EMPLOYEE BENEFIT AND STOCK COMPENSATION PLANS

Pension Plan. Carver Federal has a non-contributory defined benefit pension plan covering all who were participants prior to curtailment of the plan during the fiscal year ended March 31, 2001. The benefits are based on each employee's term of service through the date of curtailment. Carver Federal's policy was to fund the plan with contributions which equal the maximum amount deductible for federal income tax purposes. The plan was curtailed during the fiscal year ended March 31, 2001.

The following table sets forth the plan's changes in benefit obligation, changes in plan assets and funded status and amounts recognized in Carver Federal's consolidated financial statements at March 31:



$ in thousands	2013			2012
Change in benefit obligation:
Benefit obligation at the beginning of year	$	2,614		$	2,406
Interest cost	106			122
Actuarial gain	53			272
Benefits paid	(390		)	(179		)
Settlements	43			(7		)
Benefit obligation at end of year	$	2,426		$	2,614
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	2,251		$	2,115
Actual return on plan assets	160			72
Contributions	—			250
Benefits paid	(190		)	(179		)
Settlements	(198		)	(7		)
Fair value of plan assets at end of year	$	2,023		$	2,251

Funded status	$	(403	)	$	(363	)
Accrued pension cost	$	(403	)	$	(363	)

Net periodic pension benefit includes the following components for the years ended March 31:



$ in thousands	2013			2012			2011
Interest cost	$	106		$	122		$	131
Unrecognized loss	45			61			54
Settlement charge	100			—			—
Expected return on plan assets	(176		)	(163		)	(152		)
Net periodic pension benefit	$	75		$	20		$	33

Significant actuarial assumptions used in determining plan benefits for the years ended March 31 are as follows:



	2013		2012		2011
Annual salary increase⁽¹⁾	—		—		—
Expected long-term return on assets	8.00	%	8.00	%	8.00	%
Discount rate used in measurement of benefit obligations	3.75	%	4.18	%	5.25	%


⁽¹⁾	The annual salary increase rate is not applicable as the plan is frozen and no new benefits accrue.

Carver Federal plan assets are invested in a diversified investment fund managed by ING. It seeks to provide long-term growth of capital by investing primarily in equity securities and securities convertible into common stocks traded on U.S. exchanges and issued by large, established companies. The Fund invests in both value and growth securities.

The long-term investment objectives of the Carver Federal Plan are to maintain plan assets at a level that will sufficiently cover long-term obligations and to generate a return on plan assets that will meet or exceed the rate at which long-term obligations will grow.

The following table presents the plan assets held by the Carver Federal Plan as of March 31, 2013 at fair value by level within the fair value hierarchy under ASC Topic 820. Financial assets are classified in their entirety based upon the lowest level of input that is significant to their fair value measurement. See Note 15 for further details regarding the fair value hierarchy.



			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
$ in thousands	Total		(Level 1)		(Level 2)		(Level 3)
Mutual Funds	$	2,023	$	—	$	2,023	$	—

The Mutual Funds contains a mix of equity and debt securities. The portfolio is invested in 84 % domestic and 16% international funds.

Current Asset Allocation

The weighted average asset allocations for Carver Federal's Plan as of March 31, 2013 and 2012, were as follows:



	At March 31,
Asset	2013	2012
Equity securities	61%	67%
Debt securities	39%	33%
Total	100%	100%

Expected Future Annuity Payments

The following annuity payments, which reflect expected future service, as appropriate, are expected to be paid by Carver Federal's Plan during the years indicated:



Year	Amount
2014	166
2015	161
2016	155
2017	162
2018	156
2019-2022	720
Total	$	1,520

Directors' Retirement Plan. Concurrent with the conversion to the stock form of ownership, Carver Federal adopted a retirement plan for non-employee directors. The plan was curtailed during the fiscal year ended March 31, 2001. The benefits are payable based on the term of service as a director through the date of curtailment. As of March 31, 2013, there was no outstanding payable under this plan.

