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Item 8. Financial Statements and Supplementary Data

2022-07-14 compared with 2021-06-29 · 268 added, 301 removed, 1373 unchanged (29% of the section changed)

5 unchanged sentences

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”).

We have audited the accompanying consolidated statements of financial condition of Carver Bancorp, Inc.

(the “Company”) as of March 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, change in equity, and cash flows for each of the two years in the period ended March 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2022 , in conformity with accounting principles generally accepted in the United States of America.

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(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.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for loan losses

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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

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.

Significant management judgment is required in the evaluation of the economic factor, which include consideration of local, and national economic trends.

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:

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New York, New York

June 29, 2021

July 14, 2022

CARVER BANCORP, INC.

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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 Series E shares, with a liquidation preference of $ 1,000 per share, issued and outstanding at March 31, 2022 and 2021)

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)

9,000 and 5,000 Series F shares, with a liquidation preference of $ 1,000 per share, issued and outstanding at March 31, 2022 and 2021, respectively)

Common stock (par value $ 0.01 per share:

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Accumulated deficit ( 43,503 ) ( 42,656 )

Treasury stock, at cost ( 2,503,803 and 1,944 shares at March 31, 2021 and 2020, respectively)

Treasury stock, at cost ( 2,503,803 shares at March 31, 2022 and 2021)

( 2,908 ) ( 2,908 )

Accumulated other comprehensive (loss) income ( 3,175 ) 932

Accumulated other comprehensive loss ( 6,662 ) ( 3,175 )

Total equity 55,087 52,301

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Net interest income 20,466 15,887

(Recovery of) provision for loan losses ( 100 ) 19

Net interest income after (recovery of) provision for loan losses 15,987 15,977

Provision for (recovery of) loan losses 603 ( 100 )

Net interest income after provision for (recovery of) for loan losses 19,863 15,987

Non-interest income:

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Gain on sale of securities, net — 1,193

Gain on sale of loans, net — 66

Grant income 2,089 500

Other 2,881 1,511

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Net loss $ ( 847 ) $ ( 3,896 )

Other comprehensive (loss) income, net of tax:

Change in unrealized (loss) gain of securities available-for-sale, net of income tax expense of $ 0

Other comprehensive loss, net of tax:

Change in unrealized loss of securities available-for-sale, net of income tax expense of $ 0 (due to full valuation allowance)

( 3,487 ) ( 5,300 )

Reclassification adjustment for realized gains on sales of available-for-sale securities, net of income tax expense of $ 0 (due to full valuation allowance)

Total other comprehensive (loss) income, net of tax ( 4,107 ) 1,871

Total other comprehensive loss, net of tax ( 3,487 ) ( 4,107 )

Total comprehensive loss, net of tax $ ( 4,334 ) $ ( 8,003 )

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Other comprehensive income, net of tax — — — — — ( 4,107 ) ( 4,107 )

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 — — — —

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25,778 58 75,204 ( 42,656 ) ( 2,908 ) ( 3,175 ) 52,301

Net loss — — — ( 847 ) — — ( 847 )

Other comprehensive income, net of tax — — — — — ( 3,487 ) ( 3,487 )

Conversion of Series D preferred stock to common stock ( 3,850 ) 4 3,846 — — — —

Issuance of common stock, net of issuance costs — 4 2,994 2,998

Issuance of Series F preferred stock 4,000 — — — — — 4,000

Stock based compensation expense — 1 121 — — — 122

Balance—March 31, 2022

$ 25,928 $ 67 $ 82,165 $ ( 43,503 ) $ ( 2,908 ) $ ( 6,662 ) $ 55,087

See accompanying notes to consolidated financial statements

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Adjustments to reconcile net loss to net cash provided by operating activities:

(Recovery of) provision for loan losses ( 100 ) 19

Provision for (recovery of) loan losses 603 ( 100 )

Stock based compensation expense 122 36

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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 ( 335 ) 641

Amortization and accretion of premiums and discounts - securities 609 590

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 )

Decrease (increase) in accrued interest receivable 226 ( 588 )

(Increase) decrease in other assets ( 1,301 ) 593

Increase in other liabilities 7,046 5,192

Net cash provided by operating activities 7,152 2,212

CASH FLOWS FROM INVESTING ACTIVITIES

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Loans purchased from third parties ( 50,257 ) ( 26,814 )

Proceeds on sale of loans — 1,360

Redemption of FHLB-NY stock 16 358

Proceeds from participation loans sold 6,080 —

(Purchase) redemption of FHLB-NY stock ( 32 ) 16

Purchase of premises and equipment ( 192 ) ( 256 )

Proceeds from sale of real estate owned — 260

Net cash (used in) provided by investing activities ( 76,984 ) 15,724

Net cash used in investing activities ( 79,079 ) ( 76,984 )

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase in deposits 71,558 67,744

Net increase (decrease) in FHLB-NY advances and other borrowings 23,705 ( 8,000 )

Net (decrease) increase in FHLB-NY advances and other borrowings ( 21,202 ) 23,705

Contribution of capital — 2,500

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Net cash provided by financing activities 57,354 102,823

Net increase in cash and cash equivalents 28,051 16,312

Net (decrease) increase in cash and cash equivalents ( 14,573 ) 28,051

Cash and cash equivalents at beginning of period 75,591 47,540

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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

Recognition of finance lease liability — 13

Conversion of preferred stock to common stock 3,850 13,994

Retirement of preferred stock — 13,523

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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.

Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval.

During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021.

Full payment was made on June 16, 2021.

The 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 Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments.

A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments.

On December 16, 2021, the Company paid the deferred interest that was due on September 17, 2021 and the interest scheduled for December 17, 2021.

Subsequently, the Company made the regular quarterly interest payment on its outstanding debentures due on March 17, 2022 and June 17, 2022.

The interest rate was 3.97 % and the total amount of deferred interest was $ 22 thousand at March 31, 2022.

Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, and to engage in share repurchase programs.

The OCC regulates all capital distributions, including dividend payments, by Carver Federal to Carver, and the FRB regulates dividends paid by Carver.

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

On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions as 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.

On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions.

As a result of the Agreement, the Bank must obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers.

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All significant intercompany accounts and transactions have been eliminated in consolidation.

Variable interest entities (“VIEs”) are consolidated, as required, when Carver has controlling financial interest in these entities and is deemed to be the primary beneficiary.

Carver is normally deemed to have a controlling financial interest and be the primary beneficiary if it has both (a) the power to direct activities of a VIE that most significantly impact the entities economic performance;

and (b) the obligation to absorb losses of the entity that could benefit from the activities that could potentially be significant to the VIE.

The consolidated financial statements have been prepared in conformity with U.S.

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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.

While management uses available information to recognize losses on loans, future additions to the allowance for loan losses or future write-downs of real estate owned may be necessary based on changes in economic conditions in the areas where Carver Federal has extended mortgages and other credit instruments.

Actual results could differ significantly from those assumptions.

Current market conditions increase the risk and complexity of the judgments in these estimates.

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

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While New York State went through a phased reopening upon expiration of an earlier executive order to shelter in place, maintain social distancing and close all non-essential businesses statewide, there remains a significant amount of uncertainty as certain geographic areas continue to experience surges in COVID-19 cases and governments at all levels continue to react to changes in circumstances.

The impact of new restrictive measures and mandates taken or issued by governments, businesses and individuals have caused uncertainty in the financial markets.

The prolonged pandemic, or any other epidemic of this sort that ultimately harms the global economy, the U.S.

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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.

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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.

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.

the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms.

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

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

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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 amount of an other-than-temporary impairment when there are credit and non-credit losses on a debt security that management does not intend to sell, and for which it is more likely than not that the Bank will not be required to sell the security prior to the recovery of the non-credit impairment, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings.

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

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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.

If the Bank determines, after considering factors such as payment status and collateral value, that a loan is impaired, the Bank next determines the amount of the impairment.

The amount of impairment on collateral dependent loans is charged off within the given fiscal quarter.

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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 adequacy of the Bank's ALLL is determined in accordance with ASC Subtopics 450-20 "Loss Contingencies" and 310-10 "Accounting by Creditors for Impairment of a Loan." Management reviews the Bank's loan portfolio to identify and review individual problem situations that may affect a borrower's ability to repay.

In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio.

The ALLL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio.

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

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories.

Loans may be classified as "Pass," “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection.

They represent a moderate credit risk and some degree of financial stability.

Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention.

Borrowers are capable of absorbing normal setbacks without failure.

Loans rated Special Mention have potential weaknesses that deserve management's close attention.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date.

Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any.

Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt.

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

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

Loans classified as Loss are those considered uncollectible with insignificant value and are charged off immediately to the allowance for loan losses.

One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity.

All other one-to-four family residential loans and consumer and other loans are performing loans.

General Reserve Allowance

Carver's maintenance of a general reserve allowance 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.

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

The pools of loans (“Loan Type”) are:

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Based upon adequate management information systems and effective methodologies for estimating losses, management has established a LEP floor of one year on all pools.

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.

In some pools, such as Commercial Real Estate, Multifamily and Business pools, the Bank demonstrates a LEP in excess of 12 months.

The Bank also recognizes losses in accordance with GAAP.

Because actual loss experience may not adequately predict the level of losses inherent in a portfolio, the Bank reviews nine qualitative factors to determine if reserves should be adjusted based upon any of those factors.

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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.

• Commercial - Commercial real estate ("CRE") lending consists predominantly of originating loans for the purpose of purchasing or refinancing office, mixed-use properties, retail and church buildings in the Bank's market area.

Mixed-use loans are secured by properties that are intended for both commercial and residential use, but predominantly commercial, and are classified as CRE.

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.

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Specific Reserve Allowance

Carver also maintains a specific reserve allowance for criticized and classified loans individually reviewed for impairment in accordance with ASC Subtopic 310-10 guidelines.

Carver also maintains a specific reserve allowance for criticized and classified loans individually reviewed for impairment.

The amount assigned to the specific reserve allowance is individually determined based upon the loan.

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.

Carver uses one of three methods to estimate the amount to be reserved and/or charged off for such credits.

The three methods are as follows:

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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.

The Bank may choose the appropriate method on a loan-by-loan basis for an individually impaired loan, except for an impaired collateral dependent loan.

Impairment of a collateral dependent loan is measured using the fair value of collateral method.

A loan is considered "collateral dependent" when the repayment of the debt will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment.

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

All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment.

Carver also performs impairment analysis for all troubled debt restructurings (“TDRs”).

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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.

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

Troubled Debt Restructured Loans

TDRs are those loans 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.

TDRs are those loans where the borrower is experiencing financial difficulty and a concession is made.

A concession could include extension of the terms of the loan, reduced interest rates, capitalization of interest, a significant delay in payment terms and forgiveness of accrued interest and/or principal.

Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full.

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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.

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.

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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.

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.

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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.

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 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.

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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:

Depreciation and amortization charges are included in Non-Interest Expense in the consolidated statements of operations and are computed using the straight-line method over the following estimated useful lives:

Buildings and improvements 10 to 25 years

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

Leases are classified as operating or finance leases at the lease commencement date.

The Company includes lease renewal options in the lease term if it is reasonably certain the option will be exercised.

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term.

The Company uses its incremental borrowing rate, which is the rate for a fully collateralized and fully amortizing loan with a maturity date that is similar to the lease term, at lease commencement to calculate the present value of lease payments when the implicit rate in a lease is not readily determinable.

Federal Home Loan Bank Stock

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All separately recognized servicing assets totaled $ 162 thousand and $ 147 thousand, respectively, at March 31, 2022 and 2021, and are included in Other Assets in the consolidated statements of financial condition and measured at fair value.

Changes in fair value is included in Non-Interest Income in the consolidated statements of operations.

Servicing fee income of $ 41 thousand and $ 38 thousand, respectively, was recognized during the years ended March 31, 2022 and 2021, and is included in Non-Interest Income in the consolidated statements of operations.

1 unchanged sentence

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.

Any subsequent adjustments will be to the lower of cost or fair value and included in Non-Interest Expense in the consolidated statements of operations.

The fair value of such assets is determined based primarily upon independent appraisals and other relevant factors.

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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.

Gains or losses on sale of properties are recognized as incurred and are included in Non-Interest Expense in the consolidated statements of operations.

As of March 31, 2022, the Bank held $ 60 thousand in a foreclosed residential real estate property as a result of obtaining physical possession.

In addition, as of March 31, 2021 and 2020, we had residential loans with a carrying value of $ 2.5 million

and $ 3.0 million, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.

In addition, as of March 31, 2022 and 2021, we had residential loans with a carrying value of $ 3.1 million and $ 2.5 million, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process.

The Company records income taxes using the asset and liability method.

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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.

Where applicable, deferred tax assets are reduced by a valuation allowance for any portion determined more likely than not to be realized.

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

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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.

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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.

The compensation cost related to share-based payment transactions is included in Employee Compensation and Benefits in the consolidated statements of operations.

Compensation cost for all stock awards is calculated and recognized over a defined vesting period.

Forfeitures are accounted for as they occur.

For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite vesting period for the entire award.

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.

The Black-Scholes model is used to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for restricted stock awards.

Off-Balance Sheet Financial Instruments

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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

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.

Reserves for unfunded lending commitments are included in Other Liabilities in the consolidated statements of financial condition.

Designated as a Community Development Financial Institution ("CDFI") by the U.S.

Department of the Treasury, the Bank is eligible for, and on occasion receives, assistance from the government and other financial institutions in the form of grants.

The Company earns these grants through compliance with their conditions and by meeting the stated obligations.

The Company therefore recognizes the grant income over the periods that bear the cost of meeting the obligations.

Advertising Costs

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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.

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.

unobservable inputs used to develop Level 3 measurements.

The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations.

On April 1, 2021, the Company adopted ASU No.

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.

2019-12 "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes," which was part of the FASB's simplification initiative to reduce complexity, while maintaining or improving the usefulness of information provided to users of financial statements.

The amendments in this update simplified the accounting for income taxes and improved consistent application of GAAP by removing certain exceptions and clarifying and amending existing guidance for areas of Topic 740.

The adoption of the standard did not have a material impact on the Company's financial statements.

Accounting Standards Not Yet Adopted

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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.

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 2022, the FASB issued ASU No.

2022-02, "Financial Instruments - Credit Losses (ASC 326):

Troubled Debt Restructurings (TDRs) and Vintage Disclosures," which eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty.

The amendments also require disclosure of current period gross writeoffs by year of origination.

The effective dates for the amendments in ASU 2022-02 are the same as the effective dates in ASU 2016-13.

The Company is evaluating the impacts of this ASU and does not believe it will have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU No.

2020-04 "Reference Rate Reform (Topic 848):

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An entity may elect to apply ASU 2020-04 for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied

prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs.

The Company is evaluating the impacts of this ASU and has not yet determined whether LIBOR transition and this ASU will have a material impact on the Company's consolidated statements of financial condition and results of operations.

In November 2021, the FASB issued ASU No.

2021-10 "Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance," to improve the financial reporting of government assistance received by business entities by requiring the disclosure of (1) the types of assistance received, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements.

ASU 2021-10 is effective for all entities for financial

statements issued for annual periods beginning after December 15, 2021 (for the Company, the fiscal year ending March 31, 2023).

Early application of the guidance is permitted.

The Company is evaluating the impacts of this ASU to determine whether it will have a material impact on the Company's consolidated statements of financial condition and results of operations.

INVESTMENT SECURITIES

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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:

Debt securities are classified into three categories:

trading, held-to-maturity, and available-for-sale.

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Other investments as of March 31, 2022 primarily consists of the Bank's investment in a limited partnership Community Capital Fund.

These securities are measured at fair value with 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.

These securities are measured at fair value with changes in fair value reflected in net income.

Other investments totaled $ 1.1 million at March 31, 2022 and are included in Other Assets on the Statements of Financial Condition.

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

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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

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Government National Mortgage Association $ 683 $ 69 $ — $ 752

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

Federal National Mortgage Association 7,124 264 — 7,388

Total held-to-maturity $ 7,807 $ 333 $ — $ 8,140

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, 2022.

The following is a summary regarding proceeds and gross gains realized from the sale of securities from the available-for-sale portfolio for the year ended March 31, 2021.

$ in thousands March 31, 2021

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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.

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

The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at March 31, 2022 and March 31, 2021 for less than 12 months and 12 months or longer:

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Muni securities 1,640 13,512 333 2,256 1,973 15,768

Asset-backed securities 4 343 — — 4 343

Total available-for-sale securities $ 2,163 $ 20,912 $ 4,508 $ 46,290 $ 6,671 $ 67,202

Held-to-Maturity:

Mortgage-backed securities $ 14 $ 2,204 $ — $ — $ 14 $ 2,204

Total held-to-maturity securities $ 14 $ 2,204 $ — $ — $ 14 $ 2,204

At March 31, 2021

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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

Held-to-Maturity:

Corporate bonds $ 5 995 — — $ 5 $ 995

Total held-to-maturity securities $ 5 $ 995 $ — $ — $ 5 $ 995

A total of 23 securities had an unrealized loss at March 31, 2022, compared to 15 at March 31, 2021.

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.

Mortgage-backed securities, municipal securities, U.S.

government agency securities and a corporate bond security represented 49.4 %, 23.5 %, 20.5 % and 6.1 %, respectively, of total available-for-sale securities in an unrealized loss position at March 31, 2022.

There were four mortgage-backed securities, three U.S.

government agency securities, one corporate bond and one municipal security that had an unrealized loss position for more than 12 months at March 31, 2022.

The cause of the temporary impairment is directly related to changes in interest rates.

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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.

Given the high credit quality of the mortgage-backed securities which are backed by the U.S.

government's guarantees, the high credit quality and strong financial performance of the U.S.

Government Agency and municipal securities, and the corporate security that is a reputable institution in good financial standing, the risk of credit loss is minimal.

Management believes that these unrealized losses are a direct result of the current rate environment and the Company has the ability and intent to hold the securities until maturity or the valuation recovers.

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Available-for-Sale:

Less than one year $ 347 $ 343 1.06 %

One through five years — — — %

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Total loans receivable, net $ 573,880 $ 478,409

( 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

( 1) Includes business overdrafts of $ 5 thousand and $ 10 thousand as of March 31, 2022 and 2021, respectively

(2) Includes consumer overdrafts of $ 31 thousand and $ 44 thousand as of March 31, 2022 and 2021, respectively

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

The Bank 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.

The Bank participated as a lender in the Paycheck Protection Program ("PPP"), which opened on April 3, 2020.

As part of the CARES Act, the Small Business Administration ("SBA") was authorized to temporarily guarantee loans under this new 7(a) loan program.

Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria.

Since the PPP loans are fully guaranteed by the SBA, there are no additional ALLL reserves required.

As of March 31, 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.

As of March 31, 2022, the Bank had approved and funded approximately 420 applications totaling $ 57.1 million of loans under the PPP.

Business loans included PPP loans outstanding totaling $17.9 million as of March 31, 2022.

The net loan origination fees on these loans totaled approximately $399 thousand and are being recognized into interest income on loans over the 2-year and 5-year stated maturity terms of the PPP loans using the straight-line deferral method.

The Bank has begun to receive debt forgiveness payments on PPP loans closed during the first and second rounds of the program.

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

For the fiscal year ended March 31, 2021, the Bank received 83 applications for payment deferrals on approximately

$ 90.4 million of loans.

The Bank has been working with the borrowers to determine if there is a risk of any losses associated with repayment and if any additional reserves would have to be allocated to this portfolio.

At March 31, 2022, no loans were on COVID-related deferrals as the remaining 90-day loan deferments expired and borrowers became current.

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended March 31, 2022:

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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.

At March 31, 2022 and March 31, 2021, other non-performing assets totaled $ 60 thousand, which consisted of other real estate owned comprised of one foreclosed residential property.

Other real estate loans is included in other assets in the consolidated statements of financial condition.

There were no held-for-sale loans at March 31, 2021 or March 31, 2020.