What changed in this filing

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Item 1A. Risk Factors

2025-06-24 compared with 2024-07-16 · 36 added, 47 removed, 169 unchanged (33% of the section changed)

9 unchanged sentences

Commercial real estate loans generally are considered to involve a higher degree of risk due to a variety of factors, including generally larger loan balances and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at the stated maturity date.

Repayment of commercial real estate loans generally is dependent on income being generated by the rental property or underlying business in amounts sufficient to cover

operating expenses and debt service.

Repayment of commercial real estate loans generally is dependent on income being generated by the rental property or underlying business in amounts sufficient to cover operating expenses and debt service.

Failure to adequately underwrite and monitor these loans may result in significant losses to Carver Federal.

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Risks Related to Laws and Regulation and Their Enforcement

Failure to comply with the Formal Agreement could adversely affect our business.

In May 2025, the Bank entered into the Formal Agreement with the OCC.

The Formal Agreement requires the Bank to, among other things:

establish a Compliance Committee of its Board of Directors to specifically monitor and oversee the Bank's compliance with the Formal Agreement.

This Committee has already been established and is actively underway.

The Formal Agreement also requires the Bank to prepare a three-year strategic plan for the OCC's review, with such strategic plan to establish objectives specifically focusing on the Bank's earnings performance that will include measures for growth, capital, liquidity and balance sheet mix.

Finally, the Formal Agreement requires the Bank to prepare an earnings program for the OCC's review designed to improve and sustain the earnings of the Bank.

Failure to comply with the Formal Agreement could result in additional supervisory and enforcement actions against the Bank, its directors, or senior executive officers, including the issuance of a cease and desist order or the imposition of civil money penalties.

Any regulatory examination scrutiny or new regulatory requirements arising from the recent events in the banking industry could increase the Company’s expenses and affect the Company’s operations.

The Company anticipates increased regulatory scrutiny, in the course of routine examinations and otherwise, and new regulations directed towards banks, designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability.

The Company anticipates increased regulatory scrutiny, in the course of routine examinations and otherwise, and new regulations directed towards banks, all of which may increase the Company’s costs of doing business and reduce its profitability.

Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits.

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a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management personnel if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

Regardless of the federal regulatory minimum requirements, 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%.

At March 31, 2025, the Bank's capital level exceeded the regulatory requirements to be considered "well capitalized," but did not meet its IMCR requirements.

The Tier 1 leverage ratio was 8.70%, below the 9% IMCR requirement, and the total risk-based capital ratio was 11.56%, below the 12% IMCR requirement.

The Bank is working on taking appropriate actions with the goal of achieving the IMCR targets.

The application of these capital requirements, including the higher IMCR requirements, could, among other things, result in lower returns on equity, result in regulatory actions if we are unable to comply with such requirements and could limit the Bank's ability to pay dividends to the Company.

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

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

Under the Formal Agreement, the OCC will monitor all capital distributions, including dividend payments, by the Bank to the Company, and the FRB regulates dividends paid by the Company.

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.

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There are no assurances that dividend payments to the Company will resume.

Debenture interest payments on the Carver Statutory Trust I capital securities had been deferred, which is permissible under the terms of the Indenture for up to twenty consecutive quarterly periods, as the Company was prohibited from making payments without prior approval from the Federal Reserve Bank.

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.

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 on the outstanding debenture interest 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 the debenture interest payments.

Quarterly interest payments are now current, up to and including the most recent one, which was due on March 18, 2024.

However, there can be no assurance that our regulators will approve future payments on our outstanding trust preferred securities.

Debenture interest payments on the Carver Statutory Trust I capital securities are subject to prior approval from the Federal Reserve Bank.

A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments, although there is no assurance that the Federal Reserve Bank will continue to approve such quarterly payments.

All quarterly payments up to and including the March 2025 payment were made.

The Company deferred the interest payment due June 17, 2025 in order to manage liquidity.

The Company and the Bank operate in a highly regulated industry, which limits the manner and scope of business activities.

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It also provides that the listing standards of the national securities exchanges shall require listed companies to implement and disclose “clawback” policies mandating the recovery of incentive compensation paid to executive officers in connection with accounting restatements.

The legislation also directs the FRB to promulgate rules prohibiting excessive compensation paid to bank holding company executives.

The Financial Accounting Standards Board, the SEC and other regulatory entities, periodically change the financial accounting and reporting guidance that governs the preparation of the Company's consolidated financial statements.

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Risks Related to the Economic Conditions

Negative developments affecting the banking industry, and resulting media coverage, have eroded customer confidence in the banking system.

The high-profile bank failures involving First Republic Bank, Silicon Valley Bank and Signature Bank have generated significant market volatility among publicly traded bank holding companies.

These market developments have negatively impacted customer confidence in the safety and soundness of banks.

As a result, customers may choose to maintain deposits with larger financial institutions or invest in higher yielding short-term fixed income securities, all of which could materially adversely impact the Company’s liquidity, loan funding capacity, net interest margin, capital and results of operations.

While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of these failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in banks and the banking system more broadly.

Carver's results of operations are affected by economic conditions in the New York metropolitan area.

At March 31, 2025, a significant majority of the Bank's lending portfolio was concentrated in the New York metropolitan area.

As a result of this geographic concentration, Carver's results of operations are largely dependent on

economic conditions in this area.

As a result of this geographic concentration, Carver's results of operations are largely dependent on economic conditions in this area.

Decreases in real estate values could adversely affect the value of property used as collateral for loans to our borrowers.

16 unchanged sentences

In a rising rate environment, liability sensitivity is not preferable as it results in a reduction to our net interest margin.

In response to improving economic conditions, the Federal Open Market Committee ("FOMC") had slowly increased its federal funds rate target from a range of 0.00% - 0.25% that was in effect for several years to the target range of 2.25% - 2.50% that was in effect at March 31, 2019.

However, as the result of the COVID-19 pandemic and the related adverse local and economic consequences, the target range was decreased to the range of 0.00% - 0.25% at March 31, 2020.

Citing strong job gains, a falling unemployment rate and "elevated" inflation, the Federal Reserve approved the first interest rate hike in more than three years on March 16, 2022, increasing the target range to 0.25% - 0.50%.

The Federal Reserve continued to increase rates to the current target range of 5.25% to 5.5%, the highest level it has been in 22 years.

Inflationary pressure appears to have decreased, but rates remain high.

The target interest rate range had been held steady at its highest point between 5.25% to 5.5%, since July 2023, until the Federal Reserve lowered the rates by 50 basis points in September 2024, easing monetary policy for the first time since regular increases began in March 2022.

The Federal Reserve approved two additional cuts in November and December 2024, lowering the overnight borrowing rate to a range between 4.25% to 4.5%, but has left interest rates unchanged since its January 2025 meeting.

Interest rates also affect how much money we lend.

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Rising interest rates have decreased the value of the Company’s held-to-maturity securities portfolio, and the Company would realize losses if it were required to sell such securities to meet liquidity needs.

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly.

These securities make up a majority of the securities portfolio of most banks in the U.S., including a significant portion of the Company’s, resulting in unrealized losses embedded in the U.S.

While inflationary pressure appears to have decreased, interest rates remain high and the trading value of previously issued government and other fixed income securities has declined significantly.

These securities make up a majority of the

securities portfolio of most banks in the U.S., including a significant portion of the Company’s, resulting in unrealized losses embedded in the U.S.

banks’ securities portfolios.

While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on

unfavorable terms, thereby negatively impacting its profitability.

While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs.

Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S.

treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

Risks Related to the Bank's Operations

21 unchanged sentences

Carver may not be able to utilize its income tax benefits.

The Company's ability to utilize the deferred tax asset generated by New Markets Tax Credit income tax benefits as well as other deferred tax assets depends on its ability to meet the NMTC compliance requirements and its ability to generate sufficient taxable income from operations in the future.

Since the Bank has not generated sufficient taxable income to utilize

tax credits as they were earned, a deferred tax asset has been recorded in the Company's financial statements.

For additional information regarding Carver's NMTC, refer to Item 7, "Variable Interest Entities."

The Company's ability to utilize the deferred tax asset generated by New Markets Tax Credit income tax benefits as well as other deferred tax assets depends on its ability to generate sufficient taxable income from operations in the future.

Since the Bank has not generated sufficient taxable income to utilize tax credits as they were earned, a deferred tax asset has been recorded in the Company's financial statements.

The future recognition of Carver's deferred tax asset is highly dependent upon Carver's ability to generate sufficient taxable income.

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The Company is unable to determine how much, if any, of the remaining DTA will be utilized.

Risks associated with cyber-security could negatively affect our earnings.

Risks associated with cybersecurity could negatively affect our earnings.

The financial services industry has experienced an increase in both the number and severity of reported cyber attacks aimed at gaining unauthorized access to bank systems as a way to misappropriate assets and sensitive information, corrupt and destroy data, or cause operational disruptions.

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Computer break-ins, phishing and other disruptions may occur, and in infrequent cases have occurred, and could jeopardize the security of information stored in and transmitted through Carver’s computer systems and network infrastructure, which may result in significant liability to Carver and may cause existing and potential customers to refrain from doing business with Carver.

Although Carver, with the help of third-party service providers, intends to continue to

implement security technology and establish operational procedures designed to prevent such damage, its security measures may not be successful.

In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms Carver and its third-party service providers use to encrypt and protect customer transaction data.

Although Carver, with the help of third-party service providers, intends to continue to implement security technology and establish operational procedures designed to prevent such damage, its security measures may not be successful.

In addition, advances in computer capabilities, new discoveries in the field of cryptography or other

developments could result in a compromise or breach of the algorithms Carver and its third-party service providers use to encrypt and protect customer transaction data.

A failure of such security measures could have a material adverse effect on Carver’s financial condition and results of operations.

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Under SEC rules, we are prohibited from selling securities under such a registration statement if the aggregate market value of the securities sold thereunder in any twelve-month period exceeds one-third of the market value of our outstanding common stock held by non-affiliates.

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

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

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

In the future, we may be limited in our ability to access sufficient funding through a public or private equity offering or convertible debt offering.

We may be limited in our ability to access sufficient funding through a public or private equity offering or convertible debt offering.

A future issuance of stock could dilute the value of our common stock.

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Future issuance of any new shares could cause further dilution in the value of our outstanding shares of common stock.

We cannot predict the size of future issuances of our common stock, or securities convertible into or exchangeable for such shares, or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common

Sales of substantial amounts of our common stock or the perception that such sales could occur, may adversely affect prevailing market prices of our common stock.

12 unchanged sentences

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

What changed 10-K

Item 1A. Risk Factors