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, 2025, and 2024, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for each of the years then ended, 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, 2025 and 2024, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.    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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.   Allowance for Credit Losses     As described in Note 4 to the Company’s consolidated financial statements, the Company reported an allowance for credit losses (“ACL”) of $6.3 million as of March 31, 2025. As described in Note 2 to the Company’s consolidated financial statements, the ACL is a valuation account that consists of quantitative and qualitative components. The Company considers historical loss experience, forecasted business conditions, as well as reasonable and supportable forecasts and reversion to the historical loss amounts to develop the quantitative component. The quantitative component is then adjusted for qualitative risk factors. Management makes significant judgments and assumptions regarding the economic condition factor used in the qualitative component of the ACL. We identified the economic condition factor used by management to determine the ACL as a critical audit matter. The inherent uncertainty in determining the economic condition factor requires management to make significant 51 judgements and assumptions with respect to the underlying economic data. Auditing such judgments and 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 accuracy of the economic data used by management in determining the economic condition factor by agreeing it back to third-party source data.  • Assessing the reasonableness of management’s judgments in determining the economic condition factor based on economic data used by management by evaluating other independently obtained economic data. /s/ BDO USA, P.C. We have served as the Company's auditor since 2016. New York, NY June 24, 2025 52 CARVER BANCORP, INC. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION $ in thousands except per share data March 31, 2025 March 31, 2024 ASSETS Cash and cash equivalents: Cash and due from banks $ 49,810 $ 58,522 Money market investments 505 503 Total cash and cash equivalents 50,315 59,025 Investment securities: Available-for-sale, at fair value (amortized cost of $ 56,475 and $ 60,735 , respectively) 44,522 48,030 Held-to-maturity, at amortized cost (fair value of $ 1,698 and $ 1,905 , respectively) 1,750 2,008 Total investment securities 46,272 50,038 Loans receivable: Real estate mortgage loans 423,023 437,577 Commercial business loans 164,964 169,602 Consumer loans 25,697 15,699 Loans, net of deferred fees and costs 613,684 622,878 Allowance for credit losses ( 6,337 ) ( 5,871 ) Total loans receivable, net 607,347 617,007 Premises and equipment, net 2,010 2,567 Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost 853 2,004 Accrued interest receivable 2,980 3,662 Right-of-use assets 8,247 9,844 Other assets 11,967 12,649 Total assets $ 729,991 $ 756,796 LIABILITIES AND EQUITY LIABILITIES Deposits: Non-interest bearing checking $ 89,538 $ 102,013 Interest-bearing deposits Interest-bearing checking 44,453 46,358 Savings 111,365 113,187 Money market 161,592 159,105 Certificates of deposit 252,129 223,719 Escrow 2,760 2,617 Total interest-bearing deposits 572,299 544,986 Total deposits 661,837 646,999 Advances from the FHLB-NY and other borrowed money 20,243 46,536 Operating lease liability 8,869 10,616 Other liabilities 9,464 10,336 Total liabilities 700,413 714,487 Commitments and contingencies (Note 15) — — EQUITY Preferred stock (par value $ 0.01 per share: 9,557 Series D shares, with a liquidation preference of $ 1,000 per share, issued and outstanding, respectively) 9,557 9,557 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; 7,787,367 and 7,644,675 issued; 5,283,564 and 5,140,872 shares outstanding, respectively) 78 77 Additional paid-in capital 87,920 87,660 Accumulated deficit ( 65,293 ) ( 51,549 ) Treasury stock, at cost ( 2,503,803 shares, respectively) ( 2,908 ) ( 2,908 ) Accumulated other comprehensive loss ( 11,953 ) ( 12,705 ) Total equity 29,578 42,309 Total liabilities and equity $ 729,991 $ 756,796 See accompanying notes to consolidated financial statements 53 CARVER BANCORP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended March 31, $ in thousands except per share data 2025 2024 Interest income: Loans $ 30,025 $ 29,651 Mortgage-backed securities 536 583 Investment securities 1,067 1,131 Money market investments 2,654 2,654 Total interest income 34,282 34,019 Interest expense: Deposits 13,038 9,079 Advances and other borrowed money 2,093 2,379 Total interest expense 15,131 11,458 Net interest income 19,151 22,561 Provision for credit losses 1,191 83 Net interest income after provision for credit losses 17,960 22,478 Non-interest income: Depository fees and charges 2,383 2,208 Loan fees and service charges 238 493 (Loss) gain on sale of loans, net ( 191 ) 30 Grant income 80 3,050 Other 576 942 Total non-interest income 3,086 6,723 Non-interest expense: Employee compensation and benefits 14,825 13,548 Net occupancy expense 5,007 4,545 Equipment, net 2,414 2,047 Data processing 3,037 2,972 Consulting fees 596 481 Federal deposit insurance premiums 701 596 Other 8,210 7,989 Total non-interest expense 34,790 32,178 Loss before income tax expense ( 13,744 ) ( 2,977 ) Income tax expense — — Net loss $ ( 13,744 ) $ ( 2,977 ) Loss per common share: Basic $ ( 2.65 ) $ ( 0.61 ) Diluted $ ( 2.65 ) $ ( 0.61 ) See accompanying notes to consolidated financial statements 54 CARVER BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Years Ended March 31, $ in thousands 2025 2024 Net loss $ ( 13,744 ) $ ( 2,977 ) Other comprehensive loss, net of tax: Change in unrealized gain (loss) of securities available-for-sale, net of income tax expense of $ 0 (due to full valuation allowance) 752 ( 490 ) Total other comprehensive income (loss), net of tax 752 ( 490 ) Total comprehensive loss, net of tax $ ( 12,992 ) $ ( 3,467 ) See accompanying notes to consolidated financial statements 55 CARVER BANCORP, INC. 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, 2023 25,378 68 82,805 ( 47,904 ) ( 2,908 ) ( 12,215 ) 45,224 Cumulative effect adjustment for adoption of ASC 326 — — — ( 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 Net loss — — — ( 13,744 ) — — ( 13,744 ) Other comprehensive income, net of tax — — — — — 752 752 Issuance of common stock — 1 194 — — — 195 Stock based compensation expense — — 66 — — — 66 Balance—March 31, 2025 $ 21,734 $ 78 $ 87,920 $ ( 65,293 ) $ ( 2,908 ) $ ( 11,953 ) $ 29,578 See accompanying notes to consolidated financial statements 56 CARVER BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended March 31, $ in thousands 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ ( 13,744 ) $ ( 2,977 ) Adjustments to reconcile net loss to net cash used in operating activities: Provision for credit losses 1,191 83 Stock based compensation expense 66 220 Depreciation and amortization expense 813 965 Loss (gain) on sale of loans, net 191 ( 30 ) Income from bank owned life insurance ( 179 ) ( 459 ) Amortization and accretion of loan premiums and discounts and deferred charges 214 216 Amortization and accretion of premiums and discounts - securities 203 298 Decrease (increase) in accrued interest receivable 682 ( 1,751 ) (Increase) decrease in other assets ( 1,094 ) ( 82 ) Decrease in other liabilities ( 952 ) ( 3,054 ) Net cash used in operating activities ( 12,609 ) ( 6,571 ) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from principal payments, maturities and calls of investments: Available-for-sale 4,060 5,032 Proceeds from principal payments, maturities and calls of investments: Held-to-maturity 253 304 Proceeds from bank-owned life insurance 753 — Loans held-for-investment, net of repayments/payoffs and maturities 24,227 6,275 Purchase of equity investment — ( 603 ) Loans purchased from third parties ( 15,369 ) ( 31,526 ) Proceeds from sale of loans 335 563 Redemption of FHLB-NY stock 1,151 262 Purchase of premises and equipment ( 331 ) ( 360 ) Net cash provided by (used in) investing activities 15,079 ( 20,053 ) CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 14,838 46,570 Repayment of short-term borrowings — ( 10,000 ) Proceeds from long-term borrowings 1,814 5,527 Repayment of long-term borrowings ( 28,027 ) — Issuance of common stock 195 1,000 Net cash (used in) provided by financing activities ( 11,180 ) 43,097 Net (decrease) increase in cash and cash equivalents ( 8,710 ) 16,473 Cash and cash equivalents at beginning of period 59,025 42,552 Cash and cash equivalents at end of period $ 50,315 $ 59,025 Supplemental cash flow information: Noncash financing and investing activities Conversion of preferred stock to common stock — 3,644 Cash paid for: Interest $ 15,210 $ 10,711 Income taxes 222 232 See accompanying notes to consolidated financial statements 57 CARVER BANCORP, INC. 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. 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. Regulation On May 14, 2025, the Bank entered into the Formal Agreement with the OCC. As a result of the Formal Agreement, the Bank is 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. In addition, Carver was previously 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 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. 58 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. 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, 2025 and 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, any previously recognized allowance for credit loss ("ACL") is written off and the amortized cost is adjusted to fair value. 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 59 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 loss is recorded through ACL, limited by the amount that the fair value is less than the amortized cost basis. Non-credit losses are 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. 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 included in Non-Interest Income in the consolidated statements of operations. 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") The ACL is a valuation account that is deducted from the loan portfolio's amortized cost basis to present the net amount expected to be collected on the loans. Additions to the allowance are recognized through the provision for credit losses. Loan losses are charged off against the allowance when management believes a loan balance is deemed as uncollectible. Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the ACL. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount and a reversion to historical loss amounts 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 60 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 1.20x (with personal guarantees), and that the maximum loan-to-value ("LTV") at origination not exceed 75% 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 owner/guarantor, 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 owner/guarantor, 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 75% 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 1.20x (with guarantor recourse). The Bank also requires the assignment of rents of all tenants' leases in the mortgaged property and personal guarantees may be obtained for additional security from these borrowers. CRE loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral. • Construction - Carver Federal historically originated or participated in construction loans for new construction and renovation of multifamily buildings, residential developments, community service facilities, churches, and affordable housing programs. The loans provide for disbursement in stages as construction is completed. Borrowers must satisfy all credit requirements that apply to the Bank’s permanent mortgage loan financing for the mortgaged property. The Bank has additional criteria for construction loans, including an engineer’s plan and periodic cost reviews on all construction budgets for loans. Construction loans present an increased level of risk from the effect of general economic conditions and uncertainties surrounding construction costs. • Business - Carver Federal originates and purchases business and SBA loans primarily to businesses located in its primary market area and surrounding areas. Business loans are typically personally guaranteed by the owners and may also be secured by additional collateral, including real estate, equipment and inventory. Business loans are subject to increased risk from the effect of general economic conditions. SBA loans are guaranteed by the U.S. government based on the percentage of each individual program. 61 • 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, with operations primarily focused on community banking. The Company's chief operating decision maker ("CODM") is the senior executive committee that includes the chief executive officer, chief financial officer, and chief administrative officer. The primary measure of segment performance is consolidated net income (loss). The CODM reviews the Company's financial information presented on a consolidated basis for purposes of making operating decisions and allocating resources, and evaluates financial performance by monitoring the revenue streams of its products and services, significant expenses, and budget to actual results. The Company's segment assets are total assets as presented in the consolidated statements of financial condition and the measure of segment performance and significant segment expenses are presented in the consolidated statements of operations. 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: 62 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, 2025 and 2024. The Bank carries this investment at historical cost. Mortgage Servicing Rights All separately recognized servicing assets totaled $ 130 thousand and $ 140 thousand, respectively, at March 31, 2025 and 2024, 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 $ 25 thousand and $ 32 thousand, respectively, was recognized during the years ended March 31, 2025 and 2024, 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, and is included in Other Assets in the consolidated statements of financial condition. 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, 2025, 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, 2025 and 2024, we had residential loans with a carrying value of $ 1.3 million and $ 2.7 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 63 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 While Carver has suspended its regular quarterly cash dividend on its common stock, in the future, the Company may rely on dividends from Carver Federal to pay cash dividends to its stockholders and to engage in share repurchase programs. In recent years, Carver has been successful in obtaining cash independently through its capital raising efforts, which may include cash from government grants or below market-rate loans. Under the Formal Agreement, the OCC will monitor all capital distributions, including dividend payments, by Carver Federal to the Company. 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 an application 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. 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 on the date of grant 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 Provision for Credit Loss 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 $ 2 thousand and $ 1 thousand for the fiscal years ended March 31, 2025 and 2024, respectively. The ACL on off-balance sheet credit exposures was $ 11 thousand and $ 9 thousand as of March 31, 2025 and 2024, respectively. 64 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. 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 March 31, 2025, the Company adopted ASU No. 2023-07 "Segment Report (Topic 280): Improvements to Reportable Segment Disclosures," which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update should be applied retrospectively to all prior periods presented in the financial statements. The Company has determined that all of its activities constitute one reportable operating segment and there was no material impact on the consolidated financial statements upon adoption. Accounting Standards Not Yet Adopted In November 2024, the FASB issued ASU No. 2024-03 "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)" to improve the disclosures about a public business entity's expenses and address investor requests for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions. ASU No. 2024-03 is effective for fiscal years beginning after December 15, 2026 (for the Company, the fiscal year ending March 31, 2028), and interim periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this update should be applied either prospectively to financial statements issued for reporting periods after the effective date of this update, or retrospectively to any or all prior periods presented in the financial statements. ASU 2024-03 is not expected to have a material impact on the Company's financial statements. In January 2025, the FASB issued ASU No. 2025-01 to clarify the effective date of ASU No. 2024-03. The amendment requires all public business entities to adopt the guidance in annual reporting periods beginning after December 15, 2026 and interim periods within annual reporting periods beginning after December 15, 2027. 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. NOTE 3. INVESTMENT SECURITIES At March 31, 2025, securities with fair value of $ 44.5 million, or 96.2 %, of the Bank’s total securities were classified as available-for-sale, and the remaining securities with amortized cost of $ 1.8 million, or 3.8 %, were classified as held-to-maturity, compared to 65 $ 48.0 million and $ 2.0 million at March 31, 2024, respectively. The Bank had no securities classified as trading at March 31, 2025 and March 31, 2024. Other investments as of March 31, 2025 primarily consisted of the Company and Bank's investments in limited partnership Community Capital Funds and a $ 5.0 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 $ 6.4 million at March 31, 2025 and are included in Other Assets on the Statements of Financial Condition. The following tables set forth the amortized cost and fair value of securities available-for-sale and held-to-maturity at March 31, 2025 and March 31, 2024: At March 31, 2025 Amortized Gross Unrealized $ in thousands Cost Gains Losses Fair Value Available-for-Sale: Mortgage-backed securities: Government National Mortgage Association $ 204 $ 5 $ — $ 209 Federal Home Loan Mortgage Corporation 18,779 — ( 4,017 ) 14,762 Federal National Mortgage Association 10,231 — ( 2,130 ) 8,101 Total mortgage-backed securities 29,214 5 ( 6,147 ) 23,072 U.S. Government Agency Securities 4,326 — ( 16 ) 4,310 Corporate Bonds 5,262 — ( 2,442 ) 2,820 Muni Securities 17,673 — ( 3,353 ) 14,320 Total available-for-sale $ 56,475 $ 5 $ ( 11,958 ) $ 44,522 Held-to-Maturity: Mortgage-backed securities: Government National Mortgage Association $ 249 $ — $ ( 9 ) $ 240 Federal National Mortgage Association 1,501 — ( 43 ) 1,458 Total held-to-maturity $ 1,750 $ — $ ( 52 ) $ 1,698 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 There were no sales of available-for-sale securities and held-to-maturity securities for the years ended March 31, 2025 and March 31, 2024. 66 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, 2025, the Bank pledged mortgage-backed securities of $ 0.3 million and $ 1.9 million as collateral for public funds deposits and advances from the FHLB-NY, respectively. The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at March 31, 2025 and March 31, 2024 for less than 12 months and 12 months or longer: At March 31, 2025 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 $ — $ — $ ( 6,147 ) $ 22,863 $ ( 6,147 ) $ 22,863 U.S. Government Agency Securities ( 11 ) 3,467 ( 5 ) 843 ( 16 ) 4,310 Corporate bonds — — ( 2,442 ) 2,820 ( 2,442 ) 2,820 Muni securities — — ( 3,353 ) 14,320 ( 3,353 ) 14,320 Total available-for-sale securities $ ( 11 ) $ 3,467 $ ( 11,947 ) $ 40,846 $ ( 11,958 ) $ 44,313 Held-to-Maturity: Mortgage-backed securities $ — $ — $ ( 52 ) $ 1,670 $ ( 52 ) $ 1,670 Total held-to-maturity securities $ — $ — $ ( 52 ) $ 1,670 $ ( 52 ) $ 1,670 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 Management reviews the investment portfolio on a quarterly basis to identify and evaluate each investment that has an unrealized holding loss. A total of 22 available-for-sale and held-to-maturity securities had an unrealized loss at March 31, 2025, compared to 24 at March 31, 2024. Mortgage-backed securities, U.S. government agency securities, municipal securities and a corporate bond security represented 51.6 %, 9.7 %, 32.3 % and 6.4 %, respectively, of total available-for-sale securities in an unrealized loss position at March 31, 2025. There were seven mortgage-backed securities, three 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, 2025. 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 67 the ability and intent to hold the securities until maturity or the valuations recover. The Bank's held-to-maturity portfolio consists of five mortgage-backed securities that were in an unrealized loss position for more than 12 months at March 31, 2025. These securities 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, 2025. The following is a summary of the amortized cost and fair value of debt securities at March 31, 2025, 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. $ in thousands Amortized Cost Fair Value Weighted Average Yield Available-for-Sale: One through five years 847 843 5.62 % Five through ten years 9,677 8,061 2.32 % After ten years 16,737 12,546 3.30 % Mortgage-backed securities 29,214 23,072 1.63 % $ 56,475 $ 44,522 2.30 % Held-to-maturity: Mortgage-backed securities $ 1,750 $ 1,698 2.86 % 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, 2025 March 31, 2024 $ in thousands Amount % Amount % One-to-four family $ 74,387 12.1 % $ 82,787 13.3 % Multifamily 165,812 27.0 % 177,203 28.4 % Commercial real estate 178,257 29.1 % 175,384 28.2 % Construction 4,567 0.7 % 2,203 0.4 % Business (1) 164,964 26.9 % 169,602 27.2 % Consumer (2) 25,697 4.2 % 15,699 2.5 % Total loans receivable 613,684 100.0 % 622,878 100.0 % Allowance for credit losses ( 6,337 ) ( 5,871 ) Total loans receivable, net $ 607,347 $ 617,007 ( 1) Includes business overdrafts of $ 50 thousand and $ 73 thousand as of March 31, 2025 and 2024, respectively (2) Includes consumer overdrafts of $ 18 thousand and $ 15 thousand as of March 31, 2025 and 2024, respectively The totals above are shown net of deferred loan fees and costs. Net deferred loan fees totaled $ 2.6 million and $ 2.9 million at March 31, 2025 and 2024, respectively. During fiscal year 2025, the Bank purchased $ 15.4 million consumer loans at par. The Bank purchased $ 31.5 million loans at par during fiscal year 2024, comprised of $ 20.0 million one-to-four family, $0.2 million business and $ 11.3 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 $ 10.7 million and $ 11.6 million at March 31, 2025 and 2024, respectively. At March 31, 2025 the Bank pledged $ 50.4 million in total real estate mortgage loans as collateral for advances from the FHLB-NY. The allowance for credit losses totaled $ 6.3 million and $ 5.9 million as of March 31, 2025 and 2024, respectively. The increase was primarily attributed to a series of qualitative factor adjustments and an increase in individually analyzed loan reserv 68 es during fiscal year 2025. The following is an analysis of the allowance for credit losses based upon the method of evaluating loan reserves under the expected loss methodology for the fiscal years ended March 31, 2025 and 2024: At March 31, 2025 $ in thousands One-to-four family Multifamily Commercial Real Estate Construction Business Consumer Other Total Allowance for credit losses: Beginning Balance $ 2,005 $ 720 $ 1,222 $ 1 $ 1,415 $ 450 $ 58 $ 5,871 Charge-offs — — — — ( 289 ) ( 581 ) — ( 870 ) Recoveries — — — — 10 135 — 145 Provision for (Recovery of) Credit Losses ( 206 ) 100 243 2 510 589 ( 47 ) 1,191 Ending Balance $ 1,799 $ 820 $ 1,465 $ 3 $ 1,646 $ 593 $ 11 $ 6,337 Allowance for Credit Losses Ending Balance: collectively evaluated for impairment $ 1,799 $ 820 $ 1,404 $ 3 $ 1,547 $ 560 $ 11 $ 6,144 Allowance for Credit Losses Ending Balance: individually evaluated for impairment — — 61 — 99 33 — 193 Loan Receivables Ending Balance $ 74,387 $ 165,812 $ 178,257 $ 4,567 $ 164,964 $ 25,697 $ — $ 613,684 Ending Balance: collectively evaluated for impairment 72,888 161,879 169,935 4,567 151,885 25,664 — 586,818 Ending Balance: individually evaluated for impairment 1,499 3,933 8,322 — 13,079 33 — 26,866 At March 31, 2024 $ in thousands One-to-four family Multifamily Commercial Real Estate Construction Business Consumer Other Total Allowance for loan 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) Loan Losses 69 3 ( 95 ) 1 ( 274 ) g 321 58 83 Ending Balance $ 2,005 $ 720 $ 1,222 $ 1 $ 1,415 $ 450 $ 58 $ 5,871 Allowance for Loan Losses Ending Balance: collectively evaluated for impairment $ 2,005 $ 720 $ 1,222 $ 1 $ 1,408 $ 449 $ 58 $ 5,863 Allowance for Loan 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 69 The following is a summary of nonaccrual loans, at amortized cost, at March 31, 2025 and 2024. March 31, 2025 $ in thousands Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Gross loans receivable: One-to-four family $ 1,519 $ — $ 1,519 Multifamily 3,937 — 3,937 Commercial real estate 4,545 2,202 6,747 Business 12,255 104 12,359 Consumer — 33 33 Total nonaccrual loans $ 22,256 $ 2,339 $ 24,595 March 31, 2024 $ in thousands Nonaccrual Loans with No Allowance Nonaccrual Loans with an Allowance Total Nonaccrual Loans Gross loans receivable: One-to-four family $ 3,554 $ — $ 3,554 Multifamily 2,238 — 2,238 Commercial real estate 4,522 — 4,522 Business 1,317 100 1,417 Consumer — 44 44 Total nonaccrual loans $ 11,631 $ 144 $ 11,775 There was no interest income recognized on nonaccrual loans during the twelve months ended March 31, 2025. At March 31, 2025 and March 31, 2024, other non-performing assets totaled $ 52 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, 2025 and March 31, 2024. 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 90 or more days, or past maturity. All other one-to-four family residential loans and consumer loans are performing loans. The following tables present 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, 2025 and 2024: 70 At March 31, 2025 $ in thousands 2025 2024 2023 2022 2021 2020 and earlier Revolving Loans Total Credit Risk Profile by Internally Assigned Grade: Multifamily Pass $ — $ 1,719 $ 6,501 $ 50,072 $ 37,122 $ 57,167 — $ 152,581 Special Mention — — — — 10,004 — — 10,004 Substandard — — — 1,093 1,380 754 — 3,227 Doubtful — — — — — — — — Loss — — — — — — — — Total — 1,719 6,501 51,165 48,506 57,921 — 165,812 Commercial Real Estate Pass $ 1,750 $ 12,913 $ 28,834 $ 30,728 $ 20,250 $ 71,793 — $ 166,268 Special Mention — — — — 3,023 $ 644 — 3,667 Substandard — — — — 3,800 $ 4,522 — 8,322 Doubtful — — — — — $ — $ — — Loss — — — — — $ — $ — — Total 1,750 12,913 28,834 30,728 27,073 76,959 — 178,257 Construction Pass $ — $ — $ 4,567 $ — $ — $ — $ — $ 4,567 Special Mention — — — — — — — — Substandard — — — — — — — — Doubtful — — — — — — — — Loss — — — — — — — — Total — — 4,567 — — — — 4,567 Business Pass $ 2,807 $ 24,325 $ 18,978 $ 25,906 $ 39,992 $ 38,115 — $ 150,123 Special Mention — — — 1,803 438 — — 2,241 Substandard — — — 7,950 4,307 343 — 12,600 Doubtful — — — — — — — — Loss — — — — — — — — Total 2,807 24,325 18,978 35,659 44,737 38,458 — 164,964 Gross charge-offs — — — 160 — 129 — 289 Credit Risk Profile Based on Payment Activity: One-to-four Family Performing $ — $ — $ 20,793 $ 3,764 $ 12,411 $ 35,920 $ — $ 72,888 Non-Performing — — — — — 1,499 — 1,499 Total — — 20,793 3,764 12,411 37,419 — 74,387 Consumer Performing $ 11,206 $ — $ 4,556 $ — $ 8,384 $ — $ 304 $ — $ 1,193 $ — $ 25,643 Non-Performing — 22 17 15 — — — 54 Total 11,206 4,578 8,401 319 — 1,193 — 25,697 Gross charge-offs — 52 303 14 — 212 — 581 Total Loans (excluding gross charge-offs) $ 15,763 $ 43,535 $ 88,074 $ 121,635 $ 132,727 $ 211,950 $ — $ 613,684 71 At 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 L oans 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, 2025 and 2024. 72 March 31, 2025 $ 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 $ 804 $ — $ 1,499 $ 2,303 $ 72,084 $ 74,387 Multifamily 7,521 1,093 2,840 11,454 154,358 165,812 Commercial real estate 1,314 — 6,722 8,036 170,221 178,257 Construction — — — — 4,567 4,567 Business 9,265 956 12,156 22,377 142,587 164,964 Consumer 108 85 33 226 25,471 25,697 Total $ 19,012 $ 2,134 $ 23,250 $ 44,396 $ 569,288 $ 613,684 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 At March 31, 2025, there were no loans 90 or more days past due and accruing interest. 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, 2025 and 2024: At March 31, 2025 At March 31, 2024 Collateral Type Collateral Type $ in thousands Real Estate Other Allowance Allocated Real Estate Other Allowance Allocated One-to-four family $ 1,012 $ 487 $ — $ 4,151 $ — $ — Multifamily 3,933 — — 2,485 — — Commercial real estate 8,322 — 61 4,522 — — Business 13,018 62 99 12,196 1,066 7 Consumer 4 28 33 — 45 1 $ 26,289 $ 577 $ 193 $ 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. In certain circumstances, the Bank will modify the terms of a loan, including 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, 2025 and 2024. At March 31, 2025, loans modified to borrowers experiencing financial difficulty totaled $ 6.0 million, $ 389 thousand 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 re 73 asonably assured. These have generally performed according to the restructured terms for a period of at least six months. For the fiscal years ended March 31, 2025 and 2024, there were no modified loans that defaulted within 12 months of modification. 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, 2025. NOTE 5. PREMISES AND EQUIPMENT, NET The details of premises and equipment as of March 31 are as follows: $ in thousands 2025 2024 Leasehold improvements $ 7,311 $ 7,175 Furniture, equipment, and other 15,142 15,022 22,453 22,197 Less accumulated depreciation and amortization ( 20,443 ) ( 19,630 ) Premises and equipment, net $ 2,010 $ 2,567 Depreciation and amortization charged to operations was $ 813 thousand and $ 965 thousand for fiscal years 2025 and 2024, respectively. NOTE 6. LEASES As of March 31, 2025, operating right-of-use ("ROU") lease assets and related lease liabilities totaled $ 8.2 million and $ 8.9 million, respectively. As of March 31, 2024, operating ROU lease assets and related lease liabilities totaled $ 9.8 million and $ 10.6 million, respectively. As of March 31, 2025, the Company had $ 24 thousand and $ 26 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, 2025: March 31, 2025 March 31, 2024 Weighted-average remaining lease term Operating leases 3.5 years 4.3 years Finance lease 1.3 years 2.6 years Weighted-average discount rate Operating leases 3.34 % 3.05 % Finance lease 5.00 % 4.32 % 74 $ in thousands March 31, 2025 March 31, 2024 Operating lease expense $ 2,797 $ 2,774 Finance lease cost Amortization of right-of use asset 47 94 Interest on lease liability 3 6 Cash paid for amounts included in the measurement of lease liabilities Operating leases 2,947 2,833 Finance lease 55 95 Maturities of lease liabilities at March 31, 2025 are as follows: $ in thousands Operating Leases Finance Leases Year ending March 31, 2026 $ 2,893 $ 26 2027 2,583 — 2028 2,411 — 2029 1,326 — 2030 134 — Thereafter 80 — Total lease payments 9,427 26 Interest ( 558 ) — Lease liability $ 8,869 $ 26 NOTE 7. ACCRUED INTEREST RECEIVABLE The details of accrued interest receivable as of March 31 are as follows: $ in thousands 2025 2024 Loans receivable $ 2,765 $ 3,410 Mortgage-backed securities 52 56 Investments and other interest-bearing assets 163 196 Total accrued interest receivable $ 2,980 $ 3,662 NOTE 8. DEPOSITS Deposit balances and weighted average interest rates as of March 31 are as follows: 2025 2024 $ in thousands Amount Percent of Total Deposits Weighted Average Rate Amount Percent of Total Deposits Weighted Average Rate Non-interest-bearing demand $ 89,538 13.53 % — % $ 102,013 15.77 % — % Interest-bearing checking 44,453 6.72 0.12 46,358 7.17 0.58 Savings 111,365 16.83 0.62 113,187 17.49 0.28 Money market savings account 161,592 24.41 2.01 159,105 24.59 1.34 Certificates of deposit 252,129 38.10 3.98 223,719 34.58 3.22 Loan escrow deposits 2,760 0.41 1.03 2,617 0.40 0.30 Total $ 661,837 100.00 % 2.12 % $ 646,999 100.00 % 1.54 % 75 Scheduled maturities of certificates of deposit for the year ended March 31, 2025 are as follows: $ in thousands Amount Maturing years ending March 31: 2026 $ 231,873 2027 14,088 2028 2,631 2029 1,723 2030 1,812 2031 and beyond 2 Total $ 252,129 The following table represents the amount of certificates of deposit of $250,000 or more at March 31, 2025 maturing during the periods indicated: $ in thousands Maturing: April 1, 2025 to June 30, 2025 $ 60,824 July 1, 2025 to September 30, 2025 6,339 October 1, 2025 to March 31, 2026 4,688 April 1, 2026 and beyond 2,330 Total $ 74,181 Interest expense on deposits is as follows for the years ended March 31: $ in thousands 2025 2024 Interest-bearing checking $ 54 $ 289 Savings and clubs 677 310 Money market savings 3,109 2,102 Certificates of deposit 9,175 6,370 Loan escrow deposits 23 8 Total interest expense $ 13,038 $ 9,079 The following table presents additional information about our year-end deposits: $ in thousands 2025 2024 Deposits from the Certificate of Deposit Account Registry Service (CDARS) $ 89,994 $ 76,650 Deposits from brokers 55,042 60,041 Certificates of deposit individually greater than $250,000 19,180 19,458 Deposits from certain directors, executive officers and their affiliates 3,219 1,033 NOTE 9. ADVANCES FROM THE FHLB-NY AND OTHER BORROWED MONEY Federal Home Loan Bank Advances. At March 31, 2025, the Bank had a $ 1.8 million outstanding advance from the FHLB-NY. During fiscal year 2025, the Bank secured the $ 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. 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 $ 219.0 million at March 31, 2025. 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, 2025, advances were all fixed-rate and secured by pledges of the Bank's investment in FHLB-NY capital stock totaling $ 0.9 million, and a blanket assignment of pledged qualifying mortgage loans of $ 50.4 million and mortgage-backed and investment securities with a market value of $ 1.9 million. The 76 Bank has sufficient collateral at the FHLB-NY to be able to borrow $ 30.4 million from the FHLB-NY at March 31, 2025. The accrued interest payable on FHLB-NY advances was $8 thousand and interest expense was $ 892 thousand for the year ended March 31, 2025. The accrued interest payable on FHLB-NY advances was $109 thousand and the 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: 2025 2024 $ in thousands Amount Weighted Average Rate Amount Weighted Average Rate Maturing Year Ending March 31, 2025 — — % 28,027 4.61 % 2026 1,814 5.45 % — — % $ 1,814 $ 28,027 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 SOFR. Debenture interest payments 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 interest 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. Debenture interest payments may be deferred for up to twenty consecutive quarters under the terms of the Indenture. The accrued interest payable on subordinated debt securities was $ 43 thousand and the interest expense was $ 1.1 million for the year ended March 31, 2025. 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. 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, 2025, 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 $ 76 thousand, respectively, for the year ended March 31, 2025. The accrued interest payable and interest expense was $ 7 thousand and $ 74 thousand, respectively, for the year ended March 31, 2024. The following table presents expected maturities of the Company's long-term borrowings at March 31, 2025: $ in thousands Year ending March 31, 2026 $ 1,814 2027 2,500 2028 — 2029 2,500 2030 — Thereafter 13,403 Total $ 20,217 77 The following table sets forth certain information regarding Carver Federal's borrowings as of and for the years ended March 31: $ in thousands 2025 2024 Amounts outstanding at the end of year: FHLB advances $ 1,814 $ 28,027 Subordinated debt securities 13,403 13,403 Other 5,000 5,000 Rate paid at year end: FHLB advances 5.45 % 4.61 % Subordinated debt securities 7.61 % 8.64 % Other 1.50 % 1.50 % Maximum amount of borrowing outstanding at any month end: FHLB advances $ 25,000 $ 25,000 Subordinated debt securities 13,403 13,403 Other 2,500 2,500 Approximate average amounts outstanding for year: FHLB advances $ 24,089 $ 27,020 Subordinated debt securities 13,403 13,403 Other 5,000 4,813 Approximate weighted average rate paid during year: FHLB advances 3.7 % 4.22 % Subordinated debt securities 8.38 % 8.65 % Other 1.51 % 1.54 % 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: 2025 2024 $ in thousands Amount Percent Amount Percent Statutory Federal income tax expense (benefit) $ ( 2,886 ) 21.0 % $ ( 625 ) 21.0 % Federal deferred tax adjustments — — 4 ( 0.2 ) Change in valuation allowance 2,919 ( 21.2 ) 713 ( 23.9 ) Bank owned life insurance ( 37 ) 0.3 ( 96 ) 3.2 Other 4 ( 0.1 ) 4 ( 0.1 ) 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: 78 $ in thousands 2025 2024 Deferred Tax Assets: Allowance for credit losses $ 2,145 $ 1,987 Compensation and benefits 39 39 Nonaccrual loan interest 425 188 Net operating loss carryforward 24,352 20,168 New markets tax credit 3,434 3,434 Unrealized loss on available-for-sale securities 2,510 2,668 Lease liability 3,011 3,629 Other 93 58 Total Deferred Tax Assets 36,009 32,171 Deferred Tax Liabilities: Depreciation 355 501 ROU asset 2,799 3,366 Other 2 — Total Deferred Tax Liabilities 3,156 3,867 Deferred Tax Assets, net 32,853 28,304 Valuation Allowance ( 32,853 ) ( 28,304 ) Deferred Tax Assets, net of valuation allowance $ — $ — At March 31, 2025, the Company had net operating loss carryforwards for federal purposes of approximately $ 64.1 million, for state purposes of approximately $ 90.9 million and for city purposes of approximately $ 78.4 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. NOTE 11. LOSS PER COMMON SHARE The following table reconciles the loss attributable 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 2025 2024 Net loss attributable to Carver Bancorp, Inc. $ ( 13,744 ) $ ( 2,977 ) Weighted average common shares outstanding – basic 5,183,492 4,845,975 Weighted average common shares outstanding – diluted 5,183,492 4,845,975 Basic loss per common share $ ( 2.65 ) $ ( 0.61 ) Diluted loss per common share $ ( 2.65 ) $ ( 0.61 ) For the years ended March 31, 2025 and March 31, 2024, 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." 79 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, 2025, there were 5,283,564 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 • 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, 2025, 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. There were no conversions during the twelve months ended March 31, 2025. 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, 2025, 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 Tre 80 asury'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 (the "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 Agreement was completed on August 6, 2020. Upon completion of the repurchase pursuant to the 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 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. 81 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 its 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 net proceeds of these offerings were used for general corporate purposes, including support for organic loan growth. 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 have been no subsequent offerings. 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. On November 25, 2024, the Company entered into investment purchase agreements with certain Company directors under which it issued and sold 116,766 shares of its common stock, par value $0.01, at a price of $ 1.67 per share. The shares were issued on November 25, 2024, in a private placement exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. The offering resulted in gross proceeds of $ 0.2 million. There were no underwriting discounts or commissions. Regulatory Capital . The operations and profitability of the Bank are significantly affected by legislation and the policies of the various regulatory agencies. Effective January 1, 2020, the federal banking agencies adopted a rule to establish for institutions with assets of less than $10 billion that meet other specified criteria a "community bank leverage ratio" (the ratio of a bank's tangible equity capital to average total consolidated assets) of 9% that such institutions may elect to utilize in lieu of the generally applicable leverage and risk-based capital requirements. A "qualifying community bank" with capital exceeding 9% will be considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well capitalized.” For the current period, the Bank has elected to continue to utilize the generally applicable leverage and risk-based requirements and not apply the community bank leverage ratio. Carver Federal, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with Carver Federal's risk profile. In assessing an institution's capital adequacy, the OCC takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual institutions where necessary. Carver was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9 % for its Tier 1 leverage ratio and 12 % for its total risk-based capital ratio. At March 31, 2025, the Bank's capital level exceeded the regulatory requirements to be considered "well capitalized" but did not meet its IMCR requirements. The Tier 1 leverage ratio was 8.70 %, below the 9% IMCR requirement, and the total risk-based capital ratio was 11.56 %, below the 12% IMCR requirement. The Bank is working on taking appropriate actions with the goal of achieving the IMCR targets. 82 The table below presents the Bank's regulatory capital ratios at March 31, 2025 and 2024. March 31, 2025 March 31, 2024 ($ in thousands) Amount Ratio Amount Ratio Tier 1 leverage capital Regulatory capital $ 64,252 8.70 % $ 73,140 9.56 % Individual minimum capital requirement 66,486 9.00 % 68,888 9.00 % Minimum capital requirement 29,549 4.00 % 30,617 4.00 % Excess 34,703 4.70 % 42,523 5.56 % Common equity Tier 1 Regulatory capital $ 64,252 10.50 % $ 73,140 12.00 % Minimum capital requirement 42,815 7.00 % 42,649 7.00 % Excess 21,437 3.50 % 30,491 5.00 % Tier 1 risk-based capital Regulatory capital $ 64,252 10.50 % $ 73,140 12.00 % Minimum capital requirement 51,990 8.50 % 51,789 8.50 % Excess 12,262 2.00 % 21,351 3.50 % Total risk-based capital Regulatory capital $ 70,680 11.56 % $ 79,106 12.98 % Individual minimum capital requirement 73,397 12.00 % 73,113 12.00 % Minimum capital requirement 64,223 10.50 % 63,974 10.50 % Excess 6,457 1.06 % 15,132 2.48 % 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, 2025 and 2024: $ in thousands At March 31, 2024 Other Comprehensive Income, net of tax At March 31, 2025 Net unrealized loss on securities available-for-sale $ ( 12,705 ) $ 752 $ ( 11,953 ) $ in thousands At March 31, 2023 Other Comprehensive Loss, net of tax At March 31, 2024 Net unrealized loss on securities available-for-sale $ ( 12,215 ) $ ( 490 ) $ ( 12,705 ) There were no reclassifications out of accumulated other comprehensive income (loss) to the consolidated statement of operations for the twelve months ended March 31, 2025 and 2024. 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. Compensation expense recognized for the 401(k) matching contributions was $ 305 thousand and $ 330 thousand, respectively, for fiscal 2025 and 2024. Stock Option Plans. 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. There were 83,000 restricted stock awards issued in fiscal year 2024. At March 31, 2025, there were 6,267 options outstanding under the 2014 Incentive Plan and 6,267 were exercisable. All options are exercisable i 83 mmediately 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 $ 26 thousand as expense for fiscal year 2025 and $ 68 thousand in fiscal year 2024. In December 2024, Carver stockholders approved the Carver Bancorp, Inc. 2024 Equity Incentive Plan (the "2024 Incentive Plan") which provides for discretionary option grants, stock appreciation rights and restricted stock to executive officers, employees and directors who are selected to receive awards by the Committee. The 2024 Incentive Plan authorizes Carver to grant awards with respect to 350,000 shares. During fiscal year 2025, 58,139 restricted stock awards were issued and the Bank recognized $ 8 thousand as expense pursuant to the plan. Information regarding nonvested shares of restricted stock awards outstanding for the years ended March 31 is as follows: 2025 2024 Shares Weighted Average Grant Price Shares Weighted Average Grant Price Outstanding, beginning of year 85,000 $ 3.06 57,833 $ 6.45 Granted 58,139 1.72 83,000 2.77 Vested ( 37,500 ) 1.81 ( 34,333 ) 6.32 Forfeited ( 500 ) 1.21 ( 21,500 ) 5.88 Outstanding, end of year 105,139 $ 1.60 85,000 $ 3.06 Unrecognized compensation expense on unvested restricted shares as of March 31, 2025 totaled $ 127 thousand. This amount will be recognized over the remaining vesting period of 0.98 years (weighted average). The vesting of the grants totaled $ 66 thousand and $ 220 thousand for fiscal years 2025 and 2024, respectively. Information regarding stock options as of and for the years ended March 31 is as follows: 2025 2024 Options Weighted Average Exercise Price Options Weighted Average Exercise Price Outstanding, beginning of year 6,267 $ 5.27 6,267 $ 5.27 Granted — — — — Exercised — — — — Expired/Forfeited — — — — Outstanding, end of year 6,267 $ 5.27 6,267 $ 5.27 Exercisable, at year end 6,267 6,267 Information regarding stock options as of March 31, 2025 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 2.70 $ 3.48 1,000 $ 3.48 5.00 $ 5.59 3,600 0.23 5.56 3,600 5.56 5.60 $ 5.99 1,667 5.33 5.70 1,667 5.70 Total 6,267 6,267 As of March 31, 2025, 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, 2025. At March 31, 2025, all outstanding options had no intrinsic value. 84 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 2025 2024 Lines of credit $ 3,208 $ 4,268 Letters of credit 412 — Commitment to fund private equity investment 763 650 $ 4,383 $ 4,918 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. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless such commitments are unconditionally cancellable, through the provision for credit losses expense using CECL expected loss methodology. The allowance for credit losses on off-balance sheet credit exposures was $ 11 thousand and $ 9 thousand as of March 31, 2025 and 2024, respectively, and is included in Other Liabilities in the consolidated statements of financial condition. 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. $ in thousands Loans sold to FNMA Open claims as of March 31, 2024 (1) $ 1,367 Gross new demands received — Loans repurchased/made whole — Demands rescinded — Advances on open claims — Principal payments received on open claims ( 17 ) Open claims as of March 31, 2025 (1) $ 1,350 (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. 85 The table below summarizes changes in our representation and warranty reserves during fiscal 2025. $ in thousands March 31, 2025 Representation and warranty repurchase reserve, March 31, 2024 (1) $ 86 Net adjustment to reserve for repurchase losses (2) ( 6 ) Representation and warranty repurchase reserve, March 31, 2025 (1) $ 80 (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, 2025, 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, 2025, 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. 86 The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of March 31, 2025 and 2024, and that are included in the Company's Consolidated Statements of Financial Condition at these dates: Fair Value Measurements at March 31, 2025, 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 $ — $ — $ 130 $ 130 Investment securities Available-for-sale: Mortgage-backed securities: Government National Mortgage Association — 209 — 209 Federal Home Loan Mortgage Corporation — 14,762 — 14,762 Federal National Mortgage Association — 8,101 — 8,101 U.S. Government Agency securities — 4,310 — 4,310 Corporate bonds — 2,820 — 2,820 Muni securities — 14,320 — 14,320 Total available-for-sale securities — 44,522 — 44,522 Total assets $ — $ 44,522 $ 130 $ 44,652 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 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, 2025 and 2024. 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, 87 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, 2025, 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, 2025 and 2024: $ in thousands Beginning balance, April 1, 2024 Total Realized/Unrealized Gains/(Losses) Recorded in Income (1) Issuances / (Settlements) Transfers to/(from) Level 3 Ending balance, March 31, 2025 Change in Unrealized Gains/(Losses) Related to Instruments Held at March 31, 2025 Mortgage Servicing Rights $ 140 $ ( 10 ) $ — $ — $ 130 $ ( 9 ) $ 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 ) (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, 2025 and 2024, the significant unobservable inputs used in the fair value measurements were as follows: $ in thousands Fair Value at March 31, 2025 Valuation Technique Significant Unobservable Inputs Range Weighted Average Mortgage Servicing Rights $ 130 Discounted Cash Flow Constant Prepayment Rate (1) 3.0% to 9.8% 6.4 % Option Adjusted Spread ("OAS") N/A 1000 basis points $ in thousands Fair Value at March 31, 2024 Valuation Technique Significant Unobservable Inputs Range Weighted Average Mortgage Servicing Rights $ 140 Discounted Cash Flow Constant Prepayment Rate (1) 3.0% to 7.1% 6.4 % Option Adjusted Spread ("OAS") N/A 1000 basis points (1) Represents annualized loan repayment rate assumptions (ZMUPT model) 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, 2025 and 2024, and that are included in the Company's Consolidated Statements of Financial Condition at these dates: 88 Fair Value Measurements at March 31, 2025, 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, 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 For Level 3 assets measured at fair value on a non-recurring basis as of March 31, 2025 and 2024, the significant unobservable inputs used in the fair value measurements were as follows: $ in thousands Fair Value at March 31, 2025 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, 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 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, 2025 and 2024, the Company had loans with a carrying value of $16.1 million and $15.2 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. 89 The carrying amounts and estimated fair values of the Bank's financial instruments and estimation methodologies at March 31 are as follows: March 31, 2025 $ 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 $ 50,315 $ 50,315 $ 50,315 $ — $ — Securities available-for-sale 44,522 44,522 — 44,522 — Securities held-to-maturity 1,750 1,698 — 1,698 — Loans receivable 607,347 593,030 — — 593,030 Accrued interest receivable 2,980 2,980 — 2,980 — Mortgage servicing rights 130 130 — — 130 Financial Liabilities: Deposits $ 661,837 $ 658,537 $ 406,948 $ 251,589 $ — Advances from FHLB of New York 1,814 1,817 — 1,817 — Other borrowed money 18,403 17,900 — 17,900 — Accrued interest payable 1,049 1,049 — 1,049 — 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 — NOTE 18. VARIABLE INTEREST ENTITIES 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 Company's subsidiary, Carver Statutory Trust I (the "Trust"), is not consolidated with Carver Bancorp, Inc. for financial reporting purposes. 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 I because it is not the primar 90 y beneficiary of the entity. At March 31, 2025, 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 Company had no consolidated VIEs at March 31, 2025. 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. 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. The payment for these services are received at the time the services are provided or when customer transactions take place. 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). The payments are received when such services are provided and 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 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 payments are typically received monthly and the revenue is recognized over the period the related service is provided and collected in accordance with the agreements. 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. 91 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, 2025 and 2024: Years Ended March 31, $ in thousands 2025 2024 Non-interest income In-scope of Topic 606 Depository fees and charges $ 2,383 $ 2,208 Loan fees and service charges 191 389 Other non-interest income 429 361 Non-interest income (in-scope of Topic 606) 3,003 2,958 Non-interest income (out-of-scope of Topic 606) 83 3,765 Total non-interest income $ 3,086 $ 6,723 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 2025 2024 Other non-interest income: Empowering Change program fees $ 394 $ 328 BOLI income 179 459 Other 3 155 Total non-interest income $ 576 $ 942 Other non-interest expense: Advertising $ 499 $ 376 Legal expense 758 498 Insurance and surety 989 1,254 Audit expense 650 727 Data lines / internet 427 417 Security services 506 44 Retail expenses 999 1,151 Operating chargeoffs and other losses 46 497 Other 3,336 3,025 Total non-interest expense $ 8,210 $ 7,989 NOTE 20. CARVER BANCORP, INC. - PARENT COMPANY ONLY 92 CONDENSED STATEMENTS OF FINANCIAL CONDITION As of March 31, $ in thousands 2025 2024 Assets Cash on deposit with subsidiaries $ 837 $ 2,487 Investment in subsidiaries 52,701 60,838 Other assets 556 840 Total assets $ 54,094 $ 64,165 Liabilities and Stockholders' Equity Borrowings $ 18,403 $ 18,403 Accounts payable to subsidiaries 5,731 3,300 Other liabilities 382 153 Total liabilities 24,516 21,856 Stockholders’ equity 29,578 42,309 Total liabilities and stockholders’ equity $ 54,094 $ 64,165 CONDENSED STATEMENTS OF OPERATIONS Years Ended March 31, $ in thousands 2025 2024 Income Equity in net loss from subsidiaries $ ( 9,888 ) $ ( 457 ) Other income 91 135 Grant income — 61 Total (loss) income ( 9,797 ) ( 261 ) Expense Interest expense on borrowings 1,199 1,233 Salaries and employee benefits 1,313 667 Shareholder expense 318 215 Other 1,117 601 Total expense 3,947 2,716 Net loss $ ( 13,744 ) $ ( 2,977 ) Comprehensive loss $ ( 12,992 ) $ ( 3,467 ) 93 CONDENSED STATEMENTS OF CASH FLOW Years Ended March 31, $ in thousands 2025 2024 Cash Flows From Operating Activities Net loss $ ( 13,744 ) $ ( 2,977 ) Adjustments to reconcile net loss to net cash from operating activities: Equity in net loss from subsidiaries 9,888 457 Restricted stock vesting 66 219 Decrease (increase) in other assets 96 ( 59 ) Increase in accounts payable to subsidiaries 2,431 1,825 Increase (decrease) in other liabilities 229 ( 488 ) Net cash used in operating activities ( 1,034 ) ( 1,023 ) Cash Flows From Investing Activities Capital contribution ( 1,000 ) — Decrease (increase) in equity investment 189 ( 658 ) Net cash used in investing activities ( 811 ) ( 658 ) Cash Flows From Financing Activities Increase in borrowings — 2,500 Issuance of common stock 195 1,000 Net cash provided by financing activities 195 3,500 Net (decrease) increase in cash ( 1,650 ) 1,819 Cash and cash equivalents – beginning 2,487 668 Cash and cash equivalents – ending $ 837 $ 2,487 NOTE 21. SUBSEQUENT EVENTS On May 14, 2025, the Bank entered into the Formal Agreement between the Bank and the OCC. The Formal Agreement specifically provides that the Bank will take the following actions within the time frames specified: • 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; . • 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; and • Prepare an earnings program for the OCC's review designed to improve and sustain the earnings of the Bank. The Formal Agreement specifically addresses the items referenced above through a new three-year strategic plan. The Bank's board of directors and management will address these provisions within the required time frames. Further, the Bank's board of directors and management are fully committed to, as expeditiously as possible, achieving sustainable earnings through a more robust and viable strategic plan, which are part of the Bank's new ongoing operations and actions under the leadership of its new Chief Executive Officer. 94 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None.