UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
100 F Street NE
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934No.1
   
þ ANNUAL REPORT PURSUANT TO SECTIONAnnual Report Pursuant to Section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934
For the fiscal year endedFiscal Year Ended March 31, 20082009
ORor
   
o TRANSITION REPORT PURSUANT TO SECTIONTransition Report Pursuant to Section 13 ORor 15(d) OF THE SECURITIES EXCHANGE ACT OFof the Securities Exchange Act of 1934
For the transition period from  _____  to  _____ 
Commission File Number: 1-13007No. 001-13007
CARVER BANCORP, INC.Carver Bancorp, Inc.
(Exact name of registrant as specified in its charter)
   
Delaware 13-3904174
(State or Other Jurisdictionother jurisdiction of Incorporation
incorporation or Organization)organization)		 (I.R.S. Employer
Identification No.)Number)
   
75 West 125th 125thStreet, New York, New YorkNY 10027
(Address of Principal Executive Offices) (Zip Code)Code
(212) 360-8820
(Registrant’s telephone number, including area code:(718) 230-2900number)
Securities Registered Pursuant to Section 12(b) of the Act:
   
Common Stock, par value $.01 per shareTitle of each class NASDAQ Global Market
(Title of Class)(Name of each Exchangeexchange on which registered)registered
Common Stock, $0.01 par valueThe NASDAQ Stock Market, LLC
Securities registered pursuantRegistered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YESo YesNOþ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YESo YesNOþ No
Indicate by check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12twelve months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESþ YesNOo No.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period thatt hat the registrant was required to submit and post such files).YESo YesNOo No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.oþ.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”filer. as defined in Rule 12b-2 of the Exchange Act. (Check one):Act).
       
Large accelerated filero Large Accelerated FilerfileroNon-accelerated filero o Accelerated Filero Non-accelerated FilerþSmaller Reporting Companyþ
Indicate by check mark whether the registrantRegistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo YesNOþ No
As of June 20, 2008,November 2, 2009, there were 2,474,738issued and outstanding2,474,719 shares of common stock of the registrant outstanding. Registrant’s Common Stock.
The aggregate market value of the Registrant’svoting and non-voting common stockequity held by non-affiliates as of September 28, 2007,the Registrant, computed by reference to the last day of registrant’s most recently completed second fiscal quarter (basedsale price on the closing sales price of $15.85 per share of the registrant’s common stock on September 28, 2007) was approximately $39,319,444.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant’s proxy statement for the Annual Meeting of stockholders for the fiscal year ended March 31, 2008 are incorporated by reference into Part III of this Form 10-K.November 2, 2009, is$13,639,124.
 
 

 

 

DOCUMENTS INCORPORATED BY REFERENCE
1. None

TABLE OF CONTENTS

PART II
ITEM 6. SELECTED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL      CONDITION AND RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
ITEM 9A. DISCLOSURE CONTROLS AND PROCEDURES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EXHIBIT INDEX
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

EXPLANATORY NOTE
Explanatory Note
This Form 10-K/A is being filed by Carver Bancorp, Inc. (the “Company” or “Carver”) is filing this amendment No. 1 to amend its Annual Report on Form 10-K for the year ended March 31, 20082009, filed with the Securities and Exchange Commission on July 2, 2009 to reflectinclude the restatementinformation required by Items 10, 11, 12, 13 and 14 of the Annual Report on Form 10-K.

Item 10. Directors, Executive Officers and Corporate Governance
DIRECTORS
Carol Baldwin Moodyhas been the Chief Compliance Officer of Nationwide Insurance since November, 2005. Prior to that, she was the Chief Compliance Officer for TIAA-CREF, a position she assumed in February 2004. In April 2000, she joined TCW/Latin America Partners, LLC as a Managing Director. From 1988 to 1997 she held several senior legal positions at Citibank and in 1997 she became Head of Compliance/Global Relationship Banking where she was responsible for assisting the business in its responsibilities to comply with all applicable laws, regulations, corporate policies and standards. She is a member of the Brister Society of the University of Pennsylvania. Ms. Baldwin Moody holds a B.S.E. from the Wharton School of the University of Pennsylvania and a J.D. from Columbia University.
Dr. Samuel J. Danielis President and CEO of North General Hospital, a position he assumed in April 2001. From 1998 to 2001, Dr. Daniel was the Medical Director and Director of Medicine at North General Hospital. From 1994 to 1999, Dr. Daniel was the Program Director of the North General Hospital Internal Medicine Residency Program and the Hospital’s Chief of Gastroenterology. Dr. Daniel also holds the academic position of Associate Clinical Professor at Mount Sinai School of Medicine. Dr. Daniel is a Diplomate of the American Board of Internal Medicine and Gastroenterology and has various board memberships and affiliations with a number of distinguished medical and civic organizations.
David L. Hindsis a retired Managing Director of Deutsche Bank. During his extensive career at Deutsche Bank and Bankers Trust, Mr. Hinds led several operating divisions, a start-up technology division and a global marketing and sales organization. Most recently, he was Managing Director/Partner for Deutsche Bank’s Global Cash Management and Trade Finance Division, where he had profit and loss responsibility for all business activities including global sales, operations, product management, credit and technology. He was a board member of Independence Community Bank and the SBLI Mutual Life Insurance Company, past President of the Executive Leadership Council and Co-Founder of the Urban Bankers Coalition.
Robert Holland, Jr.is a General Partner of Williams Capital Partners, a private equity investment firm, a position which he assumed in 2003. Currently, Mr. Holland is raising capital for an unrelated fund for investing in mid-cap businesses in West Africa. Formerly, he was Chairman and Chief Executive Officer of Workplace Integrators, a Southeast Michigan company he acquired in June 1997 and built into one of the largest Steelcase Office Furniture dealerships in the United States. He divested this business in April 2001. Mr. Holland was formerly President and Chief Executive Officer of Ben & Jerry’s, Chairman and Chief Executive Officer of Rokher-J, Inc., a New York-based holding company that participates in business development projects and provides strategy development assistance to senior management of major corporations, and a partner with the consulting firm McKinsey & Company. Mr. Holland is a member of the Boards of Lexmark International, Inc., YUM Brands, Inc., Singapore-based Neptune Orient Lines and the Harlem Junior Tennis Program. Mr. Holland was formerly Vice Chairman of the Board of Trustees of Spellman College and was formerly a member of the Executive Board of the Harvard Journal of African-American Public Policy.
Pazel G. Jackson, Jr.Mr. Jackson has been a member of the Board of Directors of Carver Bancorp, Inc. and Carver Federal Savings Bank since 1997. Mr. Jackson retired as Senior Vice President of JPMorganChase in 2000. During his 37 year career in banking at JPMorganChase, Chemical Bank, Texas Commerce Bank and the Bowery Savings Bank, Mr. Jackson held several senior management positions. Most recently, from January 1995 to 2000, Mr. Jackson was responsible for mortgage market development throughout the United States for JPMorganChase. His prior positions included Senior Credit Officer of Chemical Mortgage Company, Business Manager of Chemical Mortgage Division, Chief Lending Officer of Bowery Savings Bank and Marketing Director of Bowery Savings Bank. Mr. Jackson is a licensed Professional Engineer with more than 16 years experience in design and construction. Mr. Jackson earned BCE and MCE degrees from the City College of New York, an MBA from Columbia University and a Doctorate in Business Policy Studies from Pace University in New York.

1

Edward B. Ruggierois Senior Vice President and Treasurer of Time Warner Inc., where he is responsible for that company’s worldwide treasury activities including capital structure, capital markets, bank relations, treasury operations, real estate finance and risk management. Mr. Ruggiero joined Time Warner in 1996. Prior to that, he was Executive Vice President—Corporate Finance and Strategy for The Dime Savings Bank of New York, FSB. During his 14 years with Dime, he served in various management positions, including Controller, Chief Planning and Compliance Officer and Chief Operating Officer of its Consolidated Financial Statements, as discussed in Note 2mortgage banking subsidiary. Mr. Ruggiero holds a B.S. from St. John’s University.
Robert R. Tarterwas an Executive Vice President of the NotesState Street Corporation, which he joined in 1994. Mr. Tarter held several executive level positions during his tenure with State Street, most recently as head of the Global Relationship Management Group and prior to the Consolidated Financial Statements containedthat as head of Institutional Investor Services with responsibility for State Street’s U.S. investment servicing business for institutional clients. In February 2006, Mr. Tarter became responsible for State Street’s investment servicing business in Part II, Item 8: Financial statements and supplementary data. Except for Items 6, 7, 8 and 9A of Part II, no other information in the Form 10-K is being amended or updated. This restatement has been disclosed previously in the Company’s financial results as reported on Form 10-Q as of December 31, 2008.
PART II
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial and other data is as ofCanada and for the U.S. benefits payments business. Before joining State Street Corporation, Mr. Tarter spent more that 20 years endedat Bankers Trust. Mr. Tarter is vice chairman of the board of the Partnership, Inc., and a member of the Executive Leadership Council.
Deborah C. Wrightis Chairman, President and Chief Executive Officer of Carver and Carver Federal. The Board of Directors elected her to the post of Chairman in February 2005. Ms. Wright has held the titles President & CEO since June 1, 1999. Prior to joining Carver in June 1999, Ms. Wright was President and Chief Executive Officer of the Upper Manhattan Empowerment Zone Development Corporation, a position she had held since May 1996. She previously served as Commissioner of the Department of Housing Preservation and Development under Mayor Rudolph W. Giuliani from January 1994 through March 311996. Prior to that appointment, Mayor David N. Dinkins appointed Ms. Wright to the New York City Housing Authority Board, which manages New York City’s 189,000 public housing units. Ms. Wright serves on the boards of Kraft Foods Inc., Time Warner Inc., The Partnership for New York City, the Children’s Defense Fund and Sesame Workshop. She is deriveda member of the Board of Managers of the Memorial Sloan-Kettering Cancer Center. Ms. Wright earned A.B., J.D. and M.B.A. degrees from Harvard University.
Executive Officers of Carver and Carver Federal
Biographical information for Carver’s executive officers who are not directors is set forth below. Such executive officers are officers of Carver and Carver Federal. The information is provided as of November 2, 2009
Executive Officers
James Bason, 54, is Senior Vice President and Chief Lending Officer. He joined Carver in partMarch 2003. Previously, Mr. Bason was Vice President and Real Estate Loan Officer at The Bank of New York where he had been employed since 1991 when The Bank of New York acquired Barclays Bank (where he had been employed since 1986). At The Bank of New York, he was responsible for developing and maintaining relationships with developers, builders, real estate investors and brokers to provide construction and permanent real estate financing. At Barclays, Mr. Bason began his career in residential lending and eventually became the bank’s CRA officer. Mr. Bason earned a B.S. in Business Administration from the State University of New York at Oswego.
James Carter,59 is Senior Vice President of Operations of Carver Bancorp Inc. and should be readCarver Federal Savings Bank. Mr. Carter joined Carver in conjunction with the Company’s consolidated financial statementsAugust 2008 from TD Bank in New York where he served as Senior Vice President of Banking Services for 9 years. Prior to that, Mr. Carter served 4 years as Vice President of Retail Operations for Home Federal Savings Bank in New York and related notes (dollars20 years as Vice President and Senior Savings Officer at Columbia Federal Savings Bank in thousands):New York. Mr. Carter earned a B.S. in Business Administration and an MBA in Financial Management from IONA College in New Rochelle, NY.
                     
  2008  2007  2006  2005  2004 
  (Restated)  (Restated)             
Selected Financial Condition Data:
                    
Assets $796,182  $739,530  $661,396  $626,377  $538,830 
Loans held-for-sale  23,767   23,226   —   —   — 
Total loans receivable, net  627,231   579,866   493,432   421,987   351,900 
Securities  38,172   67,117   108,286   149,335   139,877 
Cash and cash equivalents  27,368   17,350   22,904   20,420   22,774 
Deposits  654,663   615,122   504,638   455,870   375,519 
Borrowed funds  58,625   61,093   93,792   115,299   104,282 
Stockholders’ equity  53,881   51,142   48,697   45,801   44,645 
 
Number of deposit accounts  46,771   46,034   41,614   40,199   38,578 
Number of branches  10   10   8   8   6 
 
Operating Data:
                    
Interest income $48,132  $41,740  $32,385  $28,546  $26,234 
Interest expense  22,656   19,234   13,493   9,758   8,700 
                
Net interest income before provision for loan losses  25,476   22,506   18,892   18,788   17,534 
Provision for loan losses  222   276   —   —   — 
                
Net interest income after provision for loan losses  25,254   22,230   18,892   18,788   17,534 
Non-interest income  7,861   2,869   5,341   4,075   5,278 
Non-interest expense  29,898   24,100   19,134   18,696   15,480 
                
Income before income taxes  3,217   999   5,099   4,167   7,332 
Income tax (benefit) expense  (892)  (1,099)  1,329   1,518   2,493 
Minority interest, net of taxes  146   —   —   —   — 
                
Net income $3,963  $2,098  $3,770  $2,649  $4,839 
                
Basic earnings per common share $1.59  $0.84  $1.50  $1.06  $2.03 
                
Diluted earnings per common share $1.55  $0.81  $1.45  $1.03  $1.87 
                
Cash dividends per common share $0.40  $0.35  $0.31  $0.26  $0.20 
                
 
Selected Statistical Data:
                    
Return on average assets (1)  0.52%  0.30%  0.60%  0.45%  0.93%
Return on average equity (2)  7.23   4.25   7.93   5.80   11.40 
Net interest margin (3)  3.62   3.44   2.97   3.41   3.56 
Average interest rate spread (4)  3.34   3.16   3.18   3.26   3.40 
Efficiency ratio (5)  90.31   94.98   78.96   81.77   67.86 
Operating expense to average assets (6)  3.92   3.34   3.04   3.21   2.97 
Average equity to average assets  7.16   7.05   7.54   7.84   8.13 
Dividend payout ratio (7)  24.50   34.04   20.63   24.64   9.86 
 
Asset Quality Ratios:
                    
Non-performing assets to total assets (8)  0.50%  0.61%  0.42%  0.16%  0.39%
Non-performing loans to total loans receivable (8)  0.43   0.74   0.55   0.23   0.60 
Allowance for loan losses to total loans receivable  0.74   0.89   0.81   0.96   1.16 
(1)Net income divided by average total assets.
(2)Net income divided by average total equity.
(3)Net interest income divided by average interest-earning assets.
(4)The difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(5)Non-interest expense divided by the sum of net interest income and non-interest income.
(6)Non-interest expense less real estate owned expenses, divided by average total assets.
(7)Dividends paid to common stockholders as a percentage of net income available to common stockholders.
(8)Non performing assets consist of non-accrual loans, loans accruing 90 days or more past due, and property acquired in settlement of loans.

 

