Carver Bancorp Inc 10-Q for FY2025 Q3
Carver Bancorp Inc (CARV)
10-Q
2025-02-13
For: 2024-12-31
View Original
Added on
April 06, 2026
About this 10-Q
Carver Bancorp Inc filed this 10-Q on February 13, 2025, covering the quarter ended December 31, 2024 (FY2025 Q3).
Headline figures
Quarter ended December 31, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $953K
- up 30.4% from $731K a year earlier
- Net loss
- $5.65M
- compared with net income of $19K a year earlier
- Diluted EPS
- -$1.09
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended December 31, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission File Number: 001-13007
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (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 | ☒ | Smaller Reporting Company | Emerging Growth Company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at February 12, 2025 | |||||||
| Common Stock, par value $0.01 | ||||||||
TABLE OF CONTENTS
| Page | ||||||||
PART I. FINANCIAL INFORMATION
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
| $ in thousands except per share data | December 31, 2024 | March 31, 2024 | ||||||||||||
| ASSETS | ||||||||||||||
| Cash and cash equivalents: | ||||||||||||||
| Cash and due from banks | $ | $ | ||||||||||||
| Money market investments | ||||||||||||||
| Total cash and cash equivalents | ||||||||||||||
| Investment securities: | ||||||||||||||
Available-for-sale, at fair value (amortized cost of $ | ||||||||||||||
Held-to-maturity, at amortized cost (fair value of $ | ||||||||||||||
| Total investment securities | ||||||||||||||
| Loans receivable: | ||||||||||||||
| Real estate mortgage loans | ||||||||||||||
| Commercial business loans | ||||||||||||||
| Consumer loans | ||||||||||||||
| Loans, net of deferred fees and costs | ||||||||||||||
| Allowance for credit losses | ( | ( | ||||||||||||
| Total loans receivable, net | ||||||||||||||
| Premises and equipment, net | ||||||||||||||
| Federal Home Loan Bank of New York (“FHLB-NY”) stock, at cost | ||||||||||||||
| Accrued interest receivable | ||||||||||||||
| Right-of-use assets | ||||||||||||||
| Other assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| LIABILITIES | ||||||||||||||
| Deposits: | ||||||||||||||
| Non-interest bearing checking | $ | $ | ||||||||||||
| Interest-bearing deposits: | ||||||||||||||
| Interest-bearing checking | ||||||||||||||
| Savings | ||||||||||||||
| Money market | ||||||||||||||
| Certificates of deposit | ||||||||||||||
| Escrow | ||||||||||||||
| Total interest-bearing deposits | ||||||||||||||
| Total deposits | ||||||||||||||
| Advances from the FHLB-NY and other borrowed money | ||||||||||||||
| Operating lease liability | ||||||||||||||
| Other liabilities | ||||||||||||||
| Total liabilities | ||||||||||||||
| Commitments and contingencies (Note 8) | ||||||||||||||
| EQUITY | ||||||||||||||
Preferred stock, (par value $ | ||||||||||||||
Preferred stock (par value $ | ||||||||||||||
Preferred stock (par value $ | ||||||||||||||
Common stock (par value | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated deficit | ( | ( | ||||||||||||
Treasury stock, at cost ( | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements
1
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||
| $ in thousands, except per share data | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Interest income: | ||||||||||||||||||||||||||
| Loans | $ | $ | $ | $ | ||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||
| Investment securities | ||||||||||||||||||||||||||
| Money market investments | ||||||||||||||||||||||||||
| Total interest income | ||||||||||||||||||||||||||
| Interest expense: | ||||||||||||||||||||||||||
| Deposits | ||||||||||||||||||||||||||
| Advances and other borrowed money | ||||||||||||||||||||||||||
| Total interest expense | ||||||||||||||||||||||||||
| Net interest income | ||||||||||||||||||||||||||
| Provision for (recovery of) credit losses | ( | |||||||||||||||||||||||||
| Net interest income after provision for (recovery of) credit losses | ||||||||||||||||||||||||||
| Non-interest income: | ||||||||||||||||||||||||||
| Depository fees and charges | ||||||||||||||||||||||||||
| Loan fees and service charges | ||||||||||||||||||||||||||
| Loss on sale of loans, net | ( | |||||||||||||||||||||||||
| Grant income | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total non-interest income | ||||||||||||||||||||||||||
| Non-interest expense: | ||||||||||||||||||||||||||
| Employee compensation and benefits | ||||||||||||||||||||||||||
| Net occupancy expense | ||||||||||||||||||||||||||
| Equipment, net | ||||||||||||||||||||||||||
| Data processing | ||||||||||||||||||||||||||
| Consulting fees | ||||||||||||||||||||||||||
| Federal deposit insurance premiums | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total non-interest expense | ||||||||||||||||||||||||||
| (Loss) income before income taxes | ( | ( | ( | |||||||||||||||||||||||
| Income tax expense | ||||||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| (Loss) earnings per common share: | ||||||||||||||||||||||||||
| Basic | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Diluted | ( | ( | ( | |||||||||||||||||||||||
See accompanying notes to consolidated financial statements
2
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||
| $ in thousands | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Other comprehensive (loss) income, net of tax: | ||||||||||||||||||||||||||
| Change in unrealized (loss) gain of securities available-for-sale, net of income tax expense of $0 (due to full valuation allowance) | ( | ( | ( | |||||||||||||||||||||||
| Total other comprehensive (loss) income, net of tax | ( | ( | ( | |||||||||||||||||||||||
| Total comprehensive (loss) income, net of tax | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
See accompanying notes to consolidated financial statements
3
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the Three and Nine Months Ended December 31, 2024 and 2023
(Unaudited)
| $ in thousands | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Accumulated Other Comprehensive Loss | Total Equity | |||||||||||||||||||||||||||||||||||||
Three Months Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance — September 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of taxes | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||||||
Balance — December 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
Nine Months Ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
Balance — March 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of taxes | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance — December 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
Three Months Ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance — September 30, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of taxes | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Conversion of Series D preferred stock to common stock | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance — December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
Nine Months Ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Balance — March 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
| Cumulative effect adjustment for adoption of ASU 2016-13 | — | — | — | ( | — | — | (668) | |||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of taxes | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Conversion of Series D preferred stock to common stock | ( | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Balance — December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements
4
CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended December 31, | ||||||||||||||
| $ in thousands | 2024 | 2023 | ||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Net loss | $ | ( | $ | ( | ||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
| Provision for credit losses | ||||||||||||||
| Stock based compensation expense | ||||||||||||||
| Depreciation and amortization expense | ||||||||||||||
| Loss on sale of loans, net | ||||||||||||||
| Amortization and accretion of loan premiums and discounts and deferred charges, net | ||||||||||||||
| Amortization and accretion of premiums and discounts — securities | ||||||||||||||
| Decrease (increase) in accrued interest receivable | ( | |||||||||||||
| Decrease (increase) in other assets | ( | |||||||||||||
| Increase (decrease) in other liabilities | ( | |||||||||||||
| Net cash used in operating activities | ( | ( | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Proceeds from principal payments, maturities and calls of investments: Available-for-sale | ||||||||||||||
| Proceeds from principal payments, maturities and calls of investments: Held-to-maturity | ||||||||||||||
| Increase in equity investments | ( | |||||||||||||
| Loans held-for investment, net of (originations) and repayments/payoffs and maturities | ||||||||||||||
| Loans purchased from third parties | ( | ( | ||||||||||||
| Proceeds from loans sold | ||||||||||||||
| Redemption of FHLB-NY stock, net | ||||||||||||||
| Purchase of premises and equipment | ( | ( | ||||||||||||
| Net cash provided by (used in) investing activities | ( | |||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
| Net (decrease) increase in deposits | ( | |||||||||||||
| Repayment of short-term borrowings | ( | |||||||||||||
| Proceeds from long-term borrowings | ||||||||||||||
| Repayment of long-term borrowings | ( | |||||||||||||
| Issuance of common stock | ||||||||||||||
| Net cash (used in) provided by financing activities | ( | |||||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents at beginning of period | ||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||
| Supplemental cash flow information: | ||||||||||||||
| Noncash financing and investing activities | ||||||||||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||||||||
| Cash paid for: | ||||||||||||||
| Interest | $ | $ | ||||||||||||
| Tax on capital | ||||||||||||||
See accompanying notes to consolidated financial statements
5
CARVER BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1. ORGANIZATION
Nature of operations
Carver Bancorp, Inc. (on a stand-alone basis, the “Company” or “Registrant”), was incorporated in May 1996 and its principal wholly-owned subsidiary is Carver Federal Savings Bank (the “Bank” or “Carver Federal”). Carver Federal's wholly-owned subsidiaries are CFSB Realty Corp., Carver Community Development Corporation (“CCDC”) and CFSB Credit Corp., which is currently inactive. The Bank has a real estate investment trust, Carver Asset Corporation ("CAC"), that was formed in February 2004.
“Carver,” the “Company,” “we,” “us” or “our” refers to the Company along with its consolidated subsidiaries. The Bank was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally-chartered mutual savings and loan association. The Bank converted to a federal savings bank in 1986. On October 24, 1994, the Bank converted from a mutual holding company structure to stock form and issued 2,314,375 shares of its common stock, par value $0.01 per share. On October 17, 1996, the Bank completed its reorganization into a holding company structure (the “Reorganization”) and became a wholly-owned subsidiary of the Company.
Carver Federal’s principal business consists of attracting deposit accounts through its branches and investing those funds in mortgage loans and other investments permitted by federal savings banks. The Bank has seven branches located throughout the City of New York that primarily serve the communities in which they operate.
In September 2003, the Company formed Carver Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Company. In accordance with Accounting Standards Codification (“ASC”) 810, “Consolidations,” Carver Statutory Trust I is unconsolidated for financial reporting purposes. On September 17, 2003, Carver Statutory Trust I issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities. Gross proceeds from the sale of these trust preferred debt securities of $13 million, and proceeds from the sale of the trust's common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Company's floating rate junior subordinated debt securities due 2033. The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008, and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05 % over the three-month SOFR. 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 December 2024 payment have been made. The interest rate was 7.66 % and the accrued interest was $46 thousand at December 31, 2024.
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.
6
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. 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 effecting 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 statement of the results of the interim period presented. Operating results for the three and nine month periods ended December 31, 2024 are not necessarily indicative of the results that may be expected for the year ended March 31, 2025. The consolidated balance sheet at December 31, 2024 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, 2024. 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
7
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. Inflationary pressure has started to decrease, but rates remain high and affect customer demand. The target interest rate range had been held steady at its highest point between 5.25% and 5.5% since July 2023, until the Federal Reserve lowered the rates by 50 basis points in September 2024, easing monetary policy for the first time since regular increases began in March 2022. The Federal Reserve approved two additional cuts in November and December, lowering the overnight borrowing rate to a range between 4.25% to 4.5%, but left interest rates unchanged at the January 2025 meeting. 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 job growth and levels of unemployment. The City's local area inflation has exceeded the national rate and its unemployment rate remains high at 5.4%, exceeding the national average.
The Bank's liquidity position remains adequate. The impact of market volatility from continued inflation and higher 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 the current business and industry environment, 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.
Recent Accounting Standards
Accounting Standards Recently Adopted
On April 1, 2023, the Company adopted Accounting Standards Codification ("ASC") Topic 326, "Financial Instruments - Credit Loss (ASC 326)," 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") requires 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. The adoption of ASC 326 resulted in an increase of $0.7 million to the allowance for credit losses related to loans and to the opening balance of accumulated deficit for the year ended March 31, 2024. 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.
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
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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. The Company adopted the LIBOR transition relief allowed under this standard, which allowed prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs.
Accounting Standards Not Yet Adopted
In November 2024, the FASB issued ASU No. 2024-03 "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40)" to improve the disclosures about a public business entity's expenses and address investor requests for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions. ASU No. 2024-03 is effective for fiscal years beginning after December 15, 2026 (for the Company, the fiscal year ending March 31, 2028), and interim periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this update should be applied either prospectively to financial statements issued for reporting periods after the effective date of this update, or retrospectively to any or all prior periods presented in the financial statements. ASU 2024-03 is not expected to have a material impact on the Company's financial statements.
In December 2023, the FASB issued ASU No. 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" to enhance income tax disclosures to help investors better assess how a company's operations and related tax risks and tax planning and operational opportunities affect its tax rate and prospects for future cash flows. The amendments in this update will require further disaggregated information about a reporting entity's effective tax rate reconciliation and information on income taxes paid. ASU No. 2023-09 is effective for fiscal years beginning after December 15, 2024 (for the Company, the fiscal year ending March 31, 2026), and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied on a prospective basis with an option for retrospective application. ASU 2023-09 is not expected to have a material impact on the Company's financial statements.
In November 2023, the FASB issued ASU No. 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023 (for the Company, the fiscal year ending March 31, 2025), and interim periods within fiscal years beginning after December 15, 2024. The amendments in this update should be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company does not expect the adoption of this ASU to have a material impact on the Company's financial statements.
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NOTE 3. (LOSS) EARNINGS PER COMMON SHARE
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||
| $ in thousands except per share data | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Net (loss) income | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Less: Participated securities share of undistributed earnings | ||||||||||||||||||||||||||
| Net (loss) income attributable to common shareholders | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||||||||||||
| Effect of dilutive shares | ||||||||||||||||||||||||||
| Weighted average common shares outstanding – diluted | ||||||||||||||||||||||||||
| Basic (loss) earnings per common share | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||
| Diluted (loss) earnings per common share | ( | ( | ( | |||||||||||||||||||||||
The Company has preferred shares which are entitled to receive dividends if declared on the Company's common stock and are therefore considered to be participating securities. Basic earnings (loss) per share (“EPS”) is computed using the two class method. This calculation divides net income (loss) available to common stockholders after the allocation of undistributed earnings to the participating securities by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These potentially dilutive shares are then included in the weighted average number of shares outstanding for the period. Dilution calculations are not applicable to net loss periods. For the three and nine months ended December 31, 2024 and nine months ended December 31, 2023, 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.
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 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
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$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 net proceeds of these offerings were used for general corporate purposes, including support for organic loan growth. During fiscal year 2022, the Company sold an aggregate of 397,367 shares of common stock under the ATM offering program, resulting in gross proceeds of $3.1 million and net proceeds to the Company of $3.0 million after deducting commissions and expenses. There have been no subsequent offerings.
During fiscal year 2023, Prudential Insurance Company of America ("Prudential"), an institutional investor, donated a total of 550 shares of its holdings of Series D Preferred Stock to third parties. The third parties notified the Company of their intention to cancel the shares and convert them into 67,265 shares of Common Stock. During fiscal year 2024, Prudential donated a total of 3,644 shares of its holdings of Series D Preferred Stock to third parties. The third parties notified the Company of their intention to cancel the shares and convert them into 445,661 shares of Common Stock. The conversions had no impact on the Company's total capital. There have been no conversions during the nine months ended December 31, 2024.
NOTE 5. ACCUMULATED OTHER COMPREHENSIVE LOSS
| $ in thousands | At March 31, 2024 | Other Comprehensive Loss, net of tax | At December 31, 2024 | |||||||||||||||||
| Net unrealized loss on securities available-for-sale | $ | ( | $ | ( | $ | ( | ||||||||||||||
| $ in thousands | At March 31, 2023 | Other Comprehensive Loss, net of tax | At December 31, 2023 | |||||||||||||||||||||||
| Net unrealized loss on securities available-for-sale | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
NOTE 6. INVESTMENT SECURITIES
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, 2024, securities with fair value of $44.1 million, or 96.1 %, of the Bank’s total securities were classified as available-for-sale, and securities with amortized cost of $1.8 million, or 3.9 %, were classified as held-to-maturity, compared to $48.0 million and $2.0 million at March 31, 2024, respectively. The Bank had no
Other investments as of December 31, 2024 primarily consisted of the Company and Bank's investments in limited partnership Community Capital Funds and a $5.0 million bank-owned life insurance policy ("BOLI") purchased during the first quarter of fiscal year 2023 as a channel to add to the Company's non-interest income revenue by means of an investment considered safe and sound by the Company's regulators. The investments in the limited partnerships are measured using the equity method. The BOLI is carried at the cash surrender value of the underlying policies. Income generated from the investments and the increase in the cash surrender value of the BOLI is included in other non-interest income on the Statements
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of Operations. Other investments totaled $6.4 million at December 31, 2024 and are included in Other Assets on the Statements of Financial Condition.
At December 31, 2024 | ||||||||||||||||||||||||||
| Amortized | Gross Unrealized | |||||||||||||||||||||||||
| $ in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
| Available-for-Sale: | ||||||||||||||||||||||||||
| Mortgage-backed Securities: | ||||||||||||||||||||||||||
| Government National Mortgage Association | $ | $ | $ | $ | ||||||||||||||||||||||
| Federal Home Loan Mortgage Corporation | ( | |||||||||||||||||||||||||
| Federal National Mortgage Association | ( | |||||||||||||||||||||||||
| Total mortgage-backed securities | ( | |||||||||||||||||||||||||
| U.S. Government Agency Securities | ( | |||||||||||||||||||||||||
| Corporate Bonds | ( | |||||||||||||||||||||||||
| Muni Securities | ( | |||||||||||||||||||||||||
| Total available-for-sale | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Held-to-Maturity: | ||||||||||||||||||||||||||
| Mortgage-backed Securities: | ||||||||||||||||||||||||||
| Government National Mortgage Association | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Federal National Mortgage Association and Other | ( | |||||||||||||||||||||||||
| Total held-to maturity | $ | $ | $ | ( | $ | |||||||||||||||||||||
At March 31, 2024 | ||||||||||||||||||||||||||
| Amortized | Gross Unrealized | |||||||||||||||||||||||||
| $ in thousands | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||
| Available-for-Sale: | ||||||||||||||||||||||||||
| Mortgage-backed Securities: | ||||||||||||||||||||||||||
| Government National Mortgage Association | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Federal Home Loan Mortgage Corporation | ( | |||||||||||||||||||||||||
| Federal National Mortgage Association | ( | |||||||||||||||||||||||||
| Total mortgage-backed securities | ( | |||||||||||||||||||||||||
| U.S. Government Agency Securities | ( | |||||||||||||||||||||||||
| Corporate Bonds | ( | |||||||||||||||||||||||||
| Muni Securities | ( | |||||||||||||||||||||||||
| Total available-for-sale | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Held-to-Maturity: | ||||||||||||||||||||||||||
| Mortgage-backed Securities: | ||||||||||||||||||||||||||
| Government National Mortgage Association | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Federal National Mortgage Association and Other | ( | |||||||||||||||||||||||||
| Total held-to-maturity | $ | $ | $ | ( | $ | |||||||||||||||||||||
There were no
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At December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||||
| $ in thousands | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||||
| Available-for-Sale: | ||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| U.S. Government Agency securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Corporate bonds | ( | ( | ||||||||||||||||||||||||||||||||||||
| Muni securities | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | ( | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Held-to-Maturity: | ||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Total held-to-maturity securities | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
At March 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||||||||||||||
| $ in thousands | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||||
| Available-for-Sale: | ||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| U.S. Government Agency securities | ( | ( | ( | |||||||||||||||||||||||||||||||||||
| Corporate bonds | ( | ( | ||||||||||||||||||||||||||||||||||||
| Muni securities | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total available-for-sale securities | $ | ( | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Held-to-Maturity: | ||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Total held-to-maturity securities | $ | $ | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
Management reviews the investment portfolio on a quarterly basis to identify and evaluate each investment that has an unrealized holding loss. A total of 23 available-for-sale and held-to-maturity securities had an unrealized loss at December 31, 2024 compared to 24 at March 31, 2024. Mortgage-backed securities, U.S. government agency securities, municipal securities and a corporate bond security represented 51.9 %, 10.1 %, 31.6 % and 6.4 %, respectively, of total available-for-sale securities in an unrealized loss position at December 31, 2024. There were seven mortgage-backed securities, one U.S. government agency securities, one corporate bond and six municipal securities that had an unrealized loss position for more than 12 months at December 31, 2024. Management has evaluated available-for-sale securities that are in an unrealized loss position and determined that the declines in fair value are attributable to market volatility, and not credit quality or other factors. Given the high credit quality of the mortgage-backed securities, which are backed by explicit U.S. government guarantees, or guarantees by government sponsored enterprises that have credit ratings and perceived credit risk comparable to the U.S. government, the high credit quality and strong financial performance of the U.S. government agency and the results of the individual analyses performed for and continuous surveillance on the municipal securities, as well as the corporate security that is a reputable institution in good financial standing, the risk of credit loss is minimal. Management believes that these unrealized losses are a direct result of the current rate environment and the Company has the ability and intent to hold the securities until maturity or the valuations recover. The Bank's held-to-maturity portfolio consists of six mortgage-backed securities that were in an unrealized loss position for more than 12 months at December 31, 2024. These securities are either fully guaranteed or issued by a government sponsored enterprise, which has a credit rating and perceived credit risk comparable to the U.S. government. As such, no
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| $ in thousands | Amortized Cost | Fair Value | Weighted Average Yield | |||||||||||||||||
| Available-for-Sale: | ||||||||||||||||||||
| One through five years | $ | $ | % | |||||||||||||||||
| Five through ten years | % | |||||||||||||||||||
| After ten years | % | |||||||||||||||||||
| Mortgage-backed securities | 1.64 | % | ||||||||||||||||||
| Total | $ | $ | % | |||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||
| Mortgage-backed securities | $ | $ | 2.85 | % | ||||||||||||||||
NOTE 7. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
The loans receivable portfolio is segmented into one-to-four family, multifamily, commercial real estate, construction, 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.
December 31, 2024 | March 31, 2024 | |||||||||||||||||||||||||
| $ in thousands | Amount | Percent | Amount | Percent | ||||||||||||||||||||||
| Loans receivable: | ||||||||||||||||||||||||||
| One-to-four family | $ | % | $ | % | ||||||||||||||||||||||
| Multifamily | % | % | ||||||||||||||||||||||||
| Commercial real estate | % | % | ||||||||||||||||||||||||
| Construction | % | % | ||||||||||||||||||||||||
Business (1) | % | % | ||||||||||||||||||||||||
Consumer (2) | % | % | ||||||||||||||||||||||||
| Total loans receivable | $ | % | $ | % | ||||||||||||||||||||||
| Allowance for credit losses | ( | ( | ||||||||||||||||||||||||
| Total loans receivable, net | $ | $ | ||||||||||||||||||||||||
(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 $2.6 million and $2.9 million at December 31, 2024 and March 31, 2024, respectively. The Bank purchased $3.8 million consumer loans during the nine months ended December 31, 2024.
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 December 31, 2024, the Bank had approved and funded approximately 420 applications totaling $57.1 million of loans under the PPP. Outstanding business loans under the PPP totaled $210 thousand as of December 31, 2024.
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The following is an analysis of the allowance for credit losses based upon the method of evaluating loan reserves under the expected loss methodology for the three and nine months ended December 31, 2024 and 2023, and the fiscal year ended March 31, 2024.
Three months ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in thousands | One-to-four family | Multifamily | Commercial Real Estate | Construction | Business | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recovery of) Credit Losses | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Nine months ended December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in thousands | One-to-four family | Multifamily | Commercial Real Estate | Construction | Business | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recovery of) Credit Losses | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses Ending Balance: collectively evaluated for impairment | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses Ending Balance: individually evaluated for impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Loan Receivables Ending Balance: | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Ending Balance: collectively evaluated for impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance: individually evaluated for impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||
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At March 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in thousands | One-to-four family | Multifamily | Commercial Real Estate | Construction | Business | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses Ending Balance: | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses Ending Balance: collectively evaluated for impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses Ending Balance: individually evaluated for impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Loan Receivables Ending Balance: | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Ending Balance: collectively evaluated for impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance: individually evaluated for impairment | ||||||||||||||||||||||||||||||||||||||||||||||||||
Three months ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in thousands | One-to-four family | Multifamily | Commercial Real Estate | Construction | Business | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recovery of) Credit Losses | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
Nine months ended December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ in thousands | One-to-four family | Multifamily | Commercial Real Estate | Construction | Business | Consumer | Unallocated | Total | ||||||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Impact of CECL adoption | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Charge-offs | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for (recovery of) Credit Losses | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
16
The following is a summary of nonaccrual loans, at amortized cost, at December 31, 2024 and March 31, 2024.
December 31, 2024 | ||||||||||||||||||||
| $ in thousands | Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | |||||||||||||||||
| Gross loans receivable: | ||||||||||||||||||||
| One-to-four family | $ | $ | $ | |||||||||||||||||
| Multifamily | ||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Business | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Total nonaccrual loans | $ | $ | $ | |||||||||||||||||
March 31, 2024 | ||||||||||||||||||||
| $ in thousands | Nonaccrual Loans with No Allowance | Nonaccrual Loans with an Allowance | Total Nonaccrual Loans | |||||||||||||||||
| Gross loans receivable: | ||||||||||||||||||||
| One-to-four family | $ | $ | $ | |||||||||||||||||
| Multifamily | ||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Business | ||||||||||||||||||||
| Consumer | ||||||||||||||||||||
| Total nonaccrual loans | $ | $ | $ | |||||||||||||||||
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 nine months ended December 31, 2024.
At December 31, 2024 and March 31, 2024, other non-performing assets totaled $52 one no
Although we believe that substantially all risk elements at December 31, 2024 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.
17
Doubtful - Loans have all the weaknesses inherent in those classified as Substandard, with the added characteristic that collection or liquidation in full, based on current facts, conditions and values, is highly questionable and improbable.
Loss - Loans are considered uncollectible with insignificant value and are charged off immediately to the allowance for credit losses.
One-to-four family residential loans and consumer loans are rated non-performing if they are delinquent in payments 90 or more days, or past maturity. All other one-to-four family residential loans and consumer loans are performing loans.
18
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 December 31, 2024:
| $ in thousands | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 and earlier | Revolving Loans | Total | ||||||||||||||||||||||||||||||||||||||||||
| Credit Risk Profile by Internally Assigned Grade: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Gross charge-offs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Credit Risk Profile Based on Payment Activity: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| One-to-four Family | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
| Non-Performing | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
| Non-Performing | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Gross charge-offs | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Total Loans (excluding gross charge-offs) | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
19
At March 31, 2024, the risk category by class of loans was as follows:
| $ in thousands | 2024 | 2023 | 2022 | 2021 | 2020 | 2019 and earlier | Revolving Loans | Total | ||||||||||||||||||||||||||||||||||||||||||
| Credit Risk Profile by Internally Assigned Grade: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | — | $ | ||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial Real Estate | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | — | |||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | — | ||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | — | |||||||||||||||||||||||||||||||||||||||||||
| Special Mention | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Loss | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Gross charge-offs | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Credit Risk Profile Based on Payment Activity: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| One-to-four Family | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | — | ||||||||||||||||||||||||||||||||||||||||||
| Non-Performing | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | — | $ | $ | — | $ | $ | — | $ | $ | $ | $ | — | ||||||||||||||||||||||||||||||||||||
| Non-Performing | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Gross charge-offs | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Total Loans (excluding gross charge-offs) | $ | $ | $ | $ | $ | $ | $ | — | $ | |||||||||||||||||||||||||||||||||||||||||
20
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 tables present an aging analysis of the amortized cost of past due loans receivables at December 31, 2024 and March 31, 2024.
.
December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| $ in thousands | 30-59 Days Past Due | 60-89 Days Past Due | 90 or More Days Past Due | Total Past Due | Current | Total Loans Receivables | ||||||||||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
March 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| $ in thousands | 30-59 Days Past Due | 60-89 Days Past Due | 90 or More Days Past Due | Total Past Due | Current | Total Loans Receivables | ||||||||||||||||||||||||||||||||
| One-to-four family | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Multifamily | ||||||||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||||
| Consumer | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
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 December 31, 2024 and March 31, 2024:
At December 31, 2024 | At March 31, 2024 | |||||||||||||||||||||||||||||||||||||
| Collateral Type | Collateral Type | |||||||||||||||||||||||||||||||||||||
| $ in thousands | Real Estate | Other | Allowance Allocated | Real Estate | Other | Allowance Allocated | ||||||||||||||||||||||||||||||||
| One-to-four family | $ | $ | — | $ | — | $ | $ | — | $ | — | ||||||||||||||||||||||||||||
| Multifamily | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Commercial real estate | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Business | ||||||||||||||||||||||||||||||||||||||
| Consumer | — | — | ||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
Real estate collateral includes one-to-four family, multifamily and commercial properties. Collateral types securing business loans include accounts receivable. There have been no significant changes to the types of collateral securing the Bank's collateral dependent loans.
In certain circumstances, the Bank will modify the terms of a loan, including extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. Loans modified are placed on nonaccrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. There were no 6.0 million, $348 thousand of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. There were three modified loans totaling $5.7 million that were on accrual status as the Company has determined that future collection of the principal and interest is reasonably assured. These have generally performed according to the restructured terms for a period of at least six months. For the periods ended December 31, 2024 and 2023, there were no
21
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 December 31, 2024.
NOTE 8. COMMITMENTS AND CONTINGENCIES
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. These instruments are not recorded in the consolidated financial statements. Such instruments primarily include lending obligations, including commitments to originate mortgage and consumer loans and to fund unused lines of credit.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments.
The following table reflects the Bank's outstanding commitments as of December 31, 2024 and March 31, 2024:
| $ in thousands | December 31, 2024 | March 31, 2024 | ||||||||||||
| Lines of credit | $ | |||||||||||||
| Letters of credit | ||||||||||||||
| Commitment to fund private equity investment | ||||||||||||||
| $ | $ | |||||||||||||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty.
NOTE 9. 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.
22
◦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.
Fair Value Measurements at December 31, 2024, Using | ||||||||||||||||||||||||||
| $ in thousands | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||||||||||
| Mortgage servicing rights | $ | $ | $ | $ | ||||||||||||||||||||||
| Investment securities | ||||||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||
| Government National Mortgage Association | ||||||||||||||||||||||||||
| Federal Home Loan Mortgage Corporation | ||||||||||||||||||||||||||
| Federal National Mortgage Association | ||||||||||||||||||||||||||
| U.S. Government Agency securities | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Muni securities | ||||||||||||||||||||||||||
| Total available-for-sale securities | ||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
Fair Value Measurements at March 31, 2024, Using | ||||||||||||||||||||||||||
| $ in thousands | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||||||||||
| Mortgage servicing rights | $ | $ | $ | $ | ||||||||||||||||||||||
| Investment securities | ||||||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||
| Government National Mortgage Association | ||||||||||||||||||||||||||
| Federal Home Loan Mortgage Corporation | ||||||||||||||||||||||||||
| Federal National Mortgage Association | ||||||||||||||||||||||||||
| U.S. Government Agency securities | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Muni securities | ||||||||||||||||||||||||||
| Total available-for-sale securities | ||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
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, 2024 and March 31, 2024.
The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next that are related to the observable inputs to a fair value measurement may result in a reclassification from one hierarchy level to another.
Below is a description of the methods and significant assumptions utilized in estimating the fair value of available-for-sale securities and MSR:
23
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.
If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. These pricing models primarily use market-based or independently sourced market parameters as inputs, including, but not limited to, yield curves, interest rates, equity or debt prices, and credit spreads. In addition to market information, models also incorporate transaction details, such as maturity and cash flow assumptions. Securities valued in this manner would generally be classified within Level 2 of the valuation hierarchy and primarily include such instruments as mortgage-related securities and corporate debt.
During the nine months ended December 31, 2024, 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.
| $ in thousands | Beginning balance, April 1, 2024 | Total Realized/Unrealized Gains/(Losses) Recorded in Income (1) | Issuances / (Settlements) | Transfers to/(from) Level 3 | Ending balance, December 31, 2024 | Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2024 | ||||||||||||||||||||||||||||||||
| Mortgage servicing rights | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||
| $ 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, December 31, 2023 | Change in Unrealized Gains/(Losses) Related to Instruments Held at December 31, 2023 | ||||||||||||||||||||||||||||||||
| Mortgage servicing rights | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||
(1) Includes net servicing cash flows and the passage of time.
| $ in thousands | Fair Value December 31, 2024 | Valuation Technique | Significant Unobservable Inputs | Significant Unobservable Input Value | ||||||||||||||||||||||
| Mortgage servicing rights | $ | Discounted Cash Flow | Weighted Average Constant Prepayment Rate (1) | % | ||||||||||||||||||||||
| Range of Inputs | 3.0% to 11.0% | |||||||||||||||||||||||||
| Option Adjusted Spread ("OAS") applied to Treasury curve | 1000 basis points | |||||||||||||||||||||||||
| $ in thousands | Fair Value March 31, 2024 | Valuation Technique | Significant Unobservable Inputs | Significant Unobservable Input Value | ||||||||||||||||||||||
| Mortgage servicing rights | $ | Discounted Cash Flow | Weighted Average Constant Prepayment Rate (1) | % | ||||||||||||||||||||||
| Range of Inputs | 3.0% to 7.1% | |||||||||||||||||||||||||
| Option Adjusted Spread ("OAS") applied to Treasury curve | 1000 basis points | |||||||||||||||||||||||||
(1) Represents annualized loan repayment rate assumptions (ZMUPT model)
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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, 2024 and March 31, 2024, and that are included in the Company’s Consolidated Statements of Financial Condition at these dates:
Fair Value Measurements at December 31, 2024 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, 2024, 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 | $ | |||||||||||||||||||||||||
| $ in thousands | Fair Value December 31, 2024 | 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, 2024 | Valuation Technique | Significant Unobservable Inputs | Significant Unobservable Input Value | ||||||||||||||||||||||
| 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 December 31, 2024 and March 31, 2024, the Company had loans with a carrying value of $13.9 million and $15.2 million, respectively, for which formal foreclosure proceedings were in process.
NOTE 10. 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.
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December 31, 2024 | ||||||||||||||||||||||||||||||||
| $ in thousands | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Securities available-for-sale | ||||||||||||||||||||||||||||||||
| Securities held-to-maturity | ||||||||||||||||||||||||||||||||
| Loans receivable | ||||||||||||||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Advances from FHLB-NY | ||||||||||||||||||||||||||||||||
| Other borrowed money | ||||||||||||||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||||||||||||||
March 31, 2024 | ||||||||||||||||||||||||||||||||
| $ in thousands | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||||
| Financial Assets: | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Securities available-for-sale | ||||||||||||||||||||||||||||||||
| Securities held-to-maturity | ||||||||||||||||||||||||||||||||
| Loans receivable | ||||||||||||||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||||||||||||||
| Mortgage servicing rights | ||||||||||||||||||||||||||||||||
| Financial Liabilities: | ||||||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Advances from FHLB-NY | ||||||||||||||||||||||||||||||||
| Other borrowed money | ||||||||||||||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||||||||||||||
NOTE 11. NON-INTEREST REVENUE AND EXPENSE
ASC Topic 606, Revenue from Contracts with Customer ("Topic 606") does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as gains on sales of residential mortgage and SBA loans, income associated with servicing assets, and loan fees, including residential mortgage originations to be sold and prepayment and late fees charged across all loan categories are not in scope of the guidance. Topic 606 is applicable to non-interest revenue streams, such as depository fees, service charges and commission revenues. The Company generally satisfies its performance obligations on contracts with customers as services are rendered, and the transaction prices are typically fixed and charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers. Non-interest revenue streams in-scope of Topic 606 are discussed below.
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Depository fees and charges
Depository fees and charges primarily relate to service fees on deposit accounts and fees earned from debit cards and check cashing transactions. Service fees on deposit accounts consist of ATM fees, NSF fees, account maintenance charges and other deposit related fees. The fees are recognized as revenue over the period the related service is provided, or as incurred for transaction-based fees in accordance with the fee schedules for the Bank's deposit products and services. The payment for these services are received at the time the services are provided or when customer transactions take place.
Loan fees and service charges
Loan fees and service charges primarily relate to program management fees and fees earned in accordance with the Bank's standard lending fees (such as inspection and late charges). The payments are received when such services are provided and these standard lending fees are recognized as revenue over the period the related service is provided.
Other non-interest income
Other non-interest income includes 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 payments are typically received monthly and the revenue is recognized over the period the related service is provided and collected in accordance with the agreements.
Interchange income
The Company earns interchange fees from debit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided by an outsource technology solution and are presented on a net basis.
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||
| $ in thousands | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Non-interest income | ||||||||||||||||||||||||||
| In-scope of Topic 606 | ||||||||||||||||||||||||||
| Depository fees and charges | $ | $ | $ | $ | ||||||||||||||||||||||
| Loan fees and service charges | ||||||||||||||||||||||||||
| Other non-interest income | ||||||||||||||||||||||||||
| Non-interest income (in-scope of Topic 606) | ||||||||||||||||||||||||||
| Non-interest income (out-of-scope of Topic 606) | ||||||||||||||||||||||||||
| Total non-interest income | $ | $ | $ | $ | ||||||||||||||||||||||
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Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||
| $ in thousands | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Other non-interest income: | ||||||||||||||||||||||||||
| Empowering Change program fees | $ | $ | $ | $ | ||||||||||||||||||||||
| BOLI income | ||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||
| Total other non-interest income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other non-interest expense: | ||||||||||||||||||||||||||
| Advertising | $ | $ | $ | $ | ||||||||||||||||||||||
| Legal expense | $ | |||||||||||||||||||||||||
| Insurance and surety | ||||||||||||||||||||||||||
| Audit expense | ||||||||||||||||||||||||||
| Data lines / internet | ||||||||||||||||||||||||||
| Security services | ||||||||||||||||||||||||||
| Loan expense | ||||||||||||||||||||||||||
| Retail expenses | ||||||||||||||||||||||||||
| Operating charge-offs and other losses | ||||||||||||||||||||||||||
| Investor relations | ||||||||||||||||||||||||||
| Director's fees | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total other non-interest expense | $ | $ | $ | $ | ||||||||||||||||||||||
NOTE 12. LEASES
The Company applies ASC Topic 842, Leases ("ASC 842") to its leases. The Company has operating leases related to its administrative offices and seven retail branches. 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 Topic 840, Leases ("ASC 840"). ASC 842 does not require previous sale and leaseback transactions accounted for under ASC 840 to be reassessed. As of December 31, 2024, operating right-of-use ("ROU") lease assets and related lease liabilities totaled $8.9 million and $9.5 million, respectively. As of March 31, 2024, operating ROU lease assets and related lease liabilities totaled $9.8 million and $10.6 million, respectively.
As 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, 2024, the Company had $36 thousand and $37 thousand of ROU asset and lease liability, respectively, for finance leases related to equipment. The ROU asset is included in Premises and Equipment, net, and the lease liability is included in Advances from the FHLB-NY and Other Borrowed Money on the statements of financial condition.
The following tables present information about the Company's leases and the related lease costs as of and for the three and nine months ended December 31, 2024:
December 31, 2024 | March 31, 2024 | |||||||||||||
| Weighted-average remaining lease term | ||||||||||||||
| Operating leases | ||||||||||||||
| Finance lease | ||||||||||||||
| Weighted-average discount rate | ||||||||||||||
| Operating leases | % | % | ||||||||||||
| Finance lease | % | % | ||||||||||||
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Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||
| $ in thousands | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||||||||||||
| Finance lease cost | ||||||||||||||||||||||||||
| Amortization of right-of-use asset | ||||||||||||||||||||||||||
| Interest on lease liability | ||||||||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||||||||||||||||||||
| Operating leases | ||||||||||||||||||||||||||
| Finance lease | ||||||||||||||||||||||||||
| $ in thousands | Operating Leases | Finance Leases | ||||||||||||
| Year ending March 31, | ||||||||||||||
| 2025 | $ | $ | ||||||||||||
| 2026 | ||||||||||||||
| 2027 | ||||||||||||||
| 2028 | ||||||||||||||
| 2029 | ||||||||||||||
| Thereafter | ||||||||||||||
| Total lease payments | ||||||||||||||
| Interest | ( | ( | ||||||||||||
| Lease liability | $ | $ | ||||||||||||
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 Company's ability to manage its profitability and costs;
•turnover in senior management or the Company's ability to attract and retain qualified personnel;
•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 bank closings and the risks related to 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;
29
•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;
•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;
•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 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 impact of actions taken by activist shareholders and the costs and expenses associated with such actions;
•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
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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 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 $727.5 million in assets and 111 employees as of December 31, 2024.
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 75-year history in its market area, its community involvement and relationships, targeted products and services and personal service consistent with community banking, help the Bank compete with competitors that have entered its market.
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The 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 December 31, 2024, 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, 2024 included in its Form 10-K for the year ended March 31, 2024, as supplemented by this report, contains a summary of significant accounting estimates. The Company believes its policies with respect to the methodologies used to determine the allowance for credit losses is the most critical accounting estimate. This estimate 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, 2024.
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. Inflationary pressure has started to decrease, but rates remain high. The target interest rate range had been held steady at its highest point between 5.25% and 5.5% since July 2023, until the Federal Reserve lowered rates by 50 basis points in September 2024, decreasing the target range to 4.75% to 5% and began easing monetary policy for the first time in four years. The Federal Reserve approved two additional cuts in November and December, lowering the overnight borrowing rate to a range between 4.25% to 4.5%, but left interest rates unchanged at the January 2025 meeting. A high interest 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. There have been no significant changes to the inputs and assumptions during the nine months ended December 31, 2024.
The ACL is a valuation account that is deducted from the loan portfolio's amortized cost basis to present the net amount expected to be collected on the loans. Additions to the allowance are recognized through the provision for credit losses. Loan losses are charged off against the allowance when management believes a loan balance is deemed as uncollectible. Management continues its collection efforts on previously charged-off balances and applies recoveries as additions to the ACL. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The discounted cash flow ("DCF") methodology is used for substantially all pools, applied with a 4-quarter reasonable and supportable forecast period and the loss rate reverts back to the long-term historical loss average with a 12-quarter straight-line reversion period where the ACL reflects the difference between the amortized cost and the present value of the expected cash flows.
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 December 31, 2024 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. The Bank generally requires a debt service coverage ratio at origination of at least 1.30x, and that the maximum loan-to-value
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("LTV") at origination not exceed 70% based on the appraised value of the mortgaged property. Multifamily property lending entails additional risks compared to one-to-four family lending. These loans are dependent on the successful operation of such buildings and can be significantly impacted by economic conditions, industry concentration, valuation of the underlying properties, lease terms, occupancy/vacancy rates, and changes in market demand for multifamily units. The Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the 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 maximum LTV ratio on CRE loans at origination is generally 70% based on the latest appraised fair market value of the mortgaged property and the Bank generally requires a debt service coverage ratio at origination of at least 1.30x. 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.
•Consumer (including Overdraft accounts) - The Consumer portfolio includes student loans to medical students enrolled in several medical schools, throughout the United States and the Caribbean, as well as unsecured consumer loans purchased from or originated through strategic partnerships with Bankers Healthcare Group, LLC and Upstart Holdings, Inc. Consumer loans are typically unsecured and more susceptible to declining economic conditions.
Because expected loss predictions may not adequately project the level of losses inherent in a portfolio, the Bank reviews a number of qualitative factors to determine if reserves should be adjusted based upon any of those factors. As the risk ratings deteriorate, some of the qualitative factors tend to increase. A number of qualitative factors are considered including economic forecast uncertainty, credit quality trends, valuation trends, concentration risk, quality of loan review, changes in personnel, impact of rising rates, external factors and other considerations. Although the quantitative calculation includes a measurement of statistical economic conditions based on national averages, an additional analysis is performed at the qualitative level that applies specifically to the Company's geographic area and the banking industry that includes reasonable and supportable forecasts.
Stock Repurchase Program
On August 6, 2002, the Company announced a stock repurchase program to repurchase up to 15,442 shares of its outstanding common stock. As of December 31, 2024, 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).
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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 $8.2 million, or 17.6%, to $38.3 million at December 31, 2024, compared to $46.5 million at March 31, 2024. During the first quarter of the current fiscal year, the Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, which provides members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. In addition, the Bank made a partial paydown of $10.0 million on a $25.0 million 2-year advance from the FHLB-NY during the second quarter. At December 31, 2024, the Bank had $19.8 million outstanding advances from the FHLB-NY. At December 31, 2024, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $12.7 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 December 31, 2024.
During the first quarter of the current fiscal year, the Company entered into an agreement with a third party, under which the third party provided the Company with a $25.0 million revolving unsecured long-term, below-market-rate loan to support the Bank in financing initiatives that reduce greenhouse gas emissions and promote energy efficiency in building projects, fleet upgrades to electric vehicles, and electric vehicle charging station infrastructure. The loan facility will also support the working capital and asset-specific financing needs of Minority and Women-owned Business Enterprises working on green energy projects, weatherization, electrification, and green technology. As of December 31, 2024, the Company has not drawn on the facility.
The Bank's most liquid assets are cash and short-term investments. The level of these assets is dependent on the Bank's operating, investing and financing activities during any given period. At December 31, 2024 and March 31, 2024, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $50.0 million and $59.0 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 have been no subsequent offerings.
The most significant potential liquidity challenge the Bank faces is variability in its cash flows as a result of mortgage refinance activity. When mortgage interest rates decline, customers’ refinance activities tend to accelerate, causing the cash flow from both the mortgage loan portfolio and the mortgage-backed securities portfolio to accelerate. In contrast, when mortgage interest rates increase, refinance activities tend to slow, causing a reduction of liquidity. However, in a rising rate environment, customers generally tend to prefer fixed-rate mortgage loan products over variable rate products. Carver Federal is also at risk of deposit outflows due to a competitive interest rate environment.
The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During the nine months ended December 31, 2024, total cash and cash equivalents decreased $9.0 million to $50.0 million at December 31, 2024, compared to $59.0 million at March 31, 2024, reflecting cash used in operating activities of $6.4 million and cash used in financing activities of $18.1 million, partially offset by cash provided by investing activities of $15.4 million. Net cash used in financing activities of $18.1 million resulted from a net decrease in deposits of $10.1 million and a decrease of $8.3 million in long-term borrowings. The Bank secured a $1.8 million 12-month fixed-rate advance through the
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second round of the FHLB-NY 0% Development Advance (ZDA) Program, and made a partial paydown of $10.0 million on a $25.0 million 2-year advance from the FHLB-NY. In addition, the Company issued common shares in private placements during the current quarter for gross proceeds of $0.2 million. Net cash provided by investing activities of $15.4 million was attributable to investment paydowns and loan repayments and payoffs, net of purchases and originations.
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 Tier 1 leverage ratio and 12% for its total risk-based capital ratio. The Formal Agreement was terminated on January 18, 2023. The IMCR remains in effect.
Effective January 1, 2020, the federal banking agencies adopted a rule to establish for institutions with assets of less than $10 billion that meet other specified criteria a “community bank leverage ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) of 9% that such institutions may elect to utilize in lieu of the generally applicable leverage and risk-based capital requirements noted above. A “qualifying community bank” with capital exceeding 9% will be considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well capitalized.” For the current period, the Bank has elected to continue to utilize the generally applicable leverage and risk-based requirements and not apply the community bank leverage ratio.
The table below presents the capital position of the Bank at December 31, 2024:
December 31, 2024 | ||||||||||||||
| ($ in thousands) | Amount | Ratio | ||||||||||||
| Tier 1 leverage capital | ||||||||||||||
| Regulatory capital | $ | 67,209 | 9.03 | % | ||||||||||
| Individual minimum capital requirement | 66,995 | 9.00 | % | |||||||||||
| Minimum capital requirement | 29,776 | 4.00 | % | |||||||||||
| Excess over individual minimum capital requirement | 214 | 0.03 | % | |||||||||||
| Common equity Tier 1 | ||||||||||||||
| Regulatory capital | $ | 67,209 | 11.13 | % | ||||||||||
| Minimum capital requirement | 42,288 | 7.00 | % | |||||||||||
| Excess | 24,921 | 4.13 | % | |||||||||||
| Tier 1 risk-based capital | ||||||||||||||
| Regulatory capital | $ | 67,209 | 11.13 | % | ||||||||||
| Minimum capital requirement | 51,350 | 8.50 | % | |||||||||||
| Excess | 15,859 | 2.63 | % | |||||||||||
| Total risk-based capital | ||||||||||||||
| Regulatory capital | $ | 73,356 | 12.14 | % | ||||||||||
| Individual minimum capital requirement | 72,494 | 12.00 | % | |||||||||||
| Minimum capital requirement | 63,432 | 10.50 | % | |||||||||||
| Excess over individual minimum capital requirement | 862 | 0.14 | % | |||||||||||
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 December 31, 2024, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage capital ratio of 9.03%, Common Equity Tier 1 capital ratio of 11.13%, Tier 1 risk-based capital ratio of 11.13%, and a total risk-based capital ratio of 12.14%.
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 effecting 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
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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.
Mortgage Representation and Warranty Liabilities
During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”). The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities ("GSEs"). The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral. The Bank has not received a request to repurchase any of these loans since the second quarter of fiscal 2015, and there have not been any additional requests from FNMA for loans to be reviewed. At December 31, 2024, the Bank continues to service 71 loans with a principal balance of $10.7 million for FNMA that had been sold with standard representations and warranties.
The following table presents information on open requests from FNMA. The amounts presented are based on outstanding loan principal balances.
| $ in thousands | Loans sold to FNMA | |||||||
Open claims as of March 31, 2024 (1) | $ | 1,367 | ||||||
| Gross new demands received | — | |||||||
| Loans repurchased/made whole | — | |||||||
| Demands rescinded | — | |||||||
| Advances on open claims | — | |||||||
| Principal payments received on open claims | (12) | |||||||
Open claims as of December 31, 2024 (1) | $ | 1,355 | ||||||
(1) The open claims include all open requests received by the Bank where either FNMA has requested loan files for review, where FNMA has not formally rescinded the repurchase request or where the Bank has not agreed to repurchase the loan. The amounts reflected in this table are the unpaid principal balance and do not incorporate any losses the Bank would incur upon the repurchase of these loans.
Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable. These reserves are reported in the consolidated statement of financial condition as a component of other liabilities. The table below summarizes changes in our representation and warranty reserves during the nine months ended December 31, 2024:
| $ in thousands | December 31, 2024 | |||||||
Representation and warranty repurchase reserve, March 31, 2024 (1) | $ | 86 | ||||||
Net adjustment to reserve for repurchase losses (2) | (5) | |||||||
Representation and warranty repurchase reserve, December 31, 2024 (1) | $ | 81 | ||||||
(1) Reported in our consolidated statements of financial condition as a component of other liabilities.
(2) Component of other non-interest expense.
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Comparison of Financial Condition at December 31, 2024 and March 31, 2024
Assets
At December 31, 2024, total assets were $727.5 million, reflecting a decrease of $29.3 million, or 3.9%, from total assets of $756.8 million at March 31, 2024. The decrease was primarily attributable to decreases of $9.0 million in cash and cash equivalents, and $4.1 million and $12.2 million in the Bank's net investment and loan portfolios, respectively.
Total cash and cash equivalents decreased $9.0 million, or 15.3%, from $59.0 million at March 31, 2024 to $50.0 million at December 31, 2024. The decrease in cash was primarily due to decreases of $10.1 million in total deposits and $8.2 million in advances from the FHLB-NY and other borrowed money. This was partially offset by paydowns received on investment securities and net loan activity.
Total investment securities decreased $4.1 million, or 8.2%, to $45.9 million at December 31, 2024, compared to $50.0 million at March 31, 2024 due to scheduled principal payments received of approximately $3.7 million and a $0.3 million increase in unrealized losses in the available-for-sale portfolio.
Gross portfolio loans decreased $12.0 million, or 1.9%, to $610.9 million at December 31, 2024, compared to $622.9 million at March 31, 2024, primarily due to attrition and payoffs of $48.9 million. The level of payoffs and paydowns can be attributed to commercial real estate activity, as some borrowers continue to seek opportunities to reduce interest expense in the current rate environment. These were partially offset by new loan originations of $33.8 million and loan pool purchases of $3.8 million.
Liabilities and Equity
Total liabilities decreased $19.2 million, or 2.7%, to $695.3 million at December 31, 2024, compared to $714.5 million at March 31, 2024, due to decreases of $10.1 million in total deposits and $8.2 million in advances from the FHLB-NY and other borrowed money.
Deposits decreased $10.1 million, or 1.6%, to $636.9 million at December 31, 2024, compared to $647.0 million at March 31, 2024. An increase of $12.5 million in certificate of deposit accounts was offset by decreases in money market, savings, non-interest bearing checking accounts, and interest-bearing business checking accounts of $7.3 million, $6.1 million, $4.7 million and $2.8 million, respectively. The increase in time deposits was comprised of increases of $7.9 million in institutional deposits in CDARS accounts and $4.6 million in retail deposit accounts.
Advances from the FHLB-NY and other borrowed money decreased $8.2 million, or 17.6%, to $38.3 million at December 31, 2024, compared to $46.5 million at March 31, 2024. During the first quarter of the current fiscal year, the Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, which provides members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. In addition, the Bank made a partial paydown of $10.0 million on a $25.0 million 2-year advance from the FHLB-NY during the second quarter. At December 31, 2024, the Bank had $19.8 million outstanding advances from the FHLB-NY.
Total equity decreased $10.0 million, or 23.6%, to $32.3 million at December 31, 2024, compared to $42.3 million at March 31, 2024. The decrease was due to a net loss of $10.0 million coupled with an increase of $0.3 million in unrealized losses on securities available-for-sale for the nine month period ended December 31, 2024. These decreases were partially offset by a $0.2 million increase in capital as a result of the issuance of common shares in private placements during the current 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.
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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 December 31, 2024, the Company had $3.9 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 December 31, 2024 was $9 thousand and is included in Other Liabilities in the consolidated statements of financial condition.
Comparison of Operating Results for the Three and Nine Months Ended December 31, 2024 and 2023
Overview
The Company reported a net loss of $5.6 million for the three months ended December 31, 2024, compared to net income of $19 thousand for the comparable prior year quarter. The change in our results was due to increases in interest expense, non-interest expense and provision for credit losses, and decreases in interest and non-interest income compared to the prior year quarter. For the nine months ended December 31, 2024, the Company reported a net loss of $10.0 million, compared to a net loss of $3.0 million for the prior year period. The increase in net loss was primarily driven by increases in interest expense, non-interest expense and provision for credit losses and a decrease in non-interest income, partially offset by an increase in interest income compared to the prior year period.
The following table reflects selected operating ratios for the three and nine months ended December 31, 2024 and 2023 (unaudited):
Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||||||||||||||||
| Selected Financial Data: | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||
Return on average assets (1) | (3.05) | % | 0.01 | % | (1.78) | % | (0.55) | % | |||||||||||||||||||||
Return on average stockholders' equity (2) | (58.55) | % | 0.19 | % | (33.08) | % | (9.41) | % | |||||||||||||||||||||
Return on average stockholders' equity, excluding AOCI (2) (8) | (44.98) | % | 0.14 | % | (25.28) | % | (7.12) | % | |||||||||||||||||||||
Net interest margin (3) | 1.63 | % | 3.03 | % | 2.64 | % | 3.08 | % | |||||||||||||||||||||
Interest rate spread (4) | 1.14 | % | 2.60 | % | 2.14 | % | 2.66 | % | |||||||||||||||||||||
Efficiency ratio (5) | 240.84 | % | 100.97 | % | 154.73 | % | 113.77 | % | |||||||||||||||||||||
Operating expenses to average assets (6) | 5.12 | % | 4.38 | % | 4.62 | % | 4.40 | % | |||||||||||||||||||||
Average stockholders' equity to average assets (7) | 5.20 | % | 5.39 | % | 5.38 | % | 5.81 | % | |||||||||||||||||||||
Average stockholders' equity, excluding AOCI, to average assets (7) (8) | 6.77 | % | 7.46 | % | 7.04 | % | 7.68 | % | |||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 1.24 | x | 1.27 | x | 1.25 | x | 1.28 | x | |||||||||||||||||||||
(1) Net income (loss), annualized, divided by average total assets. | |||||||||||||||||||||||||||||
(2) Net income (loss), annualized, divided by average total stockholders' equity. | |||||||||||||||||||||||||||||
(3) Net interest income, annualized, divided by average interest-earning assets. | |||||||||||||||||||||||||||||
(4) Combined weighted average interest rate earned less combined weighted average interest rate cost. | |||||||||||||||||||||||||||||
(5) Operating expense divided by sum of net interest income and non-interest income. | |||||||||||||||||||||||||||||
(6) Non-interest expense, annualized, divided by average total assets. | |||||||||||||||||||||||||||||
(7) Total average stockholders' equity divided by total average assets for the period. | |||||||||||||||||||||||||||||
(8) See Non-GAAP Financial Measures disclosure for comparable GAAP measures. | |||||||||||||||||||||||||||||
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Non-GAAP Financial Measures
In addition to evaluating the Company's results of operations in accordance with U.S. generally accepted accounting principles (“GAAP”), management routinely supplements their evaluation with an analysis of certain non-GAAP financial measures, such as the return on average stockholders' equity excluding average accumulated other comprehensive income (loss) ("AOCI"), and average stockholders' equity excluding AOCI to average assets. Management believes these non-GAAP financial measures provide information that is useful to investors in understanding the Company's underlying operating performance and trends, and facilitates comparisons with the performance of other banks and thrifts.
Return on 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 December 31, | Nine Months Ended December 31, | |||||||||||||||||||||||||
| $ in thousands | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Average Stockholders' Equity | $ | 38,589 | $ | 39,883 | $ | 40,193 | $ | 42,326 | ||||||||||||||||||
| Average AOCI | (11,643) | (15,232) | (12,409) | (13,657) | ||||||||||||||||||||||
| Average Stockholders' Equity, excluding AOCI | $ | 50,232 | $ | 55,115 | $ | 52,602 | $ | 55,983 | ||||||||||||||||||
| Return on Average Stockholders' Equity | (58.55) | % | 0.19 | % | (33.08) | % | (9.41) | % | ||||||||||||||||||
| Return on Average Stockholders' Equity, excluding AOCI | (44.98) | % | 0.14 | % | (25.28) | % | (7.12) | % | ||||||||||||||||||
| Average Stockholders' Equity to Average Assets | 5.20 | % | 5.39 | % | 5.38 | % | 5.81 | % | ||||||||||||||||||
| Average Stockholders' Equity, excluding AOCI, to Average Assets | 6.77 | % | 7.46 | % | 7.04 | % | 7.68 | % | ||||||||||||||||||
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 $2.5 million, or 45.5%, to $3.0 million for the three months ended December 31, 2024, compared to $5.5 million for the same quarter last year. Net interest income decreased $1.9 million, or 11.6%, to $14.5 million for the nine months ended December 31, 2024, compared to $16.4 million for the prior year period. Interest income on loans was lower compared to the prior periods primarily due to the reversal of interest accrued on loans placed on nonaccrual status during the current quarter.
The following table sets forth certain information relating to the Company’s average interest-earning assets and average interest-bearing liabilities, and their related average yields and costs for the three and nine months ended December 31, 2024 and 2023. Average yields are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods shown. Average balances are derived from daily or month-end balances as available and applicable. Management does not believe that the use of average monthly balances instead of average daily balances represents a material difference in information presented. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yield includes fees, which are considered adjustment to yield.
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For the Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||
2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| $ in thousands | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | ||||||||||||||||||||||||||||||||
| Interest-Earning Assets: | ||||||||||||||||||||||||||||||||||||||
Loans(1) | $ | 615,081 | $ | 5,829 | 3.79 | % | $ | 612,243 | $ | 7,336 | 4.79 | % | ||||||||||||||||||||||||||
| Mortgage-backed securities | 25,384 | 132 | 2.08 | % | 26,919 | 145 | 2.15 | % | ||||||||||||||||||||||||||||||
Investment securities(2) | 31,031 | 243 | 3.13 | % | 32,229 | 289 | 3.59 | % | ||||||||||||||||||||||||||||||
| Money market investments | 52,835 | 641 | 4.81 | % | 51,107 | 704 | 5.47 | % | ||||||||||||||||||||||||||||||
| Total interest-earning assets | 724,331 | 6,845 | 3.78 | % | 722,498 | 8,474 | 4.69 | % | ||||||||||||||||||||||||||||||
| Non-interest-earning assets | 17,540 | 16,801 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 741,871 | $ | 739,299 | ||||||||||||||||||||||||||||||||||
| Interest-Bearing Liabilities: | ||||||||||||||||||||||||||||||||||||||
| Deposits | ||||||||||||||||||||||||||||||||||||||
| Interest-bearing checking | $ | 43,569 | $ | 19 | 0.17 | % | $ | 48,269 | $ | 33 | 0.27 | % | ||||||||||||||||||||||||||
| Savings and clubs | 108,261 | 176 | 0.64 | % | 109,929 | 85 | 0.31 | % | ||||||||||||||||||||||||||||||
| Money market | 153,905 | 780 | 2.01 | % | 159,709 | 594 | 1.48 | % | ||||||||||||||||||||||||||||||
| Certificates of deposit | 237,504 | 2,433 | 4.06 | % | 199,609 | 1,673 | 3.33 | % | ||||||||||||||||||||||||||||||
| Mortgagors deposits | 2,123 | 8 | 1.50 | % | 2,890 | 2 | 0.27 | % | ||||||||||||||||||||||||||||||
| Total deposits | 545,362 | 3,416 | 2.49 | % | 520,406 | 2,387 | 1.82 | % | ||||||||||||||||||||||||||||||
| Borrowed money | 38,289 | 474 | 4.91 | % | 46,821 | 606 | 5.13 | % | ||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 583,651 | 3,890 | 2.64 | % | 567,227 | 2,993 | 2.09 | % | ||||||||||||||||||||||||||||||
| Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 99,905 | 107,088 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 19,726 | 25,101 | ||||||||||||||||||||||||||||||||||||
| Total liabilities | 703,282 | 699,416 | ||||||||||||||||||||||||||||||||||||
| Stockholders' equity | 38,589 | 39,883 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 741,871 | $ | 739,299 | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 2,955 | $ | 5,481 | ||||||||||||||||||||||||||||||||||
| Average interest rate spread | 1.14 | % | 2.60 | % | ||||||||||||||||||||||||||||||||||
| Net interest margin | 1.63 | % | 3.03 | % | ||||||||||||||||||||||||||||||||||
(1) Includes nonaccrual loans | ||||||||||||||||||||||||||||||||||||||
(2) Includes FHLB-NY stock | ||||||||||||||||||||||||||||||||||||||
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For the Nine Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||
2024 | 2023 | |||||||||||||||||||||||||||||||||||||
| $ in thousands | Average Balance | Interest | Average Yield/Cost | Average Balance | Interest | Average Yield/Cost | ||||||||||||||||||||||||||||||||
| Interest-Earning Assets: | ||||||||||||||||||||||||||||||||||||||
Loans(1) | $ | 620,297 | $ | 22,607 | 4.86 | % | $ | 603,633 | $ | 21,203 | 4.68 | % | ||||||||||||||||||||||||||
| Mortgage-backed securities | 26,006 | 405 | 2.08 | % | 27,930 | 439 | 2.10 | % | ||||||||||||||||||||||||||||||
Investment securities(2) | 31,835 | 823 | 3.45 | % | 33,334 | 835 | 3.34 | % | ||||||||||||||||||||||||||||||
| Restricted cash deposit | 102 | — | — | % | — | — | — | % | ||||||||||||||||||||||||||||||
| Money market investments | 51,486 | 2,043 | 5.27 | % | 44,941 | 1,801 | 5.32 | % | ||||||||||||||||||||||||||||||
| Total interest-earning assets | 729,726 | 25,878 | 4.73 | % | 709,838 | 24,278 | 4.56 | % | ||||||||||||||||||||||||||||||
| Non-interest-earning assets | 17,021 | 18,789 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 746,747 | $ | 728,627 | ||||||||||||||||||||||||||||||||||
| Interest-Bearing Liabilities: | ||||||||||||||||||||||||||||||||||||||
| Deposits | ||||||||||||||||||||||||||||||||||||||
| Interest-bearing checking | $ | 44,475 | $ | 41 | 0.12 | % | $ | 50,211 | $ | 51 | 0.13 | % | ||||||||||||||||||||||||||
| Savings and clubs | 110,411 | 484 | 0.58 | % | 110,850 | 195 | 0.23 | % | ||||||||||||||||||||||||||||||
| Money market | 155,476 | 2,335 | 1.99 | % | 154,405 | 1,631 | 1.40 | % | ||||||||||||||||||||||||||||||
| Certificates of deposit | 227,257 | 6,883 | 4.02 | % | 189,453 | 4,229 | 2.96 | % | ||||||||||||||||||||||||||||||
| Mortgagors deposits | 2,278 | 17 | 0.99 | % | 2,967 | 6 | 0.27 | % | ||||||||||||||||||||||||||||||
| Total deposits | 539,897 | 9,760 | 2.40 | % | 507,886 | 6,112 | 1.60 | % | ||||||||||||||||||||||||||||||
| Borrowed money | 44,553 | 1,664 | 4.96 | % | 44,994 | 1,784 | 5.26 | % | ||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 584,450 | 11,424 | 2.59 | % | 552,880 | 7,896 | 1.90 | % | ||||||||||||||||||||||||||||||
| Non-interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||
| Demand deposits | 102,389 | 108,228 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 19,715 | 25,193 | ||||||||||||||||||||||||||||||||||||
| Total liabilities | 706,554 | 686,301 | ||||||||||||||||||||||||||||||||||||
| Stockholders' equity | 40,193 | 42,326 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 746,747 | $ | 728,627 | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 14,454 | $ | 16,382 | ||||||||||||||||||||||||||||||||||
| Average interest rate spread | 2.14 | % | 2.66 | % | ||||||||||||||||||||||||||||||||||
| Net interest margin | 2.64 | % | 3.08 | % | ||||||||||||||||||||||||||||||||||
(1) Includes nonaccrual loans | ||||||||||||||||||||||||||||||||||||||
(2) Includes FHLB-NY stock | ||||||||||||||||||||||||||||||||||||||
Interest Income
Interest income decreased $1.7 million, or 20.0%, to $6.8 million for the three months ended December 31, 2024, compared to $8.5 million for the prior year quarter. Interest income on loans decreased $1.5 million for the three months ended December 31, 2024 primarily due to the reversal of interest accrued on loans placed on nonaccrual status during the current quarter. For the nine months ended December 31, 2024, interest income increased $1.6 million, or 6.6%, to $25.9 million, compared to $24.3 million for the prior year period. Interest income on loans increased $1.4 million for the nine months ended December 31, 2024, due to an increase in the average yield on the portfolio of 18 basis points, coupled with a $16.7 million, or 2.8%, increase in average loan balances compared to the prior period. Interest income on money market investments increased $0.2 million for the nine months ended December 31, 2024 due to a $6.5 million increase in the average balance on deposit in the Bank's interest-bearing account at the Federal Reserve Bank. The reversal of interest income on loans placed on nonaccrual status severely impacted the net interest margin, reducing it to 1.63% and 2.64% for the three and nine month periods, respectively.
Interest Expense
Interest expense increased $0.9 million, or 30.0% to $3.9 million for the three months ended December 31, 2024, compared to $3.0 million for the prior year quarter. For the nine months ended December 31, 2024, interest expense increased
41
$3.5 million, or 44.3% to $11.4 million, compared to $7.9 million for the prior year period. The higher interest rate environment is reflected in the average cost of interest-bearing deposits for the current period. Interest expense on deposits increased $1.0 million and $3.7 million, respectively, for the three and nine months ended December 31, 2024, primarily due to increases in the average balances of $37.9 million and $37.8 million, respectively, and average rates of 73 and 106 basis points, respectively of higher-cost certificate of deposits. The average rates paid on savings and money market accounts also increased for the three and six months ended December 31, 2024, compared to the prior year periods, as the Bank offered promotional rates during the current period in an attempt to attract and retain deposits.
Provision for Credit Losses and Asset Quality
The Bank maintains an ACL that management believes is adequate to absorb inherent and expected credit 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 nine months ended December 31, 2024 and 2023 and the fiscal year ended March 31, 2024:
| $ in thousands | Nine Months Ended December 31, 2024 | Fiscal Year Ended March 31, 2024 | Nine Months Ended December 31, 2023 | |||||||||||||||||
| Beginning Balance | $ | 5,871 | $ | 5,229 | $ | 5,229 | ||||||||||||||
| Impact of CECL adoption | — | 668 | 668 | |||||||||||||||||
| Less: Charge-offs | ||||||||||||||||||||
| Business | (289) | (10) | — | |||||||||||||||||
| Consumer | (353) | (160) | (134) | |||||||||||||||||
| Total charge-offs | (642) | (170) | (134) | |||||||||||||||||
| Add: Recoveries | ||||||||||||||||||||
| Business | 6 | 55 | 52 | |||||||||||||||||
| Consumer | 5 | 6 | 5 | |||||||||||||||||
| Total recoveries | 11 | 61 | 57 | |||||||||||||||||
| Net charge-offs | (631) | (109) | (77) | |||||||||||||||||
| Provision for (recovery of) credit losses | ||||||||||||||||||||
| One-to-four family | (104) | 69 | 132 | |||||||||||||||||
| Multifamily | 78 | 3 | 5 | |||||||||||||||||
| Commercial real estate | 116 | (95) | (106) | |||||||||||||||||
| Construction | 2 | 1 | 1 | |||||||||||||||||
| Business | 283 | (274) | (244) | |||||||||||||||||
| Consumer | 491 | 321 | 289 | |||||||||||||||||
| Unallocated | (49) | 58 | — | |||||||||||||||||
| Provision for credit losses | 817 | 83 | 77 | |||||||||||||||||
| Ending Balance | $ | 6,057 | $ | 5,871 | $ | 5,897 | ||||||||||||||
| Ratios: | ||||||||||||||||||||
| Net (charge-offs) recoveries to average loans outstanding (annualized) | ||||||||||||||||||||
| Business | (0.22) | % | 0.03 | % | 0.04 | % | ||||||||||||||
| Consumer | (2.92) | % | (1.25) | % | (1.52) | % | ||||||||||||||
| Total loans | (0.14) | % | (0.02) | % | (0.02) | % | ||||||||||||||
| Allowance to total loans | 0.99 | % | 0.94 | % | 0.94 | % | ||||||||||||||
| Allowance to nonaccrual loans | 26.55 | % | 49.86 | % | 21.91 | % | ||||||||||||||
The Company recorded a $96 thousand provision for credit losses for the three months ended December 31, 2024, compared to a $97 thousand recovery of credit loss for the prior year quarter. Net charge-offs of $281 thousand were recognized during the third quarter, compared to net charge-offs of $13 thousand for the prior year quarter. For the nine months ended December 31, 2024, the Company recorded a $817 thousand provision for credit losses, compared to a $77 thousand
42
provision for credit losses for the prior year period. Net charge-offs of $631 thousand were recognized during the nine months ended December 31, 2024, compared to net charge-offs of $77 thousand in the prior year period.
At December 31, 2024, nonaccrual loans totaled $22.8 million, or 3.1% of total assets, compared to $11.8 million, or 1.6% of total assets at March 31, 2024. The ACL was $6.1 million at December 31, 2024, which represents a ratio of the ACL to nonaccrual loans of 26.6% compared to a ratio of 49.9% at March 31, 2024. The ratio of the ACL to total loans was 0.99% at December 31, 2024, compared to 0.94% at March 31, 2024.
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 are 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 December 31, 2024, modified loans to a borrower experiencing financial difficulty totaled $6.0 million, of which $5.7 million were classified as performing.
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At December 31, 2024, non-performing assets totaled $22.9 million, or 3.1% of total assets compared to $11.8 million, or 1.6% of total assets at March 31, 2024. The following table sets forth information with respect to the Bank’s non-performing assets at the dates indicated:
| Non Performing Assets | ||||||||||||||||||||||||||||||||
| $ in thousands | December 31, 2024 | September 30, 2024 | June 30, 2024 | March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||
Loans accounted for on a nonaccrual basis (1): | ||||||||||||||||||||||||||||||||
| Gross loans receivable: | ||||||||||||||||||||||||||||||||
| One-to-four family | $ | 1,874 | $ | 2,244 | $ | 2,650 | $ | 3,554 | $ | 4,295 | ||||||||||||||||||||||
| Multifamily | 2,249 | 1,708 | 2,206 | 2,238 | 2,627 | |||||||||||||||||||||||||||
| Commercial real estate | 6,104 | 4,522 | 4,522 | 4,522 | 5,937 | |||||||||||||||||||||||||||
| Business | 12,486 | 8,512 | 876 | 1,417 | 14,009 | |||||||||||||||||||||||||||
| Consumer | 98 | 139 | 50 | 44 | 45 | |||||||||||||||||||||||||||
| Total nonaccrual loans | 22,811 | 17,125 | 10,304 | 11,775 | 26,913 | |||||||||||||||||||||||||||
Other non-performing assets (2): | ||||||||||||||||||||||||||||||||
| Real estate owned | 52 | 52 | 52 | 52 | 60 | |||||||||||||||||||||||||||
Total non-performing assets (3) | $ | 22,863 | $ | 17,177 | $ | 10,356 | $ | 11,827 | $ | 26,973 | ||||||||||||||||||||||
| Nonaccrual loans to total loans | 3.73 | % | 2.77 | % | 1.64 | % | 1.89 | % | 4.31 | % | ||||||||||||||||||||||
| Non-performing loans to total loans | 3.73 | % | 2.77 | % | 1.64 | % | 1.89 | % | 4.31 | % | ||||||||||||||||||||||
| Non-performing assets to total assets | 3.14 | % | 2.29 | % | 1.39 | % | 1.56 | % | 3.48 | % | ||||||||||||||||||||||
| Allowance to total loans | 0.99 | % | 1.01 | % | 0.95 | % | 0.94 | % | 0.94 | % | ||||||||||||||||||||||
| Allowance to nonaccrual loans | 26.55 | % | 36.45 | % | 57.79 | % | 49.86 | % | 21.91 | % | ||||||||||||||||||||||
(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 December 31, 2024, there were $5.7 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 December 31, 2024, the Bank had $2.6 million in subprime loans, or 0.4% of its total loan portfolio, of which $0.7 million are non-performing loans.
Non-Interest Income
Non-interest income decreased $1.5 million, or 60.0%, to $1.0 million for the three months ended December 31, 2024, compared to $2.5 million for the prior year quarter. For the nine months ended December 31, 2024, non-interest income decreased $2.5 million, or 52.1%, to $2.3 million, compared to $4.8 million for the prior year period. The previous periods included grant income of $1.4 million recognized from the Bank's award through the CDFI Fund's Equitable Recovery Program and $0.5 million associated with a loan program no longer in existence, that had been transferred to the Bank through an acquired institution. In addition, the Bank recognized a $0.2 million loss on the sale of a loan during the nine months ended December 31, 2024.
Non-Interest Expense
Non-interest expense increased $1.4 million, or 17.3%, to $9.5 million for the three months ended December 31, 2024, compared to $8.1 million for the prior year quarter. For the nine months ended December 31, 2024, non-interest expense increased $1.9 million, or 7.9%, to $25.9 million, compared to $24.0 million for the prior year period. Employee compensation and net occupancy costs related to building expenses increased compared to the prior year periods. Net equipment expense was
44
higher due to upgraded cybersecurity systems and increases in hardware/software maintenance contracts. Other non-interest expense was higher due to increases in security services at the branches and legal costs associated with an activist shareholder.
Item 3.Quantitative and Qualitative Disclosure about Market Risk
Not applicable, as the Company is a smaller reporting company.
Item 4.Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. As of December 31, 2024, 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 December 31, 2024.
(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.
45
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
From time to time, the Company and the Bank or one of its wholly-owned subsidiaries are parties to various legal proceedings incident to their business. At December 31, 2024, certain claims, suits, complaints and investigations (collectively “proceedings”) involving the Company and the Bank or a subsidiary, arising in the ordinary course of business, have been filed or are pending. The Company is unable at this time to determine the ultimate outcome of each proceeding, but believes, after discussions with legal counsel representing the Company and the Bank or the subsidiary in these proceedings, that it has meritorious defenses to each proceeding and appropriate measures have been taken to defend the interests of the Company, Bank or subsidiary. As of December 31, 2024, we are not involved in any pending legal proceedings as a plaintiff or a defendant other than routine legal proceedings occurring in the ordinary course of business, and are not involved in any legal proceeding, the outcome of which management believes would be material to the financial condition or results of operations of the Company or the Bank.
Item 1A.Risk Factors
There have been no material changes in risk factors applicable to the Company from those disclosed in "Risk Factors" in Item 1A of the Company's Annual Report on Form 10-K for the year ended March 31, 2024.
Item 2.Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
On November 25, 2024, the Company issued and sold a total of 116,766 shares of its common stock, par value $0.01 per share, at a price of $1.67 per share. The shares were issued 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. Specifically, the following Carver directors purchased shares in this offering as follows:
| Name | Number of shares | |||||||
| Donald Felix | 26,946 | |||||||
| Colvin W. Grannum | 11,976 | |||||||
| Pazel G. Jackson, Jr. | 8,982 | |||||||
| Kenneth J. Knuckles | 8,982 | |||||||
| Craig C. MacKay | 59,880 | |||||||
The offering resulted in gross proceeds of $0.2 million, which will be used for general corporate purposes. There were no underwriting discounts or commissions.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
During the three months ended December 31, 2024, no directors or executive officers of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement," as that term is used in SEC regulations.
Item 6.Exhibits
The following exhibits are submitted with this report:
46
| 3.1 | Certificate of Incorporation of Carver Bancorp, Inc. (1) | ||||
| 3.2 | |||||
| 3.3 | |||||
| 4.1 | Stock Certificate of Carver Bancorp, Inc. (1) | ||||
| 4.2 | |||||
| 4.3 | |||||
| 4.4 | |||||
| 4.5 | |||||
| 4.6 | |||||
| 10.1 | |||||
| 10.2 | |||||
| 31.1 | |||||
| 31.2 | |||||
| 32.1 | |||||
| 32.2 | |||||
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2024, formatted in XBRL (Extensive Business Reporting Language): (i) Consolidated Statements of Financial Condition as of December 31, 2024 (unaudited) and March 31, 2024; (ii) Consolidated Statements of Operations for the three and nine months ended December 31, 2024 and 2023 (unaudited); (iii) Consolidated Statements of Comprehensive Income/(Loss) for the three and nine months ended December 31, 2024 and 2023 (unaudited); (iv) Consolidated Statements of Changes in Equity for the three and nine months ended December 31, 2024 and 2023 (unaudited); (v) Consolidated Statements of Cash Flows for the nine months ended December 31, 2024 and 2023 (unaudited); and (vi) Notes to Consolidated Financial Statements. | ||||
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2024, 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 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 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 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 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 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 on December 12, 2024. | ||||
(10) | Incorporated herein by reference to Exhibit 10.2 to the Registrant's Report on Form 8-K filed with the Securities and Exchange Commission on September 16, 2024. | ||||
47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CARVER BANCORP, INC. | ||||||||
| Date: | February 13, 2025 | /s/ Donald Felix | ||||||
| Donald Felix | ||||||||
| President and Chief Executive Officer | ||||||||
| (Principal Executive Officer) | ||||||||
| Date: | February 13, 2025 | /s/ Christina L. Maier | ||||||
| Christina L. Maier | ||||||||
| First Senior Vice President and Chief Financial Officer | ||||||||
| (Principal Accounting Officer and Principal Financial Officer) | ||||||||
48
Exhibit 31.1
CERTIFICATIONS
I, Donald Felix, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Carver Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | February 13, 2025 | /s/ Donald Felix | ||||||
| Donald Felix | ||||||||
| President and Chief Executive Officer | ||||||||
Exhibit 31.2
CERTIFICATIONS
I, Christina L. Maier, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Carver Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | February 13, 2025 | /s/ Christina L. Maier | ||||||
| Christina L. Maier | ||||||||
First Senior Vice President and Chief Financial Officer | ||||||||
Principal Accounting Officer and Principal Financial Officer | ||||||||
Exhibit 32.1
CERTIFICATION FURNISHED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
The undersigned, Donald Felix, is the President and Chief Executive Officer of Carver Bancorp, Inc. (the “Company”).
This certification is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2024 (the “Report”).
I certify that:
a)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.
| Date: | February 13, 2025 | /s/ Donald Felix | ||||||
Donald Felix | ||||||||
| President and Chief Executive Officer | ||||||||
Exhibit 32.2
CERTIFICATION FURNISHED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002, 18 U.S.C SECTION 1350
The undersigned, Christina L. Maier, is the First Senior Vice President and Chief Financial Officer of Carver Bancorp, Inc. (the “Company”).
This certification is being furnished in connection with the filing by the Company of the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2024 (the “Report”).
By execution of this statement, I certify that:
a)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and
b)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.
| Date: | February 13, 2025 | /s/ Christina L. Maier | ||||||
| Christina L. Maier | ||||||||
First Senior Vice President and Chief Financial Officer | ||||||||