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 (including 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. For further details on the ALLL, please reference Note 2 "Summary of Significant Accounting Policies."

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, and loans held for sale at December 31, 2012 and March 31, 2012.



$ in thousands	December 31, 2012					March 31, 2012
	Amount			Percent		Amount			Percent
Gross loans receivable:
One- to four-family	$	61,953		16.92	%	$	66,313		15.99	%
Multifamily	66,982			18.29	%	78,859			19.01	%
Commercial real estate	201,728			55.09	%	207,505			50.02	%
Construction	1,228			0.34	%	16,471			3.97	%
Business	34,021			9.29	%	44,424			10.71	%
Consumer and other ⁽¹⁾	264			0.07	%	1,258			0.30	%
Total loans receivable	$	366,176		100.00	%	$	414,830		100.00	%
Add:
Premium on loans	141					137
Less:
Deferred fees and loan discounts	(1,863		)			(2,109		)
Allowance for loan losses	(14,483		)			(19,821		)
Total loans receivable, net	$	349,971				$	393,037

Loans held-for-sale	$	18,991				$	29,626

⁽¹⁾ Includes personal loans

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the nine month period ended December 31, 2012.



$ in thousands	One-to-four family Residential		Multi-Family Mortgage			Commercial Real Estate			Construction			Business		Consumer and Other			Total
Allowance for loan losses:
Beginning Balance	$	4,305	$	5,409		$	6,709		$	1,532		$	1,786	$	80		$	19,821
Charge-offs	2,103		226			1,149			151			2,152		3			5,784
Recoveries	—		—			—			22			34		4			60
Provision for Loan Losses	2,394		(4,155		)	(921		)	(1,403		)	4,521		(50		)	386
Ending Balance	$	4,596	$	1,028		$	4,639		$	—		$	4,189	$	31		$	14,483
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	4,217		1,028			4,182			—			2,368		31			11,826
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	379		—			457			—			1,821		—			2,657
The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the nine month period ended December 31, 2012.
Loan Receivables Ending Balance	$	61,726	$	67,058		$	200,641		$	1,230		$	33,519	$	280		$	364,454
Ending Balance: collectively evaluated for impairment	54,939		67,058			184,742			—			27,757		280			334,776
Ending Balance: individually evaluated for impairment	6,787		—			15,899			1,230			5,762		—			29,678

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment 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		Total
Allowance for loan losses:
Beginning Balance	$	2,923	$	6,223	$	3,999	$	6,944		$	2,965		$	93	$	23,148
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

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment as of March 31, 2012.



$ 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	$	4,098	$	5,348	$	6,177	$	1,484	$	1,685	$	80	$	18,872
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	207		61		532		48		101		—		949

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment as of March 31, 2012.
Loan Receivables Ending Balance	66,172		78,984		206,022		16,433		43,982		1,265		412,858

Ending Balance: collectively evaluated for impairment	63,866		77,976		185,249		10,346		38,124		1,265		376,826
Ending Balance: individually evaluated for impairment	2,306		1,008		20,773		6,087		5,858		—		36,032

The following is a summary of non-performing loans at December 31, 2012 and March 31, 2012.



$ in thousands	December 31, 2012		March 31, 2012
Loans accounted for on a non-accrual basis:
Gross loans receivable:
One-to-four family	$	7,249	$	6,988
Multifamily	483		2,923
Commercial real estate	18,872		24,467
Construction	1,230		11,325
Business	7,718		8,862
Consumer and other	14		23
Total non-accrual loans	$	35,566	$	54,588

Non-performing loans decreased to $35.6 million at December 31, 2012 from $54.6 million at March 31, 2012. The majority of the decline during the current nine month period ended December 31, 2012 related to 10 non-performing loans with a fair value of $9.9 million that were moved to held for sale, 5 TDR loans with a fair value of $1.7 million that were upgraded to performing as they had performed in accordance with their modified terms for six months and one construction loan with a fair value of $5 million that was paid off.