2

RESTATEMENT
DuringChris McFadden,45 is Executive Vice President and Chief Financial Officer of Carver Federal Savings Bank. Prior to joining Carver in September 2009 Ms. McFadden was Chief Financial Officer and Chief Administrative Officer of Popular North America. Ms. McFadden has over 24 years of experience, combining her accounting and finance skills with her commercial banking experience. Prior to her joining Banco Popular in 2000, Chris held senior financial management positions at Hudson United Bancorp in New Jersey and Sovereign Bank in Pennsylvania. Chris served on the quarter ended December 31, 2008, Carver became awareBoard of certain adjustments to suspense accounts related to check return processing and automated clearing house (“ACH”) return processing that appeared to be incorrect. A reviewDirectors of the suspense account reconciliations commencedBanco Popular Foundation and previously served on the New York Advisory Board for Youth About Business and the New York Chapter of Operation Hope. Ms. McFadden is a certified Lean and Six Sigma practitioner. She received her MBA from St. Joseph’s University in Philadelphia, PA, with a concentration in Finance and earned her B.S. in Accounting from Albright College, Reading, PA.
Blondel A. Pinnock, 41, is Senior Vice President, Carver Federal Savings Bank and President of Carver Community Development Corporation. Ms. Pinnock joined Carver in April 2008. Prior to joining Carver, Ms. Pinnock was Senior Vice President of Bank of America where she was a community development lender and business development officer. Ms. Pinnock has over a ten year background in financing the development of residential and commercial real estate projects located within low and moderate income neighborhoods throughout New York City and outlying areas. Prior to her tenure at Bank of America, Ms. Pinnock worked as counsel and deputy director for the New York City’s Housing, Preservation and Development Department’s Tax Incentives Unit ,where she assisted in the implementation of the City’s real estate tax programs for low, moderate and market rate projects. She earned a B. A. from Columbia College and a J. D. from Hofstra University School of Law.
Mark A. Ricca, 52,is Executive Vice President, Chief Risk Officer and General Counsel of Carver Bancorp, Inc. and Carver Federal Savings Bank. Mr. Ricca joined Carver in 2008 after over twenty years of experience in the banking business. Prior to joining Carver, Mr. Ricca held several positions at New York Community Bancorp, Inc. and its principle subsidiary, New York Community Bank, beginning in 2000 and finishing in 2007 as its Executive Vice President, General Counsel and Assistant to the Chief Operating Officer, after which Mr. Ricca served as a legal consultant and lectured for Learning Dynamics. Prior to this Mr. Ricca held various positions at Haven Bancorp, Inc., and its principal subsidiary, CFS Bank, as Senior Vice President, Residential and Consumer Lending, Corporate Secretary, General Counsel and Chief Compliance Officer and was a partner in the law firm of Ricca & Donnelly. Prior to that, Mr. Ricca worked for General Electric Company, holding various positions in finance, auditing, management and financial sales. Mr. Ricca holds a Bachelor of Arts degree in economics from the University of Notre Dame, a juris doctorate, cum laude, Law Review and Jurisprudence Award recipient from St. Johns University, School of law, and an analysisLL.M. from New York University, School of Law.
Margaret D. Roberts, 59, is Senior Vice President and Chief Human Resources Officer. Ms. Roberts joined Carver in November 1999 as Senior Vice President and Chief Administrative Officer from Deutsche Bank where she had served as a Compensation Planning Consultant in Corporate Human Resources. Prior to that, Ms. Roberts was performed on Carver’s accountinga Vice President and financial reporting practices. The review raised questions regarding transactions since fiscal 2007, mostSenior Human Resources Generalist for Citibank Global Asset Management. Ms. Roberts also has 10 years of which involved adjustments tosystems and technology experience from various suspense accounts,positions held at JP Morgan and identified evidence that certain adjustments were incorrect. The review found evidence that during fiscal 2007, suspense accounts adjustments for check returnsChase Manhattan Bank. Ms. Roberts earned a B.P.S. degree from Pace University, an M.B.A. from Columbia University as a Citicorp Fellow, and ACH returns were improperhas been designated a Certified Compensation Professional by the American Compensation Association and resulteda Senior Professional in aged suspense items not being properly cleared. AsHuman Resources by the Human Resource Certification Institute.
John F. Spencer.44, is a result, an adjustment totaling $761,000 ($485,000 netSenior Vice President and Chief Retail Officer of tax)Carver Federal Savings Bank. Mr. Spencer joined Carver in February 2009 from JP Morgan Chase where he was necessary to correct the fiscal 2007 financial statements to reflect charge-offs that should have been recordedappointed Senior Vice President. At JP Morgan Chase, Mr. Spencer held several management positions in the appropriate period. This adjustment resulted inRetail Sales/Customer Service, Audit, and Operations Management. Additionally, he served as a reduction in diluted earnings per share for fiscal 2007 from $1.00 to $0.81, a decrease of $0.19, or 19%. The errors and irregularities identified in the course of the review revealed deficiencies in Carver’s accounting and financial control environment, some of which were determined to be a material weakness requiring corrective and remedial actions.
Concurrently with the review, Carver also conducted extensive internal reviewsBranch Administration Executive for the purposebank’s Retail Division, supporting a network with 700 branches, and over $50 billion in deposits. Mr. Spencer has a proven track record of the preparationoperational excellence. He has significant experience in Retail Bank merger integration, and certification of Carver’s fiscal 2009 financial statementshas also participated in Six Sigma Methodology projects. He earned a B.A. in Banking and its assessment of internal controls over financial reporting. Carver’s procedures included expanded account reviews and expanded balance sheet reconciliations to ensure all accounts were fully reconciled, supported, and appropriately documented. Carver also implemented improvements to its quarterly and annual accounting close process to provide for more complete review of the financial results.
As a result of the issues identified in the review, the Finance and Audit Committee, in consultation with management and KPMG LLP, concluded on February 9, 2009 that Carver’s previously issued financial statements for fiscal 2007 and fiscal 2008 (including the interim periods within those years), should no longer be relied upon because of certain accounting errors and irregularities in those financial statements. Accordingly, Carver restated its previously issued financial statements for those periods by filing this Amendment No. 1 to its Form 10-K for the year ended March 31, 2008. Restated financial information is presented in this Amendment No. 1 to its Form 10-K for the year ended March 31, 2008.
Set out below is the impact of the adjustment by financial statement line item in Carver’s consolidated statement of financial condition as of March 31, 2008 and 2007, the Consolidated Statements of Income and Cash Flows for the year ended March 31, 2007 and the Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the years ended March 31, 2008 and 2007. In addition, the income tax effect of the above adjustment has been reflected in footnote 11 of the consolidated financial statements.
Immaterial Corrections
The Consolidated Statement of Income for the year ended March 31, 2008 reflects an immaterial correction to reflect additional audit expenses in the amount of $28,000. After taxes this resulted in a decrease in net income of $17,000. As a result the corrected basic EPS remains unchanged at $1.59 while the corrected diluted EPS remains unchanged at $1.55.
The Consolidated Statement of Financial Position as of March 31, 2008 and 2007 also reflects an adjustment to reclassify $0.7 million from commercial business loans to goodwill. This adjustment was the result of a re-evaluation of goodwill in connection with the reconciliation matters disclosed above and elsewhere herein.
Management believes these corrections to prior period mistatements to be immaterial.Pace University.

 

3

CARVER BANCORP, INC. AND SUBSIDIARIESGeneral
The Board of Directors of the Company is committed to strong and effective corporate governance measures. The Board has developed, and continues to review, policies and practices covering the operation of the Board and its committees, including their composition and responsibilities, the conduct of Board meetings and the structure and role of the Board’s committees and related matters, including those discussed below and throughout this proxy statement. Among these measures are the following:
Independence.Under the Company’s Bylaws, at least three members of the Board must be independent under the criteria set forth in the Bylaws and, as a company listed on the Nasdaq Global Market, a majority of the Company’s Board must be independent under the criteria set forth in its listing requirements. In addition, pursuant to listing requirements of the NASDAQ Stock Market, the respective committee’s charter requires that all members of the Finance and Audit Committee must be independent and requires independent director oversight of the Nominating/Corporate Governance and Compensation Committees.
Lead Independent Director.The Board of Directors has created the position of lead independent director, whose primary responsibility is to preside over periodic executive sessions of the independent members of the Board of Directors. The lead independent director also prepares the agenda for meetings of the independent directors, serves as a liaison between the independent directors and management and outside advisors, and makes periodic reports to the Board of Directors regarding the actions and recommendations of the independent directors. The independent members of the Board of Directors have designated Robert Holland, Jr. to serve in this position for fiscal 2010.
Director Terms.Directors serve for three-year terms. See “Proposal One — Election of Directors — General.”
Executive Sessions.The Board of Directors holds executive sessions for non-employee directors only at which management is not present. These sessions are presided over by Robert Holland, Jr., the presiding independent director. In addition, the Finance and Audit Committee regularly holds executive sessions at which management is not present, including executive sessions with the Company’s independent auditors and internal auditors. Each director also has access to any member of management and the Company’s independent auditors.
Outside Advisors.The Board and its committees may retain outside advisors and consultants as they, in their discretion, deem appropriate.
Board Self-Evaluation.The Nominating/Corporate Governance Committee, among other things, reviews the Company’s and the Board’s governance profile. In addition, the Board and/or its committees regularly review their role and responsibilities, composition and governance practices.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONCorporate Governance Principles
(In thousands, except per share data)The Board of Directors adopted Corporate Governance Principles during the fiscal year ended March 31, 2004. From time to time the Board anticipates that it will revise the Corporate Governance Principles in response to changing regulatory requirements, evolving best practices and the concerns of the Company’s stockholders and other constituents. The Corporate Governance Principles are published on the Company’s website atwww.carverbank.com in the Corporate Governance section of the Investor Relations webpage.
                         
  March 31,  March 31,  March 31,  March 31,  March 31,  March 31, 
  2008  2008  2008  2007  2007  2007 
  (As Previously          (As Previously       
  Reported)(1)  Adjustment  (As Restated)  Reported)(1)  Adjustment  (As Restated) 
ASSETS
                        
Cash and cash equivalents:                        
Cash and due from banks $15,920  $—  $15,920  $14,619  $—   14,619 
Federal funds sold  10,500   —   10,500   1,300   —   1,300 
Interest earning deposits  948   —   948   1,431   —   1,431 
                   
Total cash and cash equivalents  27,368       27,368   17,350       17,350 
Securities:                        
Available-for-sale, at fair value  20,865   —   20,865   47,980   —   47,980 
Held-to-maturity, at amortized cost  17,307   —   17,307   19,137   —   19,137 
                   
Total securities  38,172   —   38,172   67,117   —   67,117 
                         
Loans held-for-sale  23,767   —   23,767   23,226   —   23,226 
                         
Loans receivable:                        
Real estate mortgage loans  578,957   —   578,957   533,667   —   533,667 
Commercial business loans  51,424   —   51,424   50,541   —   50,541 
Consumer loans  1,728   —   1,728   1,067   —   1,067 
Allowance for loan losses  (4,878)  —   (4,878)  (5,409)  —   (5,409)
                   
Total loans receivable, net  627,231   —   627,231   579,866   —   579,866 
                         
Office properties and equipment, net  15,780   —   15,780   14,626   —   14,626 
Federal Home Loan Bank of New York stock, at cost  1,625   —   1,625   3,239   —   3,239 
Bank owned life insurance  9,141   —   9,141   8,795   —   8,795 
Accrued interest receivable  4,063   —   4,063   4,335   —   4,335 
Goodwill  7,055   —   7,055   6,401   —   6,401 
Core deposit intangibles, net  532   —   532   684   —   684 
Other assets  41,870   (422)  41,448   14,313   (422)  13,891 
                   
Total assets $796,604  $(422) $796,182  $739,952  $(422) $739,530 
                   
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
Liabilities:                        
Deposits $654,663  $—  $654,663  $615,122  $—   615,122 
Advances from the FHLB-NY and other borrowed money  58,625   —   58,625   61,093   —   61,093 
Other liabilities  9,800   63   9,863   12,110   63   12,173 
                   
Total liabilities  723,088   63   723,151   688,325   63   688,388 
                         
Minority interest  19,150   —   19,150   —   —   — 
                         
Stockholders’ equity:                        
Common stock  25   —   25   25   —   25 
Additional paid-in capital  24,113   —   24,113   23,996   —   23,996 
Retained earnings  30,473   (485)  29,988   27,436   (485)  26,951 
Unamortized awards of common stock under ESOP              (4)      (4)
Treasury stock, at cost  (670)  —   (670)  (277)  —   (277)
Accumulated other comprehensive income  425   —   425   451   —   451 
                   
Total stockholders’ equity  54,366   (485)  53,881   51,627   (485)  51,142 
                   
Total liabilities and stockholders’ equity $796,604  $(422) $796,182  $739,952  $(422) $739,530 
                   
Director Independence Determination
(1)Includes adjustments for immaterial corrections to reclassify $685,000 from commercial business loans to goodwill as of 3/31/07 and to reflect additional audit expenses of $28,000 ($17,000 after tax) in fiscal 2008 net income.
The Board of Directors has determined that each of its non-management directors is independent according to the Board’s independence standards as set out in its Bylaws, Corporate Governance Principles, applicable rules of the SEC and the rules of the NASDAQ Stock Market. They are Carol Baldwin Moody, Dr. Samuel J. Daniel, David L. Hinds, Robert Holland, Jr., Pazel G. Jackson, Jr., Edward B. Ruggiero and Robert R. Tarter. Deborah C. Wright was determined not to be independent because she is currently an executive officer of the Company.

 

4

CARVER BANCORP, INC. AND SUBSIDIARIESCommunications with Board of Directors
The Board of Directors welcomes communications from stockholders. Interested parties may contact the Board of Directors at the following address:
Board of Directors
c/o Corporate Secretary
Carver Bancorp, Inc.
75 West 125th Street
New York, NY 10027
Communications may also be sent to individual directors at the above address.
The Company’s Secretary has the responsibility to collect mail for directors, forward correspondence directed to an individual director to that director in a timely manner, and to screen correspondence directed to multiple directors or to the full Board in order to forward it to the most appropriate committee chairperson or the full Board given the nature of the correspondence. Communications to the Board or any individual director that relate to the Company’s accounting, internal accounting controls or auditing matters will also be referred to the chairman of the Finance and Audit Committee. Other communications will be referred to the appropriate committee chairperson.
CONSOLIDATED STATEMENTS OF INCOMEFinancial Expert, Audit Committee Independence and Financial Sophistication
(The Board of Directors has determined that Edward B. Ruggiero qualifies as an “audit committee financial expert” and is financially sophisticated, and that each member of the Finance and Audit Committee is independent within the meaning of applicable SEC rules and meets the definition of independence in Rule 4200(a)(15) of the NASDAQ Stock Market listing standards.
Director Selection Process
The Company’s Nominating/Corporate Governance Committee is charged with the responsibilities described under “Board and Committee Meetings—Nominating/Corporate Governance Committee.”
Among the Nominating/Corporate Governance Committee���s responsibilities is to identify and recommend to the Board candidates for election as directors. The committee considers candidates suggested by its members, other directors and stockholders as necessary in anticipation of upcoming director elections and other potential or expected Board vacancies. The committee is also authorized, at the expense of the Company, to retain search firms to identify candidates, as well as external legal, accounting or other advisors. The committee will provide guidance to search firms it retains about the particular qualifications the Board is then seeking. No search firms or other advisors were retained by the committee in fiscal 2009.
All director candidates, including stockholder nominees, are evaluated on the same basis. In thousands, except per share data)
             
  Years Ended March 31, 
  2007  2007  2007 
  (As Previously      
  Reported)  Adjustment  (As Restated) 
Interest Income:            
Loans $37,277  $—  $37,277 
Mortgage-backed securities  2,877   —   2,877 
Investment securities  1,325   —   1,325 
Federal funds sold  261   —   261 
          
Total interest income  41,740   —   41,740 
             
Interest expense:            
Deposits  15,227   —   15,227 
Advances and other borrowed money  4,007   —   4,007 
          
Total interest expense  19,234   —   19,234 
          
             
Net interest income  22,506   —   22,506 
             
Provision for loan losses  276   —   276 
          
Net interest income after provision for loan losses  22,230   —   22,230 
             
Non-interest income:            
Depository fees and charges  2,476   —   2,476 
Loan fees and service charges  1,238   —   1,238 
Write-down of loans held for sale  (702)  —   (702)
Gain (loss) on sale of securities  (624)  —   (624)
Gain on sale of loans  192   —   192 
Loss on sale of real estate owned  (108)  —   (108)
Other  397   —   397 
          
Total non-interest income  2,869   —   2,869 
             
Non-interest expense:            
Employee compensation and benefits  10,470   —   10,470 
Net occupancy expense  2,667   —   2,667 
Equipment, net  2,071   —   2,071 
Merger related expenses  1,258   —   1,258 
Consulting Expense  496   —   496 
Other  6,377   761   7,138 
          
Total non-interest expense  23,339   761   24,100 
             
Income before income taxes and minority interes  1,760   (761)  999 
Income tax (benefit) expense  (823)  (276)  (1,099)
Minority interest, net of taxes  —   —   — 
          
Net income $2,583  $(485) $2,098 
          
             
Earnings per common share:            
Basic $1.03  $(0.19) $0.84 
          
Diluted $1.00  $(0.19) $0.81 
          
determining the needs of the Board and the Company, the Nominating/Corporate Governance Committee considers the qualifications of sitting directors and consults with other members of the Board, the Chief Executive Officer (“CEO”) and, where appropriate, external advisors. Generally the committee believes that all directors should exemplify the highest standards of personal and professional integrity, should have broad experience in positions with a high degree of responsibility and the ability to commit adequate time and effort to serve as a director. Directors will assume the responsibility of challenging management through their active and constructive participation and questioning in meetings of the Board and its various committees, as well as in less formal contacts with management.

 

5

Director candidates, other than sitting directors, are interviewed by members of the committee and by other directors and the CEO, and the results of those interviews are considered by the committee in its deliberations. The Nominating/Corporate Governance Committee also reviews sitting directors whose terms are nearing expiration, but who may be nominated for re-election, in light of the above considerations and their past contributions to the Board.
The Nominating/Corporate Governance Committee will evaluate director nominations by stockholders that are submitted in accordance with the procedural and informational requirements set forth in the Company’s Bylaws and described in this proxy statement under “Additional Information—Notice of Business to be Conducted at Annual Meeting.”
CARVER BANCORP, INC. AND SUBSIDIARIESCode of Ethics
The Company has adopted a Code of Ethics, which applies to the Company’s directors and employees and sets forth important Company policies and procedures in conducting the Company’s business in a legal, ethical and responsible manner. The Company has also adopted a Code of Ethics for Senior Financial Officers, which applies to the Company’s chief executive officer, chief financial officer, controller and other persons performing similar functions that supplement the Code of Ethics by providing more specific requirements and guidance on certain topics. Each of the Code of Ethics and Code of Ethics for Senior Financial Officers including future amendments, is available free of charge on Carver’s website atwww.carverbank.com in the Corporate Governance section of the Investor Relations webpage or by writing to the Secretary, Carver Bancorp, Inc., 75 West 125th Street, New York, New York 10027, or by telephoning (212) 360-8824. The Company intends to post on its website any waiver under the codes granted to any of its directors or executive officers.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOMEWebsite Access to Governance Documents
The Company’s Corporate Governance Principles and the charters for the Finance and Audit, Compensation and Nominating/Corporate Governance Committees are available free of charge on Carver’s website atwww.carverbank.com in the Corporate Governance section of the Investor Relations webpage or by writing to the Secretary, Carver Bancorp, Inc., 75 West 125th Street, New York, New York 10027, or by telephoning (212) 360-8824.
(In thousands)Board and Committee Meetings
(As Previously Reported)The Board of Directors of Carver holds regularly scheduled meetings during the fiscal year to review significant developments affecting Carver and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings. Members of senior management regularly attend Board meetings to report on and discuss their areas of responsibility. During fiscal 2009, the Board met eight times. No incumbent director attended fewer than 75%, in the aggregate, of the total number of Carver Board meetings held while he or she was a member of the Board during fiscal 2009 and the total number of meetings held by committees on which he or she served during such fiscal year.
                                 
              Common  Common           
      Additional      Stock  Stock      Accumulated Other  Total Stock- 
  Common  Paid-In  Treasury  Acquired  Acquired  Retained  Comprehensive  Holders’ 
  Stock  Capital  Stock  By ESOP  By MRP  Earnings  Income (Loss)  Equity 
Balance—March 31, 2005
 $25  $23,937  $(420) $(126) $(128) $22,748  $(235) $45,801 
Net income  —   —   —   —   —   3,770   —   3,770 
Loss on pension liability  —   —   —   —   —   —   (281)  (281)
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   (158)  (158)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,770   (439)  3,331 
Dividends paid  —   —   —   —   —   (782)  —   (782)
Treasury stock activity  —   (2)  117   —   —   —   —   115 
Allocation of ESOP Stock  —   —   —   116   —   —   —   116 
Purchase of shares for MRP  —   —   —   —   116   —   —   116 
                         
Balance—March 31, 2006
  25   23,935   (303)  (10)  (12)  25,736   (674)  48,697 
Adjustment to initially implement SFAS 158  —   —   —   —   —   —   281   281 
                         
Balance post implementation of SFAS 158  25   23,935   (303)  (10)  (12)  25,736   (393)  48,978 
Net income  —   —   —   —   —   2,583   —   2,583 
Minimum pension liability adjustment  —   —   —   —   —   —   79   79 
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   765   765 
                         
Comprehensive income, net of taxes:  —   —   —   —   —   2,583   844   3,427 
Dividends paid  —   —   —   —   —   (883)  —   (883)
Treasury stock activity  —   61   26   —   —   —   —   87 
Allocation of ESOP Stock  —   —   —   6   —   —   —   6 
Purchase of shares for MRP  —   —   —   —   12   —   —   12 
                         
Balance—March 31, 2007
  25   23,996   (277)  (4)  —   27,436   451   51,627 
Net income  —   —   —   —   —   3,980   —   3,980 
Minimum pension liability adjustment  —   —   —   —   —   —   195   195 
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   (221)  (221)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,980   (26)  3,954 
Adjustment to initially implement SFAS 156  —   —   —   —   —   49   —   49 
Dividends paid  —   —   —   —   —   (975)  —   (975)
Treasury stock activity  —   117   (393)  4   —   —   —   (272)
                         
Balance—March 31, 2008
 $25  $24,113  $(670) $—  $—  $30,490  $425  $54,383 
                         
Carver’s Corporate Governance Principles encourage directors to attend the Company’s Annual Meeting of stockholders and all Board meetings and meetings of committees of the Board on which they serve. Carver’s Bylaws require that the Company have executive, finance and audit, nominating/corporate governance, compensation and asset/liability and interest rate risk committees. The Board has adopted a charter for each of the Nominating/Corporate Governance Committee, the Compensation Committee and the Finance and Audit Committee, each of which may be amended from time to time. The nature and composition of each of the standing committees of the Company are described below.
Executive Committee.Pursuant to Carver’s Bylaws, the Executive Committee is authorized to act as appropriate between meetings of the Board. The members of this committee are Directors Deborah C. Wright (Chairman), David L. Hinds, Robert Holland, Jr., Carol Baldwin Moody and Pazel G. Jackson, Jr. The Executive Committee met three times during fiscal 2009.

 

6

CARVER BANCORP, INC. AND SUBSIDIARIESNominating/Corporate Governance Committee.As of November 2009, the Nominating/Corporate Governance Committee consists of Directors Robert Holland, Jr. (Chairman), Edward B. Ruggiero and Dr. Samuel J. Daniel. All members of the committee have been determined to be independent directors. The Nominating/Corporate Governance Committee’s functions include advising the Board on matters of corporate governance and considering qualifications of prospective Board member candidates, including conducting research to identify and recommend nomination of suitable candidates who are willing to serve as members of the Board, reviewing the experience, background, interests, ability and availability of prospective nominees to meet time commitments of the Board and committee responsibilities, considering nominees recommended by stockholders who comply with procedures set forth in the Company’s Bylaws and determining whether any prospective member of the Board has any conflicts of interest which may impair the individual’s suitability for such service. The committee has the responsibility to monitor current members of the Board pursuant to the same guidelines used to select candidates. The Nominating/Corporate Governance Committee is also responsible for identifying best practices and developing and recommending to the Board a set of corporate governance principles applicable to Carver and for periodically reviewing such principles.
The Nominating/Corporate Governance Committee met once during fiscal 2009. The committee also met on June 11, 2009 to nominate directors for election at the Annual Meeting. Only those nominations made by the Nominating/Corporate Governance Committee and approved by the Board will be voted upon at the Annual Meeting. For a description of the proper procedure for stockholder nominations, see “Additional Information—Notice of Business to be Conducted at Annual Meeting” in this proxy statement.
Compensation Committee.The Compensation Committee consists of Directors Carol Baldwin Moody (Chairperson), Robert Holland, Jr. and Robert R. Tarter. All members have been determined to be independent directors. The Compensation Committee evaluates the performance of the Company’s CEO and approves her compensation in consultation with the non-management members of the Board of Directors and, based on recommendations from management, reviews and approves senior management’s compensation and approves compensation guidelines for all other officers. The Compensation Committee administers the Company’s management recognition, incentive compensation stock option, and stock incentive plans and, in consultation with senior management, reviews and approves compensation policies. The Compensation Committee met five times during fiscal 2009.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOMEFinance and Audit Committee.The Finance and Audit Committee consists of Directors David L. Hinds (Chairman), Carol Baldwin Moody, Pazel G. Jackson, Jr., Edward B. Ruggiero and Robert R. Tarter. All members have been determined to be independent directors. The Finance and Audit Committee’s primary duties and responsibilities are to:
(In thousands)
monitor the integrity of Carver’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance;
(As Restated)
manage the independence and performance of Carver’s independent public auditors and internal auditing function;
                                 
              Common  Common           
      Additional      Stock  Stock      Accumulated Other  Total Stock- 
  Common  Paid-In  Treasury  Acquired  Acquired  Retained  Comprehensive  Holders’ 
  Stock  Capital  Stock  By ESOP  By MRP  Earnings  Income (Loss)  Equity 
Balance—March 31, 2005
 $25  $23,937  $(420) $(126) $(128) $22,748  $(235) $45,801 
Net income  —   —   —   —   —   3,770   —   3,770 
Loss on pension liability  —   —   —   —   —   —   (281)  (281)
Change in net unrealized loss on available- for-sale securities, net of taxes  —   —   —   —   —   —   (158)  (158)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,770   (439)  3,331 
Dividends paid  —   —   —   —   —   (782)  —   (782)
Treasury stock activity  —   (2)  117   —   —   —   —   115 
Allocation of ESOP Stock  —   —   —   116   —   —   —   116 
Purchase of shares for MRP  —   —   —   —   116   —   —   116 
                         
Balance—March 31, 2006
  25   23,935   (303)  (10)  (12)  25,736   (674)  48,697 
Adjustment to initially implement SFAS 158  —   —   —   —   —   —   281   281 
                         
Balance post implementation of SFAS 158  25   23,935   (303)  (10)  (12)  25,736   (393)  48,978 
Net income (as restated)  —   —   —   —   —   2,098   —   2,098 
Minimum pension liability adjustment  —   —   —   —   —   —   79   79 
Change in net unrealized loss on available- for-sale securities, net of taxes  —   —   —   —   —   —   765   765 
                         
Comprehensive income, net of taxes:  —   —   —   —   —   2,098   844   2,942 
Dividends paid  —   —   —   —   —   (883)  —   (883)
Treasury stock activity  —   61   26   —   —   —   —   87 
Allocation of ESOP Stock  —   —   —   6   —   —   —   6 
Purchase of shares for MRP  —   —   —   —   12   —   —   12 
                         
Balance—March 31, 2007 (as restated)
  25   23,996   (277)  (4)  —   26,951   451   51,142 
Net income  —   —   —   —   —   3,963   —   3,963 
Minimum pension liability adjustment  —   —   —   —   —   —   195   195 
Change in net unrealized loss on available- for-sale securities, net of taxes  —   —   —   —   —   —   (221)  (221)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,963   (26)  3,937 
Adjustment to initially implement SFAS 156  —   —   —   —   —   49   —   49 
Dividends paid  —   —   —   —   —   (975)  —   (975)
Treasury stock activity  —   117   (393)  4   —   —   —   (272)
Allocation of ESOP Stock  —   —   —   —   —   —   —   — 
Purchase of shares for MRP  —   —   —   —   —   —   —   — 
                         
Balance—March 31, 2008 (as restated)
 $25  $24,113  $(670) $—  $—  $29,988  $425  $53,881 
                         
monitor the process for adhering to laws, regulations, the Company’s Code of Ethics and the Code of Ethics for Senior Financial Officers; and
provide an avenue of communication among the independent auditors, management, the internal auditing function and the Board of Directors.
Other specific duties and responsibilities include reviewing Carver’s disclosure controls and procedures, internal controls, Carver’s periodic filings with the SEC and earnings releases; producing the required audit committee annual report for inclusion in Carver’s proxy statement; and overseeing complaints concerning financial matters. The report of the Finance and Audit Committee is contained on page15. The Finance and Audit Committee met nine times during fiscal 2009, including meetings to review the Company’s annual and quarterly financial results prior to their public issuance.

 

7

Asset/Liability and Interest Rate Risk Committee.The Asset/Liability and Interest Rate Risk Committee consists of Directors Pazel G. Jackson, Jr. (Chairman), Dr. Samuel J. Daniel, David L. Hinds, Robert Holland, Jr. and Deborah C. Wright. The Asset/Liability and Interest Rate Risk Committee monitors activities related to asset/liability management and interest rate risk, including the approval or ratification of mortgage loans and the establishment of guidelines related to risk, purchase or sale of loans and investments, and management of interest rate, credit and liquidity risk against objectives and risk limitations set forth in Carver Federal’s policies. The committee met eleven times during fiscal 2009.
CARVER BANCORP, INC. AND SUBSIDIARIESCompensation Committee Report
The Compensation Committee has reviewed the Compensation Discussion and Analysis included in this proxy statement and has discussed it with management. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
The following report has been furnished by members of the Compensation Committee:
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
             
  Years Ended March 31, 
  2007  2007  2007 
  (As Previously       
  Reported)  Adjustment  (As Restated) 
Cash flows from operating activites:
            
Net income $2,583  $(485) $2,098 
Adjustments to reconcile net income to net cash from operating activities:            
Provision for loan losses  276   —   276 
Stock based compensation expense  426   —   426 
Depreciation and amortization expense  1,581   —   1,581 
Amortization of premiums and discounts  (1,145)  —   (1,145)
Impairment charge on securities  —   —   — 
(Gain) Loss from sale of securities  624   —   624 
Gain on sale of loans  (192)  —   (192)
Writedown on loans held-for-sale  702   —   702 
Loss on sale of real estate owned  108   —   108 
Originations of loans held-for-sale  (24,708)  —   (24,708)
Proceeds from sale of loans held-for-sale  14,422   —   14,422 
Changes in assets and liabilities:            
Decrease (increase) in accrued interest receivable  (1,365)  —   (1,365)
Increase in other assets  (2,662)  422   (2,240)
(Decrease) increase in other liabilities  (4,330)  63   (4,267)
          
Net cash (used in) provided by operating activities  (13,680)  —   (13,680)
          
Cash flows from investing activites:
            
Purchases of securities:            
Available-for-sale  —   —   — 
Proceeds from principal payments, maturities and calls of securities:            
Available-for-sale  26,539   —   26,539 
Held-to-maturity  7,185   —   7,185 
Proceeds from sales of available-for-sale securities  57,942   —   57,942 
Originations of loans held-for-investment  (105,284)  —   (105,284)
Loans purchased from third parties  (58,191)  —   (58,191)
Principal collections on loans  146,410   —   146,410 
Proceeds from sales of loan originations held-for-investment  16,548   —   16,548 
Redemption of FHLB-NY stock  1,388   —   1,388 
Additions to premises and equipment  (1,869)  —   (1,869)
Proceeds from sale of real estate owned  404   —   404 
Payments for acquisition, net of cash acquired  (2,425)  —   (2,425)
          
Net cash (used in) provided by investing activities  88,647   —   88,647 
          
Cash flows from financing activites:
            
Net increase (decrease) in deposits  (33,657)  —   (33,657)
Net repayment of FHLB advances and other borrowings  (45,660)  —   (45,660)
Common stock repurchased  (321)  —   (321)
Dividends paid  (883)  —   (883)
          
Net cash provided by (used in) financing activities  (80,521)  —   (80,521)
          
Net (decrease) increase in cash and cash equivalents  (5,554)  —   (5,554)
Cash and cash equivalents at beginning of period  22,904   —   22,904 
          
Cash and cash equivalents at end of period $17,350  $—  $17,350 
          
             
Supplemental information:            
Noncash Transfers-            
Change in unrealized loss on valuation of available-for-sale investments, net $765  $—  $765 
 
Cash paid for-            
Interest $19,510  $—  $19,510 
Income taxes $652  $—  $652 
Carol Baldwin Moody (Chairperson)
Robert Holland, Jr.
Robert Tarter

 

8

PART IIItem 11. Executive Compensation
ITEM 7. MANAGEMENT’SCOMPENSATION DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements presented elsewhere in this report. The Company’s results of operations are significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies, changes in accounting standards and actions of regulatory agencies.
Executive Summary
Despite a challenging operating environment, Carver Bancorp, Inc. is a savingscontinued to service consumers and loan holding company organized underinstitutions in historically low to moderate income communities. Carver’s commitment to this community continually earns the lawsCompany an “Outstanding” rating from the Office of Thrift Supervision. Our capital position continues to be strong, and was further enhanced by our participation in the U.S. Treasury Department’s Capital Purchase Program (“CPP”) of the stateEmergency Economic Stimulus Act of Delaware. Carver2008. The CPP, part of the Treasury’s Troubled Asset Relief Program (“TARP”), provides cost efficient equity capital for growth. Despite the Company’s operational achievements and the capital injection, the impact of a goodwill impairment charge of $7.1 million and the global economic downturn that affected the entire banking industry exacted its toll on the Company’s fiscal 2009 performance, resulting in posting our first fiscal year loss since 2001. Nevertheless, the Company is committedpursuing a strategy that will both satisfy Carver’s responsibility to providing superior customer service while offering a range of banking productsincrease shareholder value and financialprofitably provide services to our retailcustomers. For fiscal 2009, the Company used the Net Income metric to determine achievement of fiscal year goals and commercial customers. The Holding Company’s primary subsidiary is Carver Federal Savings Bank, which operates from ten branches in the New York City boroughs of Manhattan, Brooklyn and Queens.
Fiscal 2008
Fiscal 2008 was a particularly challenging year for Carver, driven in part by the yield curve and disruptions in credit markets, followed by the threat of recession. Nevertheless, Carver’s business held up well, as the impact of national events has not been as apparent in our core markets. Carver was spared the bruntannual incentive pool. After careful review of the turbulent credit environment, given our limited exposure to loanCompany’s performance, the Compensation Committee of the Board of Directors (the“Committee”or the“Compensation Committee”determined that the Company did not meet its fiscal 2009 Net Income goal and investment products of concernno bonuses were awarded to the financial markets. Although the Company’s local markets have not experienced in any material respect the fallout impacting other regions across the nation, management is intensely focused on any signs of weakening conditions. The Company believes its small business and real estate lending teams are well positioned to source attractive opportunities, and Carver remains committed to solid asset quality and accretive asset growth as top priorities.
Reported earnings increased 90% from fiscal 2007, but were basically flat when removing the impact of fiscal 2007’s acquisition and balance sheet restructuring. The Company’s net interest income grew to a record level of over $25 million, following an increase in our net interest margin of 18 basis points to 3.62%. This margin expansion resulted from a 7.8% increase in loans and deposit growth of 6.4%, although consistent with peers, core deposits are migrating to higher priced CDs. Additionally, credit quality remained strong with non-performing loans at 0.50% of total assets. Securities and borrowings portfolios decreased during fiscal 2008, which is consistent with the Company’s strategy to reduce lower yielding securities and invest in higher yielding mortgages and loans. Carver’s fiscal 2008 performance was driven by three primary factors: first, Carver’s lending business continued to excel, and credit quality remained stable; second, Carver leveraged its New Markets Tax Credit award to bolster bottom line performance; and third, Carver’s asset/liability management eased margin pressure.
The Bank’s non-interest income benefited from a significant New Markets Tax Credit transaction generating a $1.7 million payment during the year, along with increased lending and retail fee generation. With this transaction, the Bank’s $59 million award received in June 2006 has been fully invested. Carver’s NMTC award continues to provide a Federal income tax benefitNamed Executive Officers pursuant to the Company’s bottom line. Incentive Plan.
The Company expects to receive additional NMTC tax benefitsBoard of approximately $12.1 million from its $40.0 million investment over approximately the next six years.
Asset quality remained solid in fiscal 2008 notwithstanding the Bank’s loan portfolio growth and diversification into small business lending. The Company believes that the Bank’s loan loss provision recorded in fiscal 2008Directors of Carver and the Bank’s allowanceCompensation Committee share a strong pay-for-performance philosophy, which seeks to reward the achievement of performance goals and aligns Carver’s executives’ interests with those of Carver’s stockholders. At the same time, Carver strives to attract and retain high performing executives of outstanding skill and capability by endeavoring to provide competitive compensation. The following discussion focuses on the Compensation Committee’s philosophy and practices, particularly as it relates to Named Executive Officers (as defined below) for loan losses are adequate.
Expenses grew year over year, largely based on substantial expansion of non-interest expense of $3.6 million. The increase in expense falls into three categories: regulatory requirements (preparation for compliance with Sarbanes-Oxley Act Section 404fiscal 2009 and recent Inter-Agency Guidance on Allowances for Loan Losses); strengthening the Bank’s back office, including the accounting, lending and retail operations departments, by adding new staff and providing temporary expertise; and engaging consultants to assist the management team to analyze significant opportunities to improve financial results. For example, the Bank engaged consultants to conduct a rigorous business optimization review to help management identify further improvements in our operations, in part through greater systems integration. While these investments impact near-term results, they are fundamental to building the scale and infrastructure necessaryprovides important context for the Company to grow profitably. During fiscal 2009, management expects to outlinemore detailed disclosure tables and specific steps to improve efficiency and return on equity. The first step should occurcompensation amounts provided elsewhere in the second quarterproxy statement. The following table lists Carver’s Chief Executive Officer, Senior Vice President and Controller (previously the Company’s principal accounting officer), and each of the three other most highly compensated executive officers who served in such capacities during the fiscal year ended March 31, 2009 when the Bank expects to complete outsourcing of its residential lending department. Management expects that this arrangement will expand the Bank’s product base and improve customer service, while reducing costs to the Company.(the“Named Executive Officers”).
NamePosition with the Company During Fiscal 2009
Deborah C. WrightChairman and Chief Executive Officer
Roy SwanExecutive Vice President and Chief Financial Officer
Charles F. KoehlerExecutive Vice President, Lending
James H. Bason, Jr.Senior Vice President and Chief Lending Officer
Susan M. IfillSenior Vice President and Chief Retail Officer
Michael TrinidadSenior Vice President and Controller
Thomas SperzelSenior Vice President and Controller

