LOANS RECEIVABLE AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The loans receivable portfolio is segmented into One-to-Four Family, Multifamily Mortgage, Commercial Real-Estate, Construction, Business, Small Business Administration & Consumer and Other Loans.

The Allowance for Loan and Lease Losses (“ALLL”) reflects management’s judgment in the evaluation of probable loan losses inherent in the portfolio at the balance sheet date. Management uses a disciplined process and methodology to calculate the ALLL each quarter. To determine the total ALLL, management estimates the reserves needed for each segment of the loan portfolio, including loans analyzed individually and loans analyzed on a pooled basis.

The General Allowance for Pass rated loans and Criticized and Classified loans is determined in accordance with ASC Topic 450 whereby management evaluates the risk of loss potential of pools of loans which are segmented by loan type and then by risk rating. The loan types include; i) One-to-Four family mortgages, ii) Multifamily, iii) Commercial Real Estate, iv) Construction, v) Business, vi) Small Business Administration, and vii) Consumer and other loans.

To determine the balance of the ALLL, management evaluates the risk of potential loss to these pools of pass rated or criticized and classified loans, which are risk rated special mention, substandard or doubtful. This analysis is based upon a review of 10 different factors that are then applied to the pools of loans. The first factor utilized is actual historical loss experience by loan type expressed as a percentage of the average outstanding of all loans within the loan type over the prior four quarters. Because actual loss experience alone may not adequately predict the level of losses embedded in a portfolio, management also reviews nine qualitative factors to determine if reserves should be increased based upon any of those factors. These nine factors are reviewed and analyzed for each loan type and each risk rating. The lower the risk rating, the greater the risk for potential loss.

The Specific Allowance for Classified loans is determined in accordance with ASC Topic 310 which is the primary basis for individually determining if a loan is impaired, and if impaired, valuing the impairment amount of specific loans whose collectability is questionable. The standard requires the use of one of the following three approved methods to estimate the amount to be reserved and/or charged off: i) the present value of expected future cash flow discounted at the loan’s effective interest rate, ii) the loan’s observable market price, or iii) the fair value of the collateral if the loan is collateral dependent.

Classified loans with at risk balances of $1 million or more are identified and reviewed for individual evaluation for impairment. Carver also performs an impairment analysis on all trouble debt restructurings (“TDRs”). If it is determined that it is probable the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement, the loan is impaired. If the loan is determined not to be impaired, it is then placed in the appropriate pool of Classified loans to be evaluated for potential losses. The impaired loans are then evaluated to determine the measure of impairment amount based on one of the three measurement methods noted above. If it is determined that there is an impairment amount, the Bank then determines whether the impairment amount is permanent, in which case the loan balance is written down, or if it is other than permanent, the Bank establishes a specific valuation reserve that is included in the total ALLL. Also, in accordance with guidance, if there is no impairment amount, no reserve is established for the loan.

From time to time, events or economic factors may affect the loan portfolio, causing management to provide additional amounts or release balances from the ALLL. The ALLL is sensitive to risk ratings assigned to individually evaluated loans and economic assumptions and delinquency trends. Individual loan risk ratings are evaluated based on the specific facts related to that loan. Additions to the ALLL are made by charges to the provision for loan losses. Credit exposures deemed to be uncollectible are charged against the ALLL, while recoveries of previously charged off amounts are credited to the ALLL.

The following is a summary of loans receivable, net of allowance for loan losses at June 30, 2011 and March 31, 2011 (dollars in thousands).



	June 30, 2011					March 31, 2011
	Amount			Percent		Amount			Percent
Gross loans receivable: ⁽¹⁾
One- to four-family	$	81,462		14.43	%	$	82,061		14	%
Multifamily	121,628			21.55	%	123,791			21	%
Commerical real estate	241,697			42.81	%	252,991			43	%
Construction	68,291			12.10	%	78,055			13	%
Business	50,141			8.88	%	53,248			9	%
Consumer and other ⁽²⁾	1,297			0.23	%	1,349			—	%
Total loans receivable	564,516			100.00	%	591,495			100.00	%
Add:
Premium on loans	116					120
Less:
Deferred fees and loan discounts	(2,414		)			(2,107		)
Allowance for loan losses	(23,764		)			(23,147		)
Total loans receivable, net	538,454					566,361


(1)	Includes loans held for sale of $14.1 million, $2.1 million and $1.9 million in the multifamily, commercial real estate and construction loan portfolios respectively, at June 30, 2011.

Includes $9.2 million loans held for sale in the multifamily loan portfolio at March 31, 2011.


(2)	Includes personal, credit card, and home improvement.

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 the market conditions in this area.

The following is an analysis of the allowance for loan losses and loans receivable as of and for the three month period ended June 30, 2011 (in thousands).



	One-to-four family Residential		Multi-Family Mortgage	Commercial Real Estate	Construction	Business		Consumer and Other		Total
Allowance for loan losses:
Beginning Balance	2,923		6,223	3,999	6,944	2,965		93		23,147
Charge-offs:	20		2,408	19	2,124	—		—		4,571
Recoveries:	—		—	2	—	16		—		18
Provision for Loan Losses	(77	)	3,684	733	1,210	(372	)	(8	)	5,170
Ending Balance	2,826		7,499	4,715	6,030	2,609		85		23,764
Ending Balance: collectively evaluated for impairment	2,220		6,516	3,903	4,250	2,468		85		19,442
Ending Balance: individually evaluated for impairment	606		983	812	1,780	141		—		4,322
Loan Receivables Ending Balance:	81,394		107,376	238,079	66,368	49,636		1,297		544,150
Ending Balance: collectively evaluated for impairment	70,110		100,383	227,614	34,026	43,582		1,297		477,012
Ending Balance: individually evaluated for impairment	11,284		6,993	10,465	32,342	6,054		—		67,138

The following is an analysis of the allowance for loan losses as of and for the three month period ended June 30, 2010 (in thousands).



	One-to-four family Residential			Multi-Family Mortgage			Commercial Real Estate			Construction			Business			Consumer and Other		Unallocated	Total
Allowance for loan losses:

Beginning Balance	$	1,094		$	1,566		$	2,613		$	4,059		$	2,208		$	60	400	$	12,000
Charge-offs:	539			—			134			1,154			871			—		—	2,698
Recoveries:	—						—			—			4			5			9
Provision for Loan Losses	(916		)	(634		)	(181		)	(3,814		)	(1,118		)	22		400	(6,241		)

Ending Balance	$	1,471		$	2,200		$	2,660		$	6,719		$	2,459		$	43		$	15,552

The following is an analysis of the loan receivables as of March 31, 2011 (in thousands).



	One-to-four family Residential	Multi-Family Mortgage	Commercial Real Estate	Construction	Business	Consumer and Other	Total
Ending Balance: collectively evaluated for impairment	2,316	5,510	3,840	4,379	2,832	93	18,970
Ending Balance: individually evaluated for impairment	607	713	159	2,565	133	—	4,177

Loan Receivables Ending Balance :	81,988	123,571	242,317	78,017	53,060	1,350	580,303

Ending Balance: collectively evaluated for impairment	70,679	116,064	233,697	41,454	46,789	1,350	510,033
Ending Balance: individually evaluated for impairment	11,309	7,507	8,620	36,563	6,271	—	70,270

The following is a summary of non-performing loans at June 30, and March 31, 2011 (in thousands).



	June 30, 2011		March 31, 2011
Loans accounted for on a non-accrual basis:
Gross loans receivable:
One- to four-family	$	16,421	$	15,993
Multifamily	9,307		6,786
Commercial real estate	25,893		10,078
Construction	54,425		37,218
Business	9,159		7,289
Consumer	22		42
Total non-accrual loans	115,227		77,406

Non-performing loans totaled $115.2 million at June 30, 2011 versus $77.4 million at March 31, 2011. Non-performing loans at June 30, 2011, were comprised of $84.5 million of loans 90 days or more past due and non-accruing, $9.8 million of loans that are either performing or less than 90 days past due and have been deemed to be impaired and $20.9 million of loans classified as a troubled debt restructuring and either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months.

Non-performing loans at March 31, 2011, were comprised of $48.8 million of loans 90 days or more past due and non-accruing, $4.9 million of loans that are either performing or less than 90 days past due and have been deemed to be impaired and $23.8 million of loans classified as a troubled debt restructuring and either not consistently performing in accordance with their modified terms or not performing in accordance with their modified terms for at least six months.

The Bank utilizes an internal loan classification system as a means of reporting problem loans within its loans 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 a 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 institution'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 and loans past maturity. All other One-to-Four Family Residential Loans and Consumer and Other Loans are performing loans.

As of June 30, 2011, and based on the most recent analysis performed, the risk category by class of loans is as follows (in thousands):



	Multi-Family Mortgage		Commercial Real Estate		Construction		Business
Credit Risk Profile by Internally Assigned Grade:
Pass	97,940		187,037		4,440		34,095
Special Mention	1,669		14,183		18,103		4,102
Substandard	775		26,394		11,482		5,297
Doubtful	—		—		—		88
Total	$	100,384	$	227,614	$	34,025	$	43,582



	One-to-four family Residential		Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	64,973		1,275
Non-Performing	16,421		22
Total	$	81,394	$	1,297

As of March 31, 2011, and based on the most recent analysis performed, the risk category by class of loans is as follows (in thousands):



	Multi-Family Mortgage	Commercial Real Estate	Construction	Business
Credit Risk Profile by Internally Assigned Grade:
Pass	110,837	199,581	—	39,017
Special Mention	2,126	8,726	25,105	3,857
Substandard	3,101	25,099	16,349	3,787
Doubtful	—	291	—	128
Total	116,064	233,697	41,454	46,789


	One-to-four family Residential	Consumer and Other
Credit Risk Profile Based on Payment Activity:
Performing	65,995	1,308
Non-Performing	15,993	42
Total	81,988	1,350

The following table presents an aging analysis of the recorded investment of past due financing receivable as of June 30, 2011. Also included are loans that are 90 days or more past due as to interest and principal and still accruing because they are well-secured and in the process of collection (in thousands).



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Impaired ⁽¹⁾		TDR ⁽²⁾		Current		Total Financing Receivables
One-to-four family residential	—		1,855		5,314		7,169		—		11,107		63,118		$	81,394
Multi-family mortgage	—		868		5,833		6,701		3,276		198		97,201		107,376
Commercial real estate	—		1,659		18,932		20,591		439		6,521		210,528		238,079
Construction	—		—		47,201		47,201		4,998		2,226		11,943		66,368
Business	—		2,600		7,213		9,813		1,099		848		37,876		49,636
Consumer and other	6		15		22		43		—				1,254		1,297
Total	$	6	$	6,997	$	84,515	$	91,518	$	9,812	$	20,900	$	421,920	$	544,150


(1)	Consists of loans which are less than 90 days past due but impaired due to other risk characteristics.


(2)	$0.4 million is a TDR loan that has performed in accordance with its modified terms for at least six months and is considered performing. $20.5 million have not performed in accordance with their modified terms for more than six months and are considered non performing.

The following table presents an aging analysis of the recorded investment of past due financing receivable as of March 31, 2011. Also included are loans that are 90 days or more past due as to interest and principal and still accruing because they are well-secured and in the process of collection (in thousands).



	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days	Total Past Due	Impaired ⁽¹⁾	TDR ⁽²⁾	Current	Total Financing Receivables
One-to-four family residential	$	4,852	$	601	4,859	10,312	—	11,134	60,542	81,988
Multi-family mortgage	6,866		—		5,452	12,318	1,135	200	109,918	123,571
Commercial real estate	12,360		5,457		3,095	20,912	442	6,541	214,422	242,317
Construction	19,509		—		32,158	51,667	923	4,137	21,290	78,017
Business	7,981		117		3,175	11,273	2,362	1,752	37,673	53,060
Consumer and other	15		37		42	94	—	—	1,256	1,350
Total	51,583		6,212		48,781	106,576	4,862	23,764	445,101	580,303

⁽¹⁾ Consists of loans which are less than 90 days past due but impaired due to other risk characteristics.
⁽²⁾ $0.4 million are TDR loans that have performed in accordance with their modified terms for at least six months and are
are considered performing.
$23.9 million have not performed in accordance with their modified terms for more than six months and are considered non performing. Currently they are represented in the following TDR categories:
$17.6 million loans are non accrual as they are not performing in accordance with their modified terms
$5.8 million are 30-59 days past due.
$0.5 million loans are 60-89 days past due.

The following table presents the recorded investment and unpaid principal balances for impaired loans and TDR loans ($20.9 million) with the associated allowance amount, if applicable. 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

As of and for the three month period ended June 30, 2011

(In thousands)



	Recorded Investment	Unpaid Principal Balance	Associated Allowance	Average Balance	Interest income recognized
With no specific allowance recorded:
One-to-four family residential	3,816	3,933		3,855	23
Multi-family mortgage	198	198		2,488	12
Commercial real estate	5,265	5,265		10,695	4
Construction	19,692	22,655		20,641	325
Business	4,434	4,434		4,569	72
Consumer and other	—	—		—	—
Total	33,405	36,485		42,248	436

With an allowance recorded:
One-to-four family residential	7,468	8,140	606	7,434	34
Multi-family mortgage	6,794	7,924	983	7,304	65
Commercial real estate	5,200	5,665	812	5,215	35
Construction	12,650	17,337	1,780	14,013	—
Business	1,620	1,830	141	1,688	8
Consumer and other	—	—
Total	33,732	40,896	4,322	35,654	142


One-to-four family residential	11,284	12,073	606	11,289	57
Multi-family mortgage	6,992	8,122	983	9,792	77
Commercial real estate	10,465	10,930	812	15,910	39
Construction	32,342	39,992	1,780	34,654	325
Business	6,054	6,264	141	6,257	80
Consumer and other	—	—	—	—	—
Total	67,137	77,381	4,322	77,902	578



	Impaired Loans by Class
	As of March 31, 2011
	(In thousands)

	Recorded Investment	Unpaid Principal Balance	Associated Allowance
With no specific allowance recorded:
One-to-four family residential	3,752	3,869
Multi-family mortgage	814	844
Commercial real estate	5,266	5,266
Construction	12,567	14,602
Business	4,651	4,651
Consumer and other	—	—
Total	27,050	29,232

With an allowance recorded:
One-to-four family residential	7,557	8,209	607
Multi-family mortgage	6,693	7,108	713
Commercial real estate	3,354	3,800	159
Construction	23,996	27,486	2,565
Business	1,620	1,830	133
Consumer and other	—	—
Total	43,220	48,433	4,177

One-to-four family residential	11,309	12,078	607
Multi-family mortgage	7,507	7,922	713
Commercial real estate	8,620	9,066	159
Construction	36,563	42,088	2,565
Business	6,271	6,481	133
Consumer and other	—	—
Total	70,270	77,635	4,177