Non-performing loans at December 31, 2012, were comprised of $12.0 million of loans 90 days or more past due and non-accruing, $5.5 million of loans that are either performing or less than 90 days past due and have been deemed to be impaired and $18.0 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, 2012, were comprised of $31.5 million of loans 90 days or more past due and non-accruing, $2.1 million of loans that are either performing or less than 90 days past due and have been deemed to be impaired and $21.0 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, 2012, other non-performing assets totaled $22.0 million which consists of other real estate owned and held-for-sale loans. Other real estate owned of $3.0 million reflects nine foreclosed properties.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan 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 or past maturity. All other one- to-four family residential loans and consumer and other loans are performing loans.

As of December 31, 2012, 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	$	65,620	$	161,665	$	—	$	20,032
Special Mention	—		3,740		—		4,300
Substandard	1,438		35,236		1,230		9,187
Doubtful	—		—		—		—
Loss	—		—		—		—
Total	$	67,058	$	200,641	$	1,230	$	33,519



$ in thousands	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	$	54,477	$	266
Non-Performing	7,249		14
Total	$	61,726	$	280

As of March 31, 2012, 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	$	74,900	$	167,606	$	201	$	25,963
Special Mention	381		1,456		6,108		4,954
Substandard	3,703		36,959		10,124		12,551
Doubtful	—		—		—		514
Loss	—		—		—		—
Total	$	78,984	$	206,021	$	16,433	$	43,982

$ in thousands	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	$	59,185	$	1,242
Non-Performing	6,987		23
Total	$	66,172	$	1,265

The following table presents an aging analysis of the recorded investment of past due financing receivable as of December 31, 2012.



$ in thousands	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Impaired⁽¹⁾		Non-performing TDR		Performing TDR ⁽²⁾		Current		Total Financing Receivables
One-to-four family residential	$	4,783	$	574	$	4,180	$	9,537	$	—	$	3,069	$	2,675	$	46,445	$	61,726
Multi-family mortgage	1,579		1,144		483		3,206		—		—		616		63,236		67,058
Commercial real estate	11,516		1,681		4,887		18,084		3,618		10,367		1,299		167,273		200,641
Construction	—		—		—		—		1,230		—		—		—		1,230
Business	576		1,713		2,465		4,754		686		4,567		509		23,003		33,519
Consumer and other	31		6		14		51		—		—		—		229		280
Total	$	18,485	$	5,118	$	12,029	$	35,632	$	5,534	$	18,003	5,099		$	300,186	$	364,454

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

⁽²⁾ The performing TDR category details those loans that the Company has determined that the future collection of principal and interest is reasonably assured, this generally represents those borrowers who have performed according to the restructured terms for a period of at least six months.

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2012. 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⁾		Non-performing TDR		Performing TDR ⁽²⁾		Current		Total Financing Receivables
One-to-four family residential	$	2,381	$	—	$	4,681	$	7,062	$	—	$	2,306	$	2,690	54,114		66,172
Multi-family mortgage	3,220		427		1,915		5,562		—		1,008		—		72,414		78,984
Commercial real estate	11,455		—		9,406		20,861		2,000		13,061		430		169,669		206,022
Construction	—		—		11,086		11,086		—		239		—		5,108		16,433
Business	3,937		954		4,353		9,244		81		4,428		341		29,888		43,982
Consumer and other	37		1		23		61		—		—		—		1,204		1,265
Total	$	21,030	$	1,382	$	31,464	$	53,876	$	2,081	$	21,042	$	3,461	$	332,397	$	412,858

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

The following table presents information on impaired loans with the associated allowance amount, if applicable for the nine month period ended December 31, 2012 and the interest income recognized for the nine month periods ended December 31, 2012 and 2011.



	December 31, 2012											December 31, 2011
$ in thousands	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Balance			Interest income recognized		Average Balance		Interest income recognized
With no specific allowance recorded:
One-to-four family residential	$	1,111	$	1,111	$	—	$	659		$	38	$	2,176	$	39
Multi-family mortgage	—		—		—		—			5		196		18
Commercial real estate	8,660		9,348		—		7,402			191		6,202		4
Construction	1,230		1,492		—		2,743			53		10,139		804
Business	1,192		2,131		—		1,064			41		4,942		156
Consumer and other	—		—		—		—			—		—		—
Total	$	12,193	$	14,082	$	—	$	11,868		$	328	$	23,655	$	1,021

With an allowance recorded:
One-to-four family residential	$	5,676	$	6,229	$	379	$	4,197		$	54	$	7,171	$	91
Multi-family mortgage	—		—		—		339			—		4,427		70
Commercial real estate	7,239		7,986		457		6,732			155		12,118		231
Construction	—		—		—		—			—		2,606		—
Business	4,570		4,570		1,821		4,593			254		1,592		106
Consumer and other	—		—		—		—		—	—		—		—
Total	$	17,485	$	18,785	$	2,657	$	15,861		$	463	$	27,914	$	498

Total impaired loans by type:
One-to-four family residential	$	6,787	$	7,340	$	379	$	4,856		$	92	$	9,347	$	130
Multi-family mortgage	—		—		—		339			5		4,623		88
Commercial real estate	15,899		17,334		457		14,134			346		18,320		235
Construction	1,230		1,492		—		2,743			53		12,745		804
Business	5,762		6,701		1,821		5,657			295		6,534		262
Consumer and other	—		—		—		—			—		—		—
Total	$	29,678	$	32,867	$	2,657	$	27,729		$	791	$	51,569	$	1,519

The following table presents information on impaired loans and non-performing TDR loans ($21.0 million) with the associated allowance amount, if applicable at March 31, 2012.



As of March 31, 2012
$ in thousands	Recorded Investment		Unpaid Principal Balance		Associated Allowance
With no specific allowance recorded:
One-to-four family residential	$	628	$	628	$	—
Multi-family mortgage	194		194		—
Commercial real estate	6,304		6,304		—
Construction	5,406		5,670		—
Business	4,983		5,417		—
Consumer and other	—		—		—
Total	$	17,515	$	18,213	$	—

With an allowance recorded:
One-to-four family residential	$	1,679	$	1,760	$	207
Multi-family mortgage	814		879		61
Commercial real estate	14,469		15,068		532
Construction	681		1,613		48
Business	1,089		1,776		101
Consumer and other	—		—		—
Total	$	18,732	$	21,096	$	949

Total impaired loans by type:
One-to-four family residential	$	2,307	$	2,388	$	207
Multi-family mortgage	1,008		1,073		61
Commercial real estate	20,773		21,372		532
Construction	6,087		7,283		48
Business	6,072		7,193		101
Consumer and other	—		—		—
Total	$	36,247	$	39,309	$	949

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 significant concessions 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.

There were no modifications made during the three month period ended December 31, 2012.

The following table presents an analysis of those loan modifications that were classified as TDRs during the nine month period ended December 31, 2012.



	Modifications to loans during the nine month period ended
	December 31, 2012

$ in thousands	Number of loans	Pre- modification outstanding recorded investment	Recorded investment	Pre-Modification rate		Post-Modification rate
One-to-four family residential	2	1,415	536	6.52	%	6.31	%
Commercial real estate	2	1,061	1,060	12.02	%	12.02	%
Business	4	2,242	2,210	7.44	%	7.44	%
	8	4,718	3,806

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, 2012, one loan of $0.5 million was modified with an interest rate concession of 1.25% and one loan which recorded a charge off of $0.9 million. There were three modifications with interest rate concessions of 5.0% made on a $0.9 million loan, 3.2% made on a $1.9 million loan and 0.125% made on a $0.6 million loan during the nine month period ended December 31, 2011.

For the period ended December 31, 2012, Carver had one commercial real estate loan with an outstanding balance of $2.4 million that had been modified and subsequently defaulted within the last twelve months.

For the nine month period period ended December 31, 2012 there were eleven loans in the TDR portfolio totaling 5.1 million that were on accrual status as they had performed within their modified terms for a consecutive six month period.

At December 31, 2012 and 2011, there were no loans to officers or directors of the Company.