 

9

Fiscal 2009Compensation Philosophy
The industry economic environment in fiscal 2009Company’s success depends on hiring and retaining highly qualified individuals, as each executive has the potential to influence its short and long-term performance. Therefore, the Committee places considerable effort on the design and administration of the Company’s compensation program. Carver’s competitive position is expected to be characterized by continued constraint in credit markets combined with the threat of stagflation. The credit issues relate to weaknesses in residential and commercial real estate due to subprime issues and general economic conditions. Interest rates are expected to remain lowa critical element in the near term asrecruitment and retention of executives and all employees. As a small community bank in New York City, competitive pressures on the Federal Reserve lowered the Fed funds rate in efforts to stimulate growth. However, inflation fears may constrain the Federal Reserve’s ability to lower ratesattract and retain talent are intense. Most executives and staff are recruited to Carver from current levels,money center banks and inflation concerns may haveother larger financial institutions.
The Committee believes that executive compensation should support Carver’s unique business strategy and result in a compensation program that:
Enables Carver to attract and retain top talent by providing competitive award opportunities while at the impactsame time effectively controlling compensation costs.
Places significant focus on incentive/performance based rewards that are contingent on achievement of steepeningCompany and individual performance.
Enhances Carver’s long-term stockholder value.
Carver’s compensation program is significantly performance-based. As such, executive compensation can and does vary significantly, up or down, based on the yield curveCompany’s performance relative to strategic goals and encouragingindustry peers. Carver’s strategic vision and strategies are translated into specific performance goals, which the Federal ReserveCommittee considers in assessing performance and making total compensation decisions. To foster teamwork in building long-term performance and stockholder value, executive pay reflects a mix of Company, department and individual performance. Carver’s assessment of compensation and performance considers a balanced view of factors critical to consider raisingunderstanding the Fed funds rate later this year.Company’s total performance, as follows.
Thrifts, many of which have business models primarily dependent on spread income from real estate loans, have been especially hard hit in this environment. The thrift industry posted a record $5.2 billion loss in
Internal and External Benchmarks — executive performance is measured against the December 2007 quarter. In calendar year 2008 (Carver’s fiscal 2009), industry analysts expect earnings shrinkageCompany’s goals for the sector, and expect smaller banks to suffer more than larger banks. Carver Federal’s credit quality has been stable becausefiscal year as well as its neighborhood markets have not been as severely impacted by the credit issues impacting the nation.
The outlook for fiscal 2009 reflects many of theexternal peer group, along with economic and competitiveindustry factors that the Bankmay impact performance or strategy.
Company and the banking industry faced in fiscal 2008. AsIndividual performance — executives are incented to work together as a result, the Bank expects the operating environment to remain challenging. In this challenging climate, the Bank will continue to focus on growth in its traditional businesses, namely the expansion of real estate loans and core deposits. The Bank expects its new business and marketing efforts to core customer groups including small business owners, landlords, and churches and other non-profits,team to drive overall Company performance; however, each executive is also held accountable and rewarded for achieving individual goals.
Short and Long-Term Performance — compensation reflects a balance of short-term performance (i.e., how the Bank’s deposit gathering strategy.Company meets its annual goals) and long-term performance (i.e., building a platform for sustained, profitable growth over multiple years).
Carver expects its business performance in fiscal 2009 and thereafter will be propelled by several factors. First, the small business and non-residential markets offer the opportunity for higher-yielding loans and lower costing deposits. Management believes serving these market niches is critical to Carver’s growth and future profitability. Second, Carver’s focus on improving its back-office operations should pay dividends in the form of efficiencies. Third, Carver enjoys a venerable reputation in the world of community development financial institutions, and management believes that Carver may leverage that reputation to its business advantage by broadening its new business efforts to target a broader institutional audience. Finally, management believes that growth and profitability may be accelerated by a prudent merger and acquisition strategy. The importance of a strong and efficient operating platform has been amplified in the current regulatory environment and Carver’s competitive marketplace.
Acquisition of Community Capital Bank
On September 29, 2006, the Bank completed its acquisition of Community Capital Bank, a Brooklyn-based New York State chartered commercial bank, with approximately $165.4 million in assets and two branches, in a cash transaction totaling approximately $11.1 million. Under the terms of the merger agreement, CCB’s shareholders were paid $40.00 per outstanding share (including options which immediately vested with the consummation of the merger) and the Bank incurred an additional $0.9 million in transaction related costs. The combined entities operate under Carver Federal’s thrift charter and Carver Federal continues to be supervised by the Office of Thrift Supervision.
The transaction, which was accounted for under the purchase accounting method, included the recognition of approximately $0.8 million of core deposit intangibles and $5.1 million representing the excess of the purchase price over the fair value of identifiable net assets (“goodwill”). At March 31, 2008, goodwill relating to the transaction and subsequent additional purchase accounting adjustments, primarily income taxes, sales tax assessment and professional fees, totaled approximately $7.1 million. A re-evaluation of goodwill in connection with the reconciliation matter disclosed elsewhere herein resulted in the reclassification of $0.7 million from loans to goodwill as of March 31, 2008 and 2007.
•
Unique Business Model — Carver’s legacy is anchored in a 60-year history of commitment to providing capital, and thereby expanding wealth enhancing opportunities, to consumers and institutions in historically low to moderate income communities. Opportunities created by a substantial expansion of economic opportunity in these communities in recent years is balanced by significantly greater competition from global institutions and persistently high rates of poverty, and therefore limited assets that can be invested by a majority of the residents of communities in which the Company operates. The Company’s“Outstanding”rating by the Office of Thrift Supervision following its most recent Community Reinvestment Act examination in February 2009, noted that 55% of Carver’s loans were originated in such communities, far exceeding peer institutions.

 

10

New Markets Tax Credit Award
In June 2006, Carver Federal was selected by the U.S. DepartmentBenchmarking of Treasury to receive an award of $59 million in New Markets Tax Credits. The NMTC award is used to stimulate economic development in low- to moderate-income communities. The NMTC award enables the Bank to invest with community and development partners in economic development projects with attractive terms including, in some cases, below market interest rates, which may have the effect of attracting capital to underserved communities and facilitating the revitalization of the community, pursuant to the goals of the NMTC program. The NMTC award provides a credit to Carver Federal against Federal income taxes when the Bank makes qualified investments. The credits are allocated over seven years from the time of the qualified investment. Recognition of the Bank’s NMTC award began in December 2006 when the Bank invested $29.5 million, one-half of its $59 million award. In December 2007, the Bank invested an additional $10.5 million and transferred rights to $19.0 million to an investor in a NMTC project. The Bank’s NMTC allocation was fully invested as of December 31, 2007. During the seven year period, assuming the Bank meets compliance requirements, the Bank will receive 39% of the $40.0 million invested award amount in tax benefits (5% over each of the first three years, and 6% over each of the next four years). The Company expects to receive the remaining NMTC tax benefits of approximately $12.1 million from its $40.0 million investment over the next six years.
Critical Accounting Policies
Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Carver’s policy with respect to the methodologies used to determine the allowance for loan losses is the most critical accounting policy. This policy is important to the presentation of Carver’s financial condition and results of operations, and it involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions and estimates could result in material differences in our results of operations or financial condition.
See Note 2 of Notes to Consolidated Financial Statements for a description of our summary of significant accounting policies, including those related to allowance for loan losses, and an explanation of the methods and assumptions underlying their application.
Securities ImpairmentCompensation
The Bank’s available-for-sale securities portfolio is carried at estimated fair value,Compensation Committee periodically benchmarks compensation of executive officers and directors utilizing publicly disclosed information from a peer group of publicly traded banks as well as published industry surveys. The frequency of the comprehensive reviews will reflect the competitive landscape as well as the Company’s own growth. The last comprehensive review, conducted by Pearl Meyer & Partners, was in fiscal 2008. Although a comprehensive competitive review was not conducted for fiscal year 2009, Pearl Meyer & Partners validated the ranges for 2009.
The peer group below was approved by the Compensation Committee and reviewed by the compensation consultant to reflect banks with any unrealized gainsa similar business focus and losses, net of taxes, reportedsimilar asset size and region to Carver. The peer group will be reviewed and updated, as accumulated other comprehensive income/lossappropriate, as the comparability of banks may change depending on acquisitions and business focus of the Company or peer institutions. The Company used the same peer group used in stockholders’ equity. Securitiesfiscal 2008 for its fiscal 2009 review. The peer group included banks that the Bank has the positive intent and abilityranged from $600 million to hold to maturity are classified as held-to-maturity and are carried at amortized cost. The fair values$1.3 billion in assets with a median of securities$875 million in assets. A list of banks in the portfolio are based onpeer group follows.
Peer Group
American Bancorp of New Jersey
Berkshire Bancorp Inc.
Brooklyn Federal Bancorp, Inc.
Center Bancorp, Inc.
Chemung Financial Corporation
Clifton Savings Bancorp, Inc.
First of Long Island Corporation
Hudson Valley Holding Corporation
Intervest Bancshares Corporation
Ocean Shore Holding Company
OceanFirst Financial Corporation
Oneida Financial Corporation
Pamrapo Bancorp, Inc.
Severn Bancorp, Inc.
Smithtown Bancorp, Inc.
State Bancorp, Inc.
Sterling Bancorp
Wilber Corporation
In addition to the peer group data, the Company used several other sources of data for cash compensation (base salary and incentive) to identify general compensation trends. Pearl Meyer & Partners provides comparative data from several northeast banking association surveys as well as published or securities dealers’ market valuesindustry surveys and are affected by changes in interest rates. The Bank periodically reviewsa proprietary database of national banking compensation data. Data reflect banks of similar asset size and evaluatesregion to the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. The Bank generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience. However, if such a decline is deemed to be other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to earnings. At March 31, 2008, the Bank carried no other than temporarily impaired securities.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to provide for probable loan losses inherent in the portfolio as of March 31, 2008. During the third quarter of fiscal 2008, Carver changed its loan loss methodology to be consistent with the Interagency Policy Statement on the Allowance for Loan and Lease Losses released by the Federal Financial Regulatory Agencies on December 13, 2006. The change had an immaterial affect on the allowance for loan losses at March 31, 2008. Management is responsible for determining the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements. The evaluation process is undertaken on a quarterly basis, but may increase in frequency should conditions arise that would require management’s prompt attention, such as business combinations and opportunities to dispose of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend.Company.

 

11

Carver Federal maintainsCompensation-Related Governance and Roles of the Committee and Others in Executive Compensation
Participation in Capital Purchase Program
On January 16, 2009, the Company entered into a loan review system,Securities Purchase Agreement with the United States Treasury that provides for the Company’s participation in the Capital Purchase Program under the TARP. TARP-CPP participants are required to agree to significant restrictions on executive compensation during the period in which includes periodic reviewthe Treasury holds an equity position in the Company (the “CPP Covered Period”) as a condition of its loan portfolioparticipation. In compliance with such requirements, the Company’s Chief Executive Officer, principal accounting officers and the early identificationnext three highest-paid executive officers (the Company’s “senior executive officers” or “SEO’s”) have agreed in writing to accept the compensation restrictions under the TARP and thereby limit some of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial conditiontheir contractual or legal rights. These restrictions were in effect as of the borrowers. Loan loss allowances are establishedend of fiscal 2009 and consisted of the following:
Limit on Severance.The Company was required to limit amounts that can be paid to any senior executive officer upon their involuntary separation of service to amounts not exceeding three times the terminated officer’s average compensation over the five years prior to termination. The Company’s senior executive officers have agreed to forego all severance payments as long as they remain senior executive officers and for problem loansthe duration of the CPP Covered Period.
Claw back of Bonus and Incentive Compensation if Based on Certain Material Inaccuracies. Incentive compensation paid that is later found to have been based on a reviewmaterially inaccurate financial statements or other materially inaccurate measurements of performance is subject to recovery by the Company. The Company’s senior executive officers acknowledge that each incentive program and each compensation or benefit agreement that incorporates incentive compensation was deemed amended to the extent necessary to give effect to such information and/or appraisalsclaw-back.
No Compensation Arrangements that Encourage Excessive Risks.The Company is prohibited from entering into compensation arrangements that encourage senior executive officers to take “unnecessary and excessive risks that threaten the value” of the underlying collateral. OnCompany. To insure this does not occur, the remainderCompany’s Compensation Committee is required to meet at least once a year with senior risk officers to review the Company’s executive compensation arrangements in light of itsthe Company’s risk management policies and practices. To the extent that such review suggests revisions to any compensation arrangement, the Company agrees to modify promptly the compensation arrangement to eliminate any undue risk. In March 2009, The Compensation Committee met with the Company’s Chief Risk Officer and determined that Carver’s compensation program does not encourage unnecessary risk taking by executive officers. Carver’s short-term and long-term incentive programs use a broad based balance of performance measures with no one measurement dominating the payout determination. This feature greatly mitigates any incentive for a SEO to engage in unnecessary or excessive risk. The performance measures include net income, loan portfolio, loan loss allowancesand deposit growth, efficiency ratio, SOX 404 compliance, New Markets Tax Credit allocation deployment and individual SEO performance throughout the year. Company and departmental goals are based upon an annual business plan submitted to and approved by the Board of Directors, whereat the Board considers the reasonableness of the plan and its goals. An SEO’s individual performance is based upon actual performance compared to pre-established performance goals and actual performance compared to adjusting market and other conditions. In this connection, an SEO’s incentive compensation can be reduced to zero based upon individual performance, further ensuring SEOs are not rewarded for performance that is not in Carver’s best long term interests.
Limit on Federal Income Tax Deductions.During the CPP Covered Period, the Company is prohibited from taking a combinationfederal income tax deduction for compensation paid to senior executive officers in excess of factors including, but not limited to, actual loan loss experience, composition$500,000 per year.
American Recovery and Reinvestment Act of loan portfolio, current economic conditions2009
On February 17, 2009, the American Recovery and management’s judgment. Although management believes that adequate loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additionsReinvestment Act of 2009 (“ARRA”) became law. ARRA created compensation-related limitations in addition to the levellimitations under the CPP discussed above and required the Secretary of the loan loss allowance may be necessary inUnited States Treasury to establish additional standards for executive compensation that will apply beyond the future.
The methodology employed for assessing the appropriateness of the allowance consists of the following criteria:
Establishment of loan loss allowance amounts for all specifically identified criticized and classified loans that have been designated as requiring attention by management’s internal loan review process, bank regulatory examinations or Carver Federal’s external auditors.
An average loss factor, giving effect to historical loss experience over several years and other qualitative factors, is applied to all loans not subject to specific review.
Evaluation of any changes in risk profile brought about by business combinations, customer knowledge, the results of ongoing credit quality monitoring processes and the cyclical nature of economic and business conditions. An important consideration in performing this evaluation is the concentration of real estate related loans located in the New York City metropolitan area.
All new loan originations are assigned a credit risk grade which commences with loanCompany’s senior executive officers and underwriters grading the quality of their loans one to five under a nine-category risk classification scale, the first five categories of which represent performing loans. Reserves are held based on actual loss factors based on several years of loss experience and other qualitative factors appliedup to the outstanding balances in each loan category. All loans are subject to continuous review and monitoring for changes in their credit grading. Grading that falls into criticized or classified categories (credit grading six through nine) are further evaluated and reserved amounts are established for each loan based on each loan’s potential for loss and include consideration of20 next most highly compensated employees during the sufficiency of collateral. Any adverse trend in real estate markets could seriously affect underlying values available to protect against loss.
Other evidence used to supportCPP Covered Period. Under ARRA, the amount of the allowance and its components includes:
Amount and trend of criticized loans;
Actual losses;
Peer comparisons with other financial institutions; and
Economic data associated with the real estate market in the Company’s lending market areas.
A loan is considered to be impaired, as defined by SFAS No. 114, “Accounting by Creditors for Impairment of a Loan” (“SFAS 114”), when it is probable that Carver Federal will be unable to collect all principal and interest amounts due according to the contractual terms of the loan agreement. Carver Federal tests loans covered under SFAS 114 for impairment if they are on non-accrual status or have been restructured. Consumer credit non-accrual loans are not tested for impairment because they are included in large groups of smaller-balance homogeneous loans that, by definition, are excluded from the scope of SFAS 114. Impaired loanscompensation standards are required to be measured based upon (i)include the present valuefollowing:
Limit on Severance.The ARRA standards prohibit severance payments resulting from termination of expected future cash flows, discounted atemployment for any reason, except for payments for services performed or benefits accrued. Under ARRA, we are prohibited from making any severance payment to the loan’s initial effective interest rate, (ii)Company’s senior executive officers and the loan’s market price, or (iii) fair value ofnext five most highly compensated employees during the collateral if the loan is collateral dependent. If the loan valuation is less than the recorded value of the loan, an allowance must be established for the difference. The allowance is established by either an allocation of the existing allowance for loan losses or by a provision for loan losses, depending on various circumstances. Allowances are not needed when credit losses have been recorded so that the recorded investment in an impaired loan is less than the loan valuation.CPP Covered Period.

