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, 2016					March 31, 2015
$ in thousands	Amount			%		Amount			%
Gross loans receivable:
One-to-four family	$	141,243		24	%	$	125,549		26	%
Multifamily	94,202			16	%	93,692			19	%
Commercial real estate	272,497			47	%	186,504			39	%
Construction	5,033			1	%	5,107			1	%
Business	71,277			12	%	70,765			15	%
Consumer ⁽¹⁾	42			—	%	434			—	%
Total loans receivable ⁽²⁾	584,294			100	%	482,051			100	%

Unamortized premiums, deferred costs and fees, net	4,725					1,711

Allowance for loan losses	(5,232		)			(4,428		)
Total loans receivable, net	$	583,787				$	479,334

Loans held-for-sale ⁽²⁾	$	2,495				$	2,724

⁽¹⁾Includes personal loans

⁽²⁾ March 31, 2015 balances have been restated from previously reported results for the $701 thousand reclassification of negative escrow balances from Other Assets to Loans Receivable and Loans Held for Sale.

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.

Mortgage loan portfolios 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 $28.1 million, $30.6 million and $33.6 million at March 31, 2016, 2015, and 2014, respectively.

At March 31, 2016 the Bank pledged $38.3 million in total 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, 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	$	143,667	$	95,648	$	273,470	$	5,000		$	71,192		$	42	$	589,019
Ending Balance: collectively evaluated for impairment	139,031		93,879		267,176		5,000			64,326			42		569,454
Ending Balance: individually evaluated for impairment	4,636		1,769		6,294		—			6,866			—		19,565

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, 2015:



$ in thousands	One-to-four family			Multifamily		Commercial Real Estate			Construction		Business			Consumer		Total
Allowance for loan losses:
Beginning Balance	$	3,396		$	422	$	1,835		$	—	$	1,705		$	8	$	7,366
Charge-offs	687			132		—			—		320			498		1,637
Recoveries	380			82		256			—		816			7		1,541
Provision for (Recovery of) Loan Losses	(1,119		)	130		(1,062		)	99		(1,388		)	498		(2,842		)
Ending Balance ⁽¹⁾	$	1,970		$	502	$	1,029		$	99	$	813		$	15	$	4,428

Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	1,683			272		953			99		801			15		3,823
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	287			230		76			—		12			—		605

Loan Receivables Ending Balance ⁽²⁾	$	127,056		$	94,590	$	185,966		$	5,076	$	70,640		$	434	$	483,762
Ending Balance: collectively evaluated for impairment	120,009			93,234		183,345			5,076		65,284			434		467,382
Ending Balance: individually evaluated for impairment	7,047			1,356		2,621			—		5,356			—		16,380

⁽¹⁾March 31, 2015 balances have been restated from previously reported results to correct for certain errors from prior periods.

⁽²⁾ March 31, 2015 balances have been restated from previously reported results for the $701 thousand reclassification of negative escrow balances from Other Assets to Loans Receivable.

The following is an analysis of the allowance for loan losses for the years ended March 31:



$ in thousands	2016		2015 Restated ⁽¹⁾
Balance at beginning of the year	$	4,428	$	7,366
Charge-offs of loans	1,422		1,637
Recoveries of amounts previously charged off	731		1,541
Provision for (recovery of) loan losses	1,495		(2,842		)
Balance at end of the year	$	5,232	$	4,428

⁽¹⁾March 31, 2015 balances have been restated from previously reported results to correct for certain errors from prior periods.

At March 31, 2016 and 2015, the recorded investment in impaired loans was $19.6 million and $16.4 million, respectively. The related allowance for loan losses for these impaired loans was approximately $590 thousand and $605 thousand at March 31, 2016 and 2015, respectively. Interest income of $476 thousand and $585 thousand for fiscal years 2016 and 2015 respectively, would have been recorded on impaired loans had they performed in accordance with their original terms. At March 31, 2016 and 2015, there were no loans that were past due 90 days or more and still accruing.

The following is a summary of nonaccrual loans at March 31, 2016 and 2015.



$ in thousands	March 31, 2016		March 31, 2015
Loans accounted for on a nonaccrual basis:
Gross loans receivable:
One-to-four family	$	2,947	$	3,664
Multifamily	1,769		1,053
Commercial real estate	5,338		2,817
Business	3,896		861
Total nonaccrual loans	$	13,950	$	8,395

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. Nonaccrual loans increased $5.6 million, or 66.2%, to $14.0 million at March 31, 2016 from $8.4 million at March 31, 2015, primarily due to an increase in impaired commercial real estate and business loans during the fiscal year. 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, 2016 were $7.8 million, $2.2 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, 2015, total TDR loans were $8.2 million, of which $3.6 million were non-performing.

At March 31, 2016, other non-performing assets totaled $3.5 million which consisted of other real estate owned ("OREO") properties and held-for-sale loans. At March 31, 2016, other real estate owned valued at $1.0 million comprised of seven foreclosed properties, compared to $4.3 million comprised of ten properties at March 31, 2015. At March 31, 2016, held-for-sale loans totaled $2.5 million, compared to $2.7 million at March 31, 2015.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loan categories. Loans may be classified as "Pass," “Special Mention,” “Substandard,” “Doubtful,” and “Loss.” Loans rated Pass have demonstrated satisfactory asset quality, earning history, liquidity, and other adequate margins of creditor protection. They represent a moderate credit risk and some degree of financial stability. Loans are considered collectible in full, but perhaps require greater than average amount of loan officer attention. Borrowers are capable of absorbing normal setbacks without failure. Loans rated Special Mention have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Bank's credit position at some future date. Loans rated Substandard are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans rated Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, based on currently existing facts, conditions and values, highly questionable and improbable. Loans classified as Loss are those considered uncollectible with insignificant value and are charged off immediately to the allowance for loan losses.

One-to-four family residential loans and consumer and other loans are rated non-performing if they are delinquent in payments ninety or more days, a troubled debt restructuring with less than six months contractual performance or past maturity. All other one-to-four family residential loans and consumer and other loans are performing loans.

As of March 31, 2016, 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	$	93,879	$	262,937	$	5,000	$	61,331
Special Mention	—		4,239		—		2,039
Substandard	1,769		6,294		—		7,822
Doubtful	—		—		—		—
Loss	—		—		—		—
Total	$	95,648	$	273,470	$	5,000	$	71,192

	One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing	$	140,720	$	42
Non-Performing	2,947		—
Total	$	143,667	$	42

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



$ in thousands	Multifamily		Commercial Real Estate		Construction		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	93,102	$	181,455	$	5,076	$	62,460
Special Mention	—		1,890		—		1,065
Substandard	1,488		2,621		—		7,115
Doubtful	—		—		—		—
Loss	—		—		—		—
Total ⁽¹⁾	$	94,590	$	185,966	$	5,076	$	70,640

	One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing	$	123,218	$	434
Non-Performing	3,838		—
Total ⁽¹⁾	$	127,056	$	434

⁽¹⁾ March 31, 2015 balances have been restated from previously reported results for the $701 thousand reclassification of negative escrow balances from Other Assets to Loans Receivable.

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		Total Financing Receivables
One-to-four family	$	986	$	—	$	2,628	$	3,614	$	140,053	$	143,667
Multifamily	—		—		1,769		1,769		93,879		95,648
Commercial real estate	889		3,410		—		4,299		269,171		273,470
Construction	—		—		—		—		5,000		5,000
Business	2,495		307		1,972		4,774		66,418		71,192
Consumer	2		—		—		2		40		42
Total	$	4,372	$	3,717	$	6,369	$	14,458	$	574,561	$	589,019

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



$ in thousands	30-59 Days Past Due		60-89 Days Past Due		90 or More Days Past Due		Total Past Due		Current		Total Financing Receivables ⁽¹⁾
One-to-four family	$	464	$	—	$	3,574	$	4,038	$	123,018	$	127,056
Multifamily	—		434		1,054		1,488		93,102		94,590
Commercial real estate	1,150		936		1,102		3,188		182,778		185,966
Construction	—		—		—		—		5,076		5,076
Business	—		—		123		123		70,517		70,640
Consumer	—		1		—		1		433		434
Total	$	1,614	$	1,371	$	5,853	$	8,838	$	474,924	$	483,762

⁽¹⁾ March 31, 2015 balances have been restated from previously reported results for the $701 thousand reclassification of negative escrow balances from Other Assets to Loans Receivable.

The following tables present information on impaired loans with the associated allowance amount, if applicable, at March 31, 2016 and 2015. 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,
	2016						2015 ⁽¹⁾
$ 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	$	2,909	$	4,101	$	—	$	2,752	$	3,007	$	—
Multifamily	1,769		2,122		—		237		237		—
Commercial real estate	5,405		5,572		—		1,880		1,880		—
Business	4,223		4,403		—		4,568		4,652		—
Consumer	—		—		—		—		—		—

With an allowance recorded:
One-to-four family	1,727		1,727		95		4,295		4,541		287
Multifamily	—		—		—		1,119		1,349		230
Commercial real estate	889		889		21		741		741		76
Business	2,643		2,643		474		788		788		12
Total	$	19,565	$	21,457	$	590	$	16,380	$	17,195	$	605

⁽¹⁾ March 31, 2015 balances have been restated from previously reported results for the $701 thousand reclassification of negative escrow balances from Other Assets to Loans Receivable.

The following table presents information on average balances on impaired loans and the interest income recognized for the years ended March 31, 2016 and 2015.



	For the years ended March 31,
	2016				2015
$ in thousands	Average Balance		Interest Income recognized		Average Balance		Interest Income recognized
With no specific allowance recorded:
One-to-four family	$	2,835	$	17	$	1,669	$	17
Multifamily	1,463		17		222		—
Commercial real estate	2,935		—		1,670		83
Construction	—		—		—		—
Business	3,662		93		3,903		215

With an allowance recorded:
One-to-four family	1,725		25		5,158		104
Multifamily	—		—		1,255		24
Commercial real estate	895		43		—		—
Business	2,340		85		855		18
Total	$	15,855	$	280	$	14,732	$	461

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.

The following table presents an analysis of those loan modifications that were classified as TDRs during the twelve month periods ended March 31, 2016 and March 31, 2015:



	Modifications to loans during the years ended March 31,
	2016									2015
$ in thousands	Number of loans	Pre-modification outstanding recorded investment		Post-Modification Recorded investment		Pre-Modification rate		Post-Modification rate		Number of loans	Pre-modification outstanding recorded investment		Post-Modification Recorded investment		Pre-Modification rate		Post-Modification rate
One-to-four family	2	429		456		4.08	%	4.89	%	1	43		43		12	%	12	%
Commercial real estate	—	—		—		—	%	—	%	1	860		860		6.60	%	6.60	%
Business	—	—		—		—	%	—	%	2	788		788		8.25	%	8.25	%
Total	2	$	429	$	456					4	$	1,691	$	1,691

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 of $429 thousand were modified. For the fiscal year ended March 31, 2015, one commercial real estate loan of $860 thousand, two business loans totaling $788 thousand were extended and one 1-4 family loan of of $43 thousand was modified with interest rate concessions.

There were no loans at March 31, 2016 and March 31, 2015 that had been modified and subsequently defaulted.

For the fiscal year ended March 31, 2016, there were 11 loans in the TDR portfolio totaling $5.6 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, 2015, there were 12 loans in the performing TDR portfolio totaling $4.6 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 $4.4 million at March 31, 2016, and $4.2 million at March 31, 2015. During fiscal year 2016, advances totaled $1.3 million and principal repayments totaled $1.1 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.