CARVER BANCORP INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

Forward-Looking Statements


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

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

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


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

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

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

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

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

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


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

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


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

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

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

                                       28
--------------------------------------------------------------------------------

•our ability to control costs and expenses;

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

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

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

•changes in consumer spending, borrowing and savings habits;

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

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


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

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

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

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


  Because forward-looking statements are subject to numerous assumptions, risks
and uncertainties, actual results or future events could differ possibly
materially from those that the Company anticipated in its forward-looking
statements. The forward-looking statements contained in this Quarterly Report on
Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and the
Company assumes no obligation to, and expressly disclaims any obligation to,
update these forward-looking statements to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
statements or to update the reasons why actual results could differ from those
projected in the forward-looking statements, except as legally required.

Overview


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

  Carver Federal is among the largest African-American operated banks in the
United States. The Bank remains dedicated to expanding wealth-enhancing
opportunities in the communities it serves by increasing access to capital and
other financial services for consumers, businesses and non-profit organizations,
including faith-based institutions. A measure of its progress in achieving this
goal includes the Bank's fifth consecutive "Outstanding" rating, issued by the
OCC following its most recent Community Reinvestment Act ("CRA") examination in
January 2019. The OCC found that a substantial majority of originated and
purchased loans were within Carver's assessment area, and the Bank has
demonstrated excellent responsiveness to its assessment area's needs through its
community development lending, investing and service activities. The Bank had
approximately $722.8 million in assets and 97 employees as of December 31, 2021.

  Carver Federal engages in a wide range of consumer and commercial banking
services. The Bank provides deposit products, including demand, savings and time
deposits for consumers, businesses, and governmental and quasi-governmental
agencies in its local market area within New York City. In addition to deposit
products, Carver Federal offers a number of other consumer and commercial
banking products and services, including debit cards, online account opening and
banking,
                                       29
--------------------------------------------------------------------------------

online bill pay and telephone banking. Carver Federal also offers a suite of
products and services for unbanked and underbanked consumers, branded as Carver
Community Cash. This includes check cashing, wire transfers, bill payment,
reloadable prepaid cards and money orders.

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

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

  Carver Federal's 70-year history in its market area, its community involvement
and relationships, targeted products and services and personal service
consistent with community banking, help the Bank compete with competitors in its
market.

The Bank’s unconsolidated variable interest entities (“VIEs”), in which the
Company holds significant variable interests or has continuing involvement
through servicing a majority of assets in a VIE at December 31, 2021, are
presented below.

                            Involvement with SPE (000's)                                        Funded Exposure                         Unfunded Exposure                    Total
                                                                    Significant
                       Recognized Gain     Total Rights         unconsolidated VIE    Total Involvement                          Equity                               Maximum exposure to
$ in thousands         (Loss) (000's)      transferred                assets           with SPE asset    Debt Investments      Investments      Funding Commitments          loss
Carver Statutory
Trust 1 (1)           $           -    $               -       $           13,400    $        13,400    $         13,018    $          400    $                  -    $              -    $ 13,418

(1) Carver Statutory Trust I debt investment includes deferred interest of $18
thousand
.



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

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

While New York State went through a phased reopening upon expiration of an
earlier executive order to shelter in place, maintain social distancing and
close all non-essential businesses statewide, there remains a significant amount
of uncertainty as certain geographic areas continue to experience surges in
COVID-19 cases and governments at all levels continue to react to changes in
circumstances. The impact of new restrictive measures and mandates taken or
issued by governments, businesses and individuals have caused uncertainty in the
financial markets. The prolonged pandemic, or any other epidemic of this sort
that ultimately harms the global economy, the U.S. economy or the markets in
which we operate could adversely affect Carver's operations. The long-term
effects of COVID-19 on the Company's business cannot be ascertained as there
remains significant uncertainty regarding the breadth and duration of business
disruptions related to the
                                       30
--------------------------------------------------------------------------------

virus. In addition, new information may emerge regarding the severity of
COVID-19 or the effectiveness of the vaccines developed, causing federal, state
and local governments to take additional actions to contain COVID-19 or to treat
the impact. Even after formal restrictions have been lifted, changes in the
behavior of customers, businesses and their employees - including social
distancing - as a result of the pandemic, are unknown. The Company is closely
monitoring its asset quality, liquidity, and capital positions. Management is
actively working to minimize the current and future impact of this unprecedented
situation, and is continuing to make adjustments to operations where appropriate
or necessary to help slow the spread of the virus. In addition, as a result of
further actions that may be taken to contain or reduce the impact of the
COVID-19 pandemic, the Company may experience changes in the value of collateral
securing outstanding loans, reductions in the credit quality of borrowers and
the inability of borrowers to repay loans in accordance with their terms. The
Company is actively managing the credit risk in its loan portfolio. These and
similar factors and events may have substantial negative effects on the
business, financial condition, and results of operations of the Company and its
customers.

