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 December 31, 2015 and March 31, 2015:



	December 31, 2015					March 31, 2015
$ in thousands	Amount			Percent		Amount			Percent
Gross loans receivable:
One-to-four family	$	144,186		24	%	$	125,020		26	%
Multifamily	105,259			18	%	93,780			19	%
Commercial real estate	266,657			45	%	186,443			39	%
Construction	5,045			1	%	5,107			1	%
Business ⁽¹⁾	76,962			13	%	70,679			15	%
Consumer ⁽²⁾	85			—	%	434			—	%
Total loans receivable	$	598,194		100	%	$	481,463		100	%

Add:
Premium on loans	3,842					2,233
Less:
Deferred fees and loan discounts,net	(460		)			(503		)
Allowance for loan losses	(5,174		)			(4,477		)
Total loans receivable, net	$	596,402				$	478,716

Loans HFS	$	2,404				$	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 nine month periods ended December 31, 2015 and 2014, and the fiscal year ended March 31, 2015.



Three months ended December 31, 2015
$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Construction			Business		Consumer		Total
Allowance for loan losses:
Beginning Balance	$	1,595	$	573	$	1,436	99			$	843	$	26	$	4,572
Charge-offs	77		64		—		—			43		28		212
Recoveries	—		—		1		—			59		26		86
Provision for (Recovery of) Loan Losses	113		104		470		(1		)	26		16		728
Ending Balance	$	1,631	$	613	$	1,907	$	98		$	885	$	40	$	5,174



Nine months ended December 31, 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	320			305		—		—			163			288		1,076
Recoveries	1			—		4		—			247			32		284
Provision for (Recovery of) Loan Losses	(39		)	384		874		(1		)	(12		)	283		1,489
Ending Balance	$	1,631		$	613	$	1,907	$	98		$	885		$	40	$	5,174
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	1,533			612		1,895		98			820			40		4,998
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	97			—		12		—			67			—		176

Loan Receivables Ending Balance:	$	145,980		$	106,184	$	267,448	$	5,012		$	76,867		$	85	$	601,576
Ending Balance: collectively evaluated for impairment	141,284			104,955		262,162		5,012			71,359			85		584,857
Ending Balance: individually evaluated for impairment	4,696			1,229		5,286		—			5,508			—		16,719



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 December 31, 2014
$ in thousands	One-to-four family		Multifamily			Commercial Real Estate			Construction			Business			Consumer			Total
Allowance for loan losses:
Beginning Balance	$	3,301	$	372		$	1,154		$	214		$	1,535		$	21		$	6,597
Charge-offs	112		—			—			—			—			—			112
Recoveries	—		—			2			—			540			4			546
Provision for (Recovery of) Loan Losses	225		(19		)	(291		)	(53		)	(1,004		)	(9		)	(1,151		)
Ending Balance	$	3,414	$	353		$	865		$	161		$	1,071		$	16		$	5,880



Nine months ended December 31, 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	195			—			—			—		—			—		195
Recoveries	379			82			256			—		763			7		1,487
Provision for (Recovery of) Loan Losses	(147		)	(37		)	(1,226		)	161		(1,397		)	1		(2,645		)
Ending Balance	$	3,414		$	353		$	865		$	161	$	1,071		$	16	$	5,880
Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	2,515			172			832			161		828			15		4,523
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	899			181			32			—		244			1		1,357

Loan Receivables Ending Balance:	$	127,417		$	64,138		$	200,334		$	5,074	$	38,244		$	327	$	435,534
Ending Balance: collectively evaluated for impairment	120,367			62,648			196,229			5,074		33,638			320		418,276
Ending Balance: individually evaluated for impairment	7,050			1,490			4,105			—		4,606			7		17,258

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



$ in thousands	December 31, 2015		March 31, 2015
Gross loans receivable:
One-to-four family	$	2,997	$	3,664
Multifamily	1,229		1,053
Commercial real estate	3,427		2,817
Business	2,494		861
Total nonaccrual loans	$	10,147	$	8,395

Nonaccrual loans increased $1.8 million, or 20.9%, to $10.1 million at December 31, 2015 from $8.4 million at March 31, 2015, primarily due to one commercial real estate loan that is experiencing delays in required approvals to allow onset of tenancy.

Non-performing loans at December 31, 2015, were comprised of $5.3 million of loans that were classified as nonperforming troubled debt restructures and impaired loans that are 90 days or more past due. Non performing troubled debt restructures are those that either have not consistently performed in accordance with their modified terms or were not performing in accordance with their modified terms for at least six months. Impaired loans that are not delinquent total $4.8 million and will remain on nonaccrual status until they are upgraded.

