LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The loans receivable portfolio is segmented into One-to-Four Family, Multifamily Mortgage, Commercial Real-Estate, Construction, Business, Small Business Administration & Consumer and Other Loans.

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

The General Allowance for Pass rated loans and Criticized and Classified loans is determined in accordance with ASC Topic 450 whereby management evaluates the risk of loss potential of pools of loans which are segmented by loan type and then by risk rating. The loan types include; i) One-to-Four family mortgages, ii) Multifamily, iii) Commercial Real Estate, iv) Construction, v) Business, vi) Small Business Administration, and vii) Consumer and other loans.

To determine the balance of the ALLL, management evaluates the risk of potential loss to these pools of pass rated or criticized and classified loans, which are risk rated special mention, substandard or doubtful. This analysis is based upon a review of 10 different factors that are then applied to the pools of loans. The first factor utilized is actual historical loss experience by loan type expressed as a percentage of the average outstanding of all loans within the loan type over the prior four quarters. Because actual loss experience alone may not adequately predict the level of losses inherent in a portfolio, management also reviews nine qualitative factors to determine if reserves should be adjusted based upon any of those factors. These nine factors are reviewed and analyzed for each loan type and each risk rating. The lower the credit quality, the greater the risk for potential loss.

The Specific Allowance for Classified loans is determined in accordance with ASC Topic 310 which is the primary basis for individually determining if a loan is impaired, and if impaired, valuing the impairment amount of specific loans whose collectability is questionable. The standard requires the use of one of the following three approved methods to estimate the amount to be reserved and/or charged off: i) the present value of expected future cash flow discounted at the loan’s effective interest rate, ii) the loan’s observable market price, or iii) the fair value of the collateral if the loan is collateral dependent.

Classified loans with at risk balances of $500,000 or more are identified and reviewed for individual evaluation for impairment. Carver also performs an impairment analysis on all troubled debt restructurings (“TDRs”). If it is determined that it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement, the loan is impaired. If the loan is determined not to be impaired, it is then placed in the appropriate pool of Classified loans to be evaluated for potential losses. The impaired loans are then evaluated to determine the measure of impairment amount based on one of the three measurement methods noted above. If it is determined that there is an impairment amount, the Bank then determines whether the impairment amount is permanent, in which case the loan balance is written down, or if it is other than permanent, the Bank establishes a specific valuation reserve that is included in the total ALLL. Also, in accordance with ASC310, if there is no impairment amount, no reserve is established for the loan.

From time to time, events or economic factors may affect the loan portfolio, causing management to provide additional amounts or release balances from the ALLL. The ALLL is sensitive to risk ratings assigned to individually evaluated loans and economic assumptions and delinquency trends. Individual loan risk ratings are evaluated based on the specific facts related to that loan. Additions to the ALLL are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the ALLL, while recoveries of previously charged off amounts are credited to the ALLL.

The following is a summary of loans receivable, net of allowance for loan losses, at December 31, 2011 and March 31, 2011 (dollars in thousands).



	December 31, 2011					March 31, 2011
	Amount			Percent		Amount			Percent
Gross loans receivable:
One- to four-family	$	74,693		16.23	%	$	82,061		14.09	%
Multifamily	95,706			20.79	%	123,791			21.25	%
Commercial real estate	218,688			47.51	%	243,786			41.84	%
Construction	23,394			5.08	%	78,055			13.40	%
Business	46,525			10.11	%	53,561			9.19	%
Consumer and other ⁽¹⁾	1,252			0.28	%	1,349			0.23	%
Total loans receivable	460,258			100.00	%	582,603			100.00	%
Add:
Premium on loans	102					120
Less:
Deferred fees and loan discounts	(2,183		)			(2,420		)
Allowance for loan losses	(20,411		)			(23,147		)
Total loans receivable, net	$	437,766				$	557,156


(1)	Includes personal, credit card, and home improvement.


(2)	Substantially all of the Bank’s real estate loans receivable are principally secured by properties located in New York City. Accordingly, as with most financial institutions in the market area, the ultimate collectability of a substantial portion of the Company’s loan portfolio is susceptible to changes in market conditions in this area.

The following is an analysis of the allowance for loan losses and loans receivable as of and for the nine month period ended December 31, 2011 (in thousands).



