What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-07-14 compared with 2021-06-29 · 185 added, 146 removed, 305 unchanged (52% of the section changed)

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Carver concluded fiscal 2022 with a net loss of $0.8 million compared to net loss of $3.9 million for the prior year period.

The change in our results of operations was primarily driven by increases in non-interest income and non-interest expense.

The change in our results of operations was primarily driven by increases in net interest income and non-interest income, partially offset by an increase in non-interest expense.

The business climate continues to present significant challenges as banks continue to absorb heightened regulatory costs and compete for limited loan demand.

Goods and services saw rapid growth in May and there was a large rise in food and energy prices.

Additionally, the Federal Reserve has increased the federal funds rate, and will likely continue to increase the federal funds rate in order to bring down inflation that is at a 40-year high.

COVID-19 has impacted businesses in New York more severely than in the rest of the nation, according to a report from the Office of the New York State Comptroller.

Since the U.S.

Census Bureau began collecting and reporting data through the Small Business Pulse Survey, New York’s small businesses have consistently reported experiencing a negative effect from the pandemic at rates that exceed the national average.

Despite the fact that one in five New York small businesses reported a return to normal operations in October 2021, the negative impacts on small businesses with less than 500 employees persist.

Small businesses account for the overwhelming majority of firms in most industry sectors in New York.

They also employ the majority of workers in industry sectors such as accommodation and food services;

wholesale trade;

construction;

professional, scientific and technical services;

and arts, entertainment and recreation.

Carver continues to focus on diversifying its loan portfolio with C&I lending to local small businesses and strives to generate new loan production and to purchase loans at suitable prices.

In addition, the Bank launched a program introducing new deposit products and expanded its digital online services into nine states across the Northeast and Washington D.C.

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.

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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.

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.

Management is actively working to minimize the current and future impact of this unprecedented situation, and is continuing to make adjustments to operations where appropriate or necessary to help slow the spread of the virus.

In addition, as a result of further actions that may be taken to contain or reduce the impact of the COVID-19 pandemic, the Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms.

The Company is actively managing the credit risk in its loan portfolio, including reviewing the industries that the Company believes are most likely to be impacted by emerging COVID-19 events.

The Company is actively managing the credit risk in its loan portfolio.

These and similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers.

Critical Accounting Policies

At the Market Offering

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

Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent.

SELECTED FINANCIAL DATA

The following selected consolidated financial and other data is as of and for the years ended March 31 and is derived in part from, and should be read in conjunction with the Company's Consolidated Financial Statements and related notes:

$ in thousands 2022

Selected Financial Condition Data:

Assets $ 735,314 $ 676,748 $ 578,770 $ 563,713 $ 693,910

Total loans receivable, net 573,880 478,409 423,786 424,182 472,627

Investment securities 72,850 94,314 75,980 90,982 72,784

Cash and cash equivalents 61,018 75,591 47,540 31,228 134,558

Deposits 628,117 556,559 488,815 480,196 586,883

Advances from the FHLB-NY and other borrowed money 15,949 37,222 13,573 21,403 38,403

Equity 55,087 52,301 48,894 47,136 51,971

Number of deposit accounts 29,950 33,400 30,496 31,447 31,972

Number of branches 7 7 7 8 9

Operating Data:

Interest income 22,865 20,307 21,627 23,230 24,359

Interest expense 2,399 4,420 5,631 6,141 5,280

Net interest income before provision for (recovery of) loan losses 20,466 15,887 15,996 17,089 19,079

Provision for (recovery of) loan losses 603 (100) 19 (270) 135

Net interest income after provision for (recovery of) loan losses 19,863 15,987 15,977 17,359 18,944

Non-interest income 7,354 6,198 3,739 4,649 14,359

Non-interest expense 28,064 26,081 25,139 27,944 27,982

(Loss) income before income tax (benefit) expense (847) (3,896) (5,423) (5,936) 5,321

Income tax (benefit) expense — — — — (33)

Net (loss) income attributable to Carver Bancorp, Inc.

