COMMITMENTS AND CONTINGENCIES

Credit Related Commitments. The Bank 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.

The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies making commitments as it does for on-balance-sheet instruments.

The Bank had outstanding lending commitments and contractual obligations at March 31 as follows:



$ in thousands	2014		2013
Commitments to fund mortgage loans	$	5,750	$	13,709
Commitments to fund commercial and consumer loans	—		8,748
Lines of credit	6,140		3,560
Letters of credit	245		334
	$	12,135	$	26,351

At March 31, 2014, the $5.8 million in outstanding commitments to originate mortgage loans represented commitments to originate multifamily loans.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management's credit evaluation of the counterparty.

Mortgage Representation & Warranty Liabilities

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 (GSE's). 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 following table presents information on open requests from FNMA. The amounts presented are based on outstanding loan principal balances.



$ in thousands	Loans sold to FNMA
Open claims as of March 31, 2013	$	4,851
Gross new demands received	1,071
Loans repurchased/made whole	(2,244		)
Demands rescinded	(1,582		)
Principal payments received on open claims	(21		)
Open claims as of March 31, 2014 ⁽¹⁾	$	2,075


⁽¹⁾	The open claims include all open requests received by the Bank where either FNMA has requested loan files for review, where FNMA has not formally rescinded the repurchase request or where the Bank has not agreed to repurchase the loan. The amounts reflected in this table are the unpaid principal balance and do not incorporate any losses the Bank would incur upon the repurchase of these loans.

The table below summarizes changes in our representation and warranty reserves during fiscal 2014.



$ in thousands	March 31, 2014
Representation and warranty repurchase reserve, as of March 31, 2013 ⁽¹⁾	$	1,125
Net recovery for repurchase losses ⁽²⁾	(773		)
Net realized losses ⁽²⁾	(65		)
Representation and warranty repurchase reserve, as of March 31, 2014 ⁽¹⁾	$	287

⁽¹⁾Reported in consolidated statements of financial condition as a component of other liabilities.

⁽²⁾ Component of other non-interest expense.

Lease Commitments. Rentals under long-term operating leases for certain branches aggregated approximately $1.5 million, $1.8 million and $1.7 million for fiscal years 2014, 2013, and 2012, respectively. As of March 31, 2014, minimum rental commitments under all non-cancelable leases with initial or remaining terms of more than one year and expiring through 2025 follow:



$ in thousands
Year Ending March 31,	Minimum Rental		Sublet Income		Net
2014	$	1,526	$	24	$	1,502
2015	1,558		—		1,558
2016	1,515		—		1,515
2017	1,543		—		1,543
2018	1,130		—		1,130
Thereafter	4,397		—		4,397
	$	11,669	$	24	$	11,645

The Bank also has, in the normal course of business, commitments for services and supplies.

Legal Proceedings. From time to time, the Company and the Bank are parties to various legal proceedings incident to their business. Certain claims, suits, complaints and investigations (collectively “proceedings”) involving the Company and the Bank, arising in the ordinary course of business, have been filed or are pending. The Company is unable at this time to determine the ultimate outcome of each proceeding, but believes, after discussions with legal counsel representing the Company and the Bank in these proceedings, that it has meritorious defenses to each proceeding and the Company and the Bank are taking appropriate measures to defend their interests. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the financial condition or results of operations of the Company or the Bank.

The Bank was a defendant in two lawsuits that were settled: (i) an action brought by a loan participant alleging gross negligence and breach of contract in the manner in which the Bank serviced the loan, and (ii) a lawsuit brought by a former employee alleging unlawful termination. These legal settlements did not have a material impact on the financial condition of the Company.

Other legal actions remain pending. In September 2010, the New York State Department of Labor ("DOL") Unemployment Insurance Division, based on claims for unemployment benefits made by two individuals formerly engaged as independent contractors by the Bank, determined that these two individuals were employees and not independent contractors for Unemployment Insurance purposes. The Bank requested a hearing before the Unemployment Insurance Appeal Board (“Appeal Board”). On July 18, 2011, an Appeal Board's Administrative Judge sustained the DOL's determination. The Bank continues to believe it has a meritorious case and has filed an appeal with the Appeals Board. This appeal is pending.

In another action, the construction contractor of one of the Bank’s defaulted borrowers filed suit alleging that the Bank was responsible for construction costs incurred by the borrower and not paid. The Court has granted Carver’s motion dismissing a large part of these claims and only a claim related to the construction retainage amount remain pending. The Bank continues to believe that it has a meritorious defense to the remaining claim and that this claim will also be dismissed. Moreover, the underlying loan was sold by the Bank and the Bank holds a potential indemnification claim against the note sale purchaser.

In another matter, the Bank was served with a summons and proposed third party complaint in an action alleging vague claims of fraud. This involves a loan sold by Carver in 2007. Carver has opposed the attempt to add Carver to the litigation. Carver and its counsel believe that the Court will deny the request and that Carver will have no exposure in this case.

Finally, the Bank is a defendant in two personal injury actions for which insurance coverage exists in the event the Bank is found liable and a third action involving allegedly forged checks in which another bank has assumed Carver’s defense and agreed to indemnify Carver.

In accordance with ASC Topic 450, Carver has accrued $30,000 for these lawsuits.