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), and Consumer and Other Loans.

The 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 June 30, 2013 and March 31, 2013:



	June 30, 2013					March 31, 2013
$ in thousands	Amount			Percent		Amount			Percent
Gross loans receivable:
One-to-four family	$	71,736		20	%	$	73,625		20	%
Multifamily	57,443			16	%	56,427			15	%
Commercial real estate	187,677			53	%	203,813			55	%
Construction	5,793			2	%	1,228			—	%
Business	33,809			9	%	35,795			10	%
Consumer and other ⁽¹⁾	219			—	%	247			—	%
Total loans receivable	$	356,677		100	%	$	371,135		100	%

Add:
Premium on loans	689					728
Less:
Deferred fees and loan discounts,net	(1,699		)			(1,741		)
Allowance for loan losses	(10,317		)			(10,989		)
Total loans receivable, net	$	345,350				$	359,133

Loans held-for-sale	$	9,709				$	13,107

⁽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 three month period ended June 30, 2013.



$ 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	$	3,496	$	408		$	3,298	$	—	$	3,759		$	28	$	10,989
Charge-offs	617		—			512		—		393			17		1,539
Recoveries	—		10			—		—		24			2		36
Provision for Loan Losses	1,416		(173		)	205		167		(787		)	3		831
Ending Balance	$	4,295	$	245		$	2,991	$	167	$	2,603		$	16	$	10,317
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	3,734		246			1,820		167		2,136			15		8,118
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	561		—			1,171		—		467			—		2,199

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three month period ended June 30, 2013.
Loan Receivables Ending Balance	$	72,099	$	57,572		$	186,688	$	5,759	$	33,302		$	247	$	355,667
Ending Balance: collectively evaluated for impairment	64,788		56,956			176,501		5,100		27,291			247		330,883
Ending Balance: individually evaluated for impairment	7,311		616			10,187		659		6,011			—		24,784

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three month period ended June 30, 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	203		109			1,129		—			—		2			1,443
Recoveries	—		—			—		—			2		3			5
Provision for Loan Losses	694		(1,529		)	2,271		(1,408		)	244		(48		)	224
Ending Balance	$	4,796	$	3,771		$	7,851	$	124		$	2,032	$	33		$	18,607
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	4,250		3,710			7,499		124			1,734		33			17,350
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	546		61			352		—			298		—			1,257

The following is an analysis of the loan receivable balances showing the methods of evaluating the loan portfolio for impairment for the three month period ended June 30, 2012.
Loan Receivables Ending Balance:	$	66,236	$	75,102		$	198,271	$	8,752		$	41,109	$	430		$	389,900
Ending Balance: collectively evaluated for impairment	62,315		74,111			186,489		1,502			35,175		430			360,022
Ending Balance: individually evaluated for impairment	3,921		991			11,782		7,250			5,934		—			29,878

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended March 31, 2013.



$ 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			1,148			151			2,274		1			5,903
Recoveries	15		91			—			22			265		5			398
Provision for Loan Losses	1,279		(4,866		)	(2,263		)	(1,403		)	3,982		(56		)	(3,327		)
Ending Balance	$	3,496	$	408		$	3,298		$	—		$	3,759	$	28		$	10,989
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	3,179		409			3,103			—			1,959		28			8,678
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	317		—			194			—			1,800		—			2,311

The following is an analysis of the loan receivable balances showing the methods of evaluating the loan portfolio for impairment for the fiscal year ended March 31, 2013
Loan Receivables Ending Balance:	$	73,987	$	56,607		$	202,771		$	1,230		$	35,277	$	250		370,122
Ending Balance: collectively evaluated for impairment	67,619		55,991			186,336			—			28,904		250			339,100
Ending Balance: individually evaluated for impairment	6,368		616			16,435			1,230			6,373		—			31,022

The following is a summary of non-accrual loans at June 30, 2013 and March 31, 2013.