(847) (3,896) (5,423) (5,936) 5,354

Basic (loss) earnings per common share (0.24) (1.14) (1.47) (1.60) 0.58

Diluted (loss) earnings per common share (0.24) (1.14) (1.47) (1.60) 0.58

Selected Statistical Data:

Return on average assets (1)

(0.12) % (0.58) % (0.95) % (0.96) % 0.81 %

Return on average stockholders' equity (2) (10)

(1.54) % (8.24) % (10.51) % (12.93) % 11.17 %

Return on average stockholders' equity, excluding AOCI (2) (10)

(1.49) % (8.25) % (10.52) % (12.31) % 10.77 %

Net interest margin (3)

3.01 % 2.49 % 2.95 % 2.80 % 2.94 %

Average interest rate spread (4)

2.88 % 2.30 % 2.69 % 2.57 % 2.78 %

Efficiency ratio (5)

100.88 % 118.09 % 127.38 % 128.55 % 83.68 %

Operating expense to average assets (6)

3.98 % 3.91 % 4.39 % 4.51 % 4.23 %

Average stockholders' equity to average assets (7) (10)

7.77 % 7.09 % 9.00 % 7.41 % 7.24 %

Average stockholders' equity, excluding AOCI, to average assets (7) (10)

8.05 % 7.08 % 9.00 % 7.79 % 7.51 %

Dividend payout ratio (8)

Asset Quality Ratios:

Non-performing assets to total assets (9)

1.57 % 1.07 % 1.19 % 1.90 % 1.13 %

Non-performing loans to total loans receivable (9)

1.98 % 1.49 % 1.58 % 2.40 % 1.39 %

Allowance for loan losses to total loans, excluding PPP loans 1.00 % 1.15 % 1.15 % 1.08 % 1.07 %

(1) Net income (loss) divided by average total assets.

(2) Net income (loss) divided by average total stockholders' equity.

(3) Net interest income divided by average interest-earning assets.

(4) Combined weighted average interest rate earned less combined weighted average interest rate cost.

(5) Operating expense divided by sum of net interest income and non-interest income.

(6) Non-interest expense divided by average total assets.

(7) Average stockholders' equity divided by average assets for the period ended.

(8) Dividends paid to common stockholders as a percentage of net income available to common stockholders.

(9) Non-performing assets consist of nonaccrual loans and real estate owned.

(10) See Non-GAAP Financial Measures disclosure below for comparable GAAP measures.

Non-GAAP Financial Measures

In addition to evaluating the Company's results of operations in accordance with U.S.

generally accepted accounting principles (“GAAP”), management routinely supplements their evaluation with an analysis of certain non-GAAP financial measures, such as the return on average stockholders' equity excluding average accumulated other comprehensive income (loss) ("AOCI"), and average stockholders' equity excluding AOCI to average assets.

Management believes these non-GAAP financial measures provide information that is useful to investors in understanding the Company's underlying operating performance and trends, and facilitates comparisons with the performance of other banks and thrifts.

Return on equity measures how efficiently we generate profits from the resources provided by our net assets.

Return on average stockholders' equity is calculated by dividing annualized net income (loss) attributable to Carver by average stockholders' equity, excluding AOCI.

Management believes that this performance measure explains the results of the Company's ongoing businesses in a manner that allows for a better understanding of the underlying trends in the Company's current businesses.

For purposes of the Company's presentation, AOCI includes the changes in the market or fair value of its investment portfolio.

These fluctuations have been excluded due to the unpredictable nature of this item and is not necessarily indicative of current operating or future performance.

$ in thousands 2022

Average Stockholders' Equity

Average Stockholders' Equity $ 54,858 $ 47,306 $ 51,609 $ 45,920 $ 47,943

Average AOCI (1,940) 57 43 (2,315) (1,779)

Average Stockholders' Equity, excluding AOCI $ 56,798 $ 47,249 $ 51,566 $ 48,235 $ 49,722

Return on Average Stockholders' Equity (1.54) % (8.24) % (10.51) % (12.93) % 11.17 %

Return on Average Stockholders' Equity, excluding AOCI (1.49) % (8.25) % (10.52) % (12.31) % 10.77 %

Average Stockholders' Equity to Average Assets 7.77 % 7.09 % 9.00 % 7.41 % 7.24 %

Average Stockholders' Equity, excluding AOCI, to Average Assets 8.05 % 7.08 % 9.00 % 7.79 % 7.51 %

Critical Accounting Estimates

Various elements of accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.