 

12

Asset/Liability Management
Recovery of Incentive Compensation if Based on Certain Material Inaccuracies.The Company’s primary earnings source is net interest income, which is affected by changes inARRA standards also contain the level of interest rates, the relationship between the rates on interest-earning assets“claw-back provision” discussed above but will extend its application to any bonus or retention awards and interest-bearing liabilities, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and the credit quality of earning assets. Management’s asset/liability objectives areother incentive compensation paid to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity and to manage its exposure to changes in interest rates.
The economic environment is uncertain regarding future interest rate trends. Management monitors the Company’s cumulative gap position, which is the difference between the sensitivity to rate changes on the Company’s interest-earning assets and interest-bearing liabilities. In addition, the Company uses various tools to monitor and manage interest rate risk, such as a model that projects net interest income based on increasing or decreasing interest rates.
Stock Repurchase Program
Refer to “ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.”
Discussion of Market Risk—Interest Rate Sensitivity Analysis
As a financial institution, the Bank’s primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the Bank’s assets and liabilities, and the market value of all interest-earning assets, other than those which are short term in maturity. Since virtually allany of the Company’s interest-bearing assetssenior executive officers and liabilities are held by the Bank,next 20 most highly compensated employees that is later found to have been based on materially inaccurate financial statements or other materially inaccurate measurements of performance.
No Compensation Arrangements That Encourage Earnings Manipulation.The ARRA standards prohibit the Company from entering into compensation arrangements that encourage manipulation of reported earnings to enhance the compensation of any of the Company’s interest rate risk exposure is retainedemployees.
Limits on Incentive Compensation. The ARRA standards prohibit the payment or accrual of any bonus, retention award or incentive compensation to the Company’s most highly compensated employee (in Carver’s case, the CEO) other than awards of long-term restricted stock that (i) do not fully vest during the CPP Coverage Period, (ii) have a value not greater than one-third of the total annual compensation of the employee and (iii) are subject to such other restrictions as determined by the Bank. AsSecretary of the Treasury. The prohibition on bonus, incentive compensation and retention awards does not preclude payments required under written employment contracts entered into on or prior to February 11, 2009.
Compensation Committee Functions. ARRA requires that the Company’s Compensation Committee be comprised solely of independent directors and that it meets at least semiannually to discuss and evaluate the Company’s employee compensation plans in light of an assessment of any risk posed to the Company from such compensation plans.
Compliance Certifications.ARRA requires a result,written certification by the Company’s Chief Executive Officer and Chief Financial Officer of the Company’s compliance with the provisions of ARRA. These certifications must be contained in the Company’s Annual Report on Form 10-K that is filed after the relevant Treasury regulations are issued.
Treasury Review of Excessive Bonuses Previously Paid.ARRA directs the Secretary of the Treasury to review all significant interest rate risk management procedures are performedcompensation paid to the Company’s senior executive officers and the Company’s next 20 most highly compensated employees before date of enactment to determine whether any such payments were inconsistent with the purposes of ARRA or were otherwise contrary to the public interest. If the Secretary of the Treasury makes such a finding, the Secretary of the Treasury is directed to negotiate with the TARP CPP recipient and the affected employees for appropriate reimbursements to the Treasury with respect to the compensation and bonuses.
Limitation on Luxury Expenditures.The Board of Directors must have in place a company-wide policy regarding excessive or luxury expenditures, as identified by the Treasury, which may include excessive expenditures on (i) entertainment or events, (ii) office and facility renovations, (iii) aviation or other transportation services, (iv) other unreasonable expenditures for staff development events, performance initiatives or other similar measures conducted in the normal course of business operations.
Say on Pay.Under ARRA, the SEC promulgated rules requiring a non-binding say on pay vote by shareholders on executive compensation at the Bank. Based uponannual meeting during the Bank’s natureCPP Covered Period. The Company is implementing this provision by including the submission of operations,Item 3, “Advisory Vote on Compensation of Named Executive Officers” set forth in this proxy statement.
At this time, the Bankcompensation standards under ARRA have not yet been fully developed and additional guidance from Treasury is not subject to foreign currency exchange or commodity price risk. The Bank does not own any trading assets.
Carver Federal seeks to manage its interest rate risk by monitoringexpected. After the compensation standards have been introduced, the Committee will consider the new limitations and controllingwill determine how they impact the variation in repricing intervals between its assets and liabilities. To a lesser extent, Carver Federal also monitors its interest rate sensitivity by analyzing the estimated changes in market value of its assets and liabilities assuming various interest rate scenarios. As discussed more fully below, there are a variety of factors that influence the repricing characteristics of any given asset or liability.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest rate sensitive” and by monitoring an institution’s interest rate sensitivity gap. An asset or liability is said to be interest rate sensitive within a specific period if it will mature or reprice within that period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific period of time and the amount of interest-bearing liabilities maturing or repricing within that same time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities and is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. Generally, during a period of falling interest rates, a negative gap could result in an increase in net interest income, while a positive gap could adversely affect net interest income. Conversely, during a period of rising interest rates a negative gap could adversely affect net interest income, while a positive gap could result in an increase in net interest income. As illustrated below, Carver Federal had a negative one-year gap equal to 12.47% of total rate sensitive assets at March 31, 2008. As a result, Carver Federal’s net interest income could be negatively affected by rising interest rates and positively affected by falling interest rates.Company’s executive compensation program.

 

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Role of the Compensation Committee
The following table sets forth informationCompensation Committee is responsible for discharging the Board of Directors’ responsibilities in executive compensation matters and establishing policies that govern employee compensation and equity and long-term incentive compensation plans. The Committee reviews all elements of the Company’s CEO and other executive officers’ compensation including base salary, annual incentive, long-term/equity incentives, and benefits. Three members of the Board serve on the Committee, each of whom is independent. The Committee met five times during fiscal 2009 (May 14, 2008, May 20, 2008, June 11, 2008, November 13, 2008 and March 30, 2009). The Chairman of the Committee reported on Committee actions at subsequent meetings of the Board of Directors.
The Committee reviews CEO performance and makes decisions regarding the projected maturities, prepayments and repricingCEO’s compensation in consultation with non-management members of the major rate-sensitive assetBoard of Directors. Input and liability categoriesdata from the Senior Vice President and Chief Human Resources Officer and other management as well as outside consultants and advisors are provided as requested by the Committee. Decisions regarding other executives are made by the Compensation Committee considering recommendations from the CEO and with input from the Senior Vice President and Chief Human Resources Officer and an outside compensation consultant. Decisions by the Compensation Committee with respect to compensation of Carver Federalthe CEO are ratified by the full Board of Directors.
The Committee has the authority and resources to obtain advice and assistance from internal or external legal, human resources, accounting or other experts, advisors, or consultants, as of March 31, 2008. Maturity repricing dates have been projected by applying estimated prepayment rates basedit deems desirable or appropriate. Details on the current rate environment.Committee’s role are more fully described in its charter, which has been approved by the Board of Directors. The charter can be viewed on the Company’s website at www.carverbank.com.
Interaction with the Compensation Consultant
The Committee utilizes the services of external advisors and consultants throughout the year regarding executive compensation. The Committee utilizes the services of its consultant to conduct periodic comprehensive total compensation studies as well as ongoing updates on market and best practices. This information was requested and utilized as needed to support the Committee’s decisions and review processes. The Committee retains the right to hire, fire and seek the services of consulting and advisory firms.
During fiscal 2009, the Committee relied on the services of Pearl Meyer & Partners (“PM&P”) to provide advice and counsel related to executive compensation issues. The Committee had direct access to these advisors and PM&P reports directly to the Committee. PM&P conducted several studies for the Committee during the fiscal year and attended its five meetings (in person or by phone) held in fiscal 2009.
PM&P reports directly to the Compensation Committee and under the direction of the Committee may work with management on specific issues or assignments as appropriate. During fiscal 2009 PM&P worked with management to complete the compensation tables presented in the following table is derivedpages and to insure the Company’s incentive programs continue to be in-line with best practices.
Role of Executives in part from data incorporated in “Schedule CMR: Consolidated MaturityCommittee Deliberations
The Compensation Committee occasionally requests one or more members of senior management to be present at Committee meetings where executive compensation and Rate,” which is part ofCompany or individual performance are discussed and evaluated. Executives are free to provide insight, suggestions or recommendations regarding executive compensation. However, only the Bank’s quarterly reports filedCompensation Committee members are allowed to vote on decisions regarding executive compensation.
The Compensation Committee meets with the OTS. The repricingCEO to discuss her own performance and other assumptionscompensation package, but ultimately decisions regarding her compensation are not necessarily representative ofmade solely based upon the Bank’s actual results. Classifications of items inCommittee’s deliberations with input from the table belowcompensation consultant, as requested. Decisions regarding executives reporting directly to the CEO are differentmade by the Compensation Committee considering recommendations from those presented in other tables and the financial statements and accompanying notes included herein and do not reflect non-performing loans (dollars in thousands):
                             
  < 3 Mos.  4-12 Mos.  1-3 Yrs.  3-5 Yrs.  5-10 Yrs.  10+ Yrs.  Total 
Rate Sensitive Assets:
                            
Loans $171,142  $65,102  $113,724  $127,919  $70,390  $107,599  $655,876 
Mortgage Backed Securities  5,265   6,297   8,728   943   2,823   12,756   36,812 
Federal Funds Sold  10,500   —   —   —   —   —   10,500 
Investment Securities  —   —   —   —   1,360   —   1,360 
                      
Total interest-earning assets  186,907   71,399   122,452   128,862   74,573   120,355   704,548 
                      
                             
Rate Sensitive Liabilities:
                            
NOW accounts  2,167   2,500   5,999   5,086   6,726   5,689   28,167 
Savings Accounts  9,681   11,168   26,798   22,719   30,042   25,411   125,819 
Money market accounts  3,502   4,040   9,694   8,218   10,867   9,192   45,513 
Certificate of Deposits  136,426   162,345   25,690   12,739   399   6   337,604 
Borrowings  1,000   14,108   —   30,142   —   —   45,250 
                      
Total interest-bearing liabilities  152,776   194,161   68,181   78,904   48,034   40,298   582,353 
                      
                             
Interest Sensitivity Gap $34,131  $(122,762) $54,271  $49,958  $26,539  $80,057  $122,194 
                      
                             
Cumulative Interest Sensitivity Gap $34,131  $(88,631) $(34,360) $15,598  $42,137  $122,194     
Ratio of Cumulative Gap to Total Rate Sensitive assets  4.84%  -12.58%  -4.88%  2.21%  5.98%  17.34%    
The table above assumes that fixed maturity deposits are not withdrawn prior to maturity and that transaction accounts will decayCEO, as disclosed inwell as input from the table above.
Certain shortcomings are inherent in the method of analysis presented in the table above. Although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in the market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, suchcompensation consultant as adjustable-rate mortgages, generally have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Additionally, credit risk may increase as many borrowers may experience an inability to service their debt in the event of a rise in interest rate. Virtually all of the adjustable-rate loans in Carver Federal’s portfolio contain conditions that restrict the periodic change in interest rate.
Net Portfolio Value (“NPV”) Analysis.As part of its efforts to maximize net interest income while managing risks associated with changing interest rates, management also uses the NPV methodology. NPV is the present value of expected net cash flows from existing assets less the present value of expected cash flows from existing liabilities plus the present value of net expected cash inflows from existing financial derivatives and off-balance-sheet contracts.
Under this methodology, interest rate risk exposure is assessed by reviewing the estimated changes in NPV that would hypothetically occur if interest rates rapidly rise or fall along the yield curve. Projected values of NPV at both higher and lower regulatory defined rate scenarios are compared to base case values (no change in rates) to determine the sensitivity to changing interest rates.requested.

 

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Presented below,Total Compensation Program Components
Carver’s total compensation program consists of four main components: Base Salary, Annual Incentives, Long-term Incentives, and Executive Benefits/Perquisites. The following section summarizes the role of each component, how decisions are made and resulting fiscal 2009 decisions as they relate to the Named Executive Officers.
Base Salary
The purpose of March 31, 2008,base salary is an analysisto provide competitive base compensation that recognizes the executives’ role, responsibilities, experience, performance and past and potential contribution to the Company. The Company targets salaries at the 50th percentile of the Bank’s interest rate riskpeer group; however, judgment is exercised in determining each executive’s situation relative to market. As a result, experienced and/or high performing executives may be paid above the market median and less experienced or average performing executives may be paid below the market median. In practice, the Bank has provided salary increases at approximately 3% — 4% annually for the last four years, with limited exceptions to reflect factors including added responsibilities for an executive or marketplace changes in compensation for a particular position.
Short-Term Incentives
The Company’s Performance-Driven Incentive Plan (“the Incentive Plan”) was developed in 2004 with the assistance of the executive compensation-consulting firm, Towers Perrin. The purpose of the annual incentive plan is to motivate and reward corporate, department and individual performance. Performance goals are set annually and reviewed by the Board and payouts are based on achievement of the predefined goals.
The Compensation Committee has determined that the primary goal and driver of incentive pay awards is achievement of forecasted Net Income based on the fiscal year business plan prepared by management and approved by the Board at the beginning of each fiscal year. Each fiscal year, a funding schedule is developed that translates incentive payouts relative to the fiscal year-end Net Income. If the Company does not achieve a minimum of 80% of target Net Income, the incentive pool is not funded and executives may not receive an annual cash incentive for that fiscal year.
The incentive pool at target performance is defined to provide competitive incentives and to reflect Carver’s desired compensation philosophy to target median rewards for meeting profit goals. At the 80% of the Net Income threshold, the corporate incentive pool funds at a reduced payout of 50% of target. At maximum/stretch performance, the corporate pool funds at 150% of target. This program design provides a payout relationship that rewards high performance and reduces payouts for lower achievement of goals. Potential payouts and incentive pool funding are modeled each year relative to projected Net Income performance to ensure the pay-for-performance relationship is appropriate. However, the Committee can approve discretionary awards outside of the bonus pool on an individual basis, where the Committee deems it appropriate.
Corporate performance, as measured by changes in NPV for instantaneous and sustained parallel shifts of 100 basis points and 50 basis points plus or minus changes in market interest rates. Such limits have been established with considerationNet Income, drives between 40% — 75% of the impactexecutives’ incentive awards depending on his/her role. The remaining percentage consists of various rate changesother specific department/strategic goals that reflect critical measures for the fiscal year. CEO and CFO incentives are comprised of 75% corporate performance and 25% department/strategic goals. Annual incentives for additional executives range from 40% — 50% corporate performance and 50% — 60% department performance.
The department/strategic goals for the management team in fiscal 2009 included the following measures:
•Organic loan and deposit growth
•Increased fee income or other items leading to improved return on equity
•Improved efficiency ratio
•Deploy New Markets Tax Credit allocation, generating tax savings for the Company

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In addition to these corporate and divisional goals, the Plan’s design includes an individual modifier that allows incentive awards to be modified (up or down) to reflect overall individual performance and contributions. As such, an individual incentive award can be increased by 30% for exceptional performance or reduced to 0% for poor performance.
For fiscal 2009, the Company’s annual target incentive ratios for the Named Executive Officers were as follows:
Target Incentive
RatioPotential Range
(as percentage of(with additional 30%
Executivesalary)upside potential)
CEO — Deborah Wright50%0% – 97.5%
CFO — Roy Swan30%0% – 58.5%
Charles F. Koehler25%0% – 48.8%
James Bason, Jr.25%0% – 48.8%
Susan M. Ifill25%0% – 48.8%
Michael Trinidad20%0% – 39.0%
Thomas Sperzel20%0% – 39.0%
Annual incentives when awarded are not fixed compensation, must be re-earned each year and are based on actual performance. The Compensation Committee reviews the Incentive Plan each year and resets the specific goals and targets for executives to align with business needs and the Bank’s current capital position. The Bank considers its level of interest rate riskdesired compensation philosophy.
As discussed earlier in this document, for fiscal 2008, as measured by changes in NPV,2009, the Company used the Net Income metric to be “minimal”. The information set forth below relates solely todetermine achievement of fiscal year goals and the Bank; however, because virtually allannual incentive pool. After careful review of the Company’s interest rate risk exposure lies atperformance, the Bank level, managementCommittee determined that the Company did not meet its fiscal 2009 Net Income goal and no bonuses were awarded to the Named Executive Officers pursuant to the Company’s Incentive Plan.
Long-Term Incentive Compensation
The Company believes strongly in the table below also similarly reflects an analysisimportance of aligning executive incentives with the long-term performance of the Company and interests of stockholders. The purpose of the Company’s interestlong-term incentive plan (the“Plan”) is to promote the Company’s growth and profitability, to provide certain officers and employees with an incentive to achieve corporate objectives, to attract and retain individuals of outstanding competence and to provide initial grants to new non-employee directors of the Company. The Plan is also designed to align participants’ interests with stockholders of the Company and serves as a retention tool for key members of management.
The Compensation Committee reviews the Plan each year and establishes specific goals and targets for executives that are aligned with business objectives and the Company’s compensation philosophy. As a demonstration of the Company’s desire for long-term shareholder alignment, the Committee selected Return on Equity (“ROE”) as the performance measure for allocating and vesting awards. Similar to the annual incentive plan, if the Company does not achieve threshold performance, or 80% of goal, no long-term incentive awards are granted for that fiscal year.
Historically, long-term incentives had been made in the form of stock options and restricted stock. However, due to the size of the Company, limited trading and low volatility of the Company’s stock, and the Company’s desire to manage shareholder dilution carefully, the Committee has diligently taken steps to adjust the Company’s programs to remain consistent with industry practice. The Committee will continue to review and adjust, if needed, the effectiveness of its strategy and payout mix each fiscal year, to achieve a burn rate risk (dollars in thousands):consistent with industry peers. For fiscal 2009, the long-term incentive award mix was 80% cash and 20% restricted stock.

