Carver Bancorp, Inc. (CARV) 10-K Review – FY 2025

Welcome to our deep-dive analysis of Carver Bancorp, Inc.’s annual report on Form 10-K for the fiscal year ended March 31, 2025. Carver Bancorp is the holding company for Carver Federal Savings Bank, a federally chartered savings bank based in Harlem, New York. Founded in 1948 to serve historically underserved African-American communities, Carver Federal today operates seven branches across Manhattan, Brooklyn and Queens. This review will cover:

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1. Business overview and market positioning
2. Key financial trends (Items 7, 7A, 8)
3. Cash flow and liquidity analysis
4. Asset quality and credit loss reserves
5. Risk factors (Item 1A)
6. Capital position and regulatory framework
7. Management’s outlook and catalysts
8. Investment verdict (score: 2.5/10)

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1. Business Overview (Item 1)

• Mission and market: Carver Federal is among the largest African-American operated banks in the U.S., focusing on low- and moderate-income neighborhoods in New York City. 90% of its loans are made in its assessment area.
• Products & services: Deposits (checking, savings, money market, CDs), online banking, debit cards, Carver Community Cash (check cashing, prepaid cards), commercial & residential mortgage lending, C&I loans, construction and church financing.
• Distribution: Seven branches, plus online account access in the Northeast and D.C.
• Community focus: Holds a CRA "Outstanding" rating (March 2022), operates Carver Community Development Corp. for grants and CDFI–related programs, and offers small-business and consumer lending partnerships.
• Competition: Faces intense competition from multinational and regional banks, credit unions, non-bank financial firms, federal regulators demanding strong CRA performance, plus headwinds from reduced loan demand.

2. Key Financial Trends (Items 7 & 8)

A. Income Statement Highlights

($ in millions) | Metric | FY ’25 | FY ’24 | $00

% Change | |------------------------------|----------:|-----------:|--------------------:| | Net interest income | 19.2 | 22.6 | (15.0%) | | Provision for credit losses | 1.2 | 0.1 | +1,335.9% | | Non-interest income | 3.1 | 6.7 | (53.7%) | | Non-interest expense | 34.8 | 32.2 | +8.1% | | Net (loss) income |(13.7) | (3.0) | (359.4%) |

• Net interest income (NII) shrank 15% as deposit & FHLB-NY funding costs surged in a high-rate environment. NII declined from $22.6 M to $19.2 M.
• Provision for credit losses jumped to $1.2 M as non-performing loans more than doubled (from $11.8 M to $24.6 M).
• Non-interest income halved to $3.1 M after one-time grants and program reimbursements faded from FY ’24.
• Non-interest expense rose 8% to support compliance, security, staff and professional fees.
• The bottom line shows a $13.7 M net loss versus a $3 M net loss in FY ’24.

B. Margins & Ratios

	FY ’25	FY ’24
Net interest margin	2.63%	3.14%
Yield on assets	4.71%	4.73%
Cost of funds	2.12%	1.52%
Efficiency ratio	156.5%	109.9%
Return on assets	(1.85%)	(0.40%)
Return on equity	(36.1%)	(7.0%)

• NIM compressed as asset yields remained stable but funding costs soared.
• Efficiency ratio (non-int. expense ÷ total revenue) ballooned over 150%, signaling outsized overhead.
• ROA/ROE deeply negative on account of the net loss.

3. Cash Flow & Liquidity (Item 8)

• Cash & equivalents: $50.3 M (down 14.7%), still reserves Carverederal believes sufficient for liquidity needs.
• Net FHLB-NY advances fell from $28 M to $1.8 M, as the Bank repaid most fixed-rate advances. A new 0% “ZDA” advance of $1.8 M was secured for community development loans.
• Core deposit growth (+2.3%) offset by rotation of large balances into CDs and money market accounts for higher yields.
• Uninsured deposits (>$250K) fell from $91 M to $69 M, reducing FDIC concentration risk.
• Carver remains able to borrow up to $30 M from FHLB-NY on pledged collateral.
• A revolving $25 M low-cost loan facility (undrawn) was secured in FY ’25 for green & CDFI–eligible lending.

4. Asset Quality & ACL (Item 7A)

	FY ’25	FY ’24
Total loans	$613.7 M	$622.9 M
Non-performing loans	4.01%	1.89%
Allowance for credit losses	$ 6.3 M	$ 5.9 M
ACL/loans	1.03%	0.94%
ACL/NPLs	25.8%	49.9%

• NPL ratio more than doubled, fueled by commercial real estate, multifamily and small business delinquencies.
• ACL coverage dropped to 26% of NPLs, below historical coverage around 50%.
• Carver uses CECL (current expected credit loss) methodology with a 4-quarter forecast and 12-quarter reversion. Key qualitative overlays capture local NYC economic trends.

5. Principal Risk Factors (Item 1A)

1. NYC CRE concentration: $178 M (29.1% of loan book) plus $165 M multifamily loans. Highly sensitive to local economics, rent control, tenant mix, operating cash flows.
2. High rate environment: Liability-sensitive bank sees compressed NIM as deposit rates outpace asset yields.
3. Regulatory oversight: May 2025 OCC Formal Agreement requires new strategic, earnings and compliance plans.
4. Capital strains: IMCR letter demands 9% Tier 1 leverage & 12% total risk-based ratios; current ratios 8.7% / 11.6%. May limit dividends, share repurchases and expansions.
5. Rising credit costs: NPL accumulation & modest ACL leave Carver vulnerable if property values soften & economic headwinds persist.
6. Earnings instability: Dependence on grants & infrequent income sources risks revenue consistency.

6. Capital & Regulatory Status

• Tier 1 leverage 8.70% / Total risk-based 11.56% at 3/31/25 — above "well capitalized" thresholds (4%/8%), but below the Bank’s IMCR requirements (9%/12%).
• Formal Agreement (May 2025) imposes new compliance & strategic governance committees, and pre-approval for dividends, senior hires & capital distributions.
• Unitary thrift holding co. regulated by FRB — subject to "source of strength" and dividend/ repurchase restrictions.
• FDIC & OCC prompt corrective action could follow if capital falls further.

7. Management

ctions & Outlook

• Strategic plan: Must deliver OCC-approved plan addressing earnings, growth, liquidity & capital mix in coming weeks.
• Cost control: Management is targeting expense leverage, technology consolidation and process improvements.
• Loans pivot: Selective CRE and consumer lending partnerships, modest C&I growth, focus on affordable housing and direct SBA origination.
• Deposit strategy: Manage brokered/CDARS use; enhance digital channels for fee-bearing accounts.
• Embrace CDFI programs: Seek federal awards and low-cost capital for impact lending and green financing.

Catalysts to watch

• Restoration of capital ratios via earnings or capital injection
• Reduction in NPLs and stabilization of the ACL/NPL ratio
• Execution of an OCC-approved strategic & earnings plan
• Improvement in NYC business climate and rent/property markets

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Investment Score: 2.5 / 10

Carver Bancorp faces serious headwinds: a significant net loss, squeezed margins in a liability-sensitive funding profile, a rapidly rising NPL ratio, weakened ACL coverage, and binding capital/ regulatory constraints. While its mission-driven community banking model and CRA credentials are commendable, material risks remain. A rebound would require sustained profitability, credit stabilization and capital support.

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