CARV 10-K & 10-Q changes, risk factors and insider trading

The Company anticipates increased regulatory scrutiny, in the course of routine examinations and otherwise, and new regulations directed towards banks, designed to address the recent negative developments in the banking industry, all of which may increase the Company’s costs of doing business and reduce its profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition and the level of uninsured deposits. As a result, the Bank could face increased scrutiny by regulators and the investor community.

Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management personnel if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. Regardless of the federal regulatory minimum requirements, Carver was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio. At March 31, 2024,2025, the Bank's capital level exceeded the regulatory requirements andto be considered "well capitalized," but did not meet its IMCR requirementsrequirements. with aThe Tier 1 leverage ratio ofwas 9.56%,8.70%, Commonbelow Equitythe Tier9% 1IMCR capital ratio of 12.00%, Tier 1 risk-based capital ratio of 12.00%,requirement, and athe total risk-based capital ratio was 11.56%, below the 12% IMCR requirement. The Bank is working on taking appropriate actions with the goal of 12.98%.achieving the IMCR targets. The application of these capital requirements, including the higher IMCR requirements, could, among other things, result in lower returns on equity, result in regulatory actions if we are unable to comply with such requirements and could limit the Bank's ability to pay dividends to the Company.

Carver is a unitary savings and loan association holding company regulated by the FRB and almost all of its operating assets are owned by Carver Federal. Carver relies, in part,onpart, on dividends from the Bank to pay cash dividends to its stockholders, and to engage in share repurchase programs. Under the prior Formal Agreement, the OCC regulatedwill monitor all capital distributions, including dividend payments, by the Bank to the Company, and the FRB regulates dividends paid by the Company. As the subsidiary of a savings and loan association holding company, Carver Federal must file a notice or an application (depending on the proposed dividend amount) with the OCC (and a notice with the FRB) prior to the declaration of each capital distribution. The OCC will disallow any proposed dividend, for among other reasons, that would result in the Bank’s failure to meet the OCC minimum capital requirements. Carver has suspended its regular quarterly cash dividend on its common stock. There are no assurances that dividend payments to the Company will resume.

The Dodd-Frank Act requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments. It also provides that the listing standards of the national securities exchanges shall require listed companies to implement and disclose “clawback” policies mandating the recovery of incentive compensation paid to executive officers in connection with accounting restatements. The legislation also directs the FRB to promulgate rules prohibiting excessive compensation paid to bank holding company executives.

As a result ofWhile inflationary pressurespressure andappears theto resultinghave rapid increases indecreased, interest rates overremain thehigh last year,and the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including a significant portion of the Company’s, resulting in unrealized losses embedded in the U.S. banks’ securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

The Company's ability to utilize the deferred tax asset generated by New Markets Tax Credit income tax benefits as well as other deferred tax assets depends on its ability to meet the NMTC compliance requirements and its ability to generate sufficient taxable income from operations in the future. Since the Bank has not generated sufficient taxable income to utilize tax credits as they were earned, a deferred tax asset has been recorded in the Company's financial statements. For additional information regarding Carver's NMTC, refer to Item 7, "Variable Interest Entities."

Risks associated with cyber-securitycybersecurity could negatively affect our earnings.

Nasdaq rules impose restrictions on our ability to raise funds through a private offering of our common stock, convertible debt or similar instruments without obtaining stockholder approval. Under Nasdaq rules, an offering of more than 20% of our total shares outstanding at a price per share less than (i) the closing price of our common stock on the Nasdaq Capital Market immediately preceding the signing of the binding agreement, or (ii) the average closing price of our common stock on the Nasdaq Capital Market for the five trading days immediately preceding the signing of the binding agreement requires stockholder approval unless the offering qualifies as a “public offering” for purposes of the Nasdaq rules. As of March 31, 2024,2025, we had 5,140,8725,283,564 shares of common stock outstanding. SEC rules impose restrictions on our ability to raise funds through the registered offering of our securities pursuant to a “shelf” registration statement on Form S-3. Under SEC rules, we are prohibited from selling securities under such a registration statement if the aggregate market value of the securities sold thereunder in any twelve-month period exceeds one-third of the market value of our outstanding common stock held by non-affiliates. During fiscal year 2022, the Company entered into a sales agreement, with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in one or more “at the market offerings.” During fiscal year 2022, we had sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million. Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent. There were no additional offerings during fiscal years 2023 and 2024. In the future, weWe may be limited in our ability to access sufficient funding through a public or private equity offering or convertible debt offering.

Carver concluded fiscal 20242025 with a net loss of $3.0$13.7 million, compared to a net loss of $4.4$3.0 million for thefiscal prior year period.2024. The change in our results of operations was primarily driven by increases in interest incomeexpense, non-interest expense and provision for credit losses and a decrease in non-interest income, partially offset by increasesa slight increase in interest expense and non-interest expenseincome compared to the prior fiscal year.

The Company's liquidity position remains adequate. The impact of market volatility from continued inflation and high interest rates will depend on future developments, which are highly uncertain and difficult to predict. The Company is closely monitoring its asset quality, liquidity, and capital positions, as well as the credit risk in its loan portfolio. Management is actively working to minimize the current and future impact of the current business and industry environment, and is continuing to make adjustments to operations where appropriate or necessary to mitigate risk. However, these factors and events may have negative effects on the business, financial condition, and results of operations of the Company and its customers.

