LOANS RECEIVABLE, NET

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



	March 31, 2019					March 31, 2018
$ in thousands	Amount			%		Amount			%
Gross loans receivable:
One-to-four family	$	108,363		25.5	%	$	121,233		25.6	%
Multifamily	86,177			20.2	%	103,887			21.9	%
Commercial real estate	130,812			30.7	%	141,835			29.9	%
Construction	—			—	%	—			—	%
Business ⁽¹⁾	96,430			22.7	%	102,004			21.5	%
Consumer ⁽²⁾	4,023			0.9	%	5,238			1.1	%
Total loans receivable	425,805			100.0	%	474,197			100.0	%

Unamortized premiums, deferred costs and fees, net	3,023					3,556

Allowance for loan losses	(4,646		)			(5,126		)
Total loans receivable, net	$	424,182				$	472,627

⁽¹⁾Includes business overdrafts of $79 thousand and $35 thousand as of March 31, 2019 and 2018, respectively

⁽²⁾ Includes consumer overdrafts of $15 thousand and $18 thousand as of March 31, 2019 and 2018, respectively

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

Real estate mortgage loan portfolios (one-to-four family) serviced for Federal National Mortgage Association (“FNMA”) and other third parties are not included in the accompanying consolidated financial statements. The unpaid principal balances of these loans aggregated $19.4 million and $23.1 million at March 31, 2019 and 2018, respectively.

At March 31, 2019 the Bank pledged $38.8 million in total real estate mortgage loans as collateral for advances from the FHLB-NY.

The following is an analysis of the allowance for loan losses based upon the method of evaluating loan impairment for the fiscal year ended March 31, 2019:



$ in thousands	One-to-four family			Multifamily			Commercial Real Estate			Business			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	1,210		$	1,819		$	1,052		$	1,003		$	18		$	24	$	5,126
Charge-offs	(151		)	(164		)	—			(964		)	(19		)	—		(1,298		)
Recoveries	190			158			—			705			35			—		1,088
Provision for (Recovery of) Loan Losses	25			(928		)	(286		)	586			120			213		(270		)
Ending Balance	$	1,274		$	885		$	766		$	1,330		$	154		$	237	$	4,646

Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	$	1,103		$	885		$	766		$	1,312		$	154		$	237	$	4,457
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	171			—			—			18			—			—		189

Loan Receivables Ending Balance	$	109,925		$	86,886		$	131,292		$	96,662		$	4,063		$	—	$	428,828
Ending Balance: collectively evaluated for impairment	104,508			83,672			130,816			93,400			4,063			—		416,459
Ending Balance: individually evaluated for impairment	5,417			3,214			476			3,262			—			—		12,369

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, 2018:



$ in thousands	One-to-four family			Multifamily			Commercial Real Estate			Construction			Business			Consumer			Unallocated		Total
Allowance for loan losses:
Beginning Balance	$	1,663		$	1,213		$	1,496		$	106		$	573		$	9		$	—	$	5,060
Charge-offs	(96		)	(104		)	—			—			(81		)	(33		)	—		(314		)
Recoveries	—			131			20			—			87			7			—		245
Provision for (Recovery of) Loan Losses	(357		)	579			(464		)	(106		)	424			35			24		135
Ending Balance	$	1,210		$	1,819		$	1,052		$	—		$	1,003		$	18		$	24	$	5,126

Allowance for Loan Losses Ending Balance: collectively evaluated for impairment	$	1,065		$	1,744		$	1,052		$	—		$	908		$	18		$	24	$	4,811
Allowance for Loan Losses Ending Balance: individually evaluated for impairment	145			75			—			—			95			—			—		315

Loan Receivables Ending Balance	$	123,092		$	104,865		$	142,304		$	—		$	102,203		$	5,289		$	—	$	477,753
Ending Balance: collectively evaluated for impairment	116,588			103,160			140,765			—			98,914			5,289			—		464,716
Ending Balance: individually evaluated for impairment	6,504			1,705			1,539			—			3,289			—			—		13,037

At March 31, 2019 and 2018, the recorded investment in impaired loans was $12.4 million and $13.0 million, respectively. The related allowance for loan losses for these impaired loans was approximately $189 thousand and $315 thousand at March 31, 2019 and 2018, respectively. Interest income of $122 thousand and $324 thousand for fiscal years 2019 and 2018 respectively, would have been recorded on impaired loans had they performed in accordance with their original terms.

The following is a summary of nonaccrual loans at March 31, 2019 and 2018.



$ in thousands	March 31, 2019		March 31, 2018
Loans accounted for on a nonaccrual basis:
Gross loans receivable:
One-to-four family	$	4,488	$	4,561
Multifamily	3,214		964
Commercial real estate	476		502
Business	2,051		635
Consumer	65		—
Total nonaccrual loans	$	10,294	$	6,662

Nonaccrual loans generally consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments. Interest income on nonaccrual loans is recorded when received based upon the collectability of the loan. TDR loans consist of modified 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, 2019 were $5.4 million, $3.2 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, 2018, total TDR loans were $5.7 million, of which $1.9 million were non-performing.

At March 31, 2019, other non-performing assets totaled $404 thousand which consisted of other real estate owned ("OREO") properties. At March 31, 2019, other real estate owned valued at $404 thousand comprised of four foreclosed properties, compared to $1.1 million comprised of eight properties at March 31, 2018. Other real estate loans is included in other assets in the consolidated statements of financial condition. There were no held-for-sale loans at March 31, 2019 or March 31, 2018.

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, 2019, 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		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	83,672	$	128,319	$	90,337
Special Mention	—		2,497		2,425
Substandard	3,214		476		3,900
Doubtful	—		—		—
Loss	—		—		—
Total	$	86,886	$	131,292	$	96,662

	One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing	$	106,530	$	4,063
Non-Performing	3,395		—
Total	$	109,925	$	4,063

As of March 31, 2018, the risk category by class of loans was as follows:



$ in thousands	Multifamily		Commercial Real Estate		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	$	103,160	$	140,765	$	93,886
Special Mention	—		—		5,028
Substandard	1,705		1,539		3,289
Doubtful	—		—		—
Loss	—		—		—
Total	$	104,865	$	142,304	$	102,203

	One-to-four family		Consumer
Credit Risk Profile Based on Payment Activity:
Performing	$	116,588	$	5,289
Non-Performing	6,504		—
Total	$	123,092	$	5,289

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2019.



$ 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	$	1,827	$	—	$	3,395	$	5,222	$	104,703	$	109,925
Multifamily	2,580		—		2,118		4,698		82,188		86,886
Commercial real estate	121		—		—		121		131,171		131,292
Business	780		—		599		1,379		95,283		96,662
Consumer	87		53		65		205		3,858		4,063
Total	$	5,395	$	53	$	6,177	$	11,625	$	417,203	$	428,828

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2018.



$ 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	$	1,819	$	—	$	4,056	$	5,875	$	117,217	$	123,092
Multifamily	—		—		219		219		104,646		104,865
Commercial real estate	1,395		—		—		1,395		140,909		142,304
Business	973		312		322		1,607		100,596		102,203
Consumer	7		5		—		12		5,277		5,289
Total	$	4,194	$	317	$	4,597	$	9,108	$	468,645	$	477,753

At March 31, 2019 and 2018, there were no loans 90 or more days past due and accruing interest.

The following tables present information on impaired loans with the associated allowance amount, if applicable, at March 31, 2019 and 2018. 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,
	2019						2018
$ 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	$	4,488	$	5,643	$	—	$	5,439	$	6,862	$	—
Multifamily	3,214		3,214		—		964		1,122		—
Commercial real estate	476		476		—		1,539		1,539		—
Business	1,974		2,017		—		611		611		—

With an allowance recorded:
One-to-four family	929		929		171		1,065		1,065		145
Multifamily	—		—		—		741		741		75
Commercial real estate	—		—		—		—		—		—
Business	1,288		1,288		18		2,678		2,681		95
Consumer	—		—		—		—		—		—
Total	$	12,369	$	13,567	$	189	$	13,037	$	14,621	$	315

The following table presents information on average balances on impaired loans and the interest income recognized for the years ended March 31, 2019 and 2018.



	For the years ended March 31,
	2019				2018
$ in thousands	Average Balance		Interest Income recognized		Average Balance		Interest Income recognized
With no specific allowance recorded:
One-to-four family	$	4,964	$	96	$	5,375	$	36
Multifamily	2,089		42		1,340		34
Commercial real estate	1,007		16		2,075		28
Business	1,293		18		827		—

With an allowance recorded:
One-to-four family	997		—		1,078		—
Multifamily	371		—		248		—
Commercial real estate	—		—		541		—
Business	1,983		10		2,358		2
Consumer	—		—		—		—
Total	$	12,704	$	182	$	13,842	$	100

In certain circumstances, loan modifications involve a troubled borrower to whom the Bank may grant a modification. In cases where the Bank grants any significant concessions to a troubled borrower, the Bank accounts for the modification as a TDR under ASC Subtopic 310-40 and the related allowance under ASC Section 310-10-35. Situations around these modifications may include extension of maturity date, reduction in the stated interest rate, rescheduling of future cash flows, reduction in the face amount of the debt or reduction of past accrued interest. Loans modified in TDRs are placed on nonaccrual status until the Company determines that future collection of principal and interest is reasonably assured, which generally requires that the borrower demonstrate performance according to the restructured terms for a period of at least six months. There were three loan modification made during the twelve month period ended March 31, 2019. There was one loan modification during the twelve month period ended March 31, 2018. The following table presents an analysis of those loan modifications that were classified as TDRs during the twelve month periods ended March 31, 2019 and 2018,



	Modifications to loans during the years ended March 31,
	2019									2018
$ 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
Business	3	$	2,776	$	2,776	6.51	%	6.04	%	1	$	285	$	285	7.25	%	7.00	%

In an effort to proactively resolve delinquent loans, Carver has selectively extended to certain borrowers concessions such as extensions, rate reductions or forbearance agreements. For the fiscal years ended March 31, 2019 and 2018, there were no modified loans that defaulted with the last 12 months of modification.

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.

The aggregate amount of loans outstanding to related parties was $80 thousand at March 31, 2019 and $120 thousand at March 31, 2018. During fiscal year 2019, there were no advances and principal repayments totaled $40 thousand.

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.