LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The loans receivable portfolio is segmented into one-to-four family, multifamily, commercial real estate, construction, business (including Small Business Administration loans), and consumer 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.

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, 2015 and March 31, 2015:



	September 30, 2015					March 31, 2015
$ in thousands	Amount			Percent		Amount			Percent
Gross loans receivable:
One-to-four family	$	127,572		23	%	$	125,020		26	%
Multifamily	108,340			19	%	93,780			19	%
Commercial real estate	242,156			43	%	186,443			39	%
Construction	5,099			1	%	5,107			1	%
Business ⁽¹⁾	76,896			14	%	70,679			15	%
Consumer ⁽²⁾	89			—	%	434			—	%
Total loans receivable	$	560,152		100	%	$	481,463		100	%

Add:
Premium on loans	3,102					2,233
Less:
Deferred fees and loan discounts,net	(483		)			(503		)
Allowance for loan losses	(4,572		)			(4,477		)
Total loans receivable, net	$	558,199				$	478,716

Loans HFS	$	2,586				$	2,576

⁽¹⁾ Includes business overdrafts

⁽²⁾Includes personal loans and consumer overdrafts

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the three and six month periods ended September 30, 2015 and 2014, and the fiscal year ended March 31, 2015.



Three months ended September 30, 2015
$ in thousands	One-to-four family			Multifamily		Commercial Real Estate		Construction		Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	1,659		$	525	$	1,032	99		$	791		$	1	$	4,107
Charge-offs	13			3		—		—		8			259		283
Recoveries	1			—		3		—		95			6		105
Provision for (Recovery of) Loan Losses	(52		)	51		401		—		(35		)	278		643
Ending Balance	$	1,595		$	573	$	1,436	$	99	$	843		$	26	$	4,572



Six months ended September 30, 2015
$ in thousands	One-to-four family			Multifamily		Commercial Real Estate		Construction		Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	1,989		$	534	$	1,029	99		$	813		$	13	$	4,477
Charge-offs	243			241		—		—		120			260		864
Recoveries	1			—		3		—		188			6		198
Provision for (Recovery of) Loan Losses	(152		)	280		404		—		(38		)	267		761
Ending Balance	$	1,595		$	573	$	1,436	$	99	$	843		$	26	$	4,572
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	1,498			573		1,436		99		743			26		4,375
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	97			—		—		—		100			—		197

Loan Receivables Ending Balance:	$	128,855		$	109,287	$	242,707	$	5,067	$	76,766		$	89	$	562,771
Ending Balance: collectively evaluated for impairment	121,925			108,046		240,845		5,067		71,100			89		547,072
Ending Balance: individually evaluated for impairment	6,930			1,241		1,862		—		5,666			—		15,699



Fiscal year ended March 31, 2015
$ in thousands	One-to-four family			Multifamily		Commercial Real Estate			Construction		Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	3,377		$	308	$	1,835		$	—	$	1,705		$	8	$	7,233
Charge-offs	687			—		—			—		320			279		1,286
Recoveries	380			83		256			—		816			5		1,540
Provision for (Recovery of) Loan Losses	(1,081		)	143		(1,062		)	99		(1,388		)	279		(3,010		)
Ending Balance	$	1,989		$	534	$	1,029		$	99	$	813		$	13	$	4,477
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	1,702			353		953			99		801			13		3,921
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	287			181		76			—		12			—		556

Loan Receivables Ending Balance:	$	126,527		$	94,706	$	185,851		$	5,076	$	70,599		$	434	483,193
Ending Balance: collectively evaluated for impairment	119,480			93,218		183,230			5,076		65,243			434		466,681
Ending Balance: individually evaluated for impairment	7,047			1,488		2,621			—		5,356			—		16,512



Three months ended September 30, 2014
	One-to-four family			Multifamily			Commercial Real Estate		Construction		Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	3,923		$	336		$	813	$	201	$	1,780		$	13	$	7,066
Charge-offs	—			—			—		—		—			—		—
Recoveries	25			74			53		—		90			2		244
Provision for (Recovery of) Loan Losses	(647		)	(38		)	288		13		(335		)	6		(713		)
Ending Balance	$	3,301		$	372		$	1,154	$	214	$	1,535		$	21	$	6,597



Six months ended September 30, 2014
$ in thousands	One-to-four family			Multifamily			Commercial Real Estate			Construction		Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	3,377		$	308		$	1,835		$	—	$	1,705		$	8	$	7,233
Charge-offs	83			—			—			—		—			—		83
Recoveries	379			82			254			—		223			3		941
Provision for (Recovery of) Loan Losses	(372		)	(18		)	(935		)	214		(393		)	10		(1,494		)
Ending Balance	$	3,301		$	372		$	1,154		$	214	$	1,535		$	21	$	6,597
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	2,110			201			1,149			214		916			20		4,610
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	1,191			171			5			—		619			1		1,987

Loan Receivables Ending Balance:	$	119,142		$	54,098		$	190,573		$	5,075	$	41,194		$	353	$	410,435
Ending Balance: collectively evaluated for impairment	112,350			52,606			186,324			5,075		36,721			343		393,419
Ending Balance: individually evaluated for impairment	6,792			1,492			4,249			—		4,473			10		17,016

The following is a summary of nonaccrual loans at September 30, 2015 and March 31, 2015.



$ in thousands	September 30, 2015		March 31, 2015
Gross loans receivable:
One-to-four family	$	3,251	$	3,664
Multifamily	1,241		1,053
Commercial real estate	—		2,817
Construction	—		—
Business	1,992		861
Consumer	—		—
Total nonaccrual loans	$	6,484	$	8,395

Nonaccrual loans decreased $1.9 million, or 22.8%, to $6.5 million at September 30, 2015 from $8.4 million at March 31, 2015.

Non-performing loans at September 30, 2015, were comprised of $4.9 million of loans 90 days or more past due and nonaccruing, $1.6 million of impaired loans and $1.0 million of loans classified as troubled debt restructurings which had either not consistently performed in accordance with their modified terms or were not performing in accordance with their modified terms for at least six months.

Non-performing loans at March 31, 2015, were comprised of $5.9 million of loans 90 days or more past due and non-accruing, and included $3.6 million of loans classified as troubled debt restructurings which had either not consistently performed in accordance with their modified terms or were not performing in accordance with their modified terms for at least six months.

At September 30, 2015, other non-performing assets totaled $6.3 million which consisted of other real estate owned and held-for-sale loans. At September 30, 2015, other real estate owned valued at $3.7 million comprised of eight foreclosed properties, compared to $4.3 million comprised of ten properties at March 31, 2015. At September 30, 2015, held-for-sale loans totaled $2.6 million.

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, 2015, the risk category by class of loans is as follows:



$ in thousands	Multifamily		Commercial Real Estate		Construction		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	108,046	$	233,495	$	5,067	$	68,557
Special Mention	—		2,197		—		1,551
Substandard	1,241		7,015		—		6,658
Doubtful	—		—		—		—
Loss	—		—		—		—
Total	$	109,287	$	242,707	$	5,067	$	76,766

					One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing					$	125,506	$	89
Non-Performing					3,349		—
Total					$	128,855	$	89

As of March 31, 2015, and based on the most recent analysis performed, the risk category by class of loans is as follows:



$ in thousands	Multifamily		Commercial Real Estate		Construction		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	93,218	$	181,340	$	5,076	$	62,419
Special Mention	—		1,890		—		1,065
Substandard	1,488		2,621		—		7,115
Doubtful	—		—		—		—
Loss	—		—		—		—
Total	$	94,706	$	185,851	$	5,076	$	70,599

					One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing					$	122,689	$	434
Non-Performing					3,838		—
Total					$	126,527	$	434

The following table presents an aging analysis of the recorded investment of past due financing receivable as of September 30, 2015 and March 31, 2015.



September 30, 2015
$ in thousands	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Financing Receivables
One-to-four family	$	253	$	319	$	2,839	$	3,411	$	125,444	$	128,855
Multifamily	—		425		816		1,241		108,046		109,287
Commercial real estate	—		3,460		—		3,460		239,247		242,707
Construction	—		—		—		—		5,067		5,067
Business	—		873		1,268		2,141		74,625		76,766
Consumer	—		3		—		3		86		89
Total	$	253	$	5,080	$	4,923	$	10,256	$	552,515	$	562,771



March 31, 2015
$ in thousands	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Financing Receivables
One-to-four family	$	464	$	—	$	3,574	$	4,038	$	122,489	126,527
Multifamily	—		434		1,054		1,488		93,218		94,706
Commercial real estate	1,150		936		1,102		3,188		182,663		185,851
Construction	—		—		—		—		5,076		5,076
Business	—		—		123		123		70,476		70,599
Consumer	—		1		—		1		433		434
Total	$	1,614	$	1,371	$	5,853	$	8,838	$	474,355	$	483,193

The following table presents information on impaired loans with the associated allowance amount, if applicable, at September 30, 2015 and March 31, 2015.



	At September 30, 2015						At March 31, 2015
$ in thousands	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Recorded Investment		Unpaid Principal Balance		Associated Allowance
With no specific allowance recorded:
One-to-four family	$	5,273	$	6,535	$	—	$	2,752	$	3,007	—
Multifamily	1,241		1,580		—		237		237		—
Commercial real estate	1,862		2,030		—		1,880		1,880		—
Business	2,585		1,869		—		4,568		4,652		—
With an allowance recorded:
One-to-four family	1,657		1,657		97		4,295		4,541		286
Multifamily	—		—		—		1,251		1,349		181
Commercial real estate	—		—		—		741		741		76
Business	3,081		3,164		100		788		788		13
Total	$	15,699	$	16,835	$	197	$	16,512	$	17,195	$	556

The following tables presents information on average balances on impaired loans and the interest income recognized on a cash basis for the three and six month period ended September 30, 2015 and 2014.



	For the Three Months Ended September 30,								For the Six Months Ended September 30,
	2015				2014				2015				2014
$ in thousands	Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
With no specific allowance recorded:
One-to-four family	$	5,281	$	2	$	728	$	2	$	5,306	$	5	$	797	$	9
Multifamily	609		6		157		—		1,325		6		128		—
Commercial real estate	1,866		—		3,311		53		1,867		—		3,776		114
Construction	—		—		—		—		—		—		—		—
Business	2,593		21		954		14		2,608		29		1,198		78
Consumer and other	—		—		—		—		—		—		—
With an allowance recorded:
One-to-four family	1,660		2		6,068		56		1,663		4		6,010		87
Multifamily	—		—		1,339		6		—		—		1,338		15
Commercial real estate	—		—		948		19		—		—		523		39
Business	3,098		—		3,537		23		3,141		—		—		78
Consumer and other	—		—		11		—		—		—		3,446		—
Total	$	15,107	$	31	$	17,053	$	173	$	15,910	$	44	$	17,216	$	420

In certain circumstances, the Bank will modify a loan as part of a troubled debt restructure ("TDR") under ASC Subtopic 310-40 and the related allowance under ASC Subtopic 310-10-35. Situations around these modifications 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. Loans modified in TDRs are placed on nonaccrual 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 and six month period ended September 30, 2015.



	Modifications to loans during the three month period ended September 30, 2015							Modifications to loans during the six month period ended September 30, 2015
$ 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	1	96	96	2.63	%	2.63	%	1	$	96	$	96	2.63	%	2.63	%

The following table presents an analysis of those loan modifications that were classified as TDRs during the three and six month period ended September 30, 2014.



	Modifications to loans during the three month period ended September 30, 2014									Modifications to loans during the six month period ended September 30, 2014
$ 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
Commercial real estate	1	$	873	$	856	6.60	%	6.60	%	1	$	873	$	856	6.60	%	6.60	%

In an effort to proactively resolve delinquent loans, Carver has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the periods ended September 30, 2015 and 2014, there were no modified loans that subsequently defaulted within the last 12 months. For the three and six month period ended September 30, 2015, one loan of $96 thousand was modified. For the three and six month period ended September 30, 2014, one loan of $856 thousand was extended.

At September 30, 2015, there were 15 loans in the TDR portfolio totaling $6.5 million that were on accrual status as the Company has determined that future collection of the principal and interest is reasonably assured. These have generally performed according to restructured terms for a period of at least six months. At March 31, 2015, there were 12 loans in the performing TDR portfolio totaling $4.6 million.

At September 30, 2015, the Bank had one Regulation O loan of $1.5 million to a director. This loan was made on the same terms as other loans and in accordance with underwriting procedures used for other loans, and does not involve more than the normal risk of repayment, and does not present other unfavorable terms. There were no loans to officers or directors of the Company at September 30, 2014.