What changed in this filing

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Item 1. Business

2024-07-16 compared with 2023-06-29 · 170 added, 162 removed, 700 unchanged (32% of the section changed)

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Carver Federal was founded in 1948 to serve African-American communities whose residents, businesses and institutions had limited access to mainstream financial services.

The Bank remains headquartered in Harlem, and predominantly all of its seven branches and four stand-alone 24/7 ATM centers are located in low- to moderate-income neighborhoods.

The Bank remains headquartered in Harlem, and predominantly all of its seven branches and three stand-alone 24/7 ATM centers are located in low- to moderate-income neighborhoods.

Many of these historically underserved communities have experienced unprecedented growth and diversification of incomes, ethnicity and economic opportunity, after decades of public and private investment.

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As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution.

The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements.

The OCC will disallow any proposed dividend that, among other reasons, would result in Carver Federal’s failure to meet the OCC minimum capital requirements.

Carver has suspended its regular quarterly cash dividend on its common stock.

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

There were no additional offerings during the twelve months ended March 31, 2023.

There were no additional offerings during fiscal years 2023 and 2024.

Formal Agreement

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Lending Activities

Carver Federal's loan portfolio consists primarily of mortgage and business loans originated by the Bank's lending teams and secured by commercial real estate including multifamily, mixed-use and owner-occupied properties.

Carver Federal's loan portfolio consists primarily of mortgage and business loans originated by the Bank's lending teams and secured primarily by commercial real estate including multifamily, mixed-use and owner-occupied properties and general UCC-1 filings on C&I loans against business assets.

Substantially all of the Bank's mortgage loans are secured by properties located within the Bank's market area.

From time to time, the Bank may participate or purchase loans that comply with the Bank's underwriting standards from other financial institutions or in contiguous market geographies to achieve loan growth and strategic objectives, as well as asset and geographical diversification.

In recent years, Carver Federal has focused on the origination of commercial real estate loans extended primarily to multifamily, as well as owner-occupied and mixed-use commercial loans.

In recent years, Carver Federal has focused on the origination of commercial real estate loans extended primarily to owner-occupied and mixed-use commercial loans, as well as multifamily transactions in a scaled manner.

These loans generally have higher yields and shorter maturities than one-to-four family residential properties, and include prepayment penalties that the Bank collects if the loans pay in full prior to the contractual maturity.

The Bank's increased emphasis remains on effective portfolio management and monitoring of the commercial real estate and multifamily mortgage loans relative to the level of credit risk inherent in this market segment.

In fiscal years 2019 and 2020, the Bank's recoveries on previously charged off loans exceeded its charge-offs to such an extent that additional provisions were not necessary.

During fiscal year 2020, the Bank's recoveries on previously charged off loans exceeded its charge-offs to such an extent that additional provisions were not necessary.

The provision recorded in fiscal year 2020 was primarily related to overdraft deposit charge-offs.

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In spite of the strict analysis applied to our qualitative reserves, the Company's overall allowance declined moderately as the rolling 20 quarter loss look back period revealed little in recorded losses.

The Company adopted CECL on April 1, 2023, which resulted in an increase of $0.7 million to the allowance for credit losses related to loans.

Additionally, Carver Federal continually reviews the composition of its mortgage loan portfolio and underwriting standards to manage the risk in the portfolio.

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Carver Federal's total loans receivable as a percentage of total assets increased to 82.3% at March 31, 2024, compared to 82.7% at March 31, 2023.

The following is a summary of loans receivable, net of allowance for loan losses, as of:

The following is a summary of loans receivable, net of allowance for credit losses, as of:

March 31, 2024

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One-to-four family $ 82,787 13.3 % $ 65,808 11.0 % $ 69,297 12.0 % $ 76,313 15.9 % $ 105,532 24.8 %

Multifamily 177,995 29.9 % 160,800 27.9 103,584 21.6 89,241 21.0 86,177 20.2

Owner occupied 11,078 11,894 7,687 6,599 6,747

Nonowner occupied 166,125 167,223 153,113 96,985 82,494

177,203 28.4 % 179,117 30.0 160,800 27.9 103,584 21.6 89,241 21.0

Commercial real estate (1)

Business 166,940 28.0 % 170,497 29.6 148,020 30.8 85,425 20.1 96,430 22.6

Consumer and other (1)

175,384 28.2 % 178,424 29.8 174,270 30.2 150,114 31.2 141,761 33.3

Construction 2,203 0.4 % — — — — — — — —

169,602 27.2 % 166,908 27.9 170,497 29.6 148,020 30.8 85,425 20.1

15,699 2.5 % 7,639 1.3 1,623 0.3 2,439 0.5 3,213 0.8

Total loans receivable $ 622,878 100.0 % $ 597,896 100.0 % $ 576,487 100.0 % $ 480,470 100.0 % $ 425,172 100.0 %

Unamortized premiums, deferred costs and fees, net — — 3,017 3,079 3,560

Allowance for loan losses (5,229) (5,624) (5,140) (4,946) (4,646)

Allowance for credit losses (5,871) (5,229) (5,624) (5,140) (4,946)

Total loans receivable, net $ 617,007 $ 592,667 $ 573,880 $ 478,409 $ 423,786

(1) Consists of non-owner occupied commercial real estate loans.

(2) As of March 31, 2024, 2023, 2022, 2021 and 2020, business loans include $124.8 million, $118.0 million, $98.4 million, $56.6 million and $48.7 million, respectively, of owner occupied commercial real estate loans.

(3) Includes personal loans.

One-to-four Family Residential Lending .

Carver Federal occasionally purchases first mortgage loans secured by one-to-four family properties that serve generally as the primary residence of the owner.

Carver Federal generally purchases first mortgage loans secured by one-to-four family properties that serve as the primary residence of the owner and non-qualified mortgages for one-to-four family residential loans.

The Bank purchased $20.0 million and $4.0 million of one-to-four family residential loans during fiscal years 2024 and 2023, respectively.

Approximately 35.3% of the one-to-four family residential mortgage loans maturing in greater than one year at March 31, 2024 were adjustable rate and approximately 64.7% were fixed-rate.

