Published: 2023-02-14 00:00:00 ET

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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 interest scheduled for December 17, 2021. Subsequently, the Company made the regular quarterly interest payment on its outstanding debentures due on March 17, 2022, June 17, 2022, September 17, 2022 and December 19, 2022. The interest rate was 7.79% and the total amount of deferred interest was $38 thousand at December 31, 2022.

    Carver relies, in part, 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. Under the prior Formal Agreement, the OCC regulated all capital distributions, including dividend payments, by Carver Federal to Carver, and the FRB regulates dividends paid by Carver. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and 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. Carver has suspended Carver’s regular quarterly cash dividend on its common stock.

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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.

As further discussed in Note 13, Subsequent Events, 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.

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.

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 nine month periods ended December 31, 2022 are not necessarily indicative of the results that may be expected for the year ended March 31, 2023. The consolidated balance sheet at December 31, 2022 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, 2022. Amounts subject to significant estimates and assumptions are items such as the allowance for loan losses, realization of deferred tax assets, assessment of other-than-temporary impairment of securities, and the fair value of financial instruments. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses or future writedowns of real estate owned may be necessary based on changes in economic conditions

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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.

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

						Three Months Ended December 31,												Nine Months Ended December 31,
$ in thousands except per share data						2022						2021						2022						2021
Net loss (income)						$	(1,089)					$	696					$	(2,901)					$	(976)
Less: Participated securities share of undistributed earnings						—						240						—						—
Net (loss) income available to common shareholders						$	(1,089)					$	456					$	(2,901)					$	(976)
Weighted average common shares outstanding - basic						4,294,871						3,573,707						4,271,743						3,485,120
Effect of dilutive shares						—						1,877,422						—						—
Weighted average common shares outstanding – diluted						4,294,871						5,451,129						4,271,743						3,485,120
Basic (loss) income per common share						$	(0.25)					$	0.13					$	(0.68)					$	(0.28)
Diluted (loss) income per common share						(0.25)						0.13						(0.68)						(0.28)

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 nine months ended December 31, 2022 and nine months ended December 31, 2021, all restricted shares and outstanding stock options were anti-dilutive.

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    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 year 2022, Prudential donated a total of 3,850 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 470,855 shares of Common Stock. During the nine months ended December 31, 2022, Prudential donated a total of 550 shares of its holdings of Series D Preferred Stock to third parties. The third parties notified the Company of their intention to cancel the shares and convert them into 67,265 shares of Common Stock. 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.

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    The following tables set forth changes in each component of accumulated other comprehensive income (loss), net of tax for the nine months ended December 31, 2022 and 2021:

$ in thousands						At March 31, 2022						Other Comprehensive Loss, net of tax						At December 31, 2022
Net unrealized loss on securities available-for-sale						$	(6,662)					$	(7,076)					$	(13,738)

$ in thousands						At March 31, 2021												Other Comprehensive Income, net of tax						At December 31, 2021
Net unrealized income (loss) on securities available-for-sale						$	(3,175)											$	1,293					$	(1,882)

    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 December 31, 2022, securities with fair value of $53.4 million, or 95.7%, of the Bank’s total securities were classified as available-for-sale, and securities with amortized cost of $2.4 million, or 4.3%, were classified as held-to-maturity, compared to $67.6 million and $5.3 million at March 31, 2022, respectively. The Bank had no securities classified as trading at December 31, 2022 and March 31, 2022.

    Other investments as of December 31, 2022 primarily consists of the Bank's investment in a limited partnership Community Capital Fund and a $5.1 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

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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 December 31, 2022 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 December 31, 2022 and March 31, 2022:

						At December 31, 2022
						Amortized						Gross Unrealized
$ in thousands						Cost						Gains						Losses						Fair Value
Available-for-Sale:
Mortgage-backed Securities:
Government National Mortgage Association						$	347					$	—					$	4					$	343
Federal Home Loan Mortgage Corporation						22,012						—						4,518						17,494
Federal National Mortgage Association						11,868						—						2,357						9,511
Total mortgage-backed securities						34,227						—						6,879						27,348
U.S. Government Agency Securities						9,860						—						38						9,822
Corporate Bonds						5,269						—						2,324						2,945
Muni Securities						17,724						—						4,496						13,228
Asset-backed Securities						101						—						1						100
Total available-for-sale						$	67,181					$	—					$	13,738					$	53,443
Held-to-Maturity:
Mortgage-backed Securities:
Government National Mortgage Association						$	384					$	—					$	8					$	376
Federal National Mortgage Association and Other						2,022						—						116						1,906
Total held-to maturity						$	2,406					$	—					$	124					$	2,282

						At March 31, 2022
						Amortized						Gross Unrealized
$ in thousands						Cost						Gains						Losses						Fair Value
Available-for-Sale:
Mortgage-backed Securities:
Government National Mortgage Association						$	439					$	9					$	—					$	448
Federal Home Loan Mortgage Corporation						23,744						—						2,197						21,547
Federal National Mortgage Association						12,852						—						1,268						11,584
Total mortgage-backed securities						37,035						9						3,465						33,579
U.S. Government Agency Securities						13,864						—						79						13,785
Corporate Bonds						5,271						—						1,150						4,121
Muni Securities						17,741						—						1,973						15,768
Asset-backed Securities						347						—						4						343
Total available-for-sale						$	74,258					$	9					$	6,671					$	67,596
Held-to-Maturity:
Mortgage-backed Securities:
Government National Mortgage Association						$	481					$	27					$	—					$	508
Federal National Mortgage Association and Other						4,773						9						14						4,768
Total held-to-maturity						$	5,254					$	36					$	14					$	5,276

There were no sales of available-for-sale and held-to-maturity securities for the nine months ended December 31, 2022 and December 31, 2021.

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    The following tables set forth the unrealized losses and fair value of securities in an unrealized loss position at December 31, 2022 and March 31, 2022 for less than 12 months and 12 months or longer:

						At December 31, 2022
						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						$	41					$	1,225					$	6,838					$	26,123					$	6,879					$	27,348
U.S. Government Agency securities						12						4,107						26						5,715						38						9,822
Corporate bonds						—						—						2,324						2,945						2,324						2,945
Muni securities						456						2,222						4,040						11,006						4,496						13,228
Asset-backed securities						—						—						1						100						1						100
Total available-for-sale securities						$	509					$	7,554					$	13,229					$	45,889					$	13,738					$	53,443
Held-to-Maturity:
Mortgage-backed securities						$	124					$	2,246					$	—					$	—					$	124					$	2,246
Total held-to-maturity securities						$	124					$	2,246					$	—					$	—					$	124					$	2,246

						At March 31, 2022
						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						$	519					$	7,057					$	2,946					$	26,128					$	3,465					$	33,185
U.S. Government Agency securities						—						—						79						13,785						79						13,785
Corporate bonds						—						—						1,150						4,121						1,150						4,121
Muni securities						1,640						13,512						333						2,256						1,973						15,768
Asset-backed securities						4						343						—						—						4						343
Total available-for-sale securities						$	2,163					$	20,912					$	4,508					$	46,290					$	6,671					$	67,202
Held-to-Maturity:
Mortgage-backed securities						$	14					$	2,204					$	—					$	—					$	14					$	2,204
Total held-to-maturity securities						$	14					$	2,204					$	—					$	—					$	14					$	2,204

    A total of 26 securities had an unrealized loss at December 31, 2022 compared to 23 at March 31, 2022. Mortgage-backed securities, U.S. government agency securities, municipal securities and a corporate bond security represented 51.2%, 18.4%, 24.8% and 5.5%, respectively, of total available-for-sale securities in an unrealized loss position at December 31, 2022. There were six mortgage-backed securities, two U.S. government agency securities, one corporate bond, five municipal securities and one asset-backed security that had an unrealized loss position for more than 12 months at December 31, 2022. 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 did not have any securities that were classified as having other-than-temporary impairment in its investment portfolio at December 31, 2022.

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    The following is a summary of the amortized cost and fair value of debt securities at December 31, 2022, by remaining period to contractual maturity (ignoring earlier call dates, if any).  Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their obligations.  The table below does not consider the effects of possible prepayments or unscheduled repayments.

$ in thousands			Amortized Cost						Fair Value						Weighted Average Yield
Available-for-Sale:
Less than one year			$	101					$	100					(0.85)		%
One through five years			—						—						—		%
Five through ten years			6,127						5,655						4.08		%
After ten years			26,726						20,340						3.10		%
Mortgage-backed securities			34,227						27,348						1.59		%
Total			$	67,181					$	53,443					2.26		%
Held-to-maturity:
Mortgage-backed securities			$	2,406					$	2,282					2.74		%

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

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

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

•Trends of historical losses where the net charge-offs on each category are reviewed over a 20 quarter look back period.

•Assessment of several qualitative factors which are adjusted to reflect changes in the current environment.

•Loss Emergence Period reserve "LEP" which takes into account that borrowers have the potential to have suffered some form of loss-causing event or circumstance but that the lender may be unaware of the event.

During fiscal year 2021, we increased our qualitative factors and assessment criteria due to the ongoing pandemic. In fiscal year 2022, we adjusted our qualitative factors and assessment criteria from high to medium based on improving economic factors, such as unemployment and overall increased activity due to less pandemic related restrictions. The increase in the qualitative reserves was related to the overall increase in our loan portfolio. These increases in reserves were partially offset by decreases in our quantitative reserve analysis as the rolling 20 quarter historical loss look back period improved for most of our loan categories. During fiscal year-to-date 2023, we again increased our qualitative factors and assessment criteria to high due to the economic climate in general and its impact on the New York City ("NYC") metropolitan area in which the Company operates. The Federal Reserve has increased the federal funds rate 4.5% since December 31, 2021, and has indicated that it will likely continue to increase market interest rates in order to attempt to decrease the rate of inflation. In terms of restoring pre-pandemic jobs, NYC represents one of the slowest recovery of any major metropolitan area and reports a high unemployment rate of 5.9%. In spite of the strict analysis applied to our qualitative reserves, the Company's overall allowance declined moderately as the level of gross loans decreased and the rolling 20 quarter loss look back period revealed little in recorded losses.

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

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    The following is a summary of loans receivable at December 31, 2022 and March 31, 2022:

						December 31, 2022												March 31, 2022
$ in thousands						Amount						Percent						Amount						Percent
Gross loans receivable:
One-to-four family						$	65,291					11.2		%				$	69,297					12.0		%
Multifamily						176,480						30.2		%				160,800						27.9		%
Commercial real estate						172,468						29.5		%				174,270						30.2		%
Business (1)						167,700						28.7		%				170,497						29.6		%
Consumer (2)						2,127						0.4		%				1,623						0.3		%
Total loans receivable						$	584,066					100.0		%				$	576,487					100.0		%
Unamortized premiums, deferred costs and fees, net						2,683												3,017
Allowance for loan losses						(5,154)												(5,624)
Total loans receivable, net						$	581,595											$	573,880

(1) Includes PPP loans and business overdrafts

(2) Includes personal loans and consumer overdrafts

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 ALLL reserves required. As of December 31, 2022, the Bank had approved and funded approximately 420 applications totaling $57.1 million of loans under the PPP. The Bank has begun to receive debt forgiveness payments on PPP loans closed during the first and second rounds of the program. Business loans included PPP loans outstanding totaling $2.9 million as of December 31, 2022.

Consistent with regulatory guidance and the provisions of the CARES Act, loans less than 30 days past due at December 31, 2019 that were granted COVID-19 related payment deferrals continued to be considered current and not reported as TDRs. For the fiscal year ended March 31, 2021, the Bank received 83 applications for payment deferrals on approximately $90.4 million of loans. At December 31, 2022 and March 31, 2022, no loans were on COVID-related deferrals as the remaining 90-day loan deferments expired and borrowers became current.

    The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three and nine month periods ended December 31, 2022 and 2021, and the fiscal year ended March 31, 2022.

Three months ended December 31, 2022
$ in thousands						One-to-four family						Multifamily						Commercial Real Estate												Business						Consumer						Unallocated						Total
Allowance for loan losses:
Beginning Balance						$	704					$	1,055					$	1,608											$	1,814					$	82					$	246					$	5,509
Charge-offs						—						—						—												—						(106)						—						(106)
Recoveries						—						—						—												30						2						—						32
Provision for (recovery of) Loan Losses						20						25						(563)												69						143						25						(281)
Ending Balance						$	724					$	1,080					$	1,045											$	1,913					$	121					$	271					$	5,154

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Nine months ended December 31, 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						—						—						—												—						(130)						—						(130)
Recoveries						90						—						10												53						4						—						157
Provision for (recovery of) Loan Losses						(97)						(34)						(122)												(637)						124						269						(497)
Ending Balance						$	724					$	1,080					$	1,045											$	1,913					$	121					$	271					$	5,154
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment						$	621					$	1,080					$	1,045											$	1,761					$	121					$	271					$	4,899
Allowance for Loan Losses Ending Balance: individually evaluated for impairment						103						—						—												152						—						—						255
Loan Receivables Ending Balance:						$	66,142					$	177,647					$	173,219											$	167,602					$	2,139					$	—					$	586,749
Ending Balance: collectively evaluated for impairment						61,045						177,576						165,944												161,635						2,139						—						568,339
Ending Balance: individually evaluated for impairment						5,097						71						7,275												5,967						—						—						18,410

At March 31, 2022
$ in thousands						One-to-four family						Multifamily						Commercial Real Estate												Business						Consumer						Unallocated						Total
Allowance for Loan Losses Ending Balance:						$	731					$	1,114					$	1,157											$	2,497					$	123					$	2					$	5,624
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment						731						1,114						1,157												2,428						123						2						5,555
Allowance for Loan Losses Ending Balance: individually evaluated for impairment						—						—						—												69						—						—						69
Loan Receivables Ending Balance:						$	70,261					$	162,261					$	175,313											$	170,031					$	1,638					$	—					$	579,504
Ending Balance: collectively evaluated for impairment						65,369						161,746						175,313												163,991						1,638						—						568,057
Ending Balance: individually evaluated for impairment						4,892						515						—												6,040						—						—						11,447

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

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Nine months ended December 31, 2021
$ in thousands						One-to-four family						Multifamily						Commercial Real Estate												Business						Consumer						Unallocated						Total
Allowance for loan losses:
Beginning Balance						$	1,058					$	880					$	907											$	1,855					$	165					$	275					$	5,140
Charge-offs						—						—						—												—						(222)						(1)						(223)
Recoveries						—						—						—												82						21						—						103
Provision for (recovery of) Loan Losses						(137)						222						188												171						167						(143)						468
Ending Balance						$	921					$	1,102					$	1,095											$	2,108					$	131					$	131					$	5,488

The following is a summary of nonaccrual loans at December 31, 2022 and March 31, 2022.

$ in thousands			December 31, 2022						March 31, 2022
Gross loans receivable:
One-to-four family			$	4,066					$	4,892
Multifamily			71						515
Commercial real estate			7,275						4,601
Business			973						1,448
Consumer			—						25
Total nonaccrual loans			$	12,385					$	11,481

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

    At December 31, 2022 and March 31, 2022, other non-performing assets totaled $60 thousand, respectively, which consisted of other real estate owned comprised of one foreclosed residential property. Other real estate loans is included in other assets in the consolidated statements of financial condition. There were no held-for-sale loans at December 31, 2022 and March 31, 2022.

    Although we believe that substantially all risk elements at December 31, 2022 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.

    One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.

---

    At December 31, 2022, and based on the most recent analysis performed in the current quarter, the risk category by class of loans is as follows:

$ in thousands						Multifamily						Commercial Real Estate												Business
Credit Risk Profile by Internally Assigned Grade:
Pass						$	175,990					$	165,237											$	154,280
Special Mention						771						707												6,136
Substandard						886						7,275												7,186
Total						$	177,647					$	173,219											$	167,602
												One-to-four family												Consumer
Credit Risk Profile Based on Payment Activity:
Performing												$	61,045											$	2,139
Non-Performing												5,097												—
Total												$	66,142											$	2,139

    At March 31, 2022, 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						$	155,274					$	164,543											$	155,196
Special Mention						897						8,157												6,302
Substandard						6,090						2,613												8,533
Total						$	162,261					$	175,313											$	170,031
												One-to-four family												Consumer
Credit Risk Profile Based on Payment Activity:
Performing												$	65,369											$	1,613
Non-Performing												4,892												25
Total												$	70,261											$	1,638

    The following table presents an aging analysis of the recorded investment of past due loans receivables at December 31, 2022 and March 31, 2022.

.

December 31, 2022
$ 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						$	—					$	233					$	3,968					$	4,201					$	61,941					$	66,142
Multifamily						2,991						—						71						3,062						174,585						177,647
Commercial real estate						3,238						1,237						7,274						11,749						161,470						173,219
Business						8,443						—						464						8,907						158,695						167,602
Consumer						33						121						—						154						1,985						2,139
Total						$	14,705					$	1,591					$	11,777					$	28,073					$	558,676					$	586,749

March 31, 2022
$ 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						$	1,943					$	—					$	5,229					$	7,172					$	63,089					$	70,261
Multifamily						4,435						115						515						5,065						157,196						162,261
Commercial real estate						4,010						—						4,601						8,611						166,702						175,313
Business						923						40						664						1,627						168,404						170,031
Consumer						84						45						25						154						1,484						1,638
Total						$	11,395					$	200					$	11,034					$	22,629					$	556,875					$	579,504

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    The following table presents information on impaired loans with the associated allowance amount, if applicable, at December 31, 2022 and March 31, 2022.

						At December 31, 2022																		At March 31, 2022
$ in thousands						Recorded Investment						Unpaid Principal Balance						Associated Allowance						Recorded Investment						Unpaid Principal Balance						Associated Allowance
With no specific allowance recorded:
One-to-four family						$	4,066					$	4,661					$	—					$	4,892					$	5,576					$	—
Multifamily						71						71						—						515						515						—
Commercial real estate						7,275						7,401						—						—						—						—
Business						1,168						1,211						—						837						909						—
With an allowance recorded:
One-to-four family						1,031						1,031						103						—						—						—
Business						4,799						4,799						152						5,203						5,203						69
Total						$	18,410					$	19,174					$	255					$	11,447					$	12,203					$	69

    The following tables presents information on average balances of impaired loans and the interest income recognized on a cash basis for the three and nine month periods ended December 31, 2022 and 2021.

						For the Three Months Ended December 31,																								For the Nine Months Ended December 31,
						2022												2021												2022												2021
$ in thousands						Average Balance						Interest Income Recognized						Average Balance						Interest Income Recognized						Average Balance						Interest Income Recognized						Average Balance						Interest Income Recognized
With no specific allowance recorded:
One-to-four family						$	4,204					$	2					$	4,429					$	13					$	4,479					$	40					$	4,443					$	19
Multifamily						36						—						699						9						293						—						442						9
Commercial real estate						7,560						33						188						7						3,637						107						551						7
Business						1,174						10						2,125						24						1,003						44						2,212						24
With an allowance recorded:
One-to-four family						1,035						9						73						—						516						31						74						1
Commercial real estate						804						—						—						—						—						—						—						—
Business						4,962						67						5,293						—						5,001						202						5,333						149
Total						$	19,775					$	121					$	12,807					$	53					$	14,929					$	424					$	13,055					$	209

    In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a concession. In cases where the Bank grants any significant concessions to a troubled borrower, the Bank accounts for the modification as a TDR. Situations around these modifications may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. Loans modified in TDRs are placed on nonaccrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. There were two loan modifications made during the nine months ended December 31, 2022. No loan modifications were made during the three months ended December 31, 2022. There were no loan modifications made during the three and nine months ended December 31, 2021. Total TDR loans at December 31, 2022 were $6.8 million, $0.8 million of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. At March 31, 2022, total TDR loans were $6.9 million, of which $1.7 million were non-performing. The following table presents an analysis of the loan modifications that were classified as TDRs during the three and nine months ended December 31, 2022.

Loan Modifications for the nine months ended

December 31, 2022

$ in thousands

Number of loans

Recorded investment at time of modification

One-to-four family

2

$

1,047

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    In an effort to proactively resolve delinquent loans, the Bank has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the periods ended December 31, 2022 and 2021, there were no modified loans that defaulted within 12 months of modification.

    At December 31, 2022, there were 4 loans in the TDR portfolio totaling $6.0 million that were on accrual status as the Company has determined that future collection of the principal and interest is reasonably assured. These have generally performed according to restructured terms for a period of at least six months. At March 31, 2022, there were 2 loans in the TDR portfolio totaling $5.2 million that were on accrual status.

Transactions With Certain Related Persons

    Federal law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features.

    The aggregate amount of loans outstanding to related parties was $30 thousand at December 31, 2022 and at March 31, 2022. There were no advances or principal repayments during the nine months ended December 31, 2022.

    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.

    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.

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    The following table presents, by valuation hierarchy, assets that are measured at fair value on a recurring basis as of December 31, 2022 and March 31, 2022, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:

						Fair Value Measurements at December 31, 2022, Using
$ in thousands						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Fair Value
Mortgage servicing rights						$	—					$	—					$	145					$	145
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association						—						343						—						343
Federal Home Loan Mortgage Corporation						—						17,494						—						17,494
Federal National Mortgage Association						—						9,511						—						9,511
U.S. Government Agency securities						—						9,822						—						9,822
Corporate bonds						—						2,945						—						2,945
Muni securities						—						13,228						—						13,228
Asset-backed securities						—						100						—						100
Total available-for-sale securities						—						53,443						—						53,443
Total assets						$	—					$	53,443					$	145					$	53,588

						Fair Value Measurements at March 31, 2022, 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						$	—					$	—					$	162					$	162
Investment securities
Available-for-sale:
Mortgage-backed securities:
Government National Mortgage Association						—						448						—						448
Federal Home Loan Mortgage Corporation						—						21,547						—						21,547
Federal National Mortgage Association						—						11,584						—						11,584
U.S. Government Agency securities						—						13,785						—						13,785
Corporate bonds						—						4,121						—						4,121
Muni securities						—						15,768						—						15,768
Asset-backed securities						—						343						—						343
Total available-for-sale securities						—						67,596						—						67,596
Total assets						$	—					$	67,596					$	162					$	67,758

    Instruments for which unobservable inputs are significant to their fair value measurement (i.e., Level 3) include mortgage servicing rights (“MSR”). Level 3 assets accounted for 0.02% of the Company’s total assets at December 31, 2022 and March 31, 2022.

    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.

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    If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to market information, models also incorporate transaction details, such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt.

    In the nine month period ended December 31, 2022, 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 nine months ended December 31, 2022 and 2021:

$ 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, December 31, 2022						Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2022
Mortgage servicing rights			162						(17)						—						—						145						(15)

$ in thousands			Beginning balance, April 1, 2021						Total Realized/Unrealized Gains/(Losses) Recorded in Income (1)						Issuances / (Settlements)						Transfers to/(from) Level 3						Ending balance, December 31, 2021						Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2021
Mortgage servicing rights			147						(15)						—						—						132						(14)

(1) Includes net servicing cash flows and the passage of time.

    For Level 3 assets measured at fair value on a recurring basis as of December 31, 2022 and March 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

$ in thousands

Fair Value December 31, 2022

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Mortgage servicing rights

145

Discounted Cash Flow

Weighted Average Constant Prepayment Rate (1)

4.08

%

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

1000 basis points

$ in thousands

Fair Value March 31, 2022

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Mortgage servicing rights

162

Discounted Cash Flow

Weighted Average Constant Prepayment Rate (1)

6.70

%

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

1000 basis points

(1) Represents annualized loan repayment rate assumptions

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    Certain assets are measured at fair value on a non-recurring basis. Such instruments are subject to fair value adjustments under certain circumstances (e.g. when there is evidence of impairment). The following table presents assets and liabilities that were measured at fair value on a non-recurring basis as of December 31, 2022 and March 31, 2022, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:

						Fair Value Measurements at December 31, 2022 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						$	—					$	—					$	5,575					$	5,575
Other real estate owned						—						—						60						$	60

						Fair Value Measurements at March 31, 2022, 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						$	—					$	—					$	5,334					$	5,334
Other real estate owned						—						—						60						$	60

    For Level 3 assets measured at fair value on a non-recurring basis as of December 31, 2022 and March 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

$ in thousands

Fair Value December 31, 2022

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Impaired loans

$

5,575

Appraisal of collateral

Appraisal adjustments

7.5% cost to sell

Other real estate owned

60

Appraisal of collateral

Appraisal adjustments

7.5% cost to sell

$ in thousands

Fair Value March 31, 2022

Valuation Technique

Significant Unobservable Inputs

Significant Unobservable Input Value

Impaired loans

$

5,334

Appraisal of collateral

Appraisal adjustments

7.5% cost to sell

Other real estate owned

60

Appraisal of collateral

Appraisal adjustments

7.5% cost to sell

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

    Other real estate owned represents property acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure).  These assets are recorded at the lower of their cost or fair value. At the time of acquisition of the real estate owned, the real property value is adjusted to its current fair value. Any subsequent adjustments will be to the lower of cost or fair value. As of December 31, 2022 and March 31, 2022, we had loans with a carrying value of $6.9 million and $3.1 million, respectively, for which formal foreclosure proceedings were in process.

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    The carrying amounts and estimated fair values of the Bank’s financial instruments and estimation methodologies at December 31, 2022 and March 31, 2022 are as follows:

						December 31, 2022
$ 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						$	43,912					$	43,912					$	43,912					$	—					$	—
Securities available-for-sale						53,443						53,443						—						53,443						—
Securities held-to-maturity						2,406						2,282						—						2,282						—
Loans receivable						581,595						546,749						—						—						546,749
Accrued interest receivable						2,513						2,513						—						2,513						—
Mortgage servicing rights						145						145						—						—						145
Financial Liabilities:
Deposits						$	609,247					$	604,416					$	455,166					$	149,250					$	—
Advances from FHLB of New York						15,000						15,000						—						15,000						—
Other borrowed money						15,903						14,565						—						14,565						—
Accrued interest payable						152						152						—						152						—

						March 31, 2022
$ 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						$	61,018					$	61,018					$	61,018					$	—					$	—
Securities available-for-sale						67,596						67,596						—						67,596						—
Securities held-to-maturity						5,254						5,276						—						5,276						—
Loans receivable						573,880						563,821						—						—						563,821
Accrued interest receivable						2,414						2,414						—						2,414						—
Mortgage servicing rights						162						162						—						—						162
Financial Liabilities:
Deposits						$	628,117					$	624,160					$	485,884					$	138,276					$	—
Other borrowed money						15,906						15,673						—						15,673						—
Accrued interest payable						91						91						—						91						—

    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

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incurred for transaction-based fees in accordance with the fee schedules for the Bank's deposit products and services.

Loan fees and service charges

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

Other non-interest income

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

Interchange income

    

    The Company earns interchange fees from debit card holder transactions conducted through various payment networks. 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 nine months ended December 31, 2022 and 2021:

						Three Months Ended December 31,												Nine Months Ended December 31,
$ in thousands						2022						2021						2022						2021
Non-interest income
In-scope of Topic 606
Depository fees and charges						$	561					$	432					$	1,669					$	1,627
Loan fees and service charges						68						52						317						190
Other non-interest income						42						976						204						2,487
Non-interest income (in-scope of Topic 606)						671						1,460						2,190						4,304
Non-interest income (out-of-scope of Topic 606)						(265)						371						24						2,332
Total non-interest income						$	406					$	1,831					$	2,214					$	6,636

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    The following table sets forth other non-interest income and expense totals exceeding 1% of the aggregate of total interest income and non-interest income for any of the periods presented:

						Three Months Ended December 31,												Nine Months Ended December 31,
$ in thousands						2022						2021						2022						2021
Other non-interest income:
Correspondent banking fees						$	4					$	965					147						2,454
Other						86						177						224						267
Total non-interest income						$	90					$	1,142					$	371					$	2,721
Other non-interest expense:
Advertising						$	104					$	133					$	368					$	412
Legal expense						63						285						246						612
Insurance and surety						293						253						878						631
Audit expense						148						425						448						674
Data lines / internet						105						94						299						307
Security services						85						81						234						187
Retail expenses						224						115						690						602
Loss contingency						—						(770)						—						1,203
Director's fees						24						131						270						273
Other						679						623						1,892						1,843
Total non-interest expense						$	1,725					$	1,370					$	5,325					$	6,744

    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 December 31, 2022, operating ROU lease assets and related lease liabilities totaled $12.9 million and $13.8 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 December 31, 2022, the Company had $108 thousand and $97 thousand of ROU asset and lease liability, respectively, for finance leases related to equipment. The ROU asset is included in Premises and Equipment, net, and the lease liability is included in Advances from the FHLB-NY and Other Borrowed Money on the statements of financial condition.

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    The following tables present information about the Company's leases and the related lease costs as of and for the three and nine months ended December 31, 2022:

						December 31, 2022
Weighted-average remaining lease term
Operating leases						5.4 years
Finance lease						2.8 years
Weighted-average discount rate
Operating leases						3.03		%
Finance lease						2.78		%

						Three Months Ended December 31,												Nine Months Ended December 31,
$ in thousands						2022						2021						2022						2021
Operating lease expense						$	717					$	717					$	2,149					$	2,155
Finance lease cost
Amortization of right-of use asset						17						18						49						53
Interest on lease liability						1						1						2						1
Cash paid for amounts included in the measurement of lease liabilities
Operating leases						686						689						2,078						2,069
Finance lease						14						19						52						55

    Maturities of lease liabilities at December 31, 2022 are as follows:

$ in thousands						Operating Leases						Finance Leases
Year ending March 31,
2023						$	700					$	19
2024						2,921						41
2025						2,705						18
2026						2,687						16
2027						2,441						6
Thereafter						3,535						—
Total lease payments						14,989						100
Interest						(1,219)						(3)
Lease liability						$	13,770					$	97

Accounting Standards Recently Adopted

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.

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Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU No. 016-13, "Financial Instruments - Credit Loss," which updates the guidance on recognition and measurement of credit losses for financial assets. The new requirements, known as the current expected credit loss model ("CECL") will require entities to adopt an impairment model based on expected losses rather than incurred losses. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019 (for the Company, the fiscal year ending March 31, 2021), including interim periods within those fiscal years. In May 2019, the FASB issued ASU No. 2019-05, "Financial Instruments - Credit Losses (Topic 326): Target Transition Relief," to provide transition relief by giving entities an option to irrevocably elect the fair value option for certain financial assets measured at amortized cost upon adoption of ASU 2016-13. In November 2019, the FASB issued ASU No. 2019-10, which extended the CECL implementation date for smaller reporting companies, as defined by the SEC. The new effective date is for fiscal years beginning after December 15, 2022 (for the Company, the fiscal year ending March 31, 2024), including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses," to amend or clarify guidance regarding expected recoveries for purchased financial assets with credit deterioration, transition relief for troubled debt restructurings, disclosures related to accrued interest receivables, and financial assets secured by collateral maintenance provisions. The Company is currently in the implementation stage of ASU 2016-13 and has engaged two vendors to assist management in evaluating the requirements of the new standard, modeling requirements and assessment of the impact of the adoption of the new standard on its consolidated statements of financial condition and results of operations. In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures," which eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. The amendments also require disclosure of current period gross writeoffs by year of origination. The effective dates for the amendments in ASU 2022-02 are the same as the effective dates in ASU 2016-13. The Company has conducted testing of the ASU 2016-13 method utilizing historical financial analysis and plans to implement ASU 2016-13 with a deadline of April 1, 2023, for the application of the ASU 2016-13 methodology in all formal June 30, 2023 reports. The Company is evaluating the impacts of ASU 2016-13 and does not believe it will have a material impact on the consolidated financial statements. However, the Company has observed a slightly more conservative reserve calculation in testing modules. In addition, as mentioned herein, the Company has engaged a vendor as an additional resource to examine and reaffirm the models as it relates to the implementation of the ASU 2016-13 methodology. The effects and comparisons of the final implementation of ASU 2016-13 will be indicated and explained in further detail in forthcoming reports, including the Form 10-K for the Company's fiscal year ending March 31, 2023.

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.

In November 2021, the FASB issued ASU No. 2021-10 "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance," 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. ASU 2021-10 is effective for all entities for financial statements issued for annual periods beginning after December 15, 2021 (for the Company, the fiscal year ending March 31,

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On January 18, 2023, the Office of the Comptroller of the Currency ("OCC") notified the Bank that the Formal Agreement ("FA") between Carver Federal Savings Bank and the OCC dated May 24, 2016 was terminated, effective immediately. Dissolution of the FA releases the Bank from the following requirements/limits:

•Submission to the Board of a quarterly written progress report detailing the actions needed to achieve full compliance with each Article of the FA, identification of Bank personnel responsible for implementing the corrective actions, and the timeframes for completing the corrective actions;

◦Updates on actions taken to comply with each Article of the FA; and

◦Updates on the results and status of those actions.

•Periodic assessments and evaluations, including a performance appraisal program, to ensure strict adherence to an implemented written program to provide for effective Board and management supervision of the Bank.

•Annual submission to the OCC, within 60 days of its fiscal year-end, the Bank’s formal, written three-year Strategic Plan which establishes objectives for the Bank’s overall risk profile, earnings performance, growth, balance sheet mix, concentrations, liability structure, capital ad liquidity structure, together with strategies to achieve those objectives;

◦Prior to adoption of the annual Strategic Plan by the Board, the receipt of written determination of no supervisory objection from the OCC;

◦A quarterly written evaluation, prepared by the Board, of the Bank’s performance against the Strategic Plan, including a description of the actions the Board will take to address any shortcomings;

•Receipt of written determination of no supervisory objection from the OCC prior to initiating any action that “deviates significantly” from the Strategic Plan. Actions that may have constituted a “significant deviation” from the Strategic Plan included, but were not limited to, changes in the Bank's marketing strategies, products and services, marketing partners, underwriting practices and standards, credit administration, account management, collection strategies or operations, fee structure or pricing, accounting processes and practices, or funding strategy, or any other changes in personnel, operations, or external factors that may have a material impact on the Bank's operations or financial performance.

•Annual submission to the OCC, within 75 days of its fiscal year-end, the Bank’s formal, written three-year Capital Plan for the Bank,which includes specific plans for the maintenance of adequate capital, the identification and evaluation of all material risks and the identification and establishment of a capital strengthening strategy, if needed.

◦Prior to adoption of the annual Capital Plan by the Board, the receipt of written determination of no supervisory objection from the OCC;

◦A quarterly written evaluation, prepared by the Board, of the Bank’s performance against the Capital Plan, including a description of the actions the Board will take to address any shortcomings;

•Limitation on the asset size of the Commercial Real Estate loan portfolio, measured as a percentage of total risk-based capital.

•Limitation on the Bank’s ability to grow deposits through relationships with its institutional customers due to all reciprocal deposits considered to be brokered.

•Requirement to submit a prior notice to the OCC at least 90 days in advance of proposed changes in directors and senior executive officers.

•Prohibited from making, or agreeing to make, golden parachute payments to institution-affiliated parties without OCC and FDIC approval.

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