CARVER BANCORP INC - Quarter Report: 2023 September (Form 10-Q)

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 September 30, 2023


☐						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

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

☐

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☒

Smaller Reporting Company

☐

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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 November 10, 2023
Common Stock, par value $0.01						4,918,347

TABLE OF CONTENTS


		Page
PART I.	FINANCIAL INFORMATION (UNAUDITED)

Item 1.	Financial Statements

	Consolidated Statements of Financial Condition as of September 30, 2023 and March 31, 2023	1

	Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2023 and 2022	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended September 30, 2023 and 2022	3

	Consolidated Statement of Changes in Equity for the Three and Six Months Ended September 30, 2023 and 2022	4

	Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2023 and 2022	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	48

SIGNATURES		49

PART I. FINANCIAL INFORMATION

CARVER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)


$ in thousands except per share data	September 30, 2023		March 31, 2023
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	51,935	$	42,298
Money market investments	254		254
Total cash and cash equivalents	52,189		42,552

Investment securities:
Available-for-sale, at fair value	47,644		53,843
Held-to-maturity, at amortized cost (fair value of $2,005 and $2,221 at September 30, 2023 and March 31, 2023, respectively)	2,162		2,318

Total investment securities	49,806		56,161



Loans receivable:
Real estate mortgage loans	435,723		423,349
Commercial business loans	162,460		166,908
Consumer loans	12,919		7,639
Loans, gross	611,102		597,896
Allowance for credit losses	(6,007)		(5,229)
Total loans receivable, net	605,095		592,667
Premises and equipment, net	2,810		3,174
Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost	2,004		2,266
Accrued interest receivable	2,078		1,911
Right-of-use assets	11,087		12,311
Other assets	17,711		12,182
Total assets	$	742,780	$	723,224

LIABILITIES AND EQUITY
LIABILITIES
Deposits:
Non-interest bearing checking	$	112,644	$	109,401
Interest-bearing deposits:
Interest-bearing checking	52,239		49,473
Savings	109,361		109,210
Money market	163,588		150,348
Certificates of Deposit	189,949		178,694
Escrow	2,672		3,303
Total interest-bearing deposits	517,809		491,028
Total deposits	630,453		600,429
Advances from the FHLB-NY and other borrowed money	46,566		51,090
Operating lease liability	11,911		13,173
Other liabilities	14,181		13,308
Total liabilities	703,111		678,000

EQUITY
Preferred stock, (par value $0.01 per share: 11,001 and 13,201 Series D shares, with a liquidation preference of $1,000 per share, issued and outstanding at September 30, 2023 and March 31, 2023, respectively)	11,001		13,201
Preferred stock (par value $0.01 per share: 3,177 Series E shares, with a liquidation preference of $1,000 per share, issued and outstanding at September 30, 2023 and March 31, 2023)	3,177		3,177
Preferred stock (par value $0.01 per share: 9,000 Series F shares, with a liquidation preference of $1,000 per share, issued and outstanding at September 30, 2023 and March 31, 2023)	9,000		9,000
Common stock (par value 0.01 per share: 10,000,000 shares authorized; 7,468,074 and 6,799,410 shares issued; 4,964,271 and 4,295,607 shares outstanding at September 30, 2023 and March 31, 2023, respectively)	75		68
Additional paid-in capital	86,217		82,805
Accumulated deficit	(51,579)		(47,904)
Treasury stock, at cost (2,503,803 shares at September 30, 2023 and March 31, 2023)	(2,908)		(2,908)
Accumulated other comprehensive loss	(15,314)		(12,215)
Total equity	39,669		45,224
Total liabilities and equity	$	742,780	$	723,224

See accompanying notes to consolidated financial statements

CARVER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
$ in thousands, except per share data	2023		2022		2023		2022
Interest income:
Loans	$	7,056	$	6,005	$	13,867	$	11,982
Mortgage-backed securities	145		156		294		315
Investment securities	245		201		546		366
Money market investments	564		363		1,097		435
Total interest income	8,010		6,725		15,804		13,098

Interest expense:
Deposits	2,011		827		3,725		1,238
Advances and other borrowed money	600		395		1,178		543
Total interest expense	2,611		1,222		4,903		1,781

Net interest income	5,399		5,503		10,901		11,317
Provision for (recovery of) credit losses	168		(189)		174		(216)
Net interest income after provision for (recovery of) credit losses	5,231		5,692		10,727		11,533

Non-interest income:
Depository fees and charges	558		553		1,135		1,108
Loan fees and service charges	192		138		256		257



Grant income	582		162		602		162


Other	131		246		225		281
Total non-interest income	1,463		1,099		2,218		1,808

Non-interest expense:
Employee compensation and benefits	3,324		3,302		6,645		6,486
Net occupancy expense	1,176		1,175		2,281		2,259
Equipment, net	587		526		1,064		1,040
Data processing	757		648		1,508		1,264
Consulting fees	137		164		237		314
Federal deposit insurance premiums	155		89		283		190

Other	2,144		1,842		3,934		3,600
Total non-interest expense	8,280		7,746		15,952		15,153

Loss before income taxes	(1,586)		(955)		(3,007)		(1,812)
Income tax expense	—		—		—		—
Net loss	$	(1,586)	$	(955)	$	(3,007)	$	(1,812)

Loss per common share:
Basic	$	(0.33)	$	(0.22)	$	(0.65)	$	(0.43)
Diluted	(0.33)		(0.22)		(0.65)		(0.43)

See accompanying notes to consolidated financial statements

CARVER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended September 30,				Six Months Ended September 30,
$ in thousands	2023		2022		2023		2022
Net loss	$	(1,586)	$	(955)	$	(3,007)	$	(1,812)
Other comprehensive loss, net of tax:
Change in unrealized loss of securities available-for-sale, net of income tax expense of $0 (due to full valuation allowance)	(2,306)		(3,444)		(3,099)		(7,058)



Total other comprehensive loss, net of tax	(2,306)		(3,444)		(3,099)		(7,058)
Total comprehensive loss, net of tax	$	(3,892)	$	(4,399)	$	(6,106)	$	(8,870)

See accompanying notes to consolidated financial statements

CARVER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the Three and Six Months Ended September 30, 2023 and 2022

(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 September 30, 2023
Balance — June 30, 2023	$	23,728	$	70	$	84,628	$	(49,993)	$	(2,908)	$	(13,008)	$	42,517
Net loss	—		—		—		(1,586)		—		—		(1,586)
Other comprehensive loss, net of taxes	—		—		—		—		—		(2,306)		(2,306)
Conversion of Series D preferred stock to common stock	(550)		1		549		—		—		—		—



Issuance of common stock			4		996								1,000


Stock based compensation expense	—		—		44		—		—		—		44
Balance — September 30, 2023	$	23,178	$	75	$	86,217	$	(51,579)	$	(2,908)	$	(15,314)	$	39,669

Six Months Ended September 30, 2023
Balance — March 31, 2023	$	25,378	$	68	$	82,805	$	(47,904)	$	(2,908)	$	(12,215)	$	45,224
Cumulative effect adjustment for adoption of ASU 2016-13	—		—		—		(668)		—		—		(668)
Net loss	—		—		—		(3,007)		—		—		(3,007)
Other comprehensive loss, net of taxes	—		—		—		—		—		(3,099)		(3,099)
Conversion of Series D preferred stock to common stock	(2,200)		3		2,197		—		—		—		—



Issuance of common stock			4		996								1,000


Stock based compensation expense	—		—		219		—		—		—		219
Balance — September 30, 2023	$	23,178	$	75	$	86,217	$	(51,579)	$	(2,908)	$	(15,314)	$	39,669

Three Months Ended September 30, 2022
Balance — June 30, 2022	$	25,378	$	68	$	82,734	$	(44,360)	$	(2,908)	$	(10,276)	$	50,636
Net income	—		—		—		(955)		—		—		(955)
Other comprehensive loss, net of taxes	—		—		—		—		—		(3,444)		(3,444)










Balance — September 30, 2022	$	25,378	$	68	$	82,734	$	(45,315)	$	(2,908)	$	(13,720)	$	46,237

Six Months Ended September 30, 2022
Balance — March 31, 2022	$	25,928	$	67	$	82,165	$	(43,503)	$	(2,908)	$	(6,662)	$	55,087
Net loss	—		—		—		(1,812)		—		—		(1,812)
Other comprehensive loss, net of taxes	—		—		—		—		—		(7,058)		(7,058)

Conversion of Series D preferred stock to common stock	(550)		1		549		—		—		—		—







Stock based compensation expense	—		—		20		—		—		—		20
Balance — September 30, 2022	$	25,378	$	68	$	82,734	$	(45,315)	$	(2,908)	$	(13,720)	$	46,237

See accompanying notes to consolidated financial statements

CARVER BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended September 30,
$ in thousands	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,007)	$	(1,812)

Adjustments to reconcile net loss to net cash used in operating activities:
Provision for (recovery of) credit losses	174		(216)

Stock based compensation expense	219		20
Depreciation and amortization expense	523		521





Amortization and accretion of loan premiums and discounts and deferred charges, net	126		(88)
Amortization and accretion of premiums and discounts — securities	186		242



(Increase) decrease in accrued interest receivable	(167)		570
Increase in other assets	(5,892)		(105)
Increase (decrease) in other liabilities	823		(8,990)
Net cash used in operating activities	(7,015)		(9,858)
CASH FLOWS FROM INVESTING ACTIVITIES



Proceeds from principal payments, maturities and calls of investments: Available-for-sale	2,917		5,259
Proceeds from principal payments, maturities and calls of investments: Held-to-maturity	153		2,738
Purchase of bank-owned life insurance	—		(5,000)

Loans held-for investment, net of repayments/payoffs and (originations)	13,890		14,069
Loans purchased from third parties	(26,956)		(8,901)



Redemption (purchase) of FHLB-NY stock, net	262		(1,907)
Purchase of premises and equipment	(165)		(123)


Net cash (used in) provided by investing activities	(9,899)		6,135
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits	30,024		(1,747)
Proceeds from short-term borrowings	—		40,000
Repayment of short-term borrowings	(10,000)		—
Proceeds from long-term borrowings	5,527		—
Repayment of long-term borrowings	—		(3)


Issuance of common stock	1,000		—

Net cash provided by financing activities	26,551		38,250
Net increase in cash and cash equivalents	9,637		34,527
Cash and cash equivalents at beginning of period	42,552		61,018
Cash and cash equivalents at end of period	$	52,189	$	95,545

Supplemental cash flow information:
Noncash financing and investing activities




Recognition of right-of-use asset	$	—	$	1,103
Recognition of operating lease liability	—		1,103
Recognition of finance lease asset	—		58
Recognition of finance lease liability	—		58
Conversion of preferred stock to common stock	$	2,200	$	550



Cash paid for:
Interest	$	1,475	$	1,518
Tax on capital	132		112

See accompanying notes to consolidated financial statements

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. On December 16, 2021, the Company paid the deferred interest that was due on September 17, 2021 and the regular quarterly interest payment due on December 17, 2021. All quarterly interest payments subsequent to the June 2021 payment up to and including the September 2023 payment have been made. The interest rate was 8.72% and the total amount of deferred interest was $42 thousand at September 30, 2023.

