CARVER BANCORP INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Carver Bancorp, Inc. New York, NY Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated statements of financial condition of Carver Bancorp, Inc. (the “Company”) as of March 31, 2024 and 2023, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for each of the two years in the period ended March 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2024, in conformity with accounting principles generally accepted in the United States of America. Change in Accounting Principle As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of April 1, 2023, due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for Credit Losses As described in Notes 2 and 4 to the Company’s consolidated financial statements, the Company had a gross loan portfolio of $622.9 million and related allowance for credit losses (“allowance”) of $5.9 million as of March 31, 2024. The allowance includes a reserve on the pooled loans of $5.8 million and a reserve on the individually analyzed loans of $0.008 million. The allowance consists of quantitative and qualitative components. The Company considers historical loss experience, forecasted business conditions, as well as reasonable and supportable forecasts to develop the quantitative component. The quantitative 52 component is then adjusted for qualitative risk factors. The economic forecast uncertainty qualitative factor involves significant assumptions that require a high degree of management’s judgment. We identified the economic forecast uncertainty qualitative factor used by management to determine the allowance for credit losses as a critical audit matter. The inherent uncertainty in estimating forecasts requires management to make significant judgements and assumptions with respect to the economic forecast uncertainty qualitative factor. Auditing such assumptions required a high degree of auditor judgment and an increased auditor effort. The primary procedures we performed to address this critical audit matter included: • Testing the appropriateness of the data used by management in determining the economic forecast uncertainty qualitative factor by agreeing it back to third-party source data. • Evaluating the reasonableness of the economic forecast uncertainty factor used by management by independently evaluating the market information and historical trends. /s/ BDO USA, P.C. We have served as the Company's auditor since 2016. New York, NY July 16, 2024 53 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION $ in thousands except per share data March 31, 2024 March 31, 2023 ASSETS Cash and cash equivalents: Cash and due from banks $ 58,522 $ 42,298 Money market investments 503 254 Total cash and cash equivalents 59,025 42,552 Investment securities: Available-for-sale, at fair value 48,030 53,843 Held-to-maturity, at amortized cost (fair value of $ 1,905 and $ 2,221 , respectively) 2,008 2,318 Total investment securities 50,038 56,161 Loans receivable: Real estate mortgage loans 437,577 423,349 Commercial business loans 169,602 166,908 Consumer loans 15,699 7,639 Loans, net of deferred fees and costs 622,878 597,896 Allowance for credit losses ( 5,871 ) ( 5,229 ) Total loans receivable, net 617,007 592,667 Premises and equipment, net 2,567 3,174 Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost 2,004 2,266 Accrued interest receivable 3,662 1,911 Right-of-use assets 9,844 12,311 Other assets 12,649 12,182 Total assets $ 756,796 $ 723,224 LIABILITIES AND EQUITY LIABILITIES Deposits: Non-interest bearing checking $ 102,013 $ 109,401 Interest-bearing deposits Interest-bearing checking 46,358 49,473 Savings 113,187 109,210 Money market 159,105 150,348 Certificates of deposit 223,719 178,694 Escrow 2,617 3,303 Total interest-bearing deposits 544,986 491,028 Total deposits 646,999 600,429 Advances from the FHLB-NY and other borrowed money 46,536 51,090 Operating lease liability 10,616 13,173 Other liabilities 10,336 13,308 Total liabilities 714,487 678,000 Commitments and contingencies (Note 15) — — EQUITY Preferred stock (par value $ 0.01 per share: 9,557 and 13,201 Series D shares, with a liquidation preference of $ 1,000 per share, issued and outstanding, respectively) 9,557 13,201 Preferred stock (par value $ 0.01 per share: 3,177 Series E shares, with a liquidation preference of $ 1,000 per share, issued and outstanding, respectively) 3,177 3,177 Preferred stock (par value $ 0.01 per share: 9,000 Series F shares, with a liquidation preference of $ 1,000 per share, issued and outstanding, respectively) 9,000 9,000 Common stock (par value $ 0.01 per share: 10,000,000 shares authorized; 7,644,675 and 6,799,410 issued; 5,140,872 and 4,295,607 shares outstanding, respectively) 77 68 Additional paid-in capital 87,660 82,805 Accumulated deficit ( 51,549 ) ( 47,904 ) Treasury stock, at cost ( 2,503,803 shares, respectively) ( 2,908 ) ( 2,908 ) Accumulated other comprehensive loss ( 12,705 ) ( 12,215 ) Total equity 42,309 45,224 Total liabilities and equity $ 756,796 $ 723,224 See accompanying notes to consolidated financial statements 54 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended March 31, $ in thousands except per share data 2024 2023 Interest income: Loans $ 29,651 $ 25,073 Mortgage-backed securities 583 619 Investment securities 1,131 929 Money market investments 2,654 1,079 Total interest income 34,019 27,700 Interest expense: Deposits 9,079 3,708 Advances and other borrowed money 2,379 1,203 Total interest expense 11,458 4,911 Net interest income 22,561 22,789 Provision for credit losses 83 100 Net interest income after provision for credit losses 22,478 22,689 Non-interest income: Depository fees and charges 2,208 2,197 Loan fees and service charges 493 480 Gain on sale of loans, net 30 107 Grant income 3,050 439 Other 942 372 Total non-interest income 6,723 3,595 Non-interest expense: Employee compensation and benefits 13,548 13,186 Net occupancy expense 4,545 4,604 Equipment, net 2,047 2,240 Data processing 2,972 2,562 Consulting fees 481 505 Federal deposit insurance premiums 596 389 Other 7,989 7,199 Total non-interest expense 32,178 30,685 Loss before income tax expense ( 2,977 ) ( 4,401 ) Income tax expense — — Net loss $ ( 2,977 ) $ ( 4,401 ) Loss per common share: Basic $ ( 0.61 ) $ ( 1.03 ) Diluted $ ( 0.61 ) $ ( 1.03 ) See accompanying notes to consolidated financial statements 55 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years Ended March 31, $ in thousands 2024 2023 Net loss $ ( 2,977 ) $ ( 4,401 ) Other comprehensive loss, net of tax: Change in unrealized loss of securities available-for-sale, net of income tax expense of $ 0 (due to full valuation allowance) ( 490 ) ( 5,553 ) Total other comprehensive loss, net of tax ( 490 ) ( 5,553 ) Total comprehensive loss, net of tax $ ( 3,467 ) $ ( 9,954 ) See accompanying notes to consolidated financial statements 56 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY $ in thousands Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Loss Total Equity Balance—March 31, 2022 25,928 67 82,165 ( 43,503 ) ( 2,908 ) ( 6,662 ) 55,087 Net loss — — — ( 4,401 ) — — ( 4,401 ) Other comprehensive loss, net of tax — — — — — ( 5,553 ) ( 5,553 ) Conversion of Series D preferred stock to common stock ( 550 ) 1 549 — — — — Stock based compensation expense — 91 — 91 Balance—March 31, 2023 25,378 68 82,805 ( 47,904 ) ( 2,908 ) ( 12,215 ) 45,224 Cumulative effect adjustment for adoption of ASU 2016-13 — — — ( 668 ) — — ( 668 ) Net loss — — — ( 2,977 ) — — ( 2,977 ) Other comprehensive loss, net of tax — — — — — ( 490 ) ( 490 ) Conversion of Series D preferred stock to common stock ( 3,644 ) 5 3,639 — — — — Issuance of common stock — 4 996 — — — 1,000 Stock based compensation expense — — 220 — — — 220 Balance—March 31, 2024 $ 21,734 $ 77 $ 87,660 $ ( 51,549 ) $ ( 2,908 ) $ ( 12,705 ) $ 42,309 See accompanying notes to consolidated financial statements 57 CARVER BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, $ in thousands 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 2,977 ) $ ( 4,401 ) Adjustments to reconcile net loss to net cash used in operating activities: Provision for credit losses 83 100 Stock based compensation expense 220 91 Depreciation and amortization expense 965 1,058 Gain on sale of loans, net ( 30 ) ( 107 ) Amortization and accretion of loan premiums and discounts and deferred charges 216 ( 202 ) Amortization and accretion of premiums and discounts - securities 298 397 (Increase) decrease in accrued interest receivable ( 1,751 ) 503 (Increase) decrease in other assets ( 541 ) 480 Decrease in other liabilities ( 3,054 ) ( 8,432 ) Net cash used in operating activities ( 6,571 ) ( 10,513 ) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from principal payments, maturities and calls of investments: Available-for-sale 5,032 7,812 Proceeds from principal payments, maturities and calls of investments: Held-to-maturity 304 2,927 Purchase of bank-owned life insurance — ( 5,000 ) Loans held-for-investment, net of (originations) and repayments/payoffs and maturities 6,275 ( 9,934 ) Purchase of equity investment ( 603 ) — Loans purchased from third parties ( 31,526 ) ( 14,289 ) Proceeds from participation loans sold — 4,000 Proceeds from sale of loans 563 1,129 Redemption (purchase) of FHLB-NY stock 262 ( 1,682 ) Purchase of premises and equipment ( 360 ) ( 225 ) Net cash used in investing activities ( 20,053 ) ( 15,262 ) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 46,570 ( 27,688 ) Proceeds from short-term borrowings — 10,000 Repayment of short-term borrowings ( 10,000 ) — Proceeds from long-term borrowings 5,527 25,000 Repayment of long-term borrowings — ( 3 ) Issuance of common stock 1,000 — Net cash provided by financing activities 43,097 7,309 Net increase (decrease) in cash and cash equivalents 16,473 ( 18,466 ) Cash and cash equivalents at beginning of period 42,552 61,018 Cash and cash equivalents at end of period $ 59,025 $ 42,552 Supplemental cash flow information: Noncash financing and investing activities Recognition of right-of-use asset $ — $ 1,103 Recognition of operating lease liability — 1,103 Recognition of finance lease asset — 183 Recognition of finance lease liability — 183 Conversion of preferred stock to common stock 3,644 550 Cash paid for: Interest $ 10,711 $ 4,621 Income taxes 232 193 See accompanying notes to consolidated financial statements 58 CARVER BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION Nature of operations Carver Bancorp, Inc. (on a stand-alone basis, the “Company” or “Registrant”), was incorporated in May 1996 and its principal wholly-owned subsidiaries are Carver Federal Savings Bank (the “Bank” or “Carver Federal”) and Alhambra Holding Corp., an inactive Delaware corporation. Carver Federal's wholly-owned subsidiaries are CFSB Realty Corp., Carver Community Development Corporation (“CCDC”) and CFSB Credit Corp., which is currently inactive. The Bank has a real estate investment trust, Carver Asset Corporation ("CAC"), that was formed in February 2004. “Carver,” the “Company,” “we,” “us” or “our” refers to the Company along with its consolidated subsidiaries. The Bank was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally-chartered mutual savings and loan association. The Bank converted to a federal savings bank in 1986. On October 24, 1994, the Bank converted from a mutual holding company structure to stock form and issued 2,314,375 shares of its common stock, par value $ 0.01 per share. On October 17, 1996, the Bank completed its reorganization into a holding company structure (the “Reorganization”) and became a wholly-owned subsidiary of the Company. Carver Federal’s principal business consists of attracting deposit accounts through its branches and investing those funds in mortgage loans and other investments permitted by federal savings banks. The Bank has seven branches located throughout the City of New York that primarily serve the communities in which they operate. In September 2003, the Company formed Carver Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Company. In accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation,” Carver Statutory Trust I is unconsolidated for financial reporting purposes. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $ 1,000 per share, of floating rate capital securities. Gross proceeds from the sale of these trust preferred debt securities of $ 13.0 million, and proceeds from the sale of the trust's common securities of $ 0.4 million, were used to purchase approximately $ 13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033. The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05 % over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures had been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment was made on June 16, 2021. The Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments. On December 16, 2021, the Company paid the deferred interest that was due on September 17, 2021 and the regular quarterly interest payment due on December 17, 2021. All quarterly interest payments subsequent to the June 2021 payment up to and including the June 2024 payment have been made. The interest rate was 8.64 % and the accrued interest was $ 45 thousand at March 31, 2024. 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. 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 that, among other reasons, would result in Carver Federal’s failure to meet the OCC minimum capital requirements. 59 Regulation On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions. As a result of the Agreement, the Bank was required to obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers, paying dividends and entering into any "golden parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12 C.F.R. Part 359. As a result of the Agreement, Carver was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9 % for its Tier 1 leverage ratio and 12 % for its total risk-based capital ratio. The Agreement was terminated on January 18, 2023. The IMCR remains in effect. The Company continues to be subject to similar requirements that the Bank was subject to under the Agreement. The Company must provide notice to the FRB prior to effecting any change in its directors or senior executive officers. The Company is also subject to restrictions on golden parachute and indemnification payments, as set forth in 12 C.F.R. Part 359. Written approval of the Federal Reserve Bank is required prior to (1) the declaration or payment of dividends by the Company to its stockholders, (2) the declaration or payment of dividends by the Bank to the Company, (3) any distributions of interest or principal by the Company on subordinated debentures or trust preferred securities, (4) any purchases or redemptions of the Company's stock and (5) the Company incurring, increasing or guaranteeing certain long-term debt outside the ordinary course of business. These limitations could affect our operations and financial performance. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of consolidated financial statement presentation The consolidated financial statements include the accounts of the Company, the Bank and the Bank's wholly-owned or majority-owned subsidiaries, Carver Asset Corporation, CFSB Realty Corp., CCDC, and CFSB Credit Corp., which is currently inactive. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's subsidiary, Carver Statutory Trust I, is not consolidated with Carver Bancorp, Inc. for financial reporting purposes. Carver Statutory Trust I was formed in 2003 for the purpose of issuing $ 13.0 million aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and $ 0.4 million of common securities (which are the only voting securities of Carver Statutory Trust I), which are 100% owned by Carver Bancorp, Inc., and using the proceeds to acquire Junior Subordinated Debentures issued by Carver Bancorp, Inc. Carver Bancorp, Inc. has fully and unconditionally guaranteed the Capital Securities along with all obligations of Carver Statutory Trust I under the trust agreement relating to the Capital Securities. The Company does not consolidate the accounts and related activity of Carver Statutory Trust I because it is not the primary beneficiary of the entity. Variable interest entities (“VIEs”) are consolidated, as required, when Carver has a controlling financial interest in these entities and is deemed to be the primary beneficiary. Carver is normally deemed to have a controlling financial interest and be the primary beneficiary if it has both (a) the power to direct activities of a VIE that most significantly impact the entity's economic performance; and (b) the obligation to absorb losses of the entity that could benefit from the activities that could potentially be significant to the VIE. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the period then ended. Amounts subject to significant estimates and assumptions are items such as the allowance for credit losses, realization of deferred tax assets, and the fair value of financial instruments. While management uses available information to recognize losses on loans, future additions to the allowance for credit loss or future writedowns of real estate owned may be necessary based on changes in economic conditions in the areas where Carver Federal has extended mortgages and other credit instruments. Actual results could differ significantly from those assumptions. Current market conditions increase the risk and complexity of the judgments in these estimates. Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders' equity. Recent Events 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 60 rate of inflation. 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 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. The impact of market volatility from the adverse developments in the banking industry along with continued high inflation and rising interest rates, will depend on future developments, which are highly uncertain and difficult to predict. 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 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. Cash and cash equivalents For the purpose of reporting cash flows, cash and cash equivalents include cash, amounts due from depository institutions and other short-term instruments with an original maturity of three months or less. The amounts due from depository institutions include an interest-bearing account held at the Federal Reserve Bank where any additional cash reserve required on demand deposits would be maintained. Currently, this reserve requirement is zero since the Bank's vault cash satisfies cash reserve requirements for deposits. Investment Securities When purchased, debt securities are designated as either investment securities held-to-maturity, available-for-sale or trading. Securities are classified as held-to-maturity and carried at amortized cost only if the Bank has a positive intent and ability to hold such securities to maturity. Securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. 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. government. As such, no allowance for credit losses was recorded on securities held-to-maturity as of March 31, 2024. Securities are classified as available-for-sale based upon management's ability to sell in response to actual or anticipated changes in interest rates, resulting prepayment risk or any other factors. Available-for-sale securities are reported at fair value. Estimated fair values of securities are based on either published or security dealers' market value if available. If quoted or dealer prices are not available, fair value is estimated using quoted or dealer prices for similar securities. The Bank conducts periodic reviews to identify and evaluate each investment that has an unrealized holding loss. Unrealized holding gains or losses for securities available-for-sale are excluded from earnings and reported net of deferred income taxes in accumulated other comprehensive loss, a component of Stockholders' Equity. For available-for-sale 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 allowance for credit loss ("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. Losses related to non-credit related factors will be recorded in other comprehensive income. Changes in the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management believes the uncollectibility of an available-for-sale security is confirmed, or when either of the criteria regarding intent or requirement to sell is met. Gains or losses on sales of securities of all classifications are recognized based on the specific identification method. 61 For periods prior to the Company's April 1, 2023 adoption of ASC 326, management conducted periodic reviews on at least a quarterly basis to evaluate securities for other-than-temporary impairment ("OTTI"). The amount of OTTI when there were credit and non-credit losses on a debt security that the Bank did not intend to sell, and was more likely than not would not be required to sell prior to the recovery of the non-credit impairment, the portion of the total impairment that was attributable to the credit loss was 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). There were no OTTI charges recorded during the fiscal year ended March 31, 2023. Securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value with unrealized gains and losses included in earnings. Loans Held-for-Sale Loans are only transferred to held-for-sale classification upon the determination by Carver to sell a loan. Held-for-sale loans are carried at the lower of cost or fair value. If a loan is transferred to held-for sale, any previously recorded allowance for credit loss is reversed into earnings and a valuation allowance would be recognized. Subsequent changes in fair value are recognized in earnings as a valuation allowance. The valuation methodology for loans held-for-sale varies based upon the circumstances. Held-for-sale values may be based upon accepted offer amounts, appraised value of underlying mortgaged premises, prior loan loss experience of Carver in connection with recent loan sales for the loan type in question, and/or other acceptable valuation methods. Loans Receivable Loans receivable are carried at unpaid principal balances plus unamortized premiums, certain deferred direct loan origination costs and deferred loan origination fees and discounts, less the allowance for credit losses and charge-offs. The Bank defers loan origination fees and certain direct loan origination costs and amortizes or accretes such amounts as an adjustment of yield over the contractual lives of the related loans using methodologies which approximate the interest method. Premiums and discounts on loans purchased are amortized or accreted as an adjustment of yield over the contractual lives of the related loans, adjusted for prepayments when applicable, using methodologies which approximate the interest method. Loans are placed on nonaccrual status when they are past due 90 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When a loan is placed on nonaccrual status, any accrued but uncollected interest is reversed from current interest income. Payments received on a nonaccrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending on an assessment of the ability to collect the loan. A nonaccrual loan may be restored to accrual status when principal and interest payments have been brought current and the loan has performed in accordance with its contractual terms for a reasonable period (generally six months). Allowance for Credit Losses ("ACL") For periods prior to the Company's April 1, 2023 adoption of ASC 326, the Bank utilized an impairment model based on incurred losses in estimating the allowance for loan and lease losses ("ALLL"). Under this approach, the Bank maintained a general reserve allowance for homogeneous pools of loans based upon historical loss factors and applied a risk factor to each pool that determined the level of general reserves for that specific pool and the Bank's loss emergence period ("LEP") assumptions, which represented 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. Because actual loss experience may not adequately predict the level of losses inherent in a portfolio, the Bank reviewed qualitative factors to determine if reserves should be adjusted based upon any of those factors. Carver also maintained a specific reserve allowance for criticized and classified loans individually reviewed for impairment. The amount assigned to the specific reserve allowance was individually determined based upon (1) the present value of expected future cash flows discounted at the loan's effective interest rate, (2) the loan's observable market price, or (3) the fair value of the collateral if the loan was collateral dependent. The ALLL was replaced by the ACL upon adoption of the current expected credit loss model ("CECL") under ASC 326. 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. 62 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 and a reversion to historical after the reasonable and supportable period. Expected credit losses were estimated using a regression model based on historical data from the Company and peer institutions. Adjustments to modeled loss estimates may be made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term, as well as for changes in environmental conditions, such as changes in economic conditions, property values or other relevant factors. 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 (including prepayments and defaults). The expected cash flows are discounted at the effective interest rate and the entire change in present value is reported as a provision for credit loss (or reversal of credit loss). On a quarterly basis, management considers probability of default utilizing economic forecasts including civilian unemployment rates and CPI index, and loss given default assumptions using Frye-Jacobs estimations. The Company has elected to exclude accrued interest from the amortized cost basis in determining credit losses. Accrued interest receivable on loans is included in a separate line item on the Consolidated Statements of Financial Condition. Accrual of interest on loans is discontinued when the payment of principal or interest is considered to be in doubt, or when a loan becomes contractually past due by 90 days or more with respect to principal or interest, except for loans that are well-secured and in the process of collection. When a loan is placed on nonaccrual status, any accrued but uncollected interest is reversed from current income. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. 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 following discussion describes the general risks associated with the Bank's loan portfolio segments: • 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 63 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 on a quarterly basis 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. Representation and Warranty Reserve During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”). The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities (GSEs). The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral. 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. These reserves are reported in the consolidated statement of financial condition as a component of other liabilities. The calculation of the reserve is based on estimates, which are uncertain, and require the application of judgment. In establishing the reserves, we consider a variety of factors, including those loans that are under review by FNMA that have not yet received a repurchase request. The Bank tracks the FNMA claims monthly and evaluates the reserve on a quarterly basis. Segment Reporting The Company has determined that all of its activities constitute one reportable operating segment. Concentration of Risk The Bank's principal lending activities are concentrated in loans secured by real estate, a substantial portion of which are located in New York City. Accordingly, the ultimate collectability of a substantial portion of the Company's loan portfolio is susceptible to changes in New York's real estate market conditions. Qualitative factors in the ACL calculation considers the Bank's concentration risk. Premises and Equipment Premises and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost less accumulated depreciation and amortization. Depreciation and amortization charges are included in Non-Interest Expense in the consolidated statements of operations and are computed using the straight-line method over the following estimated useful lives: 64 Buildings and improvements 10 to 25 years Furnishings and equipment 3 to 5 years Leasehold improvements Lesser of useful life or remaining term of lease Maintenance, repairs and minor improvements are charged to non-interest expense in the period incurred. Leases Leases are classified as operating or finance leases at the lease commencement date. The Company includes lease renewal options in the lease term if it is reasonably certain the option will be exercised. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of the lease payments over the lease term. The Company uses its incremental borrowing rate, which is the rate for a fully collateralized and fully amortizing loan with a maturity date that is similar to the lease term, at lease commencement to calculate the present value of lease payments when the implicit rate in a lease is not readily determinable. Federal Home Loan Bank Stock The FHLB-NY has assigned to the Bank a mandated membership stock purchase, based on the Bank's asset size. In addition, for all borrowing activity, the Bank is required to purchase shares of FHLB-NY non-marketable capital stock at par. Such shares are redeemed by FHLB-NY at par with reductions in the Bank's borrowing levels. FHLB stock does not have a readily determinable fair value and we do not consider these shares to be impaired at March 31, 2024 and 2023. The Bank carries this investment at historical cost. Mortgage Servicing Rights All separately recognized servicing assets totaled $ 140 thousand and $ 152 thousand, respectively, at March 31, 2024 and 2023, and are included in Other Assets in the consolidated statements of financial condition and measured at fair value. Changes in fair value are included in Non-Interest Income in the consolidated statements of operations. Servicing fee income of $ 44 thousand and $ 41 thousand, respectively, was recognized during the years ended March 31, 2024 and 2023, and is included in Non-Interest Income in the consolidated statements of operations. Other Real Estate Owned Real estate acquired by foreclosure or deed-in-lieu of foreclosure is recorded at fair value, less estimated selling costs, at the date of acquisition. Any subsequent adjustments will be to the lower of cost or fair value and included in Non-Interest Expense in the consolidated statements of operations. The fair value of such assets is determined based primarily upon independent appraisals and other relevant factors. The amounts ultimately recoverable from real estate owned could differ from the net carrying value of these properties because of economic conditions. Costs incurred to improve properties or prepare them for sale are capitalized. Revenues and expenses related to the holding and operating of properties are recognized in operations as earned or incurred. Gains or losses on sale of properties are recognized as incurred and are included in Non-Interest Expense in the consolidated statements of operations. As of March 31, 2024, the Bank held $ 52 thousand in a foreclosed residential real estate property as a result of obtaining physical possession. In addition, as of March 31, 2024 and 2023, we had residential loans with a carrying value of $ 2.7 million and $ 3.1 million, respectively, collateralized by residential real estate property for which formal foreclosure proceedings were in process. Income Taxes The Company records income taxes using the asset and liability method. Income tax expense (benefit) consists of income taxes currently payable (receivable) and deferred income taxes. Temporary differences between the basis of assets and liabilities for financial reporting and tax purposes are measured as of the balance sheet date. Deferred tax liabilities or recognizable deferred tax assets are calculated on such differences, using current statutory rates, which result in future taxable or deductible amounts. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Where applicable, deferred tax assets are reduced by a valuation allowance for any portion determined more likely than not to be realized. This valuation allowance would subsequently be adjusted by a charge or credit to income tax expense as changes in facts and circumstances warrant. A tax position is recognized as a benefit only if it is "more likely 65 than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Any interest expense or penalties would be recorded as interest expense. Earnings (Loss) per Common Share The Company has preferred stock which are entitled to receive dividends if declared on the Company's common stock and are therefore considered to be participating securities. Basic earnings (loss) per share (“EPS”) is computed using the two class method. This calculation divides net income (loss) available to common stockholders after the allocation of undistributed earnings to the participating securities by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These potentially dilutive shares are then included in the weighted average number of shares outstanding for the period. Dilution calculations are not applicable to net loss periods. Preferred and Common Dividends The Company is prohibited from paying any dividends without prior regulatory approval pursuant to the terms of the Formal Agreement and Resolution to which it is subject, and is generally subject to regulations governing the payment of dividends. There are no assurances that the payments of common stock dividends will resume. Treasury Stock Treasury stock is recorded at cost and is presented as a reduction of stockholders' equity. Stock Compensation Plans The Company currently has multiple stock plans in place for employees and directors of the Company. The compensation cost related to share-based payment transactions is included in Employee Compensation and Benefits in the consolidated statements of operations. Compensation cost for all stock awards is calculated and recognized over a defined vesting period. Forfeitures are accounted for as they occur. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite vesting period for the entire award. The Black-Scholes model is used to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for restricted stock awards. Reserve for Off-Balance Sheet Credit Exposure In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the consolidated statements of condition when they are funded. The Company estimates a reserve for expected credit losses on loan commitments over the contractual period in which it is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The Bank does not record any reserve for unconditionally cancellable unfunded lending commitment since the exposure may be canceled to prevent future credit loss. Reserves for unfunded lending commitments that are not unconditionally cancellable are included in Other Liabilities in the consolidated statements of financial condition and Non-Interest Expense in the consolidated statements of operations. Management will consider the likelihood that funding will occur and use the discount rate based on the associated pooled loan analysis loss rate to calculate the estimated expected credit losses. The Company recorded a provision for credit loss for off-balance sheet credit exposures of $ 1 thousand for the fiscal year ended March 31, 2024, The ACL on off-balance sheet credit exposures was $ 9 thousand as of March 31, 2024. Grant Income Designated as a Community Development Financial Institution ("CDFI") by the U.S. Department of the Treasury, the Bank is eligible for, and on occasion receives, assistance from the government and other financial institutions in the form of grants. The Company earns these grants through compliance with their conditions and by meeting the stated obligations. The Company therefore recognizes the grant income over the periods that bear the cost of meeting the obligations. 66 Advertising Costs The Company follows the policy of charging the costs of advertising to expense as incurred. Transfers of Financial Assets Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. If the criteria for sales accounting is not met, the Company will continue to recognize the financial asset and recognize an associated secured borrowing. Recent Accounting Standards Accounting Standards Recently Adopted On April 1, 2023, the Company adopted ASC 326, which replaces the guidance on recognition and measurement of credit losses for financial assets. The new 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. Under the CECL model, the allowance for credit losses ("ACL") is a valuation allowance tat is deducted from the amortized cost basis of certain financial assets, including loans, held-to-maturity securities, and other receivables, to present the net carrying value at the amount expected to be collected. 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. This differs from the incurred loss model, which delays recognition of credit losses until it is probable a loss has been incurred. The Company applied the new guidance with a cumulative-effect adjustment to retained earnings as of April 1, 2023, using the modified-retrospective approach. Results for reporting periods beginning after April 1, 2023 are presented under CECL. Prior period amounts have not been restated and are reported in accordance with the incurred loss method. The adoption of ASC 326 resulted in an increase of $0.7 million to the allowance for credit losses related to loans and to the opening balance of accumulated deficit for the year ended March 31, 2024. There was no material impact for other assets within the scope of the new CECL guidance, such as held-to-maturity debt securities and other receivables. On April 1, 2023, the Company adopted ASU No. 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures," which eliminates the accounting guidance for TDRs, and replaced it with guidance and disclosure requirements for certain loan refinancing and restructuring activities to borrowers experiencing financial difficulty. The amendments also require disclosure of current period gross writeoffs by year of origination. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations. On April 1, 2023, the Company adopted ASU No. 2021-10 "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance," which was issued to improve the financial reporting of government assistance received by business entities by requiring the disclosure of (1) the types of assistance received, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations. Accounting Standards Not Yet Adopted In December 2023, the FASB issued ASU No. 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" to enhance income tax disclosures to help investors better assess how a company's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The amendments in this update will require further disaggregated information about a reporting entity's effective tax rate reconciliation and information on income taxes paid. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024 (for the Company, the fiscal year ending March 31, 2026), and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied on a prospective basis with an option for retrospective application. ASU 2023-09 is not expected to have a material impact on the Company's financial statements. In November 2023, the FASB issued ASU No. 2023-07 "Segment Report (Topic 280): Improvements to Reportable Segment Disclosures" to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023 (for the 67 Company, the fiscal year ending March 31, 2025), and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments in this update should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company does not expect the adoption of this ASU to have a material impact on the Company's financial statements. In March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. In December 2022, the FASB issued ASU No. 2022-06 "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply for relief in Topic 848. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2024 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The amended guidance under Topic 848 and our ability to elect its optional expedients and exceptions are effective for us through December 31, 2024. The Company has adopted the LIBOR transition relief allowed under this standard. NOTE 3. INVESTMENT SECURITIES Generally, the investment policy of the Bank is to invest funds among categories of investments and maturities based upon the Bank’s asset/liability management policies, investment quality, loan and deposit volume and collateral requirements, liquidity needs and performance objectives. Debt securities are classified into three categories: trading, held-to-maturity, and available-for-sale. At March 31, 2024, securities with fair value of $ 48.0 million, or 96.0 %, of the Bank’s total securities were classified as available-for-sale, and the remaining securities with amortized cost of $ 2.0 million, or 4.0 %, were classified as held-to-maturity, compared to $ 53.8 million and $ 2.3 million at March 31, 2023, respectively. The Bank had no securities classified as trading at March 31, 2024 and March 31, 2023. Other investments as of March 31, 2024 primarily consists of the Company and Bank's investments in limited partnership Community Capital Funds and a $ 5.3 million bank-owned life insurance policy ("BOLI") that was purchased during the first quarter of fiscal year 2023 as a channel to add to the Company's non-interest income revenue by means of an investment considered safe and sound by the Company's regulators. The investments in the limited partnerships are measured using the equity method. The BOLI is carried at the cash surrender value of the underlying policies. Income generated from the investments and the increase in the cash surrender value of the BOLI is included in other non-interest income on the Statements of Operations. Other investments totaled $ 6.9 million at March 31, 2024 and are included in Other Assets on the Statements of Financial Condition. 68 The following tables set forth the amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2024 and March 31, 2023: At March 31, 2024 Amortized Gross Unrealized $ in thousands Cost Gains Losses Fair Value Available-for-Sale: Mortgage-backed securities: Government National Mortgage Association $ 280 $ 4 $ ( 1 ) $ 283 Federal Home Loan Mortgage Corporation 20,299 — ( 4,501 ) 15,798 Federal National Mortgage Association 10,975 — ( 2,339 ) 8,636 Total mortgage-backed securities 31,554 4 ( 6,841 ) 24,717 U.S. Government Agency Securities 6,219 — ( 25 ) 6,194 Corporate Bonds 5,266 — ( 2,203 ) 3,063 Muni Securities 17,696 — ( 3,640 ) 14,056 Total available-for-sale $ 60,735 $ 4 $ ( 12,709 ) $ 48,030 Held-to-Maturity: Mortgage-backed securities: Government National Mortgage Association $ 292 $ — $ ( 9 ) $ 283 Federal National Mortgage Association 1,716 — ( 94 ) 1,622 Total held-to-maturity $ 2,008 $ — $ ( 103 ) $ 1,905 At March 31, 2023 Amortized Gross Unrealized $ in thousands Cost Gains Losses Fair Value Available-for-Sale: Mortgage-backed securities: Government National Mortgage Association $ 341 $ 1 $ ( 1 ) $ 341 Federal Home Loan Mortgage Corporation 21,651 — ( 4,051 ) 17,600 Federal National Mortgage Association 11,714 — ( 2,212 ) 9,502 Total mortgage-backed securities 33,706 1 ( 6,264 ) 27,443 U.S. Government Agency Securities 9,364 — ( 38 ) 9,326 Corporate Bonds 5,269 — ( 2,177 ) 3,092 Muni Securities 17,719 — ( 3,737 ) 13,982 Total available-for-sale $ 66,058 $ 1 $ ( 12,216 ) $ 53,843 Held-to-Maturity: Mortgage-backed securities: Government National Mortgage Association $ 366 $ — $ ( 3 ) $ 363 Federal National Mortgage Association 1,952 — ( 94 ) 1,858 Total held-to-maturity $ 2,318 $ — $ ( 97 ) $ 2,221 There were no sales of available-for-sale securities and held-to-maturity securities for the year ended March 31, 2024 and March 31, 2023. Carver maintains a portfolio of mortgage-backed securities in the form of Government National Mortgage Association (“GNMA”) pass-through certificates, Federal National Mortgage Association (“FNMA”) mortgage-backed securities and Federal Home Loan Mortgage Corporation (“FHLMC”) 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. Based on the high quality of the Bank's investment portfolio, current market conditions have not significantly impacted the pricing of the portfolio or the Bank's ability to obtain reliable prices. At March 31, 2024, the Bank pledged mortgage-backed securities of $ 0.3 million and $ 2.2 million as collateral for public funds deposits and advances from the FHLB-NY, respectively. 