COMMITMENTS AND CONTINGENCIES

Credit Related Commitments. 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 Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies making commitments as it does for on-balance-sheet instruments.

The Bank had outstanding lending commitments and contractual obligations at March 31 as follows:



$ in thousands	2013		2012
Commitments to fund mortgage loans	$	13,709	$	2,131
Commitments to fund commercial and consumer loans	8,748		2,044
Lines of credit	3,560		3,173
Letters of credit	334		244
Commitment to fund private equity investment	—		206
	$	26,352	$	7,798

At March 31, 2013, of the $13.7 million in outstanding commitments to originate mortgage loans. The balance of commitments on commercial and consumer loans is primarily undisbursed funds from approved unsecured commercial lines of credit. All such lines carry adjustable rates mainly tied to prime.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management's credit evaluation of the counterparty.

Mortgage Representation & 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 reps and warranties for loans sold to the Government Sponsored Entities (GSE's).

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 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, 2012	—
Gross new demands received	8,576
Loans repurchased/made whole	(3,725		)
Demands rescinded	—
Open claims as of March 31, 2013⁽¹⁾	$	4,851


⁽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.

The table below summarizes changes in our representation and warranty reserves during fiscal 2013.



$ in thousands
	2013
Representation and warranty repurchase reserve, as of March 31, 2012	$	—
Provision for mortgage representation and warranty loss	2,059
Net realized losses	(934		)
Representation and warranty repurchase reserve, as of March 31, 2013 ⁽¹⁾	$	1,125

⁽¹⁾Reported in our consolidated balance sheets as a component of other liabilities.

Lease Commitments. Rentals under long-term operating leases for certain branches aggregated approximately $1.8 million, $1.7 million and $1.6 million for fiscal years 2013, 2012 and 2011, respectively. As of March 31, 2013, minimum rental commitments under all non-cancelable leases with initial or remaining terms of more than one year and expiring through 2025 follow:



$ in thousands
Year Ending March 31,	Minimum Rental		Sublet Income		Net
2013	$	1,820	$	145	$	1,675
2014	1,685		24		1,661
2015	1,500		—		1,500
2016	1,500		—		1,500
2017	1,402				1,402
Thereafter	2,752		—		2,752
	$	10,659	$	169	$	10,490

The Bank also has, in the normal course of business, commitments for services and supplies.

Legal Proceedings.

From time to time, the Company and the Bank are parties to various legal proceedings incident to their business. Certain claims, suits, complaints and investigations (collectively “proceeding”) involving the Company and the Bank, arising in the ordinary course of business, have been filed or are pending. The Company is unable at this time to determine the ultimate outcome of each proceeding, but believes, after discussions with legal counsel representing the Company and the Bank in these proceedings, that it has meritorious defenses to each proceeding and the Company and the Bank is taking appropriate measures to defend its interests. Carver Federal is a defendant in one lawsuit brought by a purported fifty percent loan participant on a multifamily loan, alleging gross negligence and breach of contract in the manner in which Carver Federal serviced the loan. Plaintiff asserts damages in excess of $500,000. Carver Federal brought a counter claim against the plaintiff and a third party complaint against the original loan participant seeking recovery of funds Carver Federal advanced on their behalf, such as real estate taxes, in connection with servicing of the multifamily loan.

In another matter, in September 2010, the New York State Department of Labor ("DOL") Unemployment Insurance Division, based on claims for unemployment benefits made by two individuals formerly engaged as independent contractors by Carver Federal, determined that these two individuals were employees and not independent contractors for Unemployment Insurance purposes. Carver Federal requested a hearing before the Unemployment Insurance Appeal Board (“Appeal Board”). On July 18, 2011, an Appeal Board's Administrative Judge sustained the DOL's determination. Carver Federal continues to believe it has a meritorious case and has filed an appeal with the Appeals Board.

In a recent matter, in June 2012, a former employee of Carver Federal filed a complaint with the NY State Division of Human Rights (“DHR”), alleging termination due to unlawful employment discrimination due to disability, race/color or ethnicity and retaliation for filing for disability. The DHR subsequently dismissed the case to afford the Plaintiff the opportunity to pursue the matter in U.S. District Court. A settlement conference was held in June 2013, whereby a tentative settlement of that action has been agreed by both parties.

Carver has accrued $415,000 for these lawsuits.