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    Net Portfolio Value  NPV as % of PV of Assets 
Change in Rate $ Amount  $ Change  % Change  NPV Ratio  Change
+300 bp  99,028   -15,954   -14%  12.27% -154 bp
+200 bp  102,962   -12,020   -10%  12.65% -117 bp
+100 bp  108,631   -6,351   -6%  13.21% - 60 bp
+50 bp  111,870   -3,112   -3%  13.52% - 30 bp
0 bp  114,982   —   —   13.82% — bp
(50) bp  117,979   2,997   3%  14.10% 28 bp
(100) bp  120,788   5,806   5%  14.36% 54 bp
The long-term incentive plan payout ratios for fiscal 2009 for the Named Executive Officers are as follows:
     
  March 31,Target 
Executive 2008Award 
Risk Measures: +200 BP Rate Shock:
CEO — Deborah Wright		  60%
Pre-Shock NPV Ratio: NPV as % of PV of AssetsCFO — Roy Swan  13.8230%
Post-Shock NPV RatioCharles F. Koehler  12.6525%
Sensitivity Measure: Decline in NPV RatioJames Bason, Jr. -117 bp25%
Susan M. Ifill 25%
Michael Trinidad20%
Thomas Sperzel20%
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurements. Modeling changes in NPV require the making of certain assumptions, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV table presented assumes that the composition of Carver Federal’s interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardlessRegardless of the duration to maturitytype of award (stock options, restricted stock, or repricing of specific assets and liabilities. Accordingly, althoughcash), under the NPV table provides an indication of Carver Federal’s interest rate risk exposureCompany’s current incentive plan, the awards vest over a five-year period, at a particular point in time, such measurements are not intended to and do not provide a precise forecast20% each year on the anniversary of the effect of changesgrant date with accelerated vesting in market interest rates on Carver Federal’s net interest incomeyears three and may differ from actual results.

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Average Balance, Interestfour if the Company meets or exceeds the current peer group’s average three-year ROE. The Company did not meet its fiscal 2009 ROE goal and Average Yields and Rates
The following table sets forth certain information relating to Carver Federal’s average interest-earning assets and average interest-bearing liabilities and related yields for the years ended March 31. The table also presents information for the fiscal years indicated with respectCommittee did not award any long-term incentives to the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, or “interest rate spread,” which savings institutions have traditionally used as an indicator of profitability. Another indicator of an institution’s profitability is its “net interest margin,” which is its net interest income divided by the average balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income (dollars in thousands):
                                     
  2008  2007  2006 
          Average          Average          Average 
  Average      Yield/  Average      Yield/  Average      Yield/ 
  Balance  Interest  Cost  Balance  Interest  Cost  Balance  Interest  Cost 
 
Interest Earning Assets:
                                    
Loans $639,583  $44,499   6.96% $558,058  $37,278   6.68% $443,461  $26,563   5.99%
Mortgage-backed securities  39,079   2,071   5.30%  64,682   2,877   4.45%  113,574   4,439   3.91%
Investment securities  22,902   1,434   6.26%  27,161   1,325   4.88%  25,698   971   3.78%
Fed funds sold  3,007   128   4.26%  5,145   261   5.07%  12,166   412   3.39%
                            
Total interest earning assets  704,571   48,132   6.83%  655,046   41,741   6.37%  594,899   32,385   5.44%
Non-interest earning assets  63,440           44,576           35,198         
                                  
Total assets $768,011          $699,622          $630,097         
                                  
                                     
Interest Bearing Liabilities:
                                    
Deposits:                                    
NOW demand $24,660   138   0.56% $25,313   98   0.39% $24,397   74   0.30%
Savings and clubs  131,627   1,004   0.76%  136,785   931   0.68%  137,934   919   0.67%
Money market savings  44,688   1,193   2.67%  43,303   1,133   2.62%  36,583   601   1.64%
Certificates of deposit  370,933   16,489   4.45%  312,452   13,036   4.17%  237,992   7,297   3.07%
Mortgagors deposits  2,687   42   1.56%  2,154   30   1.39%  2,044   30   1.47%
                            
Total deposits  574,595   18,866   3.28%  520,007   15,228   2.93%  438,950   8,921   2.03%
Borrowed money  73,880   3,790   5.13%  78,853   4,007   5.08%  107,551   4,572   4.25%
                            
Total interest bearing liabilities  648,475   22,656   3.49%  598,860   19,235   3.21%  546,501   13,493   2.47%
                                  
                                     
Non-interest-bearing liabilities:                                    
Demand  51,713           40,676           29,079         
Other liabilities  12,803           10,739           6,980         
                                  
Total liabilities  712,991           650,275           582,560         
Stockholders’ equity  55,020           49,347           47,537         
                                  
Total liabilities and stockholders’ equity $768,011          $699,622          $630,097         
                                
Net interest income     $25,476          $22,506          $18,892     
                                  
                                     
Average interest rate spread          3.34%          3.16%          2.97%
                                  
                                     
Net interest margin          3.62%          3.44%          3.18%
                                  
                                     
Ratio of avgerage interest-earning assets to interest-bearing liabilities          108.65%          109.38%          108.86%
                                  

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Rate/Volume Analysis
The following table sets forth information regarding the extent to which changes in interest rates and changes in volume of interest related assets and liabilities have affected Carver Federal’s interest income and expense during theNamed Executive Officers for fiscal years ended March 31 (in thousands):
                         
  2008 vs. 2007  2007 vs. 2006 
  Increase (Decrease) due to  Increase (Decrease) due to 
  Volume  Rate  Total  Volume  Rate  Total 
Interest Earning Assets:
                        
Loans $5,626  $1,595  $7,221  $6,864  $3,060  $9,924 
Investment securities  (248)  357   109   1,473   172   1,645 
Mortgage-backed securities  (1,289)  483   (806)  (3,377)  1,102   (2,276)
Fed funds sold, FHLB stock & other  (101)  (32)  (133)  (238)  205   (33)
                   
Total interest earning assets  3,988   2,403   6,391   4,722   4,539   9,260 
                         
Interest Bearing Liabilities:
                        
Deposits                        
NOW demand  (4)  44   40   3   20   23 
Savings and clubs  (39)  112   73   (8)  20   12 
Money market savings  37   23   60   110   356   467 
Certificates of deposit  2,580   873   3,453   2,283   2,632   4,915 
Mortgagors deposits  8   4   12   2   (2)  0 
                   
Total deposits  2,582   1,056   3,638   2,390   3,026   5,417 
Borrowed money  (255)  38   (217)  (1,220)  893   (327)
                   
Total interest bearing liabilities  2,327   1,094   3,421   1,170   3,919   5,090 
 
Net change in interest income $1,661  $1,309  $2,970  $3,552  $620  $4,170 
                   
For each category of interest-earning assets and interest-bearing liabilities, information is provided for changes attributable to: (1) changes in volume (changes in volume multiplied by prior rate); (2) changes in rate (change in rate multiplied by old volume); and (3) changes in rate/volume. Changes in rate/volume variance are allocated proportionately between changes in rate and changes in volume.
Comparison of Financial Condition at March 31, 2008 and 2007
Assets
At March 31, 2008, total assets increased $56.6 million, or 7.7%, to $796.2 million compared to $739.5 million at March 31, 2007, primarily the result of increases in loans receivable and loans held-for-sale of $47.4 million, other assets of $27.4 million and cash and cash equivalents of $10.0 million, partially offset by decreases in investment securities of $28.9 million and FHLB-NY stock of $1.6 million.
Total loans receivable, including loans held-for-sale, increased $47.4 million, or 7.8%, to $655.9 million at March 31, 2008 compared to $608.5 million at March 31, 2007. The increase was primarily the result of an increase in commercial real estate loans of $35.3 million and an increase in construction loans of $21.2 million, offset by a decrease of multi-family loans of $13.2 million. The Bank continues to grow its loan portfolio through focusing on the origination of loans in the markets it serves and will continue to augment these originations with loan purchases.
At March 31, 2008, construction loans represented 25.1% of the loan portfolio. Approximately 67.5% of the Bank’s construction loans are participations in loans originated by Community Preservation Corporation. CPC is a non-profit mortgage lender whose mission is to enhance the quality and quantity of affordable housing in the New York, New Jersey, and Connecticut tri-state area. The Bank’s construction lending activity is concentrated in the New York City market. At this time, the New York City real estate market has been resilient relative to the real estate downturn impacting other parts of the U.S. The economic environment is expected to be characterized by continued constraint in credit markets for affordable housing. The credit issues relate to weaknesses in residential and commercial real estate due to subprime issues and general economic conditions. Based on recent reports, various factors including continuing demand, relatively low proportion of subprime loans, interest from international buyers, and a lack of affordable housing supply contribute to New York City real estate’s continuing strength. Despite those favorable factors, the Bank will continue to closely monitor trends.2009 performance.

 

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Other assets increased $27.5 million, or 198.3%, to $41.4 millionCompensation of Executive Officers and Directors
Executive Officer Compensation
SUMMARY COMPENSATION TABLE at March 31, 2008 compared to $13.9 million at March 31, 2007, primarily due to a $19.0 million NMTC transaction on December 31, 2007, which increased bothFISCAL YEAR-END 2009
The following table presents compensation information regarding the Company’s Chief Executive Officer, Principal Accounting Officers and each of the three other assets and minority interest. Additionally, other assets consisted of a settlement receivable of $7.6 million from the sale of certain investments.
Cash and cash equivalents increased $10.0 million, or 57.7%, to $27.4 million at March 31, 2008 compared to $17.4 million at March 31, 2007, primarily due to a $9.2 million increasemost highly compensated executive officers who served in Federal funds sold and a $1.3 million increase in cash and due from banks. Office properties and equipment on a net basis increased by $1.2 million, or 7.9%, to $15.8 million at March 31, 2008 compared to $14.6 million at March 31, 2007, primarily the result of leasing new office space to consolidate back-office operations and the opening of a new ATM center.
Total securities decreased $28.9 million, or 43.1%, to $38.2 million at March 31, 2008 compared to $67.1 million at March 31, 2007, reflecting a decline of $27.1 million in available-for-sale securities and a $1.8 million decrease in held-to-maturity securities. The decrease in total securities is primarily due to collection of normal principal repayments, maturities of securities and the Bank’s strategy of reducing lower yielding securities and replacing them with higher yielding loans. However, the Bank may invest in securities from time to time to help diversify its asset portfolio, manage liquidity and satisfy collateral requirements for certain deposits. There were $15.3 million purchases of securitiessuch capacities during the fiscal 2008. Total securities also declined due to an increase in the net unrealized loss on securities of $0.2 million resulting from the mark-to-market of the available for sale securities portfolio.
The Bank’s investment in FHLB-NY stock decreased by $1.6 million, or 49.8%, to $1.6 million at March 31, 2008 compared to $3.2 million at March 31, 2007. The FHLB-NY requires banks to own membership stock as well as borrowing activity-based stock. The decrease in investment in FHLB-NY stock was the result of the repayment of FHLB-NY borrowings, resulting in the net redemption of stock during the period.
Liabilities and Stockholders’ Equity
Liabilities
At March 31, 2008, total liabilities increased $34.7 million, or 5.0%, to $723.1 million at March 31, 2008 compared to $688.4 million at March 31, 2007. The increase in total liabilities was primarily the result of $39.5 million of additional customer deposits, offset by decreases of $2.5 million in advances and borrowed money and $2.3 million of other liabilities.
Deposits increased $39.5 million, or 6.4%, to $654.7 million at March 31, 2008 compared to $615.1 million at March 31, 2007. The increase in deposit balances was primarily the result of an increase in certificates of deposit of $52.8 million, which were offset by decreases of $12.1 million in savings and $1.5 million in money market accounts. At March 31, 2008, the Bank had $63.0 million in brokered deposits.
Advances from the FHLB-NY and other borrowed money decreased $2.5 million, or 4.0%, to $58.6 million at March 31, 2008 compared to $61.1 million at March 31, 2007. The decrease in advances and borrowed money was primarily the result of a reduction of $32.5 million in FHLB advances, offset by an increase in repurchase obligations of $30.0 million at March 31, 2008 compared to no repurchase obligations at March 31, 2007. Other liabilities decreased $2.3 million, or 19.3%, to $9.8 million at March 31, 2008 compared to $12.1 million at March 31, 2007, primarily due to a decrease of $1.5 million in retail liabilities.
On December 31, 2007, CCDC received an equity investment of $19.0 million related to a New Markets Tax Credit transaction. On consolidation, this transaction is reflected as a $19.0 million increase in other assets and minority interest.

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Stockholders’ Equity
Total stockholders’ equity increased $2.8 million, or 5.4%, to $53.9 million at March 31, 2008 compared to $51.1 million at March 31, 2007. The increase in total stockholders’ equity was primarily attributable to net income for fiscal 2008 totaling $4.0 million, partially offset by dividends paid of $1.0 million, the repurchase of common stock totaling $0.4 million in accordance with the Company’s stock repurchase program and a favorable pension valuation adjustment of $0.2 million. The Bank’s capital levels meet regulatory requirements of a well-capitalized financial institution.
Comparison of Operating Results for the Years Ended March 31, 2008 and 2007
Net Income
The Company reported net income of $4.0 million and diluted earnings per share of $1.55 for fiscal 2008 compared to net income of $2.1 million and diluted earnings per share of $0.81 for fiscal 2007. Net income rose $1.9 million, or 90.0%, to $4.0 million, primarily reflecting increases in net interest income of $3.0 million and non-interest income of $5.0 million, offset by an increase in non-interest expense of $5.8 million. The prior year period included special pre-tax charges of $1.3 million related to CCB acquisition costs and $1.3 million related to the balance sheet repositioning.
Interest Income
Interest income increased by $6.4 million, or 15.3%, to $48.1 million for fiscal 2008 compared to $41.7 million for fiscal 2007. Interest income increased as a result of an increase in total average balances of interest-earning assets of $49.5 million, which includes an increase in average loan balances of $81.5 million offset by decreases in average balances of mortgage-backed securities of $25.6 million, investment securities of $4.3 million and Federal funds sold of $2.1 million. Interest income increased as a result of an increase in average loan balances, acquisition of CCB’s higher yielding portfolio and origination of higher yielding loans. Additionally, these results were pursuant to the Bank’s asset/liability strategy of increasing the average loan balances and its higher yields offset by a decline in average balances of mortgage-backed securities and investment securities. Yields on interest-earning assets increased 46 basis points to 6.83% for fiscal 2008 compared to 6.37% for the prior year period, reflecting increases in yields on loans of 28 basis points, mortgage-backed securities of 85 basis points and investment securities of 138 basis points, offset by a decrease in yields on Federal funds sold of 81 basis points.
Interest income on loans increased by $7.2 million, or 19.4%, to $44.5 million for fiscal 2008 compared to $37.3 million for fiscal 2007. These results were primarily driven by an increase in average loan balances of $81.5 million to $639.6 million for fiscal 2008 compared to $558.1 million for fiscal 2007, partly a reflection of the full year impact of the CCB acquisition. In addition, yield increased 28 basis points to 6.96% for fiscal 2008 compared to 6.68% for fiscal 2007, primarily due to growth in higher yielding construction and small business loans.
Interest income on securities decreased by $0.7 million, or 16.6%, to $3.5 million for fiscal 2008 compared to $4.2 million for fiscal 2007. Interest income on mortgage-backed securities decreased by $0.8 million, or 28.0%, to $2.1 million for fiscal 2008 compared to $2.9 million for fiscal 2007. The decrease in interest income on mortgage-backed securities for fiscal 2008 was primarily the result of a $25.6 million, or 39.68%, reduction in the average balances of mortgage-backed securities to $39.1 million, compared to $64.7 million for fiscal 2007. The net decrease in the average balance of such securities demonstrates Management’s commitment to invest proceeds received from the cash flows from the repayment of securities into higher yielding assets and the sale of lower yielding securities to reposition the balance sheet. The mortgage-backed securities yield increased by 85 basis points to 5.30%, compared to 4.45% in fiscal 2007.
Additionally, the decrease in interest income on mortgage-backed securities was partially offset by an increase in investment securities interest of $0.1 million, or 8.2%, to $1.4 million for fiscal 2008 compared to $1.3 million for fiscal 2007. The increase was primarily the result of an increase in the yield on investment securities by 138 basis points to 6.26% compared to 4.88% in fiscal 2007, as adjustable rate securities in the portfolio repriced to higher coupon rates. The increase in interest income on investment securities was offset by a reduction of $4.3 million, or 15.7%, in the average balances of investment securities to $22.9 million compared to $27.2 million for fiscal 2007.