While Carver has suspended its regular quarterly cash dividend on its common stock, in the future, Carver may rely on dividends from Carver Federal to pay cash dividends to its stockholders and to engage in share repurchase programs. In recent years, Carver has been successful in obtaining cash independently through its capital raising efforts, which may include cash from government grants or below market-rate loans. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and an application with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend that, among other reasons, would result in Carver Federal’s failure to meet the OCC minimum capital requirements.

Regulation

On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions. As a result of the Agreement, the Bank was required to obtain the approval of the OCC prior to effecting any change in its directors or senior executive officers, paying dividends and entering into any "golden parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12 C.F.R. Part 359. As a result of the Agreement, Carver was issued an Individual Minimum Capital Ratio (“IMCR”) letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier1 leverage ratio and 12% for its total risk-based capital ratio. While the Agreement was terminated on January 18, 2023, the IMCR remains in effect.

The Company continues to be subject to similar requirements that the Bank was subject to under the Agreement. The Company must provide notice to the FRB prior to affecting any change in its directors or senior executive officers. The Company is also subject to the restrictions on golden parachute and indemnification payments, as set forth in 12 C.F.R. Part 359. Written approval of the Federal Reserve Bank is required prior to: (1) the declaration or payment of dividends by the Company to its stockholders, (2) the declaration or payment of dividends by the Bank to the Company, (3) any distributions of interest or principal by the Company on subordinated debentures or trust preferred securities, (4) any purchases or redemptions of the Company’s stock and (5) the Company incurring, increasing or guaranteeing certain long-term debt outside the ordinary course of business. These limitations could affect our operations and financial performance.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidated financial statement presentation

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

The Company's subsidiary, Carver Statutory Trust I, is not consolidated with Carver Bancorp, Inc. for financial reporting purposes. Carver Statutory Trust I was formed in 2003 for the purpose of issuing $13 million aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and $0.4 million of common securities (which are the only voting securities of Carver Statutory Trust I), which are 100% owned by Carver Bancorp, Inc., and using the proceeds to acquire Junior Subordinated Debentures issued by Carver Bancorp, Inc. Carver Bancorp, Inc. has fully and unconditionally guaranteed the Capital Securities along with all obligations of Carver Statutory Trust I under the trust agreement relating to the Capital Securities. The Company does not consolidate the accounts and related activity of Carver Statutory Trust I because it is not the primary beneficiary of the entity.

Variable interest entities ("VIEs") are consolidated, as required, when Carver has a controlling financial interest in these entities and is deemed to be the primary beneficiary. Carver is normally deemed to have a controlling financial interest and be the primary beneficiary if it has both (a) the power to direct activities of a VIE that most significantly impact the entity's economic performance; and (b) the obligation to absorb losses of the entity that could benefit from the activities that could potentially be significant to the VIE.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") 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 six month periods ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ended March 31, 2024. The consolidated balance sheet at September 30, 2023 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, 2023. Amounts subject to significant estimates and assumptions are items such as the allowance for credit losses, realization of deferred tax assets, and the fair value of financial instruments. While management uses available information to recognize losses on loans, future additions to the allowance for credit loss or future writedowns of real estate owned may be necessary based on changes in economic conditions in the areas where Carver Federal has extended mortgages

and other credit instruments. Actual results could differ significantly from those assumptions. Current market conditions increase the risk and complexity of the judgments in these estimates.

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

Recent Events

The business climate continues to present significant challenges as banks continue to absorb heightened regulatory costs and compete for limited loan demand. Significant increases in food and energy prices resulted from swift increases in the rate of inflation. Additionally, the Federal Reserve had increased the federal funds rate at each of its meetings since March 2022, and while the rate was held steady at the June 2023 meeting, it was increased another quarter point to the highest level in 22 years at the July 2023 meeting. The Federal Reserve held interest rates steady at the November 2023 meeting, but has indicated that there could potentially be one more hike before the end of the calendar year. For Carver, the economic climate of New York City (“the City”), in particular, impacts our business as the City lags behind the rest of New York State and the nation both in restoring pandemic job losses and in rebounding to pre-pandemic levels of unemployment. The City's unemployment rate remains high at 5.3%, exceeding the national average, as employment in the arts and entertainment, food and hospitality sectors continue to remain below their pre-pandemic highs.

In March 2023, the FDIC was appointed as receiver for Silicon Valley Bank and Signature Bank after they experienced runs on deposits and other liquidity constraints. At the time, Silicon Valley Bank and Signature Bank were the 16th and 29th largest banks in the United States, respectively, as measured by total assets as of December 31, 2022. Following the failures of Silicon Valley Bank and Signature Bank, on May 1, 2023, First Republic Bank was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. The closures of those banks led to industry-wide concerns related to liquidity, deposit outflows, and unrealized securities losses and eroding confidence in the banking system from the general public. In response to these recent developments, the Company took a number of preemptive actions, which included proactive outreach to clients and steps to maximize its funding sources. As a result, the Company's liquidity position remains adequate. The impact of market volatility from the adverse developments in the banking industry along with continued high inflation and rising interest rates, will depend on future developments, which are highly uncertain and difficult to predict.

The Company is closely monitoring its asset quality, liquidity, and capital positions, as well as the credit risk in its loan portfolio. Management is actively working to minimize the current and future impact of this unusual situation, and is continuing to make adjustments to operations where appropriate or necessary to mitigate risk. However, these factors and events may have negative effects on the business, financial condition, and results of operations of the Company and its customers.

New Accounting Standard Adopted in First Quarter

On April 1, 2023, the Company adopted ASU No. 2016-13, "Financial Instruments - Credit Loss (Topic 326)" and its subsequent amendments, which replaces the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. The Company applied the new guidance with a cumulative-effect adjustment to retained earnings as of April 1, 2023, using the modified-retrospective approach. Results for reporting periods beginning after April 1, 2023 are presented under CECL. Prior period amounts have not been restated and are reported in accordance with the incurred loss method. The adoption of ASU 2016-13 resulted in an increase of $0.7 million to the allowance for credit losses related to loans.

Allowance for Credit Losses ("ACL")

The ACL is a valuation account that is deducted from the loan portfolio's amortized cost basis to present the net amount expected to be collected on the loans. Loan losses are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the ACL. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount and a reversion to historical after the reasonable and supportable period. Expected credit losses were estimated using a regression model based on historical data from the Company and peer institutions. Adjustments to modeled loss estimates may be made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level or term, as well as for changes in environmental conditions, such as changes in economic conditions, property values or other relevant factors. The discounted cash flow ("DCF") methodology is used for substantially all pools, applied with a 4-quarter reasonable and supportable forecast period and a 4-quarter reversion period where the ACL reflects the difference between the amortized cost and the present value of the expected cash flows. The expected cash flows are discounted at the effective interest rate and the entire change in present value is reported as credit loss

expense (or reversal of credit loss expense). On a quarterly basis, management considers probability of default utilizing economic forecasts including civilian unemployment rates and CPI index, and loss given default assumptions using Frye-Jacobs estimations. For periods beyond the forecast period, the loss rate reverts back to the long-term historical loss average with a 4-quarter straight-line reversion period for all pools. There were no changes in the assumptions used from the April 1, 2023 adoption date and for the quarter ended September 30, 2023.

The Company has elected to exclude accrued interest from the amortized cost basis in determining credit losses. Accrued interest receivable on loans is included in a separate line item on the Consolidated Statements of Financial Condition. Accrual of interest on loans is discontinued when the payment of principal or interest is considered to be in doubt, or when a loan becomes contractually past due by 90 days or more with respect to principal or interest, except for loans that are well-secured and in the process of collection. When a loan is placed on nonaccrual status, any accrued but uncollected interest is reversed from current income. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan.

Expected credit losses are measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogeneous segments, or pools, for allowance calculation. The Company's loan portfolio segments as of March 31, 2023 and September 30, 2023 were as follows:

•One-to-four Family - Carver Federal purchases first mortgage loans secured by one-to-four family properties that serve as the primary residence of the owner and non-qualified mortgages for one-to-four family residential loans. The loans are underwritten in accordance with applicable secondary market underwriting guidelines and requirements for sale. These loans present a moderate level of risk due primarily to general economic conditions.

•Multifamily - Carver Federal originates and purchases recourse and non-recourse multifamily loans. Multifamily property lending entails additional risks compared to one-to-four family lending. These loans are dependent on the successful operation of such buildings and can be significantly impacted by economic conditions, industry concentration, valuation of the underlying properties, lease terms, occupancy/vacancy rates, and changes in market demand for multifamily units. The Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the owner/guarantor.

•Commercial Real Estate ("CRE") - CRE lending consists predominantly of originating loans for the purpose of purchasing or refinancing office, mixed-use properties, retail and church buildings in the Bank's market area. Mixed-use loans are secured by properties that are intended for both commercial and residential use, but predominantly commercial, and are classified as CRE. The Bank primarily considers the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower, the marketability of the property and the Bank's lending experience with the owner/guarantor. The Bank also requires the assignment of rents of all tenants' leases in the mortgaged property and personal guarantees may be obtained for additional security from these borrowers. CRE loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral.

•Construction - Carver Federal historically originated or participated in construction loans for new construction and renovation of multifamily buildings, residential developments, community service facilities, churches, and affordable housing programs. The loans provide for disbursement in stages as construction is completed. Borrowers must satisfy all credit requirements that apply to the Bank’s permanent mortgage loan financing for the mortgaged property. The Bank has additional criteria for construction loans, including an engineer’s plan and periodic cost reviews on all construction budgets for loans. Construction loans present an increased level of risk from the effect of general economic conditions and uncertainties surrounding construction costs.

•Business - Carver Federal originates and purchases business and SBA loans primarily to businesses located in its primary market area and surrounding areas. Business loans are typically personally guaranteed by the owners and may also be secured by additional collateral, including real estate, equipment and inventory. Business loans are subject to increased risk from the effect of general economic conditions. SBA loans are guaranteed by the U.S. government based on the percentage of each individual program.

strategic partnerships with Bankers Healthcare Group, LLC and Upstart Holdings, Inc. Consumer loans are typically unsecured and more susceptible to declining economic conditions.

Because expected loss predictions may not adequately project the level of losses inherent in a portfolio, the Bank reviews a number of qualitative factors on a quarterly basis to determine if reserves should be adjusted based upon any of those factors. As the risk ratings worsen, some of the qualitative factors tend to increase. A number of qualitative factors are considered including economic forecast uncertainty, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, impact of rising rates, external factors and other considerations. Although the quantitative calculation includes a measurement of statistical economic conditions based on national averages, an additional analysis is performed at the qualitative level that applies specifically to the Company's geographic area and the banking industry that includes reasonable and supportable forecasts.

Reserve for Off-Balance Sheet Credit Exposure

In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit. Such financial instruments are recorded in the consolidated statements of condition when they are funded. The Company estimates a reserve for expected credit losses on loan commitments over the contractual period in which it is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The Bank does not record any reserve for unconditionally cancellable unfunded lending commitment since the exposure may be canceled to prevent future credit loss. Reserves for unfunded lending commitments that are not unconditionally cancellable are included in Other Liabilities in the consolidated statements of financial condition. Management will consider the likelihood that funding will occur and use the discount rate based on the associated pooled loan analysis loss rate to calculate the estimated expected credit losses. The ACL on off-balance sheet credit exposures was $8 thousand as of September 30, 2023.

Allowance for Credit Losses - Securities

The Company conducts periodic reviews to identify and evaluate each investment that has an unrealized holding loss. For available-for-sale ("AFS") securities in an unrealized loss position, management determines whether the Company has the intent to sell the security, or will more likely than not be required to sell the security before the recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the ACL is written off and the amortized cost adjusted for that amount. If any incremental credit loss occurs, the amortized cost is adjusted further by the credit loss and recorded in earnings. For AFS securities that do not meet the above criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management may consider various factors including downgrades in the rating of the security by rating agencies, failure of the issuer to make scheduled interest or principal payments or adverse conditions specifically related to the security. If the decline in fair value is due to credit loss, the credit loss is recorded through ACL, limited by the amount that the fair value is less than the amortized cost basis. The Bank's held-to-maturity portfolio consists of mortgage-backed securities issued by U.S. government agencies, which have an explicit government guarantee. As a result, no ACL has been recorded related to held-to-maturity securities.

NOTE 3. LOSS PER COMMON SHARE

The following table reconciles the loss available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted loss per share for the following periods:


	Three Months Ended September 30,				Six Months Ended September 30,
$ in thousands except per share data	2023		2022		2023		2022
Net loss	$	(1,586)	$	(955)	$	(3,007)	$	(1,812)



Weighted average common shares outstanding - basic	4,816,046		4,291,672		4,656,414		4,260,178

Weighted average common shares outstanding – diluted	4,816,046		4,291,672		4,656,414		4,260,178

Basic loss per common share	$	(0.33)	$	(0.22)	$	(0.65)	$	(0.43)
Diluted loss per common share	(0.33)		(0.22)		(0.65)		(0.43)

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 and six months ended September 30, 2023 and 2022, 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. 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 ("Prudential"), 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. During fiscal years 2022 and 2023, Prudential donated a total of 3,850 and 550 shares, respectively, 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 470,855 and 67,265 shares, respectively, of Common Stock. During the six months ended September 30, 2023, Prudential donated a total of 2,200 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 269,060 shares of Common Stock. The conversions 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.

On December 14, 2021, the Company entered into a Sales Agreement (the "Sales Agreement") with Piper Sandler & Co. (“Piper Sandler”), as sales agent, pursuant to which the Company may offer and sell shares of its common stock, par value $0.01 per share, having an aggregate gross sales 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 intends to use the net proceeds of these offerings for general corporate purposes, including support for organic loan growth and repayment of all or a portion of the outstanding principal amount of our outstanding subordinated debt securities. During fiscal year 2022, the Company sold an aggregate of 397,367 shares of common stock under the ATM offering program, resulting in gross proceeds of $3.1 million and net proceeds to the Company of $3.0 million after deducting commissions and expenses. There were no additional offerings in fiscal year 2023 or during the six months ended September 30, 2023.

On July 19, 2023, the Company entered into an agreement with National Community Investment Fund, under which it sold 378,788 shares of its common stock, par value $0.01 per share, at a purchase price of $2.64 per share in a private placement for gross proceeds of approximately $1.0 million. The Company intends to use the net proceeds of the private placement for general corporate purposes. The issuance of the shares is exempt from registration pursuant to under Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D of the rules and regulations promulgated thereunder.

NOTE 5. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables set forth changes in each component of accumulated other comprehensive loss, net of tax for the six months ended September 30, 2023 and 2022:


$ in thousands	At March 31, 2023		Other Comprehensive Loss, net of tax		At September 30, 2023
Net unrealized loss on securities available-for-sale	$	(12,215)	$	(3,099)	$	(15,314)


$ in thousands	At March 31, 2022		Other Comprehensive Loss, net of tax		At September 30, 2022
Net unrealized loss on securities available-for-sale	$	(6,662)	$	(7,058)	$	(13,720)

There were no reclassifications out of accumulated other comprehensive loss to the consolidated statement of operations for the six months ended September 30, 2023 and 2022.

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. Debt securities are classified into three categories: trading, held-to-maturity, and

available-for-sale. At September 30, 2023, securities with fair value of $47.6 million, or 95.7%, of the Bank’s total securities were classified as available-for-sale, and securities with amortized cost of $2.2 million, or 4.3%, were classified as held-to-maturity, compared to $53.8 million and $2.3 million at March 31, 2023, respectively. The Bank had no securities classified as trading at September 30, 2023 and March 31, 2023.

Other investments as of September 30, 2023 primarily consists of the Bank's investment in a limited partnership Community Capital Fund and a $5.2 million bank-owned life insurance policy ("BOLI") that was purchased during the first quarter of fiscal year 2023 as a channel to add to the Company's non-interest income revenue by means of an investment considered safe and sound by the Company's regulators. The investment in the limited partnership is measured using the equity method. The BOLI is carried at the cash surrender value of the underlying policies. Income generated from the investment and the increase in the cash surrender value of the BOLI is included in other non-interest income on the Statements of Operations. Other investments totaled $6.2 million at September 30, 2023 and are included in Other Assets on the Statements of Financial Condition.

The following tables set forth the amortized cost and fair value of securities available-for-sale and held-to-maturity at September 30, 2023 and March 31, 2023:


	At September 30, 2023
	Amortized		Gross Unrealized
$ in thousands	Cost		Gains		Losses		Fair Value
Available-for-Sale:
Mortgage-backed Securities:
Government National Mortgage Association	$	300	$	—	$	3	$	297
Federal Home Loan Mortgage Corporation	20,920		—		5,248		15,672
Federal National Mortgage Association	11,276		—		2,770		8,506
Total mortgage-backed securities	32,496		—		8,021		24,475
U.S. Government Agency Securities	7,488		—		25		7,463

Corporate Bonds	5,267		—		2,523		2,744
Muni Securities	17,707		—		4,745		12,962

Total available-for-sale	$	62,958	$	—	$	15,314	$	47,644

Held-to-Maturity:
Mortgage-backed Securities:
Government National Mortgage Association	$	326	$	—	$	18	$	308
Federal National Mortgage Association and Other	1,836		—		139		1,697


Total held-to maturity	$	2,162	$	—	$	157	$	2,005


	At March 31, 2023
	Amortized		Gross Unrealized
$ in thousands	Cost		Gains		Losses		Fair Value
Available-for-Sale:
Mortgage-backed Securities:
Government National Mortgage Association	$	341	$	1	$	1	$	341
Federal Home Loan Mortgage Corporation	21,651		—		4,051		17,600
Federal National Mortgage Association	11,714		—		2,212		9,502

Total mortgage-backed securities	33,706		1		6,264		27,443
U.S. Government Agency Securities	9,364		—		38		9,326
Corporate Bonds	5,269		—		2,177		3,092
Muni Securities	17,719		—		3,737		13,982


Total available-for-sale	$	66,058	$	1	$	12,216	$	53,843

Held-to-Maturity:
Mortgage-backed Securities:
Government National Mortgage Association	$	366	$	—	$	3	$	363
Federal National Mortgage Association and Other	1,952		—		94		1,858


Total held-to-maturity	$	2,318	$	—	$	97	$	2,221

There were no sales of available-for-sale or held-to-maturity securities for the six months ended September 30, 2023 and September 30, 2022.

The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at September 30, 2023 and March 31, 2023 for less than 12 months and 12 months or longer:


	At September 30, 2023
	Less than 12 months				12 months or longer				Total
$ in thousands	Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value
Available-for-Sale:
Mortgage-backed securities	$	1	$	258	$	8,020	$	24,217	$	8,021	$	24,475
U.S. Government Agency securities	—		—		25		7,462		25		7,462

Corporate bonds	—		—		2,523		2,744		2,523		2,744

Muni securities	—		—		4,745		12,962		4,745		12,962

Total available-for-sale securities	$	1	$	258	$	15,313	$	47,385	$	15,314	$	47,643
Held-to-Maturity:
Mortgage-backed securities	$	—	$	—	$	157	$	1,971	$	157	$	1,971

Total held-to-maturity securities	$	—	$	—	$	157	$	1,971	$	157	$	1,971


	At March 31, 2023
	Less than 12 months				12 months or longer				Total
$ in thousands	Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value
Available-for-Sale:
Mortgage-backed securities	$	—	$	—	$	6,264	$	27,146	$	6,264	$	27,146
U.S. Government Agency securities	13		4,075		25		5,251		38		9,326
Corporate bonds	—		—		2,177		3,092		2,177		3,092
Muni securities	—		—		3,737		13,982		3,737		13,982


Total available-for-sale securities	$	13	$	4,075	$	12,203	$	49,471	$	12,216	$	53,546
Held-to-Maturity:
Mortgage-backed securities	$	3	$	363	$	94	$	1,822	$	97	$	2,185

Total held-to-maturity securities	$	3	$	363	$	94	$	1,822	$	97	$	2,185

Management reviews the investment portfolio on a quarterly basis to identify and evaluate each investment that has an unrealized holding loss. A total of 25 securities had an unrealized loss at September 30, 2023 compared to 24 at March 31, 2023. Mortgage-backed securities, U.S. government agency securities, municipal securities and a corporate bond security represented 51.4%, 15.7%, 27.2% and 5.7%, respectively, of total available-for-sale securities in an unrealized loss position at September 30, 2023. There were eight mortgage-backed securities, three U.S. government agency securities, one corporate bond and six municipal securities that had an unrealized loss position for more than 12 months at September 30, 2023. Management has evaluated available-for-sale securities that are in an unrealized loss position and has determined that the declines in fair value are attributable to market volatility, and not credit quality or other factors. Given the high credit quality of the mortgage-backed securities, which are backed by the U.S. government's guarantees, the high credit quality and strong financial performance of the U.S. Government Agency and the results of the individual analyses performed for and continuous surveillance on the municipal securities, as well as the corporate security that is a reputable institution in good financial standing, the risk of credit loss is minimal. Management believes that these unrealized losses are a direct result of the current rate environment and the Company has the ability and intent to hold the securities until maturity or the valuations recover. The Bank's held-to-maturity portfolio consists of mortgage-backed securities issued by U.S. government agencies, which have an explicit government guarantee. As such, no allowance for credit losses on securities available-for-sale or held-to-maturity have been established as of September 30, 2023.

The following is a summary of the amortized cost and fair value of debt securities at September 30, 2023, 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	2,185		2,173		6.05	%
Five through ten years	2,670		2,174		2.67	%
After ten years	25,607		18,822		3.47	%
Mortgage-backed securities	32,496		24,475		1.62	%
Total	$	62,958	$	47,644	2.60	%
Held-to-maturity:



Mortgage-backed securities	$	2,162	$	2,005	2.81	%

NOTE 7. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT 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 ACL reflects management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. Management uses a disciplined process and methodology to calculate the ACL each quarter. To determine the total ACL, management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.