	One-to-four family Residential		Multi-Family Mortgage		Commercial Real Estate		Construction			Business			Consumer and Other		Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	2,923	$	6,223	$	3,999	$	6,944		$	2,965		$	93	$	—	$	23,147
Charge-offs:	857		5,588		4,285		5,692			398			8		—		16,828
Recoveries:	—		6		2		1,685			109			—		—		1,802
Provision for Loan Losses	1,143		7,047		6,089		(800		)	(1,203		)	14		—		12,290
Ending Balance	$	3,209	$	7,688	$	5,805	$	2,137		$	1,473		$	99	$	—	$	20,411
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	2,719		7,593		5,227		2,059			1,351			99		—		19,048
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	490		95		578		78			122			—		—		1,363
Loan Receivables Ending Balance:	$	74,646	$	95,617	$	217,228	$	23,356		$	46,042		$	1,288	—		$	458,177
Ending Balance: collectively evaluated for impairment	65,460		93,454		192,584		18,444			39,183			1,288		—		410,413
Ending Balance: individually evaluated for impairment	9,186		2,163		24,644		4,912			6,859			—		—		47,764

The following is an analysis of the allowance for loan losses as of and for the nine month period ended December 31, 2010 (in thousands).



	One-to-four family Residential		Multi-Family Mortgage		Commercial Real Estate		Construction		Business		Consumer and Other		Unallocated			Total
Allowance for loan losses:

Beginning Balance	$	1,035	$	1,566	$	2,613	$	3,831	$	2,069	$	60	$	826		$	12,000
Charge-offs:	136		2,796		599		4,975		2,515		8		—			11,029
Recoveries:	—		—		1		—		15		17		—			33
Provision for Loan Losses	2,031		6,289		2,496		7,196		3,108		24		(826		)	20,318

Ending Balance	$	2,930	$	5,059	$	4,511	$	6,052	$	2,677	$	93	—			$	21,322

The following is an analysis of the loan receivables as of March 31, 2011 (in thousands).



	One-to-four family Residential		Multi-Family Mortgage		Commercial Real Estate		Construction		Business		Consumer and Other		Total
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	$	2,316	$	5,510	$	3,840	$	4,379	$	2,832	$	93	$	18,970
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	607		713		159		2,565		133		—		4,177

Loan Receivables Ending Balance :	81,988		123,571		242,317		78,017		53,060		1,350		580,303

Ending Balance: collectively evaluated for impairment	70,679		116,064		233,697		41,454		46,789		1,350		510,033
Ending Balance: individually evaluated for impairment	11,309		7,507		8,620		36,563		6,271		—		70,270

The following is a summary of non-performing loans at December 31, and March 31, 2011 (in thousands).



	December 31, 2011		March 31, 2011
Loans accounted for on a non-accrual basis:
Gross loans receivable:
One-to-four family	$	12,863	$	15,993
Multifamily	2,619		6,786
Commercial real estate	26,313		10,078
Construction	17,651		37,218
Business	9,825		7,289
Consumer	4		42
Total non-accrual loans	$	69,275	$	77,406

Non-performing loans decreased to $69.3 million at December 31, 2011 from $77.4 million at March 31, 2011. During the current nine month period 39 non-performing loans with a fair value of $47.8 million were moved to held for sale. Sales of held for sale loans during the nine month period ended December 31, 2011 totaled $26.1 million

Non-performing loans at December 31, 2011, were comprised of $47.8 million of loans 90 days or more past due and non-accruing, $2.6 million of loans that are either performing or less than 90 days past due and have been deemed to be impaired and $18.9 million of loans classified as a troubled debt restructuring and either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months.

Non-performing loans at March 31, 2011, were comprised of $48.8 million of loans 90 days or more past due and non-accruing, $4.9 million of loans that are either performing or less than 90 days past due and have been deemed to be impaired and $23.8 million of loans classified as a troubled debt restructuring and either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months.

At December 31, 2011, other non-performing assets totaled $2.2 million which consists of other real estate owned. Other real estate owned of $2.2 million reflects two foreclosed properties.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loans categories. Loans may be classified as "Pass", “Special Mention”, “Substandard”, “Doubtful”, and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. They represent a moderate credit risk and some degree of financial stability. Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Loans rated Special Mention have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date. Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged-off immediately to the allowance for loan losses.

One-to-Four Family Residential Loans and Consumer and Other Loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance and loans past maturity. All other One-to-Four Family Residential Loans and Consumer and Other Loans are performing loans.

As of December 31, 2011, and based on the most recent analysis performed in the current quarter, the risk category by class of loans is as follows (in thousands):



	Multi-Family Mortgage		Commercial Real Estate		Construction		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	89,380	$	168,630	$	1,818	$	29,190
Special Mention	2,227		18,271		5,092		5,133
Substandard	4,010		30,328		16,446		11,204
Doubtful	—		—		—		514
Loss	—		—		—		—
Total	$	95,617	$	217,229	$	23,356	$	46,041



	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	$	61,783	$	1,284
Non-Performing	12,863		4
Total	$	74,646	$	1,288

As of March 31, 2011, and based on the most recent analysis performed, the risk category by class of loans is as follows (in thousands):



	Multi-Family Mortgage		Commercial Real Estate		Construction			Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	110,837	$	199,581	$	—		$	39,017
Special Mention	2,126		8,726		25,105			3,857
Substandard ⁽¹⁾	10,608		33,719		52,912			10,058
Doubtful	—		291		—			128
Loss	—		—		—		—	—
Total	$	123,571	$	242,317	$	78,017		$	53,060

⁽¹⁾Presentation of March 31, 2011 table revised to include Impaired loans for comparative purposes
	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	$	65,995	$	1,308
Non-Performing	15,993		42
Total	$	81,988	$	1,350

The following table presents an aging analysis of the recorded investment of past due financing receivable as of December 31, 2011 (in thousands).



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Impaired ⁽¹⁾		TDR ⁽²⁾		Current ^{(3), (4)}		Total Financing Receivables
One-to-four family residential	$	2,126	$	399	$	5,468	$	7,993	$	—	$	7,395	$	59,305	$	74,693
Multi-family mortgage	2,868		1,472		1,545		5,885		—		1,074		88,747		95,706
Commercial real estate	8,639		537		17,762		26,938		2,483		6,068		183,199		218,688
Construction	—		—		17,651		17,651		—		—		5,743		23,394
Business	1,744		—		5,337		7,081		91		4,397		34,956		46,525
Consumer and other	34		4		4		42		—				1,210		1,252
Total	$	15,411	$	2,412	$	47,767	$	65,590	$	2,574	$	18,934	$	373,160	$	460,258


(1)	Consists of loans which are less than 90 days past due but impaired due to other risk characteristics.


(2)	$18.9 million have not performed in accordance with their modified terms for more than six months and are considered non performing.


(3)	Includes $3.1 million TDR loans that have performed in accordance with their modified terms for at least six months and is considered performing.


(4)	There were no loans that are 90 days or more past due as to interest and principal and still accruing at December 31, 2011.

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2011. Also included are loans that are 90 days or more past due as to interest and principal and still accruing because they are well-secured and in the process of collection (in thousands).



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Impaired ⁽¹⁾		TDR ⁽²⁾		Current ^{(3), (4), (5)}		Total Financing Receivables
One-to-four family residential	$	4,852	$	601	$	4,859	$	10,312	$	—	$	11,134	60,615		82,061
Multi-family mortgage	6,866		—		5,452		12,318		1,135		200		110,138		123,791
Commercial real estate	12,360		5,457		3,095		20,912		442		6,541		215,891		243,786
Construction	19,509		—		32,158		51,667		923		4,137		21,328		78,055
Business	7,981		117		3,175		11,273		2,362		1,752		38,174		53,561
Consumer and other	15		37		42		94		—		—		1,255		1,349
Total	$	51,583	$	6,212	$	48,781	$	106,576	$	4,862	$	23,764	$	447,401	$	582,603

⁽¹⁾ Consists of loans which are less than 90 days past due but impaired due to other risk characteristics.
⁽²⁾ $23.7 million have not performed in accordance with their modified terms for more than six months and are considered non performing. Currently they are represented in the following TDR categories:
$17.4 million loans are non accrual as they are not performing in accordance with their modified terms
$5.8 million are 30-59 days past due.
$0.5 million loans are 60-89 days past due.
⁽³⁾ Includes $0.4 million TDR loan that has performed in accordance with its modified terms for at least six months and is considered performing.
⁽⁴⁾ There were no loans that are 90 days or more past due as to interest and principal and still accruing at March 31, 2011.
⁽⁵⁾ Presentation of March 31, 2011 table revised to reflect loan principal amounts, gross of deferred fees for comparative purposes.

The following table presents the recorded investment and unpaid principal balances for impaired loans and TDR loans ($18.6 million) with the associated allowance amount, if applicable. Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the specific allowance recorded. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received, under the cash basis method.

Impaired Loans by Class

As of and for the nine month period ended December 31, 2011

(In thousands)



	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Balance		Interest income recognized
With no specific allowance recorded:
One-to-four family residential	$	2,180	$	2,680	$	—	$	2,176	$	39
Multi-family mortgage	195		195		—		196		18
Commercial real estate	8,446		9,324		—		6,202		4
Construction	3,799		4,727		—		10,139		804
Business	5,500		5,934		—		4,942		156
Consumer and other	—		—		—		—		—
Total	$	20,120	$	22,860	$	—	$	23,655	$	1,021

With an allowance recorded:
One-to-four family residential	$	7,006	$	9,372	$	490	$	7,171	$	91
Multi-family mortgage	1,968		2,032		95		4,427		70
Commercial real estate	16,437		17,435		578		12,118		231
Construction	1,112		1,544		78		2,606		—
Business	1,582		2,002		122		1,592		106
Consumer and other	—		—
Total	$	28,105	$	32,385	$	1,363	$	27,914	$	498


One-to-four family residential	$	9,186	$	12,052	$	490	$	9,347	$	130
Multi-family mortgage	2,163		2,227		95		4,623		88
Commercial real estate	24,883		26,759		578		18,320		235
Construction	4,911		6,271		78		12,745		804
Business	7,082		7,936		122		6,534		262
Consumer and other	—		—		—		—		—
Total	$	48,225	$	55,245	$	1,363	$	51,569	$	1,519



	Impaired Loans by Class
	As of March 31, 2011
	(In thousands)

	Recorded Investment		Unpaid Principal Balance		Associated Allowance
With no specific allowance recorded:
One-to-four family residential	$	3,752	$	3,869	—
Multi-family mortgage	814		844		—
Commercial real estate	5,266		5,266		—
Construction	12,567		14,602		—
Business	4,651		4,651		—
Consumer and other	—		—		—
Total	$	27,050	$	29,232	—

With an allowance recorded:
One-to-four family residential	$	7,557	$	8,209	$	607
Multi-family mortgage	6,693		7,108		713
Commercial real estate	3,354		3,800		159
Construction	23,996		27,486		2,565
Business	1,620		1,830		133
Consumer and other	—		—
Total	$	43,220	$	48,433	$	4,177

One-to-four family residential	$	11,309	$	12,078	$	607
Multi-family mortgage	7,507		7,922		713
Commercial real estate	8,620		9,066		159
Construction	36,563		42,088		2,565
Business	6,271		6,481		133
Consumer and other	—		—
Total	$	70,270	$	77,635	$	4,177

In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a modification. Situations around modifications involving troubled borrowers may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. In cases where the Bank grants any such concession to a troubled borrower, the Bank accounts for the modification as a TDR under ASC 310-40 and the related allowance under ASC 310-10-35. Loans modified in TDRs are placed on non-accrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months.

The following table presents an analysis of those loan modifications that were classified as non performing TDRs during the three and nine month periods ended December 31, 2011 (in thousands)



	Modifications to loans during the three month period ended					Modifications to loans during the nine month period ended
	December, 2011					December 31, 2011

	Number of loans	Pre-modification outstanding recorded investment		Recorded investment at December 31, 2011		Number of loans	Pre- modification outstanding recorded investment		Recorded investment at December 31, 2011


One-to-four family residential	1	$	663	$	663	2	$	2,513	$	2,513
Multi-family mortgage	1	879		830		1	879		830
Commercial real estate	3	3,879		3,879		3	3,879		3,879
Business	1	342		342		3	2,647		2,524
Total	6	$	5,763	$	5,714	9	$	9,918	$	9,746

In an effort to proactively manage delinquent loans, Carver has selectively extended to certain borrowers concessions such as rate reductions or forbearance agreements. For the nine month period ended December 31, 2011, loan on which concessions were made with respect to rate reductions were $3.3 million and those loans which reached forbearance agreements totaled $6.3 million.

For the nine month period ended December 31, 2011, Carver did not have any loans that had been modified and subsequently defaulted.

TDR's are factored into the determination of the allowance for loan losses. The Company has allocated approximately $44 thousand of the loan loss allowance at December 31, 2011 for those TDRs modified within the last nine months.