Carver Bancorp, Inc. Announces Fiscal 2009 and Fourth Quarter Results

Carver Bancorp, Inc. (the "Company") (Nasdaq:CARV), the holding company for Carver Federal Savings Bank ("Carver" or the "Bank"), today announced financial results for its fiscal year ("fiscal 2009") and fourth quarter ended March 31, 2009.

The Company reported a net loss of $1.1 million, or a loss per share of ($0.48), for the fourth quarter compared to net income of $0.5 million, or diluted earnings per share of $0.20, for the prior year period. The fourth quarter net loss primarily reflects a $1.9 million provision for loan losses. The Company reported a net loss after tax of $7.0 million, or a loss per share of ($2.87), for fiscal 2009 compared to net income of $4.0 million, or diluted earnings per share of $1.55, for the prior year period. The net loss for fiscal 2009 primarily reflects a $7.1 million non-cash goodwill impairment charge and a $2.7 million provision for loan losses.

Deborah C. Wright, the Company's Chairman and CEO, stated: "Fiscal 2009 represented the most difficult year in decades for our nation's banking industry. For many months New York City was resilient, however, by last quarter recessionary conditions began to severely impact our local banking industry, including Carver. As a result, Carver is posting its first fiscal year loss since 2001, resulting primarily from a $7.1 million non-cash charge, reflecting impairment to goodwill attributable to the 2006 acquisition of Community Capital Bank, and a $2.7 million provision for loan losses. The goodwill impairment charge is described in our third quarter financial statements. The increased provision for loan losses reflects the industry-wide challenges of an unprecedented credit environment and a substantial increase in delinquent loans. We are taking a proactive and loan by loan approach to managing delinquent loans, including frequent communications with borrowers and site visits. As a result of these efforts, only $0.5 million, or 0.08% of loans were charged off during fiscal 2009.

"The business climate continues to present significant challenges, without a near term inflection point to signal recovery. We are therefore focusing on three key initiatives to improve financial results and to prepare our company for business opportunities when conditions improve. First, we have chosen to reduce risk in our loan portfolio, given the very challenging credit environment, by curtailing origination of construction loans for the time being. We are instead increasing our focus on two core strengths of our company, multifamily and non-profit lending, which have historically produced low loss ratios, even during difficult economic times. Second, we are proactively managing the balance sheet, specifically taking advantage of near term opportunities to obtain funds at historically low costs, including deposits and borrowings. Our cost of funds declined 150 basis points for the fourth quarter, generating an increase in our net interest margin to 3.60% compared to 3.38% in the prior year period. Our capital position continues to be strong, and was further enhanced by our participation in the U.S. Treasury's Troubled Asset Relief Program ("TARP") Capital Purchase Program ("CPP"), issuing $18.9 million in preferred stock to the Treasury on January 16, 2009, which provided cost efficient equity capital for growth. Importantly, Carver was not required to issue warrants in connection with this capital issuance, as Community Development Financial Institutions are exempt from this requirement. Third, we continue to focus on costs. Regrettably, the significant impact of goodwill impairment and credit deterioration lead to an overall increase in expenses. Nevertheless, during fiscal 2009 we accomplished very difficult steps including eliminating 21% of our workforce, closing a branch and outsourcing our residential loan origination business, thereby closing that division. This fiscal year we are targeting vendor expense control to drive additional efficiencies.

"We are fully aware that, consistent with virtually all investors in our industry, our stockholders have experienced declines in share value. Despite the great difficulty of the period in which we operate, your management team is confident in the resilience of the communities in which we operate. Carver has been, and continues to be, a beacon in these communities for over 60 years. We will do all we can to take advantage of business opportunities that are likely to occur during this period. We will also continue to invest in the strategic direction of your company so that when the economy emerges from the current financial crisis, we'll be even better positioned to profitably provide the lending and deposit services that our customers need, thereby building the shareholder value to which we are all committed."

Carver also announced that on May 27, 2009 the Company's Board of Directors declared a cash dividend on its common stock of ten cents($0.10) per share for the fourth quarter. The dividend will be payable on June 13, 2009, to stockholders of record at the close of business on May 27, 2009.

Income Statement Highlights

Fourth Quarter Results

The Company reported a net loss of $1.1 million, or a per share loss of ($0.48), compared to net income of $0.5 million, or diluted earnings per share of $0.20, for the prior year period. The net loss of $1.1 million is primarily the result of a $1.9 million provision for loan losses and a $1.4 million decrease in non-interest income, partially offset by a $0.5 million increase in net interest income and a $1.1 million increase in income tax benefit.

Interest income decreased by $1.9 million, or 16.5%, to $9.9 million compared to $11.8 million for the prior year period. The decrease was primarily the result of decreases in interest income on loans of $1.8 million and investment securities of $0.2 million, partially offset by an increase in interest income from mortgage backed securities of $0.2 million due to increased balances of these securities. The decrease in interest income reflects a decrease in the yield on interest-earning assets of 119 basis points to 5.39% compared to 6.58% for the prior year period. The decrease in yield on interest earning assets was primarily the result of a 111 basis points decrease in the yield on loans as a result of LIBOR and prime based construction loans repricing at lower rates.

Interest expense decreased by $2.4 million, or 42.4%, to $3.3 million compared to $5.7 million for the prior year period. The decrease was primarily the result of a decrease in interest expense on deposits of $2.5 million. The decrease in interest expense primarily reflects a 150 basis points decrease in the average cost of interest-bearing liabilities to 1.98% compared to 3.48% for the prior year period, partially offset by an increase in the average balance of interest-bearing liabilities of $8.5 million, or 1.3%, to $668.3 million compared to $659.8 million for the prior year period. The decrease in the average cost of interest bearing liabilities was primarily the result of certificates of deposits repricing at lower rates as well as lower costs on short-term advances from the Federal Home Loan Bank of New York ("FHLB-NY").

The Company recorded a $1.9 million provision for loan losses compared to no provision for the prior year period. The provision is in response to an increase in loan delinquencies associated with the deterioration in the housing market and the New York City economy.

Non-interest income decreased $1.4 million, or 66.7%, to $0.7 million compared to $2.1 million for the prior year period. The decrease was due primarily to a $0.6 million reduction in mortgage servicing rights and an impairment charge for loans held for sale, a $0.3 million decrease in gains realized from sale of securities and a $0.4 million decrease in other income.

Non-interest expense increased by $0.2 million, or 2.4%, to $8.4 million compared to $8.2 million for the prior year period. The increase was primarily due to increases in occupancy and equipment expense of $0.5 million, FDIC insurance of $0.1 million and other non-interest expense of $0.6 million, offset by decreases in consulting fees of $0.7 million and employee compensation and benefits of $0.4 million. The reduction in employee compensation and benefits expense was the result of a reduction in the number of employees and related cost of employee benefit plans.

The income tax benefit was $1.9 million compared to $0.7 million for the prior year period and is primarily from a tax credit of $0.5 million associated with the Company's participation in the New Markets Tax Credit ("NMTC") Program, established by the Community Renewal Tax Relief Act of 2000, and the $1.9 million loan loss provision. The Company expects to receive additional NMTC Program tax benefits of approximately $10.1 million from its $40.0 million investment through the period ending March 31, 2014. The NMTC Program allows an investor or lender to receive, over a seven year period, tax benefits of up to 39% of the amount of certain investments and/or loans to low-income communities or low-income persons.

Fiscal 2009 Results

Carver's net loss for fiscal 2009 was $7.0 million, or a per share loss of ($2.87), compared to net income of $4.0 million, or diluted earnings per share of $1.55, for the prior year period. The net loss for fiscal 2009 was the result of an increase in non-interest expense of $8.0 million, a decrease in non-interest income of $2.7 million, and an increase in the provision for loan losses of $2.5 million, partially offset by an increase in income tax benefit of $2.3 million. The increase in non-interest expense is primarily the result of a non-cash goodwill impairment charge of $7.1 million. In the third quarter of fiscal 2009, the Company reported a goodwill impairment charge of $6.4 million. A re-evaluation of goodwill resulted in an additional charge of $0.7 million applied to the prior quarter results.

Interest income decreased $6.1 million, or 12.7%, to $42.0 million in fiscal 2009 compared to $48.1 million for the prior year period. The decrease was primarily the result of decreases in interest income on loans of $5.3 million and interest income on investment securities of $1.2 million, partially offset by an increase in interest income on mortgage-backed securities of $0.4 million. The decrease in interest income reflects a reduction in the yield on interest-earning assets of 98 basis points to 5.85% compared to 6.83% for the prior year period. The decrease in yield on interest earning assets was primarily the result of a 100 basis points reduction in the yield on loans as LIBOR and prime rate based construction loans repriced at lower rates. The decrease in interest income on investment securities was primarily the result of a decline in the average balance of investment securities from $22.9 million in the prior year period to $5.7 million. The higher level of interest income on mortgage-backed securities was primarily the result of an increase in the average balance of mortgage backed securities from $39.1 million to $50.0 million.

Interest expense decreased $6.2 million, or 27.3%, to $16.5 million in fiscal 2009 compared to $22.7 million for the prior year period. The decrease in interest expense resulted primarily from a 98 basis points decrease in the average cost of interest-bearing liabilities to 2.51% compared to 3.49% for the prior year period, offset partially by growth in the average balance of interest-bearing liabilities of $9.6 million, or 1.5%, to $658.1 million compared to $648.5 million for the prior year.

The Bank provided a $2.7 million provision for loan losses in fiscal 2009 compared to $0.2 million for the prior year period. The provision is in response to an increase in loan delinquencies associated with the deterioration in the housing market and New York City economy.

Non-interest income decreased $2.7 million to $5.2 million in fiscal 2009 compared to $7.9 million for the prior year period. The decrease is primarily related to other non-interest income decreasing $1.4 million due to a $1.7 million fee generated by a non-recurring NMTC transaction in the prior year period. The decrease also resulted from a reduction in loan fees and service charges of $0.4 million, a decrease in the gain on sale of securities of $0.4 million, and a mortgage servicing rights write-down of $0.3 million.

Non-interest expense increased $8.0 million, or 26.7%, to $37.8 million in fiscal 2009 compared to $29.9 million for the prior year. The increase is primarily due to the $7.1 million non-cash goodwill impairment charge as well as increases of $1.2 million in occupancy and equipment expense, $0.4 million in FDIC insurance and $0.6 million in professional fees, partially offset by decreases of $1.6 million in consulting fees and $0.2 million in employee compensation and benefits.

The Bank recorded a tax benefit of $3.2 million in fiscal 2009 compared to a tax benefit of $0.9 million for the prior year period. The total tax benefit for fiscal 2009 reflects tax credits of $2.0 million generated by the NMTC investment transaction discussed above and a tax benefit of $1.2 million related to a pre tax loss, excluding the effect of the non-cash goodwill impairment charge of $7.1 million.

Financial Condition Highlights

At March 31, 2009 total assets decreased $4.8 million, or 0.6%, to $791.4 million compared to $796.2 million at March 31, 2008, primarily the result of decreases in cash and cash equivalents of $14.0 million, a decrease in goodwill of $7.1 million and a decrease in other assets of $26.2 million, partially offset by an increase in investment securities of $36.6 million and an increase in total net loans receivable of $6.1 million.

Cash and cash equivalents decreased $14.0 million, or 51.3%, to $13.3 million at March 31, 2009 compared to $27.4 million at March 31, 2008, reflecting a $10.2 million decrease in money market investments and a $3.9 million decrease in cash and due from banks.

Total securities increased $36.6 million, or 95.9%, to $74.8 million at March 31, 2009 compared to $38.2 million at March 31, 2008, reflecting an increase of $39.1 million in available-for-sale securities and a $2.5 million decrease in held-to-maturity securities. Available-for-sale securities increased $39.1 million, or 187.4%, to $60.0 million at March 31, 2009 compared to $20.9 million at March 31, 2008, primarily due to purchases of U.S. guaranteed marketable securities. Held-to-maturity securities decreased $2.5 million, or 14.5%, to $14.8 million at March 31, 2009 compared to $17.3 million at March 31, 2008, primarily due to normal principal repayments and maturities of securities.

Total loans receivable, net, including loans held-for-sale, increased $3.5 million, or 0.5%, to $655.2 million at March 31, 2009 compared to $651.7 million at March 31, 2008. The increase was primarily the result of an increase in commercial real estate loans of $34.9 million and an increase in commercial business loans of $5.3 million, offset by decreases in one- to four- family loans of $18.8 million and construction loans of $14.7 million.

Other assets decreased $26.2 million, or 63.3%, to $15.1 million at March 31, 2009 compared to $41.4 million at March 31, 2008, primarily due to a deconsolidation of a $19.2 million minority interest in a community development subsidiary in connection with the Company's participation in the NMTC Program.

Total liabilities increased $4.1 million, or 0.6%, to $727.2 million at March 31, 2009 compared to $723.1 million at March 31, 2008. The increase in total liabilities was primarily the result of an increase of $56.4 million in advances from the FHLB-NY and other borrowed money offset by a $51.3 million reduction in deposits. While the Bank has been successful in retaining deposits, management made a strategic decision to allow higher cost certificates of deposit to run off and replaced them with lower cost borrowings.

Deposits decreased $51.3 million, or 7.8%, to $603.4 million at March 31, 2009 compared to $654.7 million at March 31, 2008. The decrease in deposit balances was primarily the result of decreases in certificates of deposit of $65.2 million, savings accounts of $8.4 million and money market accounts of $2.3 million, which were partially offset by an increase of $20.2 million in NOW accounts and demand accounts of $5.0 million.

Advances from the FHLB-NY and other borrowed money increased $56.4 million, or 96.2%, to $115.0 million at March 31, 2009 compared to $58.6 million at March 31, 2008. The increase in advances and other borrowed money was primarily the result of an increase of $56.4 million in FHLB-NY advances to replace higher cost certificates of deposit and to leverage the capital obtained in the TARP CPP.

Total stockholders' equity increased $10.3 million, or 19.1%, to $64.2 million at March 31, 2009 compared to $53.9 million at March 31, 2008. The increase in total stockholders' equity was primarily attributable to capital obtained in the TARP CPP of $18.9 million, partially offset by a net loss for the year ended March 31, 2009 totaling $7.0 million, dividends paid of $1.0 million and a decrease in accumulated other comprehensive income of $0.4 million. The Bank's capital levels exceed regulatory requirements of a well-capitalized financial institution.

Stock Repurchase Program

During the fourth quarter, the Company purchased no additional shares of common stock under its stock repurchase program. As of March 31, 2009, the Company has purchased a total of 176,174 shares at an average price per share of $15.72. The number of shares available to be repurchased under the program is 55,461 shares. As a result of the Company's participation in the TARP CPP, the U.S. Treasury's prior approval is required to make further repurchases.

Asset Quality

At March 31, 2009, non-performing assets totaled $26.3 million, or 3.31% of total assets compared to $4.0 million or 0.50% of total assets at March 31, 2008.

The allowance for loan losses was $7.0 million which represents a ratio of the allowance for loan losses to non-performing loans of 28.2% compared to 170.9% at March 31, 2008. The ratio of the allowance for loan losses to total loans was 1.09% at March 31, 2009 compared to 0.74% at March 31, 2008.

For additional information, please review the Company's Form 10-K for the year ended March 31, 2009, which is scheduled to be filed on June 29, 2009.

About Carver Bancorp, Inc.

Carver Bancorp, Inc. is the holding company for Carver Federal Savings Bank, a federally chartered stock savings bank, founded in 1948 to serve African-American communities whose residents, businesses and institutions had limited access to mainstream financial services. Carver, the largest African- and Caribbean-American run bank in the United States, operates nine full-service branches in the New York City boroughs of Brooklyn, Manhattan and Queens. For further information, please visit the Company's website at www.carverbank.com.

Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors, risks and uncertainties. More information about these factors, risks and uncertainties is contained in our filings with the Securities and Exchange Commission.