69 The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at March 31, 2024 and March 31, 2023 for less than 12 months and 12 months or longer: At March 31, 2024 Less than 12 months 12 months or longer Total $ in thousands Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Available-for-Sale: Mortgage-backed securities $ — $ — $ ( 6,841 ) $ 24,468 $ ( 6,841 ) $ 24,468 U.S. Government Agency Securities ( 2 ) 1,273 ( 23 ) 4,921 ( 25 ) 6,194 Corporate bonds — — ( 2,203 ) 3,063 ( 2,203 ) 3,063 Muni securities — — ( 3,640 ) 14,056 ( 3,640 ) 14,056 Total available-for-sale securities $ ( 2 ) $ 1,273 $ ( 12,707 ) $ 46,508 $ ( 12,709 ) $ 47,781 Held-to-Maturity: Mortgage-backed securities $ — $ — $ ( 103 ) $ 1,872 $ ( 103 ) $ 1,872 Total held-to-maturity securities $ — $ — $ ( 103 ) $ 1,872 $ ( 103 ) $ 1,872 At March 31, 2023 Less than 12 months 12 months or longer Total $ in thousands Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Available-for-Sale: Mortgage-backed securities $ — $ — $ ( 6,264 ) $ 27,146 $ ( 6,264 ) $ 27,146 U.S. Government Agency Securities ( 13 ) 4,075 ( 25 ) 5,251 ( 38 ) 9,326 Corporate bonds — — ( 2,177 ) 3,092 ( 2,177 ) 3,092 Muni securities — — ( 3,737 ) 13,982 ( 3,737 ) 13,982 Total available-for-sale securities $ ( 13 ) $ 4,075 $ ( 12,203 ) $ 49,471 $ ( 12,216 ) $ 53,546 Held-to-Maturity: Mortgage-backed securities $ ( 3 ) $ 363 $ ( 94 ) $ 1,822 $ ( 97 ) $ 2,185 Total held-to-maturity securities $ ( 3 ) $ 363 $ ( 94 ) $ 1,822 $ ( 97 ) $ 2,185 A total of 24 securities had an unrealized loss at March 31, 2024 and March 31, 2023. Mortgage-backed securities, U.S. government agency securities, municipal securities and a corporate bond security represented 51.2 %, 13.0 %, 29.4 % and 6.4 %, respectively, of total available-for-sale securities in an unrealized loss position at March 31, 2024. There were eight mortgage-backed securities, two U.S. government agency securities, one corporate bond and six municipal securities that had an unrealized loss position for more than 12 months at March 31, 2024. Management has evaluated available-for-sale securities that are in an unrealized loss position and determined that the declines in fair value are attributable to market volatility, and not credit quality or other factors. Given the high credit quality of the mortgage-backed securities which are backed by explicit U.S. government guarantees, or guarantees by government sponsored enterprises that have credit ratings and perceived credit risk comparable to the U.S. government, the high credit quality and strong financial performance of the U.S. government agency and the results of the individual analyses performed for and continuous surveillance on the municipal securities, as well as the corporate security that is a reputable institution in good financial standing, the risk of credit loss is minimal. Management believes that these unrealized losses are a direct result of the current rate environment and the Company has the ability and intent to hold the securities until maturity or the 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. government. As such, no allowance for credit losses on securities available-for-sale or held-to-maturity have been established as of March 31, 2024. The following is a summary of the amortized cost and fair value of debt securities at March 31, 2024, by remaining period to contractual maturity (ignoring earlier call dates, if any). Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their obligations. The table below does not consider the effects of possible prepayments or unscheduled repayments. 70 $ in thousands Amortized Cost Fair Value Weighted Average Yield Available-for-Sale: One through five years 1,850 1,838 6.50 % Five through ten years 4,684 3,961 2.44 % After ten years 22,647 17,514 3.37 % Mortgage-backed securities 31,554 24,717 1.67 % $ 60,735 $ 48,030 2.54 % Held-to-maturity: Mortgage-backed securities $ 2,008 $ 1,905 2.82 % NOTE 4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES The following is a summary of loans receivable, net of allowance for credit losses at March 31: March 31, 2024 March 31, 2023 $ in thousands Amount % Amount % One-to-four family $ 82,787 13.3 % $ 65,808 11.0 % Multifamily 177,203 28.4 % 179,117 30.0 % Commercial real estate 175,384 28.2 % 178,424 29.8 % Construction 2,203 0.4 % — — % Business (1) 169,602 27.2 % 166,908 27.9 % Consumer (2) 15,699 2.5 % 7,639 1.3 % Total loans receivable 622,878 100.0 % 597,896 100.0 % Allowance for credit losses ( 5,871 ) ( 5,229 ) Total loans receivable, net $ 617,007 $ 592,667 ( 1) Includes business overdrafts of $ 73 thousand and $ 11 thousand as of March 31, 2024 and 2023, respectively (2) Includes consumer overdrafts of $ 15 thousand and $ 19 thousand as of March 31, 2024 and 2023, respectively The totals above are shown net of deferred loan fees and costs. Net deferred loan fees totaled $2.9 million and $2.8 million at March 31, 2024 and 2023, respectively. During fiscal year 2024, the Bank purchased $ 31.5 million loans at par, comprised of $ 20.0 million one-to-four family, $0.2 million business and $ 11.3 million consumer loans. The Bank purchased $ 14.3 million loans at par during fiscal year 2023, 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. Substantially all of the Bank's real estate loans receivable are principally secured by properties located in New York City. Accordingly, as with most financial institutions in the market area, the ultimate collectability of a substantial portion of the Company's loan portfolio is susceptible to changes in market conditions in this area. Real estate mortgage loan portfolios (one-to-four family) serviced for Federal National Mortgage Association (“FNMA”) and other third parties are not included in the accompanying consolidated financial statements. The unpaid principal balances of these loans aggregated $ 11.6 million and $ 12.6 million at March 31, 2024 and 2023, respectively. At March 31, 2024 the Bank pledged $ 48.0 million in total real estate mortgage loans as collateral for advances from the FHLB-NY. The Bank participated as a lender in the Paycheck Protection Program ("PPP"), which opened on April 3, 2020. As part of the CARES Act, the Small Business Administration ("SBA") was authorized to temporarily guarantee loans under this new 7(a) loan program. Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. Since the PPP loans are fully guaranteed by the SBA, there are no additional ACL reserves required. As of March 31, 2024, the Bank had approved and funded approximately 420 applications totaling $ 57.1 million of loans under the PPP. Business loans included PPP loans outstanding totaling $268 thousand as of March 31, 2024. The net loan origination fees on these loans totaled approximately $3 thousand and are being recognized into interest income on loans over the 2-year and 5-year stated maturity terms of the PPP loans using the straight-line deferral method. The Bank continues to receive debt forgiveness payments on PPP loans closed during the first and second rounds of the program. As the loans are paid off, the remaining net deferred origination fees are accelerated into income. 71 The following is an analysis of the allowance for credit losses based upon the method of evaluating loan reserves for the fiscal year ended March 31, 2024 under the expected loss methodology: $ in thousands One-to-four family Multifamily Commercial Real Estate Construction Business Consumer Unallocated Total Allowance for credit losses: Beginning Balance $ 716 $ 1,109 $ 1,814 $ — $ 1,139 $ 449 $ 2 $ 5,229 Impact of CECL adoption 1,220 ( 392 ) ( 497 ) 505 ( 166 ) ( 2 ) 668 Charge-offs — — — — ( 10 ) ( 160 ) — ( 170 ) Recoveries — — — — 55 6 — 61 Provision for (Recovery of) Credit Losses 69 3 ( 95 ) 1 ( 274 ) 321 58 83 Ending Balance $ 2,005 $ 720 $ 1,222 $ 1 $ 1,415 $ 450 $ 58 $ 5,871 Allowance for Credit Losses Ending Balance: collectively evaluated for impairment $ 2,005 $ 720 $ 1,222 1 $ 1,408 $ 449 $ 58 $ 5,863 Allowance for Credit Losses Ending Balance: individually evaluated for impairment — — — — 7 1 — 8 Loan Receivables Ending Balance $ 82,787 $ 177,203 $ 175,384 $ 2,203 $ 169,602 $ 15,699 $ — $ 622,878 Ending Balance: collectively evaluated for impairment 78,636 174,718 170,862 2,203 156,340 15,654 — 598,413 Ending Balance: individually evaluated for impairment 4,151 2,485 4,522 — 13,262 45 — 24,465 The following is an analysis of the allowance for loan losses as of the fiscal year ended March 31, 2023 based upon the incurred loss impairment model: $ in thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total Allowance for loan losses: Beginning Balance $ 731 $ 1,114 $ 1,157 $ 2,497 $ 123 $ 2 $ 5,624 Charge-offs — — ( 586 ) — ( 141 ) — ( 727 ) Recoveries 90 — 10 127 5 — 232 Provision for (Recovery of) Loan Losses ( 105 ) ( 5 ) 1,233 ( 1,485 ) 462 — 100 Ending Balance $ 716 $ 1,109 $ 1,814 $ 1,139 $ 449 $ 2 $ 5,229 Allowance for Loan Losses Ending Balance: collectively evaluated for impairment $ 607 $ 1,109 $ 1,814 $ 937 $ 449 $ 2 $ 4,918 Allowance for Loan Losses Ending Balance: individually evaluated for impairment 109 — — 202 — — 311 Loan Receivables Ending Balance $ 65,808 $ 179,117 $ 178,424 $ 166,908 $ 7,639 $ — $ 597,896 Ending Balance: collectively evaluated for impairment 60,805 179,046 171,234 160,985 7,638 — 579,708 Ending Balance: individually evaluated for impairment 5,003 71 7,190 5,923 1 — 18,188 72 The following is a summary of nonaccrual loans, at amortized cost, at March 31, 2024 and 2023. March 31, 2024 March 31, 2023 $ in thousands Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Nonaccrual Loans Gross loans receivable: One-to-four family $ — $ 3,554 $ 3,554 $ 4,001 Multifamily — 2,238 2,238 71 Commercial real estate — 4,522 4,522 7,190 Business 100 1,317 1,417 998 Consumer 44 — 44 1 Total nonaccrual loans $ 144 $ 11,631 $ 11,775 $ 12,261 Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments. Accrual of interest on loans is discontinued when the payment of principal or interest is considered to be in doubt, or when a loan becomes contractually past due by 90 days or more with respect to principal or interest, except for loans that are well-secured and in the process of collection. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. There was no interest income recognized on nonaccrual loans during the twelve months ended March 31, 2024. At March 31, 2024 and March 31, 2023, other non-performing assets totaled $ 52 thousand and $ 60 thousand, respectively, which consisted of other real estate owned comprised of one foreclosed residential property. Other real estate owned is included in other assets in the consolidated statements of financial condition. There were no held-for-sale loans at March 31, 2024 and March 31, 2023. The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories: Pass - Loans have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. These loans represent a moderate credit risk and some degree of financial stability, and are considered collectible in full. Special Mention - Loans have potential weaknesses that deserve management's close attention. If uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date. Substandard - Loans are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. These loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Doubtful - Loans have all the weaknesses inherent in those classified as Substandard, with the added characteristic that collection or liquidation in full, based on current facts, conditions and values, is highly questionable and improbable. Loss - Loans are considered uncollectible with insignificant value and are charged off immediately to the allowance for credit losses. One-to-four family residential loans and consumer loans are rated non-performing if they are delinquent in payments ninety or more days, or past maturity. All other one-to-four family residential loans and consumer loans are performing loans. 73 The following table presents the amortized cost of loans by year of origination and risk category by class of loans b ased on the most recent analysis performed in the current quarter as of March 31, 2024: $ in thousands 2024 2023 2022 2021 2020 2019 and earlier Revolving Loans Total Credit Risk Profile by Internally Assigned Grade: Multifamily Pass $ 980 $ 6,587 $ 53,516 $ 50,778 $ 28,483 $ 34,374 $ — $ 174,718 Special Mention — — — — — — — — Substandard — — — 1,451 754 280 — 2,485 Doubtful — — — — — — — — Loss — — — — — — — — Total 980 6,587 53,516 52,229 29,237 34,654 — 177,203 Commercial Real Estate Pass $ 2,450 $ 29,064 $ 31,313 $ 27,635 $ 16,951 $ 62,775 $ — 170,188 Special Mention — — — — — 674 — 674 Substandard — — — — — 4,522 — 4,522 Doubtful — — — — — — — — Loss — — — — — — — — Total 2,450 29,064 31,313 27,635 16,951 67,971 — 175,384 Construction Pass $ — $ 2,203 $ — $ — $ — $ — $ — 2,203 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total — 2,203 — — — — — 2,203 Business Pass $ 7,050 $ 21,315 $ 32,675 $ 52,839 $ 10,845 $ 32,587 $ — 157,311 Special Mention — — — — — — — — Substandard — — 7,939 3,987 — 365 — 12,291 Doubtful — — — — — — — — Loss — — — — — — — — Total 7,050 21,315 40,614 56,826 10,845 32,952 — 169,602 Gross charge-offs — — — — — 10 — 10 Credit Risk Profile Based on Payment Activity: One-to-four Family Performing $ — $ 22,247 $ 3,830 $ 13,422 $ 1,424 $ 39,002 $ — 79,925 Non-Performing — — — — — 2,862 — 2,862 Total — 22,247 3,830 13,422 1,424 41,864 — 82,787 Consumer Performing $ 2,003 $ — $ 11,891 $ — $ 570 $ — $ 4 $ 16 $ 1,172 $ — 15,656 Non-Performing — 42 1 — — — — 43 Total 2,003 11,933 571 4 16 1,172 — 15,699 Gross charge-offs — 18 1 — — 141 — 160 Total Loans (excluding gross charge-offs) $ 12,483 $ 93,349 $ 129,844 $ 150,116 $ 58,473 $ 178,613 $ — $ 622,878 74 At March 31, 2023, the risk category by class of loans was as follows: $ in thousands Multifamily Commercial Real Estate Business Credit Risk Profile by Internally Assigned Grade: Pass $ 175,981 $ 170,534 $ 154,056 Special Mention 771 701 5,719 Substandard 2,365 7,189 7,133 Total $ 179,117 $ 178,424 $ 166,908 One-to-four family Consumer Credit Risk Profile Based on Payment Activity: Performing $ 60,629 $ 7,639 Non-Performing 5,179 — Total $ 65,808 $ 7,639 Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. The following tables present an aging analysis of the amortized cost of past due loans receivable at March 31, 2024 and 2023. March 31, 2024 $ in thousands 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Receivable One-to-four family $ 164 $ — $ 2,859 $ 3,023 $ 79,764 $ 82,787 Multifamily — — 2,205 2,205 174,998 177,203 Commercial real estate — — 4,660 4,660 170,724 175,384 Construction — — — — 2,203 2,203 Business 1,959 214 12,071 14,244 155,358 169,602 Consumer 151 54 — 205 15,494 15,699 Total $ 2,274 $ 268 $ 21,795 $ 24,337 $ 598,541 $ 622,878 March 31, 2023 $ in thousands 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Receivable One-to-four family $ 1,207 $ 185 $ 2,475 $ 3,867 $ 61,941 $ 65,808 Multifamily 1,458 — 71 1,529 177,588 179,117 Commercial real estate 1,370 — — 1,370 177,054 178,424 Business 11,006 — 5,014 16,020 150,888 166,908 Consumer 99 26 34 159 7,480 7,639 Total $ 15,140 $ 211 $ 7,594 $ 22,945 $ 574,951 $ 597,896 At March 31, 2023, there were no loans 90 or more days past due and accruing interest. 