Non-performing loans at March 31, 2015, were comprised of $5.9 million of loans that were classified as nonperforming troubled debt restructures and impaired loans that are 90 days or more past due. Trouble debt restructured loans that are not delinquent total $3.6 million. Non performing troubled debt restructures are those that either have 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 December 31, 2015, other non-performing assets totaled $3.4 million which consisted of other real estate owned and held-for-sale loans. At December 31, 2015, other real estate owned valued at $1.0 million comprised of eight foreclosed properties, compared to $4.3 million comprised of ten properties at March 31, 2015. At December 31, 2015, held-for-sale loans totaled $2.4 million, compared to $2.6 million at March 31, 2015

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 December 31, 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	$	103,986	$	253,186	$	5,012	$	69,110
Special Mention	—		3,864		—		1,295
Substandard	2,198		10,398		—		6,462
Doubtful	—		—		—		—
Loss	—		—		—		—
Total	$	106,184	$	267,448	$	5,012	$	76,867

					One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing					$	142,983	$	85
Non-Performing					2,997		—
Total					$	145,980	$	85

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 December 31, 2015 and March 31, 2015.



December 31, 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	$	—	$	291	$	2,737	$	3,028	$	142,952	$	145,980
Multifamily	969		422		807		2,198		103,986		106,184
Commercial real estate	3,427		—		—		3,427		264,021		267,448
Construction	—		—		—		—		5,012		5,012
Business	640		337		1,805		2,782		74,085		76,867
Consumer	3		—		—		3		82		85
Total	$	5,039	$	1,050	$	5,349	$	11,438	$	590,138	$	601,576



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 December 31, 2015 and March 31, 2015.



	At December 31, 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	$	3,046	$	4,172	$	—	$	2,752	$	3,007	—
Multifamily	1,229		1,578		—		237		237		—
Commercial real estate	1,859		2,028		—		1,880		1,880		—
Business	2,687		2,887		—		4,568		4,652		—
With an allowance recorded:
One-to-four family	1,650		1,650		97		4,295		4,541		286
Multifamily	—		—		—		1,251		1,349		181
Commercial real estate	3,427		3,427		12		741		741		76
Business	2,821		2,821		67		788		788		13
Total	$	16,719	$	18,563	$	176	$	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 nine month period ended December 31, 2015 and 2014.



	For the Three Months Ended December 31,									For the Nine Months Ended December 31,
	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	$	3,062	$	9	$	736	$	2		$	2,863	$	14	$	731	$	11
Multifamily	1,236		6		157		—			1,296		13		137		—
Commercial real estate	1,860		14		2,945		22			1,865		31		2,660		136
Construction	—		—		—		—			—		—		—		—
Business	2,723		21		1,014		11			2,772		64		1,032		89
Consumer and other	—		—		—		—			—		—		—
With an allowance recorded:
One-to-four family	1,652		19		6,299		14			1,660		23		6,106		101
Multifamily	—		—		1,334		2			—		—		1,336		17
Commercial real estate	3,427		—		1,171		(15		)	1,142		—		684		24
Business	2,838		32		3,678		28			2,909		67		3,466		106
Consumer and other	—		—		7		—			—		—		7		—
Total	$	16,798	$	101	$	17,341	$	64		$	14,507	$	212	$	16,159	$	484

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.

There were no TDR modifications made during the three month period ended December 31, 2015. The following table presents an analysis of those loan modifications that were classified as TDRs during the nine month period ended December 31, 2015.



	Modifications to loans during the nine month period ended December 31, 2015
$ in thousands	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	%

The following table presents an analysis of those loan modifications that were classified as TDRs during the three and nine month period ended December 31, 2014.



	Modifications to loans during the three month period ended December 31, 2014									Modifications to loans during the nine month period ended December 31, 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
One-to-four family	1	$	43	$	43	12.00	%	12.00	%	1	$	43	$	43	12.00	%	12.00	%
Commercial real estate	—	—		—		—	%	—	%	1	873		856		6.60	%	6.60	%
Business	1	50		50		10.50	%	10.50	%	1	50		50		10.50	%	10.50	%
Total	2	$	93	$	93					3	$	966	$	949

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 December 31, 2015 and 2014, there were no modified loans that subsequently defaulted within the last 12 months. For the nine month period ended December 31, 2015, one loan of $96 thousand was modified. For the three month period ended December 31, 2014, one loan of $43 thousand was modified and one loan of $50 thousand was extended. The nine month period ended December 31, 2014 also included one loan of $856 thousand that was extended.

At December 31, 2015, there were 11 loans in the TDR portfolio totaling $5.7 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 December 31, 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 December 31, 2014.