What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-07-16 compared with 2023-06-29 · 122 added, 140 removed, 338 unchanged (44% of the section changed)

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Carver concluded fiscal 2024 with a net loss of $3.0 million, compared to a net loss of $4.4 million for the prior year period.

The change in our results of operations was primarily driven by a decrease in non-interest income and an increase in non-interest expense, partially offset by an increase in net interest income after recoveries of loan losses compared to the prior fiscal year.

The change in our results of operations was primarily driven by increases in interest income and non-interest income, partially offset by increases in interest expense and non-interest expense compared to the prior fiscal year.

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

Significant increases in food and energy prices resulted from swift increases in the rate of inflation.

Additionally, the Federal Reserve has increased the federal funds rate at each of its meetings since March 2022, and while the rate was held steady at the most recent meeting in June 2023, it has indicated that it will likely increase again later this year.

The Federal Reserve began increasing the federal funds rate at the March 2022 meeting, and is currently maintaining a target interest rate range between 5.25% and 5.5%.

For Carver, the economic climate of New York City (“the City”), in particular, impacts our business as the City lags behind the rest of New York State and the nation both in restoring pandemic job losses and in rebounding to pre-pandemic levels of unemployment.

The City's unemployment rate remains high at 5.4%, exceeding the national average, as employment in the arts and entertainment, food and hospitality sectors continue to remain below their pre-pandemic highs.

In March 2023, the FDIC was appointed as receiver for Silicon Valley Bank and Signature Bank after they experienced runs on deposits and other liquidity constraints.

At the time, Silicon Valley Bank and Signature Bank were the 16th and 29th largest banks in the United States, respectively, as measured by total assets as of December 31, 2022.

Following the failures of Silicon Valley Bank and Signature Bank, on May 1, 2023, First Republic Bank was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver.

The closures of those banks led to industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding confidence in the banking system.

In response to these recent developments, the Company took a number of preemptive actions, which included proactive outreach to clients and steps to maximize its funding sources.

As of March 31, 2024, the City's unemployment rate remains high at 4.9%, exceeding the national average, as employment in the arts and entertainment, food and hospitality sectors continue to remain below their pre-pandemic highs.

The closure of five banks in 2023 led to industry-wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding confidence in the banking system from the general public.

In response to these developments, the Company took a number of preemptive actions, which included proactive outreach to clients and steps to maximize its funding sources.

As a result, the Company's liquidity position remains adequate.

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The Company is closely monitoring its asset quality, liquidity, and capital positions, as well as the credit risk in its loan portfolio.

Management is actively working to minimize the current and future impact of this situation, and is continuing to make adjustments to operations where appropriate or necessary to mitigate risk.

Management is actively working to minimize the current and future impact of the current business and industry environment, and is continuing to make adjustments to operations where appropriate or necessary to mitigate risk.

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

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During fiscal year 2022, we entered into a sales agreement with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in an “at the market offering.” During fiscal year 2022, the Company sold an aggregate of 397,367 shares of common stock pursuant to the terms of such sales agreement, resulting in aggregate gross proceeds of approximately $3.1 million and net proceeds of $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.

Subsequent Events

On April 12, 2023, the Company entered into an agreement with a third party, in which the third party would provide the Company with an unsecured long-term, below-market-rate loan in the amount of $2.5 million to finance eligible loans offered through the Bank's community investment initiatives and loan programs focused on Minority and Women-owned Business Enterprises and consumers across the greater New York City region.

In April 2023, the Bank was awarded a $2.5 million grant as part of the U.S.

Department of the Treasury's Community Development Financial Institutions Fund's Equitable Recovery Program ("CDFI ERP").

The funds will be used towards financing programs and activities to help low- and moderate income communities recover from the COVID-19 pandemic in accordance with the terms and requirements of the CDFI ERP.

On April 30, 2024, the Company entered into an agreement with a third party, in which the third party would provide the Company with a $25.0 million revolving unsecured long-term, below-market-rate loan to support the Bank in financing initiatives that reduce greenhouse gas emissions and promote energy efficiency in building projects, fleet upgrades to electric vehicles, and electric vehicle charging station infrastructure.

The loan facility will also support the working capital and asset-specific financing needs of Minority and Women-owned Business Enterprises working on green energy projects, weatherization, electrification, and green technology.

On May 24, 2024, the Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, which provides members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria.

SELECTED FINANCIAL DATA

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1.89 % 2.05 % 1.98 % 1.49 % 1.58 %

Allowance for loan losses to total loans, excluding PPP loans 0.88 % 1.00 % 1.15 % 1.15 % 1.08 %

Allowance for credit losses to total loans receivable 0.94 % 0.87 % 0.97 % 1.06 % 1.15 %

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

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

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

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

Carver's policy with respect to the methodologies used to determine the allowance for credit losses is the most critical accounting estimates.

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

Such assumptions and estimates are susceptible to significant changes in today's economic environment.

Changes in these judgments, assumptions or estimates could result in material differences in the Company's results of operations or financial condition.

Allowance for Loan and Lease Losses

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

There is significant judgment applied in estimating the ALLL.

Allowance for Credit Losses ("ACL")

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

There is significant judgment applied in estimating the ACL.

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

In a continued effort to combat inflation, the Federal Reserve approved its eighth consecutive interest rate hike in February 2023, raising the overnight borrowing rate 25 basis points to a target range of 4.5% to 4.75%, the highest it has been in 15 years.

While this quarter-point rate increase is the smallest adjustment since March 2022 and inflation seems to have eased, rates will likely continue to increase, although at potentially smaller increments.

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

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

As such, there can never be assurance that the ALLL accurately reflects the actual loss potential inherent in a loan portfolio.

General Reserve Allowance

Carver's maintenance of a general reserve allowance in accordance with ASC Subtopic 450-20 includes the Bank's evaluation of the risk to loss potential of 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 main pools of loans (“Loan Type”) are:

• One-to-four family

• Multifamily

• Commercial Real Estate

• Business Loans

• Consumer (including Overdraft Accounts)

The Bank next applies to each pool a risk factor that determines the level of general reserves for that specific pool.

The Bank estimates its historical charge-offs via a lookback analysis.

The actual historical loss experience by major loan category is expressed as a percentage of the outstanding balance of all loans within the category.

As the loss experience for a particular loan category increases or decreases, the level of reserves required for that particular loan category also increases or decreases.

The Bank’s historical charge-off rate reflects the period over which the charge-offs were confirmed and recognized, not the period over which the earlier losses occurred.

That is, the charge-off rate measures the confirmation of losses over a period that occurs after the earlier actual losses.

During the period between the loss-causing events and the eventual confirmations of losses, conditions may have changed.

There is always a time lag between the period over which average charge-off rates are calculated and the date of the financial statements.

During that period, conditions may have changed.

Another factor influencing the General Reserve is the Bank’s loss emergence period ("LEP") assumptions which represent the Bank’s estimate of the average amount of time from the point at which a loss is incurred to the point at which the loss is confirmed, either through the identification of the loss or a charge-off.

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

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

The Bank also recognizes losses in accordance with regulatory charge-off criteria.

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

As the risk ratings worsen, some of the qualitative factors tend to increase.

The nine qualitative factors the Bank considers and may utilize are:

Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses ( Policy & Procedures ).

Changes in relevant economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments ( Economy ).

Changes in the nature or volume of the loan portfolio and in the terms of loans ( Nature & Volume ).

Changes in the experience, ability, and depth of lending management and other relevant staff ( Management ).

Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans ( Problem Assets ).

Changes in the quality of the loan review system ( Loan Review ).

Changes in the value of underlying collateral for collateral dependent loans ( Collateral Values ).

The existence and effect of any concentrations of credit and changes in the level of such concentrations ( Concentrations ).

The effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio ( External Forces ).

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.

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

The ASC Subtopic 310-10 guidelines require the use of one of three approved methods to estimate the amount to be reserved and/or charged off for such credits.

The three methods are as follows:

The present value of expected future cash flows discounted at the loan's effective interest rate,

The loan's observable market price;

The fair value of the collateral if the loan is collateral dependent.

The Bank may choose the appropriate ASC Subtopic 310-10 measurement on a loan-by-loan basis for an individually impaired loan, except for an impaired collateral dependent loan.

Guidance requires impairment of a collateral dependent loan to be measured using the fair value of collateral method.

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

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

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

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

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

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

Carver also performs impairment analysis for all TDRs.

If it is determined that it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement, the loan is categorized as impaired.

Loans determined to be impaired are evaluated to determine the amount of impairment based on one of the three measurement methods noted above.

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

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

Financial institutions were not required to comply with ASC 326, "Financial Instruments - Credit Loss," which updates the guidance on recognition and measurement of credit losses for financial assets until the earlier of the end of the President's declaration of a National Emergency or December 31, 2020.

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

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

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

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

In a continued effort to combat inflation, the Federal Reserve approved the 11th interest rate hike in July 2023, raising the overnight borrowing rate 25 basis points to a target range of 5.25% to 5.5%, the highest it has been in 22 years.

Interest rates were held steady at the May 2024 meeting and the Federal Reserve is not expected to start cutting rates yet.

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

Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ACL even

though there may not be a decline in credit quality or an increase in potential problem loans.

As such, there can never be assurance that the ACL accurately reflects the actual loss potential inherent in a loan portfolio.

The ACL is a valuation account that is deducted from the loan portfolio's amortized cost basis to present the net amount expected to be collected on the loans.

Additions to the allowance are recognized through the provision for credit losses.

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.

The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The discounted cash flow ("DCF") methodology is used for substantially all pools, applied with a 4-quarter reasonable and supportable forecast period and the loss rate reverts back to the long-term historical loss average with a 12-quarter straight-line reversion period where the ACL reflects the difference between the amortized cost and the present value of the expected cash flows.

Expected credit losses are measured on a collective pool basis when similar risk characteristics exist.

Loans with similar risk characteristics are grouped into homogeneous segments, or pools, for allowance calculation.

The Company's loan portfolio segments as of March 31, 2024 were as follows:

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

The loans are underwritten in accordance with applicable secondary market underwriting guidelines and requirements for sale.

These loans present a moderate level of risk due primarily to general economic conditions.

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

The Bank generally requires a debt service coverage ratio at origination of at least 1.30x, and that the maximum loan-to-value ("LTV") at origination not exceed 70% based on the appraised value of the mortgaged property.

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

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.

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 owner/guarantor.

• Commercial Real Estate ("CRE") - 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 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 owner/guarantor.

The 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 1.30x.

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.

• Construction - Carver Federal 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.

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

The Bank has additional criteria for construction loans, including an engineer’s plan and periodic cost reviews on all construction budgets for loans.

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

• Business - Carver Federal originates and purchases business and SBA loans primarily to businesses located in its primary market area and surrounding areas.

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

Business loans are subject to increased risk from the effect of general economic conditions.

SBA loans are guaranteed by the U.S.

government based on the percentage of each individual program.

• Consumer (including Overdraft accounts) - The Consumer portfolio includes student loans to medical students enrolled in several medical schools, throughout the United States and Caribbean, as well as unsecured consumer loans purchased from or originated through strategic partnerships with Bankers Healthcare Group, LLC and Upstart Holdings, Inc.

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

Because expected loss predictions may not adequately project the level of losses inherent in a portfolio, the Bank reviews a number of qualitative factors to determine if reserves should be adjusted based upon any of those factors.

As the risk ratings deteriorate, some of the qualitative factors tend to increase.

A number of qualitative factors are considered including economic forecast uncertainty, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, impact of rising rates, external factors and other considerations.

Although the quantitative calculation includes a measurement of statistical economic conditions based on national averages, an additional analysis is performed at the qualitative level that applies specifically to the Company's geographic area and the banking industry that includes reasonable and supportable forecasts.

Asset/Liability Management

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An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period.

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

amount of interest-bearing liabilities maturing or repricing within that same time period.

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

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

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As a result, the Company's net interest income may be negatively affected by rising interest rates and may be positively affected by falling interest rates.

While the Company, as a liability-semsitive institution, may benefit from a falling interest rate environment, the rising rates over the past fiscal year have not yet been projected to end, indicating another period in which compressed margins may negatively impact net interest income.

While the Company, as a liability-sensitive institution, may benefit from a falling interest rate environment, the continued high interest rate environment may indicate another period in which compressed margins may negatively impact net interest income.

The following table sets forth information regarding the projected maturities, prepayments and repricing of the major rate-sensitive asset and liability categories of the Company as of March 31, 2024.

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The repricing and other assumptions are not necessarily representative of the Company's actual results.

Classifications of items in the table below are different from those presented in other tables and the financial statements and accompanying notes included herein and do not reflect non-performing loans:

Classifications of items in the table below are different from those

presented in other tables and the financial statements and accompanying notes included herein and do not reflect non-performing loans:

$ in thousands <3 Mos.

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Investment securities (2)

Other investments 40,575 1,079 2.66 % 75,833 106 0.14 % 90,857 94 0.10 %

33,093 1,131 3.42 % 35,467 929 2.62 % 42,278 714 1.69 %

Money market investments 49,032 2,654 5.41 % 40,575 1,079 2.66 % 75,833 106 0.14 %

Total interest-earning assets 718,949 34,019 4.73 % 684,803 27,700 4.04 % 680,169 22,865 3.36 %

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Investment securities (62) 264 202 (115) 330 215

Other investments (49) 1,022 973 (16) 28 12

Money market investments 225 1,350 1,575 (49) 1,022 973

Total interest-earning assets 1,502 4,817 6,319 2,094 2,741 4,835

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Savings and clubs (1) 145 144 (1) 44 43

Money market savings 72 1,278 1,350 125 (272) (147)

Money market (268) 642 374 72 1,278 1,350

Certificates of deposit 705 3,909 4,614 (103) 510 407

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Comparison of Financial Condition at March 31, 2024 and 2023

At March 31, 2023, total assets were $723.2 million, reflecting a decrease of $12.1 million, or 1.6%, from total assets of $735.3 million at March 31, 2022.

The decrease was primarily attributable to decreases of $18.4 million in cash and cash equivalents and $16.7 million in the Bank's investment portfolio, partially offset by increases of $18.8 million in the Bank's net loan portfolio and $5.0 million in other assets.

Total cash and cash equivalents decreased $18.4 million, or 30.2%, from $61.0 million at March 31, 2022 to $42.6 million at March 31, 2023.

The decrease in cash was primarily due to a $27.7 million decrease in deposits and increased net loan activity, partially offset by an increase of $35.2 million in borrowings and $10.7 million in paydowns received on investment securities.

At March 31, 2024, total assets were $756.8 million, reflecting an increase of $33.6 million, or 4.6%, from total assets of $723.2 million at March 31, 2023.

The increase was primarily attributable to increases of $16.4 million in cash and cash equivalents and $24.3 million in the Bank's net loan portfolio, partially offset by a decrease of $6.2 million in the Bank's investment portfolio.

Total cash and cash equivalents increased $16.4 million, or 38.5%, from $42.6 million at March 31, 2023 to $59.0 million at March 31, 2024.

The increase in cash was primarily due to an increase in total deposits and paydowns received on investment securities, partially offset by net loan activity and a decrease in advances from the FHLB-NY and other borrowed money.

In addition, the Bank received $2.5 million during the second quarter for the CDFI Fund's Equitable Recovery Program (ERP) award.

Total investment securities decreased $6.2 million, or 11.0%, to $50.0 million at March 31, 2024, compared to $56.2 million at March 31, 2023 due to scheduled principal payments received of approximately $5.3 million and a $0.5 million increase in unrealized losses in the available-for-sale portfolio.

In addition, there was an early payoff of a $2.5 million mortgage-backed security in the held-to-maturity portfolio during the second quarter of the fiscal year.

Gross portfolio loans increased $18.4 million to $597.9 million at March 31, 2023, compared to $579.5 million at March 31, 2022, primarily due to new loan originations of $111.9 million and loan pool purchases of $14.3 million.

These were partially offset by attrition and payoffs of $101.7 million and loans participated of $4.0 million.

The unexpected high level of payoffs was primarily due to commercial real estate borrowers who perceived the rising rate environment, coupled with high inflation, as the right time to exit contractual debt.

Other assets increased $5.0 million to $12.2 million at March 31, 2023, compared to $7.2 million at March 31, 2022, primarily due to the purchase of a $5.0 million bank-owned life insurance policy during the first quarter of fiscal year 2023 as a channel to add the Company's non-interest income revenue by means of an investment considered safe and sound by the Company's regulators.

Gross portfolio loans increased $25.0 million, or 4.2%, to $622.9 million at March 31, 2024, compared to $597.9 million at March 31, 2023, primarily due to new loan originations of $61.7 million and loan pool purchases of $31.5 million.

These were partially offset by attrition and payoffs of $68.2 million.

The level of payoffs during the current fiscal year, significantly lower than the prior period's, can be attributed to borrowers continuing to sell commercial real estate, although now at a slower pace, in order to lock in values, as well as paydowns on lines of credit for borrowers looking for opportunities to reduce interest expense in the current rate environment.

Liabilities and Equity

Total liabilities decreased $2.2 million, or 0.3%, to $678.0 million at March 31, 2023, compared to $680.2 million at March 31, 2022, primarily due to decreases in total deposits and other liabilities, partially offset by an increase in advances from the FHLB-NY.

Deposits decreased $27.7 million, or 4.4%, to $600.4 million at March 31, 2023, compared to $628.1 million at March 31, 2022.

The decline was primarily related to a large withdrawal by one customer, who had previously informed Carver of the intended withdrawal due to concerns regarding a large deposit concentration with one bank.

This was partially offset by increases in certificate of deposit accounts due to an increase in interest rates, coupled with significant outreach efforts from the retail team.

Total liabilities increased $36.5 million, or 5.4%, to $714.5 million at March 31, 2024, compared to $678.0 million at March 31, 2023, primarily due to an increase in total deposits, partially offset by a decrease in advances from the FHLB-NY and other borrowed money.

Deposits increased $46.6 million, or 7.8%, to $647.0 million at March 31, 2024, compared to $600.4 million at March 31, 2023.

The increase was primarily related to increases in money market and certificate of deposit accounts, market-rate products for which the rates increased over the current fiscal year period.

As of March 31, 2024 and 2023, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $91.0 million and $116.8 million, respectively.

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

Advances from the FHLB-NY and other borrowed money increased $35.2 million to $51.1 million at March 31, 2023, compared to $15.9 million at March 31, 2022.

The Bank secured a $25.0 million 2-year advance from the FHLB-NY during the fourth quarter of fiscal year 2023.

In addition, the Bank secured a $10.0 million overnight advance from the FHLB-NY on March 31, 2023.

Advances from the FHLB-NY and other borrowed money decreased $4.6 million, or 9.0%, to $46.5 million at March 31, 2024, compared to $51.1 million at March 31, 2023.

The Bank repaid a $10.0 million overnight advance secured from the FHLB-NY on March 31, 2023 and secured a $3.0 million 18-month advance from the new FHLB-NY 0% Development Advance (ZDA) Program during the second quarter.

At March 31, 2024, the Bank had $28.0 million outstanding advances from the FHLB-NY.

