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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2021
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 The NASDAQ Stock Market, LLC
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. þ 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). þ Yes   oNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class   Outstanding at February 11, 2022
Common Stock, par value $0.01   3,804,596



TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
$ in thousands except per share data
December 31, 2021
March 31, 2021
ASSETS    
Cash and cash equivalents:    
Cash and due from banks $ 65,475  $ 75,337 
Money market investments 254  254 
Total cash and cash equivalents 65,729  75,591 
Investment securities:
Available-for-sale, at fair value 75,268  86,507 
Held-to-maturity, at amortized cost (fair value of $5,592 and $8,140 at December 31, 2021 and March 31, 2021, respectively)
5,407  7,807 
Total investment securities 80,675  94,314 
Loans receivable:
Real estate mortgage loans 392,655  333,422 
Commercial business loans 158,487  147,680 
Consumer loans 1,735  2,447 
Loans, gross 552,877  483,549 
Allowance for loan and lease losses (5,488) (5,140)
Total loans receivable, net 547,389  478,409 
Premises and equipment, net 4,022  4,611 
Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost 584  552 
Accrued interest receivable 2,688  2,640 
Right-of-use assets 14,239  15,344 
Other assets 7,484  5,287 
Total assets $ 722,810  $ 676,748 
LIABILITIES AND EQUITY    
LIABILITIES    
Deposits:    
Non-interest bearing checking $ 127,906  $ 110,525 
Interest-bearing deposits:
Interest-bearing checking 70,882  45,605 
Savings 111,015  108,199 
Money market 153,094  137,230 
Certificates of deposit 157,229  152,723 
Escrow 1,980  2,277 
Total interest-bearing deposits 494,200  446,034 
Total deposits 622,106  556,559 
Advances from the FHLB-NY and other borrowed money 16,359  37,222 
Operating lease liability 14,976  16,003 
Other liabilities 11,671  14,663 
Total liabilities 665,112  624,447 
EQUITY
Preferred stock, (par value $0.01 per share: 14,851 and 17,601 Series D shares, with a liquidation preference of $1,000 per share, issued and outstanding at December 31, 2021 and March 31, 2021, respectively)
14,851  17,601 
Preferred stock (par value $0.01 per share: 3,177 Series E shares, with a liquidation preference of $1,000 per share, issued and outstanding at December 31, 2021 and March 31, 2021)
3,177  3,177 
Preferred stock (par value $0.01 per share: 9,000 and 5,000 Series F shares, with a liquidation preference of $1,000 per share, issued and outstanding at December 31, 2021 and March 31, 2021, respectively)
9,000  5,000 
Common stock (par value 0.01 per share: 10,000,000 shares authorized; 6,288,922 and 5,837,071 shares issued; 3,785,319 and 3,333,268 shares outstanding at December 31, 2021 and March 31, 2021, respectively)
63  58 
Additional paid-in capital 79,029  75,204 
Accumulated deficit (43,632) (42,656)
Treasury stock, at cost (2,503,803 shares at December 31, 2021 and March 31, 2021)
(2,908) (2,908)
Accumulated other comprehensive loss (1,882) (3,175)
Total equity 57,698  52,301 
Total liabilities and equity $ 722,810  $ 676,748 
See accompanying notes to consolidated financial statements
1


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
Nine Months Ended
December 31,
$ in thousands, except per share data
2021
2020
2021
2020
Interest income:    
Loans $ 5,379  $ 4,749  $ 15,541  $ 13,804 
Mortgage-backed securities 150  192  552  509 
Investment securities 109  277  543  716 
Money market investments 27  21  76  70 
Total interest income 5,665  5,239  16,712  15,099 
Interest expense:    
Deposits 476  938  1,435  3,048 
Advances and other borrowed money 117  162  389  492 
Total interest expense 593  1,100  1,824  3,540 
Net interest income 5,072  4,139  14,888  11,559 
Provision for (recovery of) loan losses 192  4  468  (99)
Net interest income after provision for (recovery of) loan losses 4,880  4,135  14,420  11,658 
Non-interest income:    
Depository fees and charges 432  692  1,627  2,041 
Loan fees and service charges 54  65  199  234 
Gain on sale of securities —  —  —  862 
Grant income 203  —  2,089  500 
Other 1,142  142  2,721  918 
Total non-interest income 1,831  899  6,636  4,555 
Non-interest expense:    
Employee compensation and benefits 2,793  2,837  8,595  8,369 
Net occupancy expense 1,080  1,066  3,318  3,296 
Equipment, net 408  386  1,299  1,239 
Data processing 160  451  1,472  1,564 
Consulting fees 112  38  338  154 
Federal deposit insurance premiums 92  107  266  265 
Other 1,370  1,459  6,744  4,257 
Total non-interest expense 6,015  6,344  22,032  19,144 
Income (loss) before income taxes 696  (1,310) (976) (2,931)
   Income tax expense —  —  —  — 
Net income (loss) $ 696  $ (1,310) $ (976) $ (2,931)
Earnings (loss) per common share:
Basic $ 0.13  $ (0.44) $ (0.28) $ (0.84)
Diluted 0.13  (0.44) (0.28) (0.84)

See accompanying notes to consolidated financial statements





2

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended December 31,
Nine Months Ended December 31,
$ in thousands
2021
2020
2021
2020
Net income (loss) $ 696  $ (1,310) $ (976) $ (2,931)
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain of securities available-for-sale (198) 346  1,293  297 
Less: Reclassification adjustment for gains on sale of available-for-sale securities, net of income tax expense of $0 (due to full valuation allowance)
—  —  —  862 
Total other comprehensive (loss) income, net of tax (198) 346  1,293  (565)
Total comprehensive income (loss), net of tax $ 498  $ (964) $ 317  $ (3,496)

See accompanying notes to consolidated financial statements

3

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Three and Nine Months Ended December 31, 2021 and 2020
(Unaudited)
$ in thousands Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Equity
Three Months Ended December 31, 2021
Balance — September 30, 2021 $ 28,128  $ 61  $ 76,949  $ (44,328) $ (2,908) $ (1,684) $ 56,218 
Net income —  —  —  696  —  —  696 
Other comprehensive loss, net of taxes —  —  —  —  —  (198) (198)
Conversion of Series D preferred stock to common stock (1,100) 1  1,099  —  —  —  — 
At-the-market "ATM" offering, net of offering costs —  1  957  —  —  —  958 
Stock based compensation expense —  —  24  —  —  —  24 
Balance — December 31, 2021
$ 27,028  $ 63  $ 79,029  $ (43,632) $ (2,908) $ (1,882) $ 57,698 
Nine Months Ended December 31, 2021
Balance — March 31, 2021
$ 25,778  $ 58  $ 75,204  $ (42,656) $ (2,908) $ (3,175) $ 52,301 
Net loss —  —  —  (976) —  —  (976)
Other comprehensive income, net of taxes —  —  —  —  —  1,293  1,293 
Conversion of Series D preferred stock to common stock (2,750) 3  2,747  —  —  —  — 
At-the-market "ATM" offering, net of offering costs —  1  957  —  —  —  958 
Issuance of preferred stock (Series F) 4,000  —  —  —  —  —  4,000 
Stock based compensation expense —  1  121  —  —  —  122 
Balance — December 31, 2021
$ 27,028  $ 63  $ 79,029  $ (43,632) $ (2,908) $ (1,882) $ 57,698 
Three Months Ended December 31, 2020
Balance — September 30, 2020 $ 18,076  $ 54  $ 71,534  $ (40,381) $ (2,908) $ 21  $ 46,396 
Net loss —  —  —  (1,310) —  —  (1,310)
Other comprehensive income, net of taxes —  —  —  —  —  346  346 
Issuance of common stock —  1  973  —  974 
Stock based compensation expense —  —  2  —  —  —  2 
Balance — December 31, 2020
$ 18,076  $ 55  $ 72,509  $ (41,691) $ (2,908) $ 367  $ 46,408 
Nine Months Ended December 31, 2020
Balance — March 31, 2020 $ 45,118  $ 61  $ 55,476  $ (52,285) $ (408) $ 932  $ 48,894 
Net loss —  —  —  (2,931) —  —  (2,931)
Other comprehensive loss, net of taxes —  —  —  —  —  (565) (565)
Conversion of Series D preferred stock to common stock (13,519) 17  13,502  —  —  —  — 
Stock relinquishment (13,523) (2) —  13,525  —  —  — 
Capital contribution —  —  2,500  —  —  —  2,500 
Repurchase of common stock —  —  —  —  (2,500) —  (2,500)
Issuance of common stock —  1  973  —  —  —  974 
Stock based compensation expense —  (22) 58  —  —  —  36 
Balance — December 31, 2020
$ 18,076  $ 55  $ 72,509  $ (41,691) $ (2,908) $ 367  $ 46,408 
See accompanying notes to consolidated financial statements
4


CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended December 31,
$ in thousands
2021
2020
CASH FLOWS FROM OPERATING ACTIVITIES    
Net loss $ (976) $ (2,931)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Provision for (recovery of) loan losses 468  (99)
Stock based compensation expense 122  36 
Depreciation and amortization expense 770  769 
Gain on sale of real estate owned, net of market value adjustment —  (80)
Gain on sale of securities —  (862)
Amortization and accretion of loan premiums and discounts and deferred charges (209) 557 
Amortization and accretion of premiums and discounts — securities 474  430 
Increase in accrued interest receivable (48) (858)
Decrease in other assets (1,995) (3,970)
(Decrease) increase in other liabilities (3,045) 2,547 
Net cash used in operating activities (4,439) (4,461)
CASH FLOWS FROM INVESTING ACTIVITIES  
Purchases of investments: Available-for-sale —  (74,475)
Proceeds from sales of investments: Available-for-sale —  30,190 
Proceeds from principal payments, maturities and calls of investments: Available-for-sale 12,013  10,094 
Proceeds from principal payments, maturities and calls of investments: Held-to-maturity 2,375  957 
Loans held-for investment activity, net of (originations) and repayments/payoffs (30,962) (16,376)
Loans purchased from third parties (44,410) (24,141)
Proceeds from participation loans sold 6,080  — 
(Purchase) redemption of FHLB-NY stock, net (32) 16 
Purchase of premises and equipment (181) (184)
Proceeds from sales of real estate owned —  260 
Net cash used in investing activities (55,117) (73,659)
CASH FLOWS FROM FINANCING ACTIVITIES    
Net increase in deposits 65,547  80,927 
(Decrease) increase in FHLB-NY advances and other borrowings (23,311) 28,230 
Increase in long-term debt 2,500  — 
Contribution of capital —  2,500 
Repurchase of common stock —  (2,500)
Issuance of common stock 958  974 
Issuance of preferred stock 4,000  — 
Net cash provided by financing activities 49,694  110,131 
Net (decrease) increase in cash and cash equivalents (9,862) 32,011 
Cash and cash equivalents at beginning of period 75,591  47,540 
Cash and cash equivalents at end of period $ 65,729  $ 79,551 
Supplemental cash flow information:    
Noncash financing and investing activities    
Recognition of right-of-use asset $ 680  $ — 
Recognition of operating lease liability 680  — 
Recognition of finance lease asset —  13 
Recognition of finance lease liability —  13 
Retirement of preferred stock —  13,523 
Retirement of common stock —  2 
Cash paid for:
Interest $ 4,993  $ 3,186 
Income taxes 211  57 
See accompanying notes to consolidated financial statements
5

CARVER BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
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 subsidiary is Carver Federal Savings Bank (the “Bank” or “Carver Federal”). 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, “Consolidations,” 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 had been deferred beginning with the December 2016 payment, per the terms of the agreement, which permit such deferral for up to twenty consecutive quarters, as the Company is prohibited from making payments without prior regulatory approval. During the fourth quarter of fiscal year 2021, the Company applied for and was granted regulatory approval to settle all outstanding debenture interest payments through June 2021. Full payment was made on June 16, 2021. The Company deferred the September 17, 2021 interest payment, but has since had discussions with the Federal Reserve Bank of Philadelphia regarding future quarterly payments. A streamlined process has been developed for the Company to request regulatory approval to make debenture interest payments. The Company made the regular quarterly interest payment on its outstanding debentures due on December 17, 2021. The interest rate was 3.27% and the total amount of deferred interest was $18 thousand at December 31, 2021.