75 Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the underlying collateral and the borrower is experiencing financial difficulty. All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual analysis. The following table presents the amortized cost of collateral dependent loans with the associated allowance amount, if applicable, as of March 31, 2024: Collateral Type $ in thousands Real Estate Other Allowance Allocated One-to-four family $ 4,151 $ — $ — Multifamily 2,485 — — Commercial real estate 4,522 — — Business 12,196 1,066 7 Consumer — 45 1 $ 23,354 $ 1,111 $ 8 Real estate collateral includes one-to-four family, multifamily and commercial properties. Collateral types securing business loans include accounts receivable. There have been no significant changes to the types of collateral securing the Bank's collateral dependent loans. The following table presents information on impaired loans with the associated allowance amount and interest income recognized on a cash basis, if applicable, at March 31, 2023. Impaired Loans by Class At March 31, 2023 $ in thousands Recorded Investment Unpaid Principal Balance Associated Allowance Average Balance Interest Income Recognized With no specific allowance recorded: One-to-four family $ 3,972 $ 4,567 $ — $ 3,861 $ 111 Multifamily 71 71 — 220 — Commercial real estate 7,190 7,378 — 4,054 36 Business 1,114 1,146 — 1,723 — Consumer 1 1 — — — With an allowance recorded: One-to-four family 1,031 1,031 109 554 41 Business 4,809 4,820 202 5,116 316 Total $ 18,188 $ 19,014 $ 311 $ 15,528 $ 504 In certain circumstances, the Bank will modify the terms of a loan by granting a concession. Situations around these modifications may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. Loans modified are placed on nonaccrual status until the Company 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. There were no loan modifications to borrowers experiencing financial difficulty made during the twelve months ended March 31, 2024. There were three one-to-four family loans totaling $1.4 million modified during the twelve months ended March 31, 2023. At March 31, 2024, loans modified to borrowers experiencing financial difficulty totaled $ 6.8 million, $ 1.1 million of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. There were three modified loans totaling $ 5.7 million that were on accrual status as the Company has determined that future collection of the principal and interest is reasonably assured. These have generally performed according to the restructured terms for a period of at least six months. At March 31, 2023, total TDR loans were $ 7.6 million, of which $ 1.6 million were non-performing. In an effort to proactively resolve delinquent loans, Carver had selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements during the twelve months ended March 31, 2023. For the fiscal years ended March 31, 2024 and 2023, there were no modified loans that defaulted within 12 months of modification. 76 Transactions With Certain Related Persons Federal law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features. Furthermore, loans above the greater of $25,000, or 5% of Carver Federal’s capital and surplus (up to $500,000), to Carver Federal’s directors and executive officers must be approved in advance by a majority of the disinterested members of Carver Federal’s Board of Directors. There were no loans outstanding to related parties at March 31, 2024. NOTE 5. PREMISES AND EQUIPMENT, NET The details of premises and equipment as of March 31 are as follows: $ in thousands 2024 2023 Leasehold improvements $ 7,175 $ 6,986 Furniture, equipment, and other 15,022 14,850 22,197 21,836 Less accumulated depreciation and amortization ( 19,630 ) ( 18,662 ) Premises and equipment, net $ 2,567 $ 3,174 Depreciation and amortization charged to operations was $ 1.0 million and $ 1.1 million for fiscal years 2024 and 2023, respectively. NOTE 6. LEASES The Company applies Accounting Standards Codification ("ASC") Topic 842, Leases ( " ASC 842") to its leases. The Company has operating leases related to its administrative offices, seven retail branches and three ATM centers. Two of the operating leases are for branch locations where the Company had entered into a sale and leaseback transaction. The gain had been calculated utilizing the profit on sale in excess of the present value of the minimum lease payments, and the profit on the sale was deferred from gain recognition to be amortized into income over the terms of the leases in accordance with ASC Topic 840, Leases ("ASC 840"). ASC 842 does not require previous sale and leaseback transactions accounted for under ASC 840 to be reassessed. As the implicit rates of the Company's existing leases are not readily determinable, the incremental borrowing rate used in determining the lease liability obligation for each individual lease was the FHLB-NY fixed-rate advance rates based on the remaining lease terms as of April 1, 2019. As of March 31, 2024, the Company had $ 103 thousand and $ 106 thousand of ROU asset and lease liability, respectively, for finance leases related to equipment. The ROU asset is included in Premises and Equipment, net, and the lease liability is included in Advances from the FHLB-NY and Other Borrowed Money on the statements of financial condition. The following tables present information about the Company's leases and the related lease costs as of and for the year ended March 31, 2024: March 31, 2024 Weighted-average remaining lease term Operating leases 4.3 years Finance lease 2.6 years Weighted-average discount rate Operating leases 3.05 % Finance lease 4.32 % 77 $ in thousands March 31, 2024 March 31, 2023 Operating lease expense $ 2,774 $ 2,860 Finance lease cost Amortization of right-of use asset 94 84 Interest on lease liability 6 5 Cash paid for amounts included in the measurement of lease liabilities Operating leases 2,833 2,779 Finance lease 95 96 Maturities of lease liabilities at March 31, 2024 are as follows: $ in thousands Operating Leases Finance Leases Year ending March 31, 2025 $ 2,705 $ 63 2026 2,687 42 2027 2,440 5 2028 2,259 — 2029 1,090 — Thereafter 186 — Total lease payments 11,367 110 Interest ( 751 ) ( 4 ) Lease liability $ 10,616 $ 106 NOTE 7. ACCRUED INTEREST RECEIVABLE The details of accrued interest receivable as of March 31 are as follows: $ in thousands 2024 2023 Loans receivable $ 3,410 $ 1,629 Mortgage-backed securities 56 60 Investments and other interest-bearing assets 196 222 Total accrued interest receivable $ 3,662 $ 1,911 NOTE 8. DEPOSITS Deposit balances and weighted average interest rates as of March 31 are as follows: 2024 2023 $ in thousands Amount Percent of Total Deposits Weighted Average Rate Amount Percent of Total Deposits Weighted Average Rate Non-interest-bearing demand $ 102,013 15.77 % — % $ 109,401 18.22 % — % Interest-bearing checking 46,358 7.17 0.58 49,473 8.24 0.10 Savings 113,187 17.49 0.28 109,210 18.19 0.15 Money market savings account 159,105 24.59 1.34 150,348 25.04 0.93 Certificates of deposit 223,719 34.58 3.22 178,694 29.76 1.26 Loan escrow deposits 2,617 0.40 0.30 3,303 0.55 0.11 Total $ 646,999 100.00 % 1.54 % $ 600,429 100.00 % 0.64 % 78 Scheduled maturities of certificates of deposit for the year ended March 31, 2024 are as follows: $ in thousands Amount Maturing years ending March 31: 2025 $ 197,588 2026 20,106 2027 2,145 2028 1,720 2029 2,160 2030 and beyond — Total $ 223,719 The following table represents the amount of certificates of deposit of $250,000 or more at March 31, 2024 maturing during the periods indicated: $ in thousands Maturing: April 1, 2024 to June 30, 2024 $ 62,718 July 1, 2024 to September 30, 2024 2,129 October 1, 2024 to March 31, 2025 9,484 April 1, 2025 and beyond 5,126 Total $ 79,457 Interest expense on deposits is as follows for the years ended March 31: $ in thousands 2024 2023 Interest-bearing checking $ 289 $ 55 Savings and clubs 310 166 Money market savings 2,102 1,728 Certificates of deposit 6,370 1,756 Loan escrow deposits 8 3 Total interest expense $ 9,079 $ 3,708 The following table presents additional information about our year-end deposits: $ in thousands 2024 2023 Deposits from the Certificate of Deposit Account Registry Service (CDARS) $ 76,650 $ 84,389 Deposits from brokers 60,041 17,638 Certificates of deposit individually greater than $250,000 19,458 25,765 Deposits from certain directors, executive officers and their affiliates 1,033 4,885 NOTE 9. ADVANCES FROM THE FHLB-NY AND OTHER BORROWED MONEY Federal Home Loan Bank Advances. At March 31, 2024, the Bank had $ 28.0 million outstanding advances from the FHLB-NY. During fiscal year 2024, the Bank secured a $ 3.0 million 18-month advance from the new FHLB-NY 0% Development Advance (ZDA) Program. As a member of the FHLB-NY, the Bank may have outstanding FHLB-NY borrowings in a combination of term advances and overnight funds of up to 30 % of its total assets, or approximately $ 227.0 million at March 31, 2024. Borrowings are secured by the Bank's investment in FHLB-NY stock and by a blanket security agreement. This agreement requires the Bank to maintain as collateral certain qualifying assets (principally mortgage loans and securities) not otherwise pledged. At March 31, 2024, advances were all fixed-rate and secured by pledges of the Bank's investment in FHLB-NY capital stock totaling $ 2.0 million, and a blanket assignment of pledged qualifying mortgage loans of $ 48.0 million and mortgage-backed and investment securities with a market value of $ 2.2 million. The Bank has sufficient collateral at the FHLB-NY to be able to borrow $ 7.8 million from the FHLB-NY at March 31, 2024. The accrued interest payable on FHLB advances was $109 thousand and interest expense was $ 1.1 million for the year ended March 31, 2024. FHLB-NY advances weighted average interest rates by remaining period to maturity are as follows: 79 2024 2023 $ in thousands Amount Weighted Average Rate Amount Weighted Average Rate Maturing Year Ending March 31, 2024 $ — — % $ 10,000 4.99 % 2025 28,027 4.61 % 25,000 4.50 % $ 28,027 $ 35,000 Subordinated Debt Securities. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $ 1,000 per share, of floating rate capital securities. Gross proceeds from the sale of these trust preferred debt securities of $ 13 million, and proceeds from the sale of the trust's common securities of $ 0.4 million, were used to purchase approximately $ 13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033. The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05 % over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments totaling $ 2.5 million 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. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment was made on June 16, 2021. The Company has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments. All quarterly interest payments subsequent to the June 2021 payment up to and including the June 2024 payment have been made. The accrued interest payable on subordinated debt securities was $ 45 thousand and the interest expense was $ 1.2 million for the year ended March 31, 2024. The accrued interest payable on subordinated debt securities was $ 44 thousand and the interest expense was $ 814 thousand for the year ended March 31, 2023. Paycheck Protection Program Liquidity Facility (PPPLF) . The Federal Reserve established the PPPLF to support the PPP program by extending credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. The interest rate on PPPLF advances is fixed at 0.35% and the maturity date is equal to the maturity date of the PPP loans pledged to secure the extension of credit. During the twelve months ended March 31, 2023, the Bank repaid its remaining $3 thousand outstanding advance under its PPPLF. There was no interest expense on PPLF advances for the years ended March 31, 2024 and 2023. Other Borrowings. During fiscal year 2024, the Company entered into a 5-year unsecured long-term, below-market-rate loan in the amount of $2.5 million provided by a third party. At March 31, 2024, the Company had $ 5.0 million in these fixed rate, low interest loans outstanding. Based on the covenants of these notes, the proceeds will be used to finance eligible loans offered through the Bank's community investment initiatives and loan programs. The accrued interest payable and interest expense on these notes was $ 7 thousand and $ 74 thousand, respectively, for the year ended March 31, 2024. The accrued interest payable and interest expense was $ 3 thousand and $ 25 thousand, respectively, for the year ended March 31, 2023. 