LOANS RECEIVABLE, NET

The following is a summary of loans receivable, net of allowance for loan losses, and loans held-for-sale at March 31:



	March 31, 2017					March 31, 2016 Restated ^(a)
$ in thousands	Amount			%		Amount			%
Gross loans receivable:
One-to-four family - Restated ^(a)	$	132,679		24	%	$	141,229		24	%
Multifamily - Restated ^(a)	87,824			16	%	94,210			16	%
Commercial real estate - Restated ^(a)	241,794			45	%	272,427			47	%
Construction	4,983			1	%	5,033			1	%
Business - Restated ^{(a) (1)}	65,151			12	%	71,038			12	%
Consumer ⁽²⁾	8,994			2	%	42			—	%
Total loans receivable	541,425			100	%	583,979			100	%

Unamortized premiums, deferred costs and fees, net	4,127					4,649

Allowance for loan losses	(5,060		)			(5,232		)
Total loans receivable, net	$	540,492				$	583,396

Loans held-for-sale - Restated ^(a)	$	944				$	2,436

^(a)March 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Notes 1 and 19 for further detail.

⁽¹⁾Includes business overdrafts of $76 thousand and $103 thousand as of March 31, 2017 and 2016, respectively

⁽²⁾ Includes consumer overdrafts of $22 thousand and $39 thousand as of March 31, 2017 and 2016, respectively

Substantially all of the Bank's real estate loans receivable are principally secured by properties located in New York City. Accordingly, as with most financial institutions in the market area, the ultimate collectability of a substantial portion of the Company's loan portfolio is susceptible to changes in market conditions in this area.

Real estate mortgage loan portfolios (one-to-four family) serviced for Federal National Mortgage Association (“FNMA”) and other third parties are not included in the accompanying consolidated financial statements. The unpaid principal balances of these loans aggregated $25.7 million and $28.1 million at March 31, 2017 and 2016, respectively.

At March 31, 2017 the Bank pledged $25.6 million in total real estate mortgage loans as collateral for advances from the FHLB-NY.

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, 2017:



$ in thousands	One-to-four family		Multifamily		Commercial Real Estate			Construction		Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	1,697	$	622	$	1,808		$	62	$	1,022		$	21	$	5,232
Charge-offs	106		338		—			—		—			85		529
Recoveries	—		—		20			—		304			4		328
Provision for (Recovery of) Loan Losses	72		929		(332		)	44		(753		)	69		29
Ending Balance	$	1,663	$	1,213	$	1,496		$	106	$	573		$	9	$	5,060

Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	1,357		1,207		1,490			106		532			7		4,699
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	306		6		6			—		41			2		361

Loan Receivables Ending Balance	$	134,927	$	88,750	$	242,818		$	4,949	$	65,114		$	8,994	$	545,552
Ending Balance: collectively evaluated for impairment	129,420		87,148		239,323			4,949		61,027			8,992		530,859
Ending Balance: individually evaluated for impairment	5,507		1,602		3,495			—		4,087			2		14,693

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, 2016:



$ in thousands	One-to-four family		Multifamily		Commercial Real Estate		Construction			Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	1,970	$	502	$	1,029	$	99		$	813		$	15	$	4,428
Charge-offs	389		340		—		—			176			517		1,422
Recoveries	113		—		9		—			578			31		731
Provision for (Recovery of) Loan Losses	3		460		770		(37		)	(193		)	492		1,495
Ending Balance	$	1,697	$	622	$	1,808	$	62		$	1,022		$	21	$	5,232

Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	1,602		622		1,787		62			548			21		4,642
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	95		—		21		—			474			—		590

Loan Receivables Ending Balance - Restated ⁽¹⁾	$	143,653	$	95,580	$	273,400	$	5,000		$	70,953		$	42	$	588,628
Ending Balance: collectively evaluated for impairment - Restated ⁽¹⁾	139,017		93,811		267,106		5,000			64,087			42		569,063
Ending Balance: individually evaluated for impairment	4,636		1,769		6,294		—			6,866			—		19,565

⁽¹⁾March 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Notes 1 and 19 for further detail.

At March 31, 2017 and 2016, the recorded investment in impaired loans was $14.7 million and $19.6 million, respectively. The related allowance for loan losses for these impaired loans was approximately $361 thousand and $590 thousand at March 31, 2017 and 2016, respectively. Interest income of $404 thousand and $476 thousand for fiscal years 2017 and 2016 respectively, would have been recorded on impaired loans had they performed in accordance with their original terms.

The following is a summary of nonaccrual loans at March 31, 2017 and 2016.



$ in thousands	March 31, 2017		March 31, 2016
Loans accounted for on a nonaccrual basis:
Gross loans receivable:
One-to-four family	$	3,899	$	2,947
Multifamily	1,602		1,769
Commercial real estate	993		5,338
Business	1,922		3,896
Consumer	2		—
Total nonaccrual loans	$	8,418	$	13,950

Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. TDR loans consist of loans where borrowers have been granted concessions in regards to the terms of their loans due to financial or other difficulties, which rendered them unable to repay their loans under the original contractual terms. Total TDR loans at March 31, 2017 were $6.4 million, $2.5 million of which were non-performing as they were either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months. At March 31, 2016, total TDR loans were $7.8 million, of which $2.2 million were non-performing.

At March 31, 2017, other non-performing assets totaled $1.9 million which consisted of other real estate owned ("OREO") properties and held-for-sale loans. At March 31, 2017, other real estate owned valued at $990 thousand comprised of eight foreclosed properties, compared to $1.0 million comprised of seven properties at March 31, 2016. Other real estate loans is included in other assets in the consolidated statements of financial condition. At March 31, 2017, held-for-sale loans totaled $944 thousand, compared to $2.4 million at March 31, 2016.

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 March 31, 2017, and based on the most recent analysis performed in the current quarter, 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	$	87,148	$	238,552	$	4,949	$	58,555
Special Mention	—		771		—		133
Substandard	1,082		3,495		—		6,426
Doubtful	520		—		—		—
Loss	—		—		—		—
Total	$	88,750	$	242,818	$	4,949	$	65,114

	One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing	$	131,028	$	8,992
Non-Performing	3,899		2
Total	$	134,927	$	8,994

As of March 31, 2016, and based on the most recent analysis performed, the risk category by class of loans is as follows:



$ in thousands	Multifamily Restated ⁽¹⁾		Commercial Real Estate Restated ⁽¹⁾		Construction		Business Restated ⁽¹⁾
Credit Risk Profile by Internally Assigned Grade:
Pass - Restated ⁽¹⁾	$	93,811	$	262,867	$	5,000	$	61,092
Special Mention	—		4,239		—		2,039
Substandard	1,769		6,294		—		7,822
Doubtful	—		—		—		—
Loss	—		—		—		—
Total	$	95,580	$	273,400	$	5,000	$	70,953

	One-to-four family Restated ⁽¹⁾		Consumer
Credit Risk Profile Based on Payment Activity:
Performing - Restated ⁽¹⁾	$	140,706	$	42
Non-Performing	2,947		—
Total	$	143,653	$	42

⁽¹⁾March 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Notes 1 and 19 for further detail.

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2017.



$ 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	$	2,094	$	247	$	3,022	$	5,363	$	129,564	$	134,927
Multifamily	—		—		803		803		87,947		88,750
Commercial real estate	—		—		—		—		242,818		242,818
Construction	—		—		—		—		4,949		4,949
Business	—		429		1,500		1,929		63,185		65,114
Consumer	1		—		2		3		8,991		8,994
Total	$	2,095	$	676	$	5,327	$	8,098	$	537,454	$	545,552

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2016.



$ in thousands	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current Restated ⁽¹⁾		Total Financing Receivables Restated ⁽¹⁾
One-to-four family - Restated ⁽¹⁾	$	986	$	—	$	2,628	$	3,614	$	140,039	$	143,653
Multifamily - Restated ⁽¹⁾	—		—		1,769		1,769		93,811		95,580
Commercial real estate - Restated ⁽¹⁾	889		3,410		—		4,299		269,101		273,400
Construction	—		—		—		—		5,000		5,000
Business - Restated ⁽¹⁾	2,495		307		1,972		4,774		66,179		70,953
Consumer	2		—		—		2		40		42
Total - Restated ⁽¹⁾	$	4,372	$	3,717	$	6,369	$	14,458	$	574,170	$	588,628

⁽¹⁾March 31, 2016 balances have been restated from previously reported results to correct for material and certain other errors from prior periods. Refer to Notes 1 and 19 for further detail.

At March 31, 2017 and 2016, there were no loans 90 or more days past due and accruing interest.

The following tables present information on impaired loans with the associated allowance amount, if applicable, at March 31, 2017 and 2016. Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the remaining source of repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs was used to determine the specific allowance recorded. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received under the cash basis method.



Impaired Loans by Class
	At March 31,
	2017						2016
$ 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	$	3,416	$	4,210	$	—	$	2,909	$	4,101	$	—
Multifamily	1,596		2,081		—		1,769		2,122		—
Commercial real estate	993		993		—		5,405		5,572		—
Business	1,923		1,968		—		4,223		4,403		—
Consumer	—		—		—		—		—		—

With an allowance recorded:
One-to-four family	2,091		2,215		306		1,727		1,727		95
Multifamily	6		6		6		—		—		—
Commercial real estate	2,502		2,502		6		889		889		21
Business	2,164		2,164		41		2,643		2,643		474
Consumer	2		2		2		—		—		—
Total	$	14,693	$	16,141	$	361	$	19,565	$	21,457	$	590

The following table presents information on average balances on impaired loans and the interest income recognized for the years ended March 31, 2017 and 2016.



	For the years ended March 31,
	2017				2016
$ in thousands	Average Balance		Interest Income recognized		Average Balance		Interest Income recognized
With no specific allowance recorded:
One-to-four family	$	3,078	$	14	$	2,835	$	17
Multifamily	1,747		6		1,463		17
Commercial real estate	1,774		17		2,935		—
Business	3,619		142		3,662		93

With an allowance recorded:
One-to-four family	2,128		5		1,725		25
Multifamily	1		—		—		—
Commercial real estate	1,427		—		895		43
Business	2,187		26		2,340		85
Consumer	1		—		—		—
Total	$	15,961	$	210	$	15,855	$	280

In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a modification. In cases where the Bank grants any significant concessions to a troubled borrower, the Bank accounts for the modification as a TDR under ASC Subtopic 310-40 and the related allowance under ASC Section 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 during the 12 month period ended March 31, 2017.

The following table presents an analysis of those loan modifications that were classified as TDRs during the twelve month period ended March 31, 2016:



	Modifications to loans during the years ended March 31,
		2016
$ in thousands		Number of loans	Pre-modification outstanding recorded investment		Post-Modification Recorded investment		Pre-Modification rate		Post-Modification rate
One-to-four family		2	429		456		4.08	%	4.89	%
Total		2	$	429	$	456

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 fiscal year ended March 31, 2016, two 1-4 family loans totaling $429 thousand were modified.

There were no loans at March 31, 2017 and March 31, 2016 that had been modified and subsequently defaulted.

For the fiscal year ended March 31, 2017, there were 11 loans in the TDR portfolio totaling $3.9 million that were on accrual status as the Company has determined that the future collection of the 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. At March 31, 2016, there were 11 loans in the performing TDR portfolio totaling $5.6 million.

Transactions With Certain Related Persons

Federal law requires that all loans or extensions of credit to executive officers and directors must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of repayment or present other unfavorable features. Loans to our current directors, principal officers, nominees for election as directors, security holders known by us to own more than 5% of the outstanding shares of common stock, or associates of such persons (together, “related persons”), are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Carver Federal, and do not involve more than the normal risk of collectibility or present other unfavorable features.

The aggregate amount of loans outstanding to related parties was $4.7 million at March 31, 2017, and $4.4 million at March 31, 2016. During fiscal year 2017, advances totaled $1.7 million and principal repayments totaled $1.4 million. These loans were made in the ordinary course of business, on substantially the same terms, including collateral, as those prevailing at the time for comparable loans with persons not related to Carver Federal, and do not involve more than the normal risk of collectibility or present other unfavorable features.

Furthermore, loans above the greater of $25,000, or 5% of Carver Federal’s capital and surplus (up to $500,000), to Carver Federal’s directors and executive officers must be approved in advance by a majority of the disinterested members of Carver Federal’s Board of Directors.