SELECTED FINANCIAL DATAINFORMATION

The ACL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is significant judgment applied in estimating the ACL. These assumptions and estimates are susceptible to significant changes based on the current environment. InInflationary apressure continuedhas effortdecreased, but rates remain high. The target interest rate range had been held steady at its highest point between 5.25% to combat5.5% inflation,since July 2023, until the Federal Reserve approvedlowered rates by 50 basis points in September 2024, decreasing the 11thtarget interestrange rateto hike4.75% to 5% and began easing monetary policy for the first time in Julyfour 2023,years. raisingThe Federal Reserve approved two additional cuts in November and December, lowering the overnight borrowing rate 25 basis points to a target range ofbetween 5.25%4.25% to 5.5%,4.5%, but has left interest rates unchanged since the highestJanuary it2025 has been in 22 years. Interest rates were held steady at the May 2024 meeting and the Federal Reserve is not expected to start cutting rates yet.meeting. A high interest rate environment can negatively impact the Company if the higher debt service costs on adjustable-rate loans lead to borrowers' inability to pay contractual obligations. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ACL even though there may not be a decline in credit quality or an increase in potential problem loans. As such, there can never be assurance that the ACL accurately reflects the actual loss potential inherent in a loan portfolio. There have been no significant changes to the inputs and assumptions during the twelve months ended March 31, 2025.

•Multifamily - Carver Federal originates and purchases recourse and non-recourse multifamily loans. The Bank generally requires a debt service coverage ratio at origination of at least 1.30x,1.20x (with personal guarantees), and that the maximum loan-to-value ("LTV") at origination not exceed 70%75% based on the appraised value of the mortgaged property. Multifamily property lending entails additional risks compared to one-to-four family lending. These loans are dependent on the successful operation of such buildings and can be significantly impacted by economic conditions, industry concentration, valuation of the underlying properties, lease terms, occupancy/vacancy rates, and changes in market demand for multifamily units. The Bank primarily considers the property's ability to generate net operating income sufficient to support the debt service, the financial resources, income level and managerial expertise of the borrower,owner/guarantor, the marketability of the property and the Bank's lending experience with the owner/guarantor.

•Commercial Real Estate ("CRE") - CRE lending consists predominantly of originating loans for the purpose of purchasing or refinancing office, mixed-use properties, retail and church buildings in the Bank's market area. Mixed-use loans are secured by properties that are intended for both commercial and residential use, but predominantly commercial, and are classified as CRE. The Bank primarily considers the ability of the net operating income generated by the real estate to support the debt service, the financial resources, income level and managerial expertise of the borrower,owner/guarantor, the marketability of the property and the Bank's lending experience with the owner/guarantor. The maximum LTV ratio on CRE loans at origination is generally 70%75% based on the latest appraised fair market value of the mortgaged property and the Bank generally requires a debt service coverage ratio at origination of at least 1.30x.1.20x (with guarantor recourse). The Bank also requires the assignment of rents of all tenants' leases in the mortgaged property and personal guarantees may be obtained for additional security from these borrowers. CRE loans generally present a higher level of risk than other types of loans due primarily to the effect of general economic conditions and the complexities involved in valuing the underlying collateral.

The following table sets forth certain information relating to Carver Federal's average interest-earning assets and average interest-bearing liabilities, and their related average yields and costs for the years ended March 31, 2024, 2023,2025 and 2022.2024. The table also presents information for the fiscal years indicated with respect to the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, or “interest rate spread,” which savings institutions have traditionally used as an indicator of profitability. Another indicator of an institution's profitability is its “net interest margin,” which is its net interest income divided by the average balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income:

At March 31, 2024,2025, total assets were $756.8$730.0 million, reflecting ana increasedecrease of $33.6$26.8 million, or 4.6%,3.5%, from total assets of $723.2$756.8 million at March 31, 2023.2024. The increasedecrease was primarily attributable to increasesdecreases of $16.4$8.7 million in cash and cash equivalentsequivalents, and $24.3$3.7 million and $9.7 million in the Bank's net investment and loan portfolio,portfolios, partially offset by a decrease of $6.2 million in the Bank's investment portfolio.respectively.

Total cash and cash equivalents increaseddecreased $16.4$8.7 million, or 38.5%,14.7%, from $42.6 million at March 31, 2023 to $59.0 million at March 31, 2024.2024 to $50.3 million at March 31, 2025. The increasedecrease in cash was primarily due to ana increase$26.3 in total deposits and paydowns received on investment securities, partially offset by net loan activity and amillion decrease in advances from the FHLB-NY and other borrowed money.money, Inpartially addition,offset theby Banka received $2.5$14.8 million duringincrease thein secondtotal quarter for the CDFI Fund's Equitable Recovery Program (ERP) award.deposits.

Total investment securities decreased $6.2$3.7 million, or 11.0%,7.4%, to $46.3 million at March 31, 2025, compared to $50.0 million at March 31, 2024, compared to $56.2 million at March 31, 20232024 due to scheduled principal payments received of approximately $5.3$4.3 million, partially offset by a $0.7 million and a $0.5 million increasedecrease in unrealized losses in the available-for-sale portfolio.

Gross portfolio loans increaseddecreased $25.0$9.2 million, or 4.2%,1.5%, to $613.7 million at March 31, 2025, compared to $622.9 million at March 31, 2024,2024. comparedThe todecrease $597.9 million at March 31, 2023,was primarily due to attrition and payoffs of $63.3 million, partially offset by new loan originations of $61.7$39.1 million and loan pool purchases of $31.5 million. These were partially offset by attrition and payoffs of $68.2$15.4 million. The level of payoffs duringand the current fiscal year, significantly lower than the prior period's,paydowns can be attributed to borrowers continuing to sell commercial real estate,estate althoughactivity, nowas atsome aborrowers slowercapitalized pace,on inincreased orderproperty values by selling collateral assets to lockpayoff in values, as well as paydowns on lines of credit for borrowers looking for opportunities to reduce interest expense in the current rate environment.loans.