80 The following table presents expected maturities of the Company's long-term borrowings at March 31, 2024: $ in thousands Year ending March 31, 2025 $ 28,027 2026 — 2027 2,500 2028 — 2029 2,500 Thereafter 13,403 Total $ 46,430 The following table sets forth certain information regarding Carver Federal's borrowings as of and for the years ended March 31: $ in thousands 2024 2023 Amounts outstanding at the end of year: FHLB advances $ 28,027 $ 35,000 Subordinated debt securities 13,403 13,403 PPPLF — — Other 5,000 2,500 Rate paid at year end: FHLB advances 4.61 % 4.99 % Subordinated debt securities 8.64 % 7.96 % Other 1.50 % 1.00 % Maximum amount of borrowing outstanding at any month end: FHLB advances $ 25,000 $ 40,000 Subordinated debt securities 13,403 13,403 PPPLF — 3 Other 2,500 2,500 Approximate average amounts outstanding for year: FHLB advances $ 27,020 $ 11,776 Subordinated debt securities 13,403 13,403 PPPLF — — Other 4,813 2,500 Approximate weighted average rate paid during year: FHLB advances 4.22 % 3.04 % Subordinated debt securities 8.65 % 6.07 % PPPLF — % 0.14 % Other 1.54 % 1.01 % 81 NOTE 10. INCOME TAXES The following is a reconciliation of the expected Federal income tax rate to the consolidated effective tax rate for the years ended March 31: 2024 2023 $ in thousands Amount Percent Amount Percent Statutory Federal income tax expense (benefit) $ ( 625 ) 21.0 % $ ( 924 ) 21.0 % Federal deferred tax adjustments 4 ( 0.2 ) — — Change in valuation allowance 713 ( 23.9 ) 953 ( 21.7 ) Bank owned life insurance ( 96 ) 3.2 — — Other 4 ( 0.1 ) ( 29 ) 0.7 Total income tax expense (benefit) $ — — % $ — — % Tax effects of existing temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are included in other assets at March 31 as follows: $ in thousands 2024 2023 Deferred Tax Assets: Allowance for credit losses $ 1,987 $ 1,742 Compensation and benefits 39 39 Nonaccrual loan interest 188 63 Net operating loss carryforward 20,168 19,191 New markets tax credit 3,434 3,434 Unrealized loss on available-for-sale securities 2,668 2,565 Lease liability 3,629 4,452 Other 58 33 Total Deferred Tax Assets 32,171 31,519 Deferred Tax Liabilities: Depreciation 501 671 ROU asset 3,366 4,169 Other — 52 Total Deferred Tax Liabilities 3,867 4,892 Deferred Tax Assets, net 28,304 26,627 Valuation Allowance ( 28,304 ) ( 26,627 ) Deferred Tax Assets, net of valuation allowance $ — $ — At March 31, 2024, the Company had net operating loss carryforwards for federal purposes of approximately $ 52.0 million, for state purposes of approximately $ 78.2 million and for city purposes of approximately $ 65.7 million which are available to offset future federal, state and city income and which expire over varying periods from March 2030 through March 2040. Federal net operating loss carryforwards of $ 16.4 million do not expire, as such losses were incurred after the enactment of the Tax Cuts and Jobs Act, which provides for an unlimited loss carryforward period. The Company has no uncertain tax positions. The Company and its subsidiaries are subject to federal, New York State and New York City income taxation. The Company is no longer subject to examination by taxing authorities for years before March 31, 2018. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination; with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. 82 NOTE 11. LOSS PER COMMON SHARE The following table reconciles the loss available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted loss per share for the years ended March 31: $ in thousands except per share data 2024 2023 Net loss attributable to Carver Bancorp, Inc. $ ( 2,977 ) $ ( 4,401 ) Weighted average common shares outstanding – basic 4,845,975 4,277,709 Weighted average common shares outstanding – diluted 4,845,975 4,277,709 Basic loss per common share $ ( 0.61 ) $ ( 1.03 ) Diluted loss per common share $ ( 0.61 ) $ ( 1.03 ) For the years ended March 31, 2024 and March 31, 2023, all restricted shares and outstanding stock options were anti-dilutive. For details of restricted shares and stock options, please refer to Note 14. "Employee Benefit and Stock Compensation Plans." NOTE 12. STOCKHOLDERS' EQUITY Conversion and Stock Offering. On October 24, 1994, the Bank issued in an initial public offering 2,314,375 shares of common stock, par value $ 0.01 (the “Common Stock”), at a price of $ 10 per share resulting in net proceeds of $ 21.5 million. As part of the initial public offering, the Bank established a liquidation account at the time of conversion, in an amount equal to the surplus and reserves of the Bank at September 30, 1994. In the unlikely event of a complete liquidation of the Bank (and only in such event), eligible depositors who continue to maintain accounts shall be entitled to receive a distribution from the liquidation account. The total amount of the liquidation account may be decreased if the balances of eligible deposits decreased as measured on the annual determination dates. The Bank is not permitted to pay dividends to the Company on its capital stock if the effect thereof would cause its net worth to be reduced below either: (i) the amount required for the liquidation account, or (ii) the amount required for the Bank to comply with applicable minimum regulatory capital requirements. In 2011 the stockholders approved a 1-for-15 reverse stock split pursuant to which each 15 shares of the Company’s Common Stock would be converted into one share of Common Stock. The 1-for-15 reverse stock split was effective as of October 27, 2011, resulting in a reduction in the number of outstanding shares of the Company’s Common Stock from 2,492,415 to 166,161 , an increase of the conversion price of the Series C Preferred Stock and the Series D Preferred Stock and the exchange ratio of the Series B Preferred Stock from $0.5451 to $8.1765, and a corresponding decrease in the number of shares of Common Stock issued to the Investors and Treasury. During the year ended March 31, 2012, all outstanding shares of Series B Preferred Stock were converted to Common Stock and all outstanding shares of Series C preferred Stock were converted to Series D Preferred Stock. As of March 31, 2024, there were 5,140,872 shares of Company common stock outstanding. Series D Preferred Stock ranks senior to the Common Stock. The holders of Series D Preferred Stock are entitled to receive dividends, on an as-converted basis, simultaneously to the payment of any dividends on the Company's common stock. Dividends on the Series D Preferred Stock are not cumulative. If the Company's board of directors does not declare a dividend with respect to any dividend period, the holders of the Series D Preferred Stock will have no right to receive any dividend for that period. The Company may not declare, pay or set apart for payment any dividend or make any distribution on common stock, unless at the time of such dividend or distribution the Company simultaneously pays a non-cumulative dividend or makes a distribution on each outstanding share of Series D Preferred Stock on an as-converted basis. The holders of Series D preferred Stock are generally not entitled to vote, except with respect to amendments to the Company's certificate of incorporation that would change the rights and preferences of the Series D Preferred Stock, the creation or increase of any class of securities senior to the Series D Preferred Stock, the consummation of certain mergers, consolidations or other transactions where the holders of the Series D Preferred Stock are not converted into or exchanged for preference securities of the surviving entity, and as otherwise required by applicable law. . The Series D Preferred Stock shall automatically convert into shares of Common Stock only upon the following transfers to third parties (“Eligible Transfers”): • a transfer in a widespread public distribution; • a transfer in which no transferee (together with its affiliates and other transferees acting in concert with it) acquires more than 2% of the Company’s common stock or any other class or series of the Company’s voting stock; or 83 • a transfer to a transferee that (together with its affiliates and other transferees acting in concert with it) owns or controls more than 50% of the Company’s common stock, without regard to the transfer. The conversion price of the Series D Preferred Stock is $8.1765, and is subject to adjustment in the event of stock splits, subdivisions or combinations, dividends and distributions, issuance of certain rights, spin-offs, self-tenders and exchange offers as set forth under the agreement. The Series D Preferred Stock is not convertible at the option of the holders. As of March 31, 2024, there were 9,557 shares of Series D Preferred Stock outstanding. During fiscal year 2023, Prudential Insurance Company of America ("Prudential"), an institutional investor, donated a total of 550 shares of its holdings of Series D Preferred Stock to third parties. The third parties notified the Company of their intention to cancel the shares and convert them into 67,265 shares of Common Stock. During the twelve months ended March 31, 2024, Prudential donated a total of 3,644 shares of its holdings of Series D Preferred Stock to third parties. The third parties notified the Company of their intention to cancel the shares and convert them into 445,661 shares of Common Stock. The conversions had no impact on the Company's total capital. On August 6, 2002, the Company announced a stock repurchase program to repurchase up to 15,442 shares of its outstanding common stock. As of March 31, 2024, 11,744 shares of its common stock have been repurchased in open market transactions. As a result of the Company's participation in the TARP CDCI, the United States Department of the Treasury's (the "U.S. Treasury") prior approval was required to make further repurchases. On August 6, 2020, the Company entered into a Securities Purchase Agreement with the U.S. Treasury to repurchase 2,321,286 shares of the common stock of the Company, par value $0.01 per share, owned by the U.S. Treasury for an aggregate purchase price of $ 2.5 million. The stock repurchase provided for in the Securities Purchase Agreement was completed on August 6, 2020. Upon completion of the repurchase pursuant to the Securities Purchase Agreement, the U.S. Treasury was no longer a stockholder in the Company. In connection with the repurchase, Morgan Stanley provided a grant of $ 2.5 million that was considered contributed capital to the Company to fund the repurchase transaction. Series E Preferred Stock is perpetual and has no maturity date. The Company may redeem the shares of Series E Preferred Stock, in whole or in part, on any date on or after February 1, 2026. The holders of Series E Preferred Stock will be entitled to receive, if declared by the Company's board of directors, noncumulative cash dividends on each date that dividends or other distributions are payable. The holders of the Series E Preferred Stock will not have voting rights except for any vote required by law or by the Company's Certificate of Incorporation, or for effecting or validating: (i) any increase or decrease in the authorized number of shares of Series E Preferred Stock or issuance of shares of Series E Preferred Stock after the original issue date; (ii) any amendment, alteration or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company that would adversely affect the voting powers, preferences, privileges or special rights of the Series E Preferred Stock; (iii) any amendment or alteration of the Certificate of Incorporation or Bylaws of the Company to authorize or create, or increase the authorized amount of any shares of any class or series or any securities convertible into shares of any class or series of capital stock of the Company ranking senior to Series E Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Company; or (iv) a merger or consolidation of the Company with another entity (whether or not a corporation), unless in each case (A) the shares of Series E Preferred Stock remain outstanding and (B) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions, and limitations and restrictions thereof as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and restrictions and limitations thereof, of the Series E Preferred Stock immediately prior to such consummation. On February 16, 2021, the Company entered into an agreement with J.P. Morgan Chase Community Development Corporation ("J.P. Morgan"), under which it sold: (i) 112,612 shares of its common stock, par value $0.01 per share, at a purchase price of $ 8.88 per share, and (ii) 5,000 shares of a new series of preferred stock, Series F non-cumulative non-voting non-convertible preferred stock, par value $0.01 per share, at a purchase price of $ 1,000 per share, in a private placement for gross proceeds of approximately $ 6.0 million. On September 27, 2021, the Company entered into an agreement with J.P. Morgan under which it sold an additional 4,000 shares of its Series F Preferred Stock, at a purchase price of $ 1,000 per share, in a private placement for gross proceeds of $ 4.0 million. The issuances of the shares were exempt from registration pursuant to the exemption provided under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The offerings were made only to accredited investors as that term is defined in Rule 501(a) of Regulation D under the Act. Series F Preferred Stock is perpetual and has no maturity date. The shares are not convertible. The Company may redeem the shares of Series F Preferred Stock, in whole or in part, on any date on or after February 16, 2026. The holders of Series F Preferred Stock will be entitled to receive, if declared by the Company's board of directors, noncumulative cash dividends on each date that dividends or other distributions are payable. The holders of the Series F Preferred Stock will not have voting rights except for any vote required by law or by the Company's Certificate of Incorporation, or for effecting or 84 validating: (i) any amendment, alteration or repeal of any provision of the Certificate of Incorporation or Bylaws of the Company that would significantly and adversely affect the voting powers, preferences, privileges or special rights of the Series F Preferred Stock; (ii) any amendment or alteration of the Certificate of Incorporation or Bylaws of the Company to authorize or create, or increase the authorized amount of any shares of any class or series or any securities convertible into shares of any class or series of capital stock of the Company ranking senior to Series F Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Company; or (iii) a merger or consolidation of the Company with another entity (whether or not a corporation), unless in each case (A) the shares of Series F Preferred Stock remain outstanding and (B) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers , and limitations and restrictions, and limitations and restrictions thereof as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and restrictions and limitations thereof, of the Series F Preferred Stock immediately prior to such consummation. On December 14, 2021, the Company entered into a Sales Agreement (the "Sales Agreement") with Piper Sandler & Co. (“Piper Sandler”), as sales agent, pursuant to which the Company may offer and sell shares of our common stock, par value $0.01 per share, having an aggregate gross sales price of up to $20.0 million (the “ATM Shares”) from time to time. Any sales made under the Sales Agreement will be sales deemed to be "at-the-market (ATM) offerings," as defined in Rule 415 under the Securities Act of 1933, as amended. These sales will be made through ordinary broker transactions on the NASDAQ Capital Market stock exchange at market prices prevailing at the time, at prices related to the prevailing market prices, or at negotiated prices. The Company intends to use the net proceeds of these offerings for general corporate purposes, including support for organic loan growth and repayment of all or a portion of the outstanding principal amount of our outstanding subordinated debt securities. During fiscal year 2022, the Company sold an aggregate of 397,367 shares of common stock under the ATM offering program, resulting in gross proceeds of $3.1 million and net proceeds to the Company of $ 3.0 million after deducting commissions and expenses. There were no additional offerings in fiscal year 2023 and during the twelve months ended March 31, 2024. On July 19, 2023, the Company entered into an agreement with National Community Investment Fund, under which it sold 378,788 shares of its common stock, par value $0.01 per share, at a purchase price of $ 2.64 per share in a private placement for gross proceeds of approximately $ 1.0 million. The Company intends to use the net proceeds of the private placement for general corporate purposes. The issuance of the shares is exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D of the rules and regulations promulgated thereunder. Regulatory Capital . The operations and profitability of the Bank are significantly affected by legislation and the policies of the various regulatory agencies. In accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, will be eligible to opt into a “Community Bank Leverage Ratio” framework. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the “well capitalized” ratio requirements under the Prompt Corrective Action statutes. The agencies reserved the authority to disallow the use of the Community Bank Leverage Ratio by a financial institution or holding company based on the risk profile of the organization. Carver Federal, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with Carver Federal's risk profile. In assessing an institution's capital adequacy, the OCC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary. Carver was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9 % for its Tier 1 leverage ratio and 12 % for its total risk-based capital ratio. At March 31, 2024, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage ratio of 9.56 %, Common Equity Tier 1 capital ratio of 12.00 %, Tier 1 risk-based capital ratio of 12.00 %, and a total risk-based capital ratio of 12.98 %. 85 The table below presents the Bank's regulatory capital ratios at March 31, 2024 and 2023. March 31, 2024 March 31, 2023 ($ in thousands) Amount Ratio Amount Ratio Tier 1 leverage capital Regulatory capital $ 73,140 9.56 % $ 74,265 10.61 % Individual minimum capital requirement 68,888 9.00 % 63,005 9.00 % Minimum capital requirement 30,617 4.00 % 28,002 4.00 % Excess 42,523 5.56 % 46,263 6.61 % Common equity Tier 1 Regulatory capital $ 73,140 12.00 % $ 74,265 12.47 % Minimum capital requirement 42,649 7.00 % 41,679 7.00 % Excess 30,491 5.00 % 32,586 5.47 % Tier 1 risk-based capital Regulatory capital $ 73,140 12.00 % $ 74,265 12.47 % Minimum capital requirement 51,789 8.50 % 50,610 8.50 % Excess 21,351 3.50 % 23,655 3.97 % Total risk-based capital Regulatory capital $ 79,106 12.98 % $ 79,599 13.37 % Individual minimum capital requirement 73,113 12.00 % 71,450 12.00 % Minimum capital requirement 63,974 10.50 % 62,519 10.50 % Excess 15,132 2.48 % 17,080 2.87 % NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS The following tables set forth changes in each component of accumulated other comprehensive loss, net of tax for the years ended March 31, 2024 and 2023: $ in thousands At March 31, 2023 Other Comprehensive Loss At March 31, 2024 Net unrealized loss on securities available-for-sale $ ( 12,215 ) $ ( 490 ) $ ( 12,705 ) $ in thousands At March 31, 2022 Other Comprehensive Loss At March 31, 2023 Net unrealized loss on securities available-for-sale $ ( 6,662 ) $ ( 5,553 ) $ ( 12,215 ) There were no reclassifications out of accumulated other comprehensive loss to the consolidated statement of operations for the twelve months ended March 31, 2024 and 2023. Comprehensive Income (Loss). Comprehensive income (loss) represents net income (loss) and certain amounts reported directly in stockholders' equity, such as net unrealized gain or loss on securities available-for-sale. The balance at March 31, 2024 included $ 490 thousand change in unrealized losses for the year ended March 31, 2024. The balance at March 31, 2023 included $ 5.6 million change in unrealized losses for the year ended March 31, 2023. NOTE 14. EMPLOYEE BENEFIT AND STOCK COMPENSATION PLANS Savings Incentive Plan. Carver has a savings incentive plan, pursuant to Section 401(k) of the Code, for all eligible employees of the Bank. The Bank matches contributions to the 401(k) Plan equal to 100 % of pre-tax contributions made by each employee up to a maximum of 4 % of their pay, subject to IRS limitations. All such matching contributions are fully vested and non-forfeitable at all times regardless of the years of service with the Bank. The Bank reinstated the 401(k) match in January 2022, which had been suspended since October 2020. Compensation expense recognized for the 401(k) matching contributions was $ 330 thousand and $ 376 thousand, respectively, for fiscal 2024 and 2023. Stock Option Plans. In September 2006, Carver stockholders approved the 2006 Stock Incentive Plan (the "2006 Incentive Plan") which provides for the grant of stock options, stock appreciation rights and restricted stock to employees and directors who are selected to receive awards by the Committee. The 2006 Incentive Plan authorizes Carver to grant awards 86 with respect to 20,000 shares, but no more than 10,000 shares of restricted stock may be granted. Options are granted at a price not less than fair market value of Carver common stock at the time of the grant for a period not to exceed 10 years. Shares generally vest in 20% increments over 5 years, however, the Committee may specify a different vesting schedule. At March 31, 2024, there were 3,600 options outstanding under the 2006 Incentive Plan and 3,600 were exercisable. All options are exercisable immediately upon a participant's disability, death or a change in control, as defined in the 2006 Incentive Plan, if the person is employed on that date. If the person is terminated (voluntary or involuntarily) from the Bank, all unvested shares are forfeited. Pursuant to the plan, the Bank recognized no expense for fiscal years 2024 and 2023. In September 2014, Carver stockholders approved the Carver Bancorp, Inc. 2014 Equity Incentive Plan (the "2014 Incentive Plan") which provides for the grant of stock options, stock appreciation rights and restricted stock to executive officers and directors who are selected to receive awards by the Committee. The 2014 Incentive Plan authorizes Carver to grant awards with respect to 250,000 shares. All of the shares may be issued pursuant to stock options (all of which may be incentive stock options) or all of which may be issued pursuant to restricted stock awards or restricted stock units. Unless the Committee determines otherwise, the award agreements will specify that no award will vest more rapidly than 25% per year over a four-year period, with the first installment vesting one year after the date of grant, subject to acceleration upon the occurrence of specific events. During fiscal year 2024, 83,000 restricted stock awards were issued. There were 44,500 restricted stock awards issued in fiscal year 2023. At March 31, 2024, there were 2,667 options outstanding under the 2014 Incentive Plan and 2,667 were exercisable. All options are exercisable immediately upon a participant's disability, death or change in control, as defined in the 2014 Incentive Plan, if the person is employed on that date. If the person is terminated (voluntary or involuntarily) from the Bank, all unvested shares are forfeited. Pursuant to the plan, the Bank recognized $ 68 thousand as expense for fiscal year 2024 and $ 247 thousand in fiscal year 2023. Information regarding nonvested shares of restricted stock awards outstanding for the years ended March 31 is as follows: 2024 2023 Shares Weighted Average Grant Price Shares Weighted Average Grant Price Outstanding, beginning of year 57,833 $ 6.45 38,833 $ 5.15 Granted 83,000 2.77 44,500 6.84 Vested ( 34,333 ) 6.32 ( 20,667 ) 4.82 Forfeited ( 21,500 ) 5.88 ( 4,833 ) 6.53 Outstanding, end of year 85,000 $ 3.06 57,833 $ 6.45 Unrecognized compensation expense on unvested restricted shares as of March 31, 2024 totaled $ 187 thousand. This amount will be recognized over the remaining vesting period of 0.58 years (weighted average). The vesting of the grants totaled $ 220 thousand and $ 91 thousand for fiscal years 2024 and 2023, respectively. Information regarding stock options as of and for the years ended March 31 is as follows: 2024 2023 Options Weighted Average Exercise Price Options Weighted Average Exercise Price Outstanding, beginning of year 6,267 $ 5.27 6,600 $ 5.29 Granted — — — — Exercised — — — — Expired/Forfeited — — 333 5.70 Outstanding, end of year 6,267 $ 5.27 6,267 $ 5.27 Exercisable, at year end 6,267 5,933 87 Information regarding stock options as of March 31, 2024 is as follows: Options Outstanding Options Exercisable Range of Exercise Prices Shares Weighted Average Remaining Life Weighted Average Exercise Price Shares Weighted Average Exercise Price $ 3.00 $ 5.00 1,000 3.70 $ 3.48 1,000 $ 3.48 5.00 $ 5.59 3,600 1.23 5.56 3,600 5.56 5.60 $ 5.99 1,667 6.33 5.70 1,667 5.70 Total 6,267 6,267 As of March 31, 2024, there was no unrecognized compensation expense on unvested stock options. There were no stock options awarded to employees or directors during the year ended March 31, 2024. At March 31, 2024, all outstanding options had no intrinsic value. The Company recorded stock compensation expense of $ 2 thousand in fiscal 2023. NOTE 15. COMMITMENTS AND CONTINGENCIES Credit Related Commitments. The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and in connection with its overall investment strategy. These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk. These instruments are not recorded in the consolidated financial statements. Such instruments primarily include lending obligations, including commitments to originate mortgage and consumer loans and to fund unused lines of credit. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments. The following table reflects the Bank's outstanding commitments as of March 31: $ in thousands 2024 2023 Lines of credit $ 4,268 $ 3,837 Commitment to fund private equity investment 650 253 $ 4,918 $ 4,090 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Mortgage Representation & Warranty Liabilities During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”). The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities (GSE's). The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral. 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. The following table presents information on open requests from FNMA. The amounts presented are based on outstanding loan principal balances. 88 $ in thousands Loans sold to FNMA Open claims as of March 31, 2023 (1) $ 1,385 Gross new demands received — Loans repurchased/made whole — Demands rescinded — Advances on open claims — Principal payments received on open claims ( 18 ) Open claims as of March 31, 2024 (1) $ 1,367 (1) The open claims include all open requests received by the Bank where either FNMA has requested loan files for review, where FNMA has not formally rescinded the repurchase request or where the Bank has not agreed to repurchase the loan. The amounts reflected in this table are the unpaid principal balance and do not incorporate any losses the Bank would incur upon the repurchase of these loans. The table below summarizes changes in our representation and warranty reserves during fiscal 2024. $ in thousands March 31, 2024 Representation and warranty repurchase reserve, March 31, 2023 (1) $ 95 Net adjustment to reserve for repurchase losses (2) ( 9 ) Representation and warranty repurchase reserve, March 31, 2024 (1) $ 86 (1) Reported in consolidated statements of financial condition as a component of other liabilities . ( 2) Component of other non-interest expense. The Bank also has, in the normal course of business, commitments for services and supplies. Legal Proceedings. From time to time, the Company and the Bank or one of its wholly-owned subsidiaries are parties to various legal proceedings incident to their business. At March 31, 2024, certain claims, suits, complaints and investigations (collectively “proceedings”) involving the Company and the Bank or a subsidiary, arising in the ordinary course of business, have been filed or are pending. The Company is unable at this time to determine the ultimate outcome of each proceeding, but believes, after discussions with legal counsel representing the Company and the Bank or the subsidiary in these proceedings, that it has meritorious defenses to each proceeding and appropriate measures have been taken to defend the interests of the Company, Bank or subsidiary. As of March 31, 2024, we are not involved in any pending legal proceeding as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business, and are not involved in any legal proceeding, the outcome of which management believes would be material to the financial condition or results of operations of the Company or the Bank. NOTE 16. FAIR VALUE MEASUREMENTS Fair value is an “exit” price, representing the amount that would be received when selling an asset, or paid when transferring a liability, in an orderly transaction between market participants. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are categorized in a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: • Level 1— Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. • Level 2— Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. • Level 3— Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument’s categorization within this valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. 89 The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of March 31, 2024 and 2023, and that are included in the Company's Consolidated Statements of Financial Condition at these dates: Fair Value Measurements at March 31, 2024, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Mortgage servicing rights $ — $ — $ 140 $ 140 Investment securities Available-for-sale: Mortgage-backed securities: Government National Mortgage Association — 283 — 283 Federal Home Loan Mortgage Corporation — 15,798 — 15,798 Federal National Mortgage Association — 8,636 — 8,636 U.S. Government Agency securities — 6,194 — 6,194 Corporate bonds — 3,063 — 3,063 Muni securities — 14,056 — 14,056 Total available-for-sale securities — 48,030 — 48,030 Total assets $ — $ 48,030 $ 140 $ 48,170 Fair Value Measurements at March 31, 2023, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Mortgage servicing rights $ — $ — $ 152 $ 152 Investment securities Available-for-sale: Mortgage-backed securities: Government National Mortgage Association — 341 — 341 Federal Home Loan Mortgage Corporation — 17,600 — 17,600 Federal National Mortgage Association — 9,502 — 9,502 U.S. Government Agency securities — 9,326 — 9,326 Corporate bonds — 3,092 — 3,092 Muni securities — 13,982 — 13,982 Total available-for-sale securities — 53,843 — 53,843 Total assets $ — $ 53,843 $ 152 $ 53,995 Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights ("MSR"). Level 3 assets accounted for 0.02 % of the Company's total assets measured at fair value at March 31, 2024 and 2023. The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next that are related to the observable inputs to a fair value measurement may result in a reclassification from one hierarchy level to another. Below is a description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities and MSR: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, 90 equity or debt prices, and credit spreads. In addition to market information, models also incorporate transaction details, such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt. During the fiscal year ended March 31, 2024, there were no transfers of investments into or out of each level of the fair value hierarchy. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing certain securities, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Quoted price information for the MSRs is not available. Therefore, MSRs are valued using market-standard models to model the specific cash flow structure. Key inputs to the model consist of principal balance of loans being serviced, servicing fees and discount and prepayment rates. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The following table includes a rollforward of assets classified by the Company within Level 3 of the valuation hierarchy for the years ended March 31, 2024 and 2023: $ in thousands Beginning balance, April 1, 2023 Total Realized/Unrealized Gains/(Losses) Recorded in Income (1) Issuances / (Settlements) Transfers to/(from) Level 3 Ending balance, March 31, 2024 Change in Unrealized Gains/(Losses) Related to Instruments Held at March 31, 2024 Mortgage Servicing Rights 152 ( 12 ) — — 140 ( 12 ) $ in thousands Beginning balance, April 1, 2022 Total Realized/Unrealized Gains/(Losses) Recorded in Income (1) Issuances / (Settlements) Transfers to/(from) Level 3 Ending balance, March 31, 2023 Change in Unrealized Gains/(Losses) Related to Instruments Held at March 31, 2023 Mortgage Servicing Rights 162 ( 10 ) — — 152 ( 9 ) (1) Includes net servicing cash flows and the passage of time. For Level 3 assets measured at fair value on a recurring basis as of March 31, 2024 and 2023, the significant unobservable inputs used in the fair value measurements were as follows: $ in thousands Fair Value at March 31, 2024 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Mortgage Servicing Rights 140 Discounted Cash Flow Weighted Average Constant Prepayment Rate (1) 6.4 % Range of Inputs 3.0% to 7.1% Option Adjusted Spread ("OAS") applied to Treasury curve 1000 basis points $ in thousands Fair Value at March 31, 2023 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Mortgage Servicing Rights 152 Discounted Cash Flow Weighted Average Constant Prepayment Rate (1) 6.7 % Range of inputs 3.1% to 9.5% Option Adjusted Spread ("OAS") applied to Treasury curve 1000 basis points (1) Represents annualized loan repayment rate assumptions Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of March 31, 2024 and 2023, and that are included in the Company's Consolidated Statements of Financial Condition at these dates: 91 Fair Value Measurements at March 31, 2024, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Other real estate owned $ — $ — $ 52 $ 52 Fair Value Measurements at March 31, 2023, Using $ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value Impaired loans $ — $ — $ 5,529 $ 5,529 Other real estate owned $ — $ — $ 60 $ 60 For Level 3 assets measured at fair value on a non-recurring basis as of March 31, 2024 and 2023, the significant unobservable inputs used in the fair value measurements were as follows: $ in thousands Fair Value at March 31, 2024 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Other real estate owned 52 Appraisal of collateral Appraisal adjustments 7.5% cost to sell $ in thousands Fair Value at March 31, 2023 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value Impaired loans $ 5,529 Appraisal of collateral Appraisal adjustments 7.5% cost to sell Other real estate owned 60 Appraisal of collateral Appraisal adjustments 7.5% cost to sell The fair values of collateral dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data. Other real estate owned represents property acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure). These assets are recorded at the lower of their cost or fair value. At the time of acquisition of the real estate owned, the real property value is adjusted to its current fair value. Any subsequent adjustments will be to the lower of cost or fair value. As of March 31, 2024 and 2023, we had loans with a carrying value of $15.2 million and $5.6 million, respectively, for which formal foreclosure proceedings were in process. NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS Disclosures regarding the fair value of financial instruments are required to include, in addition to the carrying value, the fair value of certain financial instruments, both assets and liabilities recorded on and off-balance sheet, for which it is practicable to estimate fair value. Accounting guidance defines financial instruments as cash, evidence of ownership of an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. The fair value of a financial instrument is discussed below. In cases where quoted market prices are not available, estimated fair values have been determined by the Bank using the best available data and estimation methodology suitable for each such category of financial instruments. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate their recorded carrying value. The Bank's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact the Bank's fair value of all interest-earning assets and interest-bearing liabilities, other than those which are short-term in maturity. 92 The carrying amounts and estimated fair values of the Bank's financial instruments and estimation methodologies at March 31 are as follows: March 31, 2024 $ in thousands Carrying Amount Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and cash equivalents $ 59,025 $ 59,025 $ 59,025 $ — $ — Securities available-for-sale 48,030 48,030 — 48,030 — Securities held-to-maturity 2,008 1,905 — 1,905 — Loans receivable 617,007 593,484 — — 593,484 Accrued interest receivable 3,662 3,662 — 3,662 — Mortgage servicing rights 140 140 — — 140 Financial Liabilities: Deposits $ 646,999 $ 642,831 $ 420,663 $ 222,168 $ — Advances from FHLB of New York 28,027 27,920 — 27,920 — Other borrowed money 18,403 17,623 — 17,623 — Accrued interest payable 1,128 1,128 — 1,128 — March 31, 2023 $ in thousands Carrying Amount Estimated Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial Assets: Cash and cash equivalents $ 42,552 $ 42,552 $ 42,552 $ — $ — Securities available-for-sale 53,843 53,843 — 53,843 — Securities held-to-maturity 2,318 2,221 — 2,318 — Loans receivable 592,667 567,029 — — 567,029 Accrued interest receivable 1,911 1,911 — 1,911 — Mortgage servicing rights 152 152 — — 152 Financial Liabilities: Deposits $ 600,429 $ 594,736 $ 418,432 $ 176,304 $ — Advances from FHLB of New York 35,000 35,238 — 35,238 — Other borrowed money 15,903 14,575 — 14,575 — Accrued interest payable 380 380 — 380 — NOTE 18. VARIABLE INTEREST ENTITIES Variable interest entities (“VIEs”) are consolidated, as required, where Carver has a controlling financial interest in these entities and is deemed to be the primary beneficiary. Carver is normally deemed to have a controlling financial interest and be the primary beneficiary if it has both (a) the power to direct activities of a VIE that most significantly impact the entities economic performance; and (b) the obligation to absorb losses of the entity that could benefit from the activities that could potentially be significant to the VIE. The Company's subsidiary, Carver Statutory Trust I (the "Trust"), was formed in 2003 for the purpose of issuing $ 13 million aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and $ 0.4 million of common securities (which are the only voting securities of the Trust), which are 100 % owned by Carver Bancorp, Inc., and using the proceeds to acquire Junior Subordinated Debentures issued by Carver Bancorp, Inc. Carver Bancorp, Inc. has fully and unconditionally guaranteed the Capital Securities along with all obligations of the Trust under the trust agreement relating to the Capital Securities. The Company does not consolidate the accounts and related activity of Carver Statutory Trust 93 I because it is not the primary beneficiary of the entity. At March 31, 2024, the Company's maximum exposure to the Trust is $ 13.4 million, which is the Company's liability to the Trust and includes the Company's investment in the Trust. The Bank's subsidiary, Carver Community Development Corporation (“CCDC”), was formed to facilitate its participation in local economic development and other community-based initiatives. Per the NMTC Award's Allocation Agreement between the CDFI Fund and CCDC, CCDC is permitted to form and sub-allocate credits to subsidiary Community Development Entities (“CDEs”) to facilitate investments in separate development projects. CCDC established various special purpose entities (CDEs 22-25) through which its investments in NMTC eligible activities will be conducted. As of March 31, 2024, there have been no activities in these entities. The Company had no consolidated VIEs at March 31, 2024. NOTE 19. NON-INTEREST REVENUE AND EXPENSE ASC Topic 606, Revenue from Contracts with Customers ("Topic 606") does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as gains on sales of residential mortgage and SBA loans, income associated with servicing assets, and loan fees, including residential mortgage originations to be sold and prepayment and late fees charged across all loan categories are not in scope of the guidance. Topic 606 is applicable to non-interest revenue streams, such as depository fees, service charges and commission revenues. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. The Company generally satisfies its performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. Non-interest revenue streams in-scope of Topic 606 are discussed below. Depository fees and charges Depository fees and charges primarily relate to service fees on deposit accounts and fees earned from debit cards and check cashing transactions. Service fees on deposit accounts consist of ATM fees, NSF fees, account maintenance charges and other deposit related fees. The fees are recognized as revenue over the period the related service is provided, or as incurred for transaction-based fees in accordance with the fee schedules for the Bank's deposit products and services. Loan fees and service charges Loan fees and service charges primarily relate to program management fees and fees earned in accordance with the Bank's standard lending fees (such as inspection and late charges). These standard lending fees are recognized as revenue over the period the related service is provided. Other non-interest income Other non-interest income includes correspondent banking fees, revenue from the Bank's participation in JPMorgan Chase's Empowering Change program, and income associated with an advertising services agreement covering marketing and use of the Bank's office space with a third party. The revenue is recognized over the period the related service is provided. Interchange income The Company earns interchange fees from debit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided by an outsource technology solution and are presented on a net basis. 94 The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the years ended March 31, 2024 and 2023: Years Ended March 31, $ in thousands 2024 2023 Non-interest income In-scope of Topic 606 Depository fees and charges $ 2,208 $ 2,197 Loan fees and service charges 389 466 Other non-interest income 361 236 Non-interest income (in-scope of Topic 606) 2,958 2,899 Non-interest income (out-of-scope of Topic 606) 3,765 696 Total non-interest income $ 6,723 $ 3,595 The following table sets forth other non-interest income and expense totals exceeding 1% of the aggregate of total interest income and non-interest income for any of the years presented: Years Ended March 31, $ in thousands 2024 2023 Other non-interest income: BOLI income $ 459 $ 144 Other 483 228 Total non-interest income $ 942 $ 372 Other non-interest expense: Advertising $ 376 $ 513 Legal expense 498 442 Insurance and surety 1,254 1,200 Audit expense 727 573 Data lines / internet 417 398 Retail expenses 1,151 933 Operating chargeoffs and other losses 497 132 Director's fees 402 373 Other 2,667 2,635 Total non-interest expense $ 7,989 $ 7,199 NOTE 20. CARVER BANCORP, INC. - PARENT COMPANY ONLY 95 CONDENSED STATEMENTS OF FINANCIAL CONDITION As of March 31, $ in thousands 2024 2023 Assets Cash on deposit with subsidiaries $ 2,487 $ 668 Investment in subsidiaries 60,838 62,453 Other assets 840 123 Total assets $ 64,165 $ 63,244 Liabilities and Stockholders' Equity Borrowings $ 18,403 $ 15,903 Accounts payable to subsidiaries 3,300 1,475 Other liabilities 153 642 Total liabilities 21,856 18,020 Stockholders’ equity 42,309 45,224 Total liabilities and stockholders’ equity $ 64,165 $ 63,244 CONDENSED STATEMENTS OF OPERATIONS Years Ended March 31, $ in thousands 2024 2023 Income Equity in net loss/income from subsidiaries $ ( 457 ) $ ( 2,640 ) Other income 135 27 Grant income 61 439 Total (loss) income ( 261 ) ( 2,174 ) Expense Interest expense on borrowings 1,233 839 Salaries and employee benefits 667 712 Shareholder expense 215 155 Other 601 521 Total expense 2,716 2,227 Net loss $ ( 2,977 ) $ ( 4,401 ) Comprehensive loss $ ( 3,467 ) $ ( 9,954 ) 96 CONDENSED STATEMENTS OF CASH FLOW Years Ended March 31, $ in thousands 2024 2023 Cash Flows From Operating Activities Net loss $ ( 2,977 ) $ ( 4,401 ) Adjustments to reconcile net loss to net cash from operating activities: Equity in net loss/income from subsidiaries 457 2,640 Restricted stock vesting 219 91 Increase in other assets ( 59 ) ( 57 ) Increase in accounts payable to subsidiaries 1,825 976 Decrease in other liabilities ( 488 ) ( 14 ) Net cash used in operating activities ( 1,023 ) ( 765 ) Cash Flows From Investing Activities Purchase of equity investment ( 658 ) — Net cash used in investing activities ( 658 ) — Cash Flows From Financing Activities Increase in borrowings 2,500 — Issuance of common stock 1,000 — Net cash provided by financing activities 3,500 — Net increase (decrease) in cash 1,819 ( 765 ) Cash and cash equivalents – beginning 668 1,433 Cash and cash equivalents – ending $ 2,487 $ 668 NOTE 21. SUBSEQUENT EVENTS 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. 97 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.