One-to-four family residential real estate loans decreased $4.3 million, or 6.2%, to $65.0 million at March 31, 2023, compared to $69.3 million at March 31, 2022.

One-to-four family residential real estate loans increased $17.0 million, or 25.8%, to $82.8 million at March 31, 2024, compared to $65.8 million at March 31, 2023.

Carver Federal's fixed-rate, one-to-four family residential mortgage loans are underwritten in accordance with applicable secondary market underwriting guidelines and requirements for sale.

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Accordingly, there can be no assurance that yields on the Bank's adjustable-rate loans will fully adjust to compensate for increases in the Bank's cost of funds.

The Bank previously originated or purchased a limited amount of subprime loans (which are defined by the Bank as those loans where the borrowers have FICO scores of 660 or less at origination).

Additionally, the Bank previously originated or purchased a limited amount of subprime loans (which are defined by the Bank as those loans where the borrowers have FICO scores of 660 or less at origination).

At March 31, 2024, the Bank had $2.7 million in subprime loans, or 0.4% of its total loan portfolio, of which $684 thousand are non-performing loans.

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Multifamily Real Estate Lending.

Traditionally, Carver Federal originates and purchases multifamily loans.

There were no multifamily loan purchases during fiscal year 2023.

The Bank purchased $15.1 million and $6.9 million of multifamily loans during fiscal years 2022 and 2021, respectively.

Carver Federal originates and purchases recourse and non-recourse multifamily loans.

There were no multifamily loan purchases during fiscal years 2024 and 2023.

Multifamily property lending entails additional risks compared to one-to-four family residential lending.

For example, such loans are dependent on the successful operation of such buildings and can be significantly impacted by supply and demand conditions in the market for multifamily residential units.

Carver Federal's multifamily real estate loan portfolio increased $17.2 million, or 10.7%, to $178.0 million in fiscal 2023, or 29.9% of Carver Federal's total loan portfolio at March 31, 2023.

In making multifamily real estate loans, the Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower, when applicable.

Carver Federal's

multifamily real estate product guidelines generally require that the maximum loan-to-value ("LTV") at origination not exceed 75% based on the appraised value of the mortgaged property on all such loans.

The Bank generally requires a debt service coverage ratio at origination of at least 1.20 on multifamily real estate loans, which requires the properties to generate cash flow after expenses and allowances in excess of the principal and interest payment.

Carver Federal originates and purchases multifamily real estate loans, which are predominantly fixed rate for the first five years, then adjusts for the second five years, if applicable.

These loans are dependent on the successful operation of

such buildings and can be significantly impacted by economic conditions, industry concentration, valuation of the underlying properties, lease terms, occupancy/vacancy rates, and changes in market demand for multifamily units.

Carver Federal's multifamily real estate loan portfolio decreased $1.9 million, or 1.1%, to $177.2 million in fiscal 2024, or 28.4% of Carver Federal's total loan portfolio at March 31, 2024.

Carver Federal's multifamily real estate product guidelines generally require that the maximum loan-to-value ("LTV") at origination not exceed 70% based on the appraised value of the mortgaged property, and a debt service coverage ratio at origination of at least 1.30, which requires the properties to generate cash flow after expenses and allowances in excess of the principal and interest payment.

The Bank originates and purchases multifamily real estate loans, which are predominantly fixed rate for the first five years, then adjusts for the second five years, if applicable.

These loans generally amortize on the basis of a 15-, 20-, 25-, or 30-year period and require a balloon payment after the first five years, or the borrower may have an option to extend the loan for additional periods.

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All commercial loans, including multifamily real estate loans, are risk rated internally at the time of origination.

Management continually monitors all commercial loans in order to update risk ratings when necessary (see "Asset Classification and Allowance for Loan and Lease Losses" for additional information on asset classification and risk ratings).

Management continually monitors all commercial loans in order to update risk ratings when necessary (see "Asset Classification and Allowance for Credit Losses" for additional information on asset classification and risk ratings).

In addition, to assist with ensuring that the Bank remains consistent with its established procedures and practices, and is effectively evaluating and monitoring changes in the credit profile of the borrower and the underlying collateral, an independent consulting firm reviews, evaluates and prepares a written report for a sample of our commercial loan relationships.

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Commercial Real Estate Lending .

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

Mixed-use loans are secured by properties that are intended for both residential and business use and are classified as commercial real estate ("CRE").

The Bank purchased $5.8 million, $18.2 million and $6.3 million of commercial real estate loans during fiscal years 2023, 2022 and 2021, respectively.

Although Carver Federal has had a favorable loss track record associated with commercial real estate loans, these loans may entail additional risks compared with one-to-four family residential and multifamily lending.

For example, such loans typically involve larger loan balances to single borrowers or groups of related borrowers and the payment experience on such loans typically is dependent on the successful operation of the commercial property or larger overall structure.

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.

There were no commercial real estate loan purchases during fiscal year 2024.

The Bank purchased $5.8 million of commercial real estate loans during fiscal year 2023.

At March 31, 2024, Carver Federal's CRE loan portfolio decreased $3.0 million, or 1.7%, to $175.4 million, or 28.2% of the Bank's total loan portfolio.

The following table provides details of the Bank's commercial real estate loans by major industry type at March 31, 2024:

March 31, 2024

$ in thousands Amount %

Real Estate and Rental and Leasing $ 66,571 38.0 %

General Commercial 103,117 58.8 %

Religious 5,125 2.9 %

Other 571 0.3 %

$ 175,384 100.0 %

Although Carver Federal has had a favorable loss track record associated with CRE loans, these 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.

In addition, such loans typically involve larger loan balances to single borrowers or groups of related borrowers and the payment experience is dependent on the successful operation of the commercial and/or mixed-use properties or larger overall structure.

In originating CRE loans, the Bank primarily considers the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower.

Carver Federal's maximum LTV ratio on commercial real estate mortgage loans at origination is generally 75% based on the latest appraised fair market value of the mortgaged property.

The Bank generally requires a debt service coverage ratio at origination of at least 1.20 on commercial real estate loans.

The Bank also requires the assignment of rents associated with all tenant leases in the mortgaged property and personal guarantees may be obtained for additional security in connection with these transactions.

At March 31, 2023, commercial real estate mortgage loans totaled $177.7 million, or 29.9% of the total loan portfolio.

