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 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 September 30, 2013 and March 31, 2013:



	September 30, 2013					March 31, 2013
$ in thousands	Amount			Percent		Amount			Percent
Gross loans receivable:
One-to-four family	$	120,454		30	%	$	73,625		20	%
Multifamily	54,235			14	%	56,427			15	%
Commercial real estate	189,090			47	%	203,813			55	%
Construction	5,175			1	%	1,228			—	%
Business	30,188			8	%	35,795			10	%
Consumer and other ⁽¹⁾	193			—	%	247			—	%
Total loans receivable	$	399,335		100	%	$	371,135		100	%

Add:
Premium on loans	1,066					728
Less:
Deferred fees and loan discounts,net	(1,360		)			(1,741		)
Allowance for loan losses	(9,399		)			(10,989		)
Total loans receivable, net	$	389,642				$	359,133

Loans held-for-sale	$	7,854				$	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 six month period ended September 30, 2013.



$ 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	$	3,496	$	408		$	3,298	$	—	$	3,759		$	28	$	—	$	10,989
Charge-offs	1,619		—			512		—		393			15		—		2,539
Recoveries	502		16			—		—		96			9		—		623
Provision for Loan Losses	1,844		(30		)	102		210		(1,860		)	7		53		326
Ending Balance	$	4,223	$	394		$	2,888	$	210	$	1,602		$	29	$	53	$	9,399
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	3,556		394			2,659		210		1,147			29		53		8,048
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	667		—			229		—		455			—		—		1,351

Loan Receivables Ending Balance	$	121,448	$	54,368		$	188,124	$	5,142	$	29,731		$	228	—		$	399,041
Ending Balance: collectively evaluated for impairment	115,362		52,994			176,456		5,067		25,146			228		—		375,253
Ending Balance: individually evaluated for impairment	6,086		1,374			11,668		75		4,585			—		—		23,788

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the six month period ended September 30, 2012.



$ 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	$	4,305	$	5,409		$	6,709		$	1,532		$	1,786	$	80		$	—	$	19,821
Charge-offs	1,633		225			1,148			—			1,198		2			—		4,206
Recoveries	—		—			—			—			6		3			—		9
Provision for Loan Losses	2,037		(2,545		)	(513		)	(1,226		)	3,020		(37		)	48		784
Ending Balance	$	4,709	$	2,639		$	5,048		$	306		$	3,614	$	44		48		$	16,408
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	4,582		2,590			4,613			306			1,944		44			48		14,127
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	127		49			435			—			1,670		—			—		2,281

Loan Receivables Ending Balance:	$	61,948	$	73,515		$	199,641		$	8,297		$	36,097	$	452		—		$	379,950
Ending Balance: collectively evaluated for impairment	59,024		72,837			187,274			4,039			30,544		452			—		354,170
Ending Balance: individually evaluated for impairment	2,924		678			12,367			4,258			5,553		—			—		25,780

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

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 September 30, 2013 and March 31, 2013.



$ in thousands	September 30, 2013		March 31, 2013
Loans accounted for on a non-accrual basis:
Gross loans receivable:
One-to-four family	$	4,343	$	7,642
Multifamily	758		423
Commercial real estate	10,503		14,788
Construction	75		1,230
Business	2,457		6,505
Consumer and other	4		38
Total non-accrual loans	$	18,140	$	30,626

Non-accrual loans decreased $12.5 million, or 40.7%, to $18.1 million at September 30, 2013 from $30.6 million at March 31, 2013. The majority of the decline during the current six month period ended September 30, 2013 related to thirteen non-performing loans with a fair value of $7.1 million that were moved to held-for-sale, ten TDR loans with a fair value of $6.4 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 September 30, 2013, were comprised of $10.0 million of loans 90 days or more past due and non-accruing, $4.6 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 $3.6 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 September 30, 2013, other non-performing assets totaled $8.8 million which consists of other real estate owned and held-for-sale loans. At September 30, 2013, other real estate owned valued at $970 thousand comprised of ten foreclosed properties, compared to $2.4 million comprised of nine properties at March 31, 2013. At September 30, 2013, held-for-sale loans totaled $7.9 million, compared to $13.1 million at March 31, 2013.

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 September 30, 2013, 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	$	52,151	$	161,471	$	5,100	$	20,987
Special Mention	—		9,942		—		2,278
Substandard	2,217		16,711		42		6,466
Total	$	54,368	$	188,124	$	5,142	$	29,731



$ in thousands	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	$	117,105	$	224
Non-Performing	4,343		4
Total	$	121,448	$	228

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 September 30, 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	$	844	$	—	$	2,413	$	3,257	$	1,930	$	3,189	—		$	113,072	$	121,448
Multi-family mortgage	1,285		142		758		2,185		—		616		—		51,567		54,368
Commercial real estate	202		696		5,700		6,598		1,811		3,898		2,992		172,825		188,124
Construction	—		—		—		—		75		—		—		5,067		5,142
Business	47		—		1,082		1,129		756		3,211		619		24,016		29,731
Consumer and other	18		9		4		31		—		—		—		197		228
Total	$	2,396	$	847	$	9,957	$	13,200	$	4,572	10,914		$	3,611	$	366,744	$	399,041

⁽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 September 30, 2013 and the interest income recognized for the six month period ended September 30, 2013 and 2012.



	September 30, 2013										September 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	$	918	$	1,278	$	—	$	1,376	$	1	$	467	$	27
Multi-family mortgage	1,374		1,374		—		995		1		97		5
Commercial real estate	8,623		9,018		—		8,703		62		6,141		151
Construction	75		339		—		519		—		5,293		53
Business	1,730		2,164		—		1,689		7		2,536		41
Total	$	12,720	$	14,173	$	—	$	13,282	$	71	$	14,534	$	277

With an allowance recorded:
One-to-four family residential	$	5,168	$	5,292	$	667	$	5,200	$	40	$	2,552	$	28
Multi-family mortgage	—		—		—		—		—		742		—
Commercial real estate	3,045		3,259		229		3,802		5		8,182		115
Business	2,855		2,855		455		3,700		36		3,242		199
Total	$	11,068	$	11,406	$	1,351	$	12,702	$	81	$	14,718	$	342

Total impaired loans by type:
One-to-four family residential	$	6,086	$	6,570	$	667	$	6,576	$	41	$	3,019	$	55
Multi-family mortgage	1,374		1,374		—		995		1		839		5
Commercial real estate	11,668		12,277		229		12,505		67		14,323		266
Construction	75		339		—		519		—		5,293		53
Business	4,585		5,019		455		5,389		43		5,778		240
Total	$	23,788	$	25,579	$	1,351	$	25,984	$	152	$	29,252	$	619

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.

There were no modifications made during the three month period ended September 30, 2013.

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



	Modifications to loans during the six month period ended
	September 30, 2013

$ in thousands	Number of loans	Pre- modification outstanding recorded investment		Post modification recorded investment		Pre-Modification rate		Post-Modification rate
One-to-four family residential	1	$	484	$	549	7.50	%	5.50	%
Business	1	919		719		6.00	%	6.00	%
	2	$	1,403	$	1,268

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



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

$ in thousands	Number of loans	Pre-modification outstanding recorded investment		Post modification recorded investment		Pre-Modification rate		Post-Modification rate		Number of loans	Pre- modification outstanding recorded investment		Post modification recorded investment		Pre-Modification rate		Post-Modification rate
One-to-four family residential	1	$	875	$	—	8.13	%	8.13	%	2	$	1,415	$	540	6.55	%	6.07	%
Commercial real estate	1	466		466		12.02	%	12.02	%	1	466		466		12.02	%	12.02	%
Business	4	2,242		2,242		7.44	%	7.44	%	4	2,242		2,242		7.44	%	7.44	%
Total	6	$	3,583	$	2,708					7	$	4,123	$	3,248

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 six month period ended September 30, 2013, one loan of $0.5 million was modified with an interest rate concession of 2.00% and one loan of $0.7 million was extended. For the three month period ended September 30, 2012, no loans were modified with interest rate concessions. For the six month period ended September 30, 2012, one loan of $0.5 million was modified with an interest rate concession of 1.25%.

For the period ended September 30, 2013, there were no loans that had been modified and subsequently defaulted within the last twelve months. For the period ended September 30, 2012, Carver had one commercial real estate loans with an outstanding balance of $2.4 million that had been modified and subsequently defaulted within the 12 month period.

At September 30, 2013 there were eighteen loans in the TDR portfolio totaling $10.9 million that were on accrual status as they had performed within their modified terms for a consecutive six month period. At March 31, 2013, there were nine loans in the TDR portfolio totaling $5.0 million that were performing in accordance within their modified terms for a consecutive six month period.

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