$ in thousands	June 30, 2013		March 31, 2013
Loans accounted for on a non-accrual basis:
Gross loans receivable:
One-to-four family	$	6,666	$	7,642
Multifamily	659		423
Commercial real estate	8,091		14,788
Construction	693		1,230
Business	3,350		6,505
Consumer and other	—		38
Total non-accrual loans	$	19,459	$	30,626

Non-accrual loans decreased $11.2 million, or 36.5%, to $19.5 million at June 30, 2013 from $30.6 million at March 31, 2013. The majority of the decline during the three month period ended June 30, 2013 related to two non-performing loans with a fair value of $5.4 million that were moved to held-for-sale, four TDR loans with a fair value of $5.1 million that were upgraded to accrual status as they had performed in accordance with their modified terms for six months and one multifamily loan with a fair value of $1.1 million that was paid off.

Non-performing loans at June 30, 2013, were comprised of $8.2 million of loans 90 days or more past due and non-accruing, $6.9 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, and $4.3 million of loans that are either performing or less than 90 days past due and have been classified as impaired.

Non-performing loans at March 31, 2013, were comprised of $9.1 million of loans 90 days or more past due and non-accruing, $16.7 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, and $4.9 million of loans that were either performing or less than 90 days past due and had been classified as impaired.

At June 30, 2013, other non-performing assets totaled $10.7 million which consists of other real estate owned and held-for-sale loans. Other real estate owned of $946 thousand reflects eight 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 June 30, 2013, 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	$	55,352	$	157,943	$	5,100	$	23,247
Special Mention	—		9,994		—		2,525
Substandard	2,220		18,751		659		7,530
Total	$	57,572	$	186,688	$	5,759	$	33,302



$ in thousands	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	$	65,433	$	247
Non-Performing	6,666		—
Total	$	72,099	$	247

As of March 31, 2013, 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	$	53,419	$	165,965	$	—	$	23,651
Special Mention	—		3,400		—		2,922
Substandard	3,188		33,406		1,230		8,704
Total	$	56,607	$	202,771	$	1,230	$	35,277

$ in thousands	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	$	66,344	$	212
Non-Performing	7,643		38
Total	$	73,987	$	250

The following table presents an aging analysis of the recorded investment of past due financing receivable as of June 30, 2013. Also included are loans ($110 thousand) 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		Non-performing TDR		Performing TDR ⁽¹⁾		Impaired⁽²⁾		Current		Total Financing Receivables
One-to-four family residential	$	508	$	276	$	4,059	$	4,843	$	2,607	$	3,196	—		$	61,453	$	72,099
Multi-family mortgage	—		99		659		758		—		616		—		56,198		57,572
Commercial real estate	2,365		1,140		2,891		6,396		2,180		3,563		3,020		171,529		186,688
Construction	—		—		—		—		—		—		693		5,066		5,759
Business	123		50		584		757		2,147		2,326		619		27,453		33,302
Consumer and other	10		—		—		10		—		—		—		237		247
Total	$	3,006	$	1,565	$	8,193	$	12,764	$	6,934	9,701		$	4,332	$	321,936	$	355,667

⁽¹⁾ 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.

⁽²⁾ Consists of loans which are less than 90 days past due but impaired due to other risk characteristics.

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2013.



$ in thousands	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Non-performing TDR		Performing TDR ⁽¹⁾		Impaired⁽²⁾		Current		Total Financing Receivables
One-to-four family residential	$	348	$	28	$	4,501	$	4,877	$	3,141	$	2,670	$	—	63,299		73,987
Multi-family mortgage	238		1,142		423		1,803		—		616		—		54,188		56,607
Commercial real estate	220		846		2,671		3,737		9,097		1,290		3,020		185,627		202,771
Construction	—		—		—		—		—		—		1,230		—		1,230
Business	261		148		1,439		1,848		4,447		464		619		27,899		35,277
Consumer and other	6		1		38		45		—		—		—		205		250
Total	$	1,073	$	2,165	$	9,072	$	12,310	$	16,685	$	5,040	$	4,869	$	331,218	$	370,122

⁽¹⁾ 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.

⁽²⁾ 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 at June 30, 2013 and the interest income recognized for the three month period ended June 30, 2013 and 2012.



	June 30, 2013										June 30, 2012
$ 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	$	2,161	$	2,701	$	—	$	1,740	$	1	$	728	$	9
Multi-family mortgage	616		616		—		616		—		193		3
Commercial real estate	6,491		6,691		—		8,781		54		6,139		108
Construction	659		923		—		945		—		6,328		53
Business	2,215		2,649		—		1,648		7		4,137		32
Total	$	12,142	$	13,580	$	—	$	13,730	$	62	$	17,525	$	205

With an allowance recorded:
One-to-four family residential	$	5,150	$	5,487	$	561	$	5,100	$	37	$	2,386	$	7
Multi-family mortgage	—		—		—		—		—		806		—
Commercial real estate	3,696		3,715		1,171		4,531		5		10,139		95
Business	3,796		3,796		467		4,545		36		1,867		81
Total	$	12,642	$	12,998	$	2,199	$	14,176	$	78	$	15,198	$	183

Total impaired loans by type:
One-to-four family residential	$	7,311	$	8,188	$	561	$	6,840	$	38	$	3,114	$	16
Multi-family mortgage	616		616		—		616		—		999		3
Commercial real estate	10,187		10,406		1,171		13,312		59		16,278		203
Construction	659		923		—		945		—		6,328		53
Business	6,011		6,445		467		6,193		43		6,004		113
Total	$	24,784	$	26,578	$	2,199	$	27,906	$	140	$	32,723	$	388

The following table presents information on impaired loans with the associated allowance amount, if applicable, and the interest income recognized during the year ended March 31, 2013.



Impaired Loans by Class
As of and for the year ended March 31, 2013

$ in thousands	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Balance		Interest Income Recognized
With no specific allowance recorded:
One-to-four family residential	$	1,319	$	1,460	$	—	$	1,215	$	47
Multi-family mortgage	616		616		—		308		5
Commercial real estate	11,070		11,270		—		9,865		235
Construction	1,230		1,492		—		1,230		53
Business	1,080		2,002		—		1,136		41
Total	$	15,315	$	16,840	$	—	$	13,754	$	381

With an allowance recorded:
One-to-four family residential	$	5,049	$	5,244	$	317	$	5,363	$	57
Commercial real estate	5,365		5,913		194		6,302		133
Business	5,293		5,293		1,800		4,932		254
Total	$	15,707	$	16,450	$	2,311	$	16,597	$	444

Total impaired loans by type:
One-to-four family residential	$	6,368	$	6,704	$	317	6,578		104
Multi-family mortgage	616		616		—		308		5
Commercial real estate	16,435		17,183		194		16,167		368
Construction	1,230		1,492		—		1,230		53
Business	6,373		7,295		1,800		6,068		295
Total	$	31,022	$	33,290	$	2,311	$	30,351	$	825

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.

The following table presents an analysis of those loan modifications that were classified as TDRs during the three month period ended June 30, 2013:



	Modifications to loans during the three month period ended
	June 30, 2013

$ in thousands	Number of loans	Pre- modification outstanding recorded investment		Recorded investment		Pre-Modification rate		Post-Modification rate
One-to-four family residential	1	$	551	$	484	7.50	%	5.50	%
Business	1	919		919		6.00	%	6.00	%
	2	$	1,470	$	1,403

The following table presents an analysis of those loan modifications that were classified as non performing TDRs during the three month period ended June 30, 2012:



Modifications to loans during the three month period ended
June 30, 2012

$ in thousands	Number of loans	Pre-modification outstanding recorded investment		Recorded investment at June 30, 2012		Pre-Modification rate		Post-Modification rate

One-to-four family residential	1	$	540	$	540	6.75	%	4.00	%
Total	1	$	540	$	540	6.75	%	4.00	%

In an effort to proactively manage delinquent loans, Carver has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the three month period ended June 30, 2013, one loan of $551 thousand was modified with an interest rate concession of 2.00% and one loan of $919 thousand was extended. For the three month period ended June 30, 2012, one loan of $0.5 million was modified with an interest rate concession of 2.75%.

For the period ended June 30, 2013, Carver had one business loan with an outstanding balance of $1.2 million that had been modified and subsequently defaulted within the last twelve months. For the period ended June 30, 2012, Carver had one multifamily loan with an outstanding balance of $0.8 million, that had been modified and subsequently defaulted within the 12 month period.

At June 30, 2013 there were twelve loans in the TDR portfolio totaling $9.7 million that were on accrual status as they had performed within their modified terms for a consecutive six month period.

At June 30, 2013 and 2012, there were no loans to officers or directors of the Company.