This balance reflects a year-over-year increase of $3.4 million, or 2.0%, as a result of organic loan originations and purchases.

The Bank offers 5-year terms for our commercial mortgages.

Carver Federal's maximum LTV ratio on CRE loans at origination is generally 70% based on the latest appraised fair market value of the mortgaged property and the Bank generally requires a debt service coverage ratio at origination of at least 1.30.

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.

The Bank normally offers 5-year terms for our commercial mortgages.

At times, we can offer greater than 5 years for terms of up to 15 years and amortization schedules up to 25 years;

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Historically, Carver Federal has been a New York City metropolitan area leader in the origination of loans to churches.

At March 31, 2023, loans to churches totaled $39.7 million, or 6.7% of the Bank's gross loan portfolio.

These loans generally have five-, seven-, or ten-year terms with 15-, 20- or 25-year amortization periods, a balloon payment due at the end of the term and generally have no greater than a 70% LTV ratio at origination.

At March 31, 2024, there were 30 loans to churches totaling $33.4 million, or 5.4% of the Bank's loan portfolio.

These loans typically have five-, seven-, or ten-year terms with 15-, 20- or 25-year amortization periods, a balloon payment due at the end of the term and generally have no greater than a 70% LTV ratio at origination.

The Bank has also provided construction financing for churches in the past, and would have generally provided permanent financing upon completion of construction.

There are currently 32 church loans in the Bank's loan portfolio and no new construction financing provided in 2023.

Loans secured by real estate owned by faith-based organizations generally are larger and involve greater risks than one-to-four family residential mortgage loans and standard commercial real estate transactions.

Because payments on loans secured by such properties are often dependent on voluntary contributions by members of the church's congregation, repayment

of such loans may be subject to a greater extent to adverse conditions in the economy.

Because payments on loans secured by such properties are often dependent on voluntary contributions by members of the church's congregation, repayment of such loans may be subject to a greater extent to adverse conditions in the economy.

The Bank seeks to minimize these risks in a variety of ways, including reviewing the organization's financial condition, limiting the size of such loans and establishing the quality of the collateral securing such loans.

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While management believes that Carver Federal will remain a leading lender to churches in its market area, Carver Federal will continue to conduct disciplined underwriting and maintain focused portfolio management.

Construction Lending .

Carver Federal has historically originated or participated in construction loans for new construction and renovation of multifamily buildings, residential developments, community service facilities, churches, and affordable housing programs.

The loans provide for disbursement in stages as construction is completed.

The Bank's construction loan portfolio totaled $2.2 million, or 0.4% of the total loan portfolio at March 31, 2024.

Construction loans generally present an increased level of risk from the effect of general economic conditions and uncertainties surrounding construction costs.

Borrowers must satisfy all credit requirements that apply to the Bank's permanent mortgage loan financing for the mortgaged property.

Carver Federal has additional criteria for construction loans including an engineer's plan and periodic cost reviews on all construction budgets and monitoring.

Business Loans .

Carver Federal's small business (Commercial and Industrial, or "C&I") lending portfolio increased $3.6 million to $166.9 million, comprising 28.0% of the Bank's gross loan portfolio in fiscal 2023.

Carver Federal's small business (Commercial and Industrial, or "C&I") lending portfolio increased $2.7 million to $169.6 million, comprising 27.2% of the Bank's total loan portfolio as of March 31, 2024.

This includes $268 thousand of PPP loans at March 31, 2024.

The Bank purchased $0.3 million and $0.6 million business loans during fiscal years 2024 and 2023, respectively.

In a strategic attempt to diversify the Bank's loan portfolio, Carver Federal continues to make efforts towards increased C&I lending activity, placing particular focus on organic loan growth through the financing of local entrepreneurs and organizations throughout its marketplace.

Carver Federal provides revolving credit, working capital and term loan facilities to small businesses with annual sales of approximately $1 million to $25 million in various business segments, including educational, health care, personal services, light industrial, wholesale and trade contractors generally through select programs.

Business loans are typically personally guaranteed by the owners and may also be secured by additional collateral, including real estate, equipment, accounts receivable and inventory.

Carver Federal originates and purchases business and SBA loans, placing particular focus on organic loan growth through the financing of local entrepreneurs and organizations located in its primary market area and surrounding areas.

Business loans are typically personally guaranteed by the owners outside of syndicated transactions/participations and may also be secured by additional collateral, including real estate, equipment, accounts receivable and inventory.

SBA loans are guaranteed by the U.S.

government based on the percentage of each individual program.

Consumer and Other Loans .

At March 31, 2023, the Bank had $7.5 million in consumer and other loans, or 1.3%, of the Bank's gross loan portfolio.

This includes $1.1 million of graduate medical student loans purchased in fiscal 2017.

At March 31, 2024, the Bank had $15.7 million in consumer and other loans, or 2.5%, of the Bank's loan portfolio.

This includes $0.8 million of student loans to medical students enrolled in several Caribbean schools purchased in fiscal 2017.

During fiscal year 2024, the Bank purchased $11.3 million consumer loans through strategic partnerships with Bankers Healthcare Group, LLC and Upstart Holdings, Inc.

Consumer loans are not typically secured by collateral and therefore involve more risk than first mortgage loans and all other transactions.

Consumer loans are typically unsecured and more susceptible to declining economic conditions.

Collection of a delinquent loan is dependent on the borrower's continuing financial stability and is more likely to be adversely affected by changes in employment, marital status, health and other personal financial factors.

Further, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered.

Further, the application of various federal

and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered.

These loans may also give rise to claims and defenses by a borrower against Carver Federal, including defenses against any applicable underlying collateral.

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Real estate, business and unsecured loan applications are forwarded to the Bank's Lending Department for processing, and to the Credit Group for underwriting pursuant to standards established in Carver Federal's Loan Policy.

The underwriting and loan processing for residential one-to-four family loans are performed by an outsourced third party loan originator using lending standards established by the Bank.

The underwriting and loan processing for one-to-four family residential loans are performed by an outsourced third party loan originator using lending standards established by the Bank.

A commercial real estate loan application is completed for all multifamily and non-residential income producing properties that the Bank finances.

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It is Carver Federal's policy to record a lien on the real estate securing the loan and to obtain a title insurance policy that insures that the property is free of prior encumbrances.

Borrowers must also obtain hazard insurance policies prior to

closing and, when the property is in a flood zone or plain as designated by the Department of Housing and Urban Development, obtain flood insurance.

Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood zone or plain as designated by the Department of Housing and Urban Development, obtain flood insurance.

Most borrowers are also required to make payments on a monthly basis, which can include principal and interest, along with mortgage payment escrows from which the Bank makes disbursements for items such as real estate taxes and hazard insurance.

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Except for real estate and business loans in excess of $6.0 million, mortgage and business loan approval authority has been delegated by the Bank's Board of Directors to the Board's Asset Liability and Interest Rate Risk Committee.

The Asset Liability and Interest Rate Risk Committee has delegated to the Bank's Management Loan Committee, which consists of certain members of executive management, loan approval authority up to and including $1.0 million for real estate and business loans.

Real estate and business loans above $6.0 million must be approved by the full Board.

The Asset Liability and Interest Rate Risk Committee has delegated loan approval up to $1.0 million (dual authority) to the Bank's Chief Lending Officer ("CLO") and Chief Credit Officer ("CCO"), and to the Management Loan Committee, which consists of certain members of executive management, loan approval authority from $1.0 million to $2.0 million for real estate and business loans.

Real estate and business loans from $2.0 million to $6.0 million must be approved by the Asset Liability and Interest Rate Risk Committee, and loans greater than $6.0 million must be approved by the full Board.

Purchased loans are subject to the same approval process as originated loans.

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Loans-to-One-Borrower .

Under the loans-to-one-borrower limits of the OCC, with certain limited exceptions, loans and extensions of credit to a single or related group of borrowers outstanding at one time generally may not exceed 15% of the unimpaired capital and surplus of a savings bank.

The Bank includes all outstanding debt and any unfunded commitments under contractually binding commitments for purposes of its legal limit calculation.

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Commercial real estate 37,482 40.2 % 53,643 42.5 % 79,403 39.4 %

Construction 2,981 3.2 % — — % — — %

Business 13,399 14.4 % 12,075 9.6 % 29,391 14.6 %

Consumer and others (1)

587 0.6 % 3,136 2.5 % 508 0.3 %

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Loans purchased

14,289 11.3 % 50,144 24.9 % 26,814 19.0 %

One-to-four family 19,998 21.5 % 3,960 3.1 % 11,278 5.6 %

Multifamily — — % — — % 15,122 7.5 %

Commercial real estate — — % 5,804 4.6 % 18,193 9.0 %

Business 267 0.3 % 613 0.5 % 5,551 2.8 %

Consumer 11,261 12.1 % 3,912 3.1 % — %

Total loans purchased 31,526 33.8 % 14,289 11.3 % 50,144 24.9 %

Total loans originated and purchased 93,211 100.0 % 126,166 100.0 % 201,683 100.0 %

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(1) Comprised of personal loans.

(2) Comprised of $4.0 million one-to-four family, $5.8 million commercial real estate, $0.6 million business and $3.9 million consumer loans.

(3) Comprised of commercial real estate loans.

(2) Comprised of business, commercial real estate and multifamily loans.

Loans purchased by the Bank entail certain risks not necessarily associated with loans the Bank originates.

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However, the Bank may purchase loans secured by property outside its market area to meet its financial objectives.

The market areas in which the properties that secure the purchased loans are located may differ from Carver Federal's market area and may be

subject to economic and real estate market conditions that may significantly differ from those experienced in Carver Federal's market area.

The market areas in which the properties that secure the purchased loans are located may differ from Carver Federal's market area and may be subject to economic and real estate market conditions that may significantly differ from those experienced in Carver Federal's market area.

There can be no assurance that economic conditions in these out-of-state markets will not deteriorate in the future, resulting in increased loan delinquencies and loan losses among the loans secured by property in these areas.

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5-15 Yrs 15+ Yrs.

Gross loans receivable:

One-to-four family $ 1 $ 1,082 $ 12,254 $ 69,449 $ 82,786

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Commercial real estate 23,341 36,100 105,849 10,097 175,387

Construction — 2,203 — — 2,203

Business 13,122 30,571 118,270 7,639 169,602

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$ in thousands Fixed Adjustable Total

Gross loans receivable:

One-to-four family $ 53,522 $ 29,263 $ 82,785

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Commercial real estate 37,226 114,821 152,047

Construction — 2,203 2,203

Business 30,586 125,894 156,480

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For non-owner occupied non-residential real estate and multifamily real estate loans, the borrower's ability to pay typically is dependent on rental income, which can be impacted primarily by vacancies and general market conditions.

For owner-occupied one-to-four family loans, a borrowers' ability to pay typically is dependent primarily on

employment and other sources of income.

For owner-occupied one-to-four family loans, a borrowers' ability to pay typically is dependent primarily on employment and other sources of income.

For owner occupied non-residential real estate, a borrower's ability to pay typically is dependent primarily on the success of the borrower's business.

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The Bank may from time to time agree to modify the contractual terms of a borrower's loan.

In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”).

Loans modified in a TDR are typically placed on nonaccrual status until the Bank determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months.

At March 31, 2023, loans classified as TDR totaled $7.6 million, of which $6.0 million were classified as performing.

In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the loan is placed on nonaccrual status until the Bank determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months.

At March 31, 2024,

modified loans to a borrower experiencing financial difficulty totaled $6.8 million, of which $5.7 million were classified as performing.

The following table sets forth information with respect to Carver Federal's non-performing assets, which includes nonaccrual loans, loans held-for-sale, and property acquired in settlement of loans as of March 31:

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These assets are recorded at the lower of their cost or fair value.

(3) Troubled debt restructured loans performing in accordance with their modified terms for less than six months and those not performing in accordance with their modified terms are considered nonaccrual and are included in the nonaccrual category in the table above.

TDR loans included in the nonaccrual category above totaled $1.6 million at 2023, $1.7 million at 2022, $1.8 million at 2021, $2.2 million at 2020, and $3.2 million at 2019.

TDR loans that have performed in accordance with their modified terms for a period of at least six months are generally considered performing loans and are not presented in the table above.

Performing TDR loans were $6.0 million at 2023, $5.2 million at 2022, $5.8 million at 2021, $1.7 million at 2020, and $2.2 million at 2019.

At March 31, 2023, total non-performing assets increased by $780 thousand, or 6.8%, to $12.3 million, compared to $11.5 million at March 31, 2022, as a result of a $780 thousand increase in nonaccrual loans, year over year.

Nonaccrual loans at March 31, 2023 consisted of twelve one-to-four family, one multifamily, four commercial real estate, five business, and two consumer loans.

Management believes that there may be losses associated with certain delinquent loans in the future, but also notes that the amount of losses may be reduced by the value of properties securing these delinquent loans and the Bank's loan

loss reserves.

(3) Modified loans to borrowers experiencing financial difficulty that are performing in accordance with their modified terms for less than six months and those not performing in accordance with their modified terms are considered nonaccrual and are included in the nonaccrual category in the table above.

Modified loans included in the nonaccrual category above totaled $1.1 million at 2024, $1.6 million at 2023, $1.7 million at 2022, $1.8 million at 2021, and $2.2 million at 2020.

Modified loans that have performed in accordance with their modified terms for a period of at least six months are generally considered performing loans and are not presented in the table above.

Performing modified loans were $5.7 million at 2024, $6.0 million at 2023, $5.2 million at 2022, $5.8 million at 2021, and $1.7 million at 2020.

At March 31, 2024, total non-performing assets decreased by $494 thousand, or 4.0%, to $11.8 million, compared to $12.3 million at March 31, 2023, as a result of a $486 thousand decrease in nonaccrual loans, year over year.

Nonaccrual loans at March 31, 2024 consisted of ten one-to-four family, two multifamily, two commercial real estate, seven business, and one consumer loan.

Other non-performing assets at year-end 2024 includes real estate owned assets consisting of one foreclosed residential property.

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For additional information about certain factors that may affect the future performance of the Company's loan portfolio, please see "Item 1A - Risk Factors" and "Forward Looking Statements."

Asset Classification and Allowances for Losses .

Asset Classification and Allowance for Credit Losses .

Federal regulations and the Bank's policies require the classification of assets on the basis of credit quality on a quarterly basis.

An asset is classified as “substandard” if it is determined to be inadequately protected by the current net worth and paying capacity of the obligor or the current value of the collateral pledged, if any.

An asset is classified as “doubtful” if full collection is highly questionable or improbable.

An asset is classified as “loss” if it is considered uncollectible, even if a partial recovery could be expected in the future.

The regulations also provide for a “special mention” designation, described as assets that do not currently expose a savings institution to a sufficient degree of risk to warrant substandard classification but do possess credit deficiencies or potential weaknesses deserving management's close attention.

Assets classified as substandard or doubtful result in a higher level of allowances for loan losses recorded in accordance with ASC Subtopic 450-20 “Loss Contingencies.” If an asset or portion thereof is classified as a loss, a savings institution must charge off any amount exceeding the fair value of collateral pursuant to loan impairment guidance in ASC Section 310-10-35.

If a savings institution does not agree with an examiner's classification of an asset, it may appeal this determination to the OCC Regional Director.

The OCC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan losses and lease losses ("ALLL").

The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines.

An asset is classified as “substandard” if it is determined to be inadequately protected by the current sound net worth and paying capacity of the obligor or of the current value of the collateral pledged, if any.

An asset is classified as “doubtful” if it has all the weaknesses inherent in those classified as "substandard," with the added characteristic that full collection, based on current facts, conditions and values, is highly questionable and improbable.

An asset is classified as “loss” if it is considered uncollectible with insignificant value, even if a partial recovery could be expected in the future.

The regulations also provide for a “special mention” designation, described as assets that do not currently expose a savings institution to a sufficient degree of risk to warrant one of the above classifications but do possess credit deficiencies or potential weaknesses that deserve management's close attention.

The OCC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for credit losses ("ACL").

Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems;

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and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement.

Management is responsible for determining the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements.

Management is responsible for determining the adequacy of the ACL and provisions for credit losses included in the consolidated financial statements.

The evaluation process is undertaken on a quarterly basis, but may increase in frequency should conditions arise that would require management's prompt attention, such as business combinations and opportunities to dispose of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend.

Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary.

For additional information regarding Carver Federal's ALLL policy, refer to Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

The Board has designated the Management Credit Review Committee for management to perform a review on a quarterly basis of the Bank's asset quality, determine and properly identify and monitor credit risk in the loan portfolio and determine that the Bank's allowance for loan and lease losses is proper and appropriate and submit their report to the Board for review.

Carver Federal's methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific loans as well as losses that have not been identified but can be expected to occur.

Further, management reviews the ratio of allowances to total loans and recommends adjustments to the level of allowances accordingly.

Although management believes it uses the best information available to make determinations with respect to the allowances for losses, future adjustments may be necessary if economic conditions differ from the economic conditions in the assumptions used in making the initial determinations, or if circumstances pertaining to individual loans change, or new information pertaining to individual loans or the loan portfolio is identified.

Although management believes that adequate general and specific reserve allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of general and specific allowances may become necessary.

For additional information regarding Carver Federal's ACL policy, refer to Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

The Board has designated the Management Credit Review Committee for management to perform a review on a quarterly basis of the Bank's asset quality, determine and properly identify and monitor credit risk in the loan portfolio and determine that the Bank's ACL is proper and appropriate and submit their report to the Board for review.

Carver Federal's methodology for establishing the ACL takes into consideration the measurement of expected credit losses based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

Management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.

Although management believes it uses the best information available to make determinations with respect to the ACL, future adjustments may be necessary if economic conditions differ from the economic conditions in the assumptions used in making the initial determinations, or if circumstances pertaining to individual loans change, or new information pertaining to individual loans or the loan portfolio is identified.

The Bank has a centralized loan servicing structure that relies upon outside servicers, each of which generates a monthly report of delinquent loans.

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In originating loans, Carver Federal recognizes that credit losses will occur and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan.

It is management's policy to maintain a general allowance for loan losses based on, among other things, regular reviews of delinquencies and loan portfolio quality, character and size, the Bank's and the industry's historical and projected loss experience and current and forecasted economic conditions and certain qualitative factors.

It is management's policy to maintain a general allowance based on, among other things, regular reviews of delinquencies and loan portfolio quality, character and size, the Bank's and the industry's historical experience and current and forecasted economic conditions and certain qualitative factors.

In addition, considerable uncertainty exists as to the future improvement or deterioration of the real estate market.

See “Lending Activities-Loan

Purchases and Originations.” Carver Federal increases its allowance for loan losses by charging provisions for possible losses against the Bank's income.

General allowances are established by management on at least a quarterly basis based on an assessment of risk in the Bank's loans, taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, the state of the real estate market and economic conditions generally.

Specific allowances are provided for individual loans, or portions of loans, when ultimate collection is considered improbable by management based on the current payment status of the loan and the fair value or net realizable value of the security for the loan.

A loan is deemed impaired when it is probable the Bank will be unable to collect both principal and interest due according to the contractual terms of the loan agreement.

Loans the Bank individually classifies as impaired include multifamily mortgage loans, commercial real estate loans, construction loans and business loans which have been classified by the Bank's credit review officer as substandard, doubtful or loss for which it is probable that principal and interest will not be collected in accordance with the loan's contractual terms, and certain loans modified in a troubled debt restructuring.

A charge off is recognized on collateral dependent loans when the fair value of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan.

A valuation allowance for cash flow dependent loans is established when based upon a discounted cash flow analysis, impairment is demonstrated.

See “Lending Activities-Loan Purchases and Originations.” Loan losses are charged off against the allowance when management believes a loan balance is deemed as uncollectible.

Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the ACL.

Specific allowances are provided for impaired loans that have been identified and reviewed for individual analysis.

Individual loans reviewed for impairment include all nonaccrual, substandard and doubtful criticized and classified loans, loans to borrowers experiencing financial difficulty and any other loans that the Chief Credit Officer deems appropriate for impairment analysis.

A charge-off is recognized on collateral dependent loans when the estimated fair value of the property that collateralizes the impaired loan less costs to sell, if any, is less than the current loan exposure.

The impairment for cash flow dependent loans is calculated using a discounted cash flow analysis of the amount of funds that the borrower will be able to repay based on the estimated payment structure.

At the date of foreclosure or other repossession, the Bank transfers the property to real estate acquired in settlement of loans, or other real estate owned ("OREO"), at fair value less estimated selling costs.

Fair value is defined as the amount in cash or cash-equivalent value of other consideration that a real estate parcel would yield in a current sale between a willing buyer and a willing seller.

Any amount of cost in excess of fair value is charged off against the allowance for loan losses prior to the transfer of the property into OREO.

Any amount of cost in excess of fair value is charged off against the ACL prior to the transfer of the property into OREO.

Carver Federal records an allowance for estimated selling costs of the property immediately after foreclosure.

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If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate is recorded, providing the Bank did not provide financing for the sale.

The following table sets forth an analysis of Carver Federal's allowance for loan losses at and for the years ended March 31:

The following table sets forth an analysis of Carver Federal's allowance for credit losses at and for the years ended March 31:

$ in thousands 2024

Beginning Balance $ 5,229 $ 5,624 $ 5,140 $ 4,946 $ 4,646

Impact of CECL adoption 668 — — — —

Less Charge-offs:

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Allowance to nonaccrual loans 49.86 % 42.65 % 48.99 % 71.48 % 72.99 %

The following table allocates the allowance for loan losses by asset category at March 31:

The following table allocates the allowance for credit losses by asset category at March 31:

$ in thousands Amount % of

Total ALLL Amount % of

Total ACL Amount % of

Total ALLL Amount % of

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Commercial real estate 1,222 20.8 % 1,814 34.7 % 1,157 20.6 % 907 17.6 % 812 16.4 %

Construction 1 0.0 % — 0.0 % — — % — — % — 0.0 %

Business 1,415 24.1 % 1,139 21.8 % 2,497 44.4 % 1,855 36.1 % 1,567 31.7 %

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Total Allowance $ 5,871 100.0 % $ 5,229 100.0 % $ 5,624 100.0 % $ 5,140 100.1 % $ 4,946 100.0 %

The changes in the ALLL by loan category was primarily due to the increase in commercial real estate and consumer loans and decrease in business loans during fiscal year 2023.

The changes in the ACL by loan category was primarily due to the increase in one-to-four family and business loans during fiscal year 2024.

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

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The following table sets forth the amortized cost, fair value and weighted average yields of the Bank's investment portfolio at March 31, 2024, categorized by remaining period to contractual maturity:

Due 1 - 5 Years Due 5 - 10 Years Due after 10 Years

$ in thousands Amortized Cost Fair Value Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield

Due < 1 Year Due 1 - 5 Years Due 5 - 10 Years Due after 10 Years

$ in thousands Amortized Cost Fair Value Yield Amortized Cost Fair Value Yield Amortized Cost Fair Value Yield Amortized Cost Fair Value Yield

Available-for-Sale:

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Mortgage-backed securities constituted 3.5% of total assets at March 31, 2024, compared to 4.1% at March 31, 2023.

Carver Federal maintains a portfolio of mortgage-backed securities in the form of Government National Mortgage Association

(“GNMA”) pass-through certificates, FNMA mortgage-backed securities and FHLMC mortgage-backed securities.

Carver Federal maintains a portfolio of mortgage-backed securities in the form of Government National Mortgage Association (“GNMA”) pass-through certificates, FNMA mortgage-backed securities and FHLMC mortgage-backed securities.

GNMA pass-through certificates are guaranteed as to the payment of principal and interest by the full faith and credit of the United States Government, while FNMA and FHLMC securities are each guaranteed by their respective agencies as to principal and interest.

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

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

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

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

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

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

The Bank does not have any securities that are classified as having other-than-temporary impairment in its investment portfolio at March 31, 2023.

The Bank conducts periodic reviews to identify and evaluate each investment that has an unrealized holding loss.

For available-for-sale ("AFS") securities in an unrealized loss position, management determines whether the Company has the intent to sell the security, or will more likely than not be required to sell the security before the recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the ACL is written off and the amortized cost adjusted for that amount.

If any incremental credit loss occurs, the amortized cost is adjusted further by the credit loss and recorded in earnings.

For AFS securities that do not meet the above criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management may consider various factors including downgrades in the rating of the security by rating agencies, failure of the issuer to make scheduled interest or principal payments or adverse conditions specifically related to the security.

If the decline in fair value is due to credit loss, the credit loss is recorded through ACL, limited by the amount that the fair value is less than the amortized cost basis.

Management has reviewed the Bank's AFS portfolio at March 31, 2024 and believes that the 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 valuations recover.

The Bank's held-to-maturity portfolio consists of mortgage-backed securities that are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to the U.S.

As such, no allowance for credit losses on securities available-for-sale or held-to-maturity have been established as of March 31, 2024.

Sources of Funds

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Carver has obtained brokered deposits from a variety of brokerage firms.

In addition, Carver has obtained brokered deposits through the Depository Trust Company.

In addition, Carver has obtained brokered deposits through the

Depository Trust Company ("DTC").

This allows us to better manage the maturity of our deposits and our interest rate risk.

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As of March 31, 2024, Carver had a total of $60.0 million in brokered deposits, compared to $17.6 million as of March 31, 2023.

Brokered deposits as of March 31, 2022 included $46.4 million CDARS deposits.

The Bank secured $60.0 million in DTC brokered CDs during fiscal year 2024 to ensure the availability of sufficient liquidity for projected loan closings.

As of March 31, 2024, the Bank has $76.7 million of reciprocal deposits acquired through its participation in the Certificate of Deposit Account Registry Service (“CDARS”).

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Such payments were made in September 2016.

Interest on the debentures had been deferred beginning with the December 2016

payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval.

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.

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On December 16, 2021, the Company paid the interest deferred from September 17, 2021 and the regular quarterly interest payment due on December 17, 2021.

Subsequently, the Company made the regular quarterly interest payments on its outstanding debentures due on March 17, 2022, June 17, 2022, September 17, 2022, December 19, 2022 and March 17, 2023.

All quarterly payments subsequent to the June 2021 payment up to and including the June 2024 payment have been made.

The interest rate was 8.6% at March 31, 2024.

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

In recent years, Carver has been successful in obtaining cash independently through its capital raising efforts.

Under the prior Formal Agreement, the OCC regulated all capital distributions, including dividend payments, by Carver Federal to the Company, and the FRB regulates dividends paid by the Company.

While Carver has suspended its regular quarterly cash dividend on its common stock, in the future, Carver may rely on dividends from Carver Federal to pay cash dividends to its stockholders and to engage in share repurchase programs.

In recent years, Carver has been successful in obtaining cash independently through its capital raising efforts, which may include cash from government grants or below market-rate loans.

Under the prior Formal Agreement, the OCC regulated all capital distributions, including dividend payments, by Carver Federal to the Company, and the FRB regulates dividends paid by the

The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements.

Carver has suspended its regular quarterly cash dividend on its common stock.

REGULATION AND SUPERVISION

Enforcement Actions

On May 24, 2016, the Bank entered into a formal agreement (the "Formal Agreement") with the OCC to undertake certain compliance-related and other actions as further described in the Company’s Report on Form 8-K as filed with the SEC on May 27, 2016.

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

On January 18, 2023, the Bank was released from the Formal Agreement by the OCC as further described in the Company's Current Report on Form 8-K as filed with the SEC on January 23, 2023.

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The Company continues to be subject to certain requirements pursuant to the Memorandum of Understanding dated October, 20, 2016 with the FRB.

The Company must provide notice to the FRB prior to affecting any change in its directors or senior executive officers.

The Company is also subject to the restrictions on golden parachute and indemnification payments, as set forth in 12 C.F.R.

The Company is subject to the restrictions on golden parachute and indemnification payments, as set forth in 12 C.F.R.

Written approval of the Federal Reserve Bank is required prior to:

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In addition, the FDIC has the authority to recommend to the Director of the OCC that enforcement action be taken with respect to a particular federally chartered savings bank and, if action is not taken by the Director, the FDIC has authority to take such action under certain circumstances.

The description of statutory provisions and regulations applicable to federally chartered savings banks and their holding companies and of tax matters set forth in this document does not purport to be a complete description of all such statutes and

regulations and their effects on the Bank and the Company.

Any change in such laws and regulations whether by the OCC, the FDIC, the FRB or through legislation could have a material adverse impact on the Bank and the Company and their operations and stockholders.

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All banks are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the bank would be undercapitalized.

Generally, a capital restoration plan must be filed with the OCC within 45 days of the date a bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, various mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion.

mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion.

Under OCC regulations, a federally chartered savings bank is treated as well-capitalized if its total risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 8% or greater, its common equity Tier 1 capital ratio is 6.5% or greater, and its leverage ratio is 5% or greater, and it is not subject to any order or directive by the OCC to meet a specific capital level.

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Carver Federal, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed minimum requirements and are consistent with Carver Federal’s risk profile.

The IMCR established by the OCC on June 29, 2016, as a result of the previously described Formal Agreement, requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio.

The IMCR established by the OCC on June 29,

2016, as a result of the previously described Formal Agreement, requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio.

While the Formal Agreement was terminated on January 18, 2023, the IMCR remains in effect.

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If, after being so notified, an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement an accepted compliance plan, the OCC must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized association is subject under the “prompt corrective action” provisions of federal law.

an institution fails to comply with such an order, the OCC may seek to enforce such order in judicial proceedings and to impose civil money penalties.

If an institution fails to comply with such an order, the OCC may seek to enforce such order in judicial proceedings and to impose civil money penalties.

In 2023, the OCC issued guidance along with the FDIC and FRB on risks banks may face from third party relationships (e.g.

relationships under which the third party provides services to the bank).

The guidance outlines the agencies' views on sound risk management principles related to third party relationships, including as related to the performance of adequate due diligence on the third party, appropriate documentation of the relationship, and performance of adequate oversight and auditing in order to the limit the risks to the bank.

The OCC has primary enforcement responsibility over the Bank.

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In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.

The Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008 and authorized the U.S.

Department of the Treasury (“Treasury”) to establish the Troubled Asset Relief Program (“TARP”) to purchase certain troubled assets from financial institutions, including banks and thrifts.

On October 14, 2008, the Treasury announced that it would purchase equity stakes in a wide variety of banks and thrifts.

Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the "TARP CPP"), the Treasury made $250 billion of capital available (from the $700 billion authorized by the EESA) to U.S.

financial institutions in the form of preferred stock.

On January 20, 2009, the Company announced that it completed the sale of $18.98 million in preferred stock to the Treasury in connection with Carver's participation in the TARP CPP.

The Treasury announced in February 2010 the implementation of the Community Development Capital Initiative (“CDCI”).

This new capital program invested lower cost capital in CDFIs that lend to small businesses in the country's most economically depressed communities.

On August 27, 2010, Carver completed with the Treasury the exchange of the $18.98 million of TARP preferred stock for an equivalent amount of CDCI Series B preferred stock.

On October 28, 2011, the U.S.

Treasury exchanged the CDCI Series B preferred stock for 2,321,286 shares of Company common stock.

On August 6, 2020, the Company entered into a Share Purchase Agreement with the Treasury to repurchase the 2,321,286 shares of Company common stock held by the Treasury.

As a result, the Company is no longer a participant in the CDCI program and is not bound by any TARP restrictions as the Treasury is no longer a common stockholder of the Company.

For more information concerning the Bank's repurchase of treasury shares, see Note 12 of the Notes to the Consolidated Financial Statements.

Other Supervision and Regulation

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Under this test, the Bank is required to maintain at least 65% of its “portfolio assets” in certain “qualified thrift investments” on a monthly basis in at least nine months of the most recent twelve-month period.

“Portfolio assets” means, in

general, an association's total assets less the sum of (a) specified liquid assets up to 20% of total assets, (b) goodwill and other intangible assets and (c) the value of property used to conduct the Bank's business.

“Portfolio assets” means, in general, an association's total assets less the sum of (a) specified liquid assets up to 20% of total assets, (b) goodwill and other intangible assets and (c) the value of property used to conduct the Bank's business.

“Qualified thrift investments” include various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities and consumer loans.

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The CRA does, however, require the primary regulator, in connection with its examination of the Bank, to assess the Bank's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the Bank.

While CRA modernization is underway, the current evaluation system focuses on three tests:

While CRA modernization is underway, scheduled for full implementation by 2026, the current evaluation system focuses on three tests:

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

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The Bank has no such agreements in place at this time.

In June 2020, the OCC issued amendments to its CRA evaluations.

The final rule clarified and expanded the activities that qualify for CRA credit, updated where activities count for such credit and, according to the agency, sought to create a more consistent and objective method for evaluating CRA performance.

The final rule was issued effective October 1, 2020 with compliance of some key changes earmarked for implementation by January 1, 2023.

However, small banks were not expected to be impacted by the 2020 Rule.

Subsequently, in May 2022, based on substantial industry feedback, the OCC rescinded its 2020 Rule in favor of a more comprehensive, realistic, and interagency approach to CRA modernization with Notice of Proposed Rulemaking comments ending as of August 2022.

Implementation of new rules and evaluation methodology has been delayed to 2024.

CRA modernization endeavors to address inequities in access to credit for low- and moderate-income individuals and communities by strengthening the legacy legislation, while also adapting to changes in the banking industry specifically acknowledging the use of mobile and digital banking in regulatory evaluations.

On October 24, 2023, the OCC and the other federal banking agencies issued a final rule to strengthen and modernize the CRA regulations.

Under the final rule, banks with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar years will be an “intermediate bank.” The agencies will evaluate intermediate banks under the Retail Lending Test and either the current community development test, referred to in the final rule as the Intermediate Bank Community Development Test, or, at the bank’s option, the Community Development Financing Test.

The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027.

Transactions with Related Parties.

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The Bank's authority to extend credit to its directors, executive officers, and 10% shareholders ("insiders"), as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.

Among other things, these provisions require that all loans or

extensions of credit to insiders (a) be made on terms that are substantially the same as and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (b) not exceed certain limitations, individually and in the aggregate, which limits are based, in part, on the amount of the Bank's capital.

Among other things, these provisions require that all loans or extensions of credit to insiders (a) be made on terms that are substantially the same as and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (b) not exceed certain limitations, individually and in the aggregate, which limits are based, in part, on the amount of the Bank's capital.

In addition, extensions of credit in excess of certain limits must be approved by the Bank's Board.

The aggregate amount of related party deposits were $4.9 million and there was one related party loan totaling $30 thousand at March 31, 2023.

The aggregate amount of related party deposits was $1.0 million and there were no related party loans at March 31, 2024.

The OCC charges assessments to recover the cost of examining savings associations and their affiliates.

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The Bank is subject to federal regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”).

The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.

The USA PATRIOT

Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.

By way of amendments to the Bank Secrecy Act ("BSA"), Title III of the USA PATRIOT Act took measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies.

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The dividend rate paid on FHLB-NY stock at March 31, 2024 was 9.50%.

Privacy Protection

Privacy and Cybersecurity

Carver Federal is subject to OCC regulations implementing the privacy protection provisions of federal law.

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The Bank has a policy to comply with the foregoing guidelines.

In November 2021, the federal bank regulatory agencies issued a final rule requiring banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours of determining that a “computer-security incident” that rises to the level of a “notification incident,” as those terms are defined in the final rule, has occurred.

A notification incident is a “computer-security incident” that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization's ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector.

The final rule also requires bank service providers to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for four or more hours.

The rule was effective April 1, 2022, with compliance required by May 1, 2022.

On July 26, 2023, the SEC issued a final rule that requires registrants, such as the Company, to (i) report material cybersecurity incidents on Form 8-K, (ii) include updated disclosure in Forms 10-K and 10-Q of previously disclosed cybersecurity incidents and disclose previously undisclosed individually immaterial incidents when a determination is made that they have become material on an aggregated basis, (iii) disclose cybersecurity policies and procedures and governance practices, including at the board and management levels in Form 10-K, and (iv) disclose the board of directors' cybersecurity expertise.

Holding Company Regulation

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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 1. Business