Total liabilities increaseddecreased $36.5$14.1 million, or 5.4%,2.0%, to $700.4 million at March 31, 2025, compared to $714.5 million at March 31, 2024, compared to $678.0 million at March 31, 2023, primarily due to an increase in total deposits, partially offset by a decrease of $26.3 million in advances from the FHLB-NY and other borrowed money.money, partially offset by a $14.8 million increase in total deposits.

Deposits increased $46.6$14.8 million, or 7.8%,2.3%, to $661.8 million at March 31, 2025, compared to $647.0 million at March 31, 2024, compared to $600.4 million at March 31, 2023.2024. The increase was primarily related to increases in money market and certificate of deposit accounts, as customers migrated to higher yielding accounts in these market-rate products for which the rates increased over the current fiscal year period. Non-interest bearing deposits decreased $12.5 million, or 12.3%, during fiscal year 2025, primarily due to one customer relationship who transferred $10.0 million from a non-interest bearing checking to a money market account. As of March 31, 20242025 and 2023,2024, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $91.0$69.4 million and $116.8$91.0 million, respectively. These uninsured balances disclosed do not consider that FDIC insurance can be further extended by claimant within certain law firm deposit accounts. In addition, as of March 31, 2024,2025, the aggregate amount of all our uninsured certificates of deposit was $19.5$19.2 million. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. See Note 8 to Consolidated Financial Statements for additional information on our deposits.

Advances from the FHLB-NY and other borrowed money decreased $4.6$26.3 million, or 9.0%,56.6%, to $20.2 million at March 31, 2025, compared to $46.5 million at March 31, 2024,2024. compared to $51.1 million at March 31, 2023. The Bank repaid a $10.0 million overnight advance secured fromDuring the FHLB-NYfirst onquarter Marchof 31,the 2023current andfiscal year, the Bank secured a $3.0$1.8 million 18-month12-month fixed-rate advance fromthrough the newsecond round of the FHLB-NY 0% Development Advance (ZDA) ProgramProgram, duringwhich provides members with subsidized funding in the secondform quarter.of Atinterest Marchrate 31,credits 2024,to assist in originating or purchasing loans that meet an eligibility criteria. In addition, the Bank hadrepaid $28.0 million outstanding advances from the FHLB-NY.FHLB-NY Induring addition,fiscal year 2025. At March 31, 2025, the CompanyBank borrowedhad $2.5a $1.8 million throughoutstanding a long-term unsecured, below-market rate term loanadvance from a third party to finance eligible loans offered through the Bank's community investment initiatives and loan programs.FHLB-NY.

Total equity decreased $2.9$12.7 million, or 6.4%,30.0%, to $29.6 million at March 31, 2025, compared to $42.3 million at March 31, 2024, compared to $45.2 million at March 31, 2023.2024. The decrease was primarily due to a net loss of $3.0$13.7 million, coupledpartially withoffset anby increasea decrease of $0.5$0.7 million in unrealized losses on securities available-for-sale for the twelve month period ended March 31, 2024. In addition, the Bank recordedand a $0.7 million decrease to retained earnings to reflect the cumulative effect adjustment related to the adoption of CECL (Topic 326), effective April 1, 2023. These decreases were partially offset by a $1.0$0.2 million increase in capital as a result of the issuance of common shares in a private placement during the secondthird quarter.quarter of fiscal year 2025.

The Company reported a net loss of $3.0$13.7 million for fiscal year 2024,2025, compared to a net loss of $4.4$3.0 million for the prior year period. The change in our results was primarily driven by increases in interest incomeexpense, non-interest expense and provision for credit losses and a decrease in non-interest income, partially offset by an increase in non-interestinterest expenseincome compared to the prior fiscal year.

Interest income increased $6.3$0.3 million, or 22.7%,0.9%, to $34.0$34.3 million, compared to $27.7$34.0 million for the prior year period. Interest income on loans increased $4.6$0.3 million, or 18.3%,1.0%, primarily due to an increase in the average yield on the portfolio of 52 basis points, coupled with a $32.9$8.7 million, or 5.7%,1.4%, increase in average loan balances. Interest income on mortgage-backed and investment securities were lower primarily due to decreases of $1.9 million, or 7.0%, and $3.8 million, 11.4%, respectively, in the average balances compared to the prior fiscal year. Interest income on money market investments increasedremained $1.6flat million toat $2.7 million, compareddespite toa $1.1$3.4 million for the prior year period, due to an increase in the average interest ratesbalance of 2.75% on the Bank's interest-bearing account at the Federal Reserve Bank.Bank Interestdue income on investment securities was also higher, despiteto a decrease of $7.2 million in average balances, due to an average increase in yields of 5435 basis points compared toin the prioraverage year period.rates.

Interest expense increased $6.6$3.6 million to $11.5$15.1 million, compared to $4.9$11.5 million for the prior year period. The higher interest rate environment is reflected in the average cost of interest-bearing deposits and borrowing costs for the comparativecurrent period. Interest expense on deposits increased $5.4$3.9 million, primarily due to an increaseincreases in the average balances of $32.7 million and average rates of 76 basis points, of higher-cost certificate of deposits. The average rates paid on savings and money market andaccounts certificate of deposit accounts. Interest expense on borrowingsalso increased $1.2for millionthe fromtwelve months ended March 31, 2025, compared to the prior fiscal year, dueas the Bank offered promotional rates during the current period in an attempt to increases in both the average outstanding balances of $17.5 millionattract and averageretain borrowing rates of 92 basis points.deposits.

The Bank recorded ana $83$1.2 thousandmillion provision for credit loss for fiscal year 2024,2025, compared to aan $100$83 thousand provision for loancredit loss for the prior year period. For the year ended March 31, 2024,2025, net charge-offs of $109$725 thousand were recognized, compared to net charge-offs of $495$109 thousand in the prior year period. Total charge-offs of $170$870 thousand were recognized for fiscal year 2024,2025, compared to total charge-offs of $727$170 thousand for the prior fiscal year. At March 31, 2024,2025, nonaccrual loans totaled $24.6 million, or 3.4% of total assets, compared to $11.8 million, or 1.6% of total assets, compared to $12.3 million, or 1.7% of total assets at March 31, 2023.2024. The ACL was $5.9$6.3 million at March 31, 2024,2025, which represents a ratio of the ACL to nonaccrual loans of 49.9%,25.8%, compared to 42.6%49.9% at March 31, 2023.2024. The ratio of theth e ACL to total loans receivable, excluding PPP loans, was 1.03% at March 31, 2025, compared to 0.94% at March 31, 2024, compared to 0.88% at March 31, 2023.2024.

Non-interest income for the twelve months ended March 31, 20242025 increaseddecreased $3.1$3.6 million, or 86.1%,53.7%, to $6.7$3.1 million compared to $3.6$6.7 million in the prior year period. Non-interestThe previous period included grant income for the current fiscal year includedof $2.4 million grant income recognized from the Bank's award through the CDFI Fund's Equitable Recovery Program.Program The Bank also recognizedand $0.5 million grant income associated with a discontinued loan program no longer in existence,program, that had been transferred to the Bank through an acquired institution. In addition, otherthe non-interestBank income includedrecognized a $296$0.2 thousandmillion deathloss benefit recorded in BOLI income duringon the third quartersale of a loan during the current fiscal year.

Non-interest expense for the twelve months ended March 31, 20242025 increased $1.5$2.6 million, or 4.9%,8.1%, to $32.2$34.8 million compared to $30.7$32.2 million for the prior year period. Employee compensation and benefitsnet occupancy costs related to building expenses increased compared to the prior year periodperiod. dueNet to the Company's transition to a new payroll and benefits administrator during the first quarter of the current fiscal year, and new permanent staff hired to replace temporary consultants. Data processingequipment expense was higher due to upgraded cybersecurity systems and theincreases implementationin ofhardware/software servicemaintenance contracts for new consumer loan and deposit products.contracts. Other non-interest expense increasedwas higher due to higherincreases in security services at the branches and legal costs associated with an activist shareholder and audit fees related to the CECL implementation. In addition, operating charge-offs were higher compared to the prior year period due to a higher number of check fraud incidents.shareholder.

Management believes Carver Federal’s short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements, including interest payments on our subordinated debt securities. Additionally, Carver Federal has other sources of liquidity including the ability to borrow from the Federal Home Loan Bank of New York ("FHLB-NY") utilizing unpledged mortgage-backed securities and certain mortgage loans, the sale of available-for-sale securities and the sale of certain mortgage loans. Net borrowings decreased $4.6$26.3 million during fiscal year 20242025 as the Bank repaid a $10.0$28.0 million overnightoutstanding advance securedadvances from the FHLB-NY onduring Marchfiscal 31,year 20232025. andThe Bank secured a $3.0$1.8 million 18-month12-month fixed-rate advance fromthrough the newsecond round of the FHLB-NY 0% Development Advance (ZDA) Program during the secondfirst quarterquarter, which provides members with subsidized funding in the form of the current fiscal year. In addition, the Company borrowed $2.5 million through a long-term unsecured, below-marketinterest rate term loan from a third partycredits to financeassist eligiblein originating or purchasing loans offeredthat throughmeet thean Bank'seligibility community investment initiatives and loan programs.criteria. At March 31, 2024,2025, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $7.8$30.4 million on a secured basis, utilizing mortgage-related loans and securities as collateral. At March 31, 2024,2025, the Bank had $28.0a $1.8 million outstanding advances from the FHLB-NY. The Bank has the ability to pledge additional loans as collateral in order to borrow up to 30% of its total assets. The Company also had $13.4 million in long-term subordinated debt securities and $5.0 million in low interest loans outstanding as of March 31, 2024.2025.

During fiscal year 2022, the Company entered into a sales agreement with an agent to sell, from time to time, our common stock having an aggregate offering price of up to $20.0 million, in an “at the market offering.” During fiscal year 2022, we have sold an aggregate of 397,367 shares of our common stock pursuant to the terms of such sales agreement, for aggregate gross proceeds of approximately $3.1 million. Aggregate net proceeds received were approximately $3.0 million, after deducting expenses and commissions paid to the placement agent. There werehave been no additionalsubsequent offerings during fiscal years 2023 and 2024.offerings.

The most significant potential liquidity challenge the Bank faces is variability in its cash flows as a result of mortgage refinance activity. When mortgage interest rates decline, customers’ refinance activities tend to accelerate, causing the cash flow from both the mortgage loan portfolio and the mortgage-backed securities portfolio to accelerate. In contrast, when mortgage interest rates increase, refinance activities tend to slow, causing a reduction of liquidity. However, in a rising rate environment, customers generally tend to prefer fixed ratefixed-rate mortgage loan products over variable rate products. Carver Federal is also at risk toof deposit outflows due to a competitive interest rate environment.

During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the FNMA. The loans were sold to FNMA with the standard representations and warranties for loans sold to the GSE's.GSEs. The Bank may be required to repurchase these loans in the event of breaches of these representations and warranties. In the event of a repurchase, the Bank is typically required to pay the unpaid principal balance as well as outstanding interest and fees. The Bank then recovers the loan or, if the loan has been foreclosed, the underlying collateral. The Bank is exposed to any losses on repurchased loans after giving effect to any recoveries on the collateral. The Bank has not received a request to repurchase any of these loans since the second quarter of fiscal 2015, and there have not been any additional requests from FNMA for loans to be reviewed. At March 31, 20242025 the Bank continues to service 7671 loans with a principal balance of $11.4$10.6 million for FNMA that had been sold with standard representations and warranties.

The Bank must satisfy minimum capital standards established by the OCC. For a description of the OCC capital regulation, see “Item 1-Regulation and Supervision-Federal Banking Regulation-Capital Requirements.” Regardless of Basel III's minimum requirements, Carver, as a result of the Formal Agreement,Carver was issued an Individual Minimum Capital Ratio ("IMCR") letter by the OCC,OCC on June 29, 2016, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio. The Formal Agreement was terminated on January 18, 2023. The IMCR remains in effect.

At March 31, 2024,2025, the Bank's capital level exceeded the regulatory requirements andto be considered "well capitalized" but did not meet its IMCR requirementsrequirements. with a common equity Tier 1 ratio,The Tier 1 leverage ratio,ratio Tierwas 18.70%, risk-basedbelow capitalthe ratio,9% IMCR requirement, and the total risk-based capital ratio was 11.56%, below the 12% IMCR requirement. The Bank is working on taking appropriate actions with the goal of 12.00%,achieving 9.56%,the 12.00%IMCR and 12.98%, respectively.targets. For additional information regarding Carver Federal's Regulatory Capital and Ratios, refer to Note 12 of Notes to Consolidated Financial Statements, “Stockholders' Equity.”

Carver Federal is among the largest African-American operated banks in the United States. The Bank remains dedicated to expanding wealth-enhancing opportunities in the communities it serves by increasing access to capital and other financial services for consumers, businesses and non-profit organizations, including faith-based institutions. A measure of its progress in achieving this goal includes the Bank's seventh consecutive "Outstanding" rating, issued by the OCC following its most recent Community Reinvestment Act (“CRA”) examination in June 2025. The OCC found that the majority of Carver Federal's loans were made within our assessment area, and the Bank has demonstrated excellent responsiveness to its assessment area's needs through its community development lending, investing and service activities. The Bank had approximately $713.6$697.9 million in assets and 10596 employees as of JuneSeptember 30, 2025.

The Company's subsidiary, Carver Statutory Trust I (the "Trust"), is not consolidated with Carver Bancorp Inc. for financial reporting purposes in accordance with the FASB's ASC Topic 810 regarding the consolidation of variable interest entities. The Trust was formed in 2003 for the purpose of issuing $13 million aggregate liquidation amount of floating rate Capital Securities due September 17, 2033 (“Capital Securities”) and $0.4 million of common securities (which are the only voting securities of the Trust), which are 100% owned by Carver Bancorp Inc., and using the proceeds to acquire junior subordinated debentures issued by Carver Bancorp, Inc. Carver Bancorp, Inc. has fully and unconditionally guaranteed the Capital Securities along with all obligations of the Trust under the trust agreement relating to the Capital Securities. The Company does not consolidate the accounts and related activity of Carver Statutory Trust I because it is not the primary beneficiary of the entity. At JuneSeptember 30, 2025, the Company's maximum exposure to the Trust is $13.7$14.0 million, which is the Company's liability to the Trust and includes the Company's investment in the Trust.

The ACL reflects management's evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is significant judgment applied in estimating the ACL. These assumptions and estimates are susceptible to significant changes based on the current environment. InflationaryInflation pressureremains appearssomewhat toelevated have decreased, butand rates remain high and affect customer demand. The target interest rate range had been held steady at its highest point between 5.25% and 5.5% since July 2023, until the Federal Reserve lowered rates by 50 basis points in September 2024, decreasing the target range to 4.75% to 5% and began easing monetary policy for the first time in four years. The Federal Reserve approved two additionalinterest rate cuts in NovemberSeptember and DecemberOctober 2024,2025, lowering the overnight borrowing rate to a range betweenof 4.25%3.75% to 4.5%,4%, butthe haslowest leftin interestthree rates unchanged since its July 2025 meeting.years. A high interest rate environment can negatively impact the Company if the higher debt service costs on adjustable-rate loans lead to borrowers' inability to pay contractual obligations. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ACL even though there may not be a decline in credit quality or an increase in potential problem loans. As such, there can never be assurance that the ACL accurately reflects the actual loss potential inherent in a loan portfolio. There have been no significant changes to the inputs and assumptions during the threesix months ended JuneSeptember 30, 2025.

Expected credit losses are measured on a collective pool basis when similar risk characteristics exist. Loans with similar risk characteristics are grouped into homogeneous segments, or pools, for allowance calculation. The Company's loan portfolio segments as of JuneSeptember 30, 2025 were as follows:

On August 6, 2002, the Company announced a stock repurchase program to repurchase up to 15,442 shares of its outstanding common stock. As of JuneSeptember 30, 2025, 11,744 shares of its common stock have been repurchased in open market transactions at an average price of $235.80 per share (as adjusted for 1-for-15 reverse stock split that occurred on October 27, 2011).

Management believes Carver Federal’s short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements, including interest payments on our subordinated debt securities.requirements. Additionally, Carver Federal has other sources of liquidity including the ability to borrow from the Federal Home Loan Bank of New York (“FHLB-NY”) and the Federal Reserve Bank of New York ("FRBNY") utilizing unpledged mortgage-backed securities and certain mortgage loans, the sale of available-for-sale securities and the sale of certain mortgage loans. Net borrowings increased $1.1$7.3 million, or 5.4%,36.1%, to $21.3$27.5 million at JuneSeptember 30, 2025, compared to $20.2 million at March 31, 2025. During the first quarter of the current fiscal year, the Bank repaid a $1.8 million 12-month fixed-rate advance that had been secured through the second round of the FHLB-NY 0% Development Advance (ZDA) Program,Program. whichThe ZDA Program provides FHLB-NY members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. The Bank secured two new 12-month fixed-rate ZDA advances totaling $4.1 million during the six months ended September 30, 2025. In addition, the Bank secured a new $2.9$5.0 million 12-month fixed-rate ZDAovernight advance on JuneSeptember 30, 2025.2025 for liquidity purposes. At JuneSeptember 30, 2025, outstanding advances from the FHLB-NY totaled $2.9$9.1 million. At JuneSeptember 30, 2025, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $24.6$16.6 million on a secured basis, utilizing mortgage-related loans and securities as collateral. The Bank has the ability to pledge additional loans as collateral in order to borrow up to 30% of its total assets. In addition, the Bank had $23.3 million of collateralized borrowing capacity at the FRB discount window with no amounts outstanding as of September 30, 2025. The Company also had $13.4 million in subordinated debt securities and $5.0 million in low interest loans outstanding as of JuneSeptember 30, 2025.

During fiscal year 2025, the Company entered into an agreement with a third party, under which the third party provided the Company with a $25.0 million revolving unsecured long-term, below-market-rate loan to support the Bank in financing initiatives that reduce greenhouse gas emissions and promote energy efficiency in building projects, fleet upgrades to electric vehicles, and electric vehicle charging station infrastructure. The loan facility will also support the working capital and asset-specific financing needs of Minority and Women-owned Business Enterprises working on green energy projects, weatherization, electrification, and green technology. As of JuneSeptember 30, 2025, the Company has not drawn on the facility.

The Bank's most liquid assets are cash and short-term investments. The level of these assets is dependent on the Bank's operating, investing and financing activities during any given period. At JuneSeptember 30, 2025 and March 31, 2025, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $43.8$40.7 million and $50.3 million, respectively.

The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During the threesix months ended JuneSeptember 30, 2025, total cash and cash equivalents decreased $6.5$9.6 million to $43.8$40.7 million at JuneSeptember 30, 2025, compared to $50.3 million at March 31, 2025, reflecting cash used in operating activities of $0.2$1.8 million and cash used in financing activities of $15.2$28.9 million, partially offset by cash provided by investing activities of $9.0$21.2 million. Net cash used in financing activities of $15.2$28.9 million resulted from a net decrease in deposits of $16.3$36.2 million, partially offset by an increase of $1.1$7.3 million in long-termnet borrowings.FHLB-NY advances. Certificates of deposit decreased in the current period primarily due to thea renewal$38.0 ofmillion decrease in brokered deposits that were renewed at lesser amounts. Net cash provided by investing activities of $9.0$21.2 million was attributable to investment paydowns and loan repayments and payoffs, net of purchases and originations.

Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. In common with all U.S. banks, Carver Federal’s capital adequacy is measured in accordance with the Basel III regulatory framework governing capital adequacy, stress testing, and market liquidity risk. Carver was issued an Individual Minimum Capital Ratio (“IMCR”) letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier 1 leverage ratio and 12% for its total risk-based capital ratio. At JuneSeptember 30, 2025, the Bank's capital level exceeded the regulatory requirements to be considered "well capitalized" but did not meet its IMCR requirements. The Tier 1 leverage ratio was 8.82%,8.70%, below the 9% IMCR requirement, and the total risk-based capital ratio was 11.58%,11.44%, below the 12% IMCR requirement. The Bank is working on taking appropriate actions with the goal of achieving the IMCR targets.

The table below presents the capital position of the Bank at JuneSeptember 30, 2025:

Management has established a representation and warranty reserve for losses associated with the repurchase of mortgage loans sold by the Bank to FNMA that we consider to be both probable and reasonably estimable. These reserves are reported in the consolidated statement of financial condition as a component of other liabilities. The table below summarizes changes in our representation and warranty reserves during the threesix months ended JuneSeptember 30, 2025:

Comparison of Financial Condition at JuneSeptember 30, 2025 and March 31, 2025

At JuneSeptember 30, 2025, total assets were $713.6$697.9 million, reflecting a decrease of $16.4$32.1 million, or 2.2%,4.4%, from total assets of $730.0 million at March 31, 2025. The decrease was primarily attributable to decreases of $6.5$9.6 million in cash and cash equivalents and $8.4$20.5 million in the Bank's net loan portfolio.

Total cash and cash equivalents decreased $6.5$9.6 million, or 12.9%,19.1%, from $50.3 million at March 31, 2025 to $43.8$40.7 million at JuneSeptember 30, 2025. The decrease in cash was primarily due to a $16.3$36.2 million decrease in total deposits, partially offset by net loan activity of $8.3$20.3 million and a net increase in advances from FHLB-NY of $7.3 million.

Total investment securities decreased $0.8$0.6 million, or 1.7%,1.3%, to $45.5$45.7 million at JuneSeptember 30, 2025, compared to $46.3 million at March 31, 2025 due to scheduled principal payments received of approximately $0.8$1.4 million.million, partially offset by a $0.9 million decrease in unrealized losses in the available-for-sale portfolio.

Gross portfolio loans decreased $8.4$20.8 million, or 1.4%,3.4%, to $605.3$592.9 million at JuneSeptember 30, 2025, compared to $613.7 million at March 31, 2025. The decrease was primarily due to attrition and payoffs of $22.7$40.5 million, partially offset by new loan originations of $10.9 million and loan pool purchases of $3.5$19.2 million. The level of payoffs and paydowns can be attributed to commercial real estate activity, as some borrowers capitalized on increased property values by selling collateral assets to payoff loans.

Total liabilities decreased $15.3$29.4 million, or 2.2%,4.2%, to $685.1$671.0 million at JuneSeptember 30, 2025, compared to $700.4 million at March 31, 2025, primarily due to a decrease of $16.3$36.2 million in total deposits, partially offset by an increase of $1.1$7.3 million in advances from the FHLB-NY and other borrowed money.

Deposits decreased $16.3$36.2 million, or 2.5%,5.5%, to $645.5$625.6 million at JuneSeptember 30, 2025, compared to $661.8 million at March 31, 2025. The decrease was primarily related to decreasesa $39.8 million decrease in certificatecertificates of depositdeposit, andpartially interest-bearingoffset businessby checkinga and$4.2 million increase in money market accounts. CertificatesBrokered of depositCDs decreased $38.0 million in the current period dueas to the renewal of brokeredmaturing deposits were renewed at lesser amounts.

Advances from the FHLB-NY and other borrowed money increased $1.1$7.3 million, or 5.4%,36.1%, to $21.3$27.5 million at JuneSeptember 30, 2025, compared to $20.2 million at March 31, 2025. During the first quarter of the current fiscal year, the Bank repaid a $1.8 million 12-month fixed-rate advance that had been secured through the second round of the FHLB-NY 0% Development Advance (ZDA) Program,Program. whichThe ZDA Program provides FHLB-NY members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. The Bank secured atwo new $2.9 million 12-month fixed-rate ZDA advances totaling $4.1 million during the current fiscal year. In addition, the Bank secured a $5.0 million overnight advance from the FHLB-NY on JuneSeptember 30, 2025.2025 for liquidity purposes.

Total equity decreased $1.1$2.7 million, or 3.7%,9.1%, to $28.5$26.9 million at JuneSeptember 30, 2025, compared to $29.6 million at March 31, 2025. The decrease was due to a net loss of $1.2$3.6 million, partially offset by a decrease of $0.2$0.9 million in unrealized losses on securities available-for-sale for the threesix month period ended JuneSeptember 30, 2025.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and in connection with its overall investment strategy. These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk. In accordance with GAAP, these instruments are not recorded in the consolidated financial statements. Such instruments primarily include lending obligations, including commitments to originate mortgage and consumer loans and to fund unused lines of credit. At JuneSeptember 30, 2025, the Company had $4.2 million in outstanding commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the consolidated statements of condition when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless such commitments are unconditionally cancellable, through the provision for credit losses expense. The allowance for credit losses on off-balance sheet credit exposures as of JuneSeptember 30, 2025 was $13$14 thousand and is included in Other Liabilities in the consolidated statements of financial condition.

Comparison of Operating Results for the Three and Six Months Ended JuneSeptember 30, 2025 and 2024

The Company reported a net loss of $1.2$2.4 million for the three months ended JuneSeptember 30, 2025, compared to a net loss of $2.2$2.1 million for the comparable prior year quarter. For the six months ended September 30, 2025, the Company reported a net loss of $3.6 million, compared to a net loss of $4.3 million for the prior year period. The change in our results was primarily drivendue to a decrease in net interest income and increase in non-interest expense, partially offset by an increase in non-interest income, partially offset by decreases in interest expenseincome and provisionrecoveries forof credit losses compared to the prior year period.periods.

The following table reflects selected operating ratios for the three and six months ended JuneSeptember 30, 2025 and 2024 (unaudited):

The Company’s profitability is primarily dependent upon net interest income and is also affected by the provision for credit losses, non-interest income, non-interest expense and income taxes. Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned and paid. The Company’s net interest income is significantly impacted by changes in interest rate and market yield curves. Net interest income increaseddecreased $0.1$0.9 million, or 1.8%,15.0%, to $5.6$5.1 million for the three months ended JuneSeptember 30, 2025, compared to $5.5$6.0 million for the same quarter last year. TheNet increaseinterest wasincome primarilydecreased attributable$0.7 million, or 6.1%, to a $0.1$10.8 million decreasefor inthe interestsix expense.months ended September 30, 2025, compared to $11.5 million for the prior year period.

The following table sets forth certain information relating to the Company’s average interest-earning assets and average interest-bearing liabilities, and their related average yields and costs for the three and six months ended JuneSeptember 30, 2025 and 2024. Average yields are derived by dividing annualized income or expense by the average balances of assets or liabilities, respectively, for the periods shown. Average balances are derived from daily or month-end balances as available and applicable. Management does not believe that the use of average monthly balances instead of average daily balances represents a material difference in information presented. The average balance of loans includes loans on which the Company has discontinued accruing interest. The yield includes fees, which are considered adjustment to yield.

Interest income remaineddecreased relatively flat at $9.2$1.2 million for the three and six months ended JuneSeptember 30, 20252025, compared to the prior year period.periods. Interest income on loans increaseddecreased $0.3$0.9 million and $0.6 million for the three and six months ended JuneSeptember 30, 2025, respectively, due to ana increase$26.0 million, or 4.2%, and $19.5 million, or 3.1% decrease in average loan balances, coupled with a decrease in the average yield on the portfolio of 3539 and 2 basis points.points for the two comparative periods, respectively. Interest income on mortgage-backed and investment securities werewas lower due to decreases in average balances and yields compared to the prior year quarter.periods. Interest income on money market investments decreased $0.3$0.2 million and $0.5 million for the three and six months ended JuneSeptember 30, 20252025, respectively, due to a 124 basis point decrease in the average rateinterest andrates $12.3combined with a $9.0 million decrease in the average balance ofon deposit in the Bank's interest-bearing account at the Federal Reserve Bank.

Interest expense decreased $0.1$0.4 million, or 2.7%10.5% to $3.6$3.4 million for the three months ended JuneSeptember 30, 2025, compared to $3.7$3.8 million for the prior year quarter. For the six months ended September 30, 2025, interest expense decreased $0.5 million, or 6.7% to $7.0 million, compared to $7.5 million for the prior year period. Interest expense on deposits increased $0.2$0.1 million, or 1.6%, to $6.4 million for the threesix months ended JuneSeptember 30, 2025.2025, compared to $6.3 million for the prior year period. While the average yieldsrates on interest-bearing checking accounts and certificates of deposit decreased, the average rates on savings and money market accounts for the three month period were higher compared to the prior year period,year, as the Bank offered promotional rates in an attempt to attract and retain deposits. Interest expense on advances and other borrowed money decreased $0.3 million and $0.6 million for the three and six months ended JuneSeptember 30, 20252025, respectively, primarily due to adecreases $27.6of $25.4 million decreaseand $26.5 million in the average balances of outstanding FHLB-NY advances.advances compared to the prior year periods, respectively.

The following table summarizes the activity in the ACL for the threesix months ended JuneSeptember 30, 2025 and 2024 and the fiscal year ended March 31, 2025:

The Company recorded a $26$15 thousand recovery of credit losslosses for the three months ended JuneSeptember 30, 2025, compared to a $260$461 thousand provision for credit losslosses for the prior year quarter. Net recoveriescharge-offs of $10$177 thousand were recognized during the firstsecond quarter, compared to net charge-offs of $176$174 thousand for the prior year quarter. For the six months ended September 30, 2025, the Company recorded a $41 thousand recovery of credit losses, compared to a $721 thousand provision for credit losses for the prior year period. Net charge-offs of $167 thousand were recognized during the six months ended September 30, 2025, compared to net charge-offs of $350 thousand in the prior year quarter.period.

At JuneSeptember 30, 2025, nonaccrual loans totaled $24.5$26.7 million, or 3.43%3.82% of total assets, compared to $24.6 million, or 3.37% of total assets at March 31, 2025. The ACL was $6.3$6.1 million at JuneSeptember 30, 2025, which represents a ratio of the ACL to nonaccrual loans of 25.84%22.97% compared to a ratio of 25.77% at March 31, 2025. The ratio of the ACL to total loans was 1.04%1.03% at JuneSeptember 30, 2025,2025 compared to 1.03% atand March 31, 2025.

In certain circumstances, the Bank may agree to modify the contractual terms of a borrower’s loan, including 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 such modifications are to a borrower experiencing financial difficulty, the loan is placed on nonaccrual status until the Bank 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. At JuneSeptember 30, 2025, modified loans to a borrower experiencing financial difficulty totaled $6.1$1.4 million, of which $5.7$0.9 million were classified as performing.

At JuneSeptember 30, 2025, non-performing assets totaled $24.5$26.7 million, or 3.43%3.83% of total assets compared to $24.6 million, or 3.38% of total assets at March 31, 2025. The following table sets forth information with respect to the Bank’s non-performing assets at the dates indicated:

In the past, the Bank originated or purchased a limited amount of subprime loans (which are defined by the Bank as those loans where the borrowers have FICO scores of 660 or less at origination). At JuneSeptember 30, 2025, the Bank had $2.6 million in subprime loans, or 0.4% of its total loan portfolio, of which $0.7 million are non-performing loans.

Non-interest income increased $0.6 million, or 85.7%,100.0%, to $1.3$1.2 million for the three months ended JuneSeptember 30, 2025, compared to $0.7$0.6 million for the prior year quarterquarter. For the six months ended September 30, 2025, non-interest income increased $1.2 million, or 92.3%, to $2.5 million, compared to $1.3 million for the prior year period. The increase for both periods was due to increases inhigher depository and loan fees and revenue from the Bank's participation in JPMorgan Chase's Empowering Change program.program compared to the prior year periods.

Non-interest expense remainedincreased relatively$0.6 flatmillion, ator $8.17.3%, to $8.8 million for the three months ended JuneSeptember 30, 20252025, compared to $8.2 million for the prior year quarter. EmployeeFor compensationthe six months ended September 30, 2025, non-interest expense increased $0.5 million, or 3.0%, to $16.9 million, compared to $16.4 million for the prior year period. Consulting fees related to services provided for strategic planning and FDIC premiums were higher compared to the prior year period, partially offset by reduced data processing and othernet non-interestoccupancy expense.costs related to building expenses.