
System failure or breaches of Carver’s network security could subject it to increased operating costs as well as litigation and other liabilities.
−Removed: The computer systems and network infrastructure Carver and its third-party service providers use could be vulnerable to unforeseen problems.
+Added: The computer systems and network infrastructure Carver and its third-party service providers use has been, and in the future, could be vulnerable to unforeseen problems.
Carver’s operations are dependent upon its ability to protect its computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers.
1 unchanged sentence
Computer break-ins, phishing and other disruptions may occur, and in infrequent cases have occurred, and could jeopardize the security of information stored in and transmitted through Carver’s computer systems and network infrastructure, which may result in significant liability to Carver and may cause existing and potential customers to refrain from doing business with Carver.
−Removed: Although Carver, with the help of third-party service providers, intends to continue to implement security technology and establish operational procedures designed to prevent such damage, its security measures may not be successful.
+Added: Although Carver, with the help of third-party service providers, intends to continue to
+Added: implement security technology and establish operational procedures designed to prevent such damage, its security measures may not be successful.
In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms Carver and its third-party service providers use to encrypt and protect customer transaction data.
7 unchanged sentences
We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, checking transactions, and debit cards that we have issued to our customers and through our online banking portals.
−Removed: 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.
−Removed: 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 at the Bank from May 12, 2021 through June 1, 2021.
−Removed: 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.
−Removed: The Bank contacted the appropriate regulatory and law enforcement agencies, as well as its insurance provider.
−Removed: The total exposure to the Bank as a result of this incident is $2.1 million.
−Removed: However, the Bank is pursuing all available sources of recovery and other means of mitigating the potential loss.
−Removed: 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.
The Company's business could suffer if it fails to retain skilled people.
2 unchanged sentences
Risks Related to Future Stock Issuances
+Added: We may be limited in our ability to access sufficient funding through a public or private equity offering or convertible debt offering.
+Added: Nasdaq rules impose restrictions on our ability to raise funds through a private offering of our common stock, convertible debt or similar instruments without obtaining stockholder approval.
+Added: Under Nasdaq rules, an offering of more than 20% of our total shares outstanding at a price per share less than (i) the closing price of our common stock on the Nasdaq Capital Market immediately preceding the signing of the binding agreement, or (ii) the average closing price of our common stock on the Nasdaq Capital Market for the five trading days immediately preceding the signing of the binding agreement requires stockholder approval unless the offering qualifies as a “public offering” for purposes of the Nasdaq rules.
+Added: As of March 31, 2022, we had 4,216,815 shares of common stock outstanding.
+Added: SEC rules impose restrictions on our ability to raise funds through the registered offering of our securities pursuant to a “shelf” registration statement on Form S-3.
+Added: Under SEC rules, we are prohibited from selling securities under such a registration statement if the aggregate market value of the securities sold thereunder in any twelve-month period exceeds one-third of the market value of our outstanding common stock held by non-affiliates.
+Added: In 2021, we entered into a sales agreement, with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in one or more “at the market offerings.” As of March 31, 2022, we have sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million.
+Added: Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent.
+Added: In the future, we may be limited in our ability to access sufficient funding through a public or private equity offering or convertible debt offering.
A future issuance of stock could dilute the value of our common stock.
16 unchanged sentences
The Company's profitability depends upon its continued ability to successfully compete in its market areas.
−Removed: Risks Related to the Accounting Matters
−Removed: A new accounting standard will likely require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.
−Removed: The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Company for our first fiscal year after December 15, 2022.
−Removed: This standard, referred to as Current Expected Credit Loss (“CECL”) will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and
−Removed: recognize the expected credit losses as allowances for loan losses.
−Removed: This will change the current method of providing allowances for loan losses that are probable, which would likely require us to increase our allowance for loan losses, and to increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.
−Removed: Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition.
UNRESOLVED STAFF COMMENTS.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.