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Interest income on federal funds decreased by $0.2 million, or 51.0%, to $0.1 million for fiscal 2008 compared to $0.3 million for fiscal 2007. The decrease is primarily the result of $2.1 million decrease in the average balance of Federal funds year over year and an 81 basis point decrease in the average rate earned on federal funds. This decrease in the average rate earned on federal funds was realized as the FRB lowered the federal funds rate.
Interest Expense
Interest expense increased by $3.5 million, or 17.8%, to $22.7 million for fiscal 2008 compared to $19.2 million for fiscal 2007. The increase in interest expense reflects a 28 basis point increase in the average cost of interest-bearing liabilities to 3.49% in fiscal 2008 compared to 3.21% in fiscal 2007 and growth in the average balance of interest-bearing liabilities of $49.6 million, or 8.3%, to $648.5 million for fiscal 2008 compared to $598.9 million for fiscal 2007. The increase in interest expense was primarily the result of growth in the average balance of certificates of deposit of $58.5 million over fiscal 2007 to $370.9 million.
Interest expense on deposits increased $3.7 million, or 10.5%, to $18.9 million for fiscal 2008 compared to $15.2 million for fiscal 2007. This increase was primarily the result of growth in the average balance of certificates of deposit of $58.4 million, or 18.7%, to $370.9 million for fiscal 2008 compared to $312.5 million for fiscal 2007. Interest paid on certificates of deposit increased $3.5 million, or 10.2%, to $16.5 million for fiscal 2008 compared to 13.0 million for fiscal 2007. Additionally, a 35 basis point increase in the rate paid on deposits to 3.28% in fiscal 2008 compared to 2.93% in fiscal 2007 contributed to the increase. Historically, the Bank’s customer deposits have provided a relatively low cost funding source from which its net interest income and net interest margin have benefited. In addition, the Bank’s relationship with various government entities has been a source of relatively stable and low cost funding.
Interest expense on advances and other borrowed money decreased $0.2 million, or 5.4%, to $3.8 million for fiscal 2008 compared to $4.0 million for fiscal 2007. The average balance of total borrowed money outstanding declined, primarily as a result of a $5.0 million decrease in the average balance of outstanding borrowings to $73.9 million for fiscal 2008 compared to $78.9 million in fiscal 2007. Partially offsetting the decrease in interest expense was a 5 basis point increase in the cost of borrowed money to 5.13% in fiscal 2008 compared to 5.08% in fiscal 2007. This was partially offset by an increased cost of debt service on the $13.0 million in floating rate junior subordinated notes issued by the Company in connection with issuance of trust preferred securities by Carver Statutory Trust I in September 2003. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum (reset quarterly) equal to 3.05% over the 3-month LIBOR, with a rate at March 31, 2008 of 5.85%.
Net Interest Income Before Provision for Loan Losses
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned and paid. Our net interest income is significantly impacted by changes in interest rate and market yield curves. See “—Discussion of Market Risk—Interest Rate Sensitivity Analysis” for further discussion on the potential impact of changes in interest rates on our results of operations.
Net interest income before the provision for loan losses increased $3.0 million, or 13.2%, to $25.5 million for fiscal 2008 compared to $22.5 million for fiscal 2007. This increase was achieved as a result of an increase in both the average balance and the yield on average interest-earning assets of $49.5 million and 46 basis points, respectively. Offsetting the increase in net interest income was an increase in the average balance and cost of interest-bearing liabilities of $49.6 million and 28 basis points, respectively. The result was a 18 basis point increase in the interest rate spread to 3.34% for fiscal 2008 compared to 3.16% for fiscal 2007. The net interest margin also increased to 3.62% for fiscal 2008 compared to 3.44% for fiscal 2007.

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Provision for Loan Losses and Asset Quality
The Bank provided $0.2 million in provision for loan losses for fiscal 2008 compared to $0.3 million for fiscal 2007, a decrease of $0.1 million. The Bank records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level that is considered appropriate to absorb probable losses inherent in the existing loan portfolio. Factors considered when evaluating the adequacy of the allowance for loan losses include the volume and type of lending conducted, the Bank’s previous loan loss experience, the known and inherent risks in the loan portfolio, adverse situations that may affect the borrowers’ ability to repay, the estimated value of any underlying collateral, trends in the local and national economy and trends in the real estate market.
The Bank had net charge-offs of $0.8 million for fiscal 2008 compared to $0.1 million for fiscal 2007. At March 31, 2008 and 2007, the Bank’s allowance for loan losses was $4.9 million and $5.4 million, respectively. The ratio of the allowance for loan losses to non-performing loans was 170.89% at March 31, 2008 compared to 119.9% at March 31, 2007. The ratio of the allowance for loan losses to total loans was 0.74% at March 31, 2008 compared to 0.89% at March 31, 2007. Additionally, at a 0.43% ratio, the level of non-performing loans to total loans receivable remains within the range the Bank has experienced over the trailing twelve quarters. The Bank’s future levels 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 internal and external factors existing at the time. The Bank believes its reported allowance for loan losses at March 31, 2008 is adequate to provide for estimated probable losses in the loan portfolio. For further discussion of non-performing loans and allowance for loan losses, see “Item 1—Business—General Description of Business—Asset Quality” and Note 1 of Notes to the Consolidated Financial Statements.
Subprime Loans
On July 10, 2007, the OTS and other Federal bank regulatory authorities (the “Agencies”) published the final Interagency Statement on Subprime Lending (the “Statement”) to address emerging issues and questions relating to certain subprime mortgage lending practices. Although the Agencies did not provide a specific definition of a “subprime” loan in the Statement, the Statement did highlight the Agencies’ concerns with certain adjustable-rate mortgage products offered to subprime borrowers that have one or more of the following characteristics:
Low initial payments based on a fixed introductory rate that expires after a short period and then adjusts to a variable index rate plus a margin for the remaining term of the loan;
Very high or no limits on how much the payment amount or the interest rate may increase (“payment or rate caps”) on reset dates;
Limited or no documentation of borrowers’ income;
Product features likely to result in frequent refinancing to maintain an affordable monthly payment; and/or
Substantial prepayment penalties and/or prepayment penalties that extend beyond the initial fixed interest rate period.
In the 2001 Expanded Guidance for Subprime Lending Programs, the Agencies determined that, generally, subprime borrowers will display a range of credit risk characteristics that may include one or more of the following:
Two or more 30-day delinquencies in the last 12 months, or one or more 60-day delinquencies in the last 24 months;
Judgment, foreclosure, repossession, or charge-off in the prior 24 months;
Bankruptcy in the last 5 years;
Relatively high default probability as evidenced by, for example, a credit bureau risk score (FICO) of 660 or below (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood; and/or
Debt service-to-income ratio of 50% or greater, or otherwise limited ability to cover family living expenses after deducting total monthly debt-service requirements from monthly income.

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The Bank has minimal exposure to the subprime loan market and, therefore, we do not expect the Statement to have a material impact on the Company. At March 31, 2008, the Bank’s loan portfolio contained $1.5 million in subprime loans, all of which were performing loans.
Non-Interest Income
Non-interest income is comprised of depository fees and charges, loan fees and service charges, fee income from banking services and charges, gains or losses from the sale of securities, loans and other assets and other non-interest income. Non-interest income increased by $5.0 million, or 174.0%, to $7.9 million for fiscal 2008 compared to $2.9 for fiscal 2007. The increase was primarily due to a NMTC transfer fee of $1.7 million, gain on sale of securities of $1.1 million, write-down for the prior year period of loans held for sale of $0.7 million, other income of $0.7 million and an increase in loan fees and service charges of $0.4 million. The Bank will receive additional non-interest income over approximately the next eight years from this transaction. Further, as a result of the NMTC transaction, other income increased by $0.2 million reflecting consolidation of income from minority interest. In addition, the prior year period included a $1.3 million charge associated with a balance sheet restructuring implemented to improve margins.
Non-Interest Expense
Non-interest expense increased by $5.8 million, or 23.9%, to $29.9 million for fiscal 2008 compared to $24.1 million for fiscal 2007. The increase was primarily due to increases in employee compensation and benefits of $2.9 million, consulting expense of $2.2 million, net occupancy expense of $0.9 million and other expenses of $0.6 million. The increase in employee compensation and benefits is primarily due to the Community Capital Bank acquisition and investments in new talent in the retail, lending and accounting units. The $2.2 million increase in consulting expense falls into three categories: regulatory requirements (preparation for compliance with Sarbanes-Oxley Act Section 404 and recent Inter-Agency Guidance on Allowances for Loan Losses); strengthening our back office, including the accounting, lending and retail operations departments, by adding new staff and providing temporary expertise; and engaging consultants to assist the management team to analyze significant opportunities to improve financial results. For example, the Bank engaged consultants to conduct a rigorous business optimization review to help management identify further potential improvements in the Bank’s operations, in part through greater systems integration. The $0.6 million increase in other expense primarily consists of the cost of sub-servicing of loans, ATM expenses, charge-offs and regulatory reporting costs. The fiscal 2007 expense included $1.3 million in merger related expenses.
Income Tax Expense
Income tax benefit decreased by $0.2 million, or 18.8%, to $0.9 million for fiscal 2008 compared to $1.1 million for fiscal 2007, resulting in a net tax benefit of $0.9 million, which includes a minority interest tax expense of $0.1 million. The decrease in tax benefit reflects income before income taxes of $3.2 million for fiscal 2008 compared to $1.0 million for fiscal 2007. The income tax expense of $1.1 million for fiscal 2008 was offset by the tax benefit generated by the NMTC investment totaling $2.0 million. The Bank’s NMTC award received in June 2006 has been fully invested. The Company expects to receive additional NMTC tax benefits of approximately $12.1 million from its $40.0 million investment over approximately the next six years.

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Comparison of Operating Results for the Years Ended March 31, 2007 and 2006
Net Income
For fiscal 2007, the Company recorded net income of $2.1 million, or $0.81 per diluted common share, compared to $3.8 million, or $1.45 per diluted common share, for fiscal 2006. The $1.7 million decrease is primarily due to an increase of$5.0 million in non-interest expense and a decrease of $2.5 million in non-interest income, partially offset by an increase of $3.3 million in net interest income after provision for loan losses, and a decrease of$2.4 million in the Company’s income tax provision compared to fiscal 2006.
Interest Income
Interest income increased in fiscal 2007 by $9.4 million from fiscal 2006, or 28.9%, to $41.7 million. The average balance of interest-earning assets increased to $655.0 million for fiscal 2007 from $594.9 million for fiscal 2006. Adding to the increase was a rise in the average yield on interest-earning assets to 6.37% for fiscal 2007 compared to 5.44% for fiscal 2006.
Interest income on loans increased by $10.7 million, or 40.3%, to $37.3 million for fiscal 2007 compared to $26.6 million for fiscal 2006. The increase in interest income from loans was primarily the result of a $114.7 million increase in average loan balances to $558.1 million for fiscal 2007 compared to $443.5 million for fiscal 2006, coupled with the effects of a 69 basis point increase in the average rate earned on loans to 6.68% for fiscal 2007 from 5.99% for fiscal 2006. The increase in the average balance of loans reflects the acquisition of the CCB loan portfolio. The increase in the average rate earned on loans was principally due to the acquisition of the higher yielding CCB business loan portfolio and an increase in the average rate on mortgage loans.
Interest income on mortgage-backed securities decreased by $1.6 million, or 35.2%, to $2.9 million for fiscal 2007 compared to $4.4 million for fiscal 2006, reflecting a decrease of $48.9 million in the average balance of mortgage-backed securities to $64.7 million for fiscal 2007 compared to $113.6 million for fiscal 2006. The decrease in the average balance was partially offset by the CCB acquisition. Partially offsetting the decline in income was a 54 basis point increase in the average rate earned on mortgage-backed securities to 4.45% for fiscal 2007 from 3.91% for fiscal 2006. The net decrease in the average balance of such securities demonstrates Management’s commitment to invest proceeds received from the cash flows from the repayment of securities into higher yielding assets and the sale of lower yielding securities to reposition the balance sheet.
Interest income on investment securities increased by approximately $0.3 million, or 36.5%, to $1.3 million for fiscal 2007 compared to $1.0 million for fiscal 2006. The increase in interest income on investment securities reflects a 71 basis point increase in the average rate earned on investment securities to 4.67% for fiscal 2007 from 3.78% for fiscal 2006 and an increase of $1.5 million in the average balance of investment securities to $27.2 million for fiscal 2007 compared to $25.7 million for fiscal 2006. The increase in the average balance results from the acquisition of CCB, partially offset by maturities and the sale of securities with the repositioning of the balance sheet.
Interest income on federal funds decreased $0.1 million, or 36.6%, to $0.3 for fiscal 2007 compared to $0.4 million for fiscal 2006. The decrease is primarily attributable to a $7.0 million decrease in the average balance of federal funds year over year partially offset by a 169 basis point increase in the average rate earned on federal funds. This large increase in the average rate earned on federal funds was realized as the FRB raised the federal funds rate.
Interest Expense
Interest expense increased by $5.7 million, or 42.6%, to $19.2 million for fiscal 2007 compared to $13.5 million for fiscal 2006. The increase in interest expense reflects an increase of $52.4 million in the average balance of interest-bearing liabilities to $598.9 million in fiscal 2007 from $546.5 million in fiscal 2006. Additionally, the total cost of interest-bearing liabilities increased 74 basis points to 3.21% in fiscal 2007 compared to 2.47% in fiscal 2006. The increase in the average balance of interest-bearing liabilities in fiscal 2007 compared to fiscal 2006 was primarily due to the acquisition of CCB partially offset by a decrease in borrowed funds and the repayment of certain higher costing deposits with the repositioning of the balance sheet.

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Interest expense on deposits increased $6.3 million, or 70.7%, to $15.2 million for fiscal 2007 compared to $8.9 million for fiscal 2006. This increase is attributable to an $81.1 million, or 18.5%, increase in the average balance of interest-bearing deposits to $520.0 million for fiscal 2007 compared to $439.0 million for fiscal 2006 coupled with a 90 basis point increase year-over-year in the cost of average deposits. The increase in the average balance of interest-bearing deposits was primarily due to the acquisition of CCB. The increase in the average rate paid on deposits was principally due to the rise in the interest rate environment throughout fiscal 2007.
Interest expense on advances and other borrowed money decreased by $0.6 million, or 12.4%, to $4.0 million for fiscal 2007 compared to $4.6 million for fiscal 2006. The decrease in interest expense on borrowed money for fiscal 2007 reflects a $28.7 million decline in the average balance of borrowed money reflecting management’s strategy of using deposit growth and cash flows from the repayment of mortgage-backed securities to repay FHLB-NY advances. Partially offsetting the decrease was a rise of 83 basis points in the average cost of borrowed money, primarily the result of increases in the indexed rate of trust preferred debt securities which adjust quarterly and have increased in the current interest rate environment.
Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends primarily upon the volume of interest-earning assets and interest-bearing liabilities and the corresponding interest rates earned and paid. Our net interest income is significantly impacted by changes in interest rate and market yield curves. See “—Discussion of Market Risk—Interest Rate Sensitivity Analysis” for further discussion on the potential impact of changes in interest rates on our results of operations.
Net interest income before the provision for loan losses increased $3.6 million, or 19.1%, to $22.5 million for fiscal 2007 compared to $18.9 million for fiscal 2006. This increase was achieved as a result of an increase in both the average balance and the yield on average interest-earning assets of $60.3 million and 93 basis points, respectively. Offsetting the increase in net interest income was an increase in the average balance and cost of interest-bearing liabilities of $52.0 million and 74 basis points, respectively. The result was a 19 basis point increase in the interest rate spread to 3.16% for fiscal 2007 compared to 2.97% for fiscal 2006. The net interest margin also increased to 3.44% for fiscal 2007 compared to 3.18% for fiscal 2006.
Provision for Loan Losses
During fiscal 2007 a $0.3 million provision was recorded for loan losses. The Bank records provisions for loan losses, which are charged to earnings, in order to maintain the allowance for loan losses at a level that is considered appropriate to absorb probable losses inherent in the existing loan portfolio. Factors considered when evaluating the adequacy of the allowance for loan losses include the volume and type of lending conducted, the Bank’s previous loan loss experience, the known and inherent risks in the loan portfolio, adverse situations that may affect the borrowers’ ability to repay, the estimated value of any underlying collateral, trends in the local and national economy and trends in the real estate market.
During fiscal 2007, the Bank had net charge-offs of $73,000 compared to $82,000 for fiscal 2006. At March 31, 2007, non-performing loans totaled $4.5 million, or 0.74% of total loans, compared to $2.7 million, or 0.55% of total loans, at March 31, 2006. At March 31, 2007, the Bank’s allowance for loan losses was $5.4 million compared to $4.0 million at March 31, 2006, resulting in a ratio of the allowance to non-performing assets of 119.9% at March 31, 2007 compared to 147.1% at March 31, 2006, and a ratio of allowance for possible loan losses to total loans of 0.89% and 0.81% at March 31, 2007 and March 31, 2006, respectively. The Bank believes its reported allowance for loan losses at March 31, 2007 is adequate to provide for estimated probable losses in the loan portfolio. For further discussion of non-performing loans and allowance for loan losses, see “Item 1—Business—General Description of Business—Asset Quality” and Note 1 of Notes to the Consolidated Financial Statements.