    Carver relies primarily on dividends from Carver Federal to pay cash dividends to its stockholders and to engage in share repurchase programs. 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.
6

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.

    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 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 Tier1 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") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended December 31, 2021 are not necessarily indicative of the results that may be expected for the year ended March 31, 2022. The consolidated balance sheet at December 31, 2021 has been derived from the unaudited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. 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. These unaudited consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended March 31, 2021. 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.

Certain comparative amounts for the prior period have been reclassified to conform to current period presentations. Such reclassifications had no effect on net income or shareholders' equity.

Recent Events

COVID-19 has impacted businesses in New York more severely than in the rest of the nation, according to a report from the Office of the New York State Comptroller. Since the U.S. Census Bureau began collecting and reporting data through the Small Business Pulse Survey, New York’s small businesses have consistently reported experiencing a negative effect from the pandemic at rates that exceed the national average. Despite the fact that one in five New York small businesses reported a return to normal operations in October 2021, the negative impacts on small businesses with less than 500 employees persist.

Small businesses account for the overwhelming majority of firms in most industry sectors in New York. They also employ the majority of workers in industry sectors such as accommodation and food services; wholesale trade; real estate; construction; professional, scientific and technical services; and arts, entertainment and recreation.

7

While New York State went through a phased reopening upon expiration of an earlier executive order to shelter in place, maintain social distancing and close all non-essential businesses statewide, there remains a significant amount of uncertainty as certain geographic areas continue to experience surges in COVID-19 cases and governments at all levels continue to react to changes in circumstances. The impact of new restrictive measures and mandates taken or issued by governments, businesses and individuals have caused uncertainty in the financial markets. The prolonged pandemic, or any other epidemic of this sort that ultimately harms the global economy, the U.S. economy or the markets in which we operate could adversely affect Carver's operations. The long-term effects of COVID-19 on the Company's business cannot be ascertained as there remains significant uncertainty regarding the breadth and duration of business disruptions related to the virus. In addition, new information may emerge regarding the severity of COVID-19 or the effectiveness of the vaccines developed, causing federal, state and local governments to take additional actions to contain COVID-19 or to treat the impact. Even after formal restrictions have been lifted, changes in the behavior of customers, businesses and their employees - including social distancing - as a result of the pandemic, are unknown. 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 continuing to make 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. 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.

Consistent with regulatory guidance and the provisions of the Coronavirus Aid, Relief and Economic Security Act ("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 requested or needed. As of December 31, 2021, the Bank has received 71 applications for payment deferrals on approximately $72.6 million of loans. The Bank has been working with the borrowers to determine if there is a risk of any losses associated with repayment and if any additional reserves would have to be allocated to this portfolio. As of December 31, 2021, there are 6 loans remaining on deferment with outstanding principal balances totaling $7.8 million.

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 December 31, 2021, the Bank has approved 420 applications for approximately $57.1 million of loans under the PPP. Since the PPP loans are fully guaranteed by the SBA, there are no additional ALLL reserves required. The net origination fees on these loans totaled approximately $457 thousand and are being recognized into interest income on loans over the 2-year and 5-year stated maturity terms of the PPP loans using the straight-line deferral method. The Federal Reserve established the Paycheck Protection Program Liquidity Facility ("PPPLF") to support the PPP program by extending credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. As of December 31, 2021, the Bank's outstanding advances under the PPPLF totaled $395 thousand, compared to $23.7 million at March 31, 2021.


8

NOTE 3. EARNINGS (LOSS) PER COMMON SHARE

    The following table reconciles the income (loss) available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted income (loss) per share for the following periods:
Three Months Ended
December 31,
Nine Months Ended
December 31,
$ in thousands except per share data
2021
2020
2021
2020
Net income (loss) $ 696  $ (1,310) $ (976) $ (2,931)
Less: Undistributed earnings attributable to dilutive shares 240  —  —  — 
Net income (loss) available to common shareholders $ 456  $ (1,310) $ (976) $ (2,931)
Weighted average common shares outstanding - basic 3,573,707  2,980,655  3,485,120  3,485,488 
Effect of dilutive shares 35,832  —  —  — 
Weighted average common shares outstanding – diluted 3,609,539  2,980,655  3,485,120  3,485,488 
Basic earnings (loss) per common share $ 0.13  $ (0.44) $ (0.28) $ (0.84)
Diluted earnings (loss) per common share 0.13  (0.44) (0.28) (0.84)

The Company has preferred stock which are entitled to receive dividends if declared on the Company's common stock and are therefore considered to be participating securities. Basic earnings (loss) per share (“EPS”) is computed using the two class method. This calculation divides net income (loss) available to common stockholders after the allocation of undistributed earnings to the participating securities by the weighted average number of shares of common stock outstanding during the period.  Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These potentially dilutive shares are then included in the weighted average number of shares outstanding for the period. Dilution calculations are not applicable to net loss periods. For the three months ended December 31, 2020, and the nine months ended December 31, 2021 and 2020, all restricted shares and outstanding stock options were anti-dilutive.

NOTE 4. COMMON STOCK DIVIDENDS AND ISSUANCES

    On October 28, 2011, the United States Department of the Treasury (the "Treasury Department") exchanged the CDCI Series B preferred stock for 2,321,286 shares of Carver common stock and the Series C preferred stock converted into 1,208,039 shares of Carver common stock and 45,118 shares of Series D preferred stock. Series C stock was previously reported as mezzanine equity, and upon conversion to common and Series D preferred stock is now reported as equity attributable to Carver Bancorp, Inc. The holders of the Series D Preferred Stock are entitled to receive dividends, on an as-converted basis, simultaneously to the payment of any dividends on the common stock.

In June 2020, The Goldman Sachs Group, Inc., an institutional investor, notified the Company of their intention to effect a series of transfers of up to all its holdings of Series D Preferred Stock. The conversion and subsequent sale of shares were completed on July 2, 2020: 13,519 Series D Preferred Stock shares were 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. ("Morgan Stanley"), 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 August 6, 2020, the Company entered into a Securities Purchase Agreement (the "Agreement") with the Treasury Department to repurchase 2,321,286 shares of Company common stock, owned by the Treasury Department for an aggregate purchase price of $2.5 million. The stock repurchase provided for in the Agreement was completed on August 6, 2020. Upon completion of the repurchase pursuant to the Agreement, the Treasury Department was no longer a stockholder in the Company. In connection with the repurchase, Morgan Stanley provided a grant of $2.5 million that was considered contributed capital to the Company to fund the repurchase transaction.

On October 15, 2020, the Company entered into an agreement with Banc of America Strategic Investments Corporation under which it issued and sold 147,227 shares of its common stock, par value $0.01, at a price of $6.62 per share.
9

The shares were issued on October 15, 2020, in a private placement exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, and Regulation D of the rules and regulations promulgated thereunder.

On January 22, 2021, Prudential Insurance Company of America, an institutional investor, notified the Company of its intention to cancel 475 of its holdings of Series D Preferred Stock and convert such shares into 58,093 shares of common stock. The conversion had no impact on the Company's total capital.

On February 1, 2021, the Company entered into an agreement with Wells Fargo Central Pacific Holdings, Inc., under which it sold: (i) 157,806 shares of its common stock, par value $0.01 per share, at a purchase price of $7.75 per share, and (ii) 3,177 shares of a new series of preferred stock, Series E non-cumulative non-voting participating preferred stock, par value $0.01 per share, at a purchase price of $1,000 per share, in a private placement for gross proceeds of approximately $4.4 million. Upon the completion of certain transfers of the Series E preferred stock by Wells Fargo Central Pacific Holdings, Inc., the Series E preferred stock would be convertible into common stock at a conversion price of $7.96 per share. The issuance of the shares is exempt from registration pursuant to the exemption provided under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The offering was made only to accredited investors as that term is defined in Rule 501(a) of Regulation D under the Act.

On February 16, 2021, the Company entered into an agreement with J.P. Morgan Chase Community Development Corporation ("J.P. Morgan"), under which it sold: (i) 112,612 shares of its common stock, par value $0.01 per share, at a purchase price of $8.88 per share, and (ii) 5,000 shares of a new series of preferred stock, Series F non-cumulative non-voting non-convertible preferred stock, par value $0.01 per share ("Series F Preferred Stock"), at a purchase price of $1,000 per share, in a private placement for gross proceeds of approximately $6.0 million. On September 27, 2021, the Company entered into an agreement with J.P. Morgan under which it sold an additional 4,000 shares of its Series F Preferred Stock, at a purchase price of $1,000 per share, in a private placement for gross proceeds of $4.0 million. The issuances of the shares were exempt from registration pursuant to the exemption provided under Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The offerings were made only to accredited investors as that term is defined in Rule 501(a) of Regulation D under the Act.

During fiscal year 2022, Prudential Insurance Company of America ("Prudential"), an institutional investor, donated a total of 2,750 shares of its holdings of Series D Preferred Stock to third parties. The third parties notified the Company of their intention to cancel the shares and convert them into 336,325 shares of Common Stock. The conversions had no impact on the Company's total capital.

On December 14, 2021, the Company entered into a Sales Agreement (the "Sales Agreement") with Piper Sandler & Co. (“Piper Sandler”), as sales agent, pursuant to which the Company may offer and sell shares of our common stock, par value $0.01 per share, having an aggregate gross sales prices of up to $20.0 million (the “ATM Shares”) from time to time. Any sales made under the Sales Agreement will be sales deemed to be "at-the-market (ATM) offerings," as defined in Rule 415 under the Securities Act of 1933, as amended. These sales will be made through ordinary broker transactions on the NASDAQ Capital Market stock exchange at market prices prevailing at the time, at prices related to the prevailing market prices, or at negotiated prices. The Company may instruct Piper Sandler not to sell ATM Shares if the sales cannot be effected at or above the price designated by the Company from time to time. The Company is not obligated to make any sales of the ATM Shares under the Sales Agreement. The offering of ATM Shares pursuant to the Sales Agreement will terminate upon the earlier of (a) the sale of all of the ATM Shares subject to the Sales Agreement or (b) the termination of the Sales Agreement by Piper Sandler or the Company, as permitted therein. The Company will pay Piper Sandler a commission rate equal to 3.0% of the aggregate gross proceeds from each sale of ATM Shares and have agreed to provide Piper Sandler with customary indemnification and contribution rights. The Company will also reimburse Piper Sandler for certain specified expenses in connection with entering into the Sales Agreement. The Company intends to use the net proceeds of these offerings for general corporate purposes, including support for organic loan growth and repayment of all or a portion of the outstanding principal amount of our outstanding subordinated debt securities. For the three months ended December 31, 2021, the Company completed the sale of 100,401 shares of common stock at an average price of $9.84 under the ATM offering program. The transactions resulted in gross proceeds of $988 thousand and net proceeds to the Company of $958 thousand after deducting commissions and expenses.


10

NOTE 5. OTHER COMPREHENSIVE INCOME (LOSS)

    The following tables set forth changes in each component of accumulated other comprehensive income (loss), net of tax for the nine months ended December 31, 2021 and 2020:
$ in thousands
At
March 31, 2021
Other
Comprehensive
Income, net of tax
At
December 31, 2021
Net unrealized income (loss) on securities available-for-sale $ (3,175) $ 1,293  $ (1,882)
$ in thousands
At
March 31, 2020
Other
Comprehensive
Loss, net of tax
At
December 31, 2020
Net unrealized income (loss) on securities available-for-sale $ 932  $ (565) $ 367 

    There were no reclassifications out of accumulated other comprehensive loss to the consolidated statement of operations for the nine months ended December 31, 2021. There was an $862 thousand reclassification out of accumulated other comprehensive income to the consolidated statement of operations for the nine months ended December 31, 2020.

NOTE 6. 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 December 31, 2021, securities with fair value of $75.3 million, or 93.3%, of the Bank’s total securities were classified as available-for-sale, and securities with amortized cost of $5.4 million, or 6.7%, were classified as held-to-maturity, compared to $86.5 million and $7.8 million at March 31, 2021, respectively. The Bank had no securities classified as trading at December 31, 2021 and March 31, 2021.

    Other investments as of December 31, 2021 primarily consists of the Bank's investment in a limited partnership Community Capital Fund. These securities are measured at fair value with unrealized holding gains and losses reflected in net income. Other investments totaled $1.1 million at December 31, 2021 and are included in Other Assets on the Statements of Financial Condition.

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    The following tables set forth the amortized cost and fair value of securities available-for-sale and held-to-maturity at December 31, 2021 and March 31, 2021:
At December 31, 2021
Amortized Gross Unrealized
$ in thousands Cost Gains Losses Fair Value
Available-for-Sale:        
Mortgage-backed Securities:        
Government National Mortgage Association $ 494  $ 18  $ —  $ 512 
Federal Home Loan Mortgage Corporation 24,791  31  877  23,945 
Federal National Mortgage Association 13,306  —  446  12,860 
Total mortgage-backed securities 38,591  49  1,323  37,317 
U.S. Government Agency Securities 15,131  —  60  15,071 
Corporate Bonds 5,272  —  90  5,182 
Muni Securities 17,746  88  547  17,287 
Asset-backed Securities 410  1  —  411 
Total available-for-sale $ 77,150  $ 138  $ 2,020  $ 75,268 
Held-to-Maturity:        
Mortgage-backed Securities:        
Government National Mortgage Association $ 527  $ 49  $ —  $ 576 
Federal National Mortgage Association and Other 4,880  136  —  5,016 
Total held-to maturity $ 5,407  $ 185  $ —  $ 5,592 

At March 31, 2021
Amortized Gross Unrealized
$ in thousands Cost Gains Losses Fair Value
Available-for-Sale:        
Mortgage-backed Securities:        
Government National Mortgage Association $ 987  $ 39  $ —  $ 1,026 
Federal Home Loan Mortgage Corporation 28,458  88  761  27,785 
Federal National Mortgage Association 15,120  —  510  14,610 
Total mortgage-backed securities 44,565  127  1,271  43,421 
U.S. Government Agency Securities 18,744  —  113  18,631 
Corporate Bonds 5,274  —  793  4,481 
Muni Securities 17,763  —  1,153  16,610 
Asset-backed Securities 3,336  28  —  3,364 
Total available-for-sale $ 89,682  $ 155  $ 3,330  $ 86,507 
Held-to-Maturity:        
Mortgage-backed Securities:        
Government National Mortgage Association $ 683  $ 69  $ —  $ 752 
Federal National Mortgage Association and Other 7,124  264  —  7,388 
Total held-to-maturity $ 7,807  $ 333  $ —  $ 8,140 

There were no sales of available-for-sale and held-to-maturity securities for the three and nine months ended December 31, 2021. 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 nine months ended December 31, 2020.
$ in thousands
December 31, 2020
Proceeds $ 30,190 
Gross gains 862 

12

    The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at December 31, 2021 and March 31, 2021 for less than 12 months and 12 months or longer:
At December 31, 2021
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 $ 164  $ 6,030  $ 1,159  $ 28,824  $ 1,323  $ 34,854 
U.S. Government Agency securities —  —  60  15,071  60  15,071 
Corporate bonds —  —  90  5,182  90  5,182 
Muni securities 411  12,057  136  2,454  547  14,511 
Total available-for-sale securities $ 575  $ 18,087  $ 1,445  $ 51,531  $ 2,020  $ 69,618 

At March 31, 2021
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 $ 1,271  $ 39,020  $ —  $ —  $ 1,271  $ 39,020 
U.S. Government Agency securities —  —  113  18,631  113  18,631 
Corporate bonds 793  4,481  —  —  793  4,481 
Muni securities 1,153  16,609  1,153  16,609 
Total available-for-sale securities $ 3,217  $ 60,110  $ 113  $ 18,631  $ 3,330  $ 78,741 

    A total of 14 securities had an unrealized loss at December 31, 2021 compared to 15 at March 31, 2021. Mortgage-backed securities, U.S. government agency securities, municipal securities and a corporate bond security represented 50.1%, 21.6%, 20.8% and 7.4%, respectively, of total available-for-sale securities in an unrealized loss position at December 31, 2021. There were four mortgage-backed securities, three U.S. government agency securities, one corporate bond and one municipal security that had an unrealized loss position for more than 12 months at December 31, 2021. Given the high credit quality of the mortgage-backed securities, which are backed by the U.S. government's guarantees, the high credit quality and strong financial performance of the U.S. Government Agency and municipal securities, and the corporate security that is a reputable institution in good financial standing, the risk of credit loss is minimal. Management believes that these unrealized losses are a direct result of the current rate environment and the Company has the ability and intent to hold the securities until maturity or the valuations recover. The Bank did not have any securities that were classified as having other-than-temporary impairment in its investment portfolio at December 31, 2021.

    The following is a summary of the amortized cost and fair value of debt securities at December 31, 2021, by remaining period to contractual maturity (ignoring earlier call dates, if any).  Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their obligations.  The table below does not consider the effects of possible prepayments or unscheduled repayments.
$ in thousands Amortized Cost Fair Value Weighted
Average Yield
Available-for-Sale:
One through five years 410  410  0.75  %
Five through ten years 7,582  7,644  1.95  %
After ten years 30,567  29,897  1.95  %
Mortgage-backed securities 38,591  37,317  1.33  %
Total $ 77,150  $ 75,268  1.64  %
Held-to-maturity:
Mortgage-backed securities $ 5,407  $ 5,592  2.48  %

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NOTE 7. LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

    The loans receivable portfolio is segmented into one-to-four family, multifamily, commercial real estate, business (including Small Business Administration loans), and consumer loans.

    The allowance for loan and lease losses ("ALLL") reflects management’s judgment in the evaluation of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to calculate the ALLL each quarter. To determine the total ALLL, management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.

    The general valuation allowance applied to those pooled loans not deemed to be impaired is determined using a three step process:

•Trends of historical losses where the net charge-offs on each category are reviewed over a 20 quarter look back period.
•Assessment of several qualitative factors which are adjusted to reflect changes in the current environment.
•Loss Emergence Period reserve "LEP" which takes into account that borrowers have the potential to have suffered some form of loss-causing event or circumstance but that the lender may be unaware of the event.

During the fourth quarter of fiscal 2020, we changed the impact rating of the economic factors (related to unemployment and inflation rate) and collateral factors from moderate to high across all loan categories. Additionally, the factors related to problem loans (including delinquency and credit quality) in the commercial real estate category were increased from moderate to high. These changes were made as a response to the ongoing and expected stressed economic environment resulting from the COVID-19 pandemic. During fiscal year 2021, we increased our qualitative factors due to the ongoing pandemic. In fiscal year 2022, we continue to maintain qualitative reserves at previous levels and lowered our risk from high to medium for improving economic factors, such as unemployment. The increase in the overall qualitative reserves quarter over quarter is related to the increase in our loan portfolio. These increases in reserves were offset by decreases in our quantitative reserve analysis as the rolling 20 quarter historical loss look back period has improved for most of our loan categories.

The ALLL is sensitive to risk ratings assigned to individually evaluated loans and economic assumptions and delinquency trends. Individual loan risk ratings are evaluated based on the specific facts related to that loan. Additions to the ALLL are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the ALLL, while recoveries of previously charged off amounts are credited to the ALLL.

    The following is a summary of loans receivable at December 31, 2021 and March 31, 2021:
December 31, 2021
March 31, 2021
$ in thousands Amount Percent Amount Percent
Gross loans receivable:        
One-to-four family $ 71,356  13.0  % $ 76,313  15.9  %
Multifamily 152,743  27.8  % 103,584  21.6  %
Commercial real estate 165,050  30.0  % 150,114  31.2  %
Business (1)
159,214  28.9  % 148,020  30.8  %
Consumer (2)
1,718  0.3  % 2,439  0.5  %
Total loans receivable $ 550,081  100.0  % $ 480,470  100.0  %
Unamortized premiums, deferred costs and fees, net 2,796  3,079 
Allowance for loan losses (5,488) (5,140)
Total loans receivable, net $ 547,389  $ 478,409 
(1) Includes PPP loans and business overdrafts
(2) Includes personal loans and consumer overdrafts

The Bank is participating as a lender in the PPP, which opened on April 3, 2020. As part of the CARES Act, the SBA is authorized to temporarily guarantee loans under this new 7(a) loan 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. Since the PPP loans are fully guaranteed by the SBA, there are no additional ALLL reserves required. As of December 31, 2021, the Bank had approved and funded approximately 420 applications totaling $57.1 million of loans under the PPP. PPP loans outstanding totaled $19.5 million as of December 31, 2021. The Bank has begun to receive debt forgiveness payments on PPP loans closed during the first round of the program.
14


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. As of December 31, 2021, the Bank had received 71 applications for payment deferrals on approximately $72.6 million of loans. This total included 53 commercial loans totaling $66.8 million and 18 residential loans totaling $5.8 million. As of December 31, 2021, there were 6 residential loans remaining on deferment with outstanding principal balances totaling $7.8 million. The Bank has been working with the borrowers to determine if there is a risk of any losses associated with repayment and if any additional reserves would have to be allocated to this portfolio.

    The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three and nine month periods ended December 31, 2021 and 2020, and the fiscal year ended March 31, 2021.

Three months ended December 31, 2021
$ in thousands One-to-four
family 		Multifamily Commercial Real Estate Business Consumer Unallocated Total
Allowance for loan losses:
Beginning Balance 1,015  914  1,002  2,106  137  341  $ 5,515 
Charge-offs —  —  —  —  (123) (129) (252)
Recoveries —  —  —  32  1  —  33 
Provision for (recovery of) Loan Losses (94) 188  93  (30) 116  (81) 192 
Ending Balance $ 921  $ 1,102  $ 1,095  $ 2,108  $ 131  $ 131  $ 5,488 

Nine months ended December 31, 2021
$ in thousands One-to-four
family 		Multifamily Commercial Real Estate Business Consumer Unallocated Total
Allowance for loan losses:          
Beginning Balance $ 1,058  $ 880  $ 907  $ 1,855  $ 165  $ 275  $ 5,140 
Charge-offs —  —  —  —  (222) (1) (223)
Recoveries —  —  —  82  21  —  103 
Provision for (recovery of) Loan Losses (137) 222  188  171  167  (143) 468 
Ending Balance $ 921  $ 1,102  $ 1,095  $ 2,108  $ 131  $ 131  $ 5,488 
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment $ 892  $ 1,102  $ 1,095  $ 2,025  $ 131  $ 131  $ 5,376 
Allowance for Loan Losses Ending Balance: individually evaluated for impairment 29  —  —  83  —  —  112 
Loan Receivables Ending Balance: $ 72,375  $ 154,230  $ 166,050  $ 158,487  $ 1,735  $ —  $ 552,877 
Ending Balance: collectively evaluated for impairment 67,165  153,714  165,865  151,153  1,735  —  539,632 
Ending Balance: individually evaluated for impairment 5,210  516  185  7,334  —  —  13,245 
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At March 31, 2021
$ in thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment $ 1,026  $ 880  $ 907  $ 1,729  $ 165  $ 275  $ 4,982 
Allowance for Loan Losses Ending Balance: individually evaluated for impairment 32  —  —  126  —  —  158 
Loan Receivables Ending Balance: $ 78,213  $ 106,400  $ 148,809  $ 147,680  $ 2,447  $ —  $ 483,549 
Ending Balance: collectively evaluated for impairment 74,387  106,031  147,891  139,925  2,447  —  470,681 
Ending Balance: individually evaluated for impairment 3,826  369  918  7,755  —  —  12,868 

Three months ended December 31, 2020
$ in thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total
Allowance for loan losses:
Beginning Balance $ 953  $ 960  $ 969  $ 1,636  $ 189  $ 209  $ 4,916 
Charge-offs —  —  —  (5) (52) —  (57)
Recoveries 1  —  —  273  1  —  275 
Provision for (recovery of) Loan Losses (90) 67  (3) (66) 52  44  4 
Ending Balance $ 864  $ 1,027  $ 966  $ 1,838  $ 190  $ 253  $ 5,138 

Nine months ended December 31, 2020
$ in thousands One-to-four family Multifamily Commercial Real Estate Business Consumer Unallocated Total
Allowance for loan losses:
Beginning Balance $ 1,055  $ 1,011  $ 812  $ 1,567  $ 212  $ 289  $ 4,946 
Charge-offs —  —  —  (24) (52) —  (76)
Recoveries 88  —  —  275  4  —  367 
Provision for (recovery of) Loan Losses (279) 16  154  20  26  (36) (99)
Ending Balance $ 864  $ 1,027  $ 966  $ 1,838  $ 190  $ 253  $ 5,138 

The following is a summary of nonaccrual loans at December 31, 2021 and March 31, 2021.
$ in thousands
December 31, 2021
March 31, 2021
Gross loans receivable:  
One-to-four family $ 4,919  $ 3,524 
Multifamily 516  369 
Commercial real estate 185  918 
Business 2,091  2,290 
Consumer 57  90 
Total nonaccrual loans $ 7,768  $ 7,191 

    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. Troubled debt restructured ("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 December 31, 2021 and March 31, 2021, other non-performing assets totaled $60 thousand, respectively, which consisted of other real estate owned comprised of one foreclosed residential property. Other real estate loans is included in
16

other assets in the consolidated statements of financial condition. There were no held-for-sale loans at December 31, 2021 and March 31, 2021.

    Although we believe that substantially all risk elements at December 31, 2021 have been disclosed, it is possible that for a variety of reasons, including economic conditions, certain borrowers may be unable to comply with the contractual repayment terms on certain real estate and commercial loans.

    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 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.

    At December 31, 2021, 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 $ 148,139  $ 156,636  $ 142,693 
Special Mention —  8,206  5,949 
Substandard 6,091  1,208  9,845 
Total $ 154,230  $ 166,050  $ 158,487 
One-to-four family Consumer
Credit Risk Profile Based on Payment Activity:
Performing $ 67,457  $ 1,678 
Non-Performing 4,918  57 
Total $ 72,375  $ 1,735 

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    At March 31, 2021, 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 $ 101,212  $ 142,168  $ 137,447 
Special Mention —  5,531  1,585 
Substandard 5,188  1,110  8,648 
Total $ 106,400  $ 148,809  $ 147,680 
One-to-four family Consumer
Credit Risk Profile Based on Payment Activity:
Performing $ 74,689  $ 2,356 
Non-Performing 3,524  91 
Total $ 78,213  $ 2,447 

    The following table presents an aging analysis of the recorded investment of past due loans receivables at December 31, 2021 and March 31, 2021.
.
December 31, 2021
$ in thousands 30-59 Days
Past Due 		60-89 Days
Past Due 		90 or More Days Past Due Total Past
Due 		Current Total Loans
Receivables
One-to-four family $ 467  $ —  $ 4,572  $ 5,039  $ 67,336  $ 72,375 
Multifamily 3,410  —  516  3,926  150,304  154,230 
Commercial real estate 1,729  1,608  —  3,337  162,713  166,050 
Business 1,697  —  5,332  7,029  151,458  158,487 
Consumer 50  22  57  129  1,606  1,735 
Total $ 7,353  $ 1,630  $ 10,477  $ 19,460  $ 533,417  $ 552,877 
March 31, 2021
$ in thousands 30-59 Days
Past Due 		60-89 Days
Past Due 		90 or More Days Past Due Total Past
Due 		Current Total Loans Receivables
One-to-four family $ 1,188  $ —  $ 2,950  $ 4,138  $ 74,075  $ 78,213 
Multifamily 798  —  —  798  105,602  106,400 
Commercial real estate 5,263  —  —  5,263  143,546  148,809 
Business 671  400  271  1,342  146,338  147,680 
Consumer 2  33  91  126  2,321  2,447 
Total $ 7,922  $ 433  $ 3,312  $ 11,667  $ 471,882  $ 483,549 

    The following table presents information on impaired loans with the associated allowance amount, if applicable, at December 31, 2021 and March 31, 2021.
At December 31, 2021
At March 31, 2021
$ 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 $ 5,137  $ 5,796  $ —  $ 3,750  $ 4,409  $ — 
Multifamily 516  516  —  369  369  — 
Commercial real estate 185  185  —  918  918  — 
Business 2,091  2,091  —  2,332  2,527  — 
With an allowance recorded:
One-to-four family 73  73  29  76  72  32 
Business 5,243  5,243  83  5,423  5,423  126 
Total $ 13,245  $ 13,904  $ 112  $ 12,868  $ 13,718  $ 158 

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    The following tables presents information on average balances of impaired loans and the interest income recognized on a cash basis for the three and nine month periods ended December 31, 2021 and 2020.
For the Three Months Ended December 31,
For the Nine Months Ended December 31,
2021
2020
2021
2020
$ in thousands Average Balance Interest Income Recognized Average Balance Interest Income Recognized Average Balance Interest Income Recognized Average Balance Interest Income Recognized
With no specific allowance recorded:
One-to-four family $ 4,429  $ 13  $ 3,790  $ 10  $ 4,443  $ 19  $ 3,767  $ 50 
Multifamily 699  9  373  4  442  9  371  13 
Commercial real estate 188  7  580  —  551  7  1,160  — 
Business 2,125  24  2,634  26  2,212  24  2,445  86 
With an allowance recorded:
One-to-four family 73  —  442  —  74  1  77  — 
Business 5,293  —  3,057  —  5,333  149  3,007  — 
Total $ 12,807  $ 53  $ 10,876  $ 40  $ 13,055  $ 209  $ 10,827  $ 149 

    In certain circumstances, the Bank will modify a loan as part of a TDR under GAAP. 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 three and nine months ended December 31, 2021. There was one loan modification made during the three and nine months ended December 31, 2020. Total TDR loans at December 31, 2021 were $7.3 million, $1.7 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, 2021, total TDR loans were $7.5 million, of which $1.8 million were non-performing. The following table presents an analysis of the loan modification that was classified as a TDR during the three and nine month periods ended December 31, 2020.

Loan Modifications during the three month period ended Loan Modifications during the nine month period ended
December 31, 2020 December 31, 2020
$ in thousands Number of loans Pre-Modification Recorded investment Post-Modification Recorded investment Pre-Modification rate Post-Modification rate Number of loans Pre-Modification Recorded investment Post-Modification Recorded investment Pre-Modification rate Post-Modification rate
Business 1  4,949  4,949  6.68  5.50  1  4,949  4,949  6.68  5.50 

    In an effort to proactively resolve delinquent loans, the Bank has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the periods ended December 31, 2021 and 2020, there were no modified loans that defaulted within 12 months of modification.

    At December 31, 2021, there were 4 loans in the TDR portfolio totaling $5.5 million that were on accrual status as the Company has determined that future collection of the principal and interest is reasonably assured. These have generally performed according to restructured terms for a period of at least six months. At March 31, 2021, there were 5 loans in the TDR portfolio totaling $5.8 million that were on accrual status.

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 $30 thousand at December 31, 2021 and $60 thousand at March 31, 2021. During the nine months ended December 31, 2021, principal repayments totaled $30 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 8. 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 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 December 31, 2021 and March 31, 2021, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:
Fair Value Measurements at December 31, 2021, 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 $ —  $ —  $ 132  $ 132 
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association —  512  —  512 
Federal Home Loan Mortgage Corporation —  23,945  —  23,945 
Federal National Mortgage Association —  12,860  —  12,860 
U.S. Government Agency securities —  15,071  —  15,071 
Corporate bonds —  5,182  —  5,182 
Muni securities —  17,287  —  17,287 
Asset-backed securities —  411  —  411 
Total available-for-sale securities —  75,268  —  75,268 
Total assets $ —  $ 75,268  $ 132  $ 75,400 

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Fair Value Measurements at March 31, 2021, 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 $ —  $ —  $ 147  $ 147 
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association —  1,026  —  1,026 
Federal Home Loan Mortgage Corporation —  27,785  —  27,785 
Federal National Mortgage Association —  14,610  —  14,610 
U.S. Government Agency securities —  18,631  —  18,631 
Corporate bonds —  4,481  —  4,481 
Muni securities —  16,610  —  16,610 
Asset-backed securities —  3,364  —  3,364 
Total available-for-sale securities —  86,507  —  86,507 
Total assets $ —  $ 86,507  $ 147  $ 86,654 

    Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights (“MSR”). Level 3 assets accounted for 0.02% of the Company’s total assets at December 31, 2021 and March 31, 2021.

    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.

    In the nine month period ended December 31, 2021, there were no transfers of investments into or out of each level of the fair value hierarchy.

    In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. In valuing certain securities, the determination of fair value may require benchmarking to similar instruments or analyzing default and recovery rates. Quoted price information for the MSRs is not available. Therefore, MSRs are valued using market-standard models to model the specific cash flow structure. Key inputs to the model consist of principal balance of loans being serviced, servicing fees and discount and prepayment rates.

    The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

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    The following table includes a rollforward of assets classified by the Company within Level 3 of the valuation hierarchy for the nine months ended December 31, 2021 and 2020:
$ in thousands Beginning balance,
April 1, 2021
Total Realized/Unrealized Gains/(Losses) Recorded in Income (1)
Issuances / (Settlements) Transfers to/(from) Level 3
Ending balance,
December 31, 2021
Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2021
Mortgage servicing rights 147  (15) —  —  132  (14)
$ in thousands Beginning balance,
April 1, 2020
Total Realized/Unrealized Gains/(Losses) Recorded in Income (1)
Issuances / (Settlements) Transfers to/(from) Level 3
Ending balance,
December 31, 2020
Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2020
Mortgage servicing rights 145 (3) — — 142  (2)
(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 December 31, 2021 and March 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:
$ in thousands
Fair Value
December 31, 2021
Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Mortgage servicing rights 132  Discounted Cash Flow
Weighted Average Constant Prepayment Rate (1)
13.28  %
Option Adjusted Spread ("OAS") applied to Treasury curve 1000 basis points
$ in thousands
Fair Value
March 31, 2021
Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Mortgage servicing rights 147  Discounted Cash Flow
Weighted Average Constant Prepayment Rate (1)
13.33  %
Option Adjusted Spread ("OAS" applied to Treasury curve 1200 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 December 31, 2021 and March 31, 2021, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:
Fair Value Measurements at December 31, 2021 Using
Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value
$ in thousands (Level 1) (Level 2) (Level 3)
Impaired loans $ —  $ —  $ 5,203  $ 5,203 
Other real estate owned —  —  60  $ 60 
Fair Value Measurements at March 31, 2021, Using
Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs Total Fair Value
$ in thousands (Level 1) (Level 2) (Level 3)
Impaired loans $ —  $ —  $ 5,341  $ 5,341 
Other real estate owned —  —  60  $ 60 

22

    For Level 3 assets measured at fair value on a non-recurring basis as of December 31, 2021 and March 31, 2021, the significant unobservable inputs used in the fair value measurements were as follows:
$ in thousands
Fair Value
December 31, 2021
Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Impaired loans $ 5,203  Appraisal of collateral Appraisal adjustments 7.5% cost to sell
Other real estate owned 60  Appraisal of collateral Appraisal adjustments 7.5% cost to sell
$ in thousands
Fair Value March 31, 2021
Valuation Technique Significant Unobservable Inputs Significant Unobservable Input Value
Impaired loans $ 5,341  Appraisal of collateral Appraisal adjustments 7.5% cost to sell
Other real estate owned 60  Appraisal of collateral Appraisal adjustments 7.5% cost to sell

    The fair values of collateral dependent impaired loans are determined using various valuation techniques, including consideration of appraised values and other pertinent real estate market data.

    Other real estate owned represents property acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure).  These assets are recorded at the lower of their cost or fair value. At the time of acquisition of the real estate owned, the real property value is adjusted to its current fair value. Any subsequent adjustments will be to the lower of cost or fair value.

NOTE 9. 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 December 31, 2021 and March 31, 2021 are as follows:
December 31, 2021
$ 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 $ 65,729  $ 65,729  $ 65,729  $ —  $ — 
Securities available-for-sale 75,268  75,268  —  75,268  — 
Securities held-to-maturity 5,407  5,592  —  5,592  — 
Loans receivable 547,389  557,329  —  —  557,329 
Accrued interest receivable 2,688  2,688  —  2,688  — 
Mortgage servicing rights 132  132  —  —  132 
Financial Liabilities:
Deposits $ 622,106  $ 620,462  $ 462,897  $ 157,565  $ — 
Other borrowed money 16,298  15,685  —  15,685  — 
Accrued interest payable 44  44  —  44  — 

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March 31, 2021
$ 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 $ 75,591  $ 75,591  $ 75,591  $ —  $ — 
Securities available-for-sale 86,507  86,507  —  86,507  — 
Securities held-to-maturity 7,807  8,140  —  8,140  — 
Loans receivable 478,409  487,806  —  —  487,806 
Accrued interest receivable 2,640  2,640  —  2,640  — 
Mortgage servicing rights 147  147  —  —  147 
Financial Liabilities:
Deposits $ 556,559  $ 557,049  $ 402,843  $ 154,206  $ — 
Other borrowed money 37,108  37,150  —  37,150  — 
Accrued interest payable 3,212  3,212  —  3,212  — 

NOTE 10. 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 upon receipt.

Other non-interest income

    Other non-interest income includes correspondent banking fees, and income associated with an advertising services agreement covering marketing and use of the Bank's office space with a third party. The revenue is recognized 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.

24

    The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended December 31, 2021 and 2020:
Three Months Ended December 31,
Nine Months Ended December 31,
$ in thousands
2021
2020
2021
2020
Non-interest income
In-scope of Topic 606
Depository fees and charges $ 432  $ 692  $ 1,628  $ 2,041 
Loan fees and service charges 52  27  190  167 
Other non-interest income 976  18  2,487  722 
Non-interest income (in-scope of Topic 606) 1,460  737  4,305  2,930 
Non-interest income (out-of-scope of Topic 606) 371  162  2,331  1,625 
Total non-interest income $ 1,831  $ 899  $ 6,636  $ 4,555 

    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 periods presented:
Three Months Ended December 31,
Nine Months Ended December 31,
$ in thousands
2021
2020
2021
2020
Other non-interest income:
Compliance fee $ —  $ 78  $ —  $ 78 
Correspondent banking fees 965  7  2,454  687 
Other 177  57  267  153 
Total non-interest income $ 1,142  $ 142  $ 2,721  $ 918 
Other non-interest expense:
Advertising $ 133  $ 119  $ 412  $ 189 
Legal expense 285  93  612  355 
Insurance and surety 253  232  631  565 
Audit expense 425  138  674  413 
Data lines / internet 94  109  307  318 
Retail expenses 115  216  602  607 
Loss contingency (770) —  1,203  — 
Director's fees 131  85  273  255 
Other 704  467  2,030  1,555 
Total non-interest expense $ 1,370  $ 1,459  $ 6,744  $ 4,257 

NOTE 11. 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 December 31, 2021, operating ROU lease assets and related lease liabilities totaled $14.2 million and $15.0 million, respectively.

25

    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 December 31, 2021, the Company had $68 thousand and $61 thousand of ROU asset and lease liability, respectively, for finance leases related to equipment. The ROU asset is included in Premises and Equipment, net, and the lease liability is included in Advances from the FHLB-NY and Other Borrowed Money on the statements of financial condition.

    The following tables present information about the Company's leases and the related lease costs as of and for the three and nine months ended December 31, 2021:
December 31, 2021
Weighted-average remaining lease term
Operating leases 6.3 years
Finance lease 1.8 years
Weighted-average discount rate
Operating leases 2.95  %
Finance lease 1.77  %
Three Months Ended
December 31,
Nine Months Ended
December 31,
$ in thousands
2021
2020
2021
2020
Operating lease expense $ 717  $ 714  $ 2,155  $ 2,141 
Finance lease cost
Amortization of right-of use asset 18  17  53  56 
Interest on lease liability 1  1  1  2 
Cash paid for amounts included in the measurement of lease liabilities
Operating leases 689  682  2,069  2,047 
Finance lease 19  23  55  54 

    Maturities of lease liabilities at December 31, 2021 are as follows:
$ in thousands Operating Leases Finance Leases
Year ending March 31,
2022 $ 691  $ 18 
2023 2,619  30 
2024 2,674  11 
2025 2,458  3 
2026 2,449  — 
Thereafter 5,616  — 
Total lease payments 16,507  62 
Interest (1,531) (1)
Lease liability $ 14,976  $ 61 

NOTE 12. IMPACT OF RECENT ACCOUNTING STANDARDS

Accounting Standards Recently Adopted

On April 1, 2020, the Company adopted ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which improved the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required
26

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 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, 2021, the Company adopted ASU No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which was 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 simplified the accounting for income taxes and improved consistent application of GAAP by removing certain exceptions and clarifying and amending existing guidance for areas of Topic 740. The adoption of the standard did not have a material impact on the Company's financial statements.

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 March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. 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.




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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

    This Quarterly Report on Form 10-Q 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 the Company's 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 restrictive orders and the imposition of restrictions on businesses and travel, 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, and the effect of the pandemic on the general economy and the business of our borrowers;

•the ability of the 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 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;

•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 values);

•the market price and trading volume of our shares of common stock has been and may continue to be volatile, and purchasers of our securities could incur substantial losses;

•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;

•changes to state rent control laws, which may impact the credit quality of multifamily housing loans;
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•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 Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, 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.

Overview

    Carver Bancorp, Inc. is the holding company for Carver Federal Savings 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 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 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'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 $722.8 million in assets and 97 employees as of December 31, 2021.

    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,
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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 in its market.

    The Bank's unconsolidated variable interest entities ("VIEs"), in which the Company holds significant variable interests or has continuing involvement through servicing a majority of assets in a VIE at December 31, 2021, are presented below.
 Involvement with SPE (000's) Funded Exposure Unfunded Exposure Total
$ in thousands  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  $ 13,018  $ 400  $ —  $ —  $ 13,418 
(1) Carver Statutory Trust I debt investment includes deferred interest of $18 thousand.


COVID-19 has impacted businesses in New York more severely than in the rest of the nation, according to a report from the Office of the New York State Comptroller. Since the U.S. Census Bureau began collecting and reporting data through the Small Business Pulse Survey, New York’s small businesses have consistently reported experiencing a negative effect from the pandemic at rates that exceed the national average. Despite the fact that one in five New York small businesses reported a return to normal operations in October 2021, the negative impacts on small businesses with less than 500 employees persist.

Small businesses account for the overwhelming majority of firms in most industry sectors in New York. They also employ the majority of workers in industry sectors such as accommodation and food services; wholesale trade; real estate; construction; professional, scientific and technical services; and arts, entertainment and recreation.

While New York State went through a phased reopening upon expiration of an earlier executive order to shelter in place, maintain social distancing and close all non-essential businesses statewide, there remains a significant amount of uncertainty as certain geographic areas continue to experience surges in COVID-19 cases and governments at all levels continue to react to changes in circumstances. The impact of new restrictive measures and mandates taken or issued by governments, businesses and individuals have caused uncertainty in the financial markets. The prolonged pandemic, or any other epidemic of this sort that ultimately harms the global economy, the U.S. economy or the markets in which we operate could adversely affect Carver's operations. The long-term effects of COVID-19 on the Company's business cannot be ascertained as there remains significant uncertainty regarding the breadth and duration of business disruptions related to the
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virus. In addition, new information may emerge regarding the severity of COVID-19 or the effectiveness of the vaccines developed, causing federal, state and local governments to take additional actions to contain COVID-19 or to treat the impact. Even after formal restrictions have been lifted, changes in the behavior of customers, businesses and their employees - including social distancing - as a result of the pandemic, are unknown. 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 continuing to make 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. 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.

As part of the CARES Act, the SBA is authorized to temporarily guarantee loans under a new 7(a) loan program called the 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 participated as a lender in the first round of the PPP, originating approximately 203 loans totaling $34.7 million.

In January 2021, the SBA reopened the PPP and began accepting applications again from participating lenders. The Bank approved and funded approximately 217 loans totaling $22.4 million in the second round of the PPP program.

Critical Accounting Policies

    Note 2 to the Company’s audited Consolidated Financial Statements for the year ended March 31, 2021 included in its Form 10-K for the year ended March 31, 2021, as supplemented by this report, contains a summary of significant accounting policies. The Company believes its policies, with respect to the methodologies used to determine the allowance for loan and lease losses, securities impairment, and assessment of the recoverability of the deferred tax asset involve a high degree of complexity and require management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could cause reported results to differ materially. The following description of these policies should be read in conjunction with the corresponding section of the Company’s Form 10-K for the year ended March 31, 2021.

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 evaluation of the risk to potential loss 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 pools of loans (“Loan Type”) are:

•One-to-four family
•Multifamily
•Commercial Real Estate
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•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).

Specific Reserve Allowance

    The Bank 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.

    All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual evaluation for impairment in accordance with ASC Subtopic 310-10. 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.  Loans determined to be
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impaired are evaluated to determine the amount of impairment based on one of the three measurement methods noted above.  In accordance with guidance, if there is no impairment amount, no reserve is established for the loan.

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

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 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 (less estimated costs of disposal) 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.

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
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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 December 31, 2021.

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 capital, 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 the net deferred tax asset of $23.8 million has been recorded as of December 31, 2021. The valuation allowance was initially recorded during fiscal year 2011, and has remained through December 31, 2021, 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 AMT credit was $143 thousand as of March 31, 2020, all of which was requested to be refunded to the Company upon filing of the fiscal year 2020 federal tax return.

Stock Repurchase Program

    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 December 31, 2021, 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). As a result of the Company's participation in the TARP CDCI, the Treasury Department's prior approval was required to make further repurchases. On October 28, 2011, the Treasury Department converted its preferred stock into common stock, which it continued to hold. On August 6, 2020, the Company repurchased all 2,321,286 shares of its common stock held by the Treasury Department for an aggregate purchase price of $2.5 million. The purchase price was funded by a third party grant. As of August 6, 2020, the Company is no longer bound by the TARP CDCI restrictions as the U.S. Treasury is no longer a common stockholder of the Company.

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 $20.8
34

million, or 55.9%, to $16.4 million at December 31, 2021, compared to $37.2 million at March 31, 2021 as the Bank paid down $23.3 million of its PPP liquidity facility ("PPPLF") at the Federal Reserve. At December 31, 2021, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow from the FHLB-NY an additional $35.0 million on a secured basis, utilizing mortgage-related loans and securities as collateral. The Company also had $13.4 million in subordinated debt securities and added $2.5 million in low interest loans during the nine months ended December 31, 2021.

    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 December 31, 2021 and March 31, 2021, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $65.7 million and $75.6 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 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 of 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 the nine months ended December 31, 2021, total cash and cash equivalents decreased $9.9 million to $65.7 million at December 31, 2021, compared to $75.6 million at March 31, 2021, reflecting cash used in investing activities of $55.1 million and cash used in operating activities of $4.4 million, partially offset by cash provided by financing activities of $49.7 million. Net cash used in investing activities of $55.1 million was attributable to loan originations and purchases, net of principal repayments and payoffs, offset by investment paydowns. Net cash used in operating activities included a payment of approximately $3.2 million to settle the deferred interest on the Company's subordinated debt associated with its trust preferred securities during the first quarter. Net cash provided by financing activities of $49.7 million resulted from net increases in deposits of $65.5 million, partially offset by a decrease of $20.8 million in FHLB-NY advances and other borrowings. The net increase in deposits was primarily due to PPP loan funds deposited by the program borrowers into their accounts at the Bank and new deposit account relationships established as the Bank continues to expand its digital online account openings into nine states across the Northeast. The $20.8 million decrease in other borrowings was attributable to $23.3 million paydowns on the Bank's PPP liquidity facility at the Federal Reserve, offset by $2.5 million in unsecured low interest loans provided by third parties to finance eligible loans offered through the Bank's community investment initiatives loan program. In addition, cash provided by financing activities included $4.0 million capital raised from the issuance of preferred stock during the second quarter.

On December 14, 2021, the Company entered into a Sales Agreement with Piper Sandler & Co. pursuant to which the Company may offer and sell shares of our common stock, par value $0.01 per share, having an aggregate gross sales prices of up to $20.0 million (the “ATM Shares”) from time to time through an “at-the-market” offering program “ATM Offering”). For the three months ended December 31, 2021, the Company completed the sale of 100,401 shares of common stock at an average price of $9.84 under the ATM offering program. The transactions resulted in net proceeds to the Company of $1.0 million after deducting commissions and expenses. As of February 14, 2022, the ATM Offering has a remaining availability of approximately $19.0 million.

    Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. In common with all U.S. banks, Carver Federal’s capital adequacy is measured in accordance with the Basel III regulatory framework governing capital adequacy, stress testing, and market liquidity risk. 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%. Regardless of Basel III’s minimum requirements, Carver Federal, as a result of the 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 Tier1 leverage ratio and 12% for its total risk-based capital ratio.

    In accordance with the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria,
35

including a leverage ratio of greater than 9%, will be eligible to opt into a “Community Bank Leverage Ratio” framework.  Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the “well capitalized” ratio requirements under the Prompt Corrective Action statutes.  The CARES Act and implementing rules temporarily reduced the Community Bank Leverage Ratio to 8%, to be gradually increased back to 9% by 2022. The CARES Act also provides that, during the same time period, if a qualifying community banking organization falls no more than 1% below the community bank leverage ratio, it will have a two quarter grace period to satisfy the community bank leverage ratio. The agencies reserved the authority to disallow the use of the Community Bank Leverage Ratio by a financial institution or holding company based on the risk profile of the organization.

    The table below presents the capital position of the Bank at December 31, 2021:
December 31, 2021
($ in thousands) Amount Ratio
Tier 1 leverage capital
Regulatory capital $ 73,396  10.32  %
Individual minimum capital requirement 64,026  9.00  %
Minimum capital requirement 28,456  4.00  %
Excess over individual minimum capital requirement 9,370  1.32  %
Common equity Tier 1
Regulatory capital $ 73,396  13.75  %
Minimum capital requirement 37,361  7.00  %
Excess 36,035  6.75  %
Tier 1 risk-based capital
Regulatory capital $ 73,396  13.75  %
Minimum capital requirement 45,367  8.50  %
Excess 28,029  5.25  %
Total risk-based capital
Regulatory capital $ 79,070  14.81  %
Individual minimum capital requirement 64,047  12.00  %
Minimum capital requirement 56,041  10.50  %
Excess over individual minimum capital requirement 15,023  2.81  %

Bank Regulatory Matters

    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 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.

    At December 31, 2021, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage capital ratio of 10.32%, Common Equity Tier 1 capital ratio of 13.75%, Tier 1 risk-based capital ratio of 13.75%, and a total risk-based capital ratio of 14.81%.

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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 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. The Bank has not received a request to repurchase any of these loans since the second quarter of fiscal 2015, and there have not been any additional requests from FNMA for loans to be reviewed. At December 31, 2021, the Bank continues to service 92 loans with a principal balance of $14.7 million for FNMA that had been sold with standard representations and warranties.

The following table presents information on open requests from FNMA. The amounts presented are based on outstanding loan principal balances.
$ in thousands Loans sold to FNMA
Open claims as of March 31, 2021 (1)
$ 1,687 
Gross new demands received — 
Loans repurchased/made whole — 
Demands rescinded — 
Advances on open claims — 
Principal payments received on open claims (314)
Open claims as of December 31, 2021 (1)
$ 1,373 
(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.

    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 table below summarizes changes in our representation and warranty reserves during the nine months ended December 31, 2021:
$ in thousands
December 31, 2021
Representation and warranty repurchase reserve, March 31, 2021 (1)
$ 181 
Net adjustment to reserve for repurchase losses (2)
(19)
Representation and warranty repurchase reserve, December 31, 2021 (1)
$ 162 
(1) Reported in our consolidated statements of financial condition as a component of other liabilities.
(2) Component of other non-interest expense.
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Comparison of Financial Condition at December 31, 2021 and March 31, 2021

Assets

    At December 31, 2021, total assets were $722.8 million, reflecting an increase of $46.1 million, or 6.8%, from total assets of $676.7 million at March 31, 2021. The increase was primarily attributable to an increase of $69.0 million in the Bank's net loan portfolio, partially offset by decreases of $13.6 million in the investment portfolio and $9.9 million in cash and cash equivalents.

    Total cash and cash equivalents decreased $9.9 million, or 13.1%, from $75.6 million at March 31, 2021 to $65.7 million at December 31, 2021. The decrease in cash was primarily due to the funding of net loan activity and repayment of advances on the PPPLF. In addition, the Company made a payment of approximately $3.2 million to settle deferred interest on the subordinated debt associated with its trust preferred securities during the first quarter of the current fiscal year. These cash outflows were partially offset by an increase in total deposits of $65.5 million and paydowns received on investment securities.

    Total investment securities decreased $13.6 million, or 14.4%, to $80.7 million at December 31, 2021, compared to $94.3 million at March 31, 2021 due to scheduled principal payments received, and early payoffs of a $1.7 million mortgage-backed security in the held-to-maturity portfolio during the first quarter and a $2.5 million asset-backed security in the available-for-sale portfolio during the second quarter.

    Gross portfolio loans increased $69.4 million, or 14.4%, to $552.9 million at December 31, 2021, compared to $483.5 million at March 31, 2021 primarily due to loan pool purchases of $44.4 million and new loan originations of $115.0 million, of which $14.9 million were part of the SBA's PPP. The new volume was partially offset by attrition and payoffs of $84.4 million and loans participated of $6.1 million.

Liabilities and Equity

    Total liabilities increased $40.7 million, or 6.5%, to $665.1 million at December 31, 2021, compared to $624.4 million at March 31, 2021, primarily due to increases in total deposits partially offset by decreases in other borrowings related to the PPP.

    Deposits increased $65.5 million, or 11.8%, to $622.1 million at December 31, 2021, compared to $556.6 million at March 31, 2021, due primarily to PPP loan funds deposited by the program borrowers into their accounts at the Bank and new deposit account relationships established as the Bank continued to expand its digital online account openings into nine states across the Northeast.

    Advances from the FHLB-NY and other borrowed money decreased $20.8 million to $16.4 million at December 31, 2021, compared to $37.2 million at March 31, 2021. The Bank paid down $23.3 million of its PPPLF at the Federal Reserve as it continued to receive forgiveness payments on the PPP loan portfolio. The Company borrowed $2.5 million in unsecured loans from third parties to finance eligible loans offered through the Bank's community investment initiatives loan program.

    Total equity increased $5.4 million, or 10.3%, to $57.7 million at December 31, 2021, compared to $52.3 million at March 31, 2021. The increase was primarily due to the $4.0 million raised in net proceeds from the issuance of preferred stock during the second quarter. The Company also raised approximately $1.0 million in net proceeds through the sale of common stock under the ATM offering during the third quarter of fiscal year 2022. In addition, a decrease of $1.3 million in unrealized losses on securities available-for-sale was partially offset by a net loss of $1.0 million for the nine month period ended December 31, 2021.

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.

    The economic environment is uncertain regarding future interest rate trends.  Management monitors the Company's cumulative gap position, which is the difference between the sensitivity to rate changes on the Company's interest-earning
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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.

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 following table reflects the Bank's outstanding commitments as of December 31, 2021:
$ in thousands
Commitments to fund mortgage loans $ 21,780 
Lines of credit 3,235 
Commitment to fund private equity investment 253 
Total $ 25,268 


Comparison of Operating Results for the Three and Nine Months Ended December 31, 2021 and 2020

Overview

    The Company reported net income of $0.7 million for the three months ended December 31, 2021, compared to a net loss of $1.3 million for the comparable prior year quarter. The change in our results was primarily driven by increases in net interest income and non-interest income and a decrease in non-interest expense. These were partially offset by an increase in the provision for loan losses compared to the prior year quarter. For the nine months ended December 31, 2021, the Company reported a net loss of $1.0 million, compared to a net loss of $2.9 million for the prior year period. The change in our results was primarily driven by increases in net interest income and non-interest income, partially offset by an increase in non-interest expense and a provision for loan loss compared to a recovery of loan loss in the prior year period.

    The following table reflects selected operating ratios for the three and nine months ended December 31, 2021 and 2020 (unaudited):
Three Months Ended December 31,
Nine Months Ended
December 31,
Selected Financial Data:
2021
2020
2021
2020
Return on average assets (1)
0.39  % (0.78) % (0.19) % (0.59) %
Return on average stockholders' equity (2)
4.86  % (11.21) % (2.40) % (8.23) %
Return on average stockholders' equity, excluding AOCI (2) (8)
4.72  % (11.15) % (2.34) % (8.26) %
Net interest margin (3)
2.95  % 2.56  % 2.96  % 2.45  %
Interest rate spread (4)
2.82  % 2.37  % 2.82  % 2.24  %
Efficiency ratio (5)
87.14  % 125.92  % 102.36  % 118.80  %
Operating expenses to average assets (6)
3.38  % 3.76  % 4.22  % 3.88  %
Average stockholders' equity to average assets (7)
8.05  % 6.93  % 7.78  % 7.22  %
Average stockholders' equity, excluding AOCI, to average assets (7) (8)
8.28  % 6.97  % 8.01  % 7.20  %
Average interest-earning assets to average interest-bearing liabilities 1.40 x 1.28 x 1.37 x 1.28 x
(1)Net income (loss), annualized, divided by average total assets.
(2)Net income (loss), annualized, divided by average total stockholders' equity.
(3)Net interest income, annualized, 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, annualized, divided by average total assets.
(7)Total average stockholders' equity divided by total average assets for the period.
(8)See Non-GAAP Financial Measures disclosure 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.

    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.
Three Months Ended December 31,
Nine Months Ended
December 31,
$ in thousands
2021
2020
2021
2020
Average Stockholders' Equity
Average Stockholders' Equity $ 57,305  $ 46,762  $ 54,131  $ 47,485 
Average AOCI (1,638) (232) (1,562) 171 
Average Stockholders' Equity, excluding AOCI $ 58,943  $ 46,994  $ 55,693  $ 47,314 
Return on Average Stockholders' Equity 4.86  % (11.21) % (2.40) % (8.23) %
Return on Average Stockholders' Equity, excluding AOCI 4.72  % (11.15) % (2.34) % (8.26) %
Average Stockholders' Equity to Average Assets 8.05  % 6.93  % 7.78  % 7.22  %
Average Stockholders' Equity, excluding AOCI, to Average Assets 8.28  % 6.97  % 8.01  % 7.20  %

Analysis of Net Interest Income

    The Company’s profitability is primarily dependent upon net interest income and is also affected by the provision for loan losses, non-interest income, non-interest expense and income taxes. Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned and paid. The Company’s net interest income is significantly impacted by changes in interest rate and market yield curves. Net interest income increased $1.0 million, or 24.4%, to $5.1 million for the three months ended December 31, 2021, compared to $4.1 million for the same quarter last year. Net interest income increased $3.3 million, or 28.4%, to $14.9 million for the nine months ended December 31, 2021, compared to $11.6 million for the prior year period.

    The following table sets forth certain information relating to the Company’s average interest-earning assets and average interest-bearing liabilities, and their related average yields and costs for the three and nine months ended December 31, 2021 and 2020. Average yields are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods shown. Average balances are derived from daily or month-end balances as available and applicable. Management does not believe that the use of average monthly balances instead of average daily balances represents a material difference in information presented. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yield includes fees, which are considered adjustment to yield.

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For the Three Months Ended December 31,
2021
2020
$ in thousands Average
Balance 		Interest Average
Yield/Cost 		Average
Balance 		Interest Average
Yield/Cost
Interest-Earning Assets:
Loans (1)
$ 527,924  $ 5,379  4.08  % $ 462,562  $ 4,749  4.11  %
Mortgage-backed securities 44,067  150  1.36  % 55,048  192  1.40  %
Investment securities(2)
41,644  109  1.05  % 57,290  277  1.93  %
Money market investments 73,868  27  0.15  % 72,414  21  0.12  %
Total interest-earning assets 687,503  5,665  3.30  % 647,314  5,239  3.24  %
Non-interest-earning assets 24,556  27,230 
Total assets $ 712,059  $ 674,544 
Interest-Bearing Liabilities:
Deposits
Interest-bearing checking $ 52,646  $ 7  0.05  % $ 27,940  $ 8  0.11  %
Savings and clubs 111,647  31  0.11  % 111,268  67  0.24  %
Money market 151,372  94  0.25  % 131,284  152  0.46  %
Certificates of deposit 156,379  342  0.87  % 190,902  709  1.47  %
Mortgagors deposits 3,259  2  0.24  % 2,240  2  0.35  %
Total deposits 475,303  476  0.40  % 463,634  938  0.80  %
Borrowed money 16,902  117  2.75  % 41,822  162  1.54  %
Total interest-bearing liabilities 492,205  593  0.48  % 505,456  1,100  0.86  %
Non-interest-bearing liabilities
Demand deposits 136,165  92,085 
Other liabilities 26,384  30,241 
Total liabilities 654,754  627,782 
Stockholders' equity 57,305  46,762 
Total liabilities and equity $ 712,059  $ 674,544 
Net interest income $ 5,072  $ 4,139 
Average interest rate spread 2.82  % 2.37  %
Net interest margin 2.95  % 2.56  %
(1) Includes nonaccrual loans
(2) Includes FHLB-NY stock
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For the Nine Months Ended December 31,
2021
2020
$ in thousands Average
Balance 		Interest Average
Yield/Cost 		Average
Balance 		Interest Average
Yield/Cost
Interest-Earning Assets:
Loans (1)
$ 503,782  $ 15,541  4.11  % $ 451,938  $ 13,804  4.07  %
Mortgage-backed securities 46,903  552  1.57  % 37,896  509  1.79  %
Investment securities(2)
43,668  543  1.66  % 50,234  716  1.90  %
Money market investments 75,412  76  0.13  % 88,422  70  0.11  %
Total interest-earning assets 669,765  16,712  3.32  % 628,490  15,099  3.20  %
Non-interest-earning assets 25,649  28,996 
Total assets $ 695,414  $ 657,486 
Interest-Bearing Liabilities:
Deposits
Interest-bearing checking $ 50,344  $ 21  0.06  % $ 27,134  $ 24  0.12  %
Savings and clubs 111,865  93  0.11  % 107,041  205  0.25  %
Money market 147,043  270  0.24  % 121,663  428  0.47  %
Certificates of deposit 150,605  1,043  0.92  % 195,461  2,387  1.62  %
Mortgagors deposits 2,834  8  0.37  % 2,333  4  0.23  %
Total deposits 462,691  1,435  0.41  % 453,632  3,048  0.89  %
Borrowed money 25,184  389  2.05  % 37,278  492  1.75  %
Total interest-bearing liabilities 487,875  1,824  0.50  % 490,910  3,540  0.96  %
Non-interest-bearing liabilities
Demand deposits 125,806  89,330 
Other liabilities 27,602  29,761 
Total liabilities 641,283  610,001 
Stockholders' equity 54,131  47,485 
Total liabilities and equity $ 695,414  $ 657,486 
Net interest income $ 14,888  $ 11,559 
Average interest rate spread 2.82  % 2.24  %
Net interest margin 2.96  % 2.45  %
(1) Includes nonaccrual loans
(2) Includes FHLB-NY stock

Interest Income

    Interest income increased $0.5 million, or 9.6%, to $5.7 million for the three months ended December 31, 2021, compared to $5.2 million for the prior year quarter. For the nine months ended December 31, 2021, interest income increased $1.6 million, or 10.6%, to $16.7 million, compared to $15.1 million for the prior year period. Interest income on loans increased $0.7 million and $1.7 million for the three and nine months ended December 31, 2021, respectively, primarily due to an increase in average loan balances for the two comparative periods of $65.4 million, or 14.1%, and $51.9 million, or 11.5%, respectively. The increase in the loan portfolio was driven by a restructured lending team, funded by an increase in total deposits and supported by an increase in the Bank's total risk-based capital for the three and nine months ended December 31, 2021. Interest income on investment securities was lower due to a decrease in average balances and yields compared to the prior year periods.

Interest Expense

    Interest expense decreased $0.5 million, or 45.5%, to $0.6 million for the three months ended December 31, 2021, compared to $1.1 million for the prior year quarter. For the nine months ended December 31, 2021, interest expense decreased $1.7 million, or 48.6%, to $1.8 million, compared to $3.5 million for the prior year period. Interest expense on deposits decreased $0.4 million and $1.6 million for the three and nine months ended December 31, 2021, respectively, primarily due to a decrease in the average balances and rates paid on certificates of deposit. Interest expense on borrowings decreased $0.1
42

million for the three and nine months ended December 31, 2021, despite an increase in average rates, due to a decrease in average borrowings as the Bank paid down advances on its PPPLF at the Federal Reserve.

Provision for Loan Losses and Asset Quality

    The Bank maintains an ALLL that management believes is adequate to absorb inherent and probable losses in its loan portfolio. The adequacy of the ALLL is determined by management’s continuous 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.

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 general valuation allowance applied to those loans not deemed to be impaired is determined using a three step process:

•Trends of historical losses where the net charge-offs on each category are reviewed over a 20 quarter look back period.
•Assessment of several qualitative factors which are adjusted to reflect changes in the current environment.
•Loss Emergence Period reserve "LEP" which takes into account that borrowers have the potential to have suffered some form of loss-causing event or circumstance but that the lender may be unaware of the event.

During the fourth quarter of fiscal 2020, we changed the impact rating of the economic factors (related to unemployment and inflation rate) and collateral factors from moderate to high across all loan categories. Additionally, the factors related to problem loans (including delinquency and credit quality) in the commercial real estate category were increased from moderate to high. These changes were made as a response to the ongoing and expected stressed economic environment resulting from the COVID-19 pandemic. During fiscal year 2021, we increased our qualitative factors due to the ongoing pandemic. In fiscal year 2022, we continue to maintain qualitative reserves at previous levels and lowered our risk from high to medium for improving economic factors, such as unemployment. The increase in the overall qualitative reserves quarter over quarter is related to the increase in our loan portfolio. These increases in reserves were offset by decreases in our quantitative reserve analysis as the rolling 20 quarter historical loss look back period has improved for most of our loan categories. The Bank continues to maintain a $131 thousand unallocated reserve, or 2.4% of ALLL as of December 31, 2021.

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. 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. Loans made under the PPP are fully guaranteed by the SBA; therefore, these loans do not have an associated allowance.

    The Bank’s provision for loan loss methodology is consistent 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. For additional information regarding the Bank’s ALLL policy, refer to Note 2 of the Notes to Consolidated Financial Statements, “Summary of Significant Accounting Policies” included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2021.

The following table summarizes the activity in the ALLL for the nine month periods ended December 31, 2021 and 2020 and the fiscal year ended March 31, 2021:
$ in thousands
Nine Months Ended December 31, 2021
Fiscal Year Ended March 31, 2021
Nine Months Ended December 31, 2020
Beginning Balance 5,140  $ 4,946  $ 4,946 
Less: Charge-offs (223) (78) (76)
Add: Recoveries 103  372  367 
Provision for (recovery of) loan losses 468  (100) (99)
Ending Balance $ 5,488  $ 5,140  $ 5,138 
Ratios:    
Net (charge-offs) recoveries to average loans outstanding (annualized) (0.03) % 0.06  % 0.09  %
Allowance to total loans 0.99  % 1.06  % 1.10  %
Allowance to non-performing loans 70.65  % 71.48  % 68.72  %

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    The Company recorded a $192 thousand provision for loan loss for the three months ended December 31, 2021, compared to a $4 thousand provision for loan loss for the prior year quarter. Net charge-offs of $219 thousand were recognized during the third quarter, compared to net recoveries of $218 thousand for the prior year quarter. For the nine months ended December 31, 2021, the Company recorded a $468 thousand provision for loan loss, compared to a $99 thousand recovery of loan loss for the prior year period. Net charge-offs of $120 thousand were recognized for the nine months ended December 31, 2021, compared to net recoveries of $291 thousand in the prior year period.

At December 31, 2021, nonaccrual loans totaled $7.8 million, or 1.1% of total assets, compared to $7.2 million, or 1.1% of total assets at March 31, 2021. The ALLL was $5.5 million at December 31, 2021, which represents a ratio of the ALLL to nonaccrual loans of 70.6% compared to a ratio of 71.5% at March 31, 2021. The ratio of the allowance for loan losses to total loans was 0.99% at December 31, 2021, compared to 1.06% at March 31, 2021.

The Bank has received requests to modify loan terms to defer principal and/or interest payments from borrowers who are experiencing financial challenges due to the effects of COVID-19. The Bank has accommodated borrowers with short-term deferments for up to 3 or 4 months as requested or needed. Outside of borrowers with short-term deferments, the delinquency and non-performing assets have increased due to various reasons such as prolonged vacancy or inadequate cash flow that for some may have existed prior to COVID-19. 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. As of December 31, 2021, the Bank had received a total of 71 applications for payment deferrals on approximately $72.6 million of loans. This total included 53 commercial loans totaling $66.8 million and 18 residential loans totaling $5.8 million. As of December 31, 2021, there were 6 loans remaining on deferment with outstanding principal balances totaling $7.8 million. The Bank has been working with the borrowers to determine if there is a risk of any losses associated with repayment and if any additional reserves would have to be allocated to this portfolio.

Non-performing Assets

    Non-performing assets consist of nonaccrual loans, loans held-for-sale and property acquired in settlement of loans, which is known as other real estate owned (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 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 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 December 31, 2021, loans classified as TDR totaled $7.3 million, of which $5.5 million were classified as performing. At March 31, 2021, loans classified as TDR totaled $7.5 million, of which $5.8 million were classified as performing.

    At December 31, 2021, non-performing assets totaled $7.8 million, or 1.1% of total assets compared to $7.2 million, or 1.1% of total assets at March 31, 2021.
44


The following table sets forth information with respect to the Bank’s non-performing assets at the dates indicated:
Non Performing Assets
$ in thousands December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020
Loans accounted for on a nonaccrual basis (1):
Gross loans receivable:
One-to-four family $ 4,919  $ 3,500  $ 3,511  $ 3,524  $ 3,532 
Multifamily 516  882  885  369  372 
Commercial real estate 185  192  192  918  1,160 
Business 2,091  2,148  2,211  2,290  2,413 
Consumer 57  —  —  90  — 
Total nonaccrual loans 7,768  6,722  6,799  7,191  7,477 
Other non-performing assets (2):
Real estate owned 60  60  60  60  60 
Total non-performing assets (3)
$ 7,828  $ 6,782  $ 6,859  $ 7,251  $ 7,537 
Non-performing loans to total loans 1.41  % 1.29  % 1.39  % 1.49  % 1.60  %
Non-performing assets to total assets 1.08  % 0.96  % 1.00  % 1.07  % 1.10  %
Allowance to total loans 0.99  % 1.06  % 1.07  % 1.06  % 1.10  %
Allowance to non-performing loans 70.65  % 82.04  % 76.69  % 71.48  % 68.72  %
(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. At December 31, 2021, there were $5.5 million TDR loans that have performed in accordance with their modified terms for a period of at least six months. These loans are generally considered performing loans and are not presented in the table above.

Subprime Loans

    In the past, the Bank 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 December 31, 2021, the Bank had $3.6 million in subprime loans, or 0.7% of its total loan portfolio, of which $1.0 million are non-performing loans.

Non-Interest Income

    Non-interest income increased $0.9 million to $1.8 million for the three months ended December 31, 2021, compared to $0.9 million for the prior year quarter. For the nine months ended December 31, 2021, non-interest income increased $2.0 million, or 43.5%, to $6.6 million, compared to $4.6 million for the prior year period. Other non-interest income for the current three month and nine months ended December 31, 2021 included $0.2 million and $1.8 million grant income recognized from the Bank's awards through the CDFI Fund's Bank Enterprise Award and Rapid Response Program, respectively. In addition, correspondent banking fees were $1.0 million and $1.8 million higher for the three and nine months ended December 31, 2021 compared to the prior year periods, respectively. The prior year period included $0.9 million gains recognized from the sales of securities as management restructured the Bank's investment portfolio to improve the overall yield.

Non-Interest Expense

    Non-interest expense decreased $0.3 million, or 4.8%, to $6.0 million for the three months ended December 31, 2021, compared to $6.3 million for the prior year quarter. Data processing costs were lower compared to the prior year periods as the Company was able to utilize flex credits received from conversion costs associated with the Bank's upgrade to a new core banking system. For the nine months ended December 31, 2021, non-interest expense increased $2.9 million, or 15.2%, to $22.0 million, compared to $19.1 million for the prior year period. Other non-interest expense for the current nine month period included a $2.1 million loss contingency accrual, and additional audit and legal fees related to a wire fraud matter that
45

occurred during the first quarter of fiscal year 2022. The Bank has recovered approximately $896 thousand related to the wire fraud matter and issued a check to the depositor during the third quarter to return the funds recovered.

Item 3.Quantitative and Qualitative Disclosure about Market Risk

    Not applicable, as the Company is a smaller reporting company.

Item 4.Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

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 December 31, 2021, 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(e) and 15d-15(e) under the Exchange Act, as amended. 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 December 31, 2021.


(b) 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 quarter to which this report relates, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
46

PART II. OTHER INFORMATION

Item 1.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 December 31, 2021, 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 1A.Risk Factors

    In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A - Risk Factors" in our most recent Annual Report on Form 10-K, which could materially affect the Company's business, financial condition, or future operating results. The risks described in this form are not the only risks presently facing the Company. Additional risks and uncertainties not currently known to the Company, or currently deemed to be immaterial, also may materially adversely affect the Company's business, financial condition, and/or operating results.

Stockholders may experience dilution as a result of our current ATM Offering or future equity offerings.

In order to raise capital for general corporate purposes, we have offered, and may in the future offer, additional shares of our common stock or other securities convertible into or exchangeable for our common stock at a price per share that may be lower than the current price. In December 2021, the Company announced the launch of the ATM Offering. The Company may sell up to $20.0 million of common stock under the ATM Offering. For the three months ended December 31, 2021, the Company completed the sale of 100,401 shares of common stock at an average price of $9.84 under the ATM offering program. As of February 14, 2022, the ATM Offering has a remaining availability of approximately $19.0 million. If we sell additional shares of our common stock in the ATM Offering or another future offering, the Company stockholders will experience dilution in their ownership interest in the Company.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

    Not applicable.

Item 3.Defaults Upon Senior Securities

    None.

Item 4.Mine Safety Disclosures

    Not applicable.

Item 5.Other Information

    None.











47

Item 6.Exhibits

    The following exhibits are submitted with this report:
3.1
Certificate of Incorporation of Carver Bancorp, Inc. (1)
3.2
3.3
4.1
Stock Certificate of Carver Bancorp, Inc. (1)
4.2
4.3
4.4
4.5
4.6
10.1
31.1
31.2
32.1
32.2
101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, formatted in XBRL (Extensive Business Reporting Language): (i) Consolidated Statements of Financial Condition as of December 31, 2021 (unaudited) and March 31, 2021; (ii) Consolidated Statements of Operations for the three and nine months ended December 31, 2021 and 2020 (unaudited); (iii) Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended December 31, 2021 and 2020 (unaudited); (iv) Consolidated Statements of Changes in Equity for the three and nine months ended December 31, 2021 and 2020 (unaudited); (v) Consolidated Statements of Cash Flows for the nine months ended December 31, 2021 and 2020 (unaudited); and (vi) Notes to Consolidated Financial Statements.
104 The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, formatted in Inline XBRL.
(1)
Incorporated herein by reference from the Exhibits to the Form S-4, Registration Statement and amendments thereto, initially filed on June 7, 1996, Registration No. 333-5559.
(2)
Incorporated herein by reference from the Exhibits to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 1, 2011.
(3)
Incorporated herein by reference from the Exhibits to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2006.
(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 July 6, 2011.
(5)
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.
(6)
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 February 1, 2021.
(7)
Incorporated herein by reference to Exhibit 3.2 to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission filed on February 1, 2021.
(8)
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 September 30, 2021.
(9)
Incorporated herein by reference to Exhibit 10.1 to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission filed on December 14, 2021.

48

SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  CARVER BANCORP, INC.
 
Date: February 14, 2022 /s/ Michael T. Pugh
  Michael T. Pugh
  President and Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2022 /s/ Christina L. Maier
  Christina L. Maier
  First Senior Vice President and Chief Financial Officer
(Principal Accounting Officer and Principal Financial Officer)

49
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