CARVER BANCORP INC

Previous wording

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 sixth consecutive "Outstanding" rating, issued by the OCC following its most recent Community Reinvestment Act (“CRA”) examination in March 2022. The OCC found that 90% 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 $746.5 million in assets and 110 employees as of June 30, 2024.

Current wording

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 sixth consecutive "Outstanding" rating, issued by the OCC following its most recent Community Reinvestment Act (“CRA”) examination in March 2022. The OCC found that 90% 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 $748.8 million in assets and 108 employees as of September 30, 2024.

Previous wording

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. In a continued effort to combat inflation, the Federal Reserve approved the 11th interest rate hike in July 2023, raising the overnight borrowing rate 25 basis points to a target range of 5.25% to 5.5%, the highest it has been in 22 years. Interest rates were held steady at the July 2024 meeting, although the Federal Reserve may begin cutting rates later this year. 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.

Current wording

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. Inflationary pressure has started to decrease, but rates remain high. 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. 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 six months ended September 30, 2024.

Previous wording

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 increased $1.8 million, or 3.9%, to $48.3 million at June 30, 2024, compared to $46.5 million at March 31, 2024. The Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, which provides members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. At June 30, 2024, the Bank had $29.8 million outstanding advances from the FHLB-NY. At June 30, 2024, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $1.9 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. The Company also had $13.4 million in subordinated debt securities and $5.0 million in low interest loans outstanding as of June 30, 2024.

Current wording

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 $8.2 million, or 17.6%, to $38.3 million at September 30, 2024, compared to $46.5 million at March 31, 2024. During the first quarter of the current fiscal year, the Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, which provides members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. In addition, the Bank made a partial paydown of $10.0 million on a $25.0 million 2-year advance from the FHLB-NY during the current quarter. At September 30, 2024, the Bank had $19.8 million outstanding advances from the FHLB-NY. At September 30, 2024, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow an additional $12.5 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. The Company also had $13.4 million in subordinated debt securities and $5.0 million in low interest loans outstanding as of September 30, 2024.

Previous wording

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 June 30, 2024 and March 31, 2024, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $46.3 million and $59.0 million, respectively.

Current wording

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 September 30, 2024 and March 31, 2024, assets qualifying for short-term liquidity, including cash and cash equivalents, totaled $54.5 million and $59.0 million, respectively.

Previous wording

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 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 agent. There were no additional offerings during fiscal years 2023, 2024 and the three months ended June 30, 2024.

Current wording

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 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 agent. There have been no subsequent offerings.

Previous wording

The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During the three months ended June 30, 2024, total cash and cash equivalents decreased $12.7 million to $46.3 million at June 30, 2024, compared to $59.0 million at March 31, 2024, reflecting cash used in financing activities of $6.7 million, cash used in investing activities of $3.6 million and cash used in operating activities of $2.3 million. Net cash used in financing activities of $6.7 million resulted from a net decrease in deposits of $8.5 million, partially offset by a $1.8 million increase in long-term borrowings. Certificates of deposit decreased $6.6 million, primarily due to an $8.5 million decrease in brokered deposits from the maturity of DTC brokered CDs that had been secured during fiscal year 2024 to ensure the availability of sufficient liquidity for projected loan closings. In addition, the Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program. Net cash used in investing activities of $3.6 million was attributable to loan purchases and originations, net of repayments and payoffs, partially offset by investment paydowns.

Current wording

The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During the six months ended September 30, 2024, total cash and cash equivalents decreased $4.5 million to $54.5 million at September 30, 2024, compared to $59.0 million at March 31, 2024, reflecting cash used in operating activities of $5.4 million and cash used in financing activities of $4.4 million, partially offset by cash provided by investing activities of $5.3 million. Net cash used in financing activities of $4.4 million resulted from a net decrease of $8.2 million in long-term borrowings, partially offset by a $3.8 million net increase in deposits. The Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, and made a partial paydown of $10.0 million on a $25.0 million 2-year advance from the FHLB-NY. Net cash provided by investing activities of $5.3 million was attributable to investment paydowns and loan repayments and payoffs, net of purchases and originations.

Previous wording

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 Federal, as a result of the Formal Agreement, 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 Tier1 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.

Current wording

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 Federal, as a result of the Formal Agreement, 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. The Formal Agreement was terminated on January 18, 2023. The IMCR remains in effect.

Previous wording

On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions. As a result of the Agreement, Carver was issued an IMCR letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier1 leverage ratio and 12% for its total risk-based capital ratio. The Bank was released from the Agreement on January 18, 2023. The IMCR remains in effect. At June 30, 2024, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage capital ratio of 9.53%, Common Equity Tier 1 capital ratio of 11.67%, Tier 1 risk-based capital ratio of 11.67%, and a total risk-based capital ratio of 12.66%.

Current wording

On May 24, 2016, the Bank entered into a Formal Agreement ("the Agreement") with the OCC to undertake certain compliance-related and other actions. As a result of the Agreement, Carver was issued an IMCR letter by the OCC, which requires the Bank to maintain minimum regulatory capital levels of 9% for its Tier1 leverage ratio and 12% for its total risk-based capital ratio. The Bank was released from the Agreement on January 18, 2023. The IMCR remains in effect. At September 30, 2024, the Bank's capital level exceeded the regulatory requirements and its IMCR requirements with a Tier 1 leverage capital ratio of 9.48%, Common Equity Tier 1 capital ratio of 11.74%, Tier 1 risk-based capital ratio of 11.74%, and a total risk-based capital ratio of 12.78%.

Previous wording

Company must provide notice to the FRB prior to effecting any change in its directors or senior executive officers. The Company is also subject to the restrictions on golden parachute and indemnification payments, as set forth in 12 C.F.R. Part 359. Written approval of the Federal Reserve Bank is required prior to: (1) the declaration or payment of dividends by the Company to its stockholders, (2) the declaration or payment of dividends by the Bank to the Company, (3) any distributions of interest or principal by the Company on subordinated debentures or trust preferred securities, (4) any purchases or redemptions of the Company’s stock and (5) the Company incurring, increasing or guaranteeing certain long-term debt outside the ordinary course of business. These limitations could affect our operations and financial performance.

Current wording

The Company continues to be subject to similar requirements that the Bank was subject to under the Agreement. The Company must provide notice to the FRB prior to effecting any change in its directors or senior executive officers. The Company is also subject to the restrictions on golden parachute and indemnification payments, as set forth in 12 C.F.R. Part 359. Written approval of the Federal Reserve Bank is required prior to: (1) the declaration or payment of dividends by the Company to its stockholders, (2) the declaration or payment of dividends by the Bank to the Company, (3) any distributions of interest or principal by the Company on subordinated debentures or trust preferred securities, (4) any purchases or redemptions of the Company’s stock and (5) the Company incurring, increasing or guaranteeing certain long-term debt outside the ordinary course of business. These limitations could affect our operations and financial performance.

Previous wording

During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”). The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities ("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 June 30, 2024, the Bank continues to service 74 loans with a principal balance of $11.2 million for FNMA that had been sold with standard representations and warranties.

Current wording

During the period 2004 through 2009, the Bank originated 1-4 family residential mortgage loans and sold the loans to the Federal National Mortgage Association (“FNMA”). The loans were sold to FNMA with the standard representations and warranties for loans sold to the Government Sponsored Entities ("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 September 30, 2024, the Bank continues to service 71 loans with a principal balance of $10.8 million for FNMA that had been sold with standard representations and warranties.

Previous wording

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 three months ended June 30, 2024:

Current wording

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 six months ended September 30, 2024:

Previous wording

At June 30, 2024, total assets were $746.5 million, reflecting a decrease of $10.3 million, or 1.4%, from total assets of $756.8 million at March 31, 2024. The decrease was primarily attributable to decreases of $12.7 million in cash and cash equivalents and $1.1 million in the Bank's investment portfolio, partially offset by an increase of $3.9 million in the Bank's net loan portfolio.

Current wording

At September 30, 2024, total assets were $748.8 million, reflecting a decrease of $8.0 million, or 1.1%, from total assets of $756.8 million at March 31, 2024. The decrease was primarily attributable to decreases of $4.5 million in cash and cash equivalents and $4.0 million in the Bank's net loan portfolio.

Previous wording

Total cash and cash equivalents decreased $12.7 million, or 21.5%, from $59.0 million at March 31, 2024 to $46.3 million at June 30, 2024. The decrease in cash was primarily due to a decrease in total deposits and increase in net loan activity, partially offset by paydowns received on investment securities and an increase in advances from the FHLB-NY and other borrowed money.

Current wording

Total cash and cash equivalents decreased $4.5 million, or 7.6%, from $59.0 million at March 31, 2024 to $54.5 million at September 30, 2024. The decrease in cash was primarily due to a $8.2 million decrease in advances from the FHLB-NY and other borrowed money, partially offset by a $3.8 million increase in total deposits.

Previous wording

Total investment securities decreased $1.1 million, or 2.2%, to $48.9 million at June 30, 2024, compared to $50.0 million at March 31, 2024 due to scheduled principal payments received of approximately $0.8 million and a $0.3 million increase in unrealized losses in the available-for-sale portfolio.

Current wording

Total investment securities remained flat at $50.0 million at September 30, 2024 compared to March 31, 2024 due to scheduled principal payments received of approximately $1.8 million and a $1.9 million decrease in unrealized losses in the available-for-sale portfolio.

Previous wording

Gross portfolio loans increased $4.0 million, or 0.6%, to $626.9 million at June 30, 2024, compared to $622.9 million at March 31, 2024, primarily due to new loan originations of $14.9 million and loan pool purchases of $1.2 million. These were partially offset by attrition and payoffs of $11.7 million. The level of payoffs can be attributed to borrowers continuing to sell commercial real estate, although now at a slower pace, in order to lock in values, as well as paydowns on lines of credit for borrowers looking for opportunities to reduce interest expense in the current rate environment.

Current wording

Gross portfolio loans decreased $3.7 million, or 0.6%, to $619.2 million at September 30, 2024, compared to $622.9 million at March 31, 2024, primarily due to attrition and payoffs of $30.1 million. The level of payoffs and paydowns can be attributed to commercial real estate, as some borrowers continue to look for opportunities to reduce interest expense in the current rate environment. These were partially offset by new loan originations of $24.5 million and loan pool purchases of $2.5 million.

Previous wording

Total liabilities decreased $7.9 million, or 1.1%, to $706.6 million at June 30, 2024, compared to $714.5 million at March 31, 2024, primarily due to a decrease in total deposits, partially offset by an increase in advances from the FHLB-NY and other borrowed money.

Current wording

Total liabilities decreased $5.6 million, or 0.8%, to $708.9 million at September 30, 2024, compared to $714.5 million at March 31, 2024, primarily due to a decrease in advances from the FHLB-NY and other borrowed money of $8.2 million, partially offset by an increase in total deposits of $3.8 million.

Previous wording

Deposits decreased $8.5 million, or 1.3%, to $638.5 million at June 30, 2024, compared to $647.0 million at March 31, 2024. The decrease was primarily related to decreases in certificate of deposit, savings and interest-bearing business checking accounts. Certificates of deposit decreased in the current period due to the renewal of brokered deposits at lesser amounts.

Current wording

Deposits increased $3.8 million, or 0.6%, to $650.8 million at September 30, 2024, compared to $647.0 million at March 31, 2024. The increase was primarily related to an increase in certificate of deposit accounts of $15.7 million, partially offset by decreases in savings, money market and interest-bearing business checking accounts of $5.5 million, $4.8 million and $1.6 million, respectively.

Previous wording

Advances from the FHLB-NY and other borrowed money increased $1.8 million, or 3.9%, to $48.3 million at June 30, 2024, compared to $46.5 million at March 31, 2024. The Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, which provides members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. At June 30, 2024, the Bank had $29.8 million outstanding advances from the FHLB-NY.

Current wording

Advances from the FHLB-NY and other borrowed money decreased $8.2 million, or 17.6%, to $38.3 million at September 30, 2024, compared to $46.5 million at March 31, 2024. During the first quarter of the current fiscal year, the Bank secured a $1.8 million 12-month fixed-rate advance through the second round of the FHLB-NY 0% Development Advance (ZDA) Program, which provides members with subsidized funding in the form of interest rate credits to assist in originating or purchasing loans that meet an eligibility criteria. In addition, the Bank made a partial paydown of $10.0 million on a $25.0 million 2-year advance from the FHLB-NY during the current quarter. At September 30, 2024, the Bank had $19.8 million outstanding advances from the FHLB-NY.

Previous wording

Total equity decreased $2.4 million, or 5.7%, to $39.9 million at June 30, 2024, compared to $42.3 million at March 31, 2024. The decrease was due to a net loss of $2.2 million, coupled with an increase of $0.3 million in unrealized losses on securities available-for-sale for the three month period ended June 30, 2024.

Current wording

Total equity decreased $2.4 million, or 5.7%, to $39.9 million at September 30, 2024, compared to $42.3 million at March 31, 2024. The decrease was due to a net loss of $4.3 million for the six month period ended September 30, 2024, partially offset by a decrease of $1.9 million in unrealized losses on securities available-for-sale.

Previous wording

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 June 30, 2024, the Company had $5.5 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 June 30, 2024 was $12 thousand and is included in Other Liabilities in the consolidated statements of financial condition.

Current wording

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 September 30, 2024, the Company had $5.7 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 September 30, 2024 was $13 thousand and is included in Other Liabilities in the consolidated statements of financial condition.

Previous wording

Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023

Current wording

Comparison of Operating Results for the Three and Six Months Ended September 30, 2024 and 2023

Previous wording

The Company reported net loss of $2.2 million for the three months ended June 30, 2024, compared to a net loss of $1.4 million for the comparable prior year quarter. The change in our results was primarily driven by increases in interest expense, non-interest expense and provision for credit losses, partially offset by an increase in interest income compared to the prior year period.

Current wording

The Company reported a net loss of $2.1 million for the three months ended September 30, 2024, compared to a net loss of $1.6 million for the comparable prior year quarter. The change in our results was primarily due to increases in interest expense and provision for credit losses and a decrease in non-interest income, partially offset by an increase in interest income and decrease in non-interest expense compared to the prior year quarter. For the six months ended September 30, 2024, the Company reported a net loss of $4.3 million, compared to a net loss of $3.0 million for the prior year period. The increase in net loss was primarily driven by increases in interest expense, non-interest expense and provision for credit losses and a decrease in non-interest income, partially offset by an increase in interest income compared to the prior year period.

Previous wording

The following table reflects selected operating ratios for the three months ended June 30, 2024 and 2023 (unaudited):

Current wording

The following table reflects selected operating ratios for the three and six months ended September 30, 2024 and 2023 (unaudited):

Previous wording

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 remained flat at $5.5 million for the three months ended June 30, 2024, compared to the same quarter last year.

Current wording

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 increased $0.6 million, or 11.1%, to $6.0 million for the three months ended September 30, 2024, compared to $5.4 million for the same quarter last year. Net interest income increased $0.6 million, or 5.5%, to $11.5 million for the six months ended September 30, 2024, compared to $10.9 million for the prior year period.

Previous wording

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 months ended June 30, 2024 and 2023. 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.

Current wording

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 September 30, 2024 and 2023. 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.

Previous wording

Interest income increased $1.4 million, or 17.9%, to $9.2 million for the three months ended June 30, 2024, compared to $7.8 million for the prior year quarter. Interest income on loans increased $1.3 million, or 19.1%, for the three months ended June 30, 2024, primarily due to an increase in the average yield on the portfolio of 61 basis points, coupled with a $27.2 million, or 4.6%, increase in average loan balances for the current period. Interest income on money market investments increased $0.2 million, or 40.0%, for the three months ended June 30, 2024, due to an increase in average interest rates on the Bank's interest-bearing account at the Federal Reserve Bank, combined with an $8.9 million increase in the average balance on deposit.

Current wording

Interest income increased $1.8 million, or 22.5%, to $9.8 million for the three months ended September 30, 2024, compared to $8.0 million for the prior year quarter. For the six months ended September 30, 2024, interest income increased $3.2 million, or 20.3%, to $19.0 million, compared to $15.8 million for the prior year period. Interest income on loans increased $1.6 million and $2.9 million for the three and six months ended September 30, 2024, respectively, primarily due to an increase in the average yield on the portfolio of 91 and 76 basis points, respectively, coupled with a $20.1 million, or 3.3%, and $23.6 million, or 3.9% increase in average loan balances for the two comparative periods, respectively. Interest income on money market investments increased $0.1 million and $0.3 million for the three and six months ended September 30, 2024, respectively, due to an increase in average interest rates on the Bank's interest-bearing account at the Federal Reserve Bank, combined with a $9.0 million increase in the average balance on deposit.

Previous wording

Interest expense increased $1.4 million, or 60.9% to $3.7 million for the three months ended June 30, 2024, compared to $2.3 million for the prior year quarter. The higher interest rate environment is reflected in the average cost of interest-bearing deposits for the current period. Interest expense on deposits increased $1.4 million for the three months ended June 30, 2024, primarily due to an increase in the average balance of higher-cost certificate of deposits as well as increases in the average rates paid on interest-bearing checking, savings and money market accounts.

Current wording

Interest expense increased $1.2 million, or 46.2% to $3.8 million for the three months ended September 30, 2024, compared to $2.6 million for the prior year quarter. For the six months ended September 30, 2024, interest expense increased $2.6 million, or 53.1% to $7.5 million, compared to $4.9 million for the prior year period. The higher interest rate environment is reflected in the average cost of interest-bearing deposits for the current period. Interest expense on deposits increased $1.2 million and $2.6 million, respectively, for the three and six months ended September 30, 2024, primarily due to increases in the average balances of $39.1 million and $37.8 million, respectively, and average rates of 106 and 124 basis points, respectively of higher-cost certificate of deposits. The average rates paid on savings and money market accounts also increased for the three and six months ended September 30, 2024, compared to the prior year periods.

Previous wording

The following table summarizes the activity in the ACL for the three months ended June 30, 2024 and 2023 and the fiscal year ended March 31, 2024:

Current wording

The following table summarizes the activity in the ACL for the six months ended September 30, 2024 and 2023 and the fiscal year ended March 31, 2024:

Previous wording

At June 30, 2024, nonaccrual loans totaled $10.3 million, or 1.4% of total assets, compared to $11.8 million, or 1.6% of total assets at March 31, 2024. The ACL was $6.0 million at June 30, 2024, which represents a ratio of the ACL to nonaccrual loans of 57.8% compared to a ratio of 49.9% at March 31, 2024. The ratio of the ACL to total loans was 0.95% at June 30, 2024, compared to 0.94% at March 31, 2024.

Current wording

At September 30, 2024, nonaccrual loans totaled $17.1 million, or 2.3% of total assets, compared to $11.8 million, or 1.6% of total assets at March 31, 2024. The ACL was $6.2 million at September 30, 2024, which represents a ratio of the ACL to nonaccrual loans of 36.4% compared to a ratio of 49.9% at March 31, 2024. The ratio of the ACL to total loans was 1.01% at September 30, 2024, compared to 0.94% at March 31, 2024.

Previous wording

The Bank may from time to time agree to modify the contractual terms of a borrower’s loan. In cases where such modifications represent a concession 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 June 30, 2024, modified loans to a borrower experiencing financial difficulty totaled $6.4 million, of which $5.7 million were classified as performing.

Current wording

The Bank may from time to time agree to modify the contractual terms of a borrower’s loan. In cases where such modifications represent a concession 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 September 30, 2024, modified loans to a borrower experiencing financial difficulty totaled $6.0 million, of which $5.7 million were classified as performing.

Previous wording

At June 30, 2024, non-performing assets totaled $10.4 million, or 1.4% of total assets compared to $11.8 million, or 1.6% of total assets at March 31, 2024. The following table sets forth information with respect to the Bank’s non-performing assets at the dates indicated:

Current wording

At September 30, 2024, non-performing assets totaled $17.2 million, or 2.3% of total assets compared to $11.8 million, or 1.6% of total assets at March 31, 2024. The following table sets forth information with respect to the Bank’s non-performing assets at the dates indicated:

Previous wording

Non-interest expense increased $0.5 million, or 6.5%, to $8.2 million for the three months ended June 30, 2024, compared to $7.7 million for the prior year quarter. Employee compensation and benefits increased compared to the prior year period due to merit increases and recruiting fees. Net equipment expense was higher due to upgraded cybersecurity systems and the implementation of service contracts for new consumer loan and deposit products. Other non-interest expense increased due to higher legal expense compared to the prior year period.

Current wording

Non-interest expense decreased $0.1 million, or 1.2%, to $8.2 million for the three months ended September 30, 2024, compared to $8.3 million for the prior year quarter. For the six months ended September 30, 2024, non-interest expense increased $0.4 million, or 2.5%, to $16.4 million, compared to $16.0 million for the prior year period. Employee compensation and net occupancy costs related to building expenses increased compared to the prior year periods. Net equipment expense was higher due to upgraded cybersecurity systems and the implementation of service contracts for new consumer loan and deposit products. Other non-interest expense decreased due to lower advertising expense and less operating charge-offs compared to the prior year periods.