Carver's policy with respect to the methodologies used to determine the allowance for loan and lease losses, securities impairment, and assessment of the recoverability of the deferred tax asset are the most critical accounting policies.

Carver's policy with respect to the methodologies used to determine the allowance for loan and lease losses is the most critical accounting policies.

These policies are important to the presentation of Carver's financial condition and results of operations, and involve a high degree of complexity, requiring management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters.

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Allowance for Loan and Lease Losses

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.

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These assumptions and estimates are susceptible to significant changes based on the current environment.

Citing strong job gains, the Federal Reserve approved the first interest rate hike in more than three years on March 16, 2022 and has intimated that rate hikes will continue the remainder of the year.

A rising rate environment can negatively impact the Company if the higher debt service costs on adjustable-rate loans lead to borrowers' inability to pay contractual obligations.

Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALLL even though there may not be a decline in credit quality or an increase in potential problem loans.

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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.

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.

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All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment in accordance with ASC Subtopic 310-10.

Loans rated Substandard have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt.

These loans are inadequately protected by the current sound worth, paying capacity of the obligor, or of the collateral pledged, if any.

They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable.

Carver also performs impairment analysis for all TDRs.

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In accordance with guidance, if there is no impairment amount, no reserve is established for the loan.

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 restructured until paid in full.

For cash flow dependent loans, 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 original carrying value.

For a collateral dependent loan, the Bank records an impairment charge when the current estimated fair value of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan.

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.

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”)

The CARES Act, which became law on March 27, 2020, provide emergency economic relief to combat the coronavirus (“COVID-19”) and stimulate the economy.

The law had several provisions relevant to financial institutions, including:

• Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt 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.

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) account standing 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.

The act directs financial regulators to support community development financial institutions and minority depository institutions and directs Congress to re-appropriate $429 billion in unobligated CARES Act funds.

The PPP, which was originally established under the CARES Act, was also extended under the CRRSA Act.

Securities Impairment

The Bank’s available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive (loss) income.

Securities that the Bank has the intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost.

The fair values of securities in the Bank's portfolio are based on published or securities dealers’ market values and are affected by changes in interest rates.

On a quarterly basis, the Bank reviews and evaluates the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary.

The Bank generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience.

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, and the remaining difference between the debt security’s amortized cost basis and its fair value would be included in other comprehensive (loss) income.

This guidance also requires additional disclosures about investments in an unrealized loss position and the methodology and significant inputs used in determining the recognition of other-than-temporary impairment.

The Bank does not have any securities that are classified as having other-than-temporary impairment in its investment portfolio at March 31, 2021.

Deferred Tax Assets

The Company records income taxes in accordance with ASC 740 Topic “Income Taxes,” as amended, 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.

Management is continually reviewing the operation of the Company with a view to the future.

Based on management's current analysis and the appropriate accounting literature, management is of the opinion that a full valuation allowance is appropriate.

This valuation allowance could subsequently be adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

On June 29, 2011, the Company raised $55 million of equity, which resulted in a $51.4 million increase in equity after considering the effect of various expenses associated with the capital raise.

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.

A valuation allowance for net deferred tax asset of $23.7 million has been recorded.

The valuation allowance was initially recorded during fiscal 2011, and has remained through March 31, 2021, 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.

However, tax legislation 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 at March 31, 2020.

The AMT credit was $143 thousand as

of March 31, 2020, all of which was requested to be refunded to the Company upon the recently filed fiscal year 2020 federal tax return.

Financial institutions were not required to comply with ASU No.

2016-13, "Financial Instruments - Credit Loss," which updates the guidance on recognition and measurement of credit losses for financial assets, from the enactment date of the CARES Act until the earlier of the end of the President's declaration of a National Emergency or December 31, 2020.

The new methodology requirements, know as the current expected credit loss model ("CECL"), will require entities to adopt an impairment model based on expected losses, rather than incurred losses.

The Consolidated Appropriations Act, 2021, that was enacted in December 2020, provided for a further extension of the required CECL adoption date to January 1, 2022.

For smaller reporting companies, as defined by the SEC, the FASB further extended the CECL implementation date.