Other liabilities decreased $8.5 million to $13.3 million at March 31, 2023, compared to $21.8 million at March 31, 2022 due to a decrease in outstanding teller checks from the prior fiscal year that cleared during the first quarter.

In addition, the Company borrowed $2.5 million through a long-term unsecured, below-market rate term loan from a third party to finance eligible loans offered through the Bank's community investment initiatives and loan programs.

Total equity decreased $2.9 million, or 6.4%, to $42.3 million at March 31, 2024, compared to $45.2 million at March 31, 2023.

The decrease was due to a net loss of $3.0 million, coupled with an increase of $0.5 million in unrealized losses on securities available-for-sale for the twelve month period ended March 31, 2024.

In addition, the Bank recorded a $0.7 million decrease to retained earnings to reflect the cumulative effect adjustment related to the adoption of CECL (Topic 326), effective April 1, 2023.

These decreases were partially offset by a $1.0 million increase in capital as a result of the issuance of common shares in a private placement during the second quarter.

Comparison of Operating Results for the Years Ended March 31, 2024 and 2023

The Company reported a net loss of $3.0 million for fiscal year 2024, compared to a net loss of $4.4 million for the prior year period.

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

The change in our results was primarily driven by increases in interest income and non-interest income, partially offset by an increase in non-interest expense compared to the prior fiscal year.

Net Interest Income

Net interest income increased $2.3 million, or 11.2%, to $22.8 million for fiscal year 2023, compared to $20.5 million for the prior year period.

The increase was attributable to a $4.8 million increase in interest income, partially offset by a $2.5 million increase in interest expense for the period.

Net interest income decreased $0.2 million, or 0.9%, to $22.6 million for fiscal year 2024, compared to $22.8 million for the prior year period.

The decrease was attributable to a $6.6 million increase in interest expense, partially offset by a $6.3 million increase in interest income for the period.

Interest income increased $6.3 million, or 22.7%, to $34.0 million, compared to $27.7 million for the prior year period.

Interest income on loans increased $3.8 million, or 17.8%, primarily due to a $59.6 million, or 11.5%, increase in average loan balances coupled with an increase in the average yield on the portfolio of 22 basis points.

Interest income on money market investments increased $1.0 million to $1.1 million, compared to $0.1 million for the prior year period, due to an increase in interest rates on the Bank's interest-bearing account at the Federal Reserve Bank.

Interest income on investment securities was also higher, despite a decrease in average balances, due to an increase in yields compared to the prior year period.

Interest income on loans increased $4.6 million, or 18.3%, primarily due to an increase in the average yield on the portfolio of 52 basis points, coupled with a $32.9 million, or 5.7%, increase in average loan balances.

Interest income on money market investments increased $1.6 million to $2.7 million, compared to $1.1 million for the prior year period, due to an increase in average interest rates of 2.75% on the Bank's interest-bearing account at the Federal Reserve Bank.

Interest income on investment securities was also higher, despite a decrease of $7.2 million in average balances, due to an average increase in yields of 54 basis points compared to the prior year period.

Interest expense increased $6.6 million to $11.5 million, compared to $4.9 million for the prior year period.

The higher interest rate environment is reflected in the average cost of interest-bearing deposits and borrowing costs for the comparative period.

Interest expense on deposits increased $1.8 million, or 94.7%, primarily due to an increase in the average rates paid on money market and certificate of deposit accounts.

Interest expense on borrowings increased $0.7 million from the prior fiscal year, mostly due to an increase in the average borrowing rates.

Provision for Loan Losses

The Bank recorded a $100 thousand provision for loan loss for fiscal year 2023, compared to a $603 thousand provision for loan loss for the prior year period.

Interest expense on deposits increased $5.4 million, primarily due to an increase in the average rates paid on money market and certificate of deposit accounts.

Interest expense on borrowings increased $1.2 million from the prior fiscal year, due to increases in both the average outstanding balances of $17.5 million and average borrowing rates of 92 basis points.

Provision for Credit Losses

The Bank recorded an $83 thousand provision for credit loss for fiscal year 2024, compared to a $100 thousand provision for loan loss for the prior year period.

For the year ended March 31, 2024, net charge-offs of $109 thousand were recognized, compared to net charge-offs of $495 thousand in the prior year period.

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At March 31, 2024, nonaccrual loans totaled $11.8 million, or 1.6% of total assets, compared to $12.3 million, or 1.7% of total assets at March 31, 2023.

The ALLL was $5.2 million at March 31, 2023, which represents a ratio of the ALLL to nonaccrual loans of 42.6%, compared to 49.0% at March 31, 2022.

The ratio of the allowance for loan losses to total loans receivable, excluding PPP loans, was 0.9% at March 31, 2023, compared to 1.0% at March 31, 2022.

The ACL was $5.9 million at March 31, 2024, which represents a ratio of the ACL to nonaccrual loans of 49.9%, compared to 42.6% at March 31, 2023.

The ratio of the ACL to total loans receivable, excluding PPP loans, was 0.94% at March 31, 2024, compared to 0.88% at March 31, 2023.

Non-interest Income

Non-interest income for the twelve months ended March 31, 2023 decreased $3.8 million, or 51.4%, to $3.6 million compared to $7.4 million in the prior year period.

Non-interest income in the prior year included $2.1 million grant income recognized from the Bank's awards through the CDFI Fund's Bank Enterprise Award and Rapid Response Program.

In addition, the Bank recognized a $107 thousand gain on the sale of a nonperforming loan during the current fiscal year.

Other non-interest income includes correspondent banking fees, related to the Bank's servicing of PPPLF activity for a correspondent bank, that was $2.4 million higher in the prior fiscal year, compared to the current year period.

The decline in fees was due to the winding down of the PPP program.

Non-interest income for the twelve months ended March 31, 2024 increased $3.1 million, or 86.1%, to $6.7 million compared to $3.6 million in the prior year period.

Non-interest income for the current fiscal year included $2.4 million grant income recognized from the Bank's award through the CDFI Fund's Equitable Recovery Program.

The Bank also recognized $0.5 million grant income associated with a loan program no longer in existence, that had been transferred to the Bank through an acquired institution.

In addition, other non-interest income included a $296 thousand death benefit recorded in BOLI income during the third quarter of the current fiscal year.

Non-interest Expense

Non-interest expense for the twelve months ended March 31, 2024 increased $1.5 million, or 4.9%, to $32.2 million compared to $30.7 million for the prior year period.

Employee compensation and benefits were higher compared to the prior year period due to agency fees and the increased use of consultants for temporary assistance in the underwriting department as the Company sought to add permanent staff due to increased loan volume.

Net equipment expense increased as a result of additional hardware/software maintenance contracts put in place for new business strategies being implemented and data processing expense was higher due to upgraded cybersecurity systems and an improved remote work environment.

Employee compensation and benefits increased compared to the prior year period due to the Company's transition to a new payroll and benefits administrator during the first quarter of the current fiscal year, and new permanent staff hired to replace temporary consultants.

Data processing expense was higher due to upgraded cybersecurity systems and the implementation of service contracts for new consumer loan and deposit products.

Other non-interest expense increased due to higher legal costs associated with an activist shareholder and audit fees related to the CECL implementation.

In addition, operating charge-offs were higher compared to the prior year period due to a higher number of check fraud incidents.

The Company did not have any federal, state and local income tax expense as of March 31, 2024 and 2023.

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

Net borrowings increased $35.1 million during fiscal year 2023 as the Bank secured a $25.0 million 2-year advance from the FHLB-NY during the fourth quarter of fiscal year 2023.

In addition, the Bank secured a $10.0 million overnight advance from the FHLB-NY on March 31, 2023.

At March 31, 2023, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $6.3 million on a secured basis, utilizing mortgage-related loans and securities as collateral.

Net borrowings decreased $4.6 million during fiscal year 2024 as the Bank repaid a $10.0 million overnight advance secured from the FHLB-NY on March 31, 2023 and secured a $3.0 million 18-month advance from the new FHLB-NY 0% Development Advance (ZDA) Program during the second quarter of the current fiscal year.

At March 31, 2024, based on available collateral held at the FHLB-NY, Carver Federal had the

ability to borrow an additional $7.8 million on a secured basis, utilizing mortgage-related loans and securities as collateral.

At March 31, 2024, the Bank had $28.0 million outstanding advances from the FHLB-NY.

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

The Bank repaid its remaining $3 thousand outstanding advance under its PPP liquidity facility ("PPPLF") at the Federal Reserve during the first quarter of fiscal year

The Company also had $13.4 million in long-term subordinated debt securities and $5.0 million in low interest loans outstanding as of March 31, 2024.

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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.

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

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

During fiscal year 2023, total cash and cash equivalents decreased $18.4 million to $42.6 million reflecting $10.5 million and $15.3 million cash used in operating and investing activities, respectively, partially offset by cash provided by financing activities of $7.3 million.

Net cash used in operating activities totaled $10.5 million, which was primarily due to a $8.4 million decrease in other liabilities related to an outstanding teller check from the prior fiscal year that cleared during the first quarter of the current fiscal year.

Net cash used in investing activities of $15.3 million was attributable to loan originations and purchases, net of principal repayments and payoffs, and the purchase of a $5.0 million bank-owned life insurance policy during the first quarter, partially offset by investment paydowns.

Net cash provided by financing activities of $7.3 million resulted from an increase of $35.0 million in FHLB-NY advances and other borrowings, partially offset by a net decrease in deposits of $27.7 million.

During fiscal year 2024, total cash and cash equivalents increased $16.4 million to $59.0 million reflecting cash provided by financing activities of $43.1 million, partially offset by cash used in investing activities of $20.1 million and cash used in operating activities of $6.6 million.

Net cash used in operating activities totaled $6.6 million.

Net cash used in investing activities of $20.1 million was attributable to loan purchases, partially offset by loan repayments and payoffs, net of originations and investment paydowns.

Net cash provided by financing activities of $43.1 million resulted from a $46.6 million increase in net deposits, partially offset by a $4.6 million decrease in net borrowings.

The Bank repaid a $10.0 million FHLB-NY overnight advance secured on March 31, 2023 and secured a $3.0 million 18-month advance from the new FHLB-NY 0% Development Advance (ZDA) Program during the second quarter of the current fiscal year.

The Company also borrowed $2.5 million through a long-term unsecured below-market rate term loan from a third party to finance eligible loans offered through the Bank's community investment initiatives and loan programs.

In addition, the Company issued common shares in a private placement transaction during the second quarter for gross proceeds of $1.0 million.

Potential Mortgage Representation and Warranty Liabilities

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The Bank has not received a request to repurchase any of these loans since the second quarter of fiscal 2015, and there have not been any additional requests from FNMA for loans to be reviewed.

At March 31, 2023 the Bank continues to service 79 loans with a principal balance of $12.4 million for FNMA that were sold with standard representations and warranties.

At March 31, 2024 the Bank continues to service 76 loans with a principal balance of $11.4 million for FNMA that had been sold with standard representations and warranties.

Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable.

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At March 31, 2024, the Bank had $4.9 million in outstanding commitments to extend credit and standby letters of credit.

See Note 15 of Notes to Consolidated Financial Statements for the Bank's outstanding lending commitments and contractual obligations at March 31, 2023.

Such financial instruments are recorded in the consolidated statements of condition when they are funded.

See Note 15 of Notes to Consolidated Financial Statements for the Bank's outstanding lending commitments at March 31, 2024.

The Bank has contractual obligations at March 31, 2024 as follows:

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Impact of Inflation and Changing Prices

The financial statements and accompanying notes appearing elsewhere herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without

considering the changes in the relative purchasing power of money over time due to inflation.

The impact of inflation is reflected in the increased cost of Carver Federal's operations.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis