Carver Bancorp, Inc. Reports First Quarter Fiscal Year 2010 Earnings

Carver Bancorp, Inc. (the "Company") (Nasdaq:CARV), the holding company for Carver Federal Savings Bank ("Carver Federal" or the "Bank"), today announced financial results for the three month period ended June 30, 2009, the first quarter of the fiscal year ending March 31, 2010 ("fiscal 2010").

The Company reported net income of $0.7 million and diluted earnings per share of $0.18 for the first quarter of fiscal 2010, compared to net income of $0.7 million and diluted earnings per share of $0.27 for the first quarter of fiscal 2009. Net income for the first quarter of fiscal 2010 was negatively impacted by a $0.4 million FDIC special assessment as well as a $0.5 million increase in the provision for loan losses. The decline in earnings per share from the prior year period reflects the payment of $0.2 million in preferred dividends pursuant to Carver's participation in the U.S. Treasury Department's Troubled Asset Relief Program's Capital Purchase Program ("TARP").

Deborah C. Wright, the Company's Chairman and Chief Executive Officer, stated: "I am pleased to report that the Company returned to profitable operations in the first quarter, despite economic headwinds that continue to impact our customers, and therefore our company. Carver's strong net interest margin led the way, reaching 3.71%, up 18 basis points year over year, fueled by the steepness of the yield curve and our historically stable core deposit base. Total non-interest expense declined 3.7% year over year, reflecting our cost savings initiatives on a number of fronts, including compensation and benefits and other operating expenses. These savings were achieved despite the FDIC special assessment impacting our entire industry, reducing diluted earnings per share by $0.10 this quarter.

On the credit front, we continue to execute a very aggressive approach to address delinquent loans, which was successful in reducing non-performing loans from 3.42% of total assets at March 31, 2009 to 3.12% this quarter. However, total delinquencies continued to rise. We therefore increased the provision for loan losses by $0.7 million, or $0.18 per diluted share, generating a total allowance for loan losses of $7.4 million. The allowance now represents 1.12% of the total loan portfolio and 29.2% of non-performing assets.

We remain cautious, yet proactive, in managing credit in this unprecedented climate. While this remains a difficult period, making predictions of the future particularly challenging, Carver has a long history of low credit losses. This result follows, in part, from the nature of our loan portfolio. For example, the majority of Carver's total delinquencies are in construction loans for affordable homes, an asset class that remains in high demand, and commercial mortgages. The housing developments are built by experienced builder-developers, whose apartment sales have been disrupted by dislocations in the secondary markets. While we work with our borrowers to identify mortgage options for their buyers, we note that the average loan-to-value on construction loans, when underwritten, was 45%. In addition, we have additional credit protection beyond the borrowers, and multiple ways to achieve payoff on these loans, including rental conversions and sale of the loans to the New York City Pension Fund.

As we address the risks inherent in the current economic climate, we continue to prepare to take advantage of business opportunities that are likely to occur during this period. When the economy emerges from the current financial crisis, we'll be prepared to profitably provide the lending and deposit services that our customers need, thereby building the shareholder value to which we are all committed," concluded Ms. Wright.

Carver also announced that on August 13, 2009, the Company's Board of Directors declared a cash dividend on its common stock of ten cents ($0.10) per common share for the first quarter. The dividend will be payable on September 14, 2009, to stockholders of record at the close of business on September 1, 2009.

First-Quarter Results

Net income for the first quarter of fiscal 2010 was $0.7 million, unchanged from the prior year period. Net interest income increased by $0.6 million to $6.9 million reflecting an 18 basis points increase in the net interest margin to 3.71%, compared to 3.53% in the prior year period. The increase in net interest income resulted from the significant reduction in interest rates during the year, attributable to the cost of interest-bearing liabilities declining faster than the yield on interest earning assets. Interest income decreased $1.2 million, or 10.8%, to $9.9 million, reflecting a decrease in yield on interest earning assets of 92 basis points to 5.34%, compared to the decrease in total interest expense of $1.8 million, reflecting a 117 basis points decrease in the average cost of interest-bearing liabilities to 1.82%.

The Bank provided a $0.7 million loan loss provision for the first quarter of fiscal 2010 compared to $0.2 million in the prior year period. At June 30, 2009, the Bank's allowance for loan losses was $7.4 million, which represents 1.12% of total loans and 29.4% of non-performing loans. The Bank's future level of non-performing loans will be influenced by economic conditions, including the impact of those conditions on the Bank's customers, interest rates and other external factors existing at the time.

Non-interest income decreased $0.6 million, or 34.0%, to $1.2 million, primarily due to decreases of $0.2 million, in each of the following: loan fees and service charges, gain on sale of loans and other income. The decrease in loan fees and gain on sales of loans reflects the decline in pre-payment fees during the quarter. The $0.2 million decrease in other income reflects deconsolidation of a minority interest entity which was included in the first quarter prior year results.

Non-interest expense decreased $0.3 million, or 3.8%, to $7.1 million, primarily due to a decrease of $0.3 million in employee compensation and benefits and a $0.7 million decrease in other operating expenses offset by a $0.8 million increase in FDIC insurance premiums. The decrease in employee compensation and benefits is mainly related to reduced headcount. The decrease in other operating expenses is primarily related to progress made with respect to vendor management. Offsetting these significant reductions in expenses was higher FDIC insurance premiums compared to the prior year including a special assessment of $0.4 million.

Financial Condition Highlights

At June 30, 2009, total assets increased $18.2 million, or 2.3%, to $809.6 million from $791.4 million at March 31, 2009. The increase in total assets was primarily the result of an increase of $17.8 million in total gross loans receivable, an increase of $4.7 million in cash and cash equivalents, offset by a decrease of $5.6 million in investment securities. Total gross loans receivable, increased $17.8 million to $680.0 million compared to $662.2 million at March 31, 2009. The increase was primarily related to increases in multi-family loans of $16.5 million, commercial business loans of $7.4 million, offset by decreases in construction loans of $5.7 million and one- to four- family loans of $2.1 million. Total securities decreased $5.6 million, or 7.5%, to $69.2 million compared to $74.8 million at March 31, 2009. The decrease was primarily the result of principal repayments and maturities.

At June 30, 2009, total liabilities increased $18.2 million, or 2.5%, to $745.3 million compared to $727.1 million at March 31, 2009. The increase in total liabilities was primarily the result of an increase of $16.1million, or 14.0%, in advances. At June 30, 2009, based on available collateral held at the Federal Home Loan Bank of New York ("FHLB-NY"), the Bank had the ability to borrow an additional $29.7 million to meet its projected funding needs.

Total stockholders' equity at June 30, 2009 totaled $64.4 million, unchanged compared to March 31, 2009. At June 30, 2009, the Bank's capital levels met regulatory requirements of a well-capitalized financial institution.

Asset Quality

At June 30, 2009, non-performing assets totaled $25.3 million, or 3.12% of total assets, compared to $27.1 million, or 3.42% of total assets at March 31, 2009. The ratio of the allowance for loan losses to non-performing loans was 29.4% at June 30, 2009 compared to 26.5% at March 31, 2009. The ratio of the allowance for loan losses to total loans was 1.12% at June 30, 2009 compared to 1.06% at March 31, 2009.

About Carver Bancorp, Inc.

Carver Bancorp, Inc. is the holding company for Carver Federal Savings Bank, a federally chartered stock savings bank. Carver Federal Savings Bank, 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, Queens and Manhattan. 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.

Source: Carver Bancorp, Inc.