Carver Bancorp(CARV) - 2025 Q4 - Annual Report

Part I Item 1. Business Carver Bancorp, Inc. operates Carver Federal Savings Bank, a community-focused institution with $730.0 million in assets, specializing in real estate and business loans, now under an OCC formal agreement for performance improvement Overview Carver Federal Savings Bank, with $730.0 million in assets and 109 employees, serves NYC's low-to-moderate-income communities and is implementing a new OCC-mandated strategic plan - Carver Federal Savings Bank is one of the largest African-American operated banks in the U.S., with $730.0 million in assets and 109 employees as of March 31, 2025[18] - The bank received its sixth consecutive "Outstanding" rating from the OCC for its Community Reinvestment Act (CRA) examination in March 2022, with 90% of its loans made within its assessment area[18] - On May 14, 2025, the Bank entered into a formal agreement with the OCC, requiring it to establish a Compliance Committee, prepare a new three-year strategic plan focusing on earnings performance, and develop an earnings improvement program[31][38] - The company's human capital resources as of March 31, 2025, consisted of 109 employees, of which approximately 47% were female and 86% were minorities[34] Lending Activities The Bank's loan portfolio, primarily commercial real estate, multifamily, and business loans, decreased 1.5% to $613.7 million, with originations significantly slowing in fiscal 2025 Loan Portfolio Composition (at March 31) | Loan Type | 2025 Amount ($M) | 2025 % of Total | 2024 Amount ($M) | 2024 % of Total | | :--- | :--- | :--- | :--- | :--- | | One-to-four family | $74.4 | 12.1% | $82.8 | 13.3% | | Multifamily | $165.8 | 27.0% | $177.2 | 28.4% | | Commercial real estate | $178.3 | 29.1% | $175.4 | 28.2% | | Business | $165.0 | 26.9% | $169.6 | 27.2% | | Construction | $4.6 | 0.7% | $2.2 | 0.4% | | Consumer | $25.7 | 4.2% | $15.7 | 2.5% | | Total Gross Loans | $613.7 | 100.0% | $622.9 | 100.0% | - Total loans receivable decreased by $9.2 million, or 1.5%, from $622.9 million at March 31, 2024, to $613.7 million at March 31, 2025[43] - Loan originations and purchases significantly decreased to $54.4 million in fiscal 2025 from $93.2 million in fiscal 2024 and $126.2 million in fiscal 2023[72] Asset Quality Asset quality deteriorated in fiscal 2025, with non-performing assets more than doubling to $24.6 million and ACL coverage of nonaccrual loans significantly decreasing Non-Performing Assets (at March 31) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Total nonaccrual loans ($M) | $24.6 | $11.8 | | Total non-performing assets ($M) | $24.6 | $11.8 | | Nonaccrual loans to total loans | 4.01% | 1.89% | | Non-performing assets to total assets | 3.38% | 1.56% | - Total non-performing assets increased by $12.8 million to $24.6 million at March 31, 2025, primarily due to a $12.8 million increase in nonaccrual loans[80] Allowance for Credit Losses (ACL) Analysis | Metric | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Beginning Balance ($M) | $5.9 | $5.2 | | Provision for losses ($M) | $1.2 | $0.1 | | Net charge-offs ($M) | ($0.7) | ($0.1) | | Ending Balance ($M) | $6.3 | $5.9 | | ACL to total loans | 1.03% | 0.94% | | ACL to nonaccrual loans | 25.77% | 49.86% | Investment Activities The Bank's $46.3 million investment portfolio, primarily AFS, holds $12.0 million in unrealized losses due to interest rates, not credit issues - At March 31, 2025, the investment portfolio consisted of $44.5 million in available-for-sale securities and $1.8 million in held-to-maturity securities[91] - The available-for-sale portfolio carried an unrealized loss of $12.0 million ($11,958 thousand gross), which management attributes to the interest rate environment rather than credit issues[95][366] - Mortgage-backed securities, primarily from government-sponsored enterprises, constituted 3.4% of total assets at March 31, 2025[92] Sources of Funds Deposits are the primary funding source, supplemented by FHLB-NY borrowings and trust preferred securities, with $55.0 million in brokered deposits and $90.0 million in CDARS reciprocal deposits - As of March 31, 2025, the Bank held $55.0 million in brokered deposits and $90.0 million in reciprocal deposits through the CDARS network[99][100] - The Company has $13.4 million in junior subordinated debt securities related to its trust preferred securities, deferring the June 17, 2025, interest payment to manage liquidity[102] - The Bank is authorized to use advances from the FHLB-NY, secured by its FHLB-NY stock and a pledge of its mortgage loan and securities portfolios[101] Regulation and Supervision The Bank is under a May 2025 OCC Formal Agreement, requiring a new strategic plan and compliance committee, and did not meet its higher IMCRs of 9% Tier 1 leverage and 12% total risk-based capital - On May 14, 2025, the Bank entered into a Formal Agreement with the OCC requiring a new three-year strategic plan focused on earnings, capital, and liquidity, and the establishment of a board Compliance Committee[104][108] - The Bank is subject to an Individual Minimum Capital Ratio (IMCR) requiring a 9% Tier 1 leverage ratio and a 12% total risk-based capital ratio, which it did not meet as of March 31, 2025, with ratios of 8.70% and 11.56%, respectively[119][173] - The Company and Bank are subject to restrictions requiring prior written approval from the Federal Reserve Bank for dividends, increases in debt, and stock redemptions[105] - The Bank maintained its Qualified Thrift Lender (QTL) status, with approximately 97% of its portfolio assets in qualified thrift investments as of March 31, 2025[128] Federal and State Taxation The Company files consolidated federal and combined New York State/City tax returns, with net deferred tax assets fully offset by a valuation allowance due to past losses - The Company files a consolidated federal income tax return and combined returns for New York State and New York City taxes[160][163][164] - The 2017 Tax Cuts and Jobs Act led to a remeasurement of the Company's net deferred tax assets, resulting in a $3.1 million reduction, fully offset by a corresponding decrease in the valuation allowance[163] Item 1A. Risk Factors The Company faces significant risks from concentrated commercial real estate loans, regulatory non-compliance with OCC IMCRs, New York City economic dependency, interest rate sensitivity, and operational threats - Lending Risk: A significant portion of the loan portfolio consists of commercial real estate loans ($178.3 million, or 29.1%), which have a higher risk of default[167] - Regulatory Risk: Failure to comply with the May 2025 Formal Agreement with the OCC could lead to further enforcement actions, and the Bank did not meet its higher IMCR requirements as of March 31, 2025[170][173] - Economic Risk: The company's results are highly dependent on the economic conditions of the New York metropolitan area due to its geographic concentration of loans[179] - Interest Rate Risk: The company is liability-sensitive, meaning its liabilities re-price faster than its assets, negatively impacting net interest margin in a rising rate environment[181] - Operational Risk: The company faces risks from potential failures in internal controls, liquidity shortfalls, and cybersecurity threats that could disrupt operations and cause financial loss[187][189][193] Item 1B. Unresolved Staff Comments No unresolved staff comments are reported - Not Applicable[207] Item 1C. Cybersecurity The Company maintains a comprehensive cybersecurity program, overseen by the Board, which has not yet experienced a material incident, though risks remain - The company has an integrated cybersecurity program to protect sensitive information, but acknowledges that no incident to date has had a material impact on its financial condition or operations[208] - Risk management oversight is provided by the Board of Directors and the Information Security Planning Committee (ISPC), which receives monthly reports and reviews major technology policies and business continuity plans at least annually[209] Item 2. Properties The Bank operates through one administrative office and seven leased branches in New York City, with leases expiring between December 2025 and December 2028 Branch and Office Locations | Type | Address | City/State | Lease Expiration | | :--- | :--- | :--- | :--- | | Main Branch | 75 West 125th Street | New York, NY | Feb 2028 | | Crown Heights Branch | 1009-1015 Nostrand Avenue | Brooklyn, NY | Dec 2025 | | St. Albans Branch | 115-02 Merrick Boulevard | Jamaica, NY | Feb 2026 | | Malcolm X Blvd. Branch | 142 Malcolm X Boulevard | New York, NY | Apr 2026 | | Atlantic Terminal Branch | 4 Hanson Place | Brooklyn, NY | Apr 2029 | | Flatbush Branch | 833 Flatbush Avenue | Brooklyn, NY | Aug 2027 | | Restoration Plaza | 1392 Fulton Street | Brooklyn, NY | Oct 2025 | | Administrative Office | 1825 Park Avenue | New York, NY | Dec 2028 | Item 3. Legal Proceedings The Company is involved in routine legal proceedings, none of which are expected to materially impact its financial condition or operations - The Company is not involved in any pending legal proceedings, other than routine matters in the ordinary course of business, that are expected to have a material impact[213] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not Applicable[214] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities CARV common stock trades on NASDAQ, with 5,283,564 shares outstanding; no cash dividends are currently paid, and a private placement of 116,766 shares occurred in November 2024 - The Company's common stock (CARV) is traded on the NASDAQ Capital Market, with 5,283,564 shares outstanding as of March 31, 2025[216] - The Company does not currently pay a quarterly cash dividend, and payments are restricted by OCC and FRB regulations[217][218] - In November 2024, the Company sold 116,766 shares of common stock to certain directors in a private placement, raising gross proceeds of $0.2 million[223] Item 6. [Reserved] This item is reserved Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company reported a $13.7 million net loss in fiscal 2025, driven by decreased net interest income, lower non-interest income, and increased expenses, with total assets declining to $730.0 million and equity falling 30.0% Executive Summary Carver reported a $13.7 million net loss in fiscal 2025, exacerbated by high interest rates and a challenging New York City economy, leading to a new OCC-mandated strategic plan - Net loss for fiscal 2025 was $13.7 million, a significant increase from the $3.0 million loss in fiscal 2024[225] - The business climate remains challenging due to high interest rates and slower economic growth in New York City, which has an unemployment rate of 5.1%, exceeding the national average[226] - A Formal Agreement was entered into with the OCC on May 14, 2025, mandating a new three-year strategic plan to improve and sustain the Bank's earnings[228][231] Comparison of Financial Condition Total assets decreased 3.5% to $730.0 million, gross loans fell 1.5% to $613.7 million, and total equity declined 30.0% to $29.6 million due to the net loss - Total assets decreased by $26.8 million (3.5%) to $730.0 million at March 31, 2025[259] - Gross loans decreased by $9.2 million (1.5%) to $613.7 million, as payoffs of $63.3 million outpaced $54.5 million in originations and purchases[262] - Total deposits increased by $14.8 million (2.3%) to $661.8 million, while advances from FHLB-NY and other borrowings decreased by $26.3 million (56.6%)[263][264][266] - Total equity decreased by $12.7 million (30.0%) to $29.6 million, mainly due to a net loss of $13.7 million[267] Comparison of Operating Results The net loss widened to $13.7 million in fiscal 2025, driven by a 15.0% decrease in net interest income, a 53.7% drop in non-interest income, and an 8.1% increase in non-interest expense - Net interest income decreased by $3.4 million (15.0%) to $19.2 million, as interest expense on deposits rose by $3.9 million due to higher rates and balances in certificates of deposit[269][271] - The provision for credit loss was $1.2 million, compared to $83 thousand in the prior year, reflecting deteriorating credit quality as nonaccrual loans increased[272] - Non-interest income decreased by $3.6 million (53.7%) to $3.1 million, primarily because the prior year included $2.4 million in grant income from the CDFI Fund's Equitable Recovery Program[274] - Non-interest expense increased by $2.6 million (8.1%) to $34.8 million, due to higher costs for employee compensation, occupancy, equipment, and legal fees[275] Liquidity and Capital Resources The company maintains liquidity with $50.3 million in cash, $30.4 million FHLB-NY borrowing capacity, and an undrawn $25.0 million green energy revolving loan facility - Cash and cash equivalents decreased by $8.7 million to $50.3 million in fiscal 2025[280][283] - The Bank has an additional borrowing capacity of $30.4 million from the FHLB-NY and an undrawn $25.0 million revolving loan facility for green energy financing[278][279] - A reserve of $80 thousand is maintained for potential mortgage representation and warranty liabilities from loans sold to FNMA between 2004 and 2009[285] - As of March 31, 2025, the Bank had $4.4 million in outstanding off-balance sheet commitments to extend credit[287] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, with analysis detailed in Item 7 - The discussion of market risk is located within Item 7 of the report[292] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal years 2025 and 2024, including an unqualified auditor's opinion and detailed notes Report of Independent Registered Public Accounting Firm BDO USA, P.C. issued an unqualified opinion on the financial statements, identifying the Allowance for Credit Losses (ACL) as a critical audit matter due to significant management judgment - The auditor issued an unqualified opinion on the consolidated financial statements for the years ended March 31, 2025, and 2024[293] - The Allowance for Credit Losses (ACL) was identified as a Critical Audit Matter, highlighting the significant management judgment involved in determining the economic condition factor[297][299] Consolidated Statements of Financial Condition Total assets decreased to $730.0 million and total equity declined to $29.6 million as of March 31, 2025, reflecting changes in financial position Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $50,315 | $59,025 | | Total loans receivable, net | $607,347 | $617,007 | | Total investment securities | $46,272 | $50,038 | | Total Assets | $729,991 | $756,796 | | Liabilities & Equity | | | | Total deposits | $661,837 | $646,999 | | Borrowed money | $20,243 | $46,536 | | Total Liabilities | $700,413 | $714,487 | | Total Equity | $29,578 | $42,309 | Consolidated Statements of Operations The company reported a net loss of $13.7 million in fiscal 2025, an increase from $3.0 million in 2024, due to reduced net interest income and higher expenses Consolidated Income Statement Highlights (in thousands) | Account | FY 2025 | FY 2024 | | :--- | :--- | :--- | | Net interest income | $19,151 | $22,561 | | Provision for credit losses | $1,191 | $83 | | Non-interest income | $3,086 | $6,723 | | Non-interest expense | $34,790 | $32,178 | | Net Loss | ($13,744) | ($2,977) | | Basic Loss Per Share | ($2.65) | ($0.61) | Notes to Consolidated Financial Statements These notes detail accounting policies, investment securities, loan portfolio, deposits, borrowings, equity, regulatory capital, and commitments, providing crucial financial context - Note 2 (Accounting Policies): The Allowance for Credit Losses (ACL) is a critical accounting estimate based on historical experience, current conditions, and reasonable forecasts, using a discounted cash flow (DCF) methodology for most loan pools[335] - Note 4 (Loans): Details the loan portfolio breakdown, showing a decrease in total loans to $613.7 million, and provides extensive tables on credit quality, nonaccrual loans, and past-due loans, highlighting a significant increase in non-performing and substandard loans in FY2025[372][376][386] - Note 9 (Borrowings): FHLB advances decreased to $1.8 million from $28.0 million, while subordinated debt securities remained at $13.4 million, with the company deferring the June 2025 interest payment[403][405] - Note 12 (Equity & Capital): The Bank's capital levels exceeded the minimum regulatory requirements to be considered "well capitalized" but did not meet its higher Individual Minimum Capital Ratio (IMCR) requirements as of March 31, 2025[426][428] - Note 21 (Subsequent Events): Reinforces the details of the May 14, 2025 Formal Agreement with the OCC, requiring a new three-year strategic plan to improve earnings[476] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - None[478] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of March 31, 2025, with no material changes in Q4 fiscal 2025 - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025[481] - Based on the COSO framework, management determined that internal control over financial reporting was effective as of March 31, 2025[483] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of fiscal 2025[485] Item 9B. Other Information No directors or executive officers adopted or terminated Rule 10b5-1 trading plans during the fourth quarter of fiscal 2025 - No directors or executive officers adopted or terminated Rule 10b5-1 trading plans in the fourth quarter of fiscal 2025[486] Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the Company - Not Applicable[487] Part III Item 10. Directors, Executive Officers of the Registrant and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the Company's 2024 Proxy Statement - Information is incorporated by reference from the company's Proxy Statement[488][489] Item 11. Executive Compensation Executive and director compensation information is incorporated by reference from the Company's definitive proxy statement - Information is incorporated by reference from the company's Proxy Statement[490] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership details for beneficial owners and management are incorporated by reference from the Company's definitive proxy statement - Information is incorporated by reference from the company's Proxy Statement[491] Item 13. Certain Relationships and Related Transactions and Director Independence Information on related party transactions and director independence is incorporated by reference from the Company's definitive proxy statement - Information is incorporated by reference from the company's Proxy Statement[492] Item 14. Principal Accountant Fees and Services Information on principal accountant fees and services from BDO USA, P.C. is incorporated by reference from the Company's definitive proxy statement - Information is incorporated by reference from the company's Proxy Statement[493] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists documents filed with the Form 10-K, including consolidated financial statements from Item 8, and refers to the Exhibit Index - This section lists the consolidated financial statements included in Item 8 and refers to the Exhibit Index for all other required filings[495][497] Item 16. Form 10-K Summary No summary is provided under this item - None[496]