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Non-Interest Income
Non-interest income is comprised of loan fees and service charges, fee income from banking services and charges, gains or losses from the sale of securities, loans and other assets and certain other miscellaneous non-interest income. Non-interest income decreased $2.5 million, or 46.3%, to $2.9 million for fiscal 2007 compared to $5.3 million for fiscal 2006. The decline in non-interest income was comprised primarily of a decrease of $1.0 million in loan fees and service charges due primarily to lower loan prepayment penalty income, $0.6 million in losses associated with the repositioning of the balance sheet, $0.7 million in the write-down of loans held for sale, a decrease of $0.2 million in the gain on the sale of loans and $0.1 million loss on the sale of real estate owned. Partially offsetting these decreases were increases in other non-interest income and deposit fees and charges of $0.1 million and $18,000, respectively. The decline in the gain on the sale of loans was primarily attributable to a gain on a bulk sale of loans during fiscal 2006.
Non-Interest Expense
Non-interest expense increased by $5.0 million, or 26.0%, to $24.1 million for fiscal 2007 compared to $19.1 million for fiscal 2006. The increase in non-interest expense was primarily attributable to the acquisition of CCB and the resulting operating and non-recurring merger related expenses. Non-recurring merger related expenses represented $1.3 million of the increase, and employee compensation and benefits, net occupancy expense, equipment, net, and other non-interest expense increased $1.0 million, $4.0 million, $0.1 million and $2.0 million, respectively.
Interest Tax Expense
Income tax benefit was $1.1 million for fiscal 2007, as compared to an income tax expense of $1.3 million for fiscal 2006. The Bank recognized a $1.5 million benefit in fiscal 2007 from the NMTC program and pre-tax income was $4.1 million less in fiscal 2007 compared to fiscal 2006. The two items account for the $2.4 million change in taxes from fiscal 2007 to fiscal 2006.
Liquidity and Capital Resources
Liquidity is a measure of the Bank’s ability to generate adequate cash to meet its financial obligations. The principal cash requirements of a financial institution are to cover potential deposit outflows, fund increases in its loan and investment portfolios and ongoing operating expenses. The Bank’s primary sources of funds are deposits, borrowed funds and principal and interest payments on loans, mortgage-backed securities and investment securities. While maturities and scheduled amortization of loans, mortgage-backed securities and investment securities are predictable sources of funds, deposit flows and loan and mortgage-backed securities prepayments are strongly influenced by changes in general interest rates, economic conditions and competition.
Carver Federal monitors its liquidity utilizing guidelines that are contained in a policy developed by its management and approved by its Board of Directors. Carver Federal’s several liquidity measurements are evaluated on a frequent basis. The Bank was in compliance with this policy as of March 31, 2008. Management believes Carver Federal’s short-term assets have sufficient liquidity to cover loan demand, potential fluctuations in deposit accounts and to meet other anticipated cash requirements. Additionally, Carver Federal has other sources of liquidity including the ability to borrow from the FHLB-NY utilizing unpledged mortgage-backed securities and certain mortgage loans, the sale of available-for-sale securities and the sale of certain mortgage loans. At March 31, 2008, based on available collateral held at the FHLB-NY, Carver Federal had the ability to borrow from the FHLB-NY an additional $29.4 million on a secured basis, utilizing mortgage-related loans and securities as collateral.
Congress eliminated the statutory liquidity requirement that required federal savings banks to maintain a minimum amount of liquid assets of between 4% and 10%, as determined by the Director of the OTS, the Bank’s primary federal regulator. The Bank is required to maintain sufficient liquidity to ensure its safe and sound operation. As a result of the elimination of the liquidity requirement, the Bank manages its liquidity through a Board-approved liquidity policy. The Bank’s most liquid assets are cash and short-term investments. The level of these assets is dependent on the Bank’s operating, investing and financing activities during any given period. At March 31, 2008 and 2007, assets qualifying for short-term liquidity, including cash and short-term investments, totaled $27.4 million and $17.4 million, respectively.

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The levels of Carver Federal’s short-term liquid assets are dependent on Carver Federal’s operating, investing and financing activities during any given period. The most significant liquidity challenge the Bank faces is variability in its cash flows as a result of mortgage refinance activity. When mortgage interest rates decline, customers’ refinance activities tend to accelerate, causing the cash flow from both the mortgage loan portfolio and the mortgage-backed securities portfolio to accelerate. In contrast, when mortgage interest rates increase, refinance activities tend to slow, causing a reduction of liquidity. However, in a rising rate environment, customers generally tend to prefer fixed rate mortgage loan products over variable rate products. Because Carver Federal generally sells its one- to four- family 15-year and 30-year fixed rate loan production into the secondary mortgage market, the origination of such products for sale does not significantly reduce Carver Federal’s liquidity.
The OTS requires that the Bank meet minimum capital requirements. Capital adequacy is one of the most important factors used to determine the safety and soundness of individual banks and the banking system. At March 31, 2008, the Bank exceeded all regulatory minimum capital requirements and qualified, under OTS regulations, as a well-capitalized institution. See “—Regulatory Capital Position” below for certain information relating to the Bank’s regulatory capital compliance at March 31, 2008.
The Consolidated Statements of Cash Flows present the change in cash from operating, investing and financing activities. During fiscal 2008, total cash and cash equivalents increased by $10.0 million reflecting cash provided by financing activities of $54.9 million, offset by cash used in operating of $26.8 million and investing activities of $18.1 million.
Net cash provided by financing activities was $54.9 million, primarily resulting from increased deposits of $39.5 million and consolidation of minority interest in a NMTC transaction of $19.1 million, offset partially by reductions in borrowings of $2.5 million and the payment of common dividends of $1.0 million. Net cash used in operating activities during this period was $26.8 million, primarily representing funds used in originations of loans held-for-sale of $20.2 million, an increase in other assets of $29.7 million (primarily resulting from a NMTC transaction), offset partially by proceeds from sales of loans held-for-sale $20.0 million. Net cash used in investing activities was $18.1 million, primarily representing cash disbursed to fund mortgage loan originations of $162.6 million, loans purchased from third parties of $29.7 million and purchases of available-for-sale securities of $15.3 million, offset partially by principal collections on loans of $145.5 million, proceeds from sale of available-for-sale securities of $36.1 million and proceeds from principal payments/maturities/calls of securities of $9.2 million.
Off-Balance Sheet Arrangements and Contractual Obligations
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk. In accordance with accounting principles generally accepted in the United States of America (“GAAP”), these instruments are not recorded in the consolidated financial statements. Such instruments primarily include lending commitments.
Lending commitments include commitments to originate mortgage and consumer loans and commitments to fund unused lines of credit. The Bank also has contractual obligations related to operating leases. Additionally, the Bank has a contingent liability related to a standby letter of credit. See Note 14 of Notes to Consolidated Financial Statements for the Bank’s outstanding lending commitments and contractual obligations at March 31, 2008.

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The Bank has contractual obligations at March 31, 2008 as follows (in thousands):
                     
  Payments due by period 
Contractual     Less than  1 – 3  3 – 5  More than 
Obligations Total  1 year  years  years  5 years 
Long term debt obligations:                    
FHLB advances $15,249  $15,107  $—  $142  $— 
Repo Borrowings  30,141               30,141 
Guaranteed preferred beneficial interest in junior subordinated debentures  13,375   —   —   —   13,375 
                
Total long term debt obligations  58,765   15,107   —   142   43,516 
                     
Operating lease obligations:                    
Lease obligations for rental properties  11,456   1,517   3,014   2,262   4,663 
                
Total contractual obligations $70,221  $16,624  $3,014  $2,404  $48,179 
                
Regulatory Capital Position
The Bank must satisfy three minimum capital standards established by the OTS. For a description of the OTS capital regulation, see “Item 1—Regulation and Supervision—Federal Banking Regulation—Capital Requirements.”
The Bank presently exceeds all capital requirements as currently promulgated. At March 31, 2008, the Bank had tangible equity ratio, core capital ratio, and total risk-based capital ratio of 7.7%, 7.7% and 10.2%, respectively, and was considered well capitalized. For additional information regarding Carver Federal’s Regulatory Capital and Ratios, refer to Note 12 of Notes to Consolidated Financial Statements, “Stockholders’ Equity.”
Impact of Inflation and Changing Prices
The financial statements and accompanying notes appearing elsewhere herein have been prepared in accordance with GAAP, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of Carver Federal’s operations. Unlike most industrial companies, nearly all the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a greater impact on Carver Federal’s performance than do the effects of the general level of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Carver Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition of Carver Bancorp, Inc. and subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income, changes in stockholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended March 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Carver Bancorp, Inc. and subsidiaries as of March 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2008, in conformity with U.S. generally accepted accounting principles.
/s/ KPMG LLP
New York, New York
July 1, 2008, except as to the restatement and subsequent events discussed in Note 2 and Note 20, respectively, to the consolidated financial statements which is as of July 2, 2009.

28

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
         
  March 31,  March 31, 
  2008  2007 
  (As Restated)  (As Restated) 
ASSETS
        
Cash and cash equivalents:        
Cash and due from banks $15,920   14,619 
Federal funds sold  10,500   1,300 
Interest earning deposits  948   1,431 
       
Total cash and cash equivalents  27,368   17,350 
Securities:        
Available-for-sale, at fair value (including pledged as collateral of $20,621 and $34,649 at March 31, 2008 and 2007, respectively)  20,865   47,980 
Held-to-maturity, at amortized cost (including pledged as collateral of $16,643 and $18,581 at March 31, 2008 and 2007, respectively; fair value of $17,167 and $19,005 at March 31, 2008 and 2007, respectively)  17,307   19,137 
       
Total securities  38,172   67,117 
         
Loans held-for-sale  23,767   23,226 
         
Loans receivable:        
Real estate mortgage loans  578,957   533,667 
Commercial business loans  51,424   50,541 
Consumer loans  1,728   1,067 
Allowance for loan losses  (4,878)  (5,409)
       
Total loans receivable, net  627,231   579,866 
Office properties and equipment, net  15,780   14,626 
Federal Home Loan Bank of New York stock, at cost  1,625   3,239 
Bank owned life insurance  9,141   8,795 
Accrued interest receivable  4,063   4,335 
Goodwill  7,055   6,401 
Core deposit intangibles, net  532   684 
Other assets  41,448   13,891 
       
Total assets $796,182  $739,530 
       
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
Liabilities:        
Deposits $654,663   615,122 
Advances from the FHLB-NY and other borrowed money  58,625   61,093 
Other liabilities  9,863   12,173 
       
Total liabilities  723,151   688,388 
Minority interest  19,150   — 
         
Stockholders’ equity:        
Preferred stock (par value $0.01 per share; 112 shares authorized; 112 issued and outstanding) Common stock (par value $0.01 per share: 10,000,000 shares authorized; 2,524,691 shares issued; 2,481,706 and 2,507,985 shares outstanding at March 31, 2008 and 2007, respectively)  25   25 
Additional paid-in capital  24,113   23,996 
Retained earnings  29,988   26,951 
Unamortized awards of common stock under ESOP  —   (4)
Treasury stock, at cost (42,985 and 16,706 shares at March 31, 2008 and 2007, respectively)  (670)  (277)
Accumulated other comprehensive income  425   451 
       
Total stockholders’ equity  53,881   51,142 
       
Total liabilities and stockholders’ equity $796,182  $739,530 
       
See accompanying notes to consolidated financial statements.

29

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
             
  Years Ended March 31, 
  2008  2007  2006 
    (As Restated)     
Interest Income:            
Loans $44,499  $37,277  $26,563 
Mortgage-backed securities  2,071   2,877   4,439 
Investment securities  1,434   1,325   971 
Federal funds sold  128   261   412 
          
Total interest income  48,132   41,740   32,385 
 
Interest expense:            
Deposits  18,866   15,227   8,921 
Advances and other borrowed money  3,790   4,007   4,572 
          
Total interest expense  22,656   19,234   13,493 
          
             
Net interest income  25,476   22,506   18,892 
             
Provision for loan losses  222   276   — 
          
Net interest income after provision for loan losses  25,254   22,230   18,892 
             
Non-interest income:            
Depository fees and charges  2,669   2,476   2,458 
Loan fees and service charges  1,628   1,238   2,231 
Write-down of loans held for sale  —   (702)  — 
Gain (loss) on sale of securities  431   (624)  — 
Gain on sale of loans  323   192   351 
Loss on sale of real estate owned  —   (108)  — 
New Market Tax Credit Transfer Fee  1,700   —   — 
Other  1,110   397   301 
          
Total non-interest income  7,861   2,869   5,341 
             
Non-interest expense:            
Employee compensation and benefits  13,323   10,470   9,512 
Net occupancy expense  3,590   2,667   2,284 
Equipment, net  2,451   2,071   1,939 
Merger related expenses  —   1,258   — 
Consulting Expense  2,733   496   307 
Other  7,801   7,138   5,092 
          
Total non-interest expense  29,898   24,100   19,134 
 
Income before income taxes and minority interest  3,217   999   5,099 
Income tax (benefit) expense  (892)  (1,099)  1,329 
Minority interest, net of taxes  146   —   — 
          
Net income $3,963  $2,098  $3,770 
          
             
Earnings per common share:            
Basic $1.59  $0.84  $1.50 
          
Diluted $1.55  $0.81  $1.45 
          
See accompanying notes to consolidated financial statements.

30

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands)
(As Restated)
                                 
              Common  Common      Accumulated    
      Additional      Stock  Stock      Other  Total Stock- 
  Common  Paid-In  Treasury  Acquired  Acquired  Retained  Comprehensive  Holders’ 
  Stock  Capital  Stock  By ESOP  By MRP  Earnings  Income (Loss)  Equity 
Balance—March 31, 2005
 $25  $23,937  $(420) $(126) $(128) $22,748  $(235) $45,801 
Net income  —   —   —   —   —   3,770   —   3,770 
Loss on pension liability  —   —   —   —   —   —   (281)  (281)
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   (158)  (158)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,770   (439)  3,331 
Dividends paid  —   —   —   —   —   (782)  —   (782)
Treasury stock activity  —   (2)  117   —   —   —   —   115 
Allocation of ESOP Stock  —   —   —   116   —   —   —   116 
Purchase of shares for MRP  —   —   —   —   116   —   —   116 
                         
Balance—March 31, 2006
  25   23,935   (303)  (10)  (12)  25,736   (674)  48,697 
Adjustment to initially implement SFAS 158  —   —   —   —   —   —   281   281 
                         
Balance post implementation of SFAS 158  25   23,935   (303)  (10)  (12)  25,736   (393)  48,978 
Net income (as restated)
  —   —       —   —   2,098   —   2,098 
Minimum pension liability adjustment  —           —   —   —   79   79 
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   765   765 
                         
Comprehensive income, net of taxes:  —   —   —   —   —   2,098   844   2,942 
Dividends paid  —   —   —   —   —   (883)  —   (883)
Treasury stock activity  —   61   26   —   —   —   —   87 
Allocation of ESOP Stock  —   —   —   6   —   —   —   6 
Purchase of shares for MRP  —   —   —   —   12   —   —   12 
                         
Balance—March 31, 2007 (as restated)
  25   23,996   (277)  (4)  —   26,951   451   51,142 
Net income  —   —   —   —   —   3,963   —   3,963 
Minimum pension liability adjustment  —   —   —   —   —   —   195   195 
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   (221)  (221)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,963   (26)  3,937 
Adjustment to initially implement SFAS 156  —   —   —   —   —   49   —   49 
Dividends paid  —   —   —   —   —   (975)  —   (975)
Treasury stock activity  —   117   (393)  4   —   —   —   (272)
                         
Balance—March 31, 2008 (as restated)
 $25  $24,113  $(670) $—  $—  $29,988  $425  $53,881 
                         
See accompanying notes to consolidated financial statements.

31

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
             
  Years Ended March 31, 
  2008  2007  2006 
    (As Restated)     
Cash flows from operating activites:
            
Net income $3,963  $2,098  $3,770 
Adjustments to reconcile net income to net cash from operating activities:            
Provision for loan losses  222   276   — 
Stock based compensation expense  272   426   233 
Depreciation and amortization expense  1,709   1,581   1,546 
Amortization of premiums and discounts  (250)  (1,145)  863 
(Gain) Loss from sale of securities  (431)  624   — 
Gain on sale of loans  (323)  (192)  (351)
Writedown on loans held-for-sale  —   702   — 
Loss on sale of real estate owned  —   108   — 
Originations of loans held-for-sale  (20,172)  (24,708)  (12,646)
Proceeds from sale of loans held-for-sale  19,953   14,422   12,197 
Changes in assets and liabilities:            
Decrease (increase) in accrued interest receivable  272   (1,365)  (268)
Increase in other assets  (29,702)  (2,240)  (2,430)
(Decrease) increase in other liabilities  (2,283)  (4,267)  4,249 
          
Net cash (used in) provided by operating activities  (26,770)  (13,680)  7,163 
          
Cash flows from investing activites:
            
Purchases of securities:            
Available-for-sale  (15,265)  —   (26,811)
Held-to-maturity  —   —   (19)
Proceeds from principal payments, maturities and calls of securities:            
Available-for-sale  7,358   26,539   60,645 
Held-to-maturity  1,803   7,185   4,816 
Proceeds from sales of available-for-sale securities  36,116   57,942   1,575 
Originations of loans held-for-investment  (162,556)  (105,284)  (98,704)
Loans purchased from third parties  (29,736)  (58,191)  (96,140)
Principal collections on loans  145,458   146,410   113,482 
Proceeds from sales of loan originations held-for-investment  —   16,548   10,697 
Redemption of FHLB-NY stock  1,614   1,388   498 
Additions to premises and equipment  (2,862)  (1,869)  (1,082)
Proceeds from sale of real estate owned  —   404   — 
Payments for acquisition, net of cash acquired  —   (2,425)  — 
          
Net cash (used in) provided by investing activities  (18,070)  88,647   (31,043)
          
Cash flows from financing activites:
            
Net increase (decrease) in deposits  39,541   (33,657)  48,768 
Net repayment of FHLB advances and other borrowings  (2,527)  (45,660)  (21,507)
Capital contribution by minority interest  19,150   —   — 
Common stock repurchased  (331)  (321)  (115)
Dividends paid  (975)  (883)  (782)
          
Net cash provided by (used in) financing activities  54,858   (80,521)  26,364 
          
Net (decrease) increase in cash and cash equivalents  10,018   (5,554)  2,484 
Cash and cash equivalents at beginning of period  17,350   22,904   20,420 
          
Cash and cash equivalents at end of period $27,368  $17,350  $22,904 
          
             
Supplemental information:            
Noncash Transfers-            
Change in unrealized loss on valuation of available-for-sale investments, net $221  $765  $(158)
 
Cash paid for-            
Interest $21,973  $19,510  $13,502 
Income taxes $922  $652  $2,107 
See accompanying notes to consolidated financial statements.

32

CARVER BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
Nature of operations
Carver Bancorp, Inc. (on a stand-alone basis, the “Holding Company” or “Registrant”), was incorporated in May 1996 and its principal wholly-owned subsidiary is Carver Federal Savings Bank (the “Bank” or “Carver Federal”) “), Alhambra Holding Corp., