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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2020
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 001-13007
CARVER BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3904174
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
75 West 125th Street New York New York 10027
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (718) 230-2900
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share CARV NASDAQ Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   o Yes   x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   o Yes   x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes   o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
☐ Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer
☒
Smaller Reporting Company ☐ Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

As of March 31, 2020 there were 3,699,505 shares of common stock of the Registrant outstanding.  The aggregate market value of the Registrant's common stock held by non-affiliates, as of September 30, 2019 (based on the closing sales price of $3.04 per share of the registrant's common stock on September 30, 2019) was approximately $11,246,495.



DOCUMENTS INCORPORATED BY REFERENCE

1. Portions of the Proxy Statement for the 2020 Annual Meeting of Stockholders. (Part III)



CARVER BANCORP, INC.
2020 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

  Page
3
ITEM 1.
3
ITEM 1A.
28
ITEM 1B.
35
ITEM 2.
35
ITEM 3.
36
ITEM 4.
36
36
ITEM 5.
36
ITEM 6.
37
ITEM 7.
39
ITEM 7A.
52
ITEM 8.
53
ITEM 9.
99
ITEM 9A.
99
ITEM 9B.
100
101
ITEM 10.
101
ITEM 11.
101
ITEM 12.
101
ITEM 13.
101
ITEM 14.
101
101
ITEM 15.
101
ITEM 16.
101
103
103




FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 which may be identified by the use of such words as “may,” “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” “predict,” “continue,” and “potential” or the negative of these terms or other comparable terminology. Examples of forward-looking statements include, but are not limited to, estimates with respect to Carver Bancorp, Inc.'s (the "Company" or "Carver") financial condition, results of operations and business that are subject to various factors that could cause actual results to differ materially from these estimates.  These factors include but are not limited to the following:

•the effects of COVID-19, which includes, but is not limited to, the length of time that the pandemic continues, the duration of shelter in place orders and the potential imposition of further restrictions on travel in the future, the remedial actions and stimulus measures adopted by federal, state, and local governments, the health of our employees and the inability of employees to work due to illness, quarantine, or government mandates, the business continuity plans of our customers and our vendors, the increased likelihood of cybersecurity risk, data breaches, or fraud due to employees working from home, the ability of our borrowers to continue to repay their loan obligations, the lack of property transactions and asset sales, potential impact on collateral values risks; and the effect of the pandemic on the general economy and the business of our borrowers;

•the ability of Carver Federal Savings Bank to comply with the Formal Agreement (“Agreement”) between the Bank and the Office of the Comptroller of the Currency, and the effect of the restrictions and requirements of the Formal Agreement on the Bank's non-interest expenses and net income;

•the ability of the Company to obtain approval from the Federal Reserve Bank of Philadelphia (the “Federal Reserve Bank”) to distribute all future interest payments owed to the holders of the Company's subordinated debt securities;

•the limitations imposed on the Company by board resolutions which require, among other things, written approval of the Federal Reserve Bank prior to the declaration or payment of dividends, any increase in debt by the Company, or the redemption of Company common stock, and the effect on operations resulting from such limitations;

•the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;

•rights and restrictions set forth in the terms of the Series D preferred stock and in the exchange agreement with the United States Department of the Treasury (the “Treasury”) that may limit our ability to raise additional capital or otherwise negatively impact our stockholders;

•national and/or local changes in economic conditions, which could occur from numerous causes, including political changes, domestic and international policy changes, unrest, war and weather, or conditions in the real estate, securities markets or the banking industry, which could affect liquidity in the capital markets, the volume of loan originations, deposit flows, real estate values, the levels of non-interest income and the amount of loan losses;

•adverse changes in the financial industry and the securities, credit, national and local real estate markets (including real estate value);

•changes in our existing loan portfolio composition (including reduction in commercial real estate loan concentration) and credit quality or changes in loan loss requirements;

•changes in the level of trends of delinquencies and write-offs and in our allowance and provision for loan losses;

•legislative or regulatory changes that may adversely affect the Company’s business, including but not limited to new capital regulations, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements, regulatory fees and compliance costs, and the resources we have available to address such changes;

•changes in the level of government support of housing finance;

1

•changes to state rent control laws, which may impact the credit quality of multifamily housing loans;

•our ability to control costs and expenses;

•risks related to a high concentration of loans to borrowers secured by property located in our market area;

•changes in interest rates, which may reduce net interest margin and net interest income;

•increases in competitive pressure among financial institutions or non-financial institutions;

•changes in consumer spending, borrowing and savings habits;

•technological changes that may be more difficult to implement or more costly than anticipated;

•changes in deposit flows, loan demand, real estate values, borrowing facilities, capital markets and investment opportunities, which may adversely affect our business;

•changes in accounting standards, policies and practices, as may be adopted or established by the regulatory agencies or the Financial Accounting Standards Board, could negatively impact the Company’s financial results;

•litigation or regulatory actions, whether currently existing or commencing in the future, which may restrict our operations or strategic business plan;

•the ability to originate and purchase loans with attractive terms and acceptable credit quality; and

•the ability to attract and retain key members of management, and to address staffing needs in response to product demand or to implement business initiatives.

Because forward-looking statements are subject to numerous assumptions, risks and uncertainties, actual results or future events could differ possibly materially from those that the company anticipated in its forward-looking statements. The forward-looking statements contained in this Annual Report on Form 10-K are made as of the date of this Annual Report on Form 10-K, and the Company assumes no obligation to, and expressly disclaims any obligation to, update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements, except as legally required. For a discussion of additional factors that could adversely affect the Company's future performance, see “Item 1A - Risk Factors” and “Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations.”

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PART I

ITEM 1. BUSINESS.

OVERVIEW

Carver Bancorp, Inc., a Delaware corporation (the “Company”), is the holding company for Carver Federal Savings Bank (“Carver Federal” or the “Bank”), a federally chartered savings bank. The Company is headquartered in New York, New York. The Company conducts business as a unitary savings and loan holding company, and the principal business of the Company consists of the operation of its wholly-owned subsidiary, Carver Federal. Carver Federal was founded in 1948 to serve African-American communities whose residents, businesses and institutions had limited access to mainstream financial services. The Bank remains headquartered in Harlem, and predominantly all of its seven branches and four stand-alone 24/7 ATM centers are located in low- to moderate-income neighborhoods. Many of these historically underserved communities have experienced unprecedented growth and diversification of incomes, ethnicity and economic opportunity, after decades of public and private investment.

Carver Federal is among the largest African-American operated banks in the United States. The Bank remains dedicated to expanding wealth enhancing opportunities in the communities it serves by increasing access to capital and other financial services for consumers, businesses and non-profit organizations, including faith-based institutions. A measure of its progress in achieving this goal includes the Bank's fifth consecutive "Outstanding" rating, issued by the Office of the Comptroller of the Currency (the "OCC") following its most recent Community Reinvestment Act (“CRA”) examination in January 2019. The OCC found that a substantial majority of originated and purchased loans were within Carver Federal's assessment area, and the Bank has demonstrated excellent responsiveness to its assessment area's needs through its community development lending, investing and service activities. The Bank had approximately $578.8 million in assets and 107 employees as of March 31, 2020.

Carver Federal engages in a wide range of consumer and commercial banking services.  The Bank provides deposit products, including demand, savings and time deposits for consumers, businesses, and governmental and quasi-governmental agencies in its local market area within New York City.  In addition to deposit products, Carver Federal offers a number of other consumer and commercial banking products and services, including debit cards, online account opening and banking, online bill pay and telephone banking. Carver Federal also offers a suite of products and services for unbanked and underbanked consumers, branded as Carver Community Cash. This includes check cashing, wire transfers, bill payment, reloadable prepaid cards and money orders.

Carver Federal offers loan products covering a variety of asset classes, including commercial and multifamily mortgages, and business loans.  The Bank finances mortgage and loan products through deposits or borrowings.  Funds not used to originate mortgages and loans are invested primarily in U.S. government agency securities and mortgage-backed securities.

The Bank's primary market area for deposits consists of the areas served by its seven branches in the Brooklyn, Manhattan and Queens boroughs of New York City.  The neighborhoods in which the Bank's branches are located have historically been low- to moderate-income areas. The Bank's primary lending market includes Kings, New York, Bronx and Queens Counties in New York City, and lower Westchester County, New York. Although the Bank's branches are primarily located in areas that were historically underserved by other financial institutions, the Bank faces significant competition for deposits and mortgage lending in its market areas. Management believes that this competition has become more intense as a result of increased examination emphasis by federal banking regulators on financial institutions' fulfillment of their responsibilities under the CRA and more recently due to the decline in demand for loans. Carver Federal's market area has a high density of financial institutions, many of which have greater financial resources, name recognition and market presence, and all of which are competitors to varying degrees. The Bank's competition for loans comes principally from commercial banks, savings institutions and mortgage banking companies. The Bank's most direct competition for deposits comes from commercial banks, savings institutions and credit unions. Competition for deposits also comes from money market mutual funds, corporate and government securities funds, and financial intermediaries such as brokerage firms and insurance companies. Many of the Bank's competitors have substantially greater resources and offer a wider array of financial services and products.  This, combined with competitors' larger presence in the New York market, add to the challenges the Bank faces in expanding its current market share and growing its near-term profitability.

Carver Federal's 70-year history in its market area, its community involvement and relationships, targeted products and services and personal service consistent with community banking, help the Bank compete with competitors that have entered its market.
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The Bank formalized its many community focused investments on August 18, 2005, by forming Carver Community Development Corporation ("CCDC"). CCDC oversees the Bank's participation in local economic development and other community-based initiatives, including financial literacy activities. CCDC coordinates the Bank's development of an innovative approach to reach the unbanked customer market in Carver Federal's communities. Importantly, CCDC spearheads the Bank's applications for grants and other resources to help fund these important community activities. In this connection, Carver Federal has successfully competed with large regional and global financial institutions in a number of competitions for government grants and other awards.  In June 2006, CCDC was selected by the U.S. Department of Treasury, in a highly competitive process, to receive an award of $59 million in New Markets Tax Credits ("NMTC"). CCDC won a second NMTC award of $65 million in May 2009, and a third award of $25 million in August 2011. The NMTC award is used to stimulate economic development in low- to moderate-income communities.  The NMTC awards enable the Bank to invest with community and development partners in economic development projects with attractive terms including, in some cases, below market interest rates, which may have the effect of attracting capital to underserved communities and facilitating revitalization of the community, pursuant to the goals of the NMTC program. NMTC awards provide a credit to Carver Federal against Federal income taxes when the Bank makes qualified investments. The credits are allocated over seven years from the time of the qualified investment. Alternatively, the Bank can utilize the award in projects where another investor entity provides funding and receives the tax benefits of the award in exchange for the Bank receiving fee income. As of March 31, 2020, all three award allocations have been fully utilized in qualifying projects. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" and footnotes to the financial statements for additional details on the NMTC activities.

GENERAL

Carver Bancorp, Inc.

        The Company is the holding company for Carver Federal and its other active direct subsidiary, Carver Statutory Trust I (the “Trust”), a Delaware trust.

        The principal business of the Company consists of the operation of its wholly-owned subsidiary, the Bank. The Company's administrative offices are located at 1825 Park Avenue, New York, New York 10034. The home office of the Bank is located at 75 West 125th Street, New York, New York 10027. The Company's telephone number is (718) 230-2900.

Carver Federal Savings Bank

Carver Federal was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally chartered mutual savings and loan association, at which time it obtained federal deposit insurance and became a member of the Federal Home Loan Bank of New York (the “FHLB-NY”). Carver Federal was founded as an African- and Caribbean-American operated institution to provide residents of underserved communities the ability to invest their savings and obtain credit. Carver Federal Savings and Loan Association converted to a federal savings bank in 1986 and changed its name at that time to Carver Federal Savings Bank.

On March 8, 1995, Carver Federal formed CFSB Realty Corp. as a wholly-owned subsidiary to hold real estate acquired through foreclosure pending eventual disposition.  At March 31, 2020, this subsidiary had $2.5 million in total assets. During the fourth quarter of the fiscal year ended March 31, 2003, Carver Federal formed Carver Asset Corporation (“CAC”), a wholly-owned subsidiary which qualifies as a real estate investment trust (“REIT”) pursuant to the Internal Revenue Code of 1986, as amended.  This subsidiary may, among other things, be utilized by Carver Federal to raise capital in the future.  As of March 31, 2020, CAC owned mortgage loans carried at approximately $9.0 million and total assets of $129.7 million.  On August 18, 2005, Carver Federal formed CCDC, a wholly-owned community development entity, to facilitate and develop innovative approaches to financial literacy, address the needs of the unbanked and participate in local economic development and other community-based activities.  As part of its operations, CCDC monitors the portfolio of investments related to NMTC awards and makes application for additional awards.

Carver Statutory Trust I

Carver Statutory Trust (the "Trust") 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 wholly owned by Carver Bancorp, Inc. and the sole voting securities of the Trust. The Company 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 Trust is not consolidated with the Company for financial reporting purposes in accordance with the
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Financial Accounting Standards Board's Accounting Standards Codification (“ASC”) regarding the consolidation of variable interest entities (formerly FIN 46(R)). During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments on the Carver Statutory Trust I capital securities through September 2016. Such payments were made in September 2016. Debenture interest payments have been deferred beginning with the December 2016 payment, which is permissible under the terms of the Indenture for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior approval from the Federal Reserve Bank. The total amount of deferred interest was $2.5 million at March 31, 2020.

The Company relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, to engage in share repurchase programs and to pay principal and interest on its trust preferred debt obligation. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to the Company, and the Board of Governors of the Federal Reserve (the "FRB") regulates dividends paid by the Company. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended its regular quarterly cash dividend to the Company. There are no assurances that dividend payments to the Company will resume.

Personnel

        At fiscal year end 2020, the Company had 107 employees. None of the Company's employees are a member of a collective bargaining agreement.

Available Information

The Company makes available on or through its internet website, http://www.carverbank.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.  Such reports are available free of charge and as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission (“SEC”).  The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including the Company, at http://www.sec.gov.

In addition, certain other basic corporate documents, including the Company's Corporate Governance Principles, Code of Ethics, the charters of the Company's Finance and Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee and the date of the Company's annual meeting are posted on the Company's website. Printed copies of these documents are also available free of charge to any stockholder who requests them. Stockholders seeking additional information should contact the Corporate Secretary's office by mail at 1825 Park Avenue, New York, New York 10035 or by e-mail at corporatesecretary@carverbank.com. Information provided on the Company's website is not part of this annual report.

Lending Activities

General.  Carver Federal's loan portfolio consists primarily of mortgage loans originated by the Bank's lending teams and secured by commercial real estate including multifamily property and construction loans. Substantially all of the Bank's mortgage loans are secured by properties located within the Bank's market area. From time to time, the Bank may participate or purchase loans that comply with the Bank's underwriting standards from other financial institutions or in contiguous market geographies to achieve loan growth objectives and improve geographic diversity.

In recent years, Carver Federal had focused on the origination of commercial real estate loans, primarily multifamily and mixed-use commercial loans. These loans generally have higher yields and shorter maturities than one-to-four family residential properties, and include prepayment penalties that the Bank collects if the loans pay in full prior to the contractual maturity. The Bank's increased emphasis on portfolio management and monitoring of the commercial real estate and multifamily residential mortgage loans was required given the increase of the overall level of credit risk inherent in this market segment. Due to the overall improvement in the loan portfolio, the Bank was able to recover provisions for loan losses in years 2013 to 2015. However, the greater risk associated with commercial real estate, particularly multifamily residential loans, as well as the growth in this type of loan, had required the Bank to increase its provisions for loan losses in fiscal years 2016 to 2018. In fiscal years 2019 and 2020, the Bank's recoveries on previously charged off loans exceeded its chargeoffs to such an extent that additional provisions were not necessary. The provision recorded in fiscal year 2020 was primarily related to
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overdraft deposit charge-offs. The Bank could be required to maintain an allowance for loan losses as a percentage of total loans in excess of the allowance currently maintained. Carver Federal continually reviews the composition of its mortgage loan portfolio and underwriting standards to manage the risk in the portfolio. Per the requirements of the Formal Agreement, the Bank has reduced its commercial real estate loan concentration as a percentage of risk-based capital to a level well below that mandated by its regulators.

        Loan Portfolio Composition. Total loans receivable decreased $0.6 million, or 0.1%, to $425.2 million at March 31, 2020, compared to $425.8 million at March 31, 2019. Carver Federal's total loans receivable as a percentage of total assets decreased to 73.5% at March 31, 2020, compared to 75.5% at March 31, 2019.

        The following is a summary of loans receivable, net of allowance for loan losses, as of:
March 31, 2020 March 31, 2019 March 31, 2018 March 31, 2017 March 31, 2016
$ in thousands Amount % Amount % Amount % Amount % Amount %
Gross loans receivable:
One-to-four family $ 105,532    24.8  % $ 108,363    25.4  % $ 121,233    25.6  % $ 132,679    24.5  % $ 141,229    24.2  %
Multifamily 89,241    21.0  % 86,177    20.2    103,887    21.9    87,824    16.2    94,210    16.1   
Commercial real estate 141,761    33.3  % 130,812    30.7    141,835    29.9    241,794    44.7    272,427    46.7   
Construction —    —  % —    —    —    —    4,983    0.9    5,033    0.9   
Business 85,425    20.1  % 96,430    22.6    102,004    21.5    65,151    12.0    71,038    12.2   
Consumer and other (1)
3,213    0.8  % 4,023    0.9    5,238    1.1    8,994    1.7    42    —   
  Total loans receivable $ 425,172    100.0  % $ 425,805    100.0  % $ 474,197    100.0  % $ 541,425    100.0  % 583,979    100.0  %
Unamortized premiums, deferred costs and fees, net 3,560    3,023    3,556    4,127    4,649   
Allowance for loan losses (4,946)   (4,646)   (5,126)   (5,060)   (5,232)  
  Total loans receivable, net $ 423,786    $ 424,182    $ 472,627    $ 540,492    $ 583,396   
(1)Includes personal loans

One-to-four Family Residential Lending. Carver Federal purchases first mortgage loans secured by one-to-four family properties that serve as the primary residence of the owner. The Bank purchased a pool of one-to-four family residential loans totaling $15.2 million during fiscal year 2020. The Bank did not purchase any one-to-four family loans during fiscal years 2019 and 2018. In fiscal 2017, the Bank purchased $13.9 million of one-to-four family loans. Approximately 14.4% of the one-to-four family residential mortgage loans maturing in greater than one year at March 31, 2020 were adjustable rate and approximately 85.6% were fixed-rate. One-to-four family residential real estate loans decreased $2.9 million, or 2.7%, to $105.5 million at March 31, 2020, compared to $108.4 million at March 31, 2019.

Carver Federal's fixed-rate, one-to-four family residential mortgage loans are underwritten in accordance with applicable secondary market underwriting guidelines and requirements for sale. From time to time, the Bank has sold such loans to Fannie Mae, the State of New York Mortgage Agency (“SONYMA”) and other third parties. Loans are generally sold with limited recourse on a servicing retained basis except to SONYMA where the sale is made with servicing released. Carver Federal uses a servicing firm to sub-service mortgage loans, whether held in portfolio or sold with servicing retained. At March 31, 2020, the Bank, through its sub-servicer, serviced $17.8 million in loans for FNMA and $433 thousand for other third parties. The Bank has recorded $145 thousand in related mortgage servicing rights.

The retention of adjustable-rate loans in Carver Federal's portfolio helps reduce Carver Federal's exposure to increases in prevailing market interest rates. However, there are credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans. It is possible that during periods of rising interest rates, the risk of default on adjustable-rate loans may increase due to increases in interest costs to borrowers. Although adjustable-rate loans allow the Bank to increase the sensitivity of its interest-earning assets to changes in interest rates, the extent of this interest rate sensitivity is limited by periodic and lifetime interest rate adjustment limitations. Accordingly, there can be no assurance that yields on the Bank's adjustable-rate loans will fully adjust to compensate for increases in the Bank's cost of funds. Adjustable-rate loans increase the Bank's exposure to decreases in prevailing market interest rates, although decreases in the Bank's cost of funds would tend to offset this effect to an extent.

The Bank previously originated or purchased a limited amount of subprime loans (which are defined by the Bank as those loans where the borrowers have FICO scores of 660 or less at origination). At March 31, 2020, the Bank had $4.6 million
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in subprime loans, or 1.1% of its total loan portfolio, of which $1.2 million are non-performing loans. No subprime loans were purchased during fiscal 2020.

Multifamily Real Estate Lending. Traditionally, Carver Federal originates and purchases multifamily loans. Multifamily property lending entails additional risks compared to one-to-four family residential lending. For example, such loans are dependent on the successful operation of such buildings and can be significantly impacted by supply and demand conditions in the market for multifamily residential units. Carver Federal's multifamily real estate loan portfolio increased $3.0 million, or 3.5%, to $89.2 million in fiscal 2020, or 21.0% of Carver Federal's total loan portfolio at March 31, 2020.

In making multifamily real estate loans, the Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower. Carver Federal's multifamily real estate product guidelines generally require that the maximum loan-to-value ("LTV") at origination not exceed 75% based on the appraised value of the mortgaged property on all such loans. The Bank generally requires a debt service coverage ratio at origination of at least 1.20 on multifamily real estate loans, which requires the properties to generate cash flow after expenses and allowances in excess of the principal and interest payment. Carver Federal originates and purchases multifamily real estate loans, which are predominantly adjustable rate loans that generally amortize on the basis of a 15-, 20-, 25-, or 30-year period and require a balloon payment after the first five years, or the borrower may have an option to extend the loan for additional periods. The Bank occasionally originates fixed rate loans with greater than five year terms. Personal guarantees may be obtained for additional security from these borrowers.

To help ensure continued collateral protection and asset quality for the term of multifamily real estate loans, Carver Federal employs a risk rating system for its loans.  All commercial loans, including multifamily real estate loans, are risk rated internally at the time of origination.  Management continually monitors all commercial loans in order to update risk ratings when necessary (see "Asset Classification and Allowance for Loan and Lease Losses" for additional information on asset classification and risk ratings). In addition, to assist the Bank in evaluating changes in the credit profile of the borrower and the underlying collateral, an independent consulting firm reviews and prepares a written report for a sample of our commercial loan relationships.  On a triannual basis, an independent loan review company i) reviews 70% to 75% of the average commercial loan portfolio, ii) this includes all new and renewed loans greater than $100,000, and iii) all criticized and classified loans. Summary reports documenting the loan reviews are then reviewed by management for changes in the credit profile of individual borrowers and the portfolio as a whole.

Commercial Real Estate Lending. Commercial real estate lending consists predominantly of originating loans for the purpose of purchasing or refinancing office, mixed-use (properties used for both commercial and residential purposes but predominantly commercial), retail and church buildings in the Bank's market area. Mixed-use loans are secured by properties that are intended for both residential and business use and are classified as commercial real estate ("CRE"). Although Carver Federal has experienced favorable loss history associated with commercial real estate loans, these loans may entail additional risks compared with one-to-four family residential and multifamily lending. For example, such loans typically involve larger loan balances to single borrowers or groups of related borrowers and the payment experience on such loans typically is dependent on the successful operation of the commercial property.

In originating CRE loans, the Bank primarily considers the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower. Carver Federal's maximum LTV ratio on commercial real estate mortgage loans at origination is generally 75% based on the latest appraised value of the mortgaged property. The Bank generally requires a debt service coverage ratio at origination of at least 1.20 on commercial real estate loans. The Bank also requires the assignment of rents of all tenants' leases in the mortgaged property and personal guarantees may be obtained for additional security from these borrowers.

At March 31, 2020, commercial real estate mortgage loans totaled $141.8 million, or 33.3% of the total loan portfolio. This balance reflects a year-over-year increase of $11.0 million, or 8.4%, as a result of organic loan originations and purchases.

The Bank offers 5-year terms for our commercial mortgages. At times, we can offer greater than 5 years for terms of up to 15 years and amortization schedules up to 25 years; however, the interest rate always resets every 5 years. Interest rates currently offered by the Bank are adjusted at the beginning of each adjustment period and generally are based upon a fixed spread above the FHLB-NY corresponding regular advance rate.

Historically, Carver Federal has been a New York City metropolitan area leader in the origination of loans to churches. At March 31, 2020, loans to churches totaled $6.0 million, or 1.4% of the Bank's gross loan portfolio. These loans generally
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have five-, seven-, or ten-year terms with 15-, 20- or 25-year amortization periods, a balloon payment due at the end of the term and generally have no greater than a 70% LTV ratio at origination. The Bank has also provided construction financing for churches and generally provides permanent financing upon completion of construction. There are currently six church loans in the Bank's loan portfolio.

Loans secured by real estate owned by faith-based organizations generally are larger and involve greater risks than one-to-four family residential mortgage loans. Because payments on loans secured by such properties are often dependent on voluntary contributions by members of the church's congregation, repayment of such loans may be subject to a greater extent to adverse conditions in the economy. The Bank seeks to minimize these risks in a variety of ways, including reviewing the organization's financial condition, limiting the size of such loans and establishing the quality of the collateral securing such loans. The Bank determines the appropriate amount and type of security for such loans based in part upon the governance structure of the particular organization, the length of time the church has been established in the community and a cash flow analysis to determine the church's ability to service the proposed loan. Carver Federal will obtain a first mortgage on the underlying real property and often requires personal guarantees of key members of the congregation and/or key person life insurance on the pastor. The Bank may also require the church to obtain key person life insurance on specific members of the church's leadership. While asset quality in the church loan category historically has been one of the strongest asset classes, recent economic conditions have produced higher delinquencies in this portfolio. While management believes that Carver Federal will remain a leading lender to churches in its market area, Carver Federal will continue to conduct disciplined underwriting and maintain focused portfolio management.

Business Loans.  Carver Federal's small business (Commercial and Industrial, or "C&I") lending portfolio decreased $11.0 million to $85.4 million, comprising 20.1% of the Bank's gross loan portfolio in fiscal 2020. In a strategic attempt to diversify the Bank's loan portfolio, Carver Federal demonstrated an emphasis on C&I lending, placing particular focus on organic loan growth through the financing of local entrepreneurs beginning in fiscal year 2018. Carver Federal provides revolving credit, working capital and term loan facilities to small businesses with annual sales of approximately $1 million to $25 million in educational, health care, personal services, and light industrial and wholesale segments. Business loans are typically personally guaranteed by the owners and may also be secured by additional collateral, including real estate, equipment and inventory.

Consumer and Other Loans. At March 31, 2020, the Bank had $3.2 million in consumer and other loans, or 0.8%, of the Bank's gross loan portfolio, primarily comprised of $3.0 million of guaranteed graduate medical student loans purchased in fiscal 2017.

Consumer loans are not typically secured by collateral and therefore involve more risk than first mortgage loans. Collection of a delinquent loan is dependent on the borrower's continuing financial stability and is more likely to be adversely affected by changes in employment, marital status, health and other personal financial factors. Further, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered. These loans may also give rise to claims and defenses by a borrower against Carver Federal, including claims and defenses that the borrower has against the seller of the underlying collateral. In underwriting unsecured consumer loans other than secured credit cards, Carver Federal considers the borrower's credit history, an analysis of the borrower's income, expenses and ability to repay the loan and the value of the collateral. The underwriting for secured credit cards only takes into consideration the value of the underlying collateral. See “Asset Quality-Non-performing Assets.”

Loan Processing. Carver Federal's loan originations are derived from a number of sources, including referrals by realtors, builders, depositors, borrowers and mortgage brokers, as well as walk-in and telephone customers. Loans are originated by the Bank's personnel who receive a base salary, commissions and other incentive compensation. Real estate, business and unsecured loan applications are forwarded to the Bank's Lending Department for underwriting pursuant to standards established in Carver Federal's loan policy. The underwriting and loan processing for residential one-to-four family loans are performed by an outsourced third party loan originator using lending standards established by the Bank.

A commercial real estate loan application is completed for all multifamily and non-residential properties that the Bank finances. Prior to loan approval, the property is inspected by a loan officer. As part of the loan approval process, consideration is given to an independent appraisal, location, accessibility, stability of the neighborhood, environmental assessment, personal credit history and the financial capacity of the applicant(s). Business loan applications are completed for all business loans. Most business loans are secured by real estate, personal guarantees, and/or guarantees by the United States Small Business Administration (“SBA”) or Uniform Commercial Code (“UCC”) filings. The loan approval process considers the credit history of the applicant, collateral, cash flow and purpose and stability of the business.

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Upon receipt of a completed loan application from a prospective borrower, a credit report and other verifications are ordered to confirm specific information relating to the loan applicant's income and credit standing.  It is the Bank's policy to obtain an appraisal of the real estate intended to secure a proposed mortgage loan from an independent appraiser approved by the Bank.

It is Carver Federal's policy to record a lien on the real estate securing the loan and to obtain a title insurance policy that insures that the property is free of prior encumbrances. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood plain as designated by the Department of Housing and Urban Development, obtain flood insurance. Most borrowers are also required to advance funds on a monthly basis, together with each payment of principal and interest, to a mortgage escrow account from which the Bank makes disbursements for items such as real estate taxes and hazard insurance. Written confirmation of the guarantee for SBA loans and evidence of the UCC filing is also required.

Loan Approval. Except for real estate and business loans in excess of $6.0 million, mortgage and business loan approval authority has been delegated by the Bank's Board of Directors to the Board's Asset Liability and Interest Rate Risk Committee. The Asset Liability and Interest Rate Risk Committee has delegated to the Bank's Management Loan Committee, which consists of certain members of executive management, loan approval authority up to and including $1.0 million for real estate and business loans. Real estate and business loans above $6.0 million must be approved by the full Board. Purchased loans are subject to the same approval process as originated loans. One-to-four family mortgage loans that conform to FNMA, Federal Housing Administration and Federal Home Loan Mortgage Corporation ("FHLMC") standards and limits may be approved by the outsourced third party loan originator.

Loans-to-One-Borrower. Under the loans-to-one-borrower limits of the OCC, with certain limited exceptions, loans and extensions of credit to a single or related group of borrowers outstanding at one time generally may not exceed 15% of the unimpaired capital and surplus of a savings bank. See “Regulation and Supervision-Federal Banking Regulation-Loans-to-One-Borrower Limitations.” At March 31, 2020, the maximum loans-to-one-borrower under this test was $10.3 million and the Bank had no relationships that exceeded this limit.

Loan Originations and Purchases. Loan originations were $33.5 million in fiscal 2020 compared to $27.2 million in fiscal 2019. There were $34.8 million loan purchases during fiscal 2020 and no purchases in fiscal 2019.

        The following table sets forth certain information with respect to Carver Federal's loan originations and advances, purchases and sales for the fiscal years ended March 31:
2020 2019 2018
$ in thousands Amount Percent Amount Percent Amount Percent
Loans Originated:
One-to-four family $ —    —  % $ —    —  % $ —    —  %
Multifamily 14,363    21.0  % 1,700    6.2  % 300    1.4  %
Commercial real estate 13,892    20.4  % 9,319    34.2  % 4,067    19.4  %
Business 4,803    7.0  % 15,769    57.9  % 15,613    74.3  %
Consumer and others (1)
394    0.6  % 450    1.7  % 1,032    4.9  %
Total loans originated 33,452    49.0  % 27,238    100.0  % 21,012    100.0  %
Loans purchased (2)
34,780    51.0  % —    —  % —    —  %
Total loans originated and purchased 68,232    100.0  % 27,238    100.0  % 21,012    100.0  %
Loans sold (3)
(1,294)   (1,738)   (2,436)  
Net additions to loan portfolio $ 66,938    $ 25,500    $ 18,576   
(1)Comprised of personal loans.
(2)Comprised of $15.2 million one-to-four family residential, $12.6 million commercial real estate and $7.0 million multifamily loans.
(3)Comprised of primarily multifamily and one-to-four family loans in 2020 and 2019, and student loans in 2018.

Loans purchased by the Bank entail certain risks not necessarily associated with loans the Bank originates. The Bank's purchased loans are generally acquired without recourse to the seller, with certain exceptions related to the seller's compliance with representations and warranties, and in accordance with the Bank's underwriting criteria for originations. In addition, purchased loans have a variety of terms, including maturities, interest rate caps and indices for adjustment of interest rates, that may differ from those offered at that time by the Bank. The Bank initially seeks to purchase loans in its market area. However, the Bank may purchase loans secured by property outside its market area to meet its financial objectives. The market areas in which the properties that secure the purchased loans are located may differ from Carver Federal's market area and may be subject to economic and real estate market conditions that may significantly differ from those experienced in Carver Federal's
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market area. There can be no assurance that economic conditions in these out-of-state markets will not deteriorate in the future, resulting in increased loan delinquencies and loan losses among the loans secured by property in these areas.

In an effort to reduce risks, the Bank has sought to ensure that purchased loans satisfy the Bank's underwriting standards and do not otherwise have a higher risk of collection or loss than loans originated by the Bank. A review of each loan is conducted prior to purchase, and the Bank also requires appropriate documentation and further seeks to reduce its risk by requiring, in each buy/sell agreement, a series of warranties and representations as to the underwriting standards and the enforceability of the related legal documents. These warranties and representations remain in effect for the life of the loan. Any misrepresentation must be cured within 90 days of discovery or trigger certain repurchase provisions in the buy/sell agreement.

Loan Maturity Schedule. The following table sets forth information at March 31, 2020 regarding the amount of loans maturing in Carver Federal's portfolio, including scheduled repayments of principal, based on contractual terms to maturity. Demand loans, loans having no schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less. The table below does not include any estimate of prepayments, which significantly shorten the average life of all mortgage loans and may cause Carver Federal's actual repayment experience to differ significantly from that shown below:
Loan Maturities
$ in thousands <1 Yr. 1-5 Yrs. 6-20+ Yrs. Total
Gross loans receivable:
One-to-four family $ —    $ 271    $ 105,261    $ 105,532   
Multifamily 12,040    41,967    35,234    89,241   
Commercial real estate 31,473    58,701    51,588    141,762   
Business 17,255    52,688    15,482    85,425   
Consumer 2,997    216    —    3,213   
Total $ 63,765    $ 153,843    $ 207,565    $ 425,173   

        The following table sets forth as of March 31, 2020, amounts in each loan category that are contractually due after March 31, 2021 and whether such loans have fixed or adjustable interest rates. Scheduled contractual principal repayments of loans do not necessarily reflect the actual lives of such assets. The average life of long-term loans is substantially less than their contractual terms due to prepayments. In addition, due-on-sale clauses in mortgage loans generally give Carver Federal the right to declare a conventional loan due and payable in the event, among other things, that a borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan market rates are higher than rates on existing mortgage loans and tends to decrease when current mortgage loan market rates are lower than rates on existing mortgage loans:
Due After March 31, 2021
$ in thousands Fixed Adjustable Total
Gross loans receivable:
One-to-four family $ 90,307    $ 15,225    $ 105,532   
Multifamily 15,862    61,339    77,201   
Commercial real estate 28,453    81,836    110,289   
Business 13,623    54,547    68,170   
Consumer 216    —    216   
Total $ 148,461    $ 212,947    $ 361,408   

Asset Quality

General. One of the Bank's key operating objectives continues to be to maintain a high level of asset quality. Through a variety of strategies, including, but not limited to, monitoring loan delinquencies and borrower workout arrangements, the Bank has been proactive in addressing problem loans and non-performing assets.

The underlying credit quality of the Bank's loan portfolio is dependent primarily on each borrower's ability to continue to make required loan payments and, in the event a borrower is unable to continue to do so, the adequacy of the value of the collateral securing the loan. For non-owner occupied non-residential real estate and multifamily real estate loans, the borrower's ability to pay typically is dependent on rental income, which can be impacted primarily by vacancies and general market conditions. For one-to-four family loans, a borrowers' ability to pay typically is dependent primarily on employment and other sources of income. For owner occupied non-residential real estate, a borrower's ability to pay typically is dependent
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primarily on the success of the borrower's business. For all of the Bank's loans, a borrower's ability to pay is also impacted by general economic and other factors, such as unanticipated expenditures or changes in the financial markets. Collateral values, particularly real estate values, are also impacted by a variety of factors, including general economic conditions, demographics, maintenance and collection or foreclosure delays. The COVID-19 pandemic has placed additional strains on the economy and collateral values of real estate. The Company has made provisions in its allowance for loans and lease reserves to mitigate any future charge-offs that may be needed.

Non-performing Assets. Non-performing assets consist of nonaccrual loans, loans held-for-sale, and property acquired in settlement of loans (OREO), including foreclosure. When a borrower fails to make a payment on a loan, the Bank and/or its loan servicers take prompt steps to have the delinquency cured and the loan restored to current status. This includes a series of actions such as phone calls, letters, customer visits and, if necessary, legal action. In the event the loan has a guarantee, the Bank may seek to recover on the guarantee, including, where applicable, from the Small Business Administration (“SBA”). Loans that remain delinquent are reviewed for reserve provisions and charge-off. The Bank's collection efforts continue after the loan is charged off, except when a determination is made that collection efforts have been exhausted or are not productive.

The Bank may from time to time agree to modify the contractual terms of a borrower's loan. In cases where such modifications represent a concession to a borrower experiencing financial difficulty, the modification is considered a troubled debt restructuring (“TDR”). Loans modified in a TDR are typically placed on nonaccrual status until the Bank determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. At March 31, 2020, loans classified as TDR totaled $3.9 million, of which $1.7 million were classified as performing.

        The following table sets forth information with respect to Carver Federal's non-performing assets, which includes nonaccrual loans, loans held-for-sale, and property acquired in settlement of loans as of March 31:
$ in thousands 2020 2019 2018 2017 2016
Loans accounted for on a nonaccrual basis (1):
Gross loans receivable:
One-to-four family $ 3,582    $ 4,488    $ 4,561    $ 3,899    $ 2,947   
Multifamily 375    3,214    964    1,602    1,769   
Commercial real estate —    476    502    993    5,338   
Business 2,797    2,051    635    1,922    3,896   
Consumer 22    65    —    2    —   
Total nonaccrual loans 6,776    10,294    6,662    8,418    13,950   
Other non-performing assets (2)
Real estate owned 120    404    1,145    990    1,008   
Loans held-for-sale —    —    —    944    2,436   
Total other non-performing assets 120    404    1,145    1,934    3,444   
Total non-performing assets (3)
$ 6,896    $ 10,698    $ 7,807    $ 10,352    $ 17,394   
Non-performing loans to total loans 1.58  % 2.40  % 1.39  % 1.54  % 2.37  %
Non-performing assets to total assets 1.19  % 1.90  % 1.13  % 1.50  % 2.35  %
(1) Nonaccrual status denotes any loan where the delinquency exceeds 90 days past due, or in the opinion of management, the collection of contractual interest and/or principal is doubtful.  Payments received on a nonaccrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on assessment of the ability to collect on the loan.
(2) Other non-performing assets generally represent loans that the Bank is in the process of selling and has designated held-for-sale or 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.
(3) Troubled debt restructured loans performing in accordance with their modified terms for less than six months and those not performing in accordance with their modified terms are considered nonaccrual and are included in the nonaccrual category in the table above. TDR loans included in the nonaccrual category above totaled $2.2 million at 2020, $3.2 million at 2019, $1.9 million at 2018, $2.5 million at 2017, and $2.2 million at 2016. TDR loans that have performed in accordance with their modified terms for a period of at least six months are generally considered performing loans and are not presented in the table above. Performing TDR loans were $1.7 million at 2020, $2.2 million at 2019, $3.8 million at 2018, $3.9 million at 2017, and 5.6 million at 2016.


At March 31, 2020, total non-performing assets decreased by $3.8 million, or 35.5%, to $6.9 million, compared to $10.7 million at March 31, 2019, as a result of a $3.5 million decrease in nonaccrual loans and a $0.3 million decrease in real estate owned, year over year. Nonaccrual loans at March 31, 2020 consisted of twelve one-to-four family loans, ten small
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business and SBA loans, two consumer loans, and one multifamily loan. The decrease in delinquent loans from the prior year is primarily due to a decrease in impaired one-four family, multifamily and commercial real estate loans. Management believes that there may be losses associated with certain delinquent loans in the future, but also notes that the amount of losses may be reduced by the value of properties securing these delinquent loans and the Bank's loan loss reserves. Other non-performing assets at year-end 2020 includes real estate owned assets consisting of two properties foreclosed upon. At March 31, 2020, Carver had 8 loans secured by one-to-four family residential real estate properties in the process of foreclosure with a total outstanding balance of $3.0 million.

Although we believe that substantially all risk elements at March 31, 2020 have been disclosed, it is possible that for a variety of reasons, including economic conditions and the conditions related to COVID-19, certain borrowers may be unable to comply with the contractual repayment terms on certain real estate and commercial loans. For additional information about certain factors that may affect the future performance of the Company's loan portfolio, please see "Item 1A - Risk Factors" and "Forward Looking Statements."

Asset Classification and Allowances for Losses. Federal regulations and the Bank's policies require the classification of assets on the basis of credit quality on a quarterly basis. An asset is classified as “substandard” if it is determined to be inadequately protected by the current net worth and paying capacity of the obligor or the current value of the collateral pledged, if any. An asset is classified as “doubtful” if full collection is highly questionable or improbable. An asset is classified as “loss” if it is considered uncollectible, even if a partial recovery could be expected in the future.  The regulations also provide for a “special mention” designation, described as assets that do not currently expose a savings institution to a sufficient degree of risk to warrant substandard classification but do possess credit deficiencies or potential weaknesses deserving management's close attention.  Assets classified as substandard or doubtful result in a higher level of allowances for loan losses recorded in accordance with ASC Subtopic 450-20 “Loss Contingencies.” If an asset or portion thereof is classified as a loss, a savings institution must charge off any amount exceeding the fair value of collateral pursuant to loan impairment guidance in ASC Section 310-10-35. If a savings institution does not agree with an examiner's classification of an asset, it may appeal this determination to the OCC Regional Director.

The OCC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan losses and lease losses ("ALLL"). The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that institutions have effective systems and controls to identify, monitor and address asset quality problems; that management analyze all significant factors that affect the ability to collect the portfolio in a reasonable manner; and that management establish acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management is responsible for determining the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements. The evaluation process is undertaken on a quarterly basis, but may increase in frequency should conditions arise that would require management's prompt attention, such as business combinations and opportunities to dispose of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend. Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of specific and general loan loss allowances may become necessary. For additional information regarding Carver Federal's ALLL policy, refer to Note 2 of Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies.”

The Board has designated the Management Credit Review Committee for management to perform a review on a quarterly basis of the Bank's asset quality, determine and properly identify and monitor credit risk in the loan portfolio and determine that the Bank's allowance for loan and lease losses is proper and appropriate and submit their report to the Board for review. Carver Federal's methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific loans as well as losses that have not been identified but can be expected to occur.  Further, management reviews the ratio of allowances to total loans and recommends adjustments to the level of allowances accordingly. Although management believes it uses the best information available to make determinations with respect to the allowances for losses, future adjustments may be necessary if economic conditions differ from the economic conditions in the assumptions used in making the initial determinations, or if circumstances pertaining to individual loans change, or new information pertaining to individual loans or the loan portfolio is identified. The Bank has a centralized loan servicing structure that relies upon outside servicers, each of which generates a monthly report of delinquent loans.  The Asset Liability and Interest Rate Risk Committees of the Board establish policy relating to internal classification of loans and also provides input to the Credit Review Committee in its review of classified assets.  In originating loans, Carver Federal recognizes that credit losses will occur and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan.
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It is management's policy to maintain a general allowance for loan losses based on, among other things, regular reviews of delinquencies and loan portfolio quality, character and size, the Bank's and the industry's historical and projected loss experience and current and forecasted economic conditions and certain qualitative factors. In addition, considerable uncertainty exists as to the future improvement or deterioration of the real estate market. See “Lending Activities-Loan Purchases and Originations.” Carver Federal increases its allowance for loan losses by charging provisions for possible losses against the Bank's income. General allowances are established by management on at least a quarterly basis based on an assessment of risk in the Bank's loans, taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, the state of the real estate market and economic conditions generally. Specific allowances are provided for individual loans, or portions of loans, when ultimate collection is considered improbable by management based on the current payment status of the loan and the fair value or net realizable value of the security for the loan. A loan is deemed impaired when it is probable the Bank will be unable to collect both principal and interest due according to the contractual terms of the loan agreement.  Loans the Bank individually classifies as impaired include multifamily mortgage loans, commercial real estate loans, construction loans and business loans which have been classified by the Bank's credit review officer as substandard, doubtful or loss for which it is probable that principal and interest will not be collected in accordance with the loan's contractual terms, and certain loans modified in a troubled debt restructuring. A charge off is recognized on collateral dependent loans when the fair value of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan. A valuation allowance for cash flow dependent loans is established when based upon a discounted cash flow analysis, impairment is demonstrated.

At the date of foreclosure or other repossession, the Bank transfers the property to real estate acquired in settlement of loans, or other real estate owned ("OREO"), at fair value less estimated selling costs.  Fair value is defined as the amount in cash or cash-equivalent value of other consideration that a real estate parcel would yield in a current sale between a willing buyer and a willing seller.  Any amount of cost in excess of fair value is charged off against the allowance for loan losses prior to the transfer of the property into OREO.  Carver Federal records an allowance for estimated selling costs of the property immediately after foreclosure.  Subsequent to taking possession of the property, management periodically evaluates the property and an allowance is established if the estimated fair value of the property, less estimated costs to sell, declines.  If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate is recorded, providing the Bank did not provide financing for the sale.

The following table sets forth an analysis of Carver Federal's allowance for loan losses at and for the years ended March 31:
$ in thousands 2020 2019 2018 2017 2016
Balance at beginning of year $ 4,646    $ 5,126    $ 5,060    $ 5,232    $ 4,428   
Less Charge-offs:
One-to-four family (12)   (151)   (96)   (106)   (389)  
Multifamily —    (164)   (104)   (338)   (340)  
Business (69)   (964)   (81)   —    (176)  
Consumer and other (102)   (19)   (33)   (85)   (517)  
Total Charge-offs $ (183)   $ (1,298)   $ (314)   $ (529)   $ (1,422)  
Add Recoveries:
One-to-four family 302    190    —    —    113   
Multifamily —    158    131    —    —   
Commercial real estate —    —    20    20    9   
Business 160    705    87    304    578   
Consumer and other 2    35    7    4    31   
Total Recoveries $ 464    $ 1,088    $ 245    $ 328    $ 731   
Net loans charged off 281    (210)   (69)   (201)   (691)  
  Provision for (recovery of) losses 19    (270)   135    29    1,495   
Balance at end of year $ 4,946    $ 4,646    $ 5,126    $ 5,060    $ 5,232   
Ratios:
Net (charge-off) recovery to average loans outstanding 0.07  % (0.05) % (0.01) % (0.04) % (0.13) %
Allowance to total loans 1.15  % 1.08  % 1.07  % 0.93  % 0.89  %
Allowance to non-performing loans 72.99  % 45.13  % 76.94  % 60.11  % 37.51  %

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The following table allocates the allowance for loan losses by asset category at March 31:
2020 2019 2018 2017 2016
$ in thousands Amount % of
Total ALLL 		Amount % of
Total ALLL 		Amount % of
Total ALLL 		Amount % of
Total ALLL 		Amount % of
Total ALLL
One-to-four family $ 1,055    21.3  % $ 1,274    27.4  % $ 1,210    23.6  % $ 1,663    32.9  % $ 1,697    32.4  %
Multifamily 1,011    20.5  % 885    19.0  % 1,819    35.5  % 1,213    24.0  % 622    11.9  %
Commercial real estate 812    16.4  % 766    16.5  % 1,052    20.5  % 1,496    29.6  % 1,808    34.6  %
Construction —    0.0  % —    0.0  % —    —  % 106    2.1  % 62    1.2  %
Business 1,567    31.7  % 1,330    28.6  % 1,003    19.6  % 573    11.3  % 1,022    19.5  %
Consumer and other 212    4.3  % 154    3.3  % 18    0.4  % 9    0.2  % 21    0.4  %
Unallocated 289    5.8  % 237    5.1  % 24    0.5  % —    0.0  % —    0.0  %
Total Allowance $ 4,946    100  % $ 4,646    100  % $ 5,126    100  % $ 5,060    100  % $ 5,232    100  %

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

Investment Activities

General.  The Bank utilizes mortgage-backed and other investment securities in its asset/liability management strategy.  In making investment decisions, the Bank considers, among other things, its yield and interest rate objectives, its interest rate and credit risk position and its liquidity and cash flow.

Generally, the investment policy of the Bank is to invest funds among categories of investments and maturities based upon the Bank's asset/liability management policies, investment quality, loan and deposit volume and collateral requirements, liquidity needs and performance objectives.  Securities are classified into one of three categories: trading, held-to-maturity, and available-for-sale.  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.  Debt securities for which the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost.  All other securities not classified as trading or held-to-maturity are classified as available-for-sale and reported at fair value with unrealized gains and losses included, on an after-tax basis, in a separate component of stockholders' equity.  At March 31, 2020, the Bank had no securities classified as trading.  At March 31, 2020, $65.8 million, or 86.6% of the Bank's mortgage-backed and other investment securities, were classified as available-for-sale.  The remaining $10.2 million, or 13.4%, were classified as held-to-maturity.

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        The following table sets forth the amortized cost, fair value and weighted average yields of the Bank's investment portfolio at March 31, 2020, categorized by remaining period to contractual maturity:
Due < 1 Year Due 1 - 5 Years Due 5 - 10 Years Due after 10 Years
$ in thousands Amortized Cost Fair Value Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield Amortized Cost Fair Value Weighted Average Yield
Available-for-Sale:
Mortgage-backed securities:
Government National Mortgage Association $ —    $ —    —  % $ —    $ —    —  % $ 1,509    $ 1,518    1.86  % $ 2,001    $ 2,069    2.81  %
Federal Home Loan Mortgage Corporation —    —    —  % —    —    —  % 508    518    1.50  % 8,736    9,021    2.42  %
Federal National Mortgage Association —    —    —  % 2,110    2,161    1.72  % 969    982    1.61  % 18,415    19,024    2.49  %
Total mortgage-backed securities —    —    —  % 2,110    2,161    1.73  % 2,986    3,018    1.72  % 29,152    30,114    2.49  %
U.S. Government Agency Securities 2,001    2,002    1.56  % 1,604    1,611    1.79  % 7,226    7,175    2.64  % 15,786    15,693    2.41  %
Corporate Bonds 1,004    996    1.71  % 3,028    3,059    2.47  % —    —    —  % —    —    —  %
Total available-for-sale $ 3,005    $ 2,998    1.61  % $ 6,742    $ 6,831    2.07  % $ 10,212    $ 10,193    2.37  % $ 44,938    $ 45,807    2.47  %
Held-to-Maturity:
Mortgage-backed securities:
Government National Mortgage Association —    —    —  % $ 340    $ 355    3.50  % $ —    $ —    —  % $ 632    $ 693    4.16  %
Federal National Mortgage Association —    —    —  % 4,439    4,612    2.39  % 2,537    2,685    2.40  % 1,203    1,224    1.86  %
Total held-to-maturity mortgage-backed securities —    —    —  % 4,779    4,967    2.47  % 2,537    2,685    2.40  % 1,835    1,917    2.65  %
Corporate Bonds —    —    —  % —    —    —  % 1,000    995    5.75  % —    —    —  %
Total held-to-maturity $ —    $ —    —  % $ 4,779    $ 4,967    2.47  % $ 3,537    $ 3,680    3.35  % $ 1,835    $ 1,917    2.65  %

Mortgage-Backed Securities. The Bank has invested in mortgage-backed securities to help achieve its asset/liability management goals and collateral needs.  Although mortgage-backed securities generally yield less than whole loans, they present substantially lower credit risk, are more liquid than individual mortgage loans and may be used to collateralize obligations of the Bank.  Because Carver Federal receives regular payments of principal and interest from its mortgage-backed securities, these investments provide more consistent cash flows than investments in other debt securities, which generally only pay principal at maturity.  Mortgage-backed securities also help the Bank meet certain definitional tests for favorable treatment under federal banking and tax laws.  See “Regulation and Supervision-Federal Banking Regulation-Qualified Thrift Lender Test” and “Federal and State Taxation.”

Mortgage-backed securities constituted 7.7% of total assets at March 31, 2020, compared to 9.3% at March 31, 2019. Carver Federal maintains a portfolio of mortgage-backed securities in the form of Government National Mortgage Association (“GNMA”) pass-through certificates, FNMA mortgage-backed securities, FHLMC participation certificates and commercial 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.  Mortgage-backed securities generally entitle Carver Federal to receive a pro-rata portion of the cash flows from an identified pool of mortgages.  The cash flows from such pools are segmented and paid in accordance with a predetermined priority to various classes of securities issued by the entity.  Carver Federal has also invested in pools of loans guaranteed as to principal and interest by the SBA.

The Bank seeks to manage interest rate risk by investing in adjustable-rate mortgage-backed securities, which at March 31, 2020, constituted $2.5 million, or 5.6%, of the mortgage-backed securities portfolio.  Mortgage-backed securities, however, expose Carver Federal to certain unique risks.  In a declining rate environment, accelerated prepayments of loans underlying these securities expose Carver Federal to the risk that it will be unable to obtain comparable yields upon reinvestment of the proceeds.  In the event the mortgage-backed security has been funded with an interest-bearing liability with maturity comparable to the original estimated life of the mortgage-backed security, the Bank's interest rate spread could be adversely affected.  Conversely, in a rising interest rate environment, the Bank may experience a lower than estimated rate of
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repayment on the underlying mortgages, effectively extending the estimated life of the mortgage-backed security and exposing the Bank to the risk that it may be required to fund the asset with a liability bearing a higher rate of interest.  For additional information regarding Carver Federal's mortgage-backed securities portfolio and its maturities refer to Note 3 of Notes to Consolidated Financial Statements, “Investment Securities.”

Other Investment Securities.  In addition to mortgage-backed securities, the Bank also invests in assets such as government and agency obligations, corporate bonds and mutual funds. Carver Federal is permitted under federal law to make certain investments, including investments in securities issued by various federal agencies and state and municipal governments, deposits at the FHLB-NY, certificates of deposit in federally insured institutions, certain bankers' acceptances and federal funds.  The Bank may also invest, subject to certain limitations, in commercial paper having one of the two highest investment ratings of a nationally recognized credit rating agency, and certain other types of corporate debt securities and mutual funds (See Note 3 of Notes to Consolidated Financial Statements).

Other Earning Assets. Federal regulations require the Bank to maintain an investment in FHLB-NY stock and a sufficient amount of liquid assets which may be invested in cash and specified securities.  For additional information, see “Regulation and Supervision-Federal Banking Regulation-Liquidity.”

Securities Impairment.  The Bank’s available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income (loss). Securities that the Bank has the intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. The fair values of securities in the Bank's portfolio are based on published or securities dealers’ market values and are affected by changes in interest rates. On a quarterly basis, the Bank reviews and evaluates the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. The Bank generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience. Following FASB guidance, the amount of an other-than-temporary impairment when there are credit and non-credit losses on a debt security which management does not intend to sell, and for which it is more likely than not that the Bank will not be required to sell the security prior to the recovery of the non-credit impairment, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings. The remaining difference between the debt security’s amortized cost basis and its fair value would be included in other comprehensive income (loss). This guidance also requires additional disclosures about investments in an unrealized loss position and the methodology and significant inputs used in determining the recognition of other-than-temporary impairment. The Bank does not have any securities that are classified as having other-than-temporary impairment in its investment portfolio at March 31, 2020.

Sources of Funds

General.  Deposits are the primary source of Carver Federal's funds for lending and other investment purposes.  In addition to deposits, Carver Federal derives funds from loan principal repayments, loan and investment interest payments, maturing investments and fee income.  Loan and mortgage-backed securities repayments and interest payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by prevailing market interest rates, pricing of deposits, competition and general economic conditions.  Borrowed money may be used to supplement the Bank's available funds, and from time to time the Bank borrows funds from the FHLB-NY and has borrowed funds through trust preferred debt securities.

Deposits.  Carver Federal attracts deposits from consumers, businesses, non-profit organizations and public entities through its seven branches principally from within its market area by offering a variety of deposit instruments, including passbook and statement accounts and certificates of deposit, which range in term from 6 months to five years.  Deposit terms vary, principally on the basis of the minimum balance required, the length of time the funds must remain on deposit and the interest rate.  Carver Federal also offers Individual Retirement Accounts.  Carver Federal's policies are designed primarily to attract deposits from local residents and businesses through the Bank's branches.  Carver Federal also holds deposits from various governmental agencies or authorities and corporations.

Carver Federal utilizes brokered deposits as an additional funding source and to assist in the management of the Bank's interest rate risk. Carver Federal has obtained brokered certificates of deposit when the interest rate on these deposits is below the prevailing interest rate for non-brokered certificates of deposit with similar maturities in our market, or when obtaining them allowed us to extend the maturities of our deposits at favorable rates compared to borrowing funds with similar maturities, or when we are seeking to extend the maturities of our funding to assist in the management of our interest rate risk. Carver has obtained brokered deposits from a variety of brokerage firms.  In addition, Carver has obtained brokered deposits through the Depository Trust Company.  This allows us to better manage the maturity of our deposits and our interest rate risk. Carver Federal has also utilized brokers to obtain money market account deposits. The rate we pay on brokered money market accounts
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is the same or below the rate we pay on non-brokered money market accounts. These accounts are similar to brokered certificates of deposit accounts in that we only maintain one account for the total deposit per broker, with the broker maintaining the detailed records of each depositor. As of March 31, 2020, Carver had a total of $81.9 million in brokered deposits, compared to $85.0 million as of March 31, 2019. 

        As of March 31, 2020, the Bank has $40.2 million of reciprocal deposits acquired through its participation in the Certificate of Deposit Account Registry Service (“CDARS”). The Bank's CDARS deposits totaled $48.3 million as of March 31, 2019. The CDARS network arranges for placement of Carver Federal's customer funds into certificate of deposit accounts issued by other CDARS member banks. The certificate of deposit accounts are in increments of less than the individual FDIC insurance limit amount, to ensure that both principal and interest are eligible for full FDIC deposit insurance. This allows the Bank to maintain its customer relationship while still providing its customers with FDIC insurance for the full amount of their deposits, up to $50 million per customer. In exchange, Carver Federal receives from other member banks their customers' deposits in like amounts. Depositors are allowed to withdraw funds early, with a penalty, from these accounts. Carver Federal may elect to participate in the program by making or receiving deposits without making or receiving a reciprocal deposit. As a result of the Dodd-Frank Act, the standard maximum deposit insurance amount is $250,000.

Deposit interest rates, maturities, service fees and withdrawal penalties on deposits are established based on the Bank's funds acquisition and liquidity requirements, the rates paid by the Bank's competitors, current market rates, the Bank's growth goals and applicable regulatory restrictions and requirements.  For additional information regarding the Bank's deposit accounts and the related weighted average interest rates paid, and amount and maturities of certificates of deposit in specified weighted average interest rate categories, refer to Note 8 of the Notes to Consolidated Financial Statements, “Deposits.”

Borrowed Funds.  While deposits are the primary source of funds for Carver Federal's lending, investment and general operating activities, Carver Federal is authorized to use advances from the FHLB-NY and securities sold under agreements to repurchase (“Repos”) from approved primary dealers to supplement its supply of funds and to meet deposit withdrawal requirements.  The FHLB-NY functions as a central bank providing credit for savings institutions and certain other member financial institutions.  As a member of the FHLB system, Carver Federal is required to own stock in the FHLB-NY and is authorized to apply for advances.  Advances are made pursuant to several different programs, each of which has its own interest rate and range of maturities.  Advances from the FHLB-NY are secured by Carver Federal's stock in the FHLB-NY and a pledge of Carver Federal's mortgage loan and mortgage-backed and agency securities portfolios. The Bank takes into consideration the term of borrowed money with the repricing cycle of the mortgage loans on the balance sheet.  

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 and have a mandatory redemption date of September 17, 2033.  Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR, with a rate of 3.9% at March 31, 2020. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures has been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval.

        Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, to engage in share repurchase programs and to pay principal and interest on its trust preferred debt obligation. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to the Company, and the FRB regulates dividends paid by the Company. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Formal Agreement defined directly below, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended its regular quarterly cash dividend to the Company. There are no assurances that dividend payments to Carver will resume.





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REGULATION AND SUPERVISION

Enforcement Actions

On October 23, 2015 the Board of Directors of Carver Bancorp, Inc., in response to the FRB’s Bank Holding Company Report of Inspection issued on April 14, 2015, adopted a Board Resolution (“the Resolution”) as a commitment by the Company’s Board to address certain supervisory concerns noted in the Reserve Bank‘s Report. The supervisory concerns are related to the Company’s leverage, cash flow and accumulated deferred interest. As a result of those concerns, the Company is prohibited from paying any dividends without the prior written approval of the Reserve Bank.

        On May 24, 2016, the Bank entered into a Formal Agreement (the "Agreement") with the OCC to undertake certain compliance-related and other actions as further described in the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on May 27, 2016. As a result of the Formal Agreement, the Bank must obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers. The Bank may not declare or pay dividends or make any other capital distributions, including to the Company, without first filing an application with the OCC and receiving the prior approval of the OCC. Furthermore, the Bank must seek the OCC's written approval and the FDIC's written concurrence before 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.

General

The Bank is subject to extensive regulation, examination and supervision by its primary regulator, the OCC. The Bank's deposit accounts are insured up to applicable limits by the FDIC under the Deposit Insurance Fund (“DIF”), and is a member of the FHLB. The Bank must file reports with the OCC concerning its activities and financial condition, and it must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions. The Company, as a unitary savings and loan holding company, is subject to regulation, examination and supervision by the FRB and is required to file certain reports with, and otherwise comply with, the rules and regulations of the FRB and of the SEC under the federal securities laws. The OCC periodically performs safety and soundness examinations of the Bank and tests compliance with various regulatory requirements. The OCC has primary enforcement responsibility over federally chartered savings banks and has substantial discretion to impose enforcement action on an institution that fails to comply with applicable regulatory requirements, particularly with respect to its capital requirements. In addition, the FDIC has the authority to recommend to the Director of the OCC that enforcement action be taken with respect to a particular federally chartered savings bank and, if action is not taken by the Director, the FDIC has authority to take such action under certain circumstances.

The description of statutory provisions and regulations applicable to federally chartered savings banks and their holding companies and of tax matters set forth in this document does not purport to be a complete description of all such statutes and regulations and their effects on the Bank and the Company. Any change in such laws and regulations whether by the OCC, the FDIC, the FRB or through legislation could have a material adverse impact on the Bank and the Company and their operations and stockholders.

Capital and Liquidity

Prompt Corrective Action Regulations. Under the prompt corrective action regulations, the OCC is authorized and, in some cases, required to take supervisory actions against undercapitalized savings banks. For this purpose, a savings bank would be placed in one of the following five categories based on the bank's regulatory capital: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized or critically undercapitalized.

The severity of the action authorized or required to be taken under the prompt corrective action regulations increases as a bank's capital decreases within the three undercapitalized categories. All banks are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the bank would be undercapitalized. Generally, a capital restoration plan must be filed with the OCC within 45 days of the date a bank receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” In addition, various mandatory supervisory actions become immediately applicable to the institution, including restrictions on growth of assets and other forms of expansion. Under OCC regulations, as amended, a federally chartered savings bank is treated as well-capitalized if its total risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 8% or greater, its common equity Tier 1 capital ratio is 6.5% or greater, and its leverage ratio is 5% or greater, and it is not subject to any order or directive by the OCC to meet a specific capital level. In assessing an institution's capital adequacy, the OCC takes into consideration not only these
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numeric factors but also qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions as they deem necessary.  

The Federal Deposit Insurance Corporation Improvement Act, or FDICIA, required that the OCC and other federal banking agencies revise their risk-based capital standards, with appropriate transition rules, to ensure that they take into account IRR concentration of risk and the risks of non-traditional activities.  The OCC regulations do not include a specific IRR component of the risk-based capital requirement.  However, the OCC monitors the IRR of individual institutions through a variety of means, including an analysis of the change in net portfolio value ("NPV").  NPV is defined as the net present value of the expected future cash flows of an entity's assets and liabilities and, therefore, hypothetically represents the value of an institution's net worth.  The OCC has also used this NPV analysis as part of its evaluation of certain applications or notices submitted by thrift institutions.  In addition, OCC Bulletin 2010-1 provides guidance on the management of IRR and the responsibility of boards of directors in that area.  The OCC, through its general oversight of the safety and soundness of savings associations, retains the right to impose minimum capital requirements on individual institutions to the extent the institution is not in compliance with certain written guidelines established by the OCC regarding NPV analysis.  

        Carver Federal's Capital Position. Carver Federal, as a matter of prudent management, targets as its goal the maintenance of capital ratios which exceed minimum requirements and are consistent with Carver Federal's risk profile. At March 31, 2020, Carver Federal exceeded the capital regulatory requirements and its Individual Minimum Capital Requirements with a common equity Tier 1 ratio of 15.23%, Tier 1 leverage ratio of 11.25%, total risk-based capital ratio of 16.48% and a Tier 1 risk-based capital ratio of 15.23%.

The OCC and the other federal bank regulatory agencies issued a final rule effective January 1, 2015 that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule generally applies to all depository institutions, and top-tier bank and savings and loan holding companies with total consolidated assets of $3 billion or more. Among other things, the rule established a minimum Common Equity Tier 1 (CET1) capital requirement (4.5% of risk-weighted assets), increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital unless a one-time opt-out is exercised. Carver Federal has chosen to opt-out. Additional constraints are also imposed on the inclusion in regulatory capital of certain mortgage-servicing assets, deferred tax assets and minority interests. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of CET1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. As noted, the final rule became effective for the Bank on January 1, 2015. The capital conservation buffer requirement was phased in annually beginning January 1, 2016. On January 1, 2019, the full capital conservation buffer requirement of 2.5% became effective. The final rule adjusted the prompt corrective action categories described above to incorporate the increased capital standards and established the "well-capitalized" threshold described above.

Legislation enacted in May 2018 requires the federal banking agencies, including the OCC, to establish for institutions with assets of less than $10 billion a “community bank leverage ratio” of between 8 to 10%. Institutions with capital complying with the ratio and otherwise meeting the specified requirements (including off-balance sheet exposures of 25% or less of total assets and trading assets and liabilities of 5% or less of total assets) and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. Such institutions are also considered "well-capitalized" for prompt corrective action purposes.

The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying bank may opt in and out of the community bank leverage ratio framework on its quarterly call report. A bank that ceases to meet any qualifying criteria is provided with a two-quarter grace period to comply with the community bank leverage ratio requirements or the general capital regulations by the federal regulators.

Section 4012 of the Coronavirus Aid, Relief and Economic Security Act of 2020 required that the community bank leverage ratio be temporarily lowered to 8%. The federal regulators issued a rule making the reduced ratio effective April 23, 2020. The rules also established a two-quarter grace period for a qualifying community bank whose leverage ratio falls below the 8% community bank leverage ratio requirement so long as the bank maintains a leverage ratio of 7% or greater. Another rule was issued to transition back to the 9% community bank leverage ratio by increasing the ratio to 8.5% for calendar year 2021 and to 9% thereafter.

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Limitation on Capital Distributions.  There are various restrictions on a bank's ability to make capital distributions, including cash dividends, payments to repurchase or otherwise acquire its shares and other distributions charged against capital. A savings institution that is the subsidiary of a savings and loan holding company, such as the Bank, must file a notice with the FRB at least 30 days before making a capital distribution. The Bank must also file an application or notice for prior approval with the OCC if the total amount of its capital distributions (including each proposed distribution), for the applicable calendar year would exceed the Bank's net income for that year plus the Bank's retained net income for the previous two years, if the Bank is not an "eligible savings association" as defined in OCC regulations or the capital distributions would violate a prohibition contained in any statute, regulation or agreement.

The Bank may be prohibited from making capital distributions and its application or notice disapproved if:

(1) the Bank would be undercapitalized following the distribution;

(2) the proposed capital distribution raises safety and soundness concerns; or

(3) the capital distribution would violate a prohibition contained in any statute, regulation or agreement.

Liquidity.  The Bank maintains liquidity levels to meet operational needs.  In the normal course of business, the levels of liquid assets during any given period are dependent on operating, investing and financing activities.  Cash and due from banks, federal funds sold and repurchase agreements with maturities of three months or less are the Bank's most liquid assets.  The Bank maintains a liquidity policy to maintain sufficient liquidity to ensure its safe and sound operations. Management believes Carver Federal’s short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements, including interest payments on our subordinated debt securities.

Standards for Safety and Soundness

Standards for Safety and Soundness.  The OCC has adopted guidelines prescribing safety and soundness standards.  The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings, compensation, fees and benefits.  In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.  OCC regulations authorize the OCC to order an institution that has been given notice that it is not satisfying these safety and soundness standards to submit a compliance plan.  If, after being so notified, an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement an accepted compliance plan, the OCC must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized association is subject under the “prompt corrective action” provisions of federal law.  If an institution fails to comply with such an order, the OCC may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Enforcement.  The OCC has primary enforcement responsibility over the Bank.  This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers.  In general, these enforcement actions may be initiated in response to violations of laws and regulations and unsafe or unsound practices.

TARP

The Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law on October 3, 2008 and authorizes the U.S. Department of the Treasury (“Treasury”) to establish the Troubled Asset Relief Program (“TARP”) to purchase certain troubled assets from financial institutions, including banks and thrifts.  Under the TARP, the Treasury could purchase residential and commercial mortgages, and securities, obligations or other instruments based on such mortgages, originated or issued on or before March 14, 2008 that the Secretary of the Treasury determines promotes market stability, as well as any other financial instrument that the Treasury, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, or FRB, determined the purchase of which is necessary to promote market stability.  In the case of a publicly-traded financial institution that sold troubled assets into the TARP, the Treasury must have received a warrant giving the Treasury the right to receive nonvoting common stock or preferred stock in such financial institution, or voting stock with respect to which the Treasury agreed not to exercise voting power, subject to certain de minimis exceptions.  In addition, all financial institutions that sold troubled assets to the TARP and met certain conditions were also subject to certain executive compensation restrictions, which differed depending on how the troubled assets were acquired under the TARP.

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On October 14, 2008, the Treasury announced that it would purchase equity stakes in a wide variety of banks and thrifts. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the "TARP CPP"), the Treasury made $250 billion of capital available (from the $700 billion authorized by the EESA) to U.S. financial institutions in the form of preferred stock. In conjunction with the purchase of preferred stock, the Treasury received warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment.  Participating financial institutions were required to adopt the Treasury's standards for executive compensation and corporate governance for the period during which the Treasury held equity issued under the TARP CPP.  On January 20, 2009, the Company announced that it completed the sale of $18.98 million in preferred stock to the Treasury in connection with Carver's participation in the TARP CPP. Importantly, Carver is exempt from the requirement to issue a warrant to the Treasury to purchase shares of common stock, as the Bank is a certified Community Development Financial Institution (“CDFI”) conducting most of its depository and lending activities in disadvantaged communities. Therefore, the investment did not dilute common stockholders. As a participant in TARP CPP, the Company was subject to certain obligations currently in effect, such as compensation restrictions, a luxury expenditure policy, the requirement the Company include a “say on pay” proposal in the proxy statement and certain certifications. The Company was also subject to additional restrictions or obligations as may be imposed under TARP CPP for as long as the Company participates in TARP CPP.

The Treasury announced in February 2010 the implementation of the Community Development Capital Initiative (“CDCI”). This new capital program invested lower cost capital in CDFIs that lend to small businesses in the country's most economically depressed communities. CDFI banks and thrifts are eligible to receive investments of capital with an initial dividend rate of 2%, compared to the 5% rate offered under the CPP. CDFIs could apply to receive capital up to 5% of risk-weighted assets. To encourage repayment while recognizing the unique circumstances facing CDFIs, the dividend rate increased to 9% after eight years, compared to five years under TARP preferred stock. On August 27, 2010, Carver completed with the Treasury the exchange of the $18.98 million of TARP preferred stock for an equivalent amount of CDCI Series B preferred stock. As stated above, on October 28, 2011, the U.S. Treasury exchanged the CDCI Series B preferred stock for 2,321,286 shares of Company common stock.

Other Supervision and Regulation

Activity Powers.  The Bank derives its lending and investment powers from the Home Owners' Loan Act (“HOLA”), as amended, and federal regulations.  Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities and certain other assets.  The Bank may also establish service corporations that may engage in certain activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage.  The Bank's authority to invest in certain types of loans or other investments is limited by federal law. These investment powers are subject to various limitations, including (1) a prohibition against the acquisition of any corporate debt security that is not rated in one of the four highest rating categories, (2) a limit of 400% of an association's capital on the aggregate amount of loans secured by non-residential real estate property, (3) a limit of 20% of an association's assets on commercial loans, with the amount of commercial loans in excess of 10% of assets being limited to small business loans, (4) a limit of 35% of an association's assets on the aggregate amount of consumer loans and acquisitions of certain debt securities, (5) a limit of 5% of assets on non-conforming loans (certain loans in excess of the specific limitations of HOLA), and (6) a limit of the greater of 5% of assets or an association's capital on certain construction loans made for the purpose of financing what is or is expected to become residential property.

Loans-to-One Borrower Limitations.  The Bank is generally subject to the same limits on loans-to-one borrower as a national bank.  With specified exceptions, the Bank's total loans or extension of credit to a single borrower or group of related borrowers may not exceed 15% of the Bank's unimpaired capital and unimpaired surplus, which does not include accumulated other comprehensive income.  The Bank currently complies with applicable loans-to-one borrower limitations.  At March 31, 2020, the Bank's limit on loans-to-one borrower based on its unimpaired capital and surplus was $10.3 million.

Qualified Thrift Lender Test.  Under HOLA, the Bank must comply with a Qualified Thrift Lender (“QTL”) test.  Under this test, the Bank is required to maintain at least 65% of its “portfolio assets” in certain “qualified thrift investments” on a monthly basis in at least nine months of the most recent twelve-month period.  “Portfolio assets” means, in general, an association's total assets less the sum of (a) specified liquid assets up to 20% of total assets, (b) goodwill and other intangible assets and (c) the value of property used to conduct the Bank's business.  “Qualified thrift investments” include various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities and consumer loans.  If the Bank fails the QTL test, it must operate under certain restrictions on its activities. The Dodd-Frank Act made noncompliance potentially subject to agency enforcement action for
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violation of law.  At March 31, 2020, the Bank maintained approximately 96.0% of its portfolio assets in qualified thrift investments.  The Bank had also met the QTL test in each of the prior 12 months and was, therefore, a qualified thrift lender.

        Branching.  Subject to certain limitations, federal law permits the Bank to establish branches in any state of the United States.  The authority for the Bank to establish an interstate branch network would facilitate a geographic diversification of the Bank's activities.  This authority under federal law and regulations preempts any state law purporting to regulate branching by federal savings associations.

Community Reinvestment.  Under CRA, as amended, as implemented by OCC regulations, the Bank has a continuing and affirmative obligation to help meet the credit needs of its entire community, including low and moderate income neighborhoods.  CRA does not establish specific lending requirements or programs for the Bank nor does it limit the Bank's discretion to develop the types of products and services that it believes are best suited to its particular community.  CRA does, however, require the OCC, in connection with its examination of the Bank, to assess the Bank's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the Bank.

In particular, the system focuses on three tests:

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

(2)an investment test, to evaluate the institution's record of investing in community development projects, affordable housing and programs benefiting low or moderate income individuals and businesses; and

(3)a service test, to evaluate the institution's delivery of banking services through its branches, ATM centers and other offices.

CRA also requires all institutions to make public disclosure of their CRA ratings.  The Bank received an “Outstanding” CRA rating in its most recent examination conducted in January 2019.

Regulations require that Carver Federal publicly disclose certain agreements that are in fulfillment of CRA.  The Company has no such agreements in place at this time.

Transactions with Related Parties.  The Bank's authority to engage in transactions with its “affiliates” is limited by federal regulations and by Sections 23A, 23B of the Federal Reserve Act (“FRA”).  In general, these transactions must be on terms which are as favorable to the Bank as comparable transactions with non-affiliates.  Additionally, certain types of these transactions are restricted to an aggregate percentage of the Bank's capital.  Collateral in specified amounts must usually be provided by affiliates to receive loans from the Bank.  In addition, OCC regulations prohibit a savings bank from lending to any of its affiliates that is engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate other than a subsidiary.

The Bank's authority to extend credit to its directors, executive officers, and 10% shareholders ("insiders"), as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve Board.  Among other things, these provisions require that all loans or extensions of credit to insiders (a) be made on terms that are substantially the same as and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (b) not exceed certain limitations, individually and in the aggregate, which limits are based, in part, on the amount of the Bank's capital.  In addition, extensions of credit in excess of certain limits must be approved by the Bank's Board.  The aggregate amount of related party deposits were $64 thousand and there was one related party loan totaling $70 thousand at March 31, 2020.

Assessment. The OCC charges assessments to recover the cost of examining savings associations and their affiliates.  These assessments are based on three components: the size of the association, on which the basic assessment is based; the association's supervisory condition, which results in an additional assessment based on a percentage of the basic assessment for any savings institution with a composite rating of 3, 4, or 5 in its most recent safety and soundness examination; and the complexity of the association's operations, which results in an additional assessment based on a percentage of the basic assessment for any savings association that managed over $1 billion in trust assets, serviced for others loans aggregating more than $1 billion, or had certain off-balance sheet assets aggregating more than $1 billion.  For fiscal 2020, Carver paid $209 thousand in regulatory assessments.


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Insurance of Deposit Accounts

Under the FDIC's risk-based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions of less than $10 billion of assets are now based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years. That system, effective July 1, 2016, replaced the previous system under which institutions were placed into risk categories.

The Dodd-Frank Act required the FDIC to revise its procedures to base assessments upon each insured institution's total assets less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that set the assessment range at 2.5 to 45 basis points of total assets less tangible equity. In conjunction with the Deposit Insurance Fund's reserve ratio achieving 1.15%, the assessment range (inclusive of possible adjustments) was reduced for insured institutions of less than $10 billion of total assets to 1.5 basis points to 30 basis points, effective July 1, 2016.

The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation was required to achieve the 1.35% ratio by September 30, 2010. The Dodd-Frank Act required insured institutions with assets of $10 billion or more to fund the increase from 1.15% 5o 1.35% and, effective July 1, 2016, such institutions were subject to a surcharge to achieve that goal. The FDIC has indicated that the 1.35% ratio was exceeded in November 2018. Insured institutions of less than $10 billion of assets are receiving credits for their portion of assessments that contributed to raising the reserve ratio from 1.15% to 1.35%. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance Corporation, and the Federal Deposit Insurance Corporation has exercised that discretion by establishing a long-range fund ratio of 2%.

The FDIC has authority to further increase insurance assessments and therefore management cannot predict what insurance assessment rates will be in the future. A significant increase in insurance premiums may have an adverse effect on the operating expenses and results of operations of the Bank. For fiscal 2020, Carver paid $133 thousand in FDIC insurance.

Anti-Money Laundering and Customer Identification

  The Bank is subject to federal regulations implementing the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”).  The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements.  By way of amendments to the Bank Secrecy Act (BSA), Title III of the USA PATRIOT Act took measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies.  Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties registered under the United States Commodity Exchange Act of 1936, as amended.

Title III of the USA PATRIOT Act and the related federal regulations imposed the following requirements with respect to financial institutions:

•Establish a Board approved policy and perform a risk assessment of BSA, Anti-Money Laundering and OFAC;

•Designate a qualified BSA officer;

•Establish an effective training program;

•Establish anti-money laundering programs;

•Establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts, including verifying the identity of customers within a reasonable period of time;

•Establish enhanced due diligence policies, procedures and controls designed to detect and report money laundering; and

•Prohibit correspondent accounts for foreign shell banks and compliance with record keeping obligations with respect to correspondent accounts of foreign banks

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        In addition, bank regulators were directed to consider a holding company's effectiveness in combating money laundering when ruling on certain corporate applications.

Federal Home Loan Bank System  

The Bank is a member of the FHLB-NY, which is one of the eleven regional banks composing the FHLB System.  Each regional bank provides a central credit facility primarily for its member institutions.  The Bank, as a FHLB-NY member, is required to acquire and hold shares of capital stock in the FHLB-NY in specified amounts.  The Bank was in compliance with this requirement with an investment in the capital stock of the FHLB-NY at March 31, 2020 of $568 thousand.  Any advances from the FHLB-NY must be secured by specified types of collateral, and all long-term advances may be obtained only for the purpose of providing funds for residential housing finance.

FHLB-NY is required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs.  These requirements could reduce the amount of earnings that the FHLB-NY can pay as dividends to its members and could also result in the FHLB-NY imposing a higher rate of interest on advances to its members.  If dividends were reduced, or interest on future FHLB-NY advances increased, the Bank's net interest income would be adversely affected.  Dividends from FHLB-NY to the Bank amounted to $56 thousand and $42 thousand for fiscal years 2020 and 2019, respectively.  The dividend rate paid on FHLB-NY stock at March 31, 2020 was 5.9%.

Federal Reserve System

FRB regulations require federally chartered savings associations to maintain non-interest-earning cash reserves against their transaction accounts (primarily interest-bearing checking and demand deposit accounts). A reserve of 3% is to be maintained against aggregate transaction accounts between $16.9 million and $127.5 million (subject to adjustment annually by the FRB) plus a reserve of 10% (subject to adjustment by the FRB between 8% and 14%) against that portion of total transaction accounts in excess of $127.5 million. The first $16.9 million of otherwise reservable balances (subject to adjustment annually by the FRB) is exempt from the reserve requirements. The Bank was in compliance with the foregoing requirements. Since required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve Bank or a pass-through account as defined by the FRB, the effect of this reserve requirement is to reduce Carver Federal's interest-earning assets. FHLB System members are also authorized to borrow from the Federal Reserve “discount window,” but FRB regulations require institutions to exhaust all FHLB sources before borrowing from a Federal Reserve Bank. Effective March 26, 2020, the FRB reduced reserve requirement ratios to 0%, which eliminated reserve requirements for all depository institutions.

Privacy Protection

Carver Federal is subject to OCC regulations implementing the privacy protection provisions of federal law.  These regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “nonpublic personal information” to customers at the time of establishing the customer relationship and annually thereafter.  The regulations also require the Bank to provide its customers with initial and annual notices that accurately reflect its privacy policies and practices.  In addition, to the extent its sharing of such information is not exempted, the Bank is required to provide its customers with the ability to opt-out of having the Bank share their nonpublic personal information with unaffiliated third parties before they can disclose such information, subject to certain exceptions.

The Bank is subject to regulatory guidelines establishing standards for safeguarding customer information.  These regulations implement certain provisions of the Gramm-Leach-Bliley Act, as amended ("GLB").  The guidelines describe the agencies' expectations for the creation, implementation and maintenance of an information security program, which would include administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities.  The standards set forth in the guidelines are intended to insure the security and confidentiality of customer records and information, protect against any anticipated threats or hazards to the security or integrity of such records and protect against unauthorized access to or use of such records or information that could result in substantial harm or inconvenience to any customer.  The Bank has a policy to comply with the foregoing guidelines.

Holding Company Regulation

The Company is a savings and loan holding company regulated by the FRB. As such, the Company is registered with and subject to FRB examination and supervision, as well as certain reporting requirements. The FRB has enforcement authority
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over the Company and its subsidiaries. Among other things, this authority permits the FRB to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness or stability of a subsidiary savings institution.

GLB restricts the powers of new unitary savings and loan holding companies. Unitary savings and loan holding companies that are “grandfathered,” i.e., unitary savings and loan holding companies in existence or with applications filed with the regulator on or before May 4, 1999, such as the Company, retain their authority under the prior law. All other unitary savings and loan holding companies are limited to financially related activities permissible for financial holding companies and certain other activities specified by FRB regulations. GLB also prohibits nonfinancial companies from acquiring grandfathered unitary savings and loan holding companies.

Restrictions Applicable to All Savings and Loan Holding Companies.  Federal law prohibits a savings and loan holding company, including the Company, directly or indirectly, from acquiring:

(1)control (as defined under the Home Owners' Loan Act ("HOLA") of 1933, as amended), of another savings institution (or a holding company parent) without prior FRB approval;

(2)through merger, consolidation, or purchase of assets, another savings institution or a holding company thereof, or acquiring all or substantially all of the assets of such institution (or a holding company), without prior FRB approval; or

(3)control of any depository institution not insured by the FDIC.

A savings and loan holding company may not acquire as a separate subsidiary an insured institution that has a principal office outside of the state where the principal office of its subsidiary institution is located, except:

(1)in the case of certain emergency acquisitions approved by the FDIC;

(2)if such holding company controls a savings institution subsidiary that operated a home or branch office in such additional state as of March 5, 1987; or

(3)if the laws of the state in which the savings institution to be acquired is located specifically authorize a savings institution chartered by that state to be acquired by a savings institution chartered by the state where the acquiring savings institution or savings and loan holding company is located or by a holding company that controls such a state chartered association.

In evaluating applications by holding companies to acquire savings associations, the FRB must consider issues such as the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance fund, the convenience and needs of the community and competitive factors.

Savings and loan holding companies have not historically been subjected to consolidated regulatory capital requirements. The Dodd-Frank Act, however, required the FRB to promulgate consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to their subsidiary depository institutions. Instruments such as cumulative preferred stock and trust-preferred securities, which were previously includable within Tier 1 capital by bank holding companies within certain limits, are no longer includable as Tier 1 capital, subject to certain grandfathering. The previously discussed final rule regarding regulatory capital requirements implemented the Dodd-Frank Act as to savings and loan holding companies. However, pursuant to subsequent legislation, the FRB extended the applicability of the “Small Bank Holding Company” exception of its consolidated capital requirements to savings and loan holding companies and increased the threshold for the exception to $1.0 billion, effective May 15, 2015. Additional subsequent legislation directed the Federal Reserve Board to expand the applicability of the exception to holding companies up to $3.0 billion in consolidated assets; that change was effective in August 2018. As a result, holding companies with less than $3 billion of consolidated assets, such as the Company, are generally not subject to consolidated capital requirements unless otherwise advised by the FRB.

The Dodd-Frank Act extends the “source of strength” doctrine to savings and loan holding companies. The FRB promulgated regulations implementing the “source of strength” policy that requires holding companies act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress.

The FRB has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock by bank holding companies that it has made applicable to savings and loan holding companies as well. In general, the
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policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends’ previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also provides for regulatory consultation prior to a holding company redeeming or repurchasing regulatory capital instruments when the holding company is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction as of the end of a quarter in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies could affect the ability of the Company to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.

Federal Securities Laws

 The Company is subject to the periodic reporting, proxy solicitation, tender offer, insider trading restrictions and other requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Delaware Corporation Law

The Company is incorporated under the laws of the State of Delaware.  Thus, it is subject to regulation by the State of Delaware and the rights of its shareholders are governed by the General Corporation Law of the State of Delaware.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) and stimulate the economy. The law had several provisions relevant to financial institutions, including:

•Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring and also allowing them to suspend the corresponding impairment determination for accounting purposes.

•Temporarily reducing the Community Bank Leverage Ratio (the “CBLR”) to 8%. This law also states that if a qualifying community bank falls below the CBLR, it “shall have a reasonable grace period to satisfy” the CBLR. This provision terminates on the earlier of December 31, 2020 or the date the President declares that the coronavirus emergency is terminated.

•The ability of a borrower of a federally backed mortgage loan (VA, FHA, USDA, Freddie and Fannie) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance will be granted for up to 180 days, which can be extended for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract will accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally backed mortgage is prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020.

•The ability of a borrower of a multi-family federally backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance to the borrower’s servicer affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. A forbearance will be granted for up to 30 days, which can be extended for up to two additional 30-day periods upon the request of the borrower. During the time of the forbearance, the multifamily borrower cannot evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent. Additionally, a multifamily borrower that receives a forbearance may not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on which the borrower provides the tenant notice to vacate and may not issue a notice to vacate until after the expiration of the forbearance.

The Paycheck Protection Program

The CARES Act provides approximately $350 billion to fund loans to eligible small businesses through the Small Business Administration’s (“SBA”) 7(a) loan guaranty program. These loans will be 100% federally guaranteed (principal and
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interest) through December 31, 2020. An eligible business can apply for a Paycheck Protection Program (“PPP”) loan up to 2.5 times its average monthly “payroll costs" limited to a loan amount of $10.0 million. The proceeds of the loan can be used for payroll (excluding individual employee compensation over $100,000 per year), mortgage, interest, rent, insurance, utilities and other qualifying expenses. PPP loans will have: (a) an interest rate of 1.0%, (b) a two-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 75% of the loan proceeds are used for payroll expenses, with the remaining 25% of the loan proceeds used for other qualifying expenses.

FEDERAL AND STATE TAXATION

Federal Taxation

General. The Company and the Bank currently file consolidated federal income tax returns, report their income for tax return purposes on the basis of a taxable year ending March 31, using the accrual method of accounting and are subject to federal income taxation in the same manner as other corporations with some exceptions, including in particular the Bank's tax reserve for bad debts. The bank has a subsidiary which files a REIT tax return which reports its income for tax purposes on the basis of a taxable year ending December 31st. The REIT does not join in the consolidated return and it pays tax on its undistributed taxable income. The REIT has and intends to continue to distribute its taxable income and therefore not pay tax at the REIT level. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or the Company.

Distributions. To the extent that the Bank makes “non-dividend distributions” to shareholders, such distributions will be considered to result in distributions from the Bank's “base year reserve,” i.e., its reserve as of March 31, 1988, to the extent thereof and then from its supplemental reserve for losses on loans, and an amount based on the amount distributed will be included in the Bank's taxable income. Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, distributions in redemption of stock and distributions in partial or complete liquidation. However, dividends paid out of the Bank's current or accumulated earnings and profits, as calculated for federal income tax purposes, will not constitute non-dividend distributions and, therefore, will not be included in the Bank's taxable income.

The amount of additional taxable income created from a non-dividend distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the distribution.  Thus, approximately 1.2 times the non-dividend distribution would be includable in gross income for federal income tax purposes, assuming a 21% federal corporate income tax rate.

In December 2017, "The Tax Cuts and Jobs Act" was signed into law. At March 31, 2018, the Company made a reasonable estimate and recorded a remeasurement of the Company’s net deferred income tax assets and liabilities based on the new reduced U.S. corporate income tax rate.  The impact on the net deferred tax asset before valuation allowances was a reduction of $3.1 million, which was offset by a corresponding decrease in the valuation allowance of the same amount.  The Company recorded a benefit of $0.3 million for alternative minimum tax credits which, under the new tax law, are refundable.  As of March 31, 2020, the amount of the AMT credits was $143 thousand, all of which will be refunded to the Company upon filing of the fiscal year 2020 federal tax return..
State and Local Taxation

State of New York.  The Bank and the Company (including the REIT) file tax returns on a combined basis and are subject to New York State franchise tax on their entire net income or one of several alternative bases, whichever results in the highest tax.  “Entire net income” means federal taxable income with adjustments.  If, however, the application of an alternative tax (based on taxable net assets allocated to New York or a fixed minimum fee) results in a greater tax, the alternative tax will be imposed.  The Company was subject to tax based upon capital for New York State for fiscal 2020. In addition, New York State imposes a tax surcharge of 28.9% of the New York State Franchise Tax allocable to business activities carried on in the Metropolitan Commuter Transportation District. For fiscal 2020, the New York State franchise tax rate computed on capital was 0.05%.  

On March 31, 2014, New York State tax legislation was signed into law in connection with the approval of the New York State 2014-2015 budget. Portions of the new legislation resulted in significant changes in the calculation of income taxes imposed on banks and thrifts operating in New York State, including changes to (1) future period New York State tax rates, (2)
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rules related to sourcing of revenue for New York State tax purposes and (3) the New York State taxation of entities within one corporate structure, among other provisions. In recent years, the Company has been subject to taxation based upon assets in New York State. The new legislation revised that method to a measurement based on net assets.

New York City.  The Bank and the Company (including the REIT) file on a combined basis and are also subject to a similarly calculated New York City banking corporation tax on assets allocated to New York City.  For fiscal 2020, the New York City banking corporation tax rate computed on capital is 0.15%. On April 13, 2015, New York State legislation was signed changing the New York City tax law to conform to the New York State law that was adopted in 2014, with some minor differences.  

As a result of the impact of the 2014 legislation effecting both the New York State and New York City tax law, there was a decrease to the Company's gross deferred tax asset of $1.2 million in fiscal 2015 with no impact to current income due to the full valuation allowance.

Delaware Taxation.  As a Delaware holding company not earning income in Delaware, the Company is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware.

ITEM 1A.RISK FACTORS.

The material risks that management believes affect the Company are described below. You should carefully consider the risks as described below, together with all of the information included herein. The risks described below are not the only risks the Company faces. Additional risks not presently known also may have a material adverse effect on the Company’s 9results of operations and financial condition.

Changes in interest rates may adversely affect our profitability and financial condition.

We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income. From an interest rate risk perspective, we have generally been liability sensitive, which indicates that liabilities generally re-price faster than assets.

In response to improving economic conditions, the FRB’s Open Market Committee had slowly increased its federal funds rate target from a range of 0.00% - 0.25% that was in effect for several years to the target range of 2.25% - 2.50% that was in effect at March 31, 2019. However, as the result of the COVID-19 pandemic and the related adverse local and economic consequences, the target range was decreased to the range of 0.00% - 0.25% at March 31, 2020.  

Interest rates also affect how much money we lend. For example, when interest rates rise, the cost of borrowing increases and loan originations tend to decrease. In addition, changes in interest rates can affect the average life of loans and securities. For example, a reduction in interest rates generally results in increased prepayments of loans and mortgage-backed securities, as borrowers refinance their debt in order to reduce their borrowing cost. This causes reinvestment risk, because we generally are not able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities in a declining rate environment.

Changes in market interest rates also impact the value of our interest-earning assets and interest-bearing liabilities.  In particular, the unrealized gains and losses on securities available for sale are reported, net of taxes, as accumulated other comprehensive income which is a component of stockholders’ equity.  Consequently, declines in the fair value of these instruments resulting from changes in market interest rates may adversely affect stockholders’ equity.

Uncertainty surrounding the elimination of LIBOR and the proposed transition to SOFR may adversely affect our business.

The U.S. dollar-denominated London Interbank Offered Rate ("LIBOR") is used to calculate interest rates for numerous types of debt obligations, including personal and commercial loans, interest rate swaps, and other derivative products, making it a primary metric in the global banking system. The U.K. Financial Conduct Authority ("FCA") has determined that LIBOR should no longer be used as a benchmark rate. In anticipation of the elimination of LIBOR, the U.S. Federal Reserve established the Alternative Reference Rates Committee ("ARRC") to select a replacement index for U.S. Dollar LIBOR.
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ARRC, comprised of a group of large domestic banks and regulators, has voted to use a benchmark, known as the Secured Overnight Financing Rate ("SOFR"). SOFR is based on short-term loans backed by Treasury securities, known as repurchase agreements or "repo" trades. ARRC has announced a paced transition plan for this new rate, including specific steps and timelines designed to encourage adoption of SOFR. As of March 31, 2020, we have exposure to approximately $23.6 million of financial assets and liabilities, including off-balance sheet instruments, which are LIBOR-based. We do not yet know whether, and if so the extent to which, the elimination of LIBOR and the transition to SOFR will have any material impact on these instruments.

Our loan portfolio exhibits a high degree of risk.

We have a significant amount of commercial real estate loans that have a higher risk of default and loss than single-family residential mortgage loans. Commercial real estate loans amount to $141.8 million, or 33.3% of our loan portfolio at March 31, 2020. Commercial real estate loans generally are considered to involve a higher degree of risk due to a variety of factors, including generally larger loan balances and loan terms which often do not require full amortization of the loan over its term and, instead, provide for a balloon payment at the stated maturity date. Repayment of commercial real estate loans generally is dependent on income being generated by the rental property or underlying business in amounts sufficient to cover operating expenses and debt service. Failure to adequately underwrite and monitor these loans may result in significant losses to Carver Federal.

The allowance for loan losses could be insufficient to cover Carver's actual loan losses.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in additions to our allowance. Material additions to the allowance would materially decrease net income.

In addition, the OCC periodically reviews the allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. A material increase in the allowance for loan losses or loan charge-offs as required by the regulatory authorities would have a material adverse effect on the Company's financial condition and results of operations. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans and leases, identification of additional impaired loans and leases and other factors, both within and outside of our control. Additions to the allowance could have a negative impact on our results of operations.

Failure to comply with the Formal Agreement could adversely affect our business, financial condition and operating results.

In May 2016, the Bank entered into a Formal Agreement with the OCC. The Formal Agreement required the Bank to reduce its concentration of commercial real estate and required that the Bank undertake several actions to improve compliance matters and overall profitability. Based on an updated report of examination, the Bank's CRE concentration was at appropriate levels and there were no issues surrounding any compliance matters. Failure to comply with the Formal Agreement could result in additional supervisory and enforcement actions against the Bank, its directors, or senior executive officers, including the issuance of a cease and desist order or the imposition of civil money penalties. The Bank's compliance efforts may have an adverse impact on its non-interest expense and net income.

Carver is subject to more stringent capital requirements, which may adversely impact the Company's return on equity, or constrain it from paying dividends or repurchasing shares.

In July 2013, the FDIC and the FRB approved a new rule that substantially amended the regulatory risk-based capital rules applicable to the Bank and the Company. The final rule implements the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act.

        The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Bank and the Company on January 1, 2015, and refines the definition of what constitutes “capital” for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also established a “capital conservation buffer” of 2.5%, and the following minimum ratios:
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(i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and increased each year until fully implemented in January 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions. Regardless of Basel III's minimum requirements, Carver, as a result of the previously described Formal Agreement, 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, 2020, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage ratio of 11.25%, Common Equity Tier 1 capital ratio of 15.23%, Tier 1 risk-based capital ratio of 15.23%, and a total risk-based capital ratio of 16.48%.

There can be no assurance that our regulator will approve payment of our deferred interest on our outstanding trust preferred securities.

        Carver is a unitary savings and loan association holding company regulated by the FRB and almost all of its operating assets are owned by Carver Federal. Carver relies primarily on dividends from the Bank to pay cash dividends to its stockholders, to engage in share repurchase programs and to pay principal and interest on its trust preferred debt obligation. The OCC regulates all capital distributions, including dividend payments, by the Bank to the Company, and the FRB regulates dividends paid by the Company. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in the Bank’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement, the Bank is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended its regular quarterly cash dividend to the Company. There are no assurances that dividend payments to the Company will resume.
        
        Debenture interest payments on the Carver Statutory Trust I capital securities have been deferred, which is permissible under the terms of the Indenture for up to twenty consecutive quarterly periods, as the Company is prohibited from making payments without prior approval from the Federal Reserve Bank. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures has been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters through September 2021.

Carver's results of operations may be adversely affected by loan repurchases from U.S. Government Sponsored entities (“GSE's”).

In connection with the sale of loans, Carver as the loan originator is required to make a variety of representations and warranties regarding the originator and the loans that are being sold. If a loan does not comply with the representations and warranties, Carver may be obligated to repurchase the loans, and in doing so, incur any loss directly. Prior to December 31, 2009, the Bank originated and sold loans to the FNMA. During fiscal years 2012 through 2015, the Bank has been obligated to repurchase 20 loans previously sold to FNMA. The Bank has not received any repurchase requests for these loans since the second quarter of fiscal year 2015. There is no assurance that the Bank will not be required to repurchase additional loans in the future. Accordingly, any repurchase obligations to FNMA could materially and adversely affect the Bank's results of operations and earnings in the future.

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

At March 31, 2020, a significant majority of the Bank's lending portfolio was concentrated in the New York metropolitan area.  As a result of this geographic concentration, Carver's results of operations are largely dependent on economic conditions in this area.  Decreases in real estate values could adversely affect the value of property used as collateral for loans to our borrowers.  Adverse changes in the economy caused by inflation, recession, unemployment, state or local real estate laws and regulations or other factors beyond the Bank's control may also continue to have a negative effect on the ability of borrowers to make timely mortgage or business loan payments, which would have an adverse impact on earnings.  Consequently, deterioration in economic conditions in the New York metropolitan area could have a material adverse impact on the quality of the Bank's loan portfolio, which could result in increased delinquencies, decreased interest income results as well as an adverse impact on loan loss experience with probable increased allowance for loan losses. Such
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deterioration also could adversely impact the demand for products and services, and, accordingly, further negatively affect results of operations.

The soundness of other financial institutions could negatively affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations.

A new accounting standard will likely require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.

The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Company for our first fiscal year after December 15, 2022.  This standard, referred to as Current Expected Credit Loss (“CECL”) will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses.  This will change the current method of providing allowances for loan losses that are probable, which would likely require us to increase our allowance for loan losses, and to increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.  Any increase in our allowance for loan losses or expenses incurred to determine the appropriate level of the allowance for loan losses may have a material adverse effect on our financial condition and results of operations.

Strong competition within the Bank's market areas could adversely affect profits and slow growth.

The New York metropolitan area has a high density of financial institutions, of which many are significantly larger than Carver Federal and with greater financial resources.  Additionally, various large out-of-state financial institutions may continue to enter the New York metropolitan area market.  All are considered competitors to varying degrees.

Carver Federal faces intense competition both in making loans and attracting deposits. Competition for loans, both locally and in the aggregate, comes principally from mortgage banking companies, commercial banks, savings banks and savings and loan associations. Most direct competition for deposits comes from commercial banks, savings banks, savings and loan associations and credit unions.   The Bank also faces competition for deposits from money market mutual funds and other corporate and government securities funds, as well as from other financial intermediaries, such as brokerage firms and insurance companies.  Market area competition is a factor in pricing the Bank's loans and deposits, which could reduce net interest income.  Competition also makes it more challenging to effectively grow loan and deposit balances. The Company's profitability depends upon its continued ability to successfully compete in its market areas.

Failure to maintain effective systems of internal and disclosure controls could have a material adverse effect on the Company’s results of operation and financial condition.

        Effective internal and disclosure controls are necessary for the Company to provide reliable financial reports and effectively prevent fraud, and to operate successfully as a public company. If the Company cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. As part of the Company’s ongoing monitoring of internal controls, it may discover material weaknesses or significant deficiencies in its internal controls that require remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

        The Company continually works on improving its internal controls. However, the Company cannot be certain that these measures will ensure that it implements and maintains adequate controls over its financial processes and reporting. Any failure to maintain effective controls or to timely implement any necessary improvement of the Company’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm the Company’s reputation, or cause investors to lose confidence in the Company’s reported financial information, all of which could have a material adverse effect on the Company’s results of operation and financial condition.

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

Carver Federal is subject to extensive supervision, regulation and examination by the OCC, as the Bank's chartering authority and, to a lesser extent, by the FDIC, as insurer of its deposits. The Company is subject to extensive supervision, regulation and examination by the FRB, as regulator of the holding company. As a result, Carver Federal and the Company are limited in the manner in which Carver Federal and the Company conducts its business, undertakes new investments and activities and obtains financing. This regulatory structure is designed primarily for the protection of the deposit insurance funds and depositors, and not to benefit the Company's stockholders. This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to capital levels, the timing and amount of dividend payments, the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. In addition, Carver Federal must comply with significant anti-money laundering and anti-terrorism laws. Government agencies have substantial discretion to impose significant monetary penalties on institutions which fail to comply with these laws.

The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. It also provides that the listing standards of the national securities exchanges shall require listed companies to implement and disclose “clawback” policies mandating the recovery of incentive compensation paid to executive officers in connection with accounting restatements. The legislation also directs the FRB to promulgate rules prohibiting excessive compensation paid to bank holding company executives.

The Financial Accounting Standards Board, the SEC and other regulatory entities, periodically change the financial accounting and reporting guidance that governs the preparation of the Company's consolidated financial statements. These changes can be difficult to predict and can materially impact how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply new or revised guidance retroactively.

Restrictions on the Company and the Bank stemming from the Treasury's equity interest in the Company may have a material effect on results of operations.

        On January 20, 2009, the Company became a TARP CPP participant by completing the sale of $18.98 million in preferred stock to the Treasury. As a participant, among other things, the Company must adopt the Treasury's standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under this program.  These standards would generally apply to the Company's CEO, CFO and the three next most highly compensated officers (“Senior Executive”).  The standards include (1) ensuring that incentive compensation for Senior Executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required claw-back of any bonus or incentive compensation paid to a Senior Executive based on statements of earnings, gains or other criteria that are later proven to be materially inaccurate; (3) prohibition on making golden parachute payments to Senior Executives; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500,000 for each Senior Executive.  In particular, the change to the deductibility limit on executive compensation would likely increase slightly the overall cost of the Company's compensation programs. the Company also had to adopt certain monitoring and reporting processes.

        On August 27, 2010, the Company redeemed the preferred stock and issued $18.98 million in Series B preferred stock in connection with the Company's changing its participation from TARP CPP to TARP CDCI. On October 25, 2011 Carver's shareholders approved the conversion of TARP CDCI Series B preferred stock to common stock. On October 28, 2011, the Treasury converted the CDCI Series B preferred stock to Carver common stock.  Under the terms of the agreement between the Treasury and the Company, the Company agreed that so long as the Treasury has an equity interest in the Company, it will continue to be bound by all of the current restrictions and requirements that the Treasury may choose to implement. The Company is unable to determine the impact that future restrictions and/or requirements resulting from the Treasury's ownership interest may have on the Company's results of operations.

The Company is subject to certain risks with respect to liquidity.

Liquidity refers to the Company's ability to generate sufficient cash flows to support its operations and to fulfill its obligations, including commitments to originate loans, to repay wholesale borrowings and other liabilities, and to satisfy the withdrawal of deposits by its customers.

The Company's primary sources of liquidity are the cash flows generated through the repayment of loans and securities, cash flows from the sale of loans and securities, deposits gathered organically through the Bank's branch network, from socially motivated depositors, city and state agencies and deposit brokers and borrowed funds, primarily in the form of
32

wholesale borrowings from the FHLB-NY.  In addition, and depending on current market conditions, the Company has the ability to access the capital markets from time to time.

Deposit flows, calls of investment securities and wholesale borrowings, and prepayments of loans and mortgage-related securities are strongly influenced by such external factors as the direction of interest rates, whether actual or perceived, local and national economic conditions and competition for deposits and loans in the markets the Bank serves. Furthermore, changes to the FHLB-NY's underwriting guidelines for wholesale borrowings may limit or restrict the Bank's ability to borrow, and could therefore have a significant adverse impact on liquidity.

A decline in available funding could adversely impact the Bank's ability to originate loans, invest in securities, and meet expenses, or to fulfill such obligations as repaying borrowings or meeting deposit withdrawal demands.

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

The Company's ability to utilize the deferred tax asset generated by New Markets Tax Credit income tax benefits as well as other deferred tax assets depends on its ability to meet the NMTC compliance requirements and its ability to generate sufficient taxable income from operations in the future. Since the Bank has not generated sufficient taxable income to utilize tax credits as they were earned, a deferred tax asset has been recorded in the Company's financial statements. For additional information regarding Carver's NMTC, refer to Item 7, "Variable Interest Entities."

The future recognition of Carver's deferred tax asset is highly dependent upon Carver's ability to generate sufficient taxable income. A valuation allowance is required to be maintained for any deferred tax assets that we estimate are more likely than not to be unrealizable, based on available evidence at the time the estimate is made. In assessing Carver's need for a valuation allowance, we rely upon estimates of future taxable income. Although we use the best available information to estimate future taxable income, underlying estimates and assumptions can change over time as a result of unanticipated events or circumstances influencing our projections. Valuation allowances related to deferred tax assets can be affected by changes to tax laws, statutory rates, and future taxable income levels. The Company determined that it would not be able to realize all of its net deferred tax assets in the future, as such a charge to income tax expense in the second quarter of fiscal 2011 was made. Conversely, if the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, the Company would decrease the recorded valuation allowance through a decrease in income tax expense in the period in which that determination was made.

On June 29, 2011, the Company raised $55 million of equity. The capital raise triggered a change in control  under Section 382 of the Internal Revenue Code.  Generally,  Section 382 limits the utilization of an entity's net operating loss carry forwards, general business credits, and recognized built-in losses upon a change in ownership. The Company is subject to an annual limitation of approximately $0.9 million. The Company has a net deferred tax asset (“DTA”) of approximately $22.6 million.  Based on management's calculations, the Section 382 limitation has resulted in previous reductions of the deferred tax asset of $5.8 million. The Company also continues to maintain a valuation allowance for the remaining net deferred tax asset of $22.6 million. The Company is unable to determine how much, if any, of the remaining DTA will be utilized.

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

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

We have established policies and procedures to prevent or limit the impact of security breaches, but such events may still occur or may not be adequately addressed if they do occur. Although we rely on security safeguards to secure our data, these safeguards may not fully protect our systems from compromises or breaches.

We also rely on the integrity and security of a variety of third party processors, payment, clearing and settlement systems, as well as the various participants involved in these systems, many of which have no direct relationship with us. Failure by these participants or their systems to protect our customers' transaction data may put us at risk for possible losses due to fraud or operational disruption.

Our customers are also the target of cyber attacks and identity theft. Large scale identity theft could result in customers' accounts being compromised and fraudulent activities being performed in their name. We have implemented certain safeguards against these types of activities but they may not fully protect us from fraudulent financial losses.

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The occurrence of a breach of security involving our customers' information, regardless of its origin, could damage our reputation and result in a loss of customers and business and subject us to additional regulatory scrutiny, and could expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

System failure or breaches of Carver’s network security could subject it to increased operating costs as well as litigation and other liabilities.
 
The computer systems and network infrastructure Carver and its third-party service providers use could be vulnerable to unforeseen problems. Carver’s operations are dependent upon its ability to protect its computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in Carver’s operations could have a material adverse effect on its financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through Carver’s computer systems and network infrastructure, which may result in significant liability to Carver and may cause existing and potential customers to refrain from doing business with Carver. Although Carver, with the help of third-party service providers, intends to continue to implement security technology and establish operational procedures designed to prevent such damage, its security measures may not be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms Carver and its third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on Carver’s financial condition and results of operations.
 
It is possible that a significant amount of time and money may be spent to rectify the harm caused by a breach or hack. While Carver has general liability insurance, there are limitations on coverage as well as dollar amount. Furthermore, cyber incidents carry a greater risk of injury to Carver’s reputation. Finally, depending on the type of incident, banking regulators can impose restrictions on Carver’s business and consumer laws may require reimbursement of customer loss.

The economic impact of the COVID-19 outbreak could adversely impact our financial condition and results of operations

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity, a related increase in unemployment and a significant decline in the value of the stock market, and in particular, bank stocks. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

•demand for our products and services may decline, making it difficult to grow assets and income;
•if the economy is unable to substantially and safely reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;
•collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
•our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;
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•the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
•as the result of the decline in the Federal Reserve Board's target federal funds rate, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;
•our cybersecurity risks are increased as a result of an increase in the number of employees working remotely;
•we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and
•Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

As a participating lender in the Small Business Administration's ("SBA") Paycheck Protection Program ("PPP"), the Company and the Bank are subject to additional risks of litigation from the Bank's clients or other parties regarding the Bank's processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guarantees.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed to provide over $2.0 trillion in emergency economic relief to individuals and business impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP, which opened on April 3, 2020. Due to the short timeframe between the passing of the CARES Act and the beginning of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance. The Company may be exposed to the risk of litigation, from both clients and non-clients who approached the Bank requesting PPP loans, regarding its process and procedures used in processing applications for the PPP. Any such litigation filed against the Company or the Bank may be costly and result in significant financial liability or adversely affect the Company's reputation.
The Company's business could suffer if it fails to retain skilled people.  

The Company's success depends on its ability to attract and retain key employees reflecting current market opportunities and challenges.  Competition for the best people is intense, and the Company's size and limited resources may present additional challenges in being able to retain the best possible employees, which could adversely affect the results of operations.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

        Not Applicable.

ITEM 2.PROPERTIES.

        The Bank currently conducts its business through one administrative office and seven branches (including the Harlem West 125th Street Main branch) and four separate ATM locations. During fiscal year 2018, the Bank entered into a sale and leaseback transaction of its Harlem headquarters location. The Bank leased a portion of the property to continue to maintain its Main Office branch at the same location, and the administrative offices were relocated to a nearby facility. The following table sets forth certain information regarding Carver Federal's offices and other material properties at March 31, 2020.  The Bank believes that such facilities are suitable and adequate for its operational needs.
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Branches Address City/State Year Opened Owned or
Leased 		Lease
Expiration Date
Main Branch 75 West 125th Street New York, NY 1996 Leased 2/2028
Crown Heights Branch 1009-1015 Nostrand Avenue Brooklyn, NY 1975 Leased 12/2025
St. Albans Branch 115-02 Merrick Boulevard Jamaica, NY 1996 Leased 2/2021
Malcolm X Blvd. Branch 142 Malcolm X Boulevard New York, NY 2001 Leased 4/2021
Atlantic Terminal Branch 4 Hanson Place Brooklyn, NY 2003 Leased 4/2024
Flatbush Branch 833 Flatbush Avenue Brooklyn, NY 2009 Leased 8/2022
Restoration Plaza 1392 Fulton Street Brooklyn, NY 2009 Leased 10/2023
ATM Centers
Fulton Street 1950 Fulton Street Brooklyn, NY 2005 Leased 1/2023
ATM Machines
Atlantic Terminal Mall 139 Flatbush Avenue Brooklyn, NY 2004 Leased 4/2024
Atlantic Center 625 Atlantic Avenue Brooklyn, NY 2006 Leased 3/2021
Brooklyn Navy Yard 141-07 Flushing Avenue Brooklyn, NY 2019 Leased 10/2023
Administrative Office
1825 Park Avenue 1825 Park Avenue New York, NY 2018 Leased 12/2028

ITEM 3.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, 2020, 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. There were no legal proceedings pending or known to be contemplated against us that in the opinion of management, would be expected to have a material adverse effect on the financial condition or results of operations of the Company or the Bank.

ITEM 4.MINE SAFETY DISCLOSURES.

        Not Applicable.

PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

        The Company's common stock was transferred from The Nasdaq Global Market to The Nasdaq Capital Market effective December 2, 2011. The stock had been listed on the Nasdaq Global Market under the symbol “CARV” since July 10, 2008. At March 31, 2020, there were 3,699,505 shares of common stock outstanding, held by 570 stockholders of record.  

As previously disclosed in a Current Report on Form 8-K filed with the SEC on October 29, 2010, the Company’s Board of Directors announced that, based on highly uncertain economic conditions and the desire to preserve capital, Carver suspended payment of the quarterly cash dividend on its common stock.

Under OCC regulations, the Bank will not be permitted to pay dividends to the Company on its capital stock if its regulatory capital would be reduced below applicable regulatory capital requirements or if its stockholders' equity would be reduced below the amount required to be maintained for the liquidation account, which was established in connection with the Bank's conversion to stock form.  The OCC capital distribution regulations applicable to savings institutions (such as the Bank) that meet their regulatory capital requirements permit, after not less than 30 days prior notice to and non-objection by the FRB, capital distributions during a calendar year that do not exceed the Bank's net income for that year plus its retained net income
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for the prior two years. For information concerning the Bank's liquidation account, see Note 12 of the Notes to the Consolidated Financial Statements. In addition, the Company is subject to restrictions under the Agreement that affect their ability to pay dividends. See Item 1 - Overview - Enforcement Actions.

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, 2020, 11,744 shares of its common stock have been repurchased in open market transactions at an average price of $235.80 per share (as adjusted for 1-for-15 reverse stock split that occurred on October 27, 2011).  The Company reissued shares as restricted stock in accordance with their management recognition plan. No shares were repurchased during fiscal 2020.  As a result of the Company's participation in the TARP CDCI, the Treasury's prior approval is required to make further repurchases. As discussed below, the Treasury converted its preferred stock into common stock, which the Treasury continues to hold. The Company continues to be bound by the TARP CDCI restrictions so long as the Treasury is a common stockholder.
 
Carver has the following equity compensation plans:

(1) The 2006 Stock Incentive Plan became effective in September of 2006 and provides for discretionary option grants, stock appreciation rights and restricted stock to those employees and directors so selected by the Compensation Committee.

(2) The Carver Bancorp, Inc. 2014 Equity Incentive Plan became effective in September 2014 and provides for discretionary option grants, stock appreciation rights and restricted stock to those officers and directors selected by the Company’s Compensation Committee.

Additional information regarding Carver's equity compensation plans is incorporated by reference from the section entitled "Securities Authorized for Issuance Under Equity Compensation Plans" in the Proxy Statement (as defined below in Item 10).

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

        As previously disclosed in a Current Report on Form 8-K, on June 29, 2011, the Company entered into stock purchase agreements with several institutional investors pursuant to which the investors agreed to purchase an aggregate of 55,000 shares of the Company's Mandatorily Convertible Non-Voting Participating Preferred Stock, Series C for an aggregate purchase price of $55,000,000. The Series C preferred stock was offered and sold pursuant to an exemption from registration provided by Section 4(2) of the Securities Act of 1933.

On October 25, 2011, Carver's shareholders voted and approved a 1-for-15 reverse stock split. A separate vote of stockholder approval was given to convert the Series C preferred stock into Series D preferred stock and common stock and exchange the Treasury CDCI Series B preferred stock for common stock.
        
        On October 28, 2011, the Treasury exchanged the CDCI Series B preferred stock for Carver common stock.

ITEM 6.SELECTED FINANCIAL DATA.
        
        The following selected consolidated financial and other data is as of and for the years ended March 31 and is derived in part from, and should be read in conjunction with the Company's Consolidated Financial Statements and related notes:
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$ in thousands 2020 2019 2018 2017 2016
Selected Financial Condition Data:
Assets $ 578,770    $ 563,713    $ 693,910    $ 687,861    $ 739,054   
Loans held-for-sale —    —    —    944    2,436   
Total loans receivable, net 423,786    424,182    472,627    540,492    583,396   
Investment securities 75,980    90,982    72,784    72,446    71,491   
Cash and cash equivalents 47,540    31,228    134,558    58,686    63,188   
Deposits 488,815    480,196    586,883    579,176    606,741   
Advances from the FHLB-NY and other borrowed money 13,573    21,403    38,403    49,403    68,403   
Equity 48,894    47,136    51,971    47,398    51,880   
Number of deposit accounts 30,496    31,447    31,972    34,582    47,565   
Number of branches 7    8    9    9    9   
Operating Data:
Interest income 21,627    23,230    24,359    26,126    26,564   
Interest expense 5,631    6,141    5,280    4,918    4,605   
Net interest income before provision for (recovery of) loan losses 15,996    17,089    19,079    21,208    21,959   
Provision for (recovery of) for loan losses 19    (270)   135    29    1,495   
Net interest income after provision for (recovery of) loan losses 15,977    17,359    18,944    21,179    20,464   
Non-interest income 3,739    4,649    14,359    4,618    6,014   
Non-interest expense 25,139    27,944    27,982    28,531    28,117   
(Loss) income before income tax (benefit) expense (5,423)   (5,936)   5,321    (2,734)   (1,639)  
Income tax (benefit) expense —    —    (33)   119    128   
Net (loss) income attributable to Carver Bancorp, Inc. (5,423)   (5,936)   5,354    (2,853)   (1,767)  
Basic (loss) earnings per common share (1.47)   (1.60)   0.58    (0.77)   (0.48)  
Diluted (loss) earnings per common share (1.47)   (1.60)   0.58    (0.77)   (0.48)  
Selected Statistical Data:
Return on average assets (1)
(0.95) % (0.96) % 0.81  % (0.41) % (0.25) %
Return on average stockholders' equity (2) (10)
(10.51) % (12.93) % 11.17  % (5.88) % (3.46) %
Return on average stockholders' equity, excluding AOCI (2) (10)
(10.52) % (12.31) % 10.77  % (5.78) % (3.39) %
Net interest margin (3)
2.95  % 2.80  % 2.94  % 3.11  % 3.17  %
Average interest rate spread (4)
2.69  % 2.57  % 2.78  % 2.97  % 3.07  %
Efficiency ratio (5) (10)
127.38  % 128.55  % 83.68  % 110.47  % 100.51  %
Operating expense to average assets (6)
4.39  % 4.51  % 4.23  % 4.09  % 3.92  %
Average stockholders' equity to average assets (7) (10)
9.00  % 7.41  % 7.24  % 6.96  % 7.11  %
Average stockholders' equity, excluding AOCI, to average assets (7) (10)
9.00  % 7.79  % 7.51  % 7.07  % 7.27  %
Dividend payout ratio (8)
—    —    —    —    —   
Asset Quality Ratios:
Non-performing assets to total assets (9)
1.19  % 1.90  % 1.13  % 1.50  % 2.35  %
Non-performing loans to total loans receivable (9)
1.58  % 2.40  % 1.39  % 1.54  % 2.37  %
Allowance for loan losses to total loans receivable 1.15  % 1.08  % 1.07  % 0.93  % 0.89  %
(1)Net income (loss) divided by average total assets.
(2)Net income (loss) divided by average total stockholders' equity.
(3)Net interest income divided by average interest-earning assets.
(4)Combined weighted average interest rate earned less combined weighted average interest rate cost.
(5)Operating expense divided by sum of net interest income and non-interest income.
(6)Non-interest expense divided by average total assets.
(7)Average stockholders' equity divided by average assets for the period ended.
(8)Dividends paid to common stockholders as a percentage of net income available to common stockholders.
(9)Non-performing assets consist of nonaccrual loans, loans held-for-sale and real estate owned.
(10)See Non-GAAP Financial Measures disclosure below for comparable GAAP measures.
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Non-GAAP Financial Measures

        In addition to evaluating the Company's results of operations in accordance with U.S. generally accepted accounting principles (“GAAP”), management routinely supplements their evaluation with an analysis of certain non-GAAP financial measures, such as the return on average stockholders' equity excluding average accumulated other comprehensive income (loss) ("AOCI"), and average stockholders' equity excluding AOCI to average assets. Management believes these non-GAAP financial measures provide information that is useful to investors in understanding the Company's underlying operating performance and trends, and facilitates comparisons with the performance of other banks and thrifts. Further, the efficiency ratio is used by management in its assessment of financial performance, including non-interest expense control.

        Return on equity measures how efficiently we generate profits from the resources provided by our net assets. Return on average stockholders' equity is calculated by dividing annualized net income (loss) attributable to Carver by average stockholders' equity, excluding AOCI. Management believes that this performance measure explains the results of the Company's ongoing businesses in a manner that allows for a better understanding of the underlying trends in the Company's current businesses. For purposes of the Company's presentation, AOCI includes the changes in the market or fair value of its investment portfolio. These fluctuations have been excluded due to the unpredictable nature of this item and is not necessarily indicative of current operating or future performance.
$ in thousands 2020 2019 2018 2017 2016
Average Stockholders' Equity
Average Stockholders' Equity $ 51,609    $ 45,920    $ 47,943    $ 48,533    $ 51,024   
Average AOCI 43    (2,315)   (1,779)   (802)   (1,162)  
Average Stockholders' Equity, excluding AOCI $ 51,566    $ 48,235    $ 49,722    $ 49,335    $ 52,186   
Return on Average Stockholders' Equity (10.51) % (12.93) % 11.17  % (5.88) % (3.46) %
Return on Average Stockholders' Equity, excluding AOCI (10.52) % (12.31) % 10.77  % (5.78) % (3.39) %
Average Stockholders' Equity to Average Assets 9.00  % 7.41  % 7.24  % 6.96  % 7.11  %
Average Stockholders' Equity, excluding AOCI, to Average Assets 9.00  % 7.79  % 7.51  % 7.07  % 7.27  %

ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and Notes to Consolidated Financial Statements presented elsewhere in this report.  

Executive Summary

Carver ended fiscal 2020 with a net loss of $5.4 million, compared to net loss of $5.9 million for the prior year period. The change in our results of operations was primarily driven by decreases in non-interest expense. Tight control over discretionary expenses offset the year-to-date period declines in interest and non-interest income and in provisions versus recoveries regarding the allowance for loan losses. The business climate continues to present significant challenges as banks continue to absorb heightened regulatory costs and compete for limited loan demand. Carver continues to focus on diversifying its loan portfolio with C&I lending to local small businesses and strives to generate new loan production and to purchase loans at suitable prices.

On March 11, 2020, the World Health Organization declared a pandemic related to the global spread of COVID-19, the disease caused by a novel strain of coronavirus. The COVID-19 pandemic has adversely affected global, national and local economies, resulting in significant volatility and disruption in banking and other financial activity in the areas in which we operate. In response to the pandemic, Governor Andrew Cuomo issued the "New York State on PAUSE" executive order to shelter in place, maintain social distancing and close all non-essential businesses statewide effective March 22, 2020. As banking was designated an essential business by New York State, the Company has remained open during this time. The Company was proactive during the early stages of the crisis and immediately enacted our Business Continuity Plan and pandemic preparedness procedures. The Company implemented additional safety measures to ensure the health of its employees and customers at our open retail branch locations and most of our Corporate office employees shifted to a remote
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working environment. On March 27, 2020, the CARES Act was signed to provide emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19 and the extent of the impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and the impact on customers, employees and vendors, all of which are uncertain and cannot be determined at this time. The Company is closely monitoring its asset quality, liquidity, and capital positions. Management is actively working to minimize the current and future impact of this unprecedented situation, and is making adjustments to operations where appropriate or necessary to help slow the spread of the virus. In addition, as a result of further actions that may be taken to contain or reduce the impact of the COVID-19 pandemic, the Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms. The Company is actively managing the credit risk in its loan portfolio, including reviewing the industries that the Company believes are most likely to be impacted by emerging COVID-19 events. These and similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers.

Critical Accounting Policies

Various elements of accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.  Carver's policy with respect to the methodologies used to determine the allowance for loan and lease losses, securities impairment, assessment of the recoverability of the deferred tax asset, and the fair value of financial instruments are the most critical accounting policies.  These policies are important to the presentation of Carver's financial condition and results of operations, and involve a high degree of complexity, requiring management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters.  Such assumptions and estimates are susceptible to significant changes in today's economic environment. Changes in these judgments, assumptions or estimates could result in material differences in the Company's results of operations or financial condition.

Allowance for Loan and Lease Losses

The adequacy of the Bank's ALLL is determined in accordance with the Interagency Policy Statement on the Allowance for Loan and Lease Losses (the “Interagency Policy Statement”) released by the OCC on December 13, 2006, and in accordance with ASC Subtopics 450-20 "Loss Contingencies" and 310-10 "Accounting by Creditors for Impairment of a Loan."  Compliance with the Interagency Policy Statement includes management's review of the Bank's loan portfolio, including the identification and review of individual problem situations that may affect a borrower's ability to repay.  In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio. 

The ALLL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio.  There is significant judgment applied in estimating the ALLL.  These assumptions and estimates are susceptible to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALLL even though there may not be a decline in credit quality or an increase in potential problem loans. As such, there can never be assurance that the ALLL accurately reflects the actual loss potential inherent in a loan portfolio.

General Reserve Allowance

Carver's maintenance of a general reserve allowance in accordance with ASC Subtopic 450-20 includes the Bank's evaluating the risk to loss potential of homogeneous pools of loans based upon historical loss factors and a review of nine different environmental factors that are then applied to each pool.  The main pools of loans (“Loan Type”) are:

•One-to-four family
•Multifamily
•Commercial Real Estate
•Business Loans
•Consumer (including Overdraft Accounts)

The Bank next applies to each pool a risk factor that determines the level of general reserves for that specific pool.  The Bank estimates its historical charge-offs via a lookback analysis. The actual historical loss experience by major loan
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category is expressed as a percentage of the outstanding balance of all loans within the category. As the loss experience for a particular loan category increases or decreases, the level of reserves required for that particular loan category also increases or decreases. The Bank’s historical charge-off rate reflects the period over which the charge-offs were confirmed and recognized, not the period over which the earlier losses occurred. That is, the charge-off rate measures the confirmation of losses over a period that occurs after the earlier actual losses. During the period between the loss-causing events and the eventual confirmations of losses, conditions may have changed. There is always a time lag between the period over which average charge-off rates are calculated and the date of the financial statements. During that period, conditions may have changed. Another factor influencing the General Reserve is the Bank’s loss emergence period ("LEP") assumptions which represent the Bank’s estimate of the average amount of time from the point at which a loss is incurred to the point at which the loss is confirmed, either through the identification of the loss or a charge-off. Based upon adequate management information systems and effective methodologies for estimating losses, management has established a LEP floor of one year on all pools.  In some pools, such as in its Commercial Real Estate, Multifamily and Business pools, the Bank demonstrates a LEP in excess of 12 months. The Bank also recognizes losses in accordance with regulatory charge-off criteria.

Because actual loss experience may not adequately predict the level of losses inherent in a portfolio, the Bank reviews nine qualitative factors to determine if reserves should be adjusted based upon any of those factors.  As the risk ratings worsen, some of the qualitative factors tend to increase.  The nine qualitative factors the Bank considers and may utilize are:

1.Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses (Policy & Procedures).
2.Changes in relevant economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (Economy).
3.Changes in the nature or volume of the loan portfolio and in the terms of loans (Nature & Volume).
4.Changes in the experience, ability, and depth of lending management and other relevant staff (Management).
5.Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans (Problem Assets).
6.Changes in the quality of the loan review system (Loan Review).
7.Changes in the value of underlying collateral for collateral dependent loans (Collateral Values).
8.The existence and effect of any concentrations of credit and changes in the level of such concentrations (Concentrations).
9.The effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio (External Forces).

Specific Reserve Allowance

Carver also maintains a specific reserve allowance for criticized and classified loans individually reviewed for impairment in accordance with ASC Subtopic 310-10 guidelines. The amount assigned to the specific reserve allowance is individually determined based upon the loan. The ASC Subtopic 310-10 guidelines require the use of one of three approved methods to estimate the amount to be reserved and/or charged off for such credits. The three methods are as follows:

1.The present value of expected future cash flows discounted at the loan's effective interest rate,
2.The loan's observable market price; or
3.The fair value of the collateral if the loan is collateral dependent.

The Bank may choose the appropriate ASC Subtopic 310-10 measurement on a loan-by-loan basis for an individually impaired loan, except for an impaired collateral dependent loan.  Guidance requires impairment of a collateral dependent loan to be measured using the fair value of collateral method. A loan is considered "collateral dependent" when the repayment of the debt will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment.

Criticized and classified loans with at risk balances of $500,000 or more and loans below $500,000 that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment in accordance with ASC Subtopic 310-10. Carver also performs impairment analysis for all TDRs.  If it is determined that it is probable the Bank will be unable to collect all amounts due according with the contractual terms of the loan agreement, the loan is categorized as impaired. 

If the loan is determined to not be impaired, it is then placed in the appropriate pool of criticized and classified loans to be evaluated collectively for impairment.  Loans determined to be impaired are evaluated to determine the amount of impairment based on one of the three measurement methods noted above.  In accordance with guidance, if there is no impairment amount, no reserve is established for the loan.
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Troubled Debt Restructured Loans

TDRs are those loans whose terms have been modified because of deterioration in the financial condition of the borrower and a concession is made. Modifications could include extension of the terms of the loan, reduced interest rates, capitalization of interest and forgiveness of accrued interest and/or principal. Once an obligation has been restructured because of such credit problems, it continues to be considered restructured until paid in full. For cash flow dependent loans, the Bank records a specific valuation allowance reserve equal to the difference between the present value of estimated future cash flows under the restructured terms discounted at the loan's original effective interest rate, and the loan's original carrying value. For a collateral dependent loan, the Bank records an impairment charge when the current estimated fair value of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan. TDR loans remain on nonaccrual status until they have performed in accordance with the restructured terms for a period of at least six months.

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

On March 22, 2020, the federal banking agencies issued an interagency statement to provide additional guidance to financial institutions who are working with borrowers affected by COVID-19. The statement provided that agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”). The agencies have confirmed with staff of the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

The statement further provided that working with borrowers that are current on existing loans, either individually or as part of a program for creditworthy borrowers who are experiencing short-term financial or operational problems as a result of COVID-19, generally would not be considered TDRs. For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

The statement indicated that the agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs.

In addition, the statement noted that efforts to work with borrowers of one-to-four family residential mortgages, where the loans are prudently underwritten, and not past due or carried on nonaccrual status, will not result in the loans being considered restructured or modified for the purposes of their risk-based capital rules. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.

Securities Impairment

The Bank’s available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive (loss) income. Securities that the Bank has the intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. The fair values of securities in the Bank's portfolio are based on published or securities dealers’ market values and are affected by changes in interest rates. On a quarterly basis, the Bank reviews and evaluates the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. The Bank generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience. The amount of an other-than-temporary impairment, when there are credit and non-credit losses on a debt security which management does not intend to sell, and for which it is more likely than not that the Bank will not be required to sell the security prior to the recovery of the non-credit impairment, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings, and the remaining difference between the debt security’s amortized cost basis and its fair value would be included in other comprehensive (loss) income. This guidance also requires additional disclosures about investments in an unrealized loss position and the methodology and significant inputs used in determining the recognition of other-than-temporary impairment. The Bank does
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not have any securities that are classified as having other-than-temporary impairment in its investment portfolio at March 31, 2020.

Deferred Tax Assets

The Company records income taxes in accordance with ASC 740 Topic “Income Taxes,” as amended, 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 not likely to be realized. Management is continually reviewing the operation of the Company with a view to the future. Based on management's current analysis and the appropriate accounting literature, management is of the opinion that a full valuation allowance is appropriate. This valuation allowance could subsequently be adjusted, by a charge or credit to income tax expense, as changes in facts and circumstances warrant.

On June 29, 2011, the Company raised $55 million of equity, which resulted in a $51.4 million increase in equity after considering the effect of various expenses associated with the capital raise. The capital raise triggered a change in control under Section 382 of the Internal Revenue Code.  Generally, Section 382 limits the utilization of an entity's net operating loss carryforwards, general business credits, and recognized built-in losses upon a change in ownership. The Company is currently subject to an annual limitation of approximately $870 thousand. A valuation allowance for net deferred tax asset of $22.6 million has been recorded. The valuation allowance was initially recorded during fiscal 2011, and has remained through March 31, 2020, as management concluded and continues to conclude that it is “more likely than not” that the Company will not be able to fully realize the benefit of its deferred tax assets. However, tax legislation passed during the Company's fiscal year 2018 now permits a corporation to receive refunds for AMT credits even if there is no taxable income. As a result, at March 31, 2018, the valuation allowance was reduced by $340 thousand, the amount of the Company's AMT credits. The amount of the AMT credits recorded as a deferred tax asset was $0 at March 31, 2020, and $170 thousand at March 31, 2019.

Asset/Liability Management

The Company's primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship between the rates on interest-earning assets and interest-bearing liabilities, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and assets, and the credit quality of earning assets. Management's asset/liability objectives are to maintain a strong, stable net interest margin, to utilize the Company's capital effectively without taking undue risks, to maintain adequate liquidity and to manage its exposure to changes in interest rates.

Management monitors the Company's cumulative gap position, which is the difference between the sensitivity to rate changes on the Company's interest-earning assets and interest-bearing liabilities.  In addition, the Company uses various tools to monitor and manage interest rate risk, such as a model that projects net interest income based on increasing or decreasing interest rates.

Discussion of Market Risk-Interest Rate Sensitivity Analysis

As a financial institution, the Bank's primary component of market risk is interest rate volatility.  Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Bank's assets and liabilities, and the market value of all interest-earning assets, other than those which are short-term in maturity.  Since virtually all of the Company's interest-bearing assets and liabilities are held by the Bank, most of the Company's interest rate risk exposure is retained by the Bank.  As a result, all significant interest rate risk management procedures are performed at the Bank.  Based upon the Bank's nature of operations, the Bank is not subject to foreign currency exchange or commodity price risk.  The Bank does not own any trading assets.

Carver Federal seeks to manage its interest rate risk by monitoring and controlling the variation in repricing intervals between its assets and liabilities.  To a lesser extent, Carver Federal also monitors its interest rate sensitivity by analyzing the estimated changes in market value of its assets and liabilities assuming various interest rate scenarios.  As discussed more fully below, there are a variety of factors that influence the repricing characteristics of any given asset or liability.

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution's interest rate sensitivity gap.  An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period.  The interest rate sensitivity gap is defined
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as the difference between the amount of interest-earning assets maturing or repricing within a specific period of time and the amount of interest-bearing liabilities maturing or repricing within that same time period.  A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets.  Generally, during a period of falling interest rates, a negative gap could result in an increase in net interest income, while a positive gap could adversely affect net interest income.  Conversely, during a period of rising interest rates a negative gap could adversely affect net interest income, while a positive gap could result in an increase in net interest income.  As illustrated below, Carver Federal had a positive one-year gap equal to 13.93% of total rate sensitive assets at March 31, 2020.  As a result, Carver Federal's net interest income may be positively affected by rising interest rates and may be negatively affected by falling interest rates.

The following table sets forth information regarding the projected maturities, prepayments and repricing of the major rate-sensitive asset and liability categories of Carver Federal as of March 31, 2020.  Maturity repricing dates have been projected by applying estimated prepayment rates based on the current rate environment.  The repricing and other assumptions are not necessarily representative of the Bank's actual results.  Classifications of items in the table below are different from those presented in other tables and the financial statements and accompanying notes included herein and do not reflect non-performing loans:
$ in thousands <3 Mos. 3-12 Mos. 1-3 Yrs. 3-5 Yrs. 5-10 Yrs. 10+ Yrs. Non-Interest Bearing Total
Rate Sensitive Assets:
Loans $ 59,404    $ 101,779    $ 131,798    $ 66,900    $ 47,356    $ 17,384    $ —    $ 424,621   
Short-term investments 42,287    —    —    —    —    —    —    42,287   
Long-term investments 5,832    14,387    24,704    14,252    9,619    3,988    —    72,782   
Other assets —    —    —    —    —    —    39,080    39,080   
 Total assets $ 107,523    $ 116,166    $ 156,502    $ 81,152    $ 56,975    $ 21,372    $ 39,080    $ 578,770   
Rate Sensitive Liabilities:
Interest-bearing non-maturity deposits $ 2,293    $ 6,774    $ 17,308    $ 16,260    $ 36,478    $ 217,851    $ 57,489    $ 354,453   
Term deposits 38,450    100,994    45,146    9,836    39    —    —    194,465   
Borrowings —    —    —    —    —    13,403    —    13,403   
Other liabilities —    —    —    —    —    —    (32,445)   (32,445)  
Equity —    —    —    —    —    —    48,894    48,894   
Total liabilities and equity $ 40,743    $ 107,768    $ 62,454    $ 26,096    $ 36,517    $ 231,254    $ 73,938    $ 578,770   
Interest sensitivity gap $ 66,780    $ 8,398    $ 94,048    $ 55,056    $ 20,458    $ (209,882)   $ (34,858)   $ —   
Cumulative interest sensitivity gap $ 66,780    $ 75,178    $ 169,226    $224,282 $244,740 $ 34,858    $ —    $ —   
Ratio of cumulative gap to total rate sensitive assets 12.37  % 13.93  % 31.36  % 41.56  % 45.35  % 6.46  % —    —   

        The table above assumes that fixed maturity deposits are not withdrawn prior to maturity and that transaction accounts will decay as disclosed in the table above.

Certain shortcomings are inherent in the method of analysis presented in the table above.  Although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in the market interest rates.  The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates.  Certain assets, such as adjustable-rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset.  In the event of a change in interest rates, prepayments and early withdrawal levels would likely deviate significantly from those assumed in calculating the table.  Additionally, credit risk may increase as many borrowers may experience an inability to service their debt in the event of a rise in interest rate.  Virtually all of the adjustable-rate loans in Carver Federal's portfolio contain conditions that restrict the periodic change in interest rate.

Economic Value of Equity (“EVE”) Analysis.  As part of its efforts to maximize net interest income while managing risks associated with changing interest rates, management also uses the EVE methodology.  EVE is the present value of expected net cash flows from existing assets less the present value of expected cash flows from existing liabilities plus the
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present value of net expected cash inflows from existing financial derivatives and off-balance sheet contracts. At March 31, 2020, the Company did not report any holdings in financial derivative contracts.

Under this methodology, interest rate risk exposure is assessed by reviewing the estimated changes in EVE that would hypothetically occur if interest rates rapidly rise or fall along the yield curve.  Projected values of EVE at both higher and lower interest rate risk scenarios are compared to base case values (no change in rates) to determine the sensitivity to changing interest rates.

Presented below, as of March 31, 2020, is an analysis of the Bank's interest rate risk as measured by changes in EVE for instantaneous parallel shifts of +400/-200 basis points change in market interest rates.  Such limits have been established with consideration of the impact of various rate changes and the Bank's current capital position. The information set forth below relates solely to the Bank. However, because virtually all of the Company's interest rate risk exposure lies at the Bank level, management believes the table below also similarly reflects an analysis of the Company's interest rate risk.
$ in thousands Economic Value of Equity
Change in Rate $ Amount $ Change % Change
+400 bps 82,000    47,000    134.3  %
+300 bps 77,000    42,000    120.0  %
+200 bps 69,000    34,000    97.1  %
+100 bps 55,000    20,000    57.1  %
    0 bps 35,000   
-100 bps 7,000    (28,000)   (80.0) %
-200 bps (29,000)   (64,000)   (182.9) %

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements.  Modeling changes in EVE require the making of certain assumptions, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.  In this regard, the models presented assume that the composition of our interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the EVE table provides an indication of Carver Federal's interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on Carver Federal's net interest income and may differ from actual results.

Average Balance, Interest and Average Yields and Rates

The following table sets forth certain information relating to Carver Federal's average interest-earning assets and average interest-bearing liabilities, and their related average yields and costs for the years ended March 31, 2020, 2019, and 2018.  The table also presents information for the fiscal years indicated with respect to the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, or “interest rate spread,” which savings institutions have traditionally used as an indicator of profitability.  Another indicator of an institution's profitability is its “net interest margin,” which is its net interest income divided by the average balance of interest-earning assets.  Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities.  When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income:
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2020 2019 2018
$ in thousands Average Balance Interest Average
Yield/
Cost 		Average Balance Interest Average
Yield/
Cost 		Average Balance Interest Average
Yield/
Cost
Interest-Earning Assets:
Loans (1)
$ 423,454    $ 18,959    4.48  % $ 442,218    $ 19,470    4.40  % $ 514,938    $ 21,917    4.26  %
Mortgage-backed securities 49,407    1,230    2.49  % 52,002    1,265    2.43  % 46,412    970    2.09  %
Investment securities 37,717    868    2.30  % 51,505    1,252    2.43  % 26,338    680    2.58  %
Other investments 32,364    570    1.76  % 63,555    1,243    1.96  % 62,330    792    1.27  %
Total interest-earning assets 542,942    21,627    3.99  % 609,280    23,230    3.81  % 650,018    24,359    3.75  %
Non-interest-earning assets 30,207    10,135    11,918   
Total assets $ 573,149    $ 619,415    $ 661,936   
Interest-Bearing Liabilities:
Deposits
Interest-bearing checking $ 23,765    $ 29    0.12  % $ 25,159    $ 30    0.12  % $ 26,158    $ 19    0.07  %
Savings and clubs 97,453    256    0.26  % 100,838    265    0.26  % 101,415    249    0.25  %
Money market 100,796    533    0.53  % 98,061    466    0.48  % 111,674    540    0.48  %
Certificates of deposit 188,285    3,799    2.02  % 250,260    4,427    1.77  % 263,436    3,256    1.24  %
Mortgagors deposits 2,219    23    1.04  % 2,142    44    2.05  % 2,323    42    1.81  %
Total deposits 412,518    4,640    1.12  % 476,460    5,232    1.10  % 505,006    4,106    0.81  %
Borrowed money 21,600    991    4.59  % 17,521    909    5.19  % 39,973    1,174    2.94  %
Total interest-bearing liabilities 434,118    5,631    1.30  % 493,981    6,141    1.24  % 544,979    5,280    0.97  %
Non-interest-bearing liabilities:
   Demand deposits 58,548    59,525    57,883   
   Other liabilities 28,874    19,989    11,131   
Total liabilities 521,540    573,495    613,993   
Stockholders' equity 51,609    45,920    47,943   
Total liabilities & equity $ 573,149    $ 619,415    $ 661,936   
Net interest income $ 15,996    $ 17,089    $ 19,079   
Average interest rate spread 2.69  % 2.57  % 2.78  %
Net interest margin 2.95  % 2.80  % 2.94  %
Ratio of average interest-earning assets to interest-bearing liabilities 125.07  % 123.34  % 119.27  %
(1) Includes nonaccrual loans.
(2) Includes FHLB-NY stock.

Rate/Volume Analysis

The following table sets forth information regarding the extent to which changes in interest rates and changes in volume of interest related assets and liabilities have affected Carver Federal's interest income and expense during the fiscal years ended March 31, 2020, 2019, and 2018 (in thousands). For each category of interest-earning assets and interest-bearing liabilities, information is provided for changes attributable to: (1) changes in volume (changes in volume multiplied by prior rate); (2) changes in rate (change in rate multiplied by old volume).  Changes in rate/volume variance are allocated proportionately between changes in rate and changes in volume.

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2020 vs. 2019
Increase (Decrease) due to 		2019 vs. 2018
Increase (Decrease) due to
$ in thousands Volume Rate Total Volume Rate Total
Interest-Earning Assets:
Loans $ (827)   $ 316    $ (511)   $ (3,096)   $ 649    $ (2,447)  
Mortgage-backed securities (63)   28    (35)   117    178    295   
Investment securities (335)   (49)   (384)   650    (78)   572   
Other investments (611)   (62)   (673)   16    435    451   
Total interest-earning assets (1,836)   233    (1,603)   (2,313)   1,184    (1,129)  
Interest-Bearing Liabilities:
Deposits
Interest-bearing checking (1)   —    (1)   (1)   12    11   
Savings and clubs (9)   —    (9)   (1)   17    16   
Money market savings 13    54    67    (74)   —    (74)  
Certificates of deposit (1,096)   468    (628)   (163)   1,334    1,171   
Mortgagors deposits 2    (23)   (21)   (3)   5    2   
Total deposits (1,091)   499    (592)   (242)   1,368    1,126   
Borrowed money 211    (129)   82    (659)   394    (265)  
Total interest-bearing liabilities (880)   370    (510)   (901)   1,762    861   
Net change in net interest income $ (956)   $ (137)   $ (1,093)   $ (1,412)   $ (578)   $ (1,990)  

Comparison of Financial Condition at March 31, 2020 and 2019

Assets

At March 31, 2020, total assets were $578.8 million, reflecting an increase of $15.1 million, or 2.7%, from total assets of $563.7 million at March 31, 2019. The increase is primarily attributable to the adoption of Accounting Standards Codification Topic 842, Leases, (Topic 842) a new accounting standard which requires lessees to establish a right-of-use ("ROU") asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For the Company, this primarily applied to property leases and a ROU asset totaling $20 million was established on April 1, 2019. In addition, an increase in cash and cash equivalents of $16.3 million was offset by a $15.0 million decrease in the investment portfolio.

Total cash and cash equivalents increased $16.3 million, or 52.2%, from $31.2 million at March 31, 2019 to $47.5 million at March 31, 2020, primarily due to a net decrease of $15.0 million in the investment portfolio. An $8.6 million increase in total deposits enabled the Company to repay $7.8 million of FHLB short-term advances during the fiscal year.

        Total investment securities decreased $15.0 million, or 16.5%, to $76.0 million at March 31, 2020, compared to $91.0 million at March 31, 2019 due to scheduled principal payments received, accelerated repayments on one SBA mortgage-backed security and the maturity of a $1.0 million corporate bond.

        Gross portfolio loans remained relatively flat decreasing $0.1 million to $428.7 million at March 31, 2020, compared to $428.8 million at March 31, 2019, primarily due to attrition and payoffs of non-owner occupied commercial real estate mortgage loans. The purchase of several pools of residential, multifamily and commercial loans, and growth in commercial mortgage and business loans through organic loan originations were instrumental in mitigating the decline in the portfolio. The Bank has achieved its goal of maintaining a concentration level of commercial real estate loans commensurate with its risk profile.

Liabilities and Equity

Liabilities

        Total liabilities increased $13.3 million, or 2.6%, to $529.9 million at March 31, 2020, compared to $516.6 million at March 31, 2019, primarily due to the initial recognition of the $20 million operating lease liabilities as a result of the adoption of Topic 842. An increase in the Bank's total deposits was partially offset by a decrease in borrowed funds.

47

        Deposits increased $8.6 million, or 1.8%, to $488.8 million at March 31, 2020, compared to $480.2 million at March 31, 2019, due primarily to an increase in money market accounts. This increase was offset by declines in brokered certificate of deposit accounts. The Company did not actively pursue the retention of certain non-relationship deposits as it has been seeking to reduce its overall level of above market rate brokered deposits.

        Advances from the FHLB-NY and other borrowed money decreased $7.8 million, or 36.4%, to $13.6 million at March 31, 2020, compared to $21.4 million at March 31, 2019 as the Bank repaid FHLB short-term borrowings during the fiscal year.

Other liabilities decreased $5.7 million, or 38.0% to $9.3 million at March 31, 2020, compared to $15.0 million at March 31, 2019, due primarily to the $5.3 million recognition of the deferred gain on sale/leaseback of buildings as a cumulative effect adjustment to equity as a result of the adoption of Topic 842.

Equity

Total equity increased $1.8 million, or 3.8%, to $48.9 million at March 31, 2020, compared to $47.1 million at March 31, 2019. The increase was primarily due to the recognition of the $5.3 million deferred gain on sale/leaseback of buildings, as discussed above. In addition, a decrease of $1.8 million in unrealized losses on securities available-for-sale was offset by a net loss of $5.4 million for the fiscal year.

Comparison of Operating Results for the Years Ended March 31, 2020 and 2019

Net Loss

        The Company reported a net loss of $5.4 million for fiscal year 2020, compared to net loss of $5.9 million for the prior year period. The change in our results was primarily driven by lower non-interest expense, offset by a decrease in net interest income and non-interest income in the current period compared to the prior year.

Net Interest Income

        Net interest income decreased $1.1 million, or 6.4%, to $16.0 million for fiscal year 2020, compared to $17.1 million for the prior year period. The decrease was due to a $1.6 million decrease in interest income, partially offset by a $0.5 million decrease in interest expense for the period.

        Interest income decreased $1.6 million, or 6.9%, to $21.6 million, compared to $23.2 million for the prior year period. Interest income on money market investments decreased $0.6 million, or 50.0%, primarily due to a decline in the average balance of the Bank's interest-bearing account at the Federal Reserve Bank. Interest income on loans decreased $0.5 million, or 2.6%, comprised of a decrease of $0.8 million due to a $18.8 million decrease in average balances in the current period, which was partially offset by a current period increase of $0.3 million due to an 8 basis-point improvement in the overall yield. The decrease in the average loans outstanding is a result of the Bank's focused efforts to reduce the concentration level of commercial real estate loans during the prior fiscal years.

        Interest expense decreased $0.5 million, or 8.2%, to $5.6 million compared to $6.1 million for the prior year period. Interest expense on deposits decreased $0.6 million, or 11.5%, primarily due to a $62.0 million decrease in the average balances of certificates of deposit. This decrease was partially offset by higher rates on certificates of deposits. Interest expense on borrowings increased $0.1 million, or 11.1%, from the prior fiscal year due to an increase in average borrowings during the current year-to-date period, partially offset by a 60 basis points decrease in the cost to borrow.

Provision for Loan Losses

        The Bank recorded a $19 thousand provision of loan losses for fiscal year 2020 (which was primarily related to overdraft deposit charge-offs), compared to a $270 thousand recovery for loan losses for the prior year period. For the year ended March 31, 2020, net recoveries of $281 thousand were recognized, compared to net charge-offs of $210 thousand in the prior year period. The recoveries were offset by an increase in the pool reserves as economic and collateral qualitative factors were adjusted to account for any potential negative impacts of COVID-19. At March 31, 2020, nonaccrual loans totaled $6.8 million, or 1.2% of total assets, compared to $10.3 million, or 1.8% of total assets at March 31, 2019. The ALLL was $4.9 million at March 31, 2020, which represents a ratio of the ALLL to nonaccrual loans of 73.0%, compared to 45.1% at March 31, 2019. The ratio of the allowance for loan losses to total loans receivable was 1.15% at March 31, 2020, compared to 1.08% at March 31, 2019.
48


Non-interest Income

        Non-interest income for the twelve months ended March 31, 2020 decreased $0.9 million, or 19.6%, to $3.7 million compared to $4.6 million in the prior year period. Non-interest income in the prior period included gain on sale of building of $0.6 million. The total deferred gain on sale/leaseback of buildings was recognized as a cumulative effect adjustment to equity effective April 1, 2019 in accordance with the transition to Topic 842. In addition, other non-interest income decreased from the prior year due to the completion of NMTC projects.

Non-interest Expense

        Non-interest expense for the twelve months ended March 31, 2020 decreased $2.8 million, or 10.0%, to $25.1 million compared to $27.9 million for the the prior year period. Operating efficiencies and improvement in the control environment and in the regulatory infrastructure created year-over-year savings in the bank's regulatory assessment, audit expense and various others. FDIC premiums were significantly lower in the current fiscal year, decreasing $0.5 million, or 83.3%, as a result of the Bank's commitment to improve its regulatory position. The Bank was eligible for the FDIC small bank assessment credit that was applied beginning the second quarter of the current fiscal year In addition, a vendor management initiative resulted in senior management canceling or renegotiating a number of long-standing contracts at a significant savings to the Company. Outsourced service fees declined as Company personnel became knowledgeable in and assumed responsibility for various processes formerly performed by external vendors. Employee compensation and benefits expense decreased $0.8 million due to a strategic reduction in force. These decreases were partially offset by higher net equipment expense as the Company upgraded banking equipment, and occupancy costs related to the relocation of the Company's administrative offices during the prior fiscal year.

Income Taxes

        The Company did not have any federal, state and local income tax expense as of March 31, 2020 and 2019. State and local capital tax expenses of $0.2 million and $0.1 million for fiscal years 2020 and 2019, respectively, were included in other non-interest expense on the statements of operations.

Liquidity and Capital Resources

Liquidity is a measure of the Bank's ability to generate adequate cash to meet its financial obligations.  The principal cash requirements of a financial institution are to cover potential deposit outflows, fund increases in its loan and investment portfolios and ongoing operating expenses.  The Bank's primary sources of funds are deposits, borrowed funds and principal and interest payments on loans, mortgage-backed securities and investment securities.  While maturities and scheduled amortization of loans, mortgage-backed securities and investment securities are predictable sources of funds, deposit flows and loan and mortgage-backed securities prepayments are strongly influenced by changes in general interest rates, economic conditions and competition. Carver Federal monitors its liquidity utilizing guidelines that are contained in a policy developed by its management and approved by its Board of Directors.  Carver Federal's several liquidity measurements are evaluated on a frequent basis.  

Management believes Carver Federal’s short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements, including interest payments on our subordinated debt securities. Additionally, Carver Federal has other sources of liquidity including the ability to borrow from the Federal Home Loan Bank of New York ("FHLB-NY") utilizing unpledged mortgage-backed securities and certain mortgage loans, the sale of available-for-sale securities and the sale of certain mortgage loans. Net borrowings decreased $7.8 million during fiscal year 2020 due to the repayment of FHLB short-term borrowings. In addition, the Bank entered into $0.2 million finance leases during the period. The Bank had no advances outstanding from the FHLB-NY at March 31, 2020. At March 31, 2020, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $68.9 million on a secured basis, utilizing mortgage-related loans and securities as collateral. The bank has the ability to pledge additional loans as collateral in order to borrow up to 30% of its total assets.

The Bank's most liquid assets are cash and short-term investments. The level of these assets is dependent on the Bank's operating, investing and financing activities during any given period.  At March 31, 2020 and 2019, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $47.5 million and $31.2 million, respectively.

The most significant potential liquidity challenge the Bank faces is variability in its cash flows as a result of mortgage refinance activity. When mortgage interest rates decline, customers’ refinance activities tend to accelerate, causing the cash
49

flow from both the mortgage loan portfolio and the mortgage-backed securities portfolio to accelerate. In contrast, when mortgage interest rates increase, refinance activities tend to slow, causing a reduction of liquidity. However, in a rising rate environment, customers generally tend to prefer fixed rate mortgage loan products over variable rate products. Carver Federal is also at risk to deposit outflows due to a competitive interest rate environment.

The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During fiscal year 2020, total cash and cash equivalents increased $16.3 million to $47.5 million reflecting cash provided by investing activities of $15.7 million and cash provided by financing activities of $0.6 million, offset by cash used in operating activities of $0.0 million. Net cash provided by investing activities of $15.7 million was attributable to net loan principal repayments and investment paydowns. This was partially offset by $35.5 million in loan purchases during the fiscal year. Net cash provided by financing activities of $0.6 million resulted from net increases in deposits of $8.6 million, partially offset by a decrease of $8.0 million in FHLB-NY advances and other borrowings due to the repayment of FHLB short-term advances during the period.

Potential Mortgage Representation and Warranty Liabilities

During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the FNMA. The loans were sold to FNMA with the standard representations and warranties for loans sold to the 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.

Through fiscal 2011, none of the loans sold to FNMA were repurchased by the Bank.  During the periods from fiscal 2012 through 2015, 20 loans that had been sold to FNMA were repurchased by the Bank.  No loans have been repurchased by the Bank subsequent to fiscal 2015. At March 31, 2020 the Bank continues to service 111 loans with a principal balance of $17.8 million for FNMA that were sold with standard representations and warranties.

Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable. These reserves are reported in the consolidated statement of financial condition as a component of other liabilities. 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 reserves totaled $226 thousand as of March 31, 2020. The table below summarizes changes in our representation and warranty reserves in fiscal 2020:
$ in thousands March 31, 2020
Representation and warranty repurchase reserve, as of March 31, 2019 (1)
$ 226   
Net adjustment to reserve for repurchase losses (2)
—   
Representation and warranty repurchase reserve, as of March 31, 2020 (1)
$ 226   
(1) Reported in consolidated statements of financial condition as a component of other liabilities.
(2) Component of other non-interest expense.
        Additional information related to the representation and warranty reserve, including factors that may impact the adequacy of the reserves and the ultimate amount of losses incurred is found in “Note 15 Commitments and Contingencies.”

Off-Balance Sheet Arrangements and Contractual Obligations

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. In accordance with GAAP, 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 also has contractual obligations related to operating leases.  See Note 15 of Notes to Consolidated Financial Statements for the Bank's outstanding lending commitments and contractual obligations at March 31, 2020.

The Bank has contractual obligations at March 31, 2020 as follows:
50

$ in thousands Payments due by period
Contractual Obligations Total Less than
1 year 		1 - 3
years 		3 - 5
years 		More than
5 years
Debt obligations:
Other borrowings 170    67    95    8    —   
Guaranteed preferred beneficial interest in junior subordinated debentures 15,952    —    —    —    15,952   
Total debt obligations 16,122    67    95    8    15,952   
Operating lease obligations:
Lease obligations for rental properties 20,528    2,700    5,062    4,853    7,913   
Total contractual obligations $ 36,650    $ 2,767    $ 5,157    $ 4,861    $ 23,865   

Variable Interest Entities ("VIEs")

The Company's subsidiary, Carver Statutory Trust I, is not consolidated with Carver Bancorp Inc. for financial reporting purposes in accordance with the FASB's ASC Topic 810 regarding the consolidation of variable interest entities. Carver Statutory Trust I 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 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 Bank's subsidiary, CCDC, was formed to facilitate its participation in local economic development and other community-based activities. In June 2006, CCDC was selected by the U.S. Department of Treasury, in a highly competitive process, to receive an award of $59 million in NMTC. CCDC won a second NMTC award of $65 million in May 2009, and a third award of $25 million in August 2011. The NMTC awards provide a credit to Carver Federal against federal income taxes when the Bank makes qualified investments. The credits are allocated over seven years from the time of the qualified investment. Alternatively, the Bank can utilize the awards in projects where another investor entity provides funding and receives the tax benefits of the award in exchange for the Bank receiving fee income.

CCDC provides funding to underlying projects. While providing funding to investments in the NMTC eligible projects, CCDC has retained a 0.01% interest in other special purpose entities created to facilitate the investments, with the investors owning the remaining 99.99%. CCDC also provides certain administrative services to these entities and receives servicing fee income during the term of the qualifying projects. The Bank has determined that it and CCDC do not have the sole power to direct the activities of these special purpose entities that significantly impact the entities' performance, and therefore are not the primary beneficiaries of these entities. The Bank has a contingent obligation to reimburse the investors for any loss or shortfall incurred as a result of the NMTC project not being in compliance with certain regulations that would void the investor's ability to otherwise utilize tax credits stemming from the award. As of March 31, 2020, all three allocation awards have been fully utilized in qualifying projects.

The Bank's unconsolidated VIEs, in which the Company holds significant variable interests or has continuing involvement through servicing a majority of assets in a VIE are presented in the table below.
 Involvement with SPE (000s) Funded Exposure Unfunded Exposure Total
 Recognized Gain (Loss) (000's)  Total Rights transferred  Significant unconsolidated VIE assets  Total Involvement with SPE asset Debt Investments Equity Investments Funding Commitments Maximum exposure to loss
Carver Statutory Trust I(1)
$ —    $ —    $ 13,400    $ 13,400    $ 15,549    $ 400    $ —    $ —    $ 15,949   
CDE 18* 600    13,254    —    —    —    —    —    5,169    5,169   
CDE 19 500    10,746    11,060    11,060    —    1    —    4,191    4,192   
Total $ 1,100    $ 24,000    $ 24,460    $ 24,460    $ 15,549    $ 401    $ —    $ 9,360    $ 25,310   
* Entity exited the NMTC project during fiscal year 2018 and remains on the above table pending final dissolution.
1 Carver Statutory Trust debt investment includes deferred interest of $2.5 million.


51

Regulatory Capital Position

The Bank must satisfy minimum capital standards established by the OCC.  For a description of the OCC capital regulation, see “Item 1-Regulation and Supervision-Federal Banking Regulation-Capital Requirements.” Regardless of Basel III's minimum requirements, Carver, as a result of the Formal Agreement, was issued an Individual Minimum Capital Ratio 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, 2020, the Bank had a common equity Tier 1 ratio, Tier 1 leverage ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio of 15.23%, 11.25%, 15.23% and 16.48%, respectively.  For additional information regarding Carver Federal's Regulatory Capital and Ratios, refer to Note 12 of Notes to Consolidated Financial Statements, “Stockholders' Equity.”

Impact of Inflation and Changing Prices

The financial statements and accompanying notes appearing elsewhere herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation.  The impact of inflation is reflected in the increased cost of Carver Federal's operations.  Unlike most industrial companies, nearly all the assets and liabilities of the Bank are monetary in nature.  As a result, interest rates have a greater impact on Carver Federal's performance than do the effects of the general level of inflation.  Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

See discussion of Market Risk-Interest Rate Sensitivity Analysis in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.


52

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


Report of Independent Registered Public Accounting Firm


Shareholders and Board of Directors
Carver Bancorp, Inc.
New York, New York

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated financial condition of Carver Bancorp, Inc. (the “Company”) as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in equity, and cash flows for each of the two years in the period ended March 31, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Notes 2 and 6 to the consolidated financial statements, effective on April 1, 2019, the Company changed its method of accounting for leases due to the adoption of Accounting Standards Codification Topic 842, Leases.

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.

/s/ BDO USA, LLP

We have served as the Company's auditor since 2016.

New York, New York
August 6, 2020



53


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
$ in thousands except per share data March 31, 2020 March 31, 2019
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 47,280    $ 30,719   
Money market investments 260    509   
Total cash and cash equivalents 47,540    31,228   
Investment securities:
Available-for-sale, at fair value 65,829    79,845   
Held-to-maturity, at amortized cost (fair value of $10,564 and $11,107 at March 31, 2020 and March 31, 2019, respectively)
10,151    11,137   
Total investment securities 75,980    90,982   
Loans receivable:
Real estate mortgage loans 339,825    328,104   
Commercial business loans 85,659    96,661   
Consumer loans 3,248    4,063   
Loans, net of deferred fees and costs 428,732    428,828   
Allowance for loan losses (4,946)   (4,646)  
Total loans receivable, net 423,786    424,182   
Premises and equipment, net 5,377    5,056   
Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost 568    926   
Accrued interest receivable 2,052    2,019   
Right-of-use assets 17,614    —   
Other assets 5,853    9,320   
Total assets $ 578,770    $ 563,713   
LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Non-interest bearing checking $ 57,489    $ 60,201   
Interest-bearing deposits
Interest-bearing checking 24,016    23,473   
Savings 97,812    99,310   
Money market 112,634    94,376   
Certificates of deposit 194,287    200,607   
Escrow 2,577    2,229   
Total interest-bearing deposits 431,326    419,995   
Total deposits 488,815    480,196   
Advances from the FHLB-NY and other borrowed money 13,573    21,403   
Operating lease liability 18,153    —   
Other liabilities 9,335    14,978   
Total liabilities 529,876    516,577   
EQUITY
Preferred stock (par value $0.01 per share: 45,118 Series D shares, with a liquidation preference of $1,000 per share, issued and outstanding)
45,118    45,118   
Common stock (par value $0.01 per share: 10,000,000 shares authorized; 3,701,449 and 3,700,728 issued; 3,699,505 and 3,698,784 shares outstanding at March 31, 2020 and 2019, respectively)
61    61   
Additional paid-in capital 55,476    55,514   
Accumulated deficit (52,285)   (52,201)  
Treasury stock, at cost (1,944 shares)
(408)   (417)  
Accumulated other comprehensive income (loss) 932    (939)  
Total equity 48,894    47,136   
Total liabilities and equity $ 578,770    $ 563,713   


See accompanying notes to consolidated financial statements
54


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
$ in thousands except per share data 2020 2019
Interest income:
Loans $ 18,959    $ 19,470   
Mortgage-backed securities 1,230    1,265   
Investment securities 868    1,252   
Money market investments 570    1,243   
Total interest income 21,627    23,230   
Interest expense:
Deposits 4,640    5,232   
Advances and other borrowed money 991    909   
Total interest expense 5,631    6,141   
Net interest income 15,996    17,089   
Provision for (recovery of) for loan losses 19    (270)  
Net interest income after provision for (recovery of) loan losses 15,977    17,359   
Non-interest income:
Depository fees and charges 3,147    3,337   
Loan fees and service charges 342    341   
Loss on sale of securities, net —    (16)  
Gain on sale of loans, net 66    29   
Gain on sale of building —    616   
Other 184    342   
Total non-interest income 3,739    4,649   
Non-interest expense:
Employee compensation and benefits 11,372    12,248   
Net occupancy expense 4,529    4,255   
Equipment, net 1,502    1,215   
Data processing 1,753    1,774   
Consulting fees 244    416   
Federal deposit insurance premiums 133    638   
Other 5,606    7,398   
Total non-interest expense 25,139    27,944   
Loss before income tax expense (5,423)   (5,936)  
Income tax expense —    —   
Net loss $ (5,423)   $ (5,936)  
Loss per common share:
Basic $ (1.47)   $ (1.60)  
Diluted $ (1.47)   $ (1.60)  



See accompanying notes to consolidated financial statements
55


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Years Ended March 31,
$ in thousands 2020 2019
Net loss $ (5,423)   $ (5,936)  
Other comprehensive income, net of tax:
Change in unrealized loss of securities available-for-sale, net of income tax expense of $0
1,871    1,050   
Less: Reclassification adjustment for realized loss on sales of available-for-sale securities, net of income tax expense of $0 (due to full valuation allowance)
—    16   
Total other comprehensive income, net of tax 1,871    1,066   
Total comprehensive loss, net of tax $ (3,552)   $ (4,870)  



See accompanying notes to consolidated financial statements

56


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
$ in thousands Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Loss Total
Equity
Balance—March 31, 2018 45,118    61    55,479    (45,544)   (417)   (2,726)   51,971   
Net loss —    —    —    (5,936)   —    —    (5,936)  
Other comprehensive income, net of tax —    —    —    —    —    1,066    1,066   
ASU reclassification (adoption of ASU 2016-01) —    —    —    (721)   —    721    —   
Stock based compensation expense —    —    35    —    —    —    35   
Balance—March 31, 2019 45,118    61    55,514    (52,201)   (417)   (939)   47,136   
Net loss —    —    —    (5,423)   —    —    (5,423)  
Other comprehensive income, net of tax —    —    —    —    —    1,871    1,871   
Cumulative effect adjustment for adoption of ASU 2016-02 —    —    —    5,339    —    —    5,339   
Treasury stock activity —    —    9    —    —    —    9   
Stock based compensation expense —    —    (47)   —    9    —    (38)  
Balance—March 31, 2020 $ 45,118    $ 61    $ 55,476    $ (52,285)   $ (408)   $ 932    $ 48,894   


See accompanying notes to consolidated financial statements


57


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
$ in thousands 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (5,423)   $ (5,936)  
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for (recovery of) loan losses 19    (270)  
Stock based compensation expense (38)   35   
Depreciation and amortization expense 965    793   
Gain on sale of real estate owned, net of market value adjustment (208)   (209)  
Loss on securities sales and redemption of equity investment, net —    43   
Gain on sale of loans, net (66)   (29)  
Gain on sale of building —    (616)  
Amortization and accretion of loan premiums and discounts and deferred charges 501    532   
Amortization and accretion of premiums and discounts - securities 989    558   
(Increase) decrease in accrued interest receivable (33)   4   
Decrease (increase) in other assets 3,397    (1,995)  
Decrease in other liabilities (134)   (1,675)  
Net cash used in operating activities (31)   (8,765)  
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments: Available-for-sale —    (58,129)  
Proceeds from sales of investments: Available-for-sale —    20,487   
Proceeds from principal payments, maturities and calls of investments: Available-for-sale 14,937    9,308   
Proceeds from principal payments, maturities and calls of investments: Held-to-maturity 949    898   
Repayments and maturities, net of originations of loans held-for-investment 34,391    46,079   
Proceeds from redemption of equity investment —    9,179   
Loans purchased from third parties (35,496)   —   
Proceeds on sale of loans 1,360    1,766   
Redemption of FHLB-NY stock 358    842   
Purchase of premises and equipment (1,286)   (2,880)  
Proceeds from sale of real estate owned 511    1,572   
Net cash provided by investing activities 15,724    29,122   
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits 8,619    (106,687)  
Net decrease in FHLB-NY advances and other borrowings (8,000)   (17,000)  
Net cash provided by (used in) financing activities 619    (123,687)  
Net increase (decrease) in cash and cash equivalents 16,312    (103,330)  
Cash and cash equivalents at beginning of period 31,228    134,558   
Cash and cash equivalents at end of period $ 47,540    $ 31,228   
Supplemental cash flow information:
Noncash financing and investing activities
Transfer to real estate owned from loans held-for-investment $ —    $ 346   
Recognition of right-of-use asset 19,951    —   
Recognition of operating lease liability 20,335    —   
Recognition of finance lease asset 216    —   
Recognition of finance lease liability 206    —   
Cash paid for:
  Interest $ 4,867    $ 5,296   
  Income taxes 53    123   


See accompanying notes to consolidated financial statements
58

CARVER BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ORGANIZATION

Nature of operations

Carver Bancorp, Inc. (on a stand-alone basis, the “Company” or “Registrant”), was incorporated in May 1996 and its principal wholly-owned subsidiaries are Carver Federal Savings Bank (the “Bank” or “Carver Federal”) and Alhambra Holding Corp., an inactive Delaware corporation. Carver Federal's wholly-owned subsidiaries are CFSB Realty Corp., Carver Community Development Corporation (“CCDC”) and CFSB Credit Corp., which is currently inactive. The Bank has a real estate investment trust, Carver Asset Corporation ("CAC"), that was formed in February 2004.

“Carver,” the “Company,” “we,” “us” or “our” refers to the Company along with its consolidated subsidiaries. The Bank was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally-chartered mutual savings and loan association. The Bank converted to a federal savings bank in 1986. On October 24, 1994, the Bank converted from a mutual holding company structure to stock form and issued 2,314,375 shares of its common stock, par value $0.01 per share. On October 17, 1996, the Bank completed its reorganization into a holding company structure (the “Reorganization”) and became a wholly-owned subsidiary of the Company.

Carver Federal’s principal business consists of attracting deposit accounts through its branches and investing those funds in mortgage loans and other investments permitted by federal savings banks. The Bank has seven branches located throughout the City of New York that primarily serve the communities in which they operate.

In September 2003, the Company formed Carver Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Company. In accordance with Accounting Standards Codification (“ASC”) 810, “Consolidation,” Carver Statutory Trust I is unconsolidated for financial reporting purposes. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities.  Gross proceeds from the sale of these trust preferred debt securities of $13 million, and proceeds from the sale of the trust's common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033.  The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments were made in September 2016. Interest on the debentures has been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval. The interest rate was 3.89% and the total amount of deferred interest was $2.5 million at March 31, 2020.

        Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders, to engage in share repurchase programs and to pay principal and interest on its trust preferred debt obligation. The OCC regulates all capital distributions, including dividend payments, by Carver Federal to Carver, and the FRB regulates dividends paid by Carver. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in Carver Federal’s failure to meet the OCC minimum capital requirements. In accordance with the Agreement defined directly below, Carver Federal is currently prohibited from paying any dividends without prior OCC approval, and, as such, has suspended Carver’s regular quarterly cash dividend on its common stock. There are no assurances that dividend payments to Carver will resume.

Regulation

On October 23, 2015, the Board of Directors of the Company adopted resolutions requiring, among other things, written approval from the Federal Reserve Bank of Philadelphia prior to the declaration or payment of dividends, any increase in debt by the Company, or the redemption of Company common stock.

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On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions as further described in the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on May 27, 2016. As a result of the Formal Agreement, the Bank must obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers. The Bank may not declare or pay dividends or make any other capital distributions, including to the Company, without first filing an application with the OCC and receiving the prior approval of the OCC. Furthermore, the Bank must seek the OCC's written approval and the FDIC's written concurrence before entering into any "golden parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12 C.F.R. Part 359. As a result of the Formal Agreement, Carver was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio.

NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidated financial statement presentation

The consolidated financial statements include the accounts of the Company, the Bank and the Bank's wholly-owned or majority-owned subsidiaries, Carver Asset Corporation, CFSB Realty Corp., CCDC, and CFSB Credit Corp., which is currently inactive. All significant intercompany accounts and transactions have been eliminated in consolidation.

The 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 loan losses, realization of deferred tax assets, assessment of other-than-temporary impairment of securities, and the fair value of financial instruments. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses 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.

In addition, the OCC, Carver Federal's regulator, as an integral part of its examination process, periodically reviews Carver Federal's allowance for loan losses and, if applicable, real estate owned valuations. The OCC may require Carver Federal to recognize additions to the allowance for loan losses or additional writedowns of real estate owned based on their judgments about information available to them at the time of their examination.

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, investment 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.

If not classified as held-to-maturity or trading, 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
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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.

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.

The Company adopted ASU 2016-01 on April 1, 2018; this standard required that all equity securities are measured at fair value with unrealized holding gains and losses reflected in net income. In the prior fiscal year, equity securities measured at fair value reported any change in unrealized gains and losses through other comprehensive income.

The Company 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. Following Financial Accounting Standards Board ("FASB") guidance, the amount of an other-than-temporary impairment when there are credit and non-credit losses on a debt security which management does not intend to sell, and for which it is more likely than not that the Bank will not be required to sell the security prior to the recovery of the non-credit impairment, the portion of the total impairment that is attributable to the credit loss would be recognized in earnings. The remaining difference between the debt security's amortized cost basis and its fair value would be included in other comprehensive income (loss). There were no other-than-temporary impairment charges recorded during the fiscal year ended March 31, 2020.  Gains or losses on sales of securities of all classifications are recognized based on the specific identification method.

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.  The initial charge-off, if any is required, will be taken upon the transfer to held-for-sale and absorbed through Carver's loan loss reserve.  Subsequent changes in fair value are recognized in earnings as a valuation allowance. The valuation methodology for loans held-for-sale varies based upon the circumstances.  Held-for-sale values may be based upon accepted offer amounts, appraised value of underlying mortgaged premises, prior loan loss experience of Carver in connection with recent loan sales for the loan type in question, and/or other acceptable valuation methods.

Loans Receivable

Loans receivable are carried at unpaid principal balances plus unamortized premiums, certain deferred direct loan origination costs and deferred loan origination fees and discounts, less the allowance for loan 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 interest accrued but not received is reversed against 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).

If the Bank determines that a loan is impaired, the Bank next determines the amount of the impairment.  The amount of impairment on collateral dependent loans is charged off within the given fiscal quarter.  Generally the amount of the loan and negative escrow in excess of the appraised value less estimated selling costs, for the fair value of collateral valuation method, is charged off.  For all other loans, impairment is measured as described below in Allowance for Loan and Lease Losses.

Allowance for Loan and Lease Losses ("ALLL")

The adequacy of the Bank's ALLL is determined, in accordance with the Interagency Policy Statement on the Allowance for Loan and Lease Losses (the “Interagency Policy Statement”) released by the OCC on December 13, 2006 and in accordance with ASC Subtopics 450-20 "Loss Contingencies" and 310-10 "Accounting by Creditors for Impairment of a
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Loan."  Compliance with the Interagency Policy Statement includes management's review of the Bank's loan portfolio, including the identification and review of individual problem situations that may affect a borrower's ability to repay.  In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio. 

The ALLL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio.  There is significant judgment applied in estimating the ALLL.  These assumptions and estimates are susceptible to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALLL even though there may not be a decline in credit quality or an increase in potential problem loans.

General Reserve Allowance

Carver's maintenance of a general reserve allowance in accordance with ASC Subtopic 450-20 includes the Bank evaluating the risk of potential loss on homogeneous pools of loans based upon historical loss factors and a review of nine different environmental factors that are then applied to each pool.  The pools of loans (“Loan Type”) are:

•One-to-four family
•Multifamily
•Commercial Real Estate
•Business Loans
•Consumer (including Overdraft Accounts)

The Bank next applies to each pool a risk factor that determines the level of general reserves for that specific pool.  The Bank estimates its historical charge-offs via a lookback analysis. The actual historical loss experience by major loan category is expressed as a percentage of the outstanding balance of all loans within the category. As the loss experience for a particular loan category increases or decreases, the level of reserves required for that particular loan category also increases or decreases. The Bank’s historical charge-off rate reflects the period over which the charge-offs were confirmed and recognized, not the period over which the earlier losses occurred. That is, the charge-off rate measures the confirmation of losses over a period that occurs after the earlier actual losses. During the period between the loss-causing events and the eventual confirmations of losses, conditions may have changed. There is always a time lag between the period over which average charge-off rates are calculated and the date of the financial statements. During that period, conditions may have changed. Another factor influencing the General Reserve is the Bank’s loss emergence period ("LEP") assumptions which represent the Bank’s estimate of the average amount of time from the point at which a loss is incurred to the point at which the loss is confirmed, either through the identification of the loss or a charge-off. Based upon adequate management information systems and effective methodologies for estimating losses, management has established a LEP floor of one year on all pools. In some pools, such as Commercial Real Estate, Multifamily and Business pools, the Bank demonstrates a LEP in excess of 12 months. The Bank also recognizes losses in accordance with regulatory charge-off criteria.

Because actual loss experience may not adequately predict the level of losses inherent in a portfolio, the Bank reviews nine qualitative factors to determine if reserves should be adjusted based upon any of those factors.  As the risk ratings worsen, some of the qualitative factors tend to increase.  The nine qualitative factors the Bank considers and may utilize are:

1.Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses (Policy & Procedures).
2.Changes in relevant economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments (Economy).
3.Changes in the nature or volume of the loan portfolio and in the terms of loans (Nature & Volume).
4.Changes in the experience, ability, and depth of lending management and other relevant staff (Management).
5.Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified loans (Problem Assets).
6.Changes in the quality of the loan review system (Loan Review).
7.Changes in the value of underlying collateral for collateral dependent loans (Collateral Values).
8.The existence and effect of any concentrations of credit and changes in the level of such concentrations (Concentrations).
9.The effect of other external forces such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio (External Forces).
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The following discussion describes the general risks associated with the Bank’s lending activities:

•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. 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. These loans can be affected by economic conditions and the value of the underlying properties. The Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower.

•Commercial - Commercial real estate ("CRE") lending consists predominantly of originating loans for the purpose of purchasing or refinancing office, mixed-use (properties used for both commercial and residential purposes but predominantly commercial), retail and church buildings in the Bank's market area.  Mixed-use loans are secured by properties that are intended for both residential and business use and are classified as CRE. In originating CRE loans, the Bank primarily considers the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the borrower. 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.

•Business - The Bank 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 also subject to increased risk from the effect of general economic conditions. SBA loans are guaranteed by the U.S. government based on the percentage of each individual program.

•Consumer - The majority of the Consumer portfolio are student loans to medical students enrolled in several Caribbean schools.

Specific Reserve Allowance

Carver also maintains a specific reserve allowance for criticized and classified loans individually reviewed for impairment in accordance with ASC Subtopic 310-10 guidelines. The amount assigned to the specific reserve allowance is individually determined based upon the loan. The ASC Subtopic 310-10 guidelines require the use of one of three approved methods to estimate the amount to be reserved and/or charged off for such credits. The three methods are as follows:

1.The present value of expected future cash flows discounted at the loan's effective interest rate,
2.The loan's observable market price; or
3.The fair value of the collateral if the loan is collateral dependent.

The Bank may choose the appropriate ASC Subtopic 310-10 measurement on a loan-by-loan basis for an individually impaired loan, except for an impaired collateral dependent loan.  Guidance requires impairment of a collateral dependent loan to be measured using the fair value of collateral method. A loan is considered "collateral dependent" when the repayment of the debt will be provided solely by the underlying collateral, and there are no other available and reliable sources of repayment.

Criticized and classified loans with at risk balances of $500,000 or more and loans below $500,000 that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment in accordance with ASC Subtopic 310-10. Carver also performs impairment analysis for all troubled debt restructurings (“TDRs”).  All TDRs are classified as impaired. For non-TDRs, if it is determined that it is probable the Bank will be unable to collect all amounts due according with the contractual terms of the loan agreement, the loan is categorized as impaired. 

If the loan is determined to not be impaired, it is then placed in the appropriate pool of criticized and classified loans to be evaluated collectively for impairment.  Loans determined to be impaired are evaluated to determine the amount of
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impairment based on one of the three measurement methods noted above.  In accordance with guidance, if there is no impairment amount, no reserve is established for the loan.

Troubled Debt Restructured Loans

TDRs are those loans whose terms have been modified because of deterioration in the financial condition of the borrower and a concession is made. Modifications could include extension of the terms of the loan, reduced interest rates, capitalization of interest and forgiveness of accrued interest and/or principal. Once an obligation has been restructured because of such credit problems, it continues to be considered a TDR until paid in full. For a collateral dependent loan, the Bank records an impairment charge when the current estimated fair value (less estimated costs of disposal) of the property that collateralizes the impaired loan, if any, is less than the recorded investment in the loan. For all other TDRs, the Bank records a specific valuation allowance reserve equal to the difference between the present value of estimated future cash flows under the restructured terms discounted at the loan's original effective interest rate, and the loan's recorded investment. TDR loans remain on nonaccrual status until they have performed in accordance with the restructured terms for a period of at least six months.

Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus

On March 22, 2020, the federal banking agencies issued an interagency statement to provide additional guidance to financial institutions who are working with borrowers affected by COVID-19. The statement provided that agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (“TDRs”). The agencies have confirmed with staff of the Financial Accounting Standards Board that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

The statement further provided that working with borrowers that are current on existing loans, either individually or as part of a program for creditworthy borrowers who are experiencing short-term financial or operational problems as a result of COVID-19, generally would not be considered TDRs. For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

The statement indicated that the agencies’ examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs.

In addition, the statement noted that efforts to work with borrowers of one-to-four family residential mortgages, where the loans are prudently underwritten, and not past due or carried on nonaccrual status, will not result in the loans being considered restructured or modified for the purposes of their risk-based capital rules. With regard to loans not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral.

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

The CARES Act, which became law on March 27, 2020, provided emergency economic relief to combat the coronavirus (“COVID-19”) and stimulate the economy. The law had several provisions relevant to financial institutions, including:

•Allowing institutions not to characterize loan modifications relating to the COVID-19 pandemic as a troubled debt restructuring and also allowing them to suspend the corresponding impairment determination for accounting purposes.

•The ability of a borrower of a federally backed mortgage loan (VA, FHA, USDA, Freddie and Fannie) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency. Such a forbearance will be granted for up to 180 days, which can be extended for an additional 180-day period upon the request of the borrower. During that time, no fees, penalties or interest beyond the amounts scheduled
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or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract will accrue on the borrower’s account. Except for vacant or abandoned property, the servicer of a federally backed mortgage is prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020.

•The ability of a borrower of a multi-family federally backed mortgage loan that was current as of February 1, 2020, to submit a request for forbearance to the borrower’s servicer affirming that the borrower is experiencing financial hardship during the COVID-19 emergency. A forbearance will be granted for up to 30 days, which can be extended for up to two additional 30-day periods upon the request of the borrower. During the time of the forbearance, the multifamily borrower cannot evict or initiate the eviction of a tenant or charge any late fees, penalties or other charges to a tenant for late payment of rent. Additionally, a multifamily borrower that receives a forbearance may not require a tenant to vacate a dwelling unit before a date that is 30 days after the date on which the borrower provides the tenant notice to vacate and may not issue a notice to vacate until after the expiration of the forbearance.

Representation and Warranty Reserve

During the period 2004 through 2009, the Bank originated one-to-four family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”).  The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities (GSEs). The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral.

Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable.  These reserves are reported in the consolidated statement of financial condition as a component of other liabilities.  The calculation of the reserve is based on estimates, which are uncertain, and require the application of judgment.  In establishing the reserves, we consider a variety of factors, including those loans that are under review by FNMA that have not yet received a repurchase request. The Bank tracks the FNMA claims monthly and evaluates the reserve on a quarterly basis.

Segment Reporting

The Company has determined that all of its activities constitute one reportable operating segment.

Concentration of Risk

The Bank's principal lending activities are concentrated in loans secured by real estate, a substantial portion of which is 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 ALLL 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 computed using the straight-line method over the following estimated useful lives:
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.

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.
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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 other-than-temporarily impaired at March 31, 2020. The Bank carries this investment at historical cost.

Mortgage Servicing Rights

All separately recognized servicing assets totaled $145 thousand and $180 thousand, respectively, at March 31, 2020 and 2019, and are included in Other Assets in the consolidated statements of financial condition and measured at fair value. Servicing fee income of $44 thousand and $51 thousand, respectively, was recognized during the years ended March 31, 2020 and 2019, 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 at the date of acquisition less estimated selling costs. Any subsequent adjustments will be to the lower of cost or fair value. 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. As of March 31, 2020, the Bank held $120 thousand in foreclosed residential real estate properties as a result of obtaining physical possession. In addition, as of March 31, 2020 and 2019, we had residential loans with a carrying value of $3.0 million and $4.2 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 not likely 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 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 series D shares which are entitled to receive dividends if declared on the Company's common stock and are therefore considered to be participating securities. Basic earnings (loss) per share (“EPS”) is computed using the two class method. This calculation divides net income (loss) available to common stockholders after the allocation of undistributed earnings to the participating securities by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These potentially dilutive shares are then included in the weighted average number of shares outstanding for the period. Dilution calculations are not applicable to net loss periods.

Preferred and Common Dividends

        The Company is prohibited from paying any dividends without prior regulatory approval pursuant to the terms of the Formal Agreement and Resolution to which it is subject, and is generally subject to regulations governing the payment of dividends.  See Item 1 - Business - Regulation and Supervision - Enforcement Actions.  There are no assurances that the payments of common stock dividends will resume.



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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 recognized in financial statements. Compensation cost for all stock awards is calculated and recognized over a defined vesting period. For awards with graded-vesting, compensation cost is recognized on a straight-line basis over the requisite vesting period for the entire award. A 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.

Off-Balance Sheet Financial Instruments

        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.

NMTC fee income

The fee income the Company receives related to the transfers of its New Market Tax Credits ("NMTC") varies with each transaction, but all are similar in nature.  There are two basic types of fees associated with these transactions.  The first is a “sub-allocation fee” that is paid to CCDC when the tax credits are allocated to a subsidiary entity at the time a qualified equity investment is made.  This fee is recognized by the Company at the time of allocation.  The second type of fee is paid to cover the administrative and servicing costs associated with CCDC's compliance with NMTC reporting requirements.  This fee is recognized as the services are rendered.

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.

Recent Accounting Standards

Accounting Standards Recently Adopted

On April 1, 2018, the Company adopted Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. Topic 606 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The adoption of Topic 606 did not have a material impact to the Company's consolidated financial statements. For the Company's revenue recognition policy on non-interest income, refer to Note 19 "Non-Interest Revenue and Expense."

On April 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments (1) require equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (3) eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the
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balance sheet, (4) require public business entities to use an exit price notion when measuring the fair value of financial instruments for disclosure purposes, (5) require an entity to separately present in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, (6) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements, and (7) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. On April 1, 2019, the Company adopted ASU No. 2018-03, "Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10) to clarify certain aspects of the guidance issued in ASU 2016-01. Upon adoption, we recognized a cumulative effect adjustment of $721 thousand as a reclassification from accumulated other comprehensive loss to accumulated deficit. The tax impact on this reclassification was not material and there was no net tax effect because of the full deferred tax asset valuation allowance. Additionally, all future unrealized gains and losses will be recognized in the Statements of Operations. See Note 3 "Investment Securities" for further information.

On April 1, 2019, the Company adopted ASC Topic 842, Leases (Topic 842). From the lessee's perspective, the new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor does not convey risks and rewards or control, an operating lease results. A modified retrospective transition approach is required for lessors for sales-type, direct financing, and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company elected to apply the guidance as of the beginning of the period of adoption (April 1, 2019) and not restate comparative periods. The Company also elected certain optional practical expedients, which allow the Company to forego a reassessment of (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) the initial direct costs for any existing leases. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. Topic 842 also provides certain accounting policy elections for an entity’s ongoing accounting. For operating leases wherein the Company is the lessee, the Company has elected the practical expedient to not separate lease and non-lease components. Upon adoption, the Company recorded ROU assets and corresponding operating lease liabilities totaling $20.0 million. In addition, a $5.3 million cumulative effect adjustment to retained earnings was recorded to recognize the total deferred gain from the sale of buildings at the adoption date. As the implicit rate in each of the Company’s leases is not readily determinable, the Company is required to apply the Company’s incremental borrowing rate (“IBR”) to calculate the lease liability and ROU asset for its leasing arrangements. The Company has used the FHLB borrowing rate to calculate the IBR. The Company will also consider lease renewal options reasonably certain of exercise for purposes of determining the term of the underlying borrowing. The Company has considered various other factors, including, economic environment and determined that these factors do not currently impact the Company’s IBR calculation. The Company will continue to assess the appropriateness of the conclusions reached herein with respect to each of the factors discussed above and will determine the appropriate IBR for each new lease arrangement or modification, as required. See Note 6 “Leases” for further information.

On April 1, 2019, the Company adopted ASU No. 2017-08, "Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for the premium on certain purchased callable debt securities to the earliest call date. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations.

        On April 1, 2018, the Company adopted ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting," which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations.

On April 1, 2019, the Company adopted ASU No. 2018-02 "Income Statement - Reporting Comprehensive Income (Topic 220)," which allows a reclassification for stranded tax effects from accumulated other comprehensive income to retained earnings, to eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments addressed concerns regarding the guidance that requires deferred tax assets and liabilities to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting periods that include the enactment date. As the Company has provided a full valuation allowance against its net deferred tax assets, the change in tax rates resulted in a writedown of the deferred tax assets, which was offset by a reduction in the deferred tax valuation allowance.
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Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Loss," which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019 (for the Company, the fiscal year ending March 31, 2021), including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, "Financial Instruments - Credit Losses (Topic 326): Target Transition Relief," to provide transition relief by giving entities an option to irrevocably elect the fair value option for certain financial assets measured at amortized cost upon adoption of ASU 2016-13. In November 2019, the FASB issued ASU No. 2019-10, which extended the CECL implementation date for smaller reporting companies, as defined by the SEC. The new effective date is for fiscal years beginning after December 15, 2022 (for the Company, the fiscal year ending March 31, 2024), including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," to amend or clarify guidance regarding expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables, and financial assets secured by collateral maintenance provisions. The Company is currently in the implementation stage of ASU 2016-13 and has engaged two vendors to assist management in evaluating the requirements of the new standard, modeling requirements and assessment of the impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations.

In August 2018, the FASB issued ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by GAAP that is most important to users of an entity's financial statements. The amendments removed the disclosure requirements for (1) transfers between Levels 1 and 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. Additionally, the amendments modified the disclosure requirements for investments in certain entities that calculate net asset value and measurement uncertainty. Finally, the amendments added disclosure requirements for (1) the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements, and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. The amendments in this update are effective for fiscal years beginning after December 15, 2019 (for the Company, the fiscal year ending March 31, 2021), and interim periods within those fiscal years. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted and an entity is permitted to early adopt any removed or modified disclosures upon issuance of the ASU and delay adoption of the additional disclosures until their effective date. The adoption of ASU 2018-13 is not expected to have a material impact on the Company's consolidated statements of financial condition and results of operations.

In December 2019, the FASB issued ASU No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," as part of the FASB's simplification initiative to reduce complexity, while maintaining or improving the usefulness of information provided to users of financial statements. The amendments in this update simplify the accounting for income taxes and improve consistent application of GAAP by removing certain exceptions and clarifying and amending existing guidance for areas of Topic 740. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020 (for the Company, the fiscal year ending March 31, 2022), and interim periods within those fiscal years. ASU 2019-12 is not expected to have a material impact on the Company's financial statements.

In March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are
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available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is evaluating the impacts of this ASU and has not yet determined whether LIBOR transition and this ASU will have a material impact on the Company's consolidated statements of financial condition and results of operations.

NOTE 3.INVESTMENT SECURITIES

The Bank utilizes mortgage-backed and other investment securities in its asset/liability management strategy. In making investment decisions, the Bank considers, among other things, its yield and interest rate objectives, its interest rate and credit risk position, and its liquidity and cash flow.

        Generally, the investment policy of the Bank is to invest funds among categories of investments and maturities based upon the Bank’s asset/liability management policies, investment quality, loan and deposit volume and collateral requirements, liquidity needs and performance objectives. GAAP requires that securities be classified into three categories: trading, held-to-maturity, and available-for-sale. At March 31, 2020, securities with fair value of $65.8 million, or 86.6%, of the Bank’s total securities were classified as available-for-sale, and the remaining securities with amortized cost of $10.2 million, or 13.4%, were classified as held-to-maturity. The Bank had no securities classified as trading at March 31, 2020 and March 31, 2019.

Equity securities primarily consist of the Bank's investment in a limited partnership Community Capital Fund. As a result of the adoption of ASU 2016-01 in April 2018, the Company determined that these investments fall under the provisions of ASU 2016-01, and accordingly, were transferred from available-for-sale and reclassified into equity securities on the Statement of Financial Condition. These securities are measured at fair value with unrealized holding gains and losses reflected in net income. Effective April 1, 2018, the Company recorded a cumulative effect adjustment of $721 thousand as a reclassification from accumulated other comprehensive loss to retained earnings. Additionally, all subsequent changes in fair value have been recognized in the Statements of Operations. Other investments totaled $874 thousand at March 31, 2020 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, 2020 and March 31, 2019:
At March 31, 2020
Amortized Gross Unrealized
$ in thousands Cost Gains Losses Fair Value
Available-for-Sale:
Mortgage-backed securities:
Government National Mortgage Association $ 3,510    $ 77    $ —    $ 3,587   
Federal Home Loan Mortgage Corporation 9,244    312    18    9,538   
Federal National Mortgage Association 21,495    673    —    22,168   
Total mortgage-backed securities 34,249    1,062    18    35,293   
U.S. Government Agency Securities 26,616    20    155    26,481   
Corporate Bonds 4,032    33    10    4,055   
Total available-for-sale $ 64,897    $ 1,115    $ 183    $ 65,829   
Held-to-Maturity:
Mortgage-backed securities:
Government National Mortgage Association $ 972    $ 76    $ —    $ 1,048   
Federal National Mortgage Association 8,179    342    —    8,521   
Total held-to-maturity mortgage-backed securities 9,151    418    —    9,569   
Corporate Bonds 1,000    —    5    995   
Total held-to-maturity $ 10,151    $ 418    $ 5    $ 10,564   


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At March 31, 2019
Amortized Gross Unrealized
$ in thousands Cost Gains Losses Fair Value
Available-for-Sale:
Mortgage-backed securities:
  Government National Mortgage Association $ 4,443    $ 25    $ 86    $ 4,382   
  Federal Home Loan Mortgage Corporation 11,104    69    148    11,025   
  Federal National Mortgage Association 27,094    131    617    26,608   
    Total mortgage-backed securities 42,641    225    851    42,015   
U.S. Government Agency Securities 33,089    —    236    32,853   
Corporate Bonds 5,054    —    77    4,977   
    Total available-for-sale $ 80,784    $ 225    $ 1,164    $ 79,845   
Held-to-Maturity:
Mortgage-backed securities:
  Government National Mortgage Association $ 1,214    $ 40    $ —    $ 1,254   
  Federal National Mortgage Association and Other 8,923    —    87    8,836   
    Total held-to-maturity mortgage-backed securities 10,137    40    87    10,090   
Corporate Bonds 1,000    17    —    1,017   
Total held-to-maturity $ 11,137    $ 57    $ 87    $ 11,107   

        There were no sales of available-for-sale securities and held-to-maturity securities for the year ended March 31, 2020. The following is a summary regarding proceeds, gross gains and gross losses realized from the sale of securities from the available-for-sale portfolio for the year ended March 31, 2019.
$ in thousands 2019
Proceeds $ 20,487   
Gross gains 12   
Gross losses 28   

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”) participation certificates. 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, 2020, the Bank pledged mortgage-backed and agency securities of $21.0 million as collateral for advances from the FHLB-NY.

The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at March 31, 2020 and March 31, 2019 for less than 12 months and 12 months or longer:
At March 31, 2020
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 $ —    $ —    $ 18    $ 619    $ 18    $ 619   
U.S. Government Agency Securities —    —    155    21,494    155    21,494   
Corporate bonds 10    1,999    —    —    10    1,999   
  Total available-for-sale securities $ 10    $ 1,999    $ 173    $ 22,113    $ 183    $ 24,112   
Held-to-Maturity:
Corporate bonds $ 5    $ 995    $ —    $ —    $ 5    $ 995   
Total held-to-maturity securities $ 5    $ 995    $ —    $ —    $ 5    $ 995   
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At March 31, 2019
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 $ —    $ —    $ 851    $ 26,787    $ 851    $ 26,787   
U.S. Government Agency Securities 23    20,851    213    12,002    236    32,853   
Corporate bonds —    —    77    4,977    77    4,977   
  Total available-for-sale securities $ 23    $ 20,851    $ 1,141    $ 43,766    $ 1,164    $ 64,617   
Held-to-Maturity:
Mortgage-backed securities $ —    $ —    $ 87    $ 8,752    $ 87    $ 8,752   
Total held-to-maturity securities $ —    $ —    $ 87    $ 8,752    $ 87    $ 8,752   

A total of seven securities had an unrealized loss at March 31, 2020, compared to 35 at March 31, 2019. U.S. government agency securities and corporate bonds represented 89.1% and 8.3%, respectively, of total available-for-sale securities in an unrealized loss position at March 31, 2020. There were three U.S. government agency securities and one mortgage-backed security that had an unrealized loss position for more than 12 months at March 31, 2020. The cause of the temporary impairment is directly related to changes in interest rates. In general, as interest rates decline, the fair value of securities will rise, and conversely as interest rates rise, the fair value of securities will decline.  Management considers fluctuations in fair value as a result of interest rate changes to be temporary, which is consistent with the Bank's experience.  The impairments are deemed temporary based on the direct relationship of the change in fair value to movements in interest rates, the life of the investments and their high credit quality. Given the high credit quality of the securities which are backed by the U.S. government's guarantees, and the corporate securities which are all reputable institutions 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 has the ability and intent to hold the securities until maturity or the valuation recovers.

The Bank did not have any securities that were classified as having other-than-temporary impairment in its investment portfolio at March 31, 2020.

The following is a summary of the amortized cost and fair value of debt securities at March 31, 2020, 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:
Less than one year $ 3,004    $ 2,998    1.61  %
One through five years 4,632    4,670    2.24  %
Five through ten years 7,226    7,175    2.64  %
After ten years 15,786    15,693    2.41  %
Mortgage-backed securities 34,249    35,293    2.38  %
$ 64,897    $ 65,829    2.37  %
Held-to-maturity:
One through five years $ —    $ —    —  %
Five through ten years 1,000    995    5.75  %
After ten years —    —    —  %
Mortgage-backed securities 9,151    9,569    2.49  %
$ 10,151    $ 10,564    2.81  %

NOTE 4.LOANS RECEIVABLE, NET

The following is a summary of loans receivable, net of allowance for loan losses at March 31:
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March 31, 2020 March 31, 2019
$ in thousands Amount % Amount %
Gross loans receivable:
One-to-four family $ 105,532    24.8  % $ 108,363    25.5  %
Multifamily 89,241    21.0  % 86,177    20.2  %
Commercial real estate 141,761    33.3  % 130,812    30.7  %
Business (1)
85,425    20.1  % 96,430    22.7  %
Consumer (2)
3,213    0.8  % 4,023    0.9  %
Total loans receivable 425,172    100.0  % 425,805    100.0  %
Unamortized premiums, deferred costs and fees, net 3,560    3,023   
Allowance for loan losses (4,946)   (4,646)  
Total loans receivable, net $ 423,786    $ 424,182   
(1) Includes business overdrafts of $10 thousand and $79 thousand as of March 31, 2020 and 2019, respectively
(2) Includes consumer overdrafts of $15 thousand as of March 31, 2020 and 2019

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 $18.3 million and $19.4 million at March 31, 2020 and 2019, respectively.

At March 31, 2020 the Bank pledged $60.4 million in total real estate mortgage loans as collateral for advances from the FHLB-NY.

        The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended March 31, 2020:
$ in thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total
Allowance for loan losses:
Beginning Balance $ 1,274    $ 885    $ 766    $ 1,330    $ 154    $ 237    $ 4,646   
Charge-offs (12)   —    —    (69)   (102)   —    (183)  
Recoveries 302    —    —    160    2    —    464   
Provision for (Recovery of) Loan Losses (509)   126    46    146    158    52    19   
Ending Balance $ 1,055    $ 1,011    $ 812    $ 1,567    $ 212    $ 289    $ 4,946   
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment $ 899    $ 1,011    $ 812    $ 1,557    $ 212    $ 289    $ 4,780   
Allowance for Loan Losses Ending Balance: individually evaluated for impairment 156    —    —    10    —    —    166   
Loan Receivables Ending Balance $ 107,528    $ 89,887    $ 142,410    $ 85,659    $ 3,248    $ —    $ 428,732   
Ending Balance: collectively evaluated for impairment 102,902    89,512    142,410    82,210    3,248    —    420,282   
Ending Balance: individually evaluated for impairment 4,626    375    —    3,449    —    —    8,450   

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        The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended March 31, 2019:
$ in thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total
Allowance for loan losses:
Beginning Balance $ 1,210    $ 1,819    $ 1,052    $ 1,003    $ 18    $ 24    $ 5,126   
Charge-offs (151)   (164)   —    (964)   (19)   —    (1,298)  
Recoveries 190    158    —    705    35    —    1,088   
Provision for (Recovery of) Loan Losses 25    (928)   (286)   586    120    213    (270)  
Ending Balance $ 1,274    $ 885    $ 766    $ 1,330    $ 154    $ 237    $ 4,646   
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment $ 1,103    $ 885    $ 766    $ 1,312    $ 154    $ 237    $ 4,457   
Allowance for Loan Losses Ending Balance: individually evaluated for impairment 171    —    —    18    —    —    189   
Loan Receivables Ending Balance $ 109,926    $ 86,886    $ 131,292    $ 96,661    $ 4,063    $ —    $ 428,828   
Ending Balance: collectively evaluated for impairment 104,509    83,672    130,816    93,399    4,063    —    416,459   
Ending Balance: individually evaluated for impairment 5,417    3,214    476    3,262    —    —    12,369   

The following is a summary of nonaccrual loans at March 31, 2020 and 2019.
$ in thousands March 31, 2020 March 31, 2019
Loans accounted for on a nonaccrual basis:  
Gross loans receivable:  
One-to-four family $ 3,582    $ 4,488   
Multifamily 375    3,214   
Commercial real estate —    476   
Business 2,797    2,051   
Consumer 22    65   
Total nonaccrual loans $ 6,776    $ 10,294   

Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments.  Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. TDR loans consist of modified loans where borrowers have been granted concessions in regards to the terms of their loans due to financial or other difficulties, which rendered them unable to repay their loans under the original contractual terms.

At March 31, 2020, other non-performing assets totaled $120 thousand, which consisted of other real estate owned comprised of two foreclosed residential properties, compared to $404 thousand comprised of four residential properties at March 31, 2019. Other real estate loans is included in other assets in the consolidated statements of financial condition. There were no held-for-sale loans at March 31, 2020 or March 31, 2019.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories. Loans may be classified as "Pass," “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. They represent a moderate credit risk and some degree of financial stability. Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Loans rated Special Mention have potential weaknesses that deserve management's close attention. If left 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. Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must 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
74

the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged off immediately to the allowance for loan losses.
One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.

As of March 31, 2020, and based on the most recent analysis performed in the current quarter, the risk category by class of loans is as follows:
$ in thousands Multifamily Commercial Real Estate Business
Credit Risk Profile by Internally Assigned Grade:
Pass $ 89,512    $ 141,793    $ 80,016   
Special Mention —    617    2,184   
Substandard 375    —    3,459   
Doubtful —    —    —   
Loss —    —    —   
Total $ 89,887    $ 142,410    $ 85,659   
One-to-four family Consumer
Credit Risk Profile Based on Payment Activity:
Performing $ 103,946    $ 3,225   
Non-Performing 3,582    23   
Total $ 107,528    $ 3,248   

As of March 31, 2019, the risk category by class of loans was as follows:
$ in thousands Multifamily Commercial Real Estate Business
Credit Risk Profile by Internally Assigned Grade:
Pass $ 83,672    $ 128,319    $ 90,336   
Special Mention —    2,497    2,425   
Substandard 3,214    476    3,900   
Total $ 86,886    $ 131,292    $ 96,661   
One-to-four family Consumer
Credit Risk Profile Based on Payment Activity:
Performing $ 106,531    $ 4,063   
Non-Performing 3,395    —   
Total $ 109,926    $ 4,063   

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2020.
$ in thousands 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Receivable
One-to-four family $ 1,410    $ —    $ 3,202    $ 4,612    $ 102,916    $ 107,528   
Multifamily 490    —    —    490    89,397    89,887   
Commercial real estate 6,621    —    —    6,621    135,789    142,410   
Business 1,360    3    700    2,063    83,596    85,659   
Consumer 103    1    23    127    3,121    3,248   
Total $ 9,984    $ 4    $ 3,925    $ 13,913    $ 414,819    $ 428,732   

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The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2019.
$ in thousands 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Total Loans Receivable
One-to-four family $ 1,827    $ —    $ 3,395    $ 5,222    $ 104,704    $ 109,926   
Multifamily 2,580    —    2,118    4,698    82,188    86,886   
Commercial real estate 121    —    —    121    131,171    131,292   
Business 780    —    599    1,379    95,282    96,661   
Consumer 87    53    65    205    3,858    4,063   
Total $ 5,395    $ 53    $ 6,177    $ 11,625    $ 417,203    $ 428,828   

        At March 31, 2020 and 2019, there were no loans 90 or more days past due and accruing interest.

The following tables present information on impaired loans with the associated allowance amount, if applicable, at March 31, 2020 and 2019. Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the specific allowance recorded. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method. Interest income of $119 thousand and $122 thousand for fiscal years 2020 and 2019 respectively, would have been recorded on impaired loans had they performed in accordance with their original terms.
Impaired Loans by Class
At March 31,
2020 2019
$ in thousands Recorded Investment Unpaid Principal Balance Associated Allowance Recorded Investment Unpaid Principal Balance Associated Allowance
With no specific allowance recorded:
One-to-four family $ 3,819    $ 4,566    $ —    $ 4,488    $ 5,643    $ —   
Multifamily 375    376    —    3,214    3,214    —   
Commercial real estate —    —    —    476    476    —   
Business 2,797    2,917    —    1,974    2,017    —   
With an allowance recorded:
One-to-four family 807    803    156    929    929    171   
Business 652    652    10    1,288    1,288    18   
Total $ 8,450    $ 9,314    $ 166    $ 12,369    $ 13,567    $ 189   

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        The following table presents information on average balances on impaired loans and the interest income recognized for the years ended March 31, 2020 and 2019.
For the years ended March 31,
2020 2019
$ in thousands Average Balance Interest Income recognized Average Balance Interest Income recognized
With no specific allowance recorded:
One-to-four family $ 4,153    $ 65    $ 4,964    $ 96   
Multifamily 1,795    48    2,089    42   
Commercial real estate 238    —    1,007    16   
Business 2,385    47    1,293    18   
With an allowance recorded:
One-to-four family 868    —    997    —   
Multifamily —    —    371    —   
Business 970    —    1,983    10   
Total $ 10,409    $ 160    $ 12,704    $ 182   

In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a modification. In cases where the Bank grants any significant concessions to a troubled borrower, the Bank accounts for the modification as a TDR under ASC Subtopic 310-40 and the related allowance under ASC Section 310-10-35. Situations around these modifications may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. Loans modified in TDRs 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 made during the twelve months ended March 31, 2020. There were three loan modifications made during the twelve months ended March 31, 2019. The following table presents an analysis of the loan modifications that were classified as TDRs during the twelve month period ended March 31, 2019,
Modifications to loans during the years ended March 31, 2019
$ in thousands Number of loans Pre-modification outstanding recorded investment Post-Modification Recorded investment Pre-Modification rate Post-Modification rate
Business 3    $ 2,776    $ 2,776    6.51  % 6.04  %

        In an effort to proactively resolve delinquent loans, Carver has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the fiscal years ended March 31, 2020 and 2019, there were no modified loans that defaulted with the last 12 months of modification. Total TDR loans at March 31, 2020 were $3.9 million, $2.2 million of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. At March 31, 2019, total TDR loans were $5.4 million, of which $3.2 million were non-performing.
        
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.

The aggregate amount of loans outstanding to related parties was $70 thousand at March 31, 2020 and $80 thousand at March 31, 2019. During fiscal year 2020, there were no advances and principal repayments totaled $10 thousand.

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.



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NOTE 5.PREMISES AND EQUIPMENT, NET

The details of premises and equipment as of March 31 are as follows:
$ in thousands 2020 2019
Leasehold improvements $ 7,120    $ 7,394   
Furniture, equipment, and other 14,212    13,169   
21,332    20,563   
Less accumulated depreciation and amortization (15,955)   (15,507)  
Premises and equipment, net $ 5,377    $ 5,056   

Depreciation and amortization charged to operations for fiscal years 2020 and 2019 amounted to $965 thousand and $793 thousand, respectively.

During fiscal year 2016, Carver conducted a sale and leaseback transaction on its Crown Heights branch location with an unaffiliated third party as part of the Bank's ongoing facilities rationalization efforts. Carver did not finance the purchase and the gain was calculated utilizing the profit on sale in excess of the present value of the minimum lease payments in accordance with ASC 840. The remaining amount of profit on the sale of the property was deferred from gain recognition to be amortized into income over the term of the lease. The deferred gain on the sale of the property was included in Other Liabilities on the Consolidated Statements of Financial Condition and totaled $468 thousand as of March 31, 2019.

During fiscal year 2018, Carver conducted a sale and leaseback transaction on its Harlem headquarters location with an unaffiliated third party. The Bank leased a portion of the property to continue to maintain its Main Office branch at the same location, and the administrative offices were relocated to a nearby facility. The Company recognized a $9.6 million gain on the sale and leaseback in the fourth quarter of fiscal year 2018. Carver did not finance the purchase and the gain was calculated utilizing the profit on sale in excess of the present value of the minimum lease payments in accordance with ASC 840. The remaining amount of profit on the sale of the property was deferred from gain recognition and was to be amortized into income over the term of the lease. The deferred gain on the sale of the property was included in Other Liabilities on the Consolidated Statements of Financial Condition and totaled $4.9 million as of March 31, 2019.

On April 1, 2019, the Company adopted Topic 842. As part of the adoption, the Company recorded a $5.3 million cumulative effect adjustment to retained earnings to recognize the total deferred gain balance related to sale and leaseback transactions at the adoption date. See Note 6 "Leases" for additional information.

NOTE 6.LEASES

On April 1, 2019, the Company adopted Topic 842 and all subsequent ASUs that modified Topic 842. The Company has operating leases related to its administrative offices, seven retail branches and four ATM centers. Two of the operating leases are for branch locations where the Company had entered into a sale and leaseback transaction. The gain had been calculated utilizing the profit on sale in excess of the present value of the minimum lease payments, and the profit on the sale was deferred from gain recognition to be amortized into income over the terms of the leases in accordance with ASC 840. ASC 842 does not require previous sale and leaseback transactions accounted for under ASC 840 to be reassessed. Because the transactions had no off-market terms, the Company recorded a $5.3 million cumulative effect adjustment to retained earnings to recognize the total deferred gain balance at the adoption date. The implementation of the new standard resulted in the recognition of $20.0 million right-of-use ("ROU") assets and corresponding operating lease liabilities upon adoption. As of March 31, 2020, operating ROU lease assets and related lease liabilities totaled $17.6 million and $18.2 million, respectively.

        As the implicit rates of the Company's existing leases are not readily determinable, the discount rate used in determining the lease liability obligation for each individual lease was the FHLB-NY fixed-rate advance rates based on the remaining lease terms as of April 1, 2019.

        As of March 31, 2020, the Company had $182 thousand and $170 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.




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        The following tables present information about the Company's leases and the related lease costs as of and for the year ended March 31, 2020:
March 31, 2020
Weighted-average remaining lease term
Operating leases 7.8 years
Finance lease 2.8 years
Weighted-average discount rate
Operating leases 3.00  %
Finance lease 1.84  %


$ in thousands March 31, 2020
Operating lease expense $ 2,925   
Finance lease cost
Amortization of right-of use asset 34   
Interest on lease liability 2   
Cash paid for amounts included in the measurement of lease liabilities
Operating leases 2,770   
Finance lease 44   


Maturities of lease liabilities at March 31, 2020 are as follows:
$ in thousands Operating Leases Finance Leases
Year ending March 31,
2021 $ 2,700    $ 69   
2022 2,600    69   
2023 2,462    28   
2024 2,535    8   
2025 2,318    —   
Thereafter 7,913    —   
Total lease payments 20,528    174   
Interest (2,375)   (4)  
Lease liability $ 18,153    $ 170   


Under the legacy GAAP as of March 31, 2019, the Company's minimum annual rental commitments under all non-cancelable leases with initial or remaining terms of more than one year are as follows:
$ in thousands
Year Ending March 31,
2020 $ 2,761   
2021 2,686   
2022 2,428   
2023 2,290   
2024 2,289   
Thereafter 8,572   
$ 21,026   

NOTE 7.ACCRUED INTEREST RECEIVABLE



The details of accrued interest receivable as of March 31 are as follows:

$ in thousands 2020 2019
Loans receivable $ 1,649    $ 1,529   
Mortgage-backed securities 112    135   
Investments and other interest-bearing assets 291    355   
Total accrued interest receivable $ 2,052    $ 2,019   


NOTE 8.DEPOSITS

Deposit balances and weighted average interest rates as of March 31 are as follows:
2020 2019
$ in thousands Amount Percent of Total Deposits Weighted Average Rate Amount Percent of Total Deposits Weighted Average Rate
Non-interest-bearing demand $ 57,489    11.76  % —  % $ 60,201    12.54  % —  %
Interest-bearing checking 24,016    4.91    0.12    23,473    4.89    0.12   
Savings 97,812    20.01    0.26    99,310    20.68    0.26   
Money market savings account 112,634    23.04    0.53    94,376    19.65    0.48   
Certificates of deposit 194,287    39.75    2.03    200,607    41.78    1.78   
Loan escrow deposits 2,577    0.53    1.04    2,229    0.46    2.09   
Total $ 488,815    100.00  % 0.99  % $ 480,196    100.00  % 0.91  %

Scheduled maturities of certificates of deposit for the year ended March 31, 2020 are as follows:
$ in thousands Amount
Maturing years ending March 31:
2021 $ 153,164   
2022 16,955   
2023 14,293   
2024 5,349   
2025 4,487   
2026 and beyond 39   
   Total $ 194,287   

The following table represents the amount of certificates of deposit of $100,000 or more at March 31, 2020 maturing during the periods indicated:
$ in thousands
Maturing:
April 1, 2020 to June 30, 2020 $ 48,144   
July 1, 2020 to September 30, 2020 11,834   
October 1, 2020 to March 31, 2021 78,326   
April 1, 2021 and beyond 27,631   
Total $ 165,935   

Interest expense on deposits is as follows for the years ended March 31:
80

$ in thousands 2020 2019
Interest-bearing checking $ 29    $ 30   
Savings and clubs 256    265   
Money market savings 533    466   
Certificates of deposit 3,799    4,427   
Loan escrow deposits 23    44   
    Total interest expense $ 4,640    $ 5,232   

        The following table presents additional information about our year-end deposits:
$ in thousands 2020 2019
Deposits from the Certificate of Deposit Account Registry Service (CDARS) $ 40,171    $ 48,274   
Deposits from brokers 41,743    36,744   
Certificates of deposit individually greater than $250,000 53,956    25,076   
Deposits from certain directors, executive officers and their affiliates 64    5,029   

NOTE 9.BORROWED MONEY

Federal Home Loan Bank Advances. FHLB-NY advances weighted average interest rates by remaining period to maturity at March 31 are as follows:
$ in thousands 2019
Maturing Year Ended March 31, Weighted
Average Rate 		Amount
2020 2.66% $ 8,000   
2.66% $ 8,000   

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 $173.6 million at March 31, 2020. 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. The Bank had no outstanding advances from the FHLB-NY at March 31, 2020. At March 31, 2020, the Bank's collateral included its investment in FHLB-NY capital stock totaling $568 thousand, and a blanket assignment of pledged qualifying mortgage loans of $60.4 million and mortgage-backed and investment securities with a market value of $21.0 million. The Bank has sufficient collateral at the FHLB-NY to be able to borrow $68.9 million from the FHLB-NY at March 31, 2020. Interest expense on FHLB advances was $176 thousand for the year ended March 31, 2020. At March 31, 2019, the accrued interest payable on FHLB advances was $2 thousand and the interest expense was $89 thousand.

Subordinated Debt Securities. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities.  Gross proceeds from the sale of these trust preferred debt securities of $13 million, and proceeds from the sale of the trust's common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033.  The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR. During the second quarter of fiscal year 2017, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through September 2016. Such payments totaling $2.5 million were made in September 2016. Interest on the debentures has been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval.
The accrued interest payable on subordinated debt securities was $2.5 million and the interest expense was $815 thousand for the year ended March 31, 2020. The accrued interest payable on subordinated debt securities was $1.7 million and the interest expense was $820 thousand for the year ended March 31, 2019.

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The following table sets forth certain information regarding Carver Federal's borrowings as of and for the years ended March 31:
$ in thousands 2020 2019
Amounts outstanding at the end of year:
FHLB advances $ —    $ 8,000   
Subordinated debt securities 13,403    13,403   
Rate paid at year end:
FHLB advances —  % 2.66  %
Subordinated debt securities 3.89  % 5.66  %
Maximum amount of borrowing outstanding at any month end:
FHLB advances $ 23,000    $ 25,000   
Subordinated debt securities $ 13,403    $ 13,403   
Approximate average amounts outstanding for year:
FHLB advances $ 8,115    $ 4,118   
Subordinated debt securities $ 13,403    $ 13,403   
Approximate weighted average rate paid during year:
FHLB advances 2.15  % 2.16  %
Subordinated debt securities 6.08  % 6.11  %

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:
2020 2019
$ in thousands Amount Percent Amount Percent
Statutory Federal income tax expense (benefit) $ (1,139)   21.0  % $ (1,218)   21.0  %
State and local income tax, net of Federal tax benefit (719)   13.2    (28)   0.4   
Impact of income tax rate changes 186    (3.4)   —    —   
Change in valuation allowance 1,661    (30.6)   1,332    (23.0)  
Other 11    (0.2)   (86)   1.6   
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:
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$ in thousands 2020 2019
Deferred Tax Assets:
Allowance for loan losses $ 1,689    $ 1,561   
Nonaccrual loan interest 40    41   
Deferred gain - sale leaseback transactions —    1,803   
Net operating loss carryforward 18,732    16,248   
New markets tax credit 3,452    3,452   
AMT credits —    170   
Depreciation (5)   821   
Unrealized (gain) loss on available-for-sale securities (313)   1,092   
Other 124    —   
Total Deferred Tax Assets 23,719    25,188   
Deferred Tax Liabilities:
Other 1,098    1,073   
Total Deferred Tax Liabilities 1,098    1,073   
Deferred Tax Assets, net 22,621    24,115   
Valuation Allowance (22,621)   (23,945)  
Deferred Tax Assets, net of valuation allowance $ —    $ 170   

On June 29, 2011, the Company raised $55.0 million of equity. The capital raise triggered a change in control under Section 382 of the Internal Revenue Code. Generally, Section 382 limits the utilization of an entity's net operating loss carryforwards, general business credits, and recognized built-in losses upon a change in ownership. The Company is currently subject to an annual limitation of approximately $870 thousand, but has accumulated availability of $7.6 million as of March 31, 2020. The total cumulative availability over the carryover period (20 years) is $18.1 million. The Company has a net deferred tax asset (“DTA”) of approximately $22.6 million. Based on management's calculations, the Section 382 limitation has resulted in previous reductions of the deferred tax asset of $5.8 million. A valuation allowance for net deferred tax asset of $22.6 million has been recorded. The valuation allowance was initially recorded during fiscal year 2011, and has remained through March 31, 2020, as management concluded, and continues to conclude, that it is “more likely than not” that the Company will not be able to fully realize the benefit of its deferred tax assets. The Tax Cuts and Jobs Act, that was passed during the Company's fiscal year 2018, now permits a corporation to receive refunds for AMT credits even if there is no taxable income. As a result, at March 31, 2018, the valuation allowance was reduced by $340 thousand, the amount of the Company's AMT credits. The amount of the AMT credits recorded as a deferred tax asset was $0 as of March 31, 2020, and $170 thousand as of March 31, 2019.

At March 31, 2020, the Company had net operating carryforwards for federal purposes of approximately $51.2 million, for state purposes of approximately $69.5 million and for city purposes of approximately $57.2 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 carryforwards of $17.3 million do not expire.

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, 2017. 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 available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted loss per share for the years ended March 31:
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$ in thousands except per share data 2020 2019
Net loss attributable to Carver Bancorp, Inc. $ (5,423)   $ (5,936)  
Weighted average common shares outstanding – basic 3,699,278    3,698,534   
Weighted average common shares outstanding – diluted 3,699,278    3,698,534   
Basic loss per common share $ (1.47)   $ (1.60)  
Diluted loss per common share $ (1.47)   $ (1.60)  

        For the years ended March 31, 2020 and March 31, 2019, all restricted shares and outstanding stock options were anti-dilutive. For details of restricted shares and stock options, please refer to Note 14. "Employee Benefit and Stock Compensation Plans."

NOTE 12.STOCKHOLDERS' EQUITY

        Conversion and Stock Offering. On October 24, 1994, the Bank issued in an initial public offering 2,314,375 shares of common stock, par value $0.01 (the “Common Stock”), at a price of $10 per share resulting in net proceeds of $21.5 million.  As part of the initial public offering, the Bank established a liquidation account at the time of conversion, in an amount equal to the surplus and reserves of the Bank at September 30, 1994.  In the unlikely event of a complete liquidation of the Bank (and only in such event), eligible depositors who continue to maintain accounts shall be entitled to receive a distribution from the liquidation account.  The total amount of the liquidation account may be decreased if the balances of eligible deposits decreased as measured on the annual determination dates.  The Bank is not permitted to pay dividends to the Company on its capital stock if the effect thereof would cause its net worth to be reduced below either: (i) the amount required for the liquidation account, or (ii) the amount required for the Bank to comply with applicable minimum regulatory capital requirements. In 2011 the stockholders approved a 1-for-15 reverse stock split pursuant to which each 15 shares of the Company’s Common Stock would be converted into one share of Common Stock. The 1-for-15 reverse stock split was effective as of October 27, 2011, resulting in a reduction in the number of outstanding shares of the Company’s Common Stock from 2,492,415 to 166,161, an increase of the conversion price of the Series C Preferred Stock and the Series D Preferred Stock and the exchange ratio of the Series B Preferred Stock from $0.5451 to $8.1765, and a corresponding decrease in the number of shares of Common Stock issued to the Investors and Treasury. During the year ended March 31, 2012, all outstanding shares of Series B Preferred Stock were converted to Common Stock and all outstanding shares of Series C preferred Stock were converted to Series D Preferred Stock. As of March 31, 2020, there were 3,699,505 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.

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        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, 2020, there were 45,118 shares of Series D Preferred Stock outstanding.

        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, 2020, 11,744 shares of its common stock have been repurchased in open market transactions. No shares were repurchased during fiscal 2020.  The U.S. Treasury's prior approval is required to make further repurchases.

Regulatory Capital. The operations and profitability of the Bank are significantly affected by legislation and the policies of the various regulatory agencies. In July 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule, which became effective for the Bank on January 1, 2015, established a minimum Common Equity Tier 1 (CET1) ratio, a minimum leverage ratio and increases in the Tier 1 and Total risk-based capital ratios. The rule also limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of CET1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in annually beginning January 1, 2016. On January 1, 2019, the full capital conservation buffer requirement of 2.5% became effective, making its minimum CET1 plus buffer 7%, its minimum Tier 1 capital plus buffer 8.5% and its minimum total capital plus buffer 10.5%. 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.  Regardless of Basel III's minimum requirements, Carver, as a result of the previously described Formal Agreement, 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, 2020, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage ratio of 11.25%, Common Equity Tier 1 capital ratio of 15.23%, Tier 1 risk-based capital ratio of 15.23%, and a total risk-based capital ratio of 16.48%.

The table below presents the Bank's regulatory capital ratios at March 31, 2020 and 2019.
March 31, 2020 March 31, 2019
($ in thousands) Amount Ratio Amount Ratio
Tier 1 leverage capital
Regulatory capital $ 63,683    11.25  % $ 62,875    10.77  %
Individual minimum capital requirement 50,948    9.00  % 52,525    9.00  %
Minimum capital requirement 22,643    4.00  % 23,344    4.00  %
Excess 41,040    7.25  % 39,531    6.77  %
Common equity Tier 1
Regulatory capital $ 63,683    15.23  % $ 62,875    15.39  %
Minimum capital requirement 29,268    7.00  % 28,604    7.00  %
Excess 34,415    8.23  % 34,271    8.39  %
Tier 1 risk-based capital
Regulatory capital $ 63,683    15.23  % $ 62,875    15.39  %
Minimum capital requirement 35,540    8.50  % 34,734    8.50  %
Excess 28,143    6.73  % 28,141    6.89  %
Total risk-based capital
Regulatory capital $ 68,904    16.48  % $ 67,766    16.58  %
Individual minimum capital requirement 50,174    12.00  % 49,036    12.00  %
Minimum capital requirement 43,902    10.50  % 42,906    10.50  %
Excess 25,002    5.98  % 24,860    6.08  %




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NOTE 13.OTHER COMPREHENSIVE INCOME (LOSS)

The following tables set forth changes in each component of accumulated other comprehensive income (loss), net of tax for the years ended March 31, 2020 and 2019:
$ in thousands At
March 31, 2019 		Other Comprehensive Income At
March 31, 2020
Net unrealized (loss) income on securities available-for-sale $ (939)   $ 1,871    $ 932   

$ in thousands At
March 31, 2018 		ASU 2016-01 reclassification Other Comprehensive Income At
March 31, 2019
Net unrealized income (loss) on securities available-for-sale $ (2,726)   $ 721    $ 1,066    $ (939)  

        The following table sets forth information about amounts reclassified from accumulated other comprehensive loss to the consolidated statement of operations and the affected line item in the statement where net income is presented.
For the Twelve Months Ended March 31, Affected Line Item in the Consolidated Statement of Operations
$ in thousands 2020 2019
Reclassification adjustment for sales of available for-sale securities, net of tax $ —    $ 16    Loss on sale of securities, net

Comprehensive Income (Loss). Comprehensive income (loss) represents net income (loss) and certain amounts reported directly in stockholders' equity, such as net unrealized gain or loss on securities available-for-sale. The balance at March 31, 2020 included $1.9 million of unrealized gains for the year ended March 31, 2020. The balance at March 31, 2019 included $1.1 million of unrealized gains for the year ended March 31, 2019.

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 3% 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.

Under the profit-sharing feature, if the Bank achieves a minimum of 70% of its net income goal as mentioned previously, the Compensation Committee may authorize an annual non-elective contribution to the 401(k) Plan on behalf of each eligible employee up to 2% of the employee's annual pay, subject to IRS limitations. This non-elective contribution may be made regardless of whether the employee makes a contribution to the 401(k) Plan. Non-elective Bank contributions, if awarded, vest 20% each year for the first five years of employment and are fully vested thereafter.

To be eligible for the matching contribution, the employee must be 21 years of age and have completed at least three months of service. To be eligible for the non-elective Carver contribution, the employee must also be employed as of the last day of the plan year.

Compensation expense recognized for the savings incentive plan was $254 thousand and $257 thousand, respectively, for fiscal 2020 and 2019.

Stock Option Plans. In September 2006, Carver stockholders approved the 2006 Stock Incentive Plan (the "2006 Incentive Plan") which provides for the grant of stock options, stock appreciation rights and restricted stock to employees and directors who are selected to receive awards by the Committee.  The 2006 Incentive Plan authorizes Carver to grant awards with respect to 20,000 shares, but no more than 10,000 shares of restricted stock may be granted. Options are granted at a price not less than fair market value of Carver common stock at the time of the grant for a period not to exceed 10 years.  Shares generally vest in 20% increments over 5 years, however, the Committee may specify a different vesting schedule.  At March 31, 2020, there were 3,733 options outstanding under the 2006 Incentive Plan and 3,133 were exercisable.  All options are exercisable immediately upon a participant's disability, death or a change in control, as defined in the 2006 Incentive Plan, if the person is employed on that date. If the person is terminated (voluntary or involuntarily) from the Bank, all unvested shares are
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forfeited. Pursuant to the plan, the Bank recognized $3 thousand and $3 thousand as expense for fiscal years 2020 and 2019, respectively.

        In September 2014, Carver stockholders approved the Carver Bancorp, Inc. 2014 Equity Incentive Plan (the "2014 Incentive Plan") which provides for the grant of stock options, stock appreciation rights and restricted stock to executive officers and directors who are selected to receive awards by the Committee. The 2014 Incentive Plan authorizes Carver to grant awards with respect to 250,000 shares. All of the shares may be issued pursuant to stock options (all of which may be incentive stock options) or all of which may be issued pursuant to restricted stock awards or restricted stock units. Unless the Committee determines otherwise, the award agreements will specify that no award will vest more rapidly than 25% per year over a four-year period, with the first installment vesting one year after the date of grant, subject to acceleration upon the occurrence of specific events. During fiscal 2020, there were 31,000 restricted stock awards issued. There were no grants issued during fiscal 2019. At March 31, 2020, there were 1,000 options outstanding under the 2014 Incentive Plan and 500 were exercisable.  All options are exercisable immediately upon a participant's disability, death or change in control, as defined in the 2014 Incentive Plan, if the person is employed on that date. If the person is terminated (voluntary or involuntarily) from the Bank, all unvested shares are forfeited. Pursuant to the plan, the Bank recognized $24 thousand as expense for fiscal year 2020.

Information regarding nonvested shares of restricted stock awards outstanding for the years ended March 31 is as follows:
2020 2019
Shares Weighted Average
Grant Price 		Shares Weighted Average
Grant Price
Outstanding, beginning of year 1,950    $ 4.76    3,400    $ 4.52   
Granted 31,000    3.04    —    —   
Vested (850)   4.95    (1,050)   5.06   
Forfeited —    —    400    5.56   
Outstanding, end of year 32,100    $ 3.09    1,950    $ 4.76   

Unrecognized compensation expense on unvested restricted shares as of March 31, 2020 totaled $67 thousand. This amount will be recognized over the remaining vesting period of 2.5 years (weighted average).

        Information regarding stock options as of and for the years ended March 31 is as follows:
2020 2019
Options Weighted
Average
Exercise
Price 		Options Weighted
Average
Exercise
Price
Outstanding, beginning of year 4,733    $ 7.71    5,133    $ 8.53   
Granted —    —    —    —   
Exercised —    —    —    —   
Expired/Forfeited —    —    400    5.56   
Outstanding, end of year 4,733    $ 7.71    4,733    $ 7.71   
Exercisable, at year end 3,633    3,383   

Information regarding stock options as of March 31, 2020 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    7.70 $ 3.48    500    $ 3.48   
5.00    $ 5.99    3,600    5.23 5.56    3,000    5.56   
90.00    $ 104.85    133    0.36 97.50    133    97.50   
 Total 4,733    3,633   
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As of March 31, 2020, unrecognized compensation expense on unvested stock options totaled $2 thousand. This amount will be recognized over the remaining vesting period of 0.80 years (weighted average).

There were no stock options awarded to employees or directors during the year ended March 31, 2020.

        At March 31, 2020, all outstanding options had no intrinsic value.

The Company recorded stock compensation expense of $4 thousand in fiscal 2020 and 2019.

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. In accordance with GAAP, 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 lending commitments and contractual obligations as of March 31:
$ in thousands 2020 2019
Commitments to fund mortgage loans $ 5,557    $ —   
Commitments to fund commercial and consumer loans 4,500    1,775   
Lines of credit 2,702    2,571   
Commitment to fund private equity investment 253    640   
$ 13,012    $ 4,986   

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty.

Mortgage Representation & Warranty Liabilities

During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”). The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities (GSE's). The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral. The Bank has not received a request to repurchase any of these loans since the second quarter of fiscal 2015, and there have not been any additional requests from FNMA for loans to be reviewed.

The following table presents information on open requests from FNMA. The amounts presented are based on outstanding loan principal balances.
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$ in thousands Loans sold to FNMA
Open claims as of March 31, 2019 (1)
$ 1,982   
Gross new demands received —   
Loans repurchased/made whole —   
Demands rescinded —   
Advances on open claims —   
Principal payments received on open claims (30)  
Open claims as of March 31, 2020 (1)
$ 1,952   
(1)The open claims include all open requests received by the Bank where either FNMA has requested loan files for review, where FNMA has not formally rescinded the repurchase request or where the Bank has not agreed to repurchase the loan. The amounts reflected in this table are the unpaid principal balance and do not incorporate any losses the Bank would incur upon the repurchase of these loans.
         
        The table below summarizes changes in our representation and warranty reserves during fiscal 2020.
$ in thousands March 31, 2020
Representation and warranty repurchase reserve, March 31, 2019 (1)
$ 226   
Net adjustment to reserve for repurchase losses (2)
—   
Representation and warranty repurchase reserve, March 31, 2020 (1)
$ 226   
(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, 2020, 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. There were no legal proceedings pending or known to be contemplated against us that in the opinion of management, would be expected to have a material adverse effect on 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 thus 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.

The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of March 31, 2020 and 2019, and that are included in the Company's Consolidated Statements of Financial Condition at these dates:
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Fair Value Measurements at March 31, 2020, 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 $ —    $ —    $ 145    $ 145   
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association —    3,587    —    3,587   
Federal Home Loan Mortgage Corporation —    9,538    —    9,538   
Federal National Mortgage Association —    22,168    —    22,168   
U.S. Government Agency securities —    26,481    —    26,481   
Corporate bonds —    4,055    —    4,055   
Total available-for-sale securities —    65,829    —    65,829   
Total assets $ —    $ 65,829    $ 145    $ 65,974   
Fair Value Measurements at March 31, 2019, 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 $ —    $ —    $ 180    $ 180   
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association —    4,382    —    4,382   
Federal Home Loan Mortgage Corporation —    11,025    —    11,025   
Federal National Mortgage Association —    26,608    —    26,608   
U.S. Government Agency securities —    32,853    —    32,853   
Corporate bonds —    4,977    —    4,977   
Total available-for-sale securities —    79,845    —    79,845   
Total assets $ —    $ 79,845    $ 180    $ 80,025   

Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights ("MSR") and other investments. Level 3 assets accounted for 0.03% of the Company's total assets at March 31, 2020 and 2019.

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, 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, 2020, there were no transfers of investments into or out of each level of the fair value hierarchy.
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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, 2020 and 2019:
$ in thousands Beginning balance, April 1, 2019
Total Realized/Unrealized Gains/(Losses) Recorded in Income (1)
Issuances / (Settlements) Transfers to/(from) Level 3 Ending balance,
March 31, 2020 		Change in Unrealized Gains/(Losses) Related to Instruments Held at March 31, 2020
Mortgage Servicing Rights 180    (35)   —    —    145    (33)  

$ in thousands Beginning balance, April 1, 2018
Total Realized/Unrealized Gains/(Losses) Recorded in Income (1)
Issuances / (Settlements) Transfers to/(from) Level 3 Ending balance,
March 31, 2019 		Change in Unrealized Gains/(Losses) Related to Instruments Held at March 31, 2019
Mortgage Servicing Rights 181    (1)   —    —    180    (1)  
(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, 2020 and 2019, the significant unobservable inputs used in the fair value measurements were as follows:
$ in thousands Fair Value at March 31, 2020 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Mortgage Servicing Rights 145    Discounted Cash Flow
Weighted Average Constant Prepayment Rate (1)
15.64  %
Option Adjusted Spread ("OAS") applied to Treasury curve 1200 basis points


$ in thousands Fair Value at March 31, 2019 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Mortgage Servicing Rights 180    Discounted Cash Flow
Weighted Average Constant Prepayment Rate (1)
11.19  %
Option Adjusted Spread ("OAS") applied to Treasury curve 1000 basis points
(1) Represents annualized loan repayment rate assumptions

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of March 31, 2020 and 2019, and that are included in the Company's Consolidated Statements of Financial Condition at these dates:
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Fair Value Measurements at March 31, 2020, Using
$ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value
Impaired loans $ —    $ —    $ 1,293    $ 1,293   
Other real estate owned $ —    $ —    $ 120    $ 120   
Fair Value Measurements at March 31, 2019, Using
$ in thousands Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Fair Value
Impaired loans $ —    $ —    $ 2,027    $ 2,027   
Other real estate owned $ —    $ —    $ 404    $ 404   

        For Level 3 assets measured at fair value on a non-recurring basis as of March 31, 2020 and 2019, the significant unobservable inputs used in the fair value measurements were as follows:
$ in thousands Fair Value at March 31, 2020 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Impaired loans $ 1,293    Appraisal of collateral Appraisal adjustments 7.5% cost to sell
Other real estate owned 120    Appraisal of collateral Appraisal adjustments 7.5% cost to sell

$ in thousands Fair Value at March 31, 2019 Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Impaired loans $ 2,027    Appraisal of collateral Appraisal adjustments 7.5% cost to sell
Other real estate owned 404    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.

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.

The carrying amounts and estimated fair values of the Bank's financial instruments and estimation methodologies at March 31 are as follows:
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March 31, 2020
$ 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 $ 47,540    $ 47,540    $ 47,540    $ —    $ —   
Securities available-for-sale 65,829    65,829    —    65,829    —   
Securities held-to-maturity 10,151    10,564    —    10,564    —   
Loans receivable 423,786    438,017    —    —    438,017   
Accrued interest receivable 2,052    2,052    —    2,052    —   
Mortgage servicing rights 145    145    —    —    145   
Other assets - Interest-bearing deposits 981    981    —    981    —   
Financial Liabilities:
Deposits $ 488,815    $ 489,309    $ 291,951    $ 197,358    $ —   
Other borrowed money 13,403    13,386    —    13,386    —   
Accrued interest payable 2,695    2,695    —    2,695    —   

March 31, 2019
$ 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 $ 31,228    $ 31,228    $ 31,228    $ —    $ —   
Securities available-for-sale 79,845    79,845    —    79,845    —   
Securities held-to-maturity 11,137    11,107    —    11,107    —   
Loans receivable 424,182    424,013    —    —    424,013   
Accrued interest receivable 2,019    2,019    —    2,019    —   
Mortgage servicing rights 180    180    —    —    180   
Other assets - Interest-bearing deposits 976    976    —    976    —   
Financial Liabilities:
Deposits $ 480,196    $ 477,503    $ 277,360    $ 200,143    $ —   
Advances from FHLB of New York 8,000    8,001    —    8,001    —   
Other borrowed money 13,403    12,393    —    12,393    —   
Accrued interest payable 1,931    1,931    —    1,931    —   

NOTE 18.VARIABLE INTEREST ENTITIES

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 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 Bank's subsidiary, Carver Community Development Corporation (“CCDC”), was formed to facilitate its participation in local economic development and other community-based initiatives. Per the NMTC Award's Allocation Agreement between the CDFI Fund and CCDC, CCDC is permitted to form and sub-allocate credits to subsidiary Community Development Entities (“CDEs”) to facilitate investments in separate development projects.

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The variable interest entities (“VIEs”) are consolidated, as required, where Carver has 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 of the following characteristics:

(a) the power to direct activities of a VIE that most significantly impact the entities economic performance; and

(b) the obligation to absorb losses of the entity that could benefit from the activities that could potentially be significant to the VIE.

As none of the Bank's VIEs meet the above criteria, there are no consolidated VIEs at March 31, 2020.

The Bank's unconsolidated VIEs, in which the Company holds significant variable interests or has continuing involvement through servicing a majority of assets in a VIE at March 31, 2020 are presented below:
 Involvement with SPE (000's) Funded Exposure Unfunded Exposure Total
 Recognized Gain (Loss) (000's)  Total Rights transferred  Significant unconsolidated VIE assets  Total Involvement with SPE asset Debt Investments Equity Investments Funding Commitments Maximum exposure to loss
Carver Statutory Trust 1(1)
$ —    $ —    $ 13,400    $ 13,400    $ 15,549    $ 400    $ —    $ —    $ 15,949   
CDE 18* 600    13,254    —    —    —    —    —    5,169    5,169   
CDE 19 500    10,746    11,060    11,060    —    1    —    4,191    4,192   
Total $ 1,100    $ 24,000    $ 24,460    $ 24,460    $ 15,549    $ 401    $ —    $ 9,360    $ 25,310   
* Entity exited the NMTC project during fiscal year 2018 and remains on the above table pending final dissolution.
1 Carver Statutory Trust debt investment includes deferred interest of $2.5 million.

In June 2006, CCDC received a NMTC award of $59 million. CCDC received a second NMTC award of $65 million in May 2009, and a third award of $25 million in August 2011. During the period from December 2009 to September 2012, CCDC transferred rights to investors in NMTC projects (entities CDEs 13-21). CCDC has a contingent obligation to reimburse the investors for any losses or shortfalls incurred as a result of the NMTC projects not being in compliance with certain regulations that would void the investors' ability to otherwise utilize tax credits stemming from the award.  The NMTC compliance period was completed for all these entities, and CDEs 2-17, 20 and 21 have been dissolved.

CCDC established various special purpose entities (CDEs 22-25) through which its investments in NMTC eligible activities will be conducted. As of March 31, 2020, there have been no activities in these entities.

NOTE 19.NON-INTEREST REVENUE AND EXPENSE

        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 also not in scope of the new guidance. Topic 606 is applicable to non-interest revenue streams, such as depository fees, service charges and commission revenues. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. 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 revenue is recognized monthly when the Bank's performance obligations are complete, or as incurred for transaction-based fees in accordance with the fee schedules for the Bank's deposit products and services.

Loan fees and service charges

        Loan fees and service charges primarily relate to program management fees and fees earned in accordance with the Bank's standard lending fees (such as inspection and late charges). These standard lending fees are earned on a monthly basis
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upon receipt.

Other non-interest income

        Other non-interest income primarily relates to an advertising services agreement, covering marketing and use of the Bank's office space with a third party. The revenue is recognized on a monthly basis.

Interchange income
        
        The Company earns interchange fees from debit card holder transactions conducted through various payment networks. Interchangee 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.

        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, 2020 and March 31, 2019:
Years Ended March 31,
$ in thousands 2020 2019
Non-interest income
In-scope of Topic 606
Depository fees and charges $ 3,147    $ 3,337   
Loan fees and service charges 307    303   
Other non-interest income 55    61   
Non-interest income (in-scope of Topic 606) 3,509    3,701   
Non-interest income (out-of-scope of Topic 606) 230    948   
Total non-interest income $ 3,739    $ 4,649   

        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 2020 2019
Other non-interest expense:
Advertising $ 281    $ 316   
Legal expense 611    413   
Insurance and surety 621    660   
Audit expense 537    672   
Outsourced service 304    558   
Data lines / internet 412    441   
Retail expenses 733    781   
Operating chargeoffs and other losses —    714   
Regulatory assessment 209    314   
Director's fees 331    313   
Other 1,567    2,216   
Total non-interest expense $ 5,606    $ 7,398   

NOTE 20.QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tables set forth certain unaudited financial data for our quarterly operations in fiscal 2020 and 2019. The following information has been prepared on the same basis as the annual information presented elsewhere in this report and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarterly periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
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$ in thousands, except per share data June 30, 2019 September 30, 2019 December 31, 2019 March 31, 2020
Fiscal 2020
Interest income $ 5,585    $ 5,288    $ 5,492    $ 5,262   
Interest expense 1,413    1,444    1,463    1,311   
Net interest income 4,172    3,844    4,029    3,951   
Provision for loan losses 1    7    8    3   
Non-interest income 941    1,009    965    824   
Non-interest expense 6,251    5,896    6,422    6,570   
Net loss $ (1,139)   $ (1,050)   $ (1,436)   $ (1,798)  
Loss per common share
Basic $ (0.31)   $ (0.28)   $ (0.39)   $ (0.49)  
Diluted $ (0.31)   $ (0.28)   $ (0.39)   $ (0.49)  

$ in thousands, except per share data June 30, 2018 September 30, 2018 December 31, 2018 March 31, 2019
Fiscal 2019
Interest income $ 6,123    $ 5,917    $ 5,566    $ 5,624   
Interest expense 1,625    1,601    1,470    1,445   
Net interest income 4,498    4,316    4,096    4,179   
Provision for (recovery of) loan losses 5    49    (332)   8   
Non-interest income 1,234    1,056    1,212    1,147   
Non-interest expense 6,757    7,340    6,989    6,858   
Income tax expense —    —    —    —   
Net loss $ (1,030)   $ (2,017)   $ (1,349)   $ (1,540)  
Loss per common share
Basic $ (0.28)   $ (0.55)   $ (0.36)   $ (0.42)  
Diluted $ (0.28)   $ (0.55)   $ (0.36)   $ (0.42)  

NOTE 21.CARVER BANCORP, INC.  - PARENT COMPANY ONLY

CONDENSED STATEMENTS OF FINANCIAL CONDITION
As of March 31,
$ in thousands 2020 2019
Assets
Cash on deposit with subsidiaries $ 496    $ 495   
Investment in subsidiaries 65,018    62,340   
Other assets 161    121   
Total assets $ 65,675    $ 62,956   
Liabilities and Stockholders' Equity
Borrowings 13,403    13,403   
Accounts payable to subsidiaries 739    563   
Other liabilities 2,639    1,854   
Total liabilities $ 16,781    $ 15,820   
Stockholders’ equity $ 48,894    $ 47,136   
Total liabilities and stockholders’ equity $ 65,675    $ 62,956   

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CONDENSED STATEMENTS OF OPERATIONS
Years Ended March 31,
$ in thousands 2020 2019
Income
Equity in net loss from subsidiaries $ (4,499)   $ (4,968)  
Other income 26    26   
Total (loss) income (4,473)   (4,942)  
Expenses
Interest expense on borrowings 815    819   
Shareholder expense 32    73   
Other 103    102   
Total expense 950    994   
Net loss $ (5,423)   $ (5,936)  
Comprehensive loss $ (3,552)   $ (4,870)  

CONDENSED STATEMENTS OF CASH FLOW
Years Ended March 31,
$ in thousands 2020 2019
Cash Flows From Operating Activities
Net loss $ (5,423)   $ (5,936)  
Adjustments to reconcile net loss to net cash from operating activities:
Equity in net loss of subsidiaries 4,499    4,968   
Increase in account receivable from subsidiaries (4)   (30)  
Increase in other assets (36)   (25)  
Increase in accounts payable to subsidiaries 176    170   
Increase in other liabilities 785    824   
Net cash used in operating activities (3)   (29)  
Cash Flows From Financing Activities
Restricted stock vesting 4    30   
Net cash provided by financing activities 4    30   
Net increase in cash 1    1   
Cash and cash equivalents – beginning 495    494   
Cash and cash equivalents – ending $ 496    $ 495   

NOTE 22.SUBSEQUENT EVENTS

On March 11, 2020, the World Health Organization declared a pandemic related to the global spread of COVID-19, the disease caused by a novel strain of coronavirus. The COVID-19 pandemic has adversely affected global, national and local economies. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed to provide emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. As part of the CARES Act, the Small Business Administration ("SBA") is authorized to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program ("PPP"). Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP, which opened on April 3, 2020. As of July 31, 2020, the Bank has approved 200 applications for approximately $34.6 million of loans under the PPP. Consistent with regulatory guidance and the provisions of the CARES Act, loans less than 30 days past due at December 31, 2019 that were granted COVID-19 related payment deferrals will continue to be considered current and not be reported as TDRs. The Bank has accommodated borrowers with short-term deferments for up to 3 or 4 months as requests or needed. As of July 31, 2020, the Bank has received 92 applications for payment deferrals on approximately $95.6 million of loans. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19 and the extent of the impact of COVID-19 on the Company's operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, and the impact on customers, employees and vendors, all of which are uncertain and cannot be determined at this time.
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The Company is closely monitoring its asset quality, liquidity, and capital positions. Management is actively working to minimize the current and future impact of this unprecedented situation, and is making adjustments to operations where appropriate or necessary to help slow the spread of the virus. In addition, as a result of further actions that may be taken to contain or reduce the impact of the COVID-19 pandemic, the Company may experience changes in the value of collateral securing outstanding loans, reductions in the credit quality of borrowers and the inability of borrowers to repay loans in accordance with their terms. The Company is actively managing the credit risk in its loan portfolio, including reviewing the industries that the Company believes are most likely to be impacted by emerging COVID-19 events. These and similar factors and events may have substantial negative effects on the business, financial condition, and results of operations of the Company and its customers. The Bank has seen an increase in its delinquencies since March 31, 2020 and has determined that $2.1 million of the increase is directly related to the COVID-19 pandemic.

On July 2, 2020, The Goldman Sachs Group, Inc., an institutional investor, completed the conversion and subsequent sale of its shares: 13,519 Series D Preferred Stock was converted into 1,653,397 shares of Common Stock, which were subsequently sold in the open market. The conversion and sale had no impact on the Company's total capital.

On July 9, 2020, the Company received notice that Morgan Stanley International Holdings Inc., an institutional investor, relinquished its ownership of 180,573 shares of Company common stock and 13,523 shares of Company Preferred Series D Stock to the Company at no cost to the Company.

On July 30, 2020, the Company reached an agreement in principle (the "Agreement in Principle") with the United States Department of the Treasury (the "Treasury Department") to repurchase 2,321,286 shares of common stock of the Company, par value $0.01 per share, owned by the Treasury Department for an aggregate purchase price of $2.5 million. In connection with the Agreement in Principle, Morgan Stanley has provided a grant to the Company to fund the repurchase transaction. The Company anticipates executing a written agreement with the Treasury Department and completing the repurchase on or about August 6, 2020.

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

        None.

ITEM 9A.CONTROLS AND PROCEDURES.

(a) Evaluation of Controls and Procedures

        Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. As of March 31, 2020, the Company's management, including the Company's Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer), has evaluated the effectiveness of the Company's disclosure controls and procedures as defined in Rules 13a-15 and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must necessarily reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

        Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2020.

(b) Management's Report on Internal Control Over Financial Reporting

        Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's system of internal control is designed under the supervision of management, including the Company's Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with U.S. GAAP. The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are made only in accordance with the authorization of management and the Boards of Directors of the Company and the Bank; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Company's financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with policies and procedures may deteriorate.

        The management of Carver Bancorp, Inc., with participation of the Chief Executive Officer and the Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of March 31, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the Internal Control -- Integrated Framework (2013). Based on the assessment under COSO, management determined that our internal control over financial reporting was effective as of March 31, 2020.

        This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

99

(c) Changes in Internal Control Over Financial Reporting

        There have not been any changes in the Company’s internal control over financial reporting during the fiscal year ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.OTHER INFORMATION.

None.

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PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE.

Information concerning Executive Officers of the Company which responds to this Item is incorporated by reference from the section entitled "Executive Officers and Key Managers of Carver and Carver Federal" in the Company's definitive proxy statement to be filed in connection with the 2020 Annual Meeting of Stockholders (the "Proxy Statement"). The information that responds to this Item with respect to Directors is incorporated by reference from the section entitled "Election of Directors" in the Proxy Statement. Information with respect to compliance by the Company's Directors and Executive Officers with Section 16(a) of the Exchange Act is incorporated by reference from the subsection entitled "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement.

Information regarding the audit committee of the Company's Board of Directors, including information regarding audit committee financial experts serving on the audit committee, is presented under the heading "Corporate Governance" in the Company's Proxy Statement and is incorporated herein by reference. Information regarding the process for shareholder nomination of directors is incorporated by reference from the Proxy Statement and presented under the heading "Corporate Governance."

ITEM 11.EXECUTIVE COMPENSATION.

The information required in response to this Item is incorporated by reference from the section entitled "Compensation of Directors and Executive Officers" in the Proxy Statement.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required in response to this Item is incorporated by reference from the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.

The information required in response to this Item is incorporated by reference from the section entitled "Transactions with Certain Related Persons" in the Proxy Statement.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required in response to this Item is incorporated by reference from the section entitled "Auditor Fee Information" in the Proxy Statement.

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

I. List of Documents Filed as Part of this Annual Report on Form 10-K

A. The following consolidated financial statements are included in Item 8 of this Annual Report:

1. Report of Independent Registered Public Accounting Firm

2. Consolidated Statements of Financial Condition as of March 31, 2020 and 2019

3. Consolidated Statements of Operations for the years ended March 31, 2020 and 2019

4. Consolidated Statements of Comprehensive Loss for the years ended March 31, 2020 and 2019

5. Consolidated Statements of Changes in Equity for the years ended March 31, 2020 and 2019

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6. Consolidated Statements of Cash Flows for the years ended March 31, 2020 and 2019

7. Notes to Consolidated Financial Statements.

B. Financial Statement Schedules. Financial statement schedules are included in Item 8 of this Annual Report.

II. Exhibits required by Item 601 of Regulation S-K:

A. See Exhibit Index

III. Exhibits required by Rule 405 of Regulation S-T
A.  See Exhibit Index

ITEM 16.FORM 10-K SUMMARY.

        None.

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EXHIBIT INDEX

Exhibit Number   Description
3.1  
Certificate of Incorporation of Carver Bancorp, Inc. (1)
3.2  
3.3
3.4
4.1  
Stock Certificate of Carver Bancorp, Inc. (1)
4.2  
10.1  
10.2
10.3
10.4
10.5
10.6
10.7
11
21.1
31.1
31.2
32.1
32.2
Exhibits 101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows, (vi) the Notes to the Consolidated Financial Statements tagged as blocks of texts and in detail

(1)Incorporated herein by reference to Registration Statement No. 333-5559 on Form S-4 of the Registrant filed with the Securities and Exchange Commission on June 7, 1996.
(2)Incorporated herein by reference to the Exhibits to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on December 19, 2007.
(3)Incorporated herein by reference to Exhibit 3.1 to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission filed on July 6, 2011.
(4)Incorporated herein by reference to Exhibit 3.1 to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission filed on November 1, 2011.
(5)Incorporated herein by reference to the Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 2003.
(6)Incorporated herein by reference to the Exhibits to the Registrant's Definitive Proxy Statement on Form 14A filed with the Securities and Exchange Commission on July 31, 2006.
(7)Incorporated herein by reference to the Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 2008, filed with the Securities and Exchange Commission on February 17, 2009.
(8)Incorporated herein by reference to the Registrant's Definitive Proxy Statement on Form 14A for the 2014 Annual Meeting of Stockholders filed with the Securities and Exchange Commission on July 29, 2014.
(9)Incorporated herein by reference to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on May 27, 2016.
(10)Incorporated herein by reference to the Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended March 31, 2006.




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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
    CARVER BANCORP, INC.
August 6, 2020 By /s/ Michael T. Pugh
    Michael T. Pugh
    President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below on August 6, 2020 by the following persons on behalf of the Registrant and in the capacities indicated.

/s/ Michael T. Pugh President and Chief Executive Officer
Michael T. Pugh (Principal Executive Officer)
/s/ Christina L. Maier First Senior Vice President and Chief Financial Officer
Christina L. Maier (Principal Accounting Officer and Principal Financial Officer)
/s/ Lewis P. Jones III Chairman
Lewis P. Jones III
   
/s/ Steven C. Bussey Director
Steven C. Bussey  
   
/s/ Colvin W. Grannum Director
Colvin W. Grannum
/s/ Pazel G. Jackson, Jr. Director
Pazel G. Jackson, Jr.
/s/ Jillian E. Joseph Director
Jillian E. Joseph
/s/ Kenneth J. Knuckles Director
Kenneth J. Knuckles  
/s/ Craig C. MacKay Director
Craig C. MacKay  
/s/ Michael T. Pugh Director
Michael T. Pugh
/s/ Janet L. Rollé Director
Janet L. Rollé   
   
/s/ Susan M. Tohbe Director
Susan M. Tohbe  

104
Carver Bancorp (NASDAQ:CARV)
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