The following is a summary of loans receivable at September 30, 2023 and March 31, 2023:


	September 30, 2023				March 31, 2023
$ in thousands	Amount		Percent		Amount		Percent
Loans receivable:
One-to-four family	$	85,081	13.9	%	$	65,808	11.0	%
Multifamily	179,039		29.3	%	179,117		30.0	%
Commercial real estate	171,112		28.0	%	178,424		29.8	%
Construction	491		0.1	%	—		—	%
Business (1)	162,460		26.6	%	166,908		27.9	%
Consumer (2)	12,919		2.1	%	7,639		1.3	%
Total loans receivable	$	611,102	100.0	%	$	597,896	100.0	%



Allowance for credit losses	(6,007)				(5,229)
Total loans receivable, net	$	605,095			$	592,667

(1) Includes PPP loans and business overdrafts

(2) Includes personal loans and consumer overdrafts

The totals above are shown net of deferred loan fees and costs. Net deferred loan fees totaled $3.0 million and $2.8 million at September 30, 2023 and March 31, 2023, respectively. The Bank purchased $20.0 million one-to-four family loans, $6.7 million consumer loans and $0.3 million business loans during the six months ended September 30, 2023.

The Bank participated as a lender in the PPP, which opened on April 3, 2020. As part of the CARES Act, the SBA was authorized to temporarily guarantee loans under this new 7(a) loan program. Under the PPP, small businesses and other entities and individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria. Since the PPP loans are fully guaranteed by the SBA, there are no additional ACL reserves required. As of September 30, 2023, the Bank had approved and funded approximately 420 applications totaling $57.1 million of loans under the PPP. Business loans included PPP loans outstanding totaling $268 thousand as of September 30, 2023.

The following is an analysis of the allowance for credit losses based upon the method of evaluating loan reserves for the three and six months ended September 30, 2023 under the expected loss methodology.


Three months ended September 30, 2023
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Construction		Business		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	2,063	$	713	$	1,264	$	—	$	1,404	$	414	$	—	$	5,858

Charge-offs	—		—		—		—		—		(22)		—		(22)
Recoveries	—		—		—		—		1		2		—		3
Provision for (recovery of) Credit Losses	201		8		(52)		—		(12)		23		—		168
Ending Balance	$	2,264	$	721	$	1,212	$	—	$	1,393	$	417	$	—	$	6,007


Six months ended September 30, 2023
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Construction		Business		Consumer		Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	716	$	1,109	$	1,814	$	—	$	1,139	$	449	$	2	$	5,229
Impact of CECL adoption	1,220		(392)		(497)		—		505		(166)		(2)		668
Charge-offs	—		—		—		—		—		(117)		—		(117)
Recoveries	—		—		—		—		50		3		—		53
Provision for (recovery of) Credit Losses	328		4		(105)		—		(301)		248		—		174

Ending Balance	$	2,264	$	721	$	1,212	$	—	$	1,393	$	417	$	—	$	6,007

Allowance for Credit Losses Ending Balance: collectively evaluated for impairment	$	2,241	$	721	$	1,212	$	—	$	1,383	$	417	$	—	$	5,974
Allowance for Credit Losses Ending Balance: individually evaluated for impairment	23		—		—		—		10		—		—		33

Loan Receivables Ending Balance:	$	85,081	$	179,039	$	171,112	$	491	$	162,460	$	12,919	$	—	$	611,102
Ending Balance: collectively evaluated for impairment	80,791		176,439		166,590		491		156,307		12,915		—		593,533
Ending Balance: individually evaluated for impairment	4,290		2,600		4,522		—		6,153		4		—		17,569

The following is an analysis of the allowance for loan losses as of the fiscal year ended March 31, 2023 and for the three and six months ended September 30, 2022 based upon the incurred loss impairment model.


At March 31, 2023
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total





Allowance for Loan Losses Ending Balance:	$	716	$	1,109	$	1,814	$	1,139	$	449	$	2	$	5,229
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	607		1,109		1,814		937		449		2		4,918
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	109		—		—		202		—		—		311

Loan Receivables Ending Balance:	$	65,808	$	179,117	$	178,424	$	166,908	$	7,639	$	—	$	597,896
Ending Balance: collectively evaluated for impairment	60,805		179,046		171,234		160,985		7,638		—		579,708
Ending Balance: individually evaluated for impairment	5,003		71		7,190		5,923		1		—		18,188


Three months ended September 30, 2022
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	649	$	1,053	$	1,108	$	2,321	$	113	$	360	$	5,604
Charge-offs	—		—		—		—		(11)		—		(11)
Recoveries	90		—		10		4		1		—		105
Provision for (recovery of) Loan Losses	(35)		2		490		(511)		(21)		(114)		(189)
Ending Balance	$	704	$	1,055	$	1,608	$	1,814	$	82	$	246	$	5,509


Six months ended September 30, 2022
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Business		Consumer		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	731	$	1,114	$	1,157	$	2,497	$	123	$	2	$	5,624
Charge-offs	—		—		—		—		(24)		—		(24)
Recoveries	90		—		10		23		2		—		125
Provision for (recovery of) Loan Losses	(117)		(59)		441		(706)		(19)		244		(216)
Ending Balance	$	704	$	1,055	$	1,608	$	1,814	$	82	$	246	$	5,509

The following is a summary of nonaccrual loans, at amortized cost, at September 30, 2023 and March 31, 2023.


	September 30, 2023						March 31, 2023
$ in thousands	Nonaccrual Loans with No Allowance		Nonaccrual Loans with an Allowance		Total Nonaccrual Loans		Nonaccrual Loans
Gross loans receivable:
One-to-four family	$	3,919	$	23	$	3,942	$	4,001
Multifamily	1,131		—		$	1,131	71
Commercial real estate	4,522		—		$	4,522	7,190

Business	6,188		10		$	6,198	998
Consumer	30		—		$	30	1
Total nonaccrual loans	$	15,790	$	33	$	15,823	$	12,261

Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments. Accrual of interest on loans is discontinued when the payment of principal or interest is considered to be in doubt, or when a loan becomes contractually past due by 90 days or more with respect to principal or interest, except for loans that are well-secured and in the process of collection. When a loan is placed on nonaccrual status, any accrued but uncollected interest is reversed from current income. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. There was no interest income recognized on nonaccrual loans during the three and six months ended September 30, 2023.

At September 30, 2023 and March 31, 2023, other non-performing assets totaled $60 thousand, which consisted of other real estate owned comprised of one foreclosed residential property. Other real estate owned is included in other assets in the consolidated statements of financial condition. There were no held-for-sale loans at September 30, 2023 and March 31, 2023.

Although we believe that substantially all risk elements at September 30, 2023 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:

Pass - Loans have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. These loans represent a moderate credit risk and some degree of financial stability, and are considered collectible in full.

Special Mention - Loans have potential weaknesses that deserve management's close attention. If uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date.

Substandard - Loans are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. These loans have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans have all the weaknesses inherent in those classified as Substandard, with the added characteristic that collection or liquidation in full, based on current facts, conditions and values, is highly questionable and improbable.

Loss - Loans are considered uncollectible with insignificant value and are charged off immediately to the allowance for credit losses.

One-to-four family residential loans and consumer loans are rated non-performing if they are delinquent in payments ninety or more days, or past maturity. All other one-to-four family residential loans and consumer loans are performing loans.

The following table presents the amortized cost of loans by year of origination and risk category by class of loans based on the most recent analysis performed in the current quarter as of September 30, 2023:


$ in thousands	2023		2022		2021		2020		2019		2018 and earlier		Revolving Loans		Total
Credit Risk Profile by Internally Assigned Grade:
Multifamily
Pass	$	6,622	$	53,871	$	51,293	$	28,942	$	17,736	$	17,975	$	—	$	176,439
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		1,476		754		—		370		—		2,600
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	6,622		53,871		52,769		29,696		17,736		18,345		—		179,039

Commercial Real Estate
Pass	17,587		31,536		27,878		17,178		21,008		50,716		—		165,903
Special Mention	—		—		—		—		—		687		—		687
Substandard	—		—		—		—		—		4,522		—		4,522
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	17,587		31,536		27,878		17,178		21,008		55,925		—		171,112

Construction
Pass	491		—		—		—		—		—		—		491
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	491		—		—		—		—		—		—		491

Business
Pass	8,383		40,970		50,282		10,968		387		43,276		—		154,266
Special Mention	—		—		4,234		—		—		11		—		4,245
Substandard	—		—		2,993		—		193		763		—		3,949
Doubtful	—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—
Total	8,383		40,970		57,509		10,968		580		44,050		—		162,460

Credit Risk Profile Based on Payment Activity:
One-to-four Family
Performing	22,419		3,860		13,517		1,440		9,059		31,504		—		81,799
Non-Performing	—		—		—		—		—		3,282		—		3,282
Total	22,419		3,860		13,517		1,440		9,059		34,786		—		85,081

Consumer
Performing	11,123		695		11		26		—		1,060		—		12,915
Non-Performing	—		1		3		—		—		—		—		4
Total	11,123		696		14		26		—		1,060		—		12,919
Gross charge-offs	—		—		—		—		—		117		—		117

Total Loans	$	66,625	$	130,933	$	151,687	$	59,308	$	48,383	$	154,166	$	—	$	611,102

At March 31, 2023, the risk category by class of loans was as follows:


$ in thousands	Multifamily		Commercial Real Estate		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	175,981	$	170,534	$	154,056
Special Mention	771		701		5,719
Substandard	2,365		7,189		7,133


Total	$	179,117	$	178,424	$	166,908

			One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing			$	60,629	$	7,639
Non-Performing			5,179		—
Total			$	65,808	$	7,639

Loans are considered past due if required principal and interest payments have not been received as of the date such payments were contractually due. The following table presents an aging analysis of the amortized cost of past due loans receivables at September 30, 2023 and March 31, 2023.


September 30, 2023
$ in thousands	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans Receivables
One-to-four family	$	—	$	203	$	2,668	$	2,871	$	82,210	$	85,081
Multifamily	—		487		1,070		1,557		177,482		179,039
Commercial real estate	—		—		4,522		4,522		166,590		171,112
Construction	—		—		—		—		491		491
Business	88		12,608		2,645		15,341		147,119		162,460
Consumer	7		3		1		11		12,908		12,919
Total	$	95	$	13,301	$	10,906	$	24,302	$	586,800	$	611,102


March 31, 2023
$ in thousands	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Loans Receivables
One-to-four family	$	1,207	$	185	$	2,475	$	3,867	$	61,941	$	65,808
Multifamily	1,458		—		71		1,529		177,588		179,117
Commercial real estate	1,370		—		—		1,370		177,054		178,424

Business	11,006		—		5,014		16,020		150,888		166,908
Consumer	99		26		34		159		7,480		7,639
Total	$	15,140	$	211	$	7,594	$	22,945	$	574,951	$	597,896

At September 30, 2023 and March 31, 2023, there were no loans 90 or more days past due and accruing interest.

Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the underlying collateral and the borrower is experiencing financial difficulty. All substandard and doubtful loans and any other loans that the Chief Credit Officer deems appropriate for review, are identified and reviewed for individual analysis. The following table presents the amortized cost of collateral dependent loans with the associated allowance amount, if applicable, as of September 30, 2023:


	Collateral Type
$ in thousands	Real Estate		Other		Allowance Allocated
One-to-four family	$	4,290	$	—	$	23
Multifamily	2,600		—		—
Commercial real estate	4,522		—		—

Business	5,775		379		10
Consumer	—		3		—
	$	17,187	$	382	$	33

Real estate collateral includes one-to-four family, multifamily and commercial properties. Collateral types securing business loans include accounts receivable. There have been no significant changes to the types of collateral securing the Bank's collateral dependent loans.

The following table presents information on impaired loans with the associated allowance amount and interest income recognized on a cash basis, if applicable, at March 31, 2023.


	At March 31, 2023
$ in thousands		Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Balance		Interest Income Recognized
With no specific allowance recorded:
One-to-four family		$	3,972	$	4,567	$	—	$	3,861	$	111
Multifamily		71		71		—		220		—
Commercial real estate		7,190		7,378		—		4,054		36

Business		1,114		1,146		—		1,723		—
Consumer		1		1		—		—		—
With an allowance recorded:
One-to-four family		1,031		1,031		109		554		41



Business		4,809		4,820		202		5,116		316

Total		$	18,188	$	19,014	$	311	$	15,528	$	504

In certain circumstances, the Bank will modify the terms of a loan by granting a concession. Situations around these modifications may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. Loans modified are placed on nonaccrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. There were no loan modifications to borrowers experiencing financial difficulty made during the six months ended September 30, 2023. There were two one-to-four family loans totaling $1.0 million modified during the six months ended September 30, 2022. At September 30, 2023, loans modified to borrowers experiencing financial difficulty totaled $7.4 million, $1.6 million of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. There were four modified loans totaling $5.8 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.

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 September 30, 2023 and 2022, there were no modified loans that defaulted within 12 months of modification.

Transactions With Certain Related Persons

Federal law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features. Furthermore, loans above the greater of $25,000, or 5% of Carver Federal’s capital and surplus (up to $500,000), to Carver Federal’s directors and executive officers must be approved in advance by a majority of the disinterested members of Carver Federal’s Board of Directors. There were no loans outstanding to related parties at September 30, 2023.

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 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 September 30, 2023 and March 31, 2023, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:


	Fair Value Measurements at September 30, 2023, Using
$ in thousands	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Mortgage servicing rights	$	—	$	—	$	151	$	151
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association	—		297		—		297
Federal Home Loan Mortgage Corporation	—		15,672		—		15,672
Federal National Mortgage Association	—		8,506		—		8,506

U.S. Government Agency securities	—		7,463		—		7,463

Corporate bonds	—		2,744		—		2,744
Muni securities	—		12,962		—		12,962

Total available-for-sale securities	—		47,644		—		47,644

Total assets	$	—	$	47,644	$	151	$	47,795


	Fair Value Measurements at March 31, 2023, Using
$ in thousands	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Mortgage servicing rights	$	—	$	—	$	152	$	152
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association	—		341		—		341
Federal Home Loan Mortgage Corporation	—		17,600		—		17,600
Federal National Mortgage Association	—		9,502		—		9,502

U.S. Government Agency securities	—		9,326		—		9,326
Corporate bonds	—		3,092		—		3,092
Muni securities	—		13,982		—		13,982

Total available-for-sale securities	—		53,843		—		53,843

Total assets	$	—	$	53,843	$	152	$	53,995

Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights (“MSR”). Level 3 assets accounted for 0.02% of the Company’s total assets at September 30, 2023 and March 31, 2023.

The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next that are related to the observable inputs to a fair value measurement may result in a reclassification from one hierarchy level to another.

Below is a description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities and MSR:

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, 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 six month period ended September 30, 2023, there were no transfers of investments into or out of each level of the fair value hierarchy.

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

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

The following table includes a rollforward of assets classified by the Company within Level 3 of the valuation hierarchy for the six months ended September 30, 2023 and 2022:


$ in thousands	Beginning balance, April 1, 2023	Total Realized/Unrealized Gains/(Losses) Recorded in Income (1)	Issuances / (Settlements)	Transfers to/(from) Level 3	Ending balance, September 30, 2023	Change in Unrealized Gains/(Losses) Related to Instruments Held at September 30, 2023




Mortgage servicing rights	152	(1)	—	—	151	(2)


$ in thousands	Beginning balance, April 1, 2022	Total Realized/Unrealized Gains/(Losses) Recorded in Income (1)	Issuances / (Settlements)	Transfers to/(from) Level 3	Ending balance, September 30, 2022	Change in Unrealized Gains/(Losses) Related to Instruments Held at September 30, 2022




Mortgage servicing rights	162	(5)	—	—	157	(5)

(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 September 30, 2023 and March 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

$ in thousands

Fair Value

September 30, 2023

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Mortgage servicing rights

151

Discounted Cash Flow

Weighted Average Constant Prepayment Rate (1)

3.51

Option Adjusted Spread ("OAS") applied to Treasury curve

1000 basis points

$ in thousands

Fair Value

March 31, 2023

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Mortgage servicing rights

152

Discounted Cash Flow

Weighted Average Constant Prepayment Rate (1)

4.01

Option Adjusted Spread ("OAS") applied to Treasury curve

1000 basis points

(1) Represents annualized loan repayment rate assumptions

Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of September 30, 2023 and March 31, 2023, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:

Fair Value Measurements at September 30, 2023 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)

Other real estate owned

—


	Fair Value Measurements at March 31, 2023, 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	$	—	$	—	$	5,529	$	5,529
Other real estate owned	—		—		60		$	60

For Level 3 assets measured at fair value on a non-recurring basis as of September 30, 2023 and March 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

$ in thousands

Fair Value

September 30, 2023

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Other real estate owned

Appraisal of collateral

Appraisal adjustments

7.5% cost to sell

$ in thousands

Fair Value March 31, 2023

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Impaired loans

5,529

Appraisal of collateral

Appraisal adjustments

7.5% cost to sell

Other real estate owned

Appraisal of collateral

Appraisal adjustments

7.5% cost to sell

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

Other real estate owned represents property acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure). These assets are recorded at the lower of their cost or fair value. At the time of acquisition of the real estate owned, the real property value is adjusted to its current fair value. Any subsequent adjustments will be to the lower of cost or fair value. As of September 30, 2023 and March 31, 2023, the Company had loans with a carrying value of $2.9 million and $5.6 million, respectively, for which formal foreclosure proceedings were in process.

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 September 30, 2023 and March 31, 2023 are as follows:


	September 30, 2023
$ in thousands	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	52,189	$	52,189	$	52,189	$	—	$	—

Securities available-for-sale	47,644		47,644		—		47,644		—


Securities held-to-maturity	2,162		2,005		—		2,005		—
Loans receivable	605,095		569,278		—		—		569,278

Accrued interest receivable	2,078		2,078		—		2,078		—
Mortgage servicing rights	151		151		—		—		151

Financial Liabilities:
Deposits	$	630,453	$	625,401	$	437,832	$	187,569	$	—
Advances from FHLB-NY	28,027		28,037		—		28,037		—

Other borrowed money	18,403		16,867		—		16,867		—
Accrued interest payable	1,197		1,197		—		1,197		—


	March 31, 2023
$ in thousands	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash and cash equivalents	$	42,552	$	42,552	$	42,552	$	—	$	—

Securities available-for-sale	53,843		53,843		—		53,843		—


Securities held-to-maturity	2,318		2,221		—		2,221		—
Loans receivable	592,667		567,029		—		—		567,029

Accrued interest receivable	1,911		1,911		—		1,911		—
Mortgage servicing rights	152		152		—		—		152

Financial Liabilities:
Deposits	$	600,429	$	594,736	$	418,432	$	176,304	$	—
Advances from FHLB-NY	35,000		35,238		—		35,238		—
Other borrowed money	15,903		14,575		—		14,575		—
Accrued interest payable	380		380		—		380		—

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 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, revenue from the Bank's participation in JPMorgan Chase's Empowering Change program, and income associated with an advertising services agreement covering marketing and use of the Bank's office space with a third party. The revenue is recognized on a monthly basis.

Interchange income

The Company earns interchange fees from debit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided by an outsource technology solution and are presented on a net basis.

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Six Months Ended September 30,
$ in thousands	2023		2022		2023		2022
Non-interest income
In-scope of Topic 606
Depository fees and charges	$	558	$	553	$	1,135	$	1,108
Loan fees and service charges	123		132		173		248
Other non-interest income	86		152		145		162
Non-interest income (in-scope of Topic 606)	767		837		1,453		1,518
Non-interest income (out-of-scope of Topic 606)	696		262		765		290
Total non-interest income	$	1,463	$	1,099	$	2,218	$	1,808

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 September 30,				Six Months Ended September 30,
$ in thousands	2023		2022		2023		2022
Other non-interest income:



Correspondent banking fees	$	—	$	143	—		143
Other	131		103		225		138
Total other non-interest income	$	131	$	246	$	225	$	281

Other non-interest expense:
Advertising	$	165	$	111	$	234	$	264

Legal expense	247		112		340		183
Insurance and surety	309		289		618		585
Audit expense	165		148		331		299

Data lines / internet	104		99		210		194
Security services	7		75		26		149

Retail expenses	284		250		570		467
Operating charge-offs and other losses	100		23		139		34


Director's fees	106		123		211		246
Other	657		612		1,255		1,179
Total other non-interest expense	$	2,144	$	1,842	$	3,934	$	3,600

NOTE 11. LEASES

The Company applies Accounting Standards Codification Topic 842, Leases, ("ASC 842") to its leases. 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. As of September 30, 2023, operating ROU lease assets and related lease liabilities totaled $11.1 million and $11.9 million, respectively.

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

As of September 30, 2023, the Company had $133 thousand and $136 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 six months ended September 30, 2023:


	September 30, 2023
Weighted-average remaining lease term
Operating leases	4.8 years
Finance lease	2.5 years

Weighted-average discount rate
Operating leases	3.04	%
Finance lease	4.32	%


	Three Months Ended September 30,				Six Months Ended September 30,
$ in thousands	2023		2022		2023		2022
Operating lease expense	$	692	$	716	$	1,384	$	1,432

Finance lease cost
Amortization of right-of use asset	37		15		65		32
Interest on lease liability	2		1		4		2

Cash paid for amounts included in the measurement of lease liabilities
Operating leases	711		696		1,422		1,392
Finance lease	35		19		62		38

Maturities of lease liabilities at September 30, 2023 are as follows:


$ in thousands	Operating Leases		Finance Leases
Year ending March 31,
2024	$	1,468	$	33
2025	2,705		63
2026	2,687		42
2027	2,440		5
2028	2,259		—
Thereafter	1,276		—
Total lease payments	12,835		143
Interest	(924)		(7)
Lease liability	$	11,911	$	136

NOTE 12. IMPACT OF RECENT ACCOUNTING STANDARDS

Accounting Standards Recently Adopted

On April 1, 2023, the Company adopted ASU No. 2016-13, "Financial Instruments - Credit Loss (Topic 326)" and its subsequent amendments, which replaces the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. Under the CECL model, the allowance for credit losses ("ACL") is a valuation allowance that is deducted from the amortized cost basis of certain financial assets, including loans, held-to-maturity securities, and other receivables, to present the net carrying value at the amount expected to be collected. The measurement of

expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This differs from the incurred loss model, which delays recognition of credit losses until it is probable a loss has been incurred. The Company applied the new guidance with a cumulative-effect adjustment to retained earnings as of April 1, 2023, using the modified-retrospective approach. Results for reporting periods beginning after April 1, 2023 are presented under CECL. Prior period amounts have not been restated and are reported in accordance with the incurred loss method. The adoption of ASU 2016-13 resulted in an increase of $0.7 million to the allowance for credit losses related to loans. There was no material impact for other assets within the scope of the new CECL guidance, such as held-to-maturity debt securities and other receivables.

On April 1, 2023, the Company adopted ASU No. 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures," which eliminates the accounting guidance for TDRs, and replaced it with guidance and disclosure requirements for certain loan refinancing and restructuring activities to borrowers experiencing financial difficulty. The amendments also require disclosure of current period gross writeoffs by year of origination. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations..

On April 1, 2023, the Company adopted ASU No. 2021-10 "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance," which was issued to improve the financial reporting of government assistance received by business entities by requiring the disclosure of (1) the types of assistance received, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. The adoption of the standard did not have a material impact on the Company's consolidated statements of financial condition and results of operations.

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 March 2020, the FASB issued ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. In December 2022, the FASB issued ASU No. 2022-06 "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply for relief in Topic 848. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2024 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. The Company is evaluating the impacts of this ASU and has not yet determined whether LIBOR transition and this ASU will have a material impact on the Company's consolidated statements of financial condition and results of operations.

NOTE 13. SUBSEQUENT EVENTS

On October 16, 2023, the Company made a capital contribution of $0.6 million to the Impact Developers Fund, LP (the "Fund") pursuant to a Subscription Agreement dated September 12, 2023. The Company's remaining capital commitment to the Fund is $0.4 million.

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:

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

•monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System;

•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 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 impact of the recent bank closings of First Republic Bank, Silicon Valley Bank and Signature Bank and the risks related to continued disruption in the banking industry and financial markets;

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

•the results of examinations by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for credit 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, inflation or deflation 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 credit losses;

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

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

•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;

•the effects of any federal government shutdown;

•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;

•our ability to control costs and expenses;

•the continuing impact of the COVID-19 pandemic on our business and results of operations;

•the impairment of our investment securities;

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

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

•unexpected outflows of uninsured deposits could require us to sell investment securities at a loss;

•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 sixth consecutive "Outstanding" rating, issued by the OCC following its most recent Community Reinvestment Act (“CRA”) examination in March 2022. The OCC found that 90% of Carver Federal's loans were made within our 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 $742.8 million in assets and 113 employees as of September 30, 2023.

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

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

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

Carver Federal's 74-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 Company's subsidiary, Carver Statutory Trust I, is not consolidated with Carver Bancorp Inc. for financial reporting purposes in accordance with the FASB's ASC Topic 810 regarding the consolidation of variable interest entities. Carver Statutory Trust I was formed in 2003 for the purpose of issuing $13 million aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and $0.4 million of common securities (which are the only voting securities of Carver Statutory Trust I), which are 100% owned by Carver Bancorp Inc., and using the proceeds to acquire junior subordinated debentures issued by Carver Bancorp, Inc. Carver Bancorp, Inc. has fully and unconditionally guaranteed the Capital Securities along with all obligations of Carver Statutory Trust I under the trust agreement relating to the Capital Securities. The Company does not consolidate the accounts and related activity of Carver Statutory Trust I because it is not the primary beneficiary of the entity. At September 30, 2023, the Company's maximum exposure to the Trust is $13.4 million, which is the Company's liability to the Trust and includes the Company's investment in the Trust.

Critical Accounting Estimates

Note 2 to the Company’s audited Consolidated Financial Statements for the year ended March 31, 2023 included in its Form 10-K for the year ended March 31, 2023, 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 credit losses is the most critical accounting policy. This policy involves a high degree of complexity, requiring 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 result in material differences in the Company's results of operations or financial condition. 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, 2023.

Allowance for Credit Losses ("ACL")

The ACL 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 ACL. These assumptions and estimates are susceptible to significant changes based on the current environment. In a continued effort to combat inflation, the

Federal Reserve approved an 11th interest rate hike in July 2023, raising the overnight borrowing rate 25 basis points to a target range of 5.25% to 5.5%, the highest it has been in 22 years. While interest rates were held steady at the November 2023 meeting, the Federal Reserve has indicated that there could potentially be one more hike before the end of the year. A rising rate environment can negatively impact the Company if the higher debt service costs on adjustable-rate loans lead to borrowers' inability to pay contractual obligations. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ACL 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 ACL accurately reflects the actual loss potential inherent in a loan portfolio.

•Consumer (including Overdraft accounts) - The Consumer portfolio includes student loans to medical students enrolled in several Caribbean schools, as well as unsecured consumer loans purchased from or originated through strategic partnerships with Bankers Healthcare Group, LLC and Upstart Holdings, Inc. Consumer loans are typically unsecured and more susceptible to declining economic conditions.

Because expected loss predictions may not adequately project the level of losses inherent in a portfolio, the Bank reviews a number of qualitative factors 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. A number of qualitative factors are considered including economic forecast uncertainty, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, impact of rising rates, external factors and other considerations. Although the quantitative calculation includes a measurement of statistical economic conditions based on national averages, an additional analysis is performed at the qualitative level that applies specifically to the Company's geographic area and the banking industry that includes reasonable and supportable forecasts.

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 September 30, 2023, 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).

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 $4.5 million, or 8.8%, to $46.6 million at September 30, 2023, compared to $51.1 million at March 31, 2023. The Bank repaid a $10.0 million overnight advance secured from the FHLB-NY on March 31, 2023 and secured a $3.0 million 18-month advance from the new FHLB-NY 0% Development Advance (ZDA) Program during the second quarter of the current fiscal year. At September 30, 2023, the Bank had $28.0 million outstanding advances from the FHLB-NY. At September 30, 2023, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $11.2 million on a secured basis, utilizing mortgage-related loans and securities as collateral. The Bank has the ability to pledge additional loans as collateral in order to borrow up to 30% of its total assets. The Company also had $13.4 million in subordinated debt securities and $5.0 million in low interest loans outstanding as of September 30, 2023.

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 September 30, 2023 and March 31, 2023, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $52.2 million and $42.6 million, respectively.

During fiscal year 2022, the Company entered into a sales agreement with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in an “at the market offering.” During fiscal year 2022, we sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million. Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the agent. There were no additional offerings during fiscal year 2023 and the six months ended September 30, 2023.

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 six months ended September 30, 2023, total cash and cash equivalents increased $9.6 million to $52.2 million at September 30, 2023, compared to $42.6 million at March 31, 2023, reflecting cash provided by financing activities of $26.5 million, partially offset by cash used in investing activities of $9.9 million and cash used in operating activities of $7.0 million. Net cash provided by financing activities of $26.5 million resulted from a net increase in deposits of $30.0 million and a $5.5 million increase in long-term borrowings. The Bank secured a $3.0 million 18-month advance from the new FHLB-NY 0% Development Advance (ZDA) Program during the second quarter of the current fiscal year and the Company borrowed $2.5 million through a long-term unsecured, below-market rate term loan from a third party to finance eligible loans offered through the Bank's community investment initiatives and loan programs. In addition, the Company issued common shares in a private placement transaction during the second quarter for gross proceeds of $1.0 million. These were offset by the repayment of a $10.0 million FHLB-NY overnight advance secured on March 31, 2023. Net cash used in investing activities of $9.9 million was attributable to loan purchases and originations, net of repayments and payoffs and investment paydowns. Net cash used in operating activities totaled $7.0 million, which was primarily attributed to a $5.9 million increase in other assets related to the timing of proceeds received from the payoff of a $6.0 million commercial real estate loan that closed on the last day of the second quarter.

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. 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. While the Formal Agreement was terminated on January 18, 2023, the IMCR remains in effect.

In accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, will be eligible to opt into a “Community Bank Leverage Ratio” framework. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the “well capitalized” ratio requirements under the Prompt Corrective Action statutes. The agencies reserved the authority to disallow the use of the Community Bank Leverage Ratio by a financial institution or holding company based on the risk profile of the organization.

The table below presents the capital position of the Bank at September 30, 2023:


	September 30, 2023
($ in thousands)	Amount		Ratio
Tier 1 leverage capital
Regulatory capital	$	71,884	9.90	%
Individual minimum capital requirement	65,333		9.00	%
Minimum capital requirement	29,037		4.00	%
Excess over individual minimum capital requirement	6,551		0.90	%

Common equity Tier 1
Regulatory capital	$	71,884	11.95	%
Minimum capital requirement	42,123		7.00	%
Excess	29,761		4.95	%

Tier 1 risk-based capital
Regulatory capital	$	71,884	11.95	%
Minimum capital requirement	51,149		8.50	%
Excess	20,735		3.45	%

Total risk-based capital
Regulatory capital	$	77,988	12.96	%
Individual minimum capital requirement	72,211		12.00	%
Minimum capital requirement	63,184		10.50	%
Excess over individual minimum capital requirement	5,777		0.96	%

Bank Regulatory Matters

On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions. As a result of the Agreement, Carver was issued an 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. The Bank was released from the Agreement on January 18, 2023. The IMCR remains in effect. At September 30, 2023, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage capital ratio of 9.90%, Common Equity Tier 1 capital ratio of 11.95%, Tier 1 risk-based capital ratio of 11.95%, and a total risk-based capital ratio of 12.96%.

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 September 30, 2023, the Bank continues to service 77 loans with a principal balance of $11.8 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, 2023 (1)	$	1,385
Gross new demands received	—
Loans repurchased/made whole	—
Demands rescinded	—
Advances on open claims	—
Principal payments received on open claims	(8)
Open claims as of September 30, 2023 (1)	$	1,377

(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 six months ended September 30, 2023:


$ in thousands	September 30, 2023
Representation and warranty repurchase reserve, March 31, 2023 (1)	$	95
Net adjustment to reserve for repurchase losses (2)	(5)

Representation and warranty repurchase reserve, September 30, 2023 (1)	$	90

(1) Reported in our consolidated statements of financial condition as a component of other liabilities.

(2) Component of other non-interest expense.

Comparison of Financial Condition at September 30, 2023 and March 31, 2023

Assets

At September 30, 2023, total assets were $742.8 million, reflecting an increase of $19.6 million, or 2.7%, from total assets of $723.2 million at March 31, 2023. The increase was primarily attributable to increases of $12.4 million in the Bank's net loan portfolio, $9.6 million in cash and cash equivalents and $5.5 million in other assets, partially offset by a decrease of $6.4 million in the Bank's investment portfolio.

Total cash and cash equivalents increased $9.6 million, or 22.5%, from $42.6 million at March 31, 2023 to $52.2 million at September 30, 2023. The increase in cash was primarily due to an increase in total deposits and paydowns received on investment securities, partially offset by net loan activity and a decrease in advances from the FHLB-NY and other borrowed money. In addition, the Bank received $2.5 million during the second quarter for the CDFI Fund's Equitable Recovery Program (ERP) award.

Total investment securities decreased $6.4 million, or 11.4%, to $49.8 million at September 30, 2023, compared to $56.2 million at March 31, 2023 due to scheduled principal payments received of approximately $3.1 million and a $3.1 million increase in unrealized losses in the available-for-sale portfolio.

Gross portfolio loans increased $13.2 million, or 2.2%, to $611.1 million at September 30, 2023, compared to $597.9 million at March 31, 2023 due to new loan originations of $22.2 million and loan pool purchases of $27.0 million. These were partially offset by attrition and payoffs of $36.1 million. The high level of payoffs was primarily due to commercial real estate borrowers who perceived the rising rate environment, coupled with high inflation, as the right time to exit contractual debt.

Other assets increased $5.5 million, or 45.1%, to $17.7 million at September 30, 2023, compared to $12.2 million at March 31, 2023, primarily due to the timing of proceeds received from the payoff of a $6.0 million commercial real estate loan that closed on the last day of the second quarter.

Liabilities and Equity

Total liabilities increased $25.1 million, or 3.7%, to $703.1 million at September 30, 2023, compared to $678.0 million at March 31, 2023, primarily due to an increase in total deposits, partially offset by a decrease in advances from the FHLB-NY and other borrowed money.

Deposits increased $30.1 million, or 5.0%, to $630.5 million at September 30, 2023, compared to $600.4 million at March 31, 2023. The increase was primarily related to increases in money market and certificate of deposit accounts, market-rate products for which the rates increased over the current six month period.

Advances from the FHLB-NY and other borrowed money decreased $4.5 million, or 8.8%, to $46.6 million at September 30, 2023, compared to $51.1 million at March 31, 2023. The Bank repaid a $10.0 million overnight advance secured from the FHLB-NY on March 31, 2023 and secured a $3.0 million 18-month advance from the new FHLB-NY 0% Development Advance (ZDA) Program during the second quarter. At September 30, 2023, the Bank had $28.0 million outstanding advances from the FHLB-NY. In addition, the Company borrowed $2.5 million through a long-term unsecured, below-market rate term loan from a third party to finance eligible loans offered through the Bank's community investment initiatives and loan programs.

Total equity decreased $5.5 million, or 12.2%, to $39.7 million at September 30, 2023, compared to $45.2 million at March 31, 2023. The decrease was due to a net loss of $3.0 million, coupled with an increase of $3.1 million in unrealized losses on securities available-for-sale for the six month period ended September 30, 2023. In addition, the Bank recorded a $0.7 million decrease to retained earnings to reflect the cumulative effect adjustment related to the adoption of CECL (Topic 326), effective April 1, 2023. These decreases were partially offset by a $1.0 million increase in capital as a result of the issuance of common shares in a private placement during the second quarter.

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 long-term 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 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

The Company 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. At September 30, 2023, the Company had $3.7 million in outstanding commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the consolidated statements of condition when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless such commitments are unconditionally cancellable, through the provision for credit losses expense. The allowance for credit losses on off-balance sheet credit exposures as of September 30, 2023 was $8 thousand and is included in Other Liabilities in the consolidated statements of financial condition.

Comparison of Operating Results for the Three and Six Months Ended September 30, 2023 and 2022

Overview

The Company reported net loss of $1.6 million for the three months ended September 30, 2023, compared to a net loss of $1.0 million for the comparable prior year quarter. For the six months ended September 30, 2023, the Company reported a net loss of $3.0 million, compared to a net loss of $1.8 million for the prior year period. The change in our results was primarily driven by a decrease in net interest income after provision for credit losses and an increase in non-interest expense, partially offset by an increase in non-interest income compared to the prior year periods.

The following table reflects selected operating ratios for the three and six months ended September 30, 2023 and 2022 (unaudited):


	Three Months Ended September 30,						Six Months Ended September 30,
Selected Financial Data:	2023			2022			2023			2022
Return on average assets (1)	(0.87)	%		(0.53)	%		(0.83)	%		(0.51)	%
Return on average stockholders' equity (2)	(14.91)	%		(7.51)	%		(13.81)	%		(6.96)	%
Return on average stockholders' equity, excluding AOCI (2) (8)	(11.32)	%		(6.27)	%		(10.66)	%		(5.90)	%
Net interest margin (3)	3.06	%		3.14	%		3.10	%		3.30	%
Interest rate spread (4)	2.64	%		2.94	%		2.70	%		3.14	%
Efficiency ratio (5)	120.66	%		117.33	%		121.59	%		115.45	%
Operating expenses to average assets (6)	4.57	%		4.29	%		4.41	%		4.27	%
Average stockholders' equity to average assets (7)	5.86	%		7.04	%		6.02	%		7.33	%
Average stockholders' equity, excluding AOCI, to average assets (7) (8)	7.72	%		8.43	%		7.80	%		8.66	%
Average interest-earning assets to average interest-bearing liabilities	1.29		x	1.29		x	1.29		x	1.31		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.

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 average stockholders' equity, excluding AOCI measures how efficiently we generate profits from the resources provided by our net assets. Return on average stockholders' equity, excluding AOCI is calculated by dividing annualized net income (loss) attributable to Carver by average stockholders' equity, excluding AOCI. Management believes that this performance measure and average stockholders' equity, excluding AOCI to average assets 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 September 30,						Six Months Ended September 30,
$ in thousands	2023			2022			2023			2022
Average Stockholders' Equity
Average Stockholders' Equity	$	42,536		$	50,861		$	43,554		$	52,035
Average AOCI	(13,489)			(10,020)			(12,866)			(9,433)
Average Stockholders' Equity, excluding AOCI	$	56,025		$	60,881		$	56,420		$	61,468

Return on Average Stockholders' Equity	(14.91)		%	(7.51)		%	(13.81)		%	(6.96)		%
Return on Average Stockholders' Equity, excluding AOCI	(11.32)		%	(6.27)		%	(10.66)		%	(5.90)		%

Average Stockholders' Equity to Average Assets	5.86		%	7.04		%	6.02		%	7.33		%
Average Stockholders' Equity, excluding AOCI, to Average Assets	7.72		%	8.43		%	7.80		%	8.66		%

Analysis of Net Interest Income

The Company’s profitability is primarily dependent upon net interest income and is also affected by the provision for credit 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 decreased $0.1 million, or 1.8%, to $5.4 million for the three months ended September 30, 2023, compared to $5.5 million for the same quarter last year. Net interest income decreased $0.4 million, or 3.5%, to $10.9 million for the six months ended September 30, 2023, compared to $11.3 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 six months ended September 30, 2023 and 2022. 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.


	For the Three Months Ended September 30,
	2023						2022
$ in thousands	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Interest-Earning Assets:
Loans(1)	$	602,891	$	7,056	4.68	%	$	569,074	$	6,005	4.22	%
Mortgage-backed securities	27,586		145		2.10	%	33,174		156		1.88	%
Investment securities(2)	33,407		245		2.93	%	37,692		201		2.13	%


Money market investments	41,642		564		5.37	%	60,378		363		2.39	%
Total interest-earning assets	705,526		8,010		4.54	%	700,318		6,725		3.84	%
Non-interest-earning assets	19,807						21,973
Total assets	$	725,333					$	722,291

Interest-Bearing Liabilities:
Deposits
Interest-bearing checking	$	51,496	$	9	0.07	%	$	58,561	$	20	0.14	%
Savings and clubs	110,975		65		0.23	%	111,960		54		0.19	%
Money market	149,918		550		1.46	%	183,698		422		0.91	%
Certificates of deposit	186,477		1,385		2.95	%	139,703		329		0.93	%
Mortgagors deposits	2,429		2		0.33	%	2,604		2		0.30	%
Total deposits	501,295		2,011		1.59	%	496,526		827		0.66	%
Borrowed money	44,999		600		5.29	%	44,654		395		3.51	%
Total interest-bearing liabilities	546,294		2,611		1.90	%	541,180		1,222		0.90	%
Non-interest-bearing liabilities
Demand deposits	111,736						104,086
Other liabilities	24,767						26,164
Total liabilities	682,797						671,430
Stockholders' equity	42,536						50,861
Total liabilities and equity	$	725,333					$	722,291
Net interest income			$	5,399					$	5,503

Average interest rate spread					2.64	%					2.94	%

Net interest margin					3.06	%					3.14	%

(1) Includes nonaccrual loans
(2) Includes FHLB-NY stock


	For the Six Months Ended September 30,
	2023						2022
$ in thousands	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Interest-Earning Assets:
Loans(1)	$	599,305	$	13,867	4.63	%	$	567,995	$	11,982	4.22	%
Mortgage-backed securities	28,438		294		2.07	%	34,952		316		1.81	%
Investment securities(2)	33,890		546		3.22	%	36,816		366		1.99	%


Money market investments	41,841		1,097		5.23	%	46,416		434		1.86	%
Total interest-earning assets	703,474		15,804		4.49	%	686,179		13,098		3.82	%
Non-interest-earning assets	19,788						23,470
Total assets	$	723,262					$	709,649

Interest-Bearing Liabilities:
Deposits
Interest-bearing checking	$	51,187	$	18	0.07	%	$	58,427	$	28	0.10	%
Savings and clubs	111,313		110		0.20	%	113,113		85		0.15	%
Money market	151,739		1,038		1.36	%	184,222		551		0.60	%
Certificates of deposit	184,347		2,555		2.76	%	135,330		575		0.85	%
Mortgagors deposits	3,006		4		0.27	%	3,072		(1)		(0.06)	%
Total deposits	501,592		3,725		1.48	%	494,164		1,238		0.50	%
Borrowed money	44,075		1,178		5.33	%	30,761		543		3.52	%
Total interest-bearing liabilities	545,667		4,903		1.79	%	524,925		1,781		0.68	%
Non-interest-bearing liabilities
Demand deposits	108,801						105,347
Other liabilities	25,240						27,342
Total liabilities	679,708						657,614
Stockholders' equity	43,554						52,035
Total liabilities and equity	$	723,262					$	709,649
Net interest income			$	10,901					$	11,317

Average interest rate spread					2.70	%					3.14	%

Net interest margin					3.10	%					3.30	%

(1) Includes nonaccrual loans
(2) Includes FHLB-NY stock

Interest Income

Interest income increased $1.3 million, or 19.4%, to $8.0 million for the three months ended September 30, 2023, compared to $6.7 million for the prior year quarter. For the six months ended September 30, 2023, interest income increased $2.7 million, or 20.6%, to $15.8 million, compared to $13.1 million for the prior year period. Interest income on loans increased $1.1 million and $1.9 million for the three and six months ended September 30, 2023, respectively, primarily due to an increase in the average yield on the portfolio, coupled with a $33.8 million, or 5.9%, and $31.3 million, or 5.5% increase in average loan balances for the two comparative periods, respectively. Interest income on money market investments increased $0.2 million and $0.7 million for the three and six months ended September 30, 2023, respectively, due to an increase in interest rates on the Bank's interest-bearing account at the Federal Reserve Bank. Interest income on investment securities was also higher for the three and six months ended September 30, 2023, despite a decrease in average balances, due to an increase in yields compared to the prior year periods.

Interest Expense

Interest expense increased $1.4 million to $2.6 million for the three months ended September 30, 2023, compared to $1.2 million for the prior year quarter. For the six months ended September 30, 2023, interest expense increased $3.1 million, to $4.9 million, compared to $1.8 million for the prior year period. The higher interest rate environment is reflected in the average cost of interest-bearing deposits and borrowing costs for the comparative periods. Interest expense on deposits

increased $1.2 million and $2.5 million for the three and six months ended September 30, 2023, respectively, primarily due to an increase in the average balance of higher-cost certificate of deposits and an increase in the average rates paid on money market and certificate of deposit accounts. Interest expense on borrowings increased $0.2 million and $0.7 million for the three and six months ended September 30, 2023, respectively, due to an increase in the average borrowing rates quarter-over-quarter and to increases in both the average outstanding balances and rates compared to the prior year-to-date period.

Provision for Credit Losses and Asset Quality

The Bank maintains an ACL that management believes is adequate to absorb inherent and probable losses in its loan portfolio. The adequacy of the ACL 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. The ACL reflects management’s estimate of lifetime credit losses inherent in the loan portfolio. Any change in the size of the loan portfolio or any of its components could necessitate an increase in the ACL 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 following table summarizes the activity in the ACL for the six months ended September 30, 2023 and 2022 and the fiscal year ended March 31, 2023:


$ in thousands	Six Months Ended September 30, 2023			Fiscal Year Ended March 31, 2023			Six Months Ended September 30, 2022
Beginning Balance	$	5,229		$	5,624		$	5,624
Impact of CECL adoption	668
Less: Charge-offs
One-to-four family	—			—			—
Multifamily	—			—			—
Commercial real estate	—			(586)			—
Construction	—			—			—
Business	—			—			—
Consumer	(117)			(141)			(24)

Total charge-offs	(117)			(727)			(24)
Add: Recoveries
One-to-four family	—			90			90
Multifamily	—			—			—
Commercial real estate	—			10			10
Construction	—			—			—
Business	50			127			23
Consumer	3			5			2

Total recoveries	53			232			125
Net (charge-offs) recoveries	(64)			(495)			101
Provision for (recovery of) credit losses
One-to-four family	328			(105)			(117)
Multifamily	4			(5)			(59)
Commercial real estate	(105)			1,233			441
Construction	—			—			—
Business	(301)			(1,485)			(706)
Consumer	248			462			(19)
Unallocated	—			—			244
Provision for (recovery of) credit losses	174			100			(216)
Ending Balance	$	6,007		$	5,229		$	5,509

Ratios:
Net recoveries (charge-offs) to average loans outstanding (annualized)
One-to-four family	—		%	0.13		%	0.26		%
Multifamily	—		%	—		%	—		%
Commercial real estate	—		%	(0.33)		%	0.01		%
Construction	—		%	—		%	—		%
Business	0.06		%	0.08		%	0.03		%
Consumer	(2.26)		%	(5.60)		%	(2.86)		%
Total loans	(0.02)		%	(0.09)		%	0.04		%

Allowance to total loans	0.98		%	0.87		%	0.96		%
Allowance to nonaccrual loans	37.96		%	42.65		%	36.50		%

The Company recorded a $168 thousand provision for credit loss for the three months ended September 30, 2023, compared to a $189 thousand recovery of loan loss for the prior year quarter. Net charge-offs of $19 thousand were recognized during the second quarter, compared to net recoveries of $94 thousand for the prior year quarter. For the six months ended September 30, 2023, the Company recorded a $174 thousand provision for credit loss, compared to a $216 thousand recovery of loan loss for the prior year period. Net charge-offs of $64 thousand were recognized for the six months ended September 30, 2023, compared to net recoveries of $101 thousand in the prior year period.

At September 30, 2023, nonaccrual loans totaled $15.8 million, or 2.1% of total assets, compared to $12.3 million, or 1.7% of total assets at March 31, 2023. The ACL was $6.0 million at September 30, 2023, which represents a ratio of the ACL

to nonaccrual loans of 38.0% compared to a ratio of 42.6% at March 31, 2023. The ratio of the ACL to total loans was 0.98% at September 30, 2023, compared to 0.87% at March 31, 2023.

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 loan is 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 September 30, 2023, modified loans to a borrower experiencing financial difficulty totaled $7.4 million, of which $5.8 million were classified as performing.

At September 30, 2023, non-performing assets totaled $15.9 million, or 2.1% of total assets compared to $12.3 million, or 1.7% of total assets at March 31, 2023. The following table sets forth information with respect to the Bank’s non-performing assets at the dates indicated:


	Non Performing Assets

$ in thousands	September 30, 2023			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022
Loans accounted for on a nonaccrual basis (1):
Gross loans receivable:
One-to-four family	$	3,942		$	4,154		$	4,001		$	4,066		$	4,371
Multifamily	1,131			824			71			71			—
Commercial real estate	4,522			4,522			7,190			7,275			9,455

Business	6,198			6,098			998			973			1,179
Consumer	30			1			1			—			87
Total nonaccrual loans	15,823			15,599			12,261			12,385			15,092
Other non-performing assets (2):
Real estate owned	60			60			60			60			60


Total non-performing assets (3)	$	15,883		$	15,659		$	12,321		$	12,445		$	15,152



Nonaccrual loans to total loans	2.59		%	2.64		%	2.05		%	2.11		%	2.63		%
Non-performing loans to total loans	2.59		%	2.64		%	2.05		%	2.11		%	2.63		%
Non-performing assets to total assets	2.14		%	2.20		%	1.70		%	1.75		%	2.01		%
Allowance to total loans	0.98		%	0.99		%	0.87		%	0.88		%	0.96		%
Allowance to nonaccrual loans	37.96		%	37.55		%	42.65		%	41.61		%	36.50		%

(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) Modified loans to borrowers experiencing financial difficulty that are 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 September 30, 2023, there were $5.8 million of these modified 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 September 30, 2023, the Bank had $2.7 million in subprime loans, or 0.5% of its total loan portfolio, of which $0.7 million are non-performing loans.

Non-Interest Income

Non-interest income increased $0.4 million, or 36.4%, to $1.5 million for the three months ended September 30, 2023, compared to $1.1 million for the prior year quarter. For the six months ended September 30, 2023, non-interest income increased $0.4 million, or 22.2%, to $2.2 million, compared to $1.8 million for the prior year period. The Bank recognized $0.5 million grant income associated with a loan program no longer in existence, that had been transferred to the Bank through an acquired institution. Other non-interest income includes correspondent banking fees related to the Bank's servicing of PPPLF activity for a correspondent bank that was $0.1 million higher for the three and six months ended September 30, 2022, compared to the current year periods.

Non-Interest Expense

Non-interest expense increased $0.6 million, or 7.8%, to $8.3 million for the three months ended September 30, 2023, compared to $7.7 million for the prior year quarter. For the six months ended September 30, 2023, non-interest expense increased $0.8 million, or 5.3%, to $16.0 million, compared to $15.2 million for the prior year period. Employee compensation and benefits increased compared to the prior year periods due to the Company's transition to a new payroll and benefits administrator during the first quarter of the current fiscal year, and new permanent staff hired to replace temporary consultants. Data processing expense was higher due to upgraded cybersecurity systems and the implementation of service contracts for new consumer loan and deposit products. Other non-interest expense increased due to higher legal expense and operating charge-offs compared to the prior year periods.

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 September 30, 2023, the Company’s management, including the Company's Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and 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 September 30, 2023.

(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.

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 September 30, 2023, 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. There were no material changes in risk factors in the Company's second quarter ended September 30, 2023.

Item 2.Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Not applicable.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

During the three months ended September 30, 2023, no directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of the Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or any "Rule 10b5-1 trading arrangement."

Item 6.Exhibits

The following exhibits are submitted with this report:


3.1			Certificate of Incorporation of Carver Bancorp, Inc. (1)
3.2			Certificate of Amendment to the Certificate of Incorporation of Carver Bancorp, Inc. (2)
3.3			Second Amended and Restated Bylaws of Carver Bancorp, Inc. (3)
4.1			Stock Certificate of Carver Bancorp, Inc. (1)
4.2			Certificate of Designation for Mandatorily Convertible Non-Voting Participating Preferred Stock Series C and Convertible Non-Cumulative Non-Voting Participating Preferred Stock, Series D of Carver Bancorp, Inc. (4)
4.3			Certificate of Amendment to the Certificate of Incorporation of Carver Bancorp, Inc.(5)
4.4			Certificate of Designations of Non-Cumulative Non-Voting Participating Preferred Stock, Series E, par value $0.01 per share (6)
4.5			Certificate of Amendment of Certificate of Designations of Non-Cumulative Non-Voting Participating Preferred Stock, Series E, par value $0.01 per share (7)
4.6			Amended and Restated Certificate of Designations of Non-Cumulative Non-Voting Participating Preferred Stock, Series F, par value $0.01 per share (8)
10.1			Investment Agreement, by and between Carver Bancorp, Inc. and National Community Investment Fund, dated July 19, 2023 (9)
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
32.1			Certification of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
32.2			Certification of Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350
101			The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in XBRL (Extensive Business Reporting Language): (i) Consolidated Statements of Financial Condition as of September 30, 2023 (unaudited) and March 31, 2023; (ii) Consolidated Statements of Operations for the three and six months ended September 30, 2023 and 2022 (unaudited); (iii) Consolidated Statements of Comprehensive Income/(Loss) for the three and six months ended September 30, 2023 and 2022 (unaudited); (iv) Consolidated Statements of Changes in Equity for the three and six months ended September 30, 2023 and 2022 (unaudited); (v) Consolidated Statements of Cash Flows for the six months ended September 30, 2023 and 2022 (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 September 30, 2023, 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 July 20, 2023.

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:	November 14, 2023	/s/ Craig C. MacKay
		Craig C. MacKay
		Interim President and Chief Executive Officer
		(Principal Executive Officer)


Date:	November 14, 2023	/s/ Christina L. Maier
		Christina L. Maier
		First Senior Vice President and Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)