Savings Incentive Plan. Carver has a savings incentive plan, pursuant to Section 401(k) of the Code, for all eligible employees of the Bank. The Bank matches contributions to the 401(k) Plan equal to 100% of pre-tax contributions made by each employee up to a maximum of 4% of their pay, subject to IRS limitations. All such matching contributions are fully vested and non-forfeitable at all times regardless of the years of service with the Bank. The Bank discontinued the matching contributions effective January 2011.

Under the profit-sharing feature, if the Bank achieves a minimum of 70% of its net income goal as mentioned previously, the Compensation Committee may authorize an annual non-elective contribution to the 401(k) Plan on behalf of each eligible employee up to 2% of the employee's annual pay, subject to IRS limitations. This non-elective contribution may be made regardless of whether the employee makes a contribution to the 401(k) Plan. Non-elective Bank contributions, if awarded, vest 20% each year for the first five years of employment and are fully vested thereafter.

To be eligible for the matching contribution, the employee must be 21 years of age and have completed at least three months of service. To be eligible for the non-elective Carver contribution, the employee must also be employed as of the last day of the plan year.

Management Recognition Plan (“MRP”). The MRP provided for grants of restricted stock to certain employees at September 12, 1995 adoption of the MRP. On March 28, 2005 the plan was amended for all future awards. The MRP provides for additional discretionary grants of restricted stock to those employees selected by the committee established to administer the MRP. Awards granted prior to March 28, 2005, generally vest in three to five equal annual installments commencing on the first anniversary date of the award, provided the recipient is still an employee of the Company or the Bank on such date. Under the amended plan awards granted after March 28, 2005 vest based on a five-year performance-accelerated vesting schedule. Ten percent of the awarded shares vest in each of the first four years and the remainder in the fifth year but the Compensation Committee may accelerate vesting at any time. Awards will become 100% vested upon termination of service due to death or disability. When shares become vested and are distributed, the recipients will receive an amount equal to any accrued dividends with respect thereto. There are no shares available to grant under the MRP. Pursuant to the MRP, the Bank recognized $44 thousand, $65 thousand and $65 thousand as expense for fiscal year 2013, 2012 and 2011, respectively.

Employee Stock Ownership Plan. Effective upon conversion, an ESOP was established for all eligible employees. The ESOP used $1,821,000 in proceeds from a term loan obtained from a third-party institution to purchase 182,132 shares of Bank common stock in the initial public offering. Each year until the loan paid off in June of 2004, the Bank made discretionary contributions to the ESOP, which was equal to principal and interest payments required on the term loan less any dividends received by the ESOP on unallocated shares. Shares purchased with the loan proceeds were initially pledged as collateral for the term loan.

Upon distribution of the initial ESOP shares, additional ESOP shares were purchased in the open market in accordance with Carver's common stock repurchase program and were held in a suspense account for future allocation among the participants on the basis of compensation, as described by the Plan, in the year of allocation. In May 2006, Carver amended the ESOP so that no new participants are eligible to enter after December 31, 2006 and the Compensation Committee voted to cease discretionary contributions after the 2006 allocation. For fiscal 2013 there was no recorded ESOP Compensation expense and in fiscal 2012, there was $42 thousand ESOP compensation expense and there were no remaining unallocated shares at March 31, 2013.

Stock Option Plans. During 1995, the Company adopted the 1995 Stock Option Plan (the “1995 Plan”) to advance the interests of the Bank through providing stock options to select key employees and directors of the Bank and its affiliates. The number of shares reserved for issuance under the plan was 22,591. The 1995 plan expired by its term and no new options may be granted under it, however, stock options granted under the 1995 Plan continue in accordance with their terms. At March 31, 2013, there were 3,438 options outstanding and 3,438 were exercisable. Options are granted at the fair market value of Carver Federal common stock at the time of the grant for a period not to exceed ten years. Under the 1995 Plan option grants generally vest on an annual basis ratably over either three or five years, commencing after one year of service and, in some instances, portions of option grants vest at the time of the grant. On March 28, 2005, the plan was amended and vesting of future awards is based on a five-year performance-accelerated vesting schedule. Ten percent of the awarded options vest in each of the first four years and the remainder in the fifth year, but the Committee may accelerate vesting at any time. All options are exercisable immediately upon a participant's disability, death or a change in control, as defined in the Plan.

In September 2006, Carver stockholders approved the 2006 Stock Incentive Plan (the "2006 Incentive Plan") which provides for the grant of stock options, stock appreciation rights and restricted stock to employees and directors who are selected to receive awards by the Committee. The 2006 Incentive Plan authorizes Carver to grant awards with respect to 20,000 shares, but no more than 10,000 shares of restricted stock may be granted. Options are granted at a price not less than fair market value of Carver Federal common stock at the time of the grant for a period not to exceed 10 years. Shares generally vest in 20% increments over 5 years, however, the Committee may specify a different vesting schedule. At March 31, 2013, there were 1,924 options outstanding under the 2006 Incentive Plan and 1,790 were exercisable. All options are exercisable immediately upon a participant's disability, death or a change in control, as defined in the 2006 Incentive Plan, if the person is employed on that date.

Information regarding stock options as of and for the years ended March 31 is as follows:



	2013				2012				2011
	Options ⁽¹⁾		Weighted Average Exercise Price		Options ⁽¹⁾		Weighted Average Exercise Price		Options ⁽¹⁾		Weighted Average Exercise Price
Outstanding, beginning of year	7,362		$	235.00	10,244		$	216.75	12,715		$	204.00
Granted	—		—		—		—		200		97.50
Exercised	—		—		—		—		—		—
Expired/Forfeited	(2,000	)	180.9		(2,882	)	170.08		(2,671	)	147.30
Outstanding, end of year	5,362		255.17		7,362		235.00		10,244		216.75
Exercisable, at year end	5,229				6,696				9,578

⁽¹⁾ Options for all periods presented reflects a 1-for-15 reverse stock split which was effective on October 27, 2011

Information regarding stock options as of and for the year ended March 31, 2013 is as follows :



				Options Outstanding			Options Exercisable
Range of Exercise Prices				Shares	Weighted Average Remaining Life	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
$	90.00	$	104.85	133	7.36 years	$97.50	—	$97.50
240.00		254.85		3,233	2.32 years	248.77	3,233	16.55
255.00		269.85		996	2.18 years	257.63	996	257.63
285.00		299.85		1,000	1.23 years	294.45	1,000	294.45
Total				5,362			5,229

There were no stock options awarded to employees during the year ended March 31, 2013.

The fair value of the option grants was estimated on the date of the grant using the Black-Scholes option pricing model applying the following weighted average assumptions for the years ended March 31:



	2013	2012	2011
Risk-free interest rate	N/A	N/A	0.0347
Volatility	N/A	N/A	0.23
Annual dividends	N/A	N/A	$50
Expected life of option grants	N/A	N/A	10 yrs

The Company recorded compensation expense of $2 thousand in fiscal 2013 and $2 thousand in fiscal 2012.

Performance Compensation Plan. In 2006, Carver adopted the Performance Compensation Plan of Carver Bancorp, Inc. (the "Performance Compensation Plan"). This Performance Compensation Plan provides for cash payments to officers or employees designated by the Compensation Committee, which also determines the amount awarded to such participants. Vesting is generally 20% a year over 5 years and awards are fully vested on a change in control (as defined), or termination of employment by death or disability, but the Committee may accelerate vesting at any time. Payments are made as soon as practicable after the end of the fiscal year in which amounts vest. In fiscal year 2008, the Company granted its first awards under the new Performance Compensation Plan. The amount of compensation expense recognized in fiscal year 2013 and 2012 were $36 thousand and $84 thousand, respectively.