The new effective date is for fiscal years beginning after December 15, 2022 (for the Company, the fiscal year ending March 31, 2024), including interim periods within those fiscal years.

Asset/Liability Management

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Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize the Company's capital effectively without taking undue risks, to maintain adequate liquidity and to manage its exposure to changes in interest rates.

The economic environment is uncertain regarding future interest rate trends.

The economic environment is uncertain regarding long-term interest rate trends.

Management monitors the Company's cumulative gap position, which is the difference between the sensitivity to rate changes on the Company's interest-earning assets and interest-bearing liabilities.

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The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific period of time and the amount of interest-bearing liabilities maturing or repricing within that same time period.

A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.

A gap is considered positive when the

amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.

Generally, during a period of falling interest rates, a negative gap could result in an increase in net interest income, while a positive gap could adversely affect net interest income.

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Presented below, as of March 31, 2022, is an analysis of the Company's interest rate risk as measured by changes in EVE for instantaneous parallel shifts of +400/-200 basis points change in market interest rates.

Such limits have been established with consideration of the impact of various rate changes and the Compamy's current capital position.

Such limits have been established with consideration of the impact of various rate changes and the Company's current capital position.

$ in thousands Economic Value of Equity

7 unchanged sentences

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements.

Modeling changes in EVE require the making of certain assumptions, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.

In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities.

Modeling changes in EVE requires the making of certain assumptions, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.

Accordingly, although the EVE table provides an indication of the Company's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on the Company's net interest income and may differ from actual results.

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At March 31, 2022, total assets were $735.3 million, reflecting an increase of $58.6 million, or 8.7%, from total assets of $676.7 million at March 31, 2021.

The increase was attributable to a $28.1 million increase in cash and cash equivalents, and increases of $54.6 million and $18.3 million in the Bank's net loan and investment portfolios, respectively.

Total cash and cash equivalents increased $28.1 million, or 59.2%, from $47.5 million at March 31, 2020 to $75.6 million at March 31, 2021, primarily due to an increase in total deposits of $67.8 million and a $23.6 million increase in advances from the FHLB and other borrowings.

These increases were partially offset by investment purchases and loan originations and purchases.

Total investment securities increased $18.3 million, or 24.1%, to $94.3 million at March 31, 2021, compared to $76.0 million at March 31, 2020.

The Bank sold $37.8 million of securities out of the available-for-sale portfolio, recognizing gains of $1.2 million during the current fiscal year.

The proceeds were reinvested along with excess cash towards new securities purchases with a higher yield as part of management's strategy to restructure the Bank's investment portfolio and to improve its overall mix and duration.

Gross portfolio loans increased $54.8 million to $483.5 million at March 31, 2021, compared to $428.7 million at March 31, 2020, primarily due to new loan originations of $114.5 million, of which $41.9 million were part of the SBA's Paycheck Protection Program ("PPP"), and $26.8 million were from loan pool purchases.

The new volume was partially offset by attrition and payoffs of $86.5 million, primarily in residential and non-owner occupied commercial real estate mortgage loans.

The increase was primarily attributable to a $95.5 million increase in the Bank's net loan portfolio, partially offset by decreases of $21.4 million in the investment portfolio and $14.6 million in cash and cash equivalents.

Total cash and cash equivalents decreased $14.6 million, or 19.3%, from $75.6 million at March 31, 2021 to $61.0 million at March 31, 2022.

The decrease in cash was primarily due to the funding of net loan activity and repayment of advances on the PPPLF.

In addition, the Company made a payment of approximately $3.2 million to settle deferred interest on the subordinated debt associated with its trust preferred securities during the first quarter of the fiscal year.

These cash outflows were partially offset by an increase in total deposits and paydowns received on investment securities.

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

Gross portfolio loans increased $96.0 million to $579.5 million at March 31, 2022, compared to $483.5 million at March 31, 2021, primarily due to loan pool purchases of $50.1 million and new loan originations of $151.5 million, of which $14.9 million were part of the SBA's PPP.

The new volume was partially offset by attrition and payoffs of $99.5 million and loans participated of $6.1 million.

Liabilities and Equity

Total liabilities increased $94.5 million, or 17.8%, to $624.4 million at March 31, 2021, compared to $529.9 million at March 31, 2020, primarily due to increases in total deposits and other borrowings related to the PPP.

Deposits increased $67.8 million, or 13.9%, to $556.6 million at March 31, 2021, compared to $488.8 million at March 31, 2020, due primarily to PPP loan funds deposited by the program borrowers into their accounts at the Bank and new

deposit account relationships established as the Bank launched a program introducing new products and expanded its digital online account openings into nine states across the Northeast and Washington D.C.

Advances from the FHLB-NY and other borrowed money increased $23.6 million to $37.2 million at March 31, 2021, compared to $13.6 million at March 31, 2020 as the Bank secured advances on its PPP liquidity facility ("PPPLF") at the Federal Reserve to fund PPP loans.

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

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

majority of which have been retained as new customers) and new deposit account relationships established as the Bank continued to expand its digital online account openings into nine states across the Northeast and Washington D.C.

As of March 31, 2022 and 2021, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $187.4 million and $104.4 million, respectively.

These uninsured balances disclosed do not consider that FDIC insurance can be further extended by claimant within certain law firm deposit accounts.

In addition, as of March 31, 2022, the aggregate amount of all our uninsured certificates of deposit was $36.9 million.

We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance.

See Note 8 to Consolidated Financial Statements for additional information on our deposits.

Advances from the FHLB-NY and other borrowed money decreased $21.3 million to $15.9 million at March 31, 2022, compared to $37.2 million at March 31, 2021.

The Bank paid down $23.7 million of its PPPLF at the Federal Reserve as it continued to receive forgiveness payments from the SBA on the PPP loan portfolio.

The Company borrowed $2.5 million in low-rate unsecured loans from third parties to finance eligible loans offered through the Bank's community investment initiatives loan program.

At March 31, 2022, the Bank had no outstanding borrowings from the FHLB-NY.

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

Total equity increased $2.8 million, or 5.4%, to $55.1 million at March 31, 2022, compared to $52.3 million at March 31, 2021.

The increase was primarily due to capital raised from several equity transactions that were completed outside of the ordinary course of business during the fiscal year.

The increase was primarily due to $4.0 million raised in net proceeds from the issuance of preferred stock during the second quarter.

During fiscal year 2022, a series of transfers was effected to convert $3.8 million Series D Preferred Stock into common stock, resulting in a transfer between preferred shares and paid in capital.

These conversions had no impact on the Company's total capital.

The Company also raised approximately $3.0 million in net proceeds through the sale of common stock under the ATM offering during the third and fourth quarters of fiscal year 2022.

These were partially offset by an increase of $3.5 million in unrealized losses on securities available-for-sale and a net loss of $0.8 million for the fiscal year.

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The Company reported a net loss of $0.8 million for fiscal year 2022, compared to net loss of $3.9 million for the prior year period.

The change in our results was primarily driven by an increase in non-interest income and recoveries of loan losses compared to a provision for loan loss in the prior year, which were partially offset by an increase in non-interest expense and decline in net interest income compared to the prior fiscal year.

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

Net Interest Income

Net interest income decreased $0.1 million, or 0.6%, to $15.9 million for fiscal year 2021, compared to $16.0 million for the prior year period.

The decrease was attributable to a $1.3 million decrease in interest income, partially offset by a $1.2 million decrease in interest expense for the period.

Interest income decreased $1.3 million, or 6.0%, to $20.3 million, compared to $21.6 million for the prior year period.

Interest income on mortgage-backed securities decreased $0.5 million due to a decline in average balances and rates compared to the prior year.

Interest income on money market investments decreased $0.5 million as the $58.9 million increase in the average balance of the Bank's interest-bearing account at the Federal Reserve Bank was offset by a 1.77% decrease in interest rates.

Interest income on loans decreased $0.4 million, or 2.1%, comprised of a decrease of $1.9 million due to a 41 basis-point decline in the overall yield of the loan portfolio resulting primarily from attrition of above market-rate purchased residential loans, which also caused acceleration of premiums.

This was partially offset by an increase in interest income of $1.5 million due to a $32.7 million increase in average loan balances.

Net interest income increased $4.6 million, or 28.9%, to $20.5 million for fiscal year 2022, compared to $15.9 million for the prior year period.

The increase was attributable to a $2.6 million increase in interest income and $2.0 million decrease in interest expense for the period.

Interest income increased $2.6 million, or 12.8%, to $22.9 million, compared to $20.3 million for the prior year period.

Interest income on loans increased $2.7 million, or 14.5%, primarily due to a $60.6 million, or 13.3%, increase in average loan balances coupled with an increase in the average yield on the portfolio of 6 basis points.

The increase in the loan portfolio was driven by a restructured lending team and funded by an increase in total deposits.

Interest income on investment securities decreased $0.3 million, or 30.0%, due to a decrease in average balances and yields compared to the prior fiscal year.

Interest expense decreased $2.0 million, or 45.5%, to $2.4 million compared to $4.4 million for the prior year period.

Interest expense on deposits decreased $0.8 million, or 17.4%, primarily due to a decrease in the average rates of certificates of deposit.

Interest expense on borrowings decreased $0.3 million, or 30.0%, from the prior fiscal year despite an increase in the average borrowings as the Bank secured advances on the PPPLF at the Federal Reserve at a lower cost to borrow of 35 basis points in order to support its PPP program.

Interest expense on deposits decreased $1.9 million, or 50.0%, primarily due to a decrease in the average balances and rates paid on certificates of deposit.

The Company strategically exited its high-cost DTC brokered deposits, as well as many of its large high-rate non-relationship time deposits, and replaced them with demand deposits, savings and money market accounts (core deposits).

Interest expense on borrowings decreased $0.2 million, or 28.6%, from the prior fiscal year despite an increase in the average rates, due to a decrease in average borrowings as the Bank paid down advances on its PPPLF at the Federal Reserve.

Provision for Loan Losses

The Bank recorded a $0.1 million recovery of loan loss for fiscal year 2021, compared to a $19 thousand provision for loan losses for the prior year period.

The prior year provision was primarily related to overdraft deposit chargeoffs.

For the year ended March 31, 2021, net recoveries of $294 thousand were recognized, compared to net recoveries of $281 thousand in the prior year period.

Total chargeoffs of $78 thousand were recognized for fiscal year 2021, compared to total chargeoffs of $183 thousand for the prior fiscal year.

The Bank recorded a $603 thousand provision for loan losses for fiscal year 2022, compared to a $100 thousand recovery of loan losses for the prior year period.

The provision was primarily due to the overall increase in the Bank's loan portfolio during fiscal year 2022.

For the year ended March 31, 2022, net charge-offs of $119 thousand were recognized, compared to net recoveries of $294 thousand in the prior year period.

Total charge-offs of $257 thousand were recognized for fiscal year 2022, compared to total charge-offs of $78 thousand for the prior fiscal year.

At March 31, 2022, nonaccrual loans totaled $11.5 million, or 1.6% of total assets, compared to $7.2 million, or 1.1% of total assets at March 31, 2021.

The ALLL was $5.6 million at March 31, 2022, which represents a ratio of the ALLL to nonaccrual loans of 49.0%, compared to 71.5% at March 31, 2021.

The ratio of the allowance for loan losses to total loans receivable was 1.06% at March 31, 2021, compared to 1.15% at March 31, 2020.

The ratio of the allowance for loan losses to total loans receivable, excluding PPP loans, was 1.00% at March 31, 2022, compared to 1.15% at March 31, 2021.

Non-interest Income

Non-interest income for the twelve months ended March 31, 2022 increased $1.2 million, or 19.4%, to $7.4 million compared to $6.2 million in the prior year period.

Other non-interest income for the current fiscal year included $1.2 million

fees earned from a new correspondent banking relationship and $0.5 million grant income provided by UBS for the Company to extend working capital loans and financial education to small businesses owned and operated by minorities.

In addition, non-interest income included $1.2 million gains recognized from the sales of securities during the fiscal year, as management restructured the Bank's investment portfolio.

These increases were partially offset by lower depository fees compared to the prior fiscal year due to the negative impact of the COVID-19 pandemic on branch activities.

Non-interest income included grant income of $2.1 million and $0.5 million for fiscal years 2022 and 2021, respectively.

For the twelve months ended March 31, 2022, the Bank recognized $0.2 million and $1.8 million grant income from the CDFI Fund's Bank Enterprise Award and Rapid Response Program, respectively.

In addition, other non-interest income for the current fiscal year included $2.6 million correspondent banking fees, which was $1.3 million higher compared to the prior fiscal year due to higher volume related to the Bank's servicing of PPPLF activity for the correspondent bank.

The increases in the current fiscal year were partially offset by a reduction of $0.5 million, or 19.2%, in depository fees and charges as the Bank partnered with Wells Fargo and Chase to offer no-charge ATM access to our customers.

The prior fiscal year included $1.2 million gains recognized from the sales of securities, as management restructured the Bank's investment portfolio to improve the overall yield.

Non-interest Expense

Non-interest expense for the twelve months ended March 31, 2021 increased $1.0 million, or 4.0%, to $26.1 million compared to $25.1 million for the the prior year period.

Net equipment and data processing costs were higher compared to the prior fiscal year due to new hardware/software contracts related to technology upgrades required to facilitate the infrastructure for a remote work environment due to the ongoing pandemic, and one-time conversion costs associated with the Bank's upgrade to a new core banking system.

In addition, FDIC premiums were lower in the prior year since the Bank was eligible for the FDIC small bank assessment credit.

Non-interest expense for the twelve months ended March 31, 2022 increased $2.0 million, or 7.7%, to $28.1 million compared to $26.1 million for the prior year period.

Compensation and benefits increased $0.3 million, or 2.7%, due primarily to annual merit increases.

Consulting fees increased as the Bank hired consultants to support the higher loan production.

Other non-interest expense included additional audit and legal fees related to a wire fraud matter that occurred during the first quarter of fiscal year 2022.

In addition, security services were higher as the Bank continues to address the need for security guards in our branches in response to the ongoing homeless crisis in New York City.

These increases were partially offset by lower data processing costs for the current fiscal year as the Company was able to utilize flex credits received from conversion costs associated with the Bank's upgrade to a new core banking system during the prior fiscal year.

The Company did not have any federal, state and local income tax expense as of March 31, 2022 and 2021.

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Additionally, Carver Federal has other sources of liquidity including the ability to borrow from the Federal Home Loan Bank of New York ("FHLB-NY") utilizing unpledged mortgage-backed securities and certain mortgage loans, the sale of available-for-sale securities and the sale of certain mortgage loans.

Net borrowings increased $23.6 million during fiscal year 2021 as the Bank secured advances on the PPP liquidity facility ("PPPLF") at the Federal Reserve at a rate of 35 basis points to fund PPP loans.

Net borrowings decreased $21.3 million

during fiscal year 2022 as the Bank paid down $23.7 million of its PPP liquidity facility ("PPPLF") at the Federal Reserve.

The Bank had no advances outstanding from the FHLB-NY at March 31, 2022.

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The Bank has the ability to pledge additional loans as collateral in order to borrow up to 30% of its total assets.

The Company also had $13.4 million in long-term subordinated debt securities and added $2.5 million in low interest loans during fiscal year 2022.

The Bank's most liquid assets are cash and short-term investments.

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At March 31, 2022 and 2021, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $61.0 million and $75.6 million, respectively.

Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent.

The most significant potential liquidity challenge the Bank faces is variability in its cash flows as a result of mortgage refinance activity.

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The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities.

During fiscal year 2021, total cash and cash equivalents increased $28.1 million to $75.6 million reflecting cash provided by financing activities of $102.8 million and cash provided by operating activities of $2.2 million, partially offset by cash used in investing activities of $77.0 million.

Net cash provided by financing activities of $102.8 million resulted from net

increases in deposits and borrowings of $67.7 million and $23.7 million, respectively.

The net increase in deposits was primarily due to PPP loan funds deposited by the program borrowers into their accounts at the Bank and new deposit account relationships established across the Northeast as the Bank launched a program introducing new products and expanded its digital online account openings into nine states and Washington D.C.

The $23.7 million increase in other borrowings was attributable to advances secured on the Bank's PPP liquidity facility at the Federal Reserve to fund PPP loans.

In addition, the Company raised capital through the issuance of common and preferred shares.

Net cash used in investing activities of $77.0 million was attributable to securities purchases and loan originations and purchases, net of principal repayments and payoffs.

During fiscal year 2022, total cash and cash equivalents decreased $14.6 million to $61.0 million reflecting cash used in investing activities of $79.1 million, partially offset by cash provided by financing activities of $57.4 million and cash provided by operating activities of $7.2 million.

Net cash used in investing activities of $79.1 million was attributable to loan originations and purchases, net of principal repayments and payoffs, offset by investment paydowns.

Net cash provided by financing activities of $57.4 million resulted from net increases in deposits of $71.6 million, partially offset by a decrease of $21.2 million in FHLB-NY advances and other borrowings.

The net increase in deposits was primarily due to PPP loan funds deposited by the program borrowers into their accounts at the Bank and new deposit account relationships established as the Bank continues to expand its digital online account openings into nine states across the Northeast.

The $21.2 million decrease in other borrowings was attributable to $23.7 million paydowns on the Bank's PPP liquidity facility at the Federal Reserve, offset by $2.5 million in unsecured low interest loans provided by third parties to finance eligible loans offered through the Bank's community investment initiatives loan program.

In addition, cash provided by financing activities included $4.0 million capital raised from the issuance of preferred stock during the second quarter and $3.0 million net proceeds from the ATM offerings during the third and fourth quarters of fiscal year 2022.

Potential Mortgage Representation and Warranty Liabilities

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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, CCDC, was formed to facilitate its participation in local economic development and other community-based activities.

In June 2006, CCDC was selected by the U.S.

Department of Treasury, in a highly competitive process, to receive an award of $59 million in NMTC.

CCDC won a second NMTC award of $65 million in May 2009, and a third award of $25 million in August 2011.

The NMTC awards provide a credit to Carver Federal against federal income taxes when the Bank makes qualified investments.

The credits are allocated over seven years from the time of the qualified investment.

Alternatively, the Bank can utilize the awards in projects where another investor entity provides funding and receives the tax benefits of the award in exchange for the Bank receiving fee income.

CCDC provides funding to underlying projects.

While providing funding to investments in the NMTC eligible projects, CCDC retained a 0.01% interest in other special purpose entities created to facilitate the investments, with the investors owning the remaining 99.99%.

CCDC also provides certain administrative services to these entities and receives servicing fee income during the term of the qualifying projects.

The Bank has determined that it and CCDC do not have the sole power to direct the activities of these special purpose entities that significantly impact the entities' performance, and therefore are not the primary beneficiaries of these entities.

The Bank has a contingent obligation to reimburse the investors for any loss or shortfall incurred as a result of the NMTC project not being in compliance with certain regulations that would void the investor's ability to otherwise utilize tax credits stemming from the award.

The NMTC compliance period was completed for all these entities, which were dissolved upon exiting the NMTC projects.

The Bank's unconsolidated VIEs, in which the Company holds significant variable interests or has continuing involvement through servicing a majority of assets in a VIE are presented in the table below.

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$ — $ — $ 13,403 $ 13,403 $ 13,022 $ 403 $ — $ — $ 13,425

1 Carver Statutory Trust debt investment includes deferred interest of $3.1 million, which was paid on June 16, 2021.

1 Carver Statutory Trust debt investment includes deferred interest of $22 thousand.

Regulatory Capital Position

The Bank must satisfy minimum capital standards established by the OCC.

For a description of the OCC capital regulation, see “Item 1-Regulation and Supervision-Federal Banking Regulation-Capital Requirements.” Regardless of Basel III's minimum requirements, Carver, as a result of the Formal Agreement, was issued an Individual Minimum Capital Ratio 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 had a common equity Tier 1 ratio, Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio of 14.41%, 10.01%, 14.41% and 15.56%, respectively.

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

At March 31, 2022, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a common equity Tier 1 ratio, Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio of 13.75%, 10.45%, 13.75% and 14.78%, respectively.

For additional information regarding Carver Federal's Regulatory Capital and Ratios, refer to Note 12 of Notes to Consolidated Financial Statements, “Stockholders' Equity.”

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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.

What changed 10-K

Item 7. Management’s Discussion and Analysis