As part of the CARES Act, the SBA is authorized to temporarily guarantee loans
under a new 7(a) loan program called the PPP. Under the PPP, small businesses
and other entities and individuals can apply for loans from existing SBA lenders
and other approved regulated lenders that enroll in the program, subject to
numerous limitations and eligibility criteria. The Bank participated as a lender
in the first round of the PPP, originating approximately 203 loans totaling
$34.7 million.

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

Critical Accounting Policies


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

Allowance for Loan and Lease Losses


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

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

General Reserve Allowance


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

•One-to-four family
•Multifamily
•Commercial Real Estate
                                       31
--------------------------------------------------------------------------------

•Business Loans
•Consumer (including Overdraft Accounts)

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

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

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

Specific Reserve Allowance

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

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

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

  All substandard and doubtful loans and any other loans that the Chief Credit
Officer deems appropriate for review, are identified and reviewed for individual
evaluation for impairment in accordance with ASC Subtopic 310-10. Carver also
performs impairment analysis for all TDRs.  If it is determined that it is
probable the Bank will be unable to collect all amounts due according with the
contractual terms of the loan agreement, the loan is categorized as impaired.
Loans determined to be
                                       32
--------------------------------------------------------------------------------

impaired are evaluated to determine the amount of impairment based on one of the
three measurement methods noted above.  In accordance with guidance, if there is
no impairment amount, no reserve is established for the loan.

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

Troubled Debt Restructured Loans


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

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

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

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


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

Securities Impairment


  The Bank's available-for-sale securities portfolio is carried at estimated
fair value, with any unrealized gains and losses, net of taxes, reported as
accumulated other comprehensive (loss) income. Securities that the Bank has the
intent and ability to hold to maturity are classified as held-to-maturity and
are carried at amortized cost. The fair values of securities in the Bank's
portfolio are based on published or securities dealers' market values and are
affected by changes in interest rates. On a quarterly basis, the Bank reviews
and evaluates the securities portfolio to determine if the decline in the fair
value of any security below its cost basis is other-than-temporary. The Bank
generally views changes in fair value caused by changes in interest rates as
temporary, which is consistent with its experience. The amount of an
other-than-temporary impairment, when there are credit and non-credit losses on
a debt security which management does not intend to sell, and for which it is
more likely than not that the Bank will not be required to sell the security
prior to the recovery of the non-credit impairment, the portion of the total
impairment that is attributable to the credit loss would be recognized in
earnings, and the remaining difference between the debt security's amortized
cost basis and its fair value would be included in other comprehensive (loss)
income. This guidance also requires additional disclosures about investments in
an unrealized loss position and the
                                       33
--------------------------------------------------------------------------------

methodology and significant inputs used in determining the recognition of
other-than-temporary impairment. The Bank does not have any securities that are
classified as having other-than-temporary impairment in its investment portfolio
at December 31, 2021.

Deferred Tax Assets

  The Company records income taxes in accordance with ASC 740 Topic "Income
Taxes," as amended, using the asset and liability method. Income tax expense
(benefit) consists of income taxes currently payable/(receivable) and deferred
income taxes. Temporary differences between the basis of assets and liabilities
for financial reporting and tax purposes are measured as of the balance sheet
date. Deferred tax liabilities or recognizable deferred tax assets are
calculated on such differences, using current statutory rates, which result in
future taxable or deductible amounts. The effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the enactment
date. Where applicable, deferred tax assets are reduced by a valuation allowance
for any portion determined not likely to be realized. Management is continually
reviewing the operation of the Company with a view to the future. Based on
management's current analysis and the appropriate accounting literature,
management is of the opinion that a full valuation allowance is appropriate.
This valuation allowance could subsequently be adjusted, by a charge or credit
to income tax expense, as changes in facts and circumstances warrant.

  On June 29, 2011, the Company raised $55 million of capital, which resulted in
a $51.4 million increase in equity after considering the effect of various
expenses associated with the capital raise. The capital raise triggered a change
in control under Section 382 of the Internal Revenue Code. Generally, Section
382 limits the utilization of an entity's net operating loss carryforwards,
general business credits, and recognized built-in losses, upon a change in
ownership. The Company is currently subject to an annual limitation of
approximately $870 thousand. A valuation allowance for the net deferred tax
asset of $23.8 million has been recorded as of December 31, 2021. The valuation
allowance was initially recorded during fiscal year 2011, and has remained
through December 31, 2021, as management concluded and continues to conclude
that it is "more likely than not" that the Company will not be able to fully
realize the benefit of its deferred tax assets. However, tax legislation passed
during the Company's fiscal year 2018 now permits a corporation to receive
refunds for AMT credits even if there is no taxable income. As a result, at
March 31, 2018, the valuation allowance was reduced by $340 thousand, the amount
of the Company's AMT credits. The AMT credit was $143 thousand as of March 31,
2020, all of which was requested to be refunded to the Company upon filing of
the fiscal year 2020 federal tax return.

Stock Repurchase Program


  On August 6, 2002, the Company announced a stock repurchase program to
repurchase up to 15,442 shares of its outstanding common stock. As of
December 31, 2021, 11,744 shares of its common stock have been repurchased in
open market transactions at an average price of $235.80 per share (as adjusted
for 1-for-15 reverse stock split that occurred on October 27, 2011). As a result
of the Company's participation in the TARP CDCI, the Treasury Department's prior
approval was required to make further repurchases. On October 28, 2011, the
Treasury Department converted its preferred stock into common stock, which it
continued to hold. On August 6, 2020, the Company repurchased all 2,321,286
shares of its common stock held by the Treasury Department for an aggregate
purchase price of $2.5 million. The purchase price was funded by a third party
grant. As of August 6, 2020, the Company is no longer bound by the TARP CDCI
restrictions as the U.S. Treasury is no longer a common stockholder of the
Company.

Liquidity and Capital Resources


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

  Management believes Carver Federal's short-term assets have sufficient
liquidity to cover loan demand, potential fluctuations in deposit accounts and
to meet other anticipated cash requirements, including interest payments on our
subordinated debt securities. Additionally, Carver Federal has other sources of
liquidity including the ability to borrow from the Federal Home Loan Bank of New
York ("FHLB-NY") utilizing unpledged mortgage-backed securities and certain
mortgage loans, the sale of available-for-sale securities and the sale of
certain mortgage loans. Net borrowings decreased $20.8
                                       34
--------------------------------------------------------------------------------

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

  The Bank's most liquid assets are cash and short-term investments. The level
of these assets is dependent on the Bank's operating, investing and financing
activities during any given period. At December 31, 2021 and March 31, 2021,
assets qualifying for short-term liquidity, including cash and cash equivalents,
totaled $65.7 million and $75.6 million, respectively.

  The most significant potential liquidity challenge the Bank faces is
variability in its cash flows as a result of mortgage refinance activity. When
mortgage interest rates decline, customers' refinance activities tend to
accelerate, causing the cash flow from both the mortgage loan portfolio and the
mortgage-backed securities portfolio to accelerate. In contrast, when mortgage
interest rates increase, refinance activities tend to slow, causing a reduction
of liquidity. However, in a rising rate environment, customers generally tend to
prefer fixed rate mortgage loan products over variable rate products. Carver
Federal is also at risk of deposit outflows due to a competitive interest rate
environment.

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

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

  Capital adequacy is one of the most important factors used to determine the
safety and soundness of individual banks and the banking system. In common with
all U.S. banks, Carver Federal's capital adequacy is measured in accordance with
the Basel III regulatory framework governing capital adequacy, stress testing,
and market liquidity risk. The final rule, which became effective for the Bank
on January 1, 2015, established a minimum Common Equity Tier 1 (CET1) ratio, a
minimum leverage ratio and increases in the Tier 1 and Total risk-based capital
ratios. The rule also limits a banking organization's capital distributions and
certain discretionary bonus payments if the banking organization does not hold a
"capital conservation buffer" consisting of 2.5% of CET1 capital to
risk-weighted assets in addition to the amount necessary to meet its minimum
risk-based capital requirements. The capital conservation buffer requirement was
phased in annually beginning January 1, 2016. On January 1, 2019, the full
capital conservation buffer requirement of 2.5% became effective, making its
minimum CET1 plus buffer 7%, its minimum Tier 1 capital plus buffer 8.5% and its
minimum total capital plus buffer 10.5%. Regardless of Basel III's minimum
requirements, Carver Federal, as a result of the Formal Agreement, was issued an
Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the
Bank to maintain minimum regulatory capital levels of 9% for its Tier1 leverage
ratio and 12% for its total risk-based capital ratio.

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

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

  The table below presents the capital position of the Bank at December 31,
2021:
                                                                December 31, 2021
($ in thousands)                                               Amount            Ratio
Tier 1 leverage capital
Regulatory capital                                       $         73,396       10.32  %
Individual minimum capital requirement                             64,026        9.00  %
Minimum capital requirement                                        28,456        4.00  %
Excess over individual minimum capital requirement                  9,370        1.32  %

Common equity Tier 1
Regulatory capital                                       $         73,396       13.75  %
Minimum capital requirement                                        37,361        7.00  %
Excess                                                             36,035        6.75  %

Tier 1 risk-based capital
Regulatory capital                                       $         73,396       13.75  %
Minimum capital requirement                                        45,367        8.50  %
Excess                                                             28,029        5.25  %

Total risk-based capital
Regulatory capital                                       $         79,070       14.81  %
Individual minimum capital requirement                             64,047       12.00  %
Minimum capital requirement                                        56,041       10.50  %
Excess over individual minimum capital requirement                 15,023        2.81  %



Bank Regulatory Matters

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

  On May 24, 2016, the Bank entered into a Formal Agreement with the OCC to
undertake certain compliance-related and other actions as further described in
the Company's Current Report on Form 8-K as filed with the Securities and
Exchange Commission ("SEC") on May 27, 2016. As a result of the Formal
Agreement, the Bank must obtain the approval of the OCC prior to effecting any
change in its directors or senior executive officers. The Bank may not declare
or pay dividends or make any other capital distributions, including to the
Company, without first filing an application with the OCC and receiving the
prior approval of the OCC. Furthermore, the Bank must seek the OCC's written
approval and the FDIC's written concurrence before entering into any "golden
parachute payments" as that term is defined under 12 U.S.C. § 1828(k) and 12
C.F.R. Part 359.

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

                                       36
--------------------------------------------------------------------------------

Mortgage Representation and Warranty Liabilities


  During the period 2004 through 2009, the Bank originated 1-4 family
residential mortgage loans and sold the loans to the Federal National Mortgage
Association ("FNMA"). The loans were sold to FNMA with the standard
representations and warranties for loans sold to the Government Sponsored
Entities ("GSEs").  The Bank may be required to repurchase these loans in the
event of breaches of these representations and warranties. In the event of a
repurchase, the Bank is typically required to pay the unpaid principal balance
as well as outstanding interest and fees. The Bank then recovers the loan or, if
the loan has been foreclosed, the underlying collateral. The Bank is exposed to
any losses on repurchased loans after giving effect to any recoveries on the
collateral. The Bank has not received a request to repurchase any of these loans
since the second quarter of fiscal 2015, and there have not been any additional
requests from FNMA for loans to be reviewed. At December 31, 2021, the Bank
continues to service 92 loans with a principal balance of $14.7 million for FNMA
that had been sold with standard representations and warranties.

The following table presents information on open requests from FNMA. The amounts
presented are based on outstanding loan principal balances.
$ in thousands

                                   Loans sold to FNMA
Open claims as of March 31, 2021 (1)            $             1,687
Gross new demands received                                        -
Loans repurchased/made whole                                      -
Demands rescinded                                                 -
Advances on open claims                                           -
Principal payments received on open claims                     (314)
Open claims as of December 31, 2021 (1)         $             1,373


(1) The open claims include all open requests received by the Bank where either
FNMA has requested loan files for review, where FNMA has not formally rescinded
the repurchase request or where the Bank has not agreed to repurchase the loan.
The amounts reflected in this table are the unpaid principal balance and do not
incorporate any losses the Bank would incur upon the repurchase of these loans.

  Management has established a representation and warranty reserve for losses
associated with the repurchase of mortgage loans sold by the Bank to FNMA that
we consider to be both probable and reasonably estimable. These reserves are
reported in the consolidated statement of financial condition as a component of
other liabilities. The table below summarizes changes in our representation and
warranty reserves during the nine months ended December 31, 2021:
$ in thousands                                                                  December 31, 2021
Representation and warranty repurchase reserve, March 31, 2021 (1)            $              181
Net adjustment to reserve for repurchase losses (2)                                          (19)

Representation and warranty repurchase reserve, December 31, 2021 (1)

   $              162


(1) Reported in our consolidated statements of financial condition as a
component of other liabilities.
(2) Component of other non-interest expense.

                                       37
--------------------------------------------------------------------------------

Comparison of Financial Condition at December 31, 2021 and March 31, 2021

Assets


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

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

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


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

Liabilities and Equity


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

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

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

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

Asset/Liability Management

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

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

                                       38
--------------------------------------------------------------------------------

assets and interest-bearing liabilities. In addition, the Company uses various
tools to monitor and manage interest rate risk, such as a model that projects
net interest income based on increasing or decreasing interest rates.

Off-Balance Sheet Arrangements and Contractual Obligations


  The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
in connection with its overall investment strategy. These instruments involve,
to varying degrees, elements of credit, interest rate and liquidity risk. In
accordance with GAAP, these instruments are not recorded in the consolidated
financial statements. Such instruments primarily include lending obligations,
including commitments to originate mortgage and consumer loans and to fund
unused lines of credit.

  The following table reflects the Bank's outstanding commitments as of
December 31, 2021:
$ in thousands
Commitments to fund mortgage loans              $ 21,780

Lines of credit                                    3,235

Commitment to fund private equity investment 253
Total

                                           $ 25,268




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

                                 2021 and 2020

Overview

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

The following table reflects selected operating ratios for the three and nine
months ended December 31, 2021 and 2020 (unaudited):

                                                                                                             Nine Months Ended
                                                          Three Months Ended December 31,                      December 31,
Selected Financial Data:                                     2021                 2020                  2021                  2020
Return on average assets (1)                                   0.39  %              (0.78) %              (0.19) %              (0.59) %
Return on average stockholders' equity (2)                     4.86  %             (11.21) %              (2.40) %              (8.23) %
Return on average stockholders' equity, excluding
AOCI (2) (8)                                                   4.72  %             (11.15) %              (2.34) %              (8.26) %
Net interest margin (3)                                        2.95  %               2.56  %               2.96  %               2.45  %
Interest rate spread (4)                                       2.82  %               2.37  %               2.82  %               2.24  %
Efficiency ratio (5)                                          87.14  %             125.92  %             102.36  %             118.80  %
Operating expenses to average assets (6)                       3.38  %               3.76  %               4.22  %               3.88  %
Average stockholders' equity to average assets
(7)                                                            8.05  %               6.93  %               7.78  %               7.22  %
Average stockholders' equity, excluding AOCI, to
average assets (7) (8)                                         8.28  %               6.97  %               8.01  %               7.20  %
Average interest-earning assets to average
interest-bearing liabilities                                      1.40 x                1.28 x                1.37 x                1.28 x

(1)Net income (loss), annualized, divided by average total assets.
(2)Net income (loss), annualized, divided by average total stockholders' equity.
(3)Net interest income, annualized, divided by average interest-earning assets.
(4)Combined weighted average interest rate earned less combined weighted average interest
rate cost.
(5)Operating expense divided by sum of net interest income and non-interest income.
(6)Non-interest expense, annualized, divided by average total assets.
(7)Total average stockholders' equity divided by total average assets for the period.
(8)See Non-GAAP Financial Measures disclosure for comparable GAAP measures.



                                       39
--------------------------------------------------------------------------------

Non-GAAP Financial Measures


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

  Return on equity measures how efficiently we generate profits from the
resources provided by our net assets. Return on average stockholders' equity is
calculated by dividing annualized net income (loss) attributable to Carver by
average stockholders' equity, excluding AOCI. Management believes that this
performance measure explains the results of the Company's ongoing businesses in
a manner that allows for a better understanding of the underlying trends in the
Company's current businesses. For purposes of the Company's presentation, AOCI
includes the changes in the market or fair value of its investment portfolio.
These fluctuations have been excluded due to the unpredictable nature of this
item and is not necessarily indicative of current operating or future
performance.
                                                                                                 Nine Months Ended
                                                     Three Months Ended December 31,               December 31,
$ in thousands                                           2021               2020              2021              2020
Average Stockholders' Equity
Average Stockholders' Equity                         $  57,305           $ 46,762          $ 54,131          $ 47,485
Average AOCI                                            (1,638)              (232)           (1,562)              171
Average Stockholders' Equity, excluding AOCI         $  58,943           $ 

46,994 $ 55,693 $ 47,314


Return on Average Stockholders' Equity                    4.86   %         (11.21) %          (2.40) %          (8.23) %
Return on Average Stockholders' Equity,
excluding AOCI                                            4.72   %         

(11.15) % (2.34) % (8.26) %


Average Stockholders' Equity to Average Assets            8.05   %           6.93  %           7.78  %           7.22  %
Average Stockholders' Equity, excluding AOCI,
to Average Assets                                         8.28   %           6.97  %           8.01  %           7.20  %


Analysis of Net Interest Income


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

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

                                       40
--------------------------------------------------------------------------------

                                                                                         For the Three Months Ended December 31,
                                                                            2021                                                             2020
                                                      Average                                    Average              Average                                 Average
$ in thousands                                        Balance              Interest            Yield/Cost             Balance           Interest            Yield/Cost
Interest-Earning Assets:
Loans (1)                                       $    527,924              $  5,379                    4.08  %       $ 462,562          $  4,749                    4.11  %
Mortgage-backed securities                            44,067                   150                    1.36  %          55,048               192                    1.40  %
Investment securities(2)                              41,644                   109                    1.05  %          57,290               277                    1.93  %

Money market investments                              73,868                    27                    0.15  %          72,414                21                    0.12  %
Total interest-earning assets                        687,503                 5,665                    3.30  %         647,314             5,239                    3.24  %
Non-interest-earning assets                           24,556                                                           27,230
Total assets                                    $    712,059                                                        $ 674,544

Interest-Bearing Liabilities:
Deposits
Interest-bearing checking                       $     52,646              $      7                    0.05  %       $  27,940          $      8                    0.11  %
Savings and clubs                                    111,647                    31                    0.11  %         111,268                67                    0.24  %
Money market                                         151,372                    94                    0.25  %         131,284               152                    0.46  %
Certificates of deposit                              156,379                   342                    0.87  %         190,902               709                    1.47  %
Mortgagors deposits                                    3,259                     2                    0.24  %           2,240                 2                    0.35  %
Total deposits                                       475,303                   476                    0.40  %         463,634               938                    0.80  %
Borrowed money                                        16,902                   117                    2.75  %          41,822               162                    1.54  %
Total interest-bearing liabilities                   492,205                   593                    0.48  %         505,456             1,100                    0.86  %
Non-interest-bearing liabilities
Demand deposits                                      136,165                                                           92,085
Other liabilities                                     26,384                                                           30,241
Total liabilities                                    654,754                                                          627,782
Stockholders' equity                                  57,305                                                           46,762
Total liabilities and equity                    $    712,059                                                        $ 674,544
Net interest income                                                       $  5,072                                                     $  4,139

Average interest rate spread                                               
                          2.82  %                                                      2.37  %

Net interest margin                                                                                   2.95  %                                                      2.56  %

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


                                       41
--------------------------------------------------------------------------------
                                                                                       For the Nine Months Ended December 31,
                                                                          2021                                                          2020
                                                   Average                                  Average              Average                                 Average
$ in thousands                                     Balance            Interest            Yield/Cost             Balance           Interest            Yield/Cost
Interest-Earning Assets:
Loans (1)                                       $   503,782          $ 15,541                    4.11  %       $ 451,938          $ 13,804                    4.07  %
Mortgage-backed securities                           46,903               552                    1.57  %          37,896               509                    1.79  %
Investment securities(2)                             43,668               543                    1.66  %          50,234               716            

1.90 %


Money market investments                             75,412                76                    0.13  %          88,422                70                    0.11  %
Total interest-earning assets                       669,765            16,712                    3.32  %         628,490            15,099                    3.20  %
Non-interest-earning assets                          25,649                                                       28,996
Total assets                                    $   695,414                                                    $ 657,486

Interest-Bearing Liabilities:
Deposits
Interest-bearing checking                       $    50,344          $     21                    0.06  %       $  27,134          $     24                    0.12  %
Savings and clubs                                   111,865                93                    0.11  %         107,041               205                    0.25  %
Money market                                        147,043               270                    0.24  %         121,663               428                    0.47  %
Certificates of deposit                             150,605             1,043                    0.92  %         195,461             2,387                    1.62  %
Mortgagors deposits                                   2,834                 8                    0.37  %           2,333                 4                    0.23  %
Total deposits                                      462,691             1,435                    0.41  %         453,632             3,048                    0.89  %
Borrowed money                                       25,184               389                    2.05  %          37,278               492                    1.75  %
Total interest-bearing liabilities                  487,875             1,824                    0.50  %         490,910             3,540                    0.96  %
Non-interest-bearing liabilities
Demand deposits                                     125,806                                                       89,330
Other liabilities                                    27,602                                                       29,761
Total liabilities                                   641,283                                                      610,001
Stockholders' equity                                 54,131                                                       47,485
Total liabilities and equity                    $   695,414                                                    $ 657,486
Net interest income                                                  $ 14,888                                                     $ 11,559

Average interest rate spread                                                                     2.82  %                                                      2.24  %

Net interest margin                                                                              2.96  %                                                      2.45  %

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



Interest Income

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

Interest Expense


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

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

Provision for Loan Losses and Asset Quality


  The Bank maintains an ALLL that management believes is adequate to absorb
inherent and probable losses in its loan portfolio. The adequacy of the ALLL is
determined by management's continuous review of the Bank's loan portfolio,
including the identification and review of individual problem situations that
may affect a borrower's ability to repay.

Management reviews the overall portfolio quality through an analysis of
delinquency and non-performing loan data, estimates of the value of underlying
collateral, current charge-offs and other factors that may affect the portfolio,
including a review of regulatory examinations, an assessment of current and
expected economic conditions and changes in the size and composition of the loan
portfolio. The general valuation allowance applied to those loans not deemed to
be impaired is determined using a three step process:

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

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

The ALLL reflects management's evaluation of the loans presenting identified
loss potential, as well as the risk inherent in various components of the
portfolio. Any change in the size of the loan portfolio or any of its components
could necessitate an increase in the ALLL even though there may not be a decline
in credit quality or an increase in potential problem loans. Loans made under
the PPP are fully guaranteed by the SBA; therefore, these loans do not have an
associated allowance.

  The Bank's provision for loan loss methodology is consistent with the
Interagency Policy Statement on the Allowance for Loan and Lease Losses (the
"Interagency Policy Statement") released by the OCC on December 13, 2006. For
additional information regarding the Bank's ALLL policy, refer to Note 2 of the
Notes to Consolidated Financial Statements, "Summary of Significant Accounting
Policies" included in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 2021.

The following table summarizes the activity in the ALLL for the nine month
periods ended December 31, 2021 and 2020 and the fiscal year ended March 31,
2021:
                                                       Nine Months Ended           Fiscal Year Ended            Nine Months Ended
$ in thousands                                         December 31, 2021             March 31, 2021             December 31, 2020
Beginning Balance                                              5,140              $        4,946             $          4,946
Less: Charge-offs                                               (223)                        (78)                         (76)
Add: Recoveries                                                  103                         372                          367
Provision for (recovery of) loan losses                          468                        (100)                         (99)

Ending Balance                                      $          5,488              $        5,140             $          5,138

Ratios:
Net (charge-offs) recoveries to average loans
outstanding (annualized)                                       (0.03)     %                 0.06     %                   0.09      %
Allowance to total loans                                        0.99      %                 1.06     %                   1.10      %
Allowance to non-performing loans                              70.65      %                71.48     %                  68.72      %



                                       43
--------------------------------------------------------------------------------

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

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

The Bank has received requests to modify loan terms to defer principal and/or
interest payments from borrowers who are experiencing financial challenges due
to the effects of COVID-19. The Bank has accommodated borrowers with short-term
deferments for up to 3 or 4 months as requested or needed. Outside of borrowers
with short-term deferments, the delinquency and non-performing assets have
increased due to various reasons such as prolonged vacancy or inadequate cash
flow that for some may have existed prior to COVID-19. Consistent with
regulatory guidance and the provisions of the CARES Act, loans less than 30 days
past due at December 31, 2019 that were granted COVID-19 related payment
deferrals will continue to be considered current and not be reported as TDRs. As
of December 31, 2021, the Bank had received a total of 71 applications for
payment deferrals on approximately $72.6 million of loans. This total included
53 commercial loans totaling $66.8 million and 18 residential loans totaling
$5.8 million. As of December 31, 2021, there were 6 loans remaining on deferment
with outstanding principal balances totaling $7.8 million. The Bank has been
working with the borrowers to determine if there is a risk of any losses
associated with repayment and if any additional reserves would have to be
allocated to this portfolio.

Non-performing Assets


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

  The Bank may from time to time agree to modify the contractual terms of a
borrower's loan. In cases where such modifications represent a concession to a
borrower experiencing financial difficulty, the modification is considered a
troubled debt restructuring ("TDR"). Loans modified in a TDR are placed on
nonaccrual status until the Bank determines that future collection of principal
and interest is reasonably assured, which generally requires that the borrower
demonstrate performance according to the restructured terms for a period of at
least six months. At December 31, 2021, loans classified as TDR totaled $7.3
million, of which $5.5 million were classified as performing. At March 31, 2021,
loans classified as TDR totaled $7.5 million, of which $5.8 million were
classified as performing.

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

                                       44
--------------------------------------------------------------------------------

The following table sets forth information with respect to the Bank’s
non-performing assets at the dates indicated:

                                                                                   Non Performing Assets

$ in thousands                      December 31, 2021         September 30, 2021         June 30, 2021         March 31, 2021         December 31, 2020
Loans accounted for on a nonaccrual basis (1):
Gross loans receivable:
One-to-four family                 $          4,919          $           3,500          $      3,511          $       3,524          $          3,532
Multifamily                                     516                        882                   885                    369                       372
Commercial real estate                          185                        192                   192                    918                     1,160

Business                                      2,091                      2,148                 2,211                  2,290                     2,413
Consumer                                         57                          -                     -                     90                         -
Total nonaccrual loans                        7,768                      6,722                 6,799                  7,191                     

7,477

Other non-performing assets
(2):
Real estate owned                                60                         60                    60                     60                        60

Total non-performing assets
(3)                                $          7,828          $           

6,782 $ 6,859 $ 7,251 $ 7,537


Non-performing loans to
total loans                                    1.41  %                    1.29  %               1.39  %                1.49  %                   1.60 

%

Non-performing assets to
total assets                                   1.08  %                    0.96  %               1.00  %                1.07  %                   1.10 

%

Allowance to total loans                       0.99  %                    1.06  %               1.07  %                1.06  %                   1.10 

%

Allowance to non-performing
loans                                         70.65  %                   82.04  %              76.69  %               71.48  %                  

68.72 %


(1) Nonaccrual status denotes any loan where the delinquency exceeds 90 days past due, or in the opinion of management, the collection of contractual
interest and/or principal is doubtful. Payments received on a nonaccrual loan are either applied to the outstanding principal balance or recorded as
interest income, depending on assessment of the ability to collect on the loan.
(2) Other non-performing assets generally represent loans that the Bank is in the process of selling and has designated held-for-sale or property
acquired by the Bank in settlement of loans less costs to sell (i.e., through foreclosure, repossession or as an in-substance foreclosure). These assets
are recorded at the lower of their cost or fair value.
(3) Troubled debt restructured loans performing in accordance with their modified terms for less than six months and those not performing in accordance
with their modified terms are considered nonaccrual and are included in the nonaccrual category in the table above. At December 31, 2021, there were
$5.5 million TDR loans that have performed in accordance with their modified terms for a period of at least six months. These loans are generally
considered performing loans and are not presented in the table above.



Subprime Loans


  In the past, the Bank originated or purchased a limited amount of subprime
loans (which are defined by the Bank as those loans where the borrowers have
FICO scores of 660 or less at origination). At December 31, 2021, the Bank had
$3.6 million in subprime loans, or 0.7% of its total loan portfolio, of which
$1.0 million are non-performing loans.

Non-Interest Income


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

Non-Interest Expense

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

——————————————————————————–


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

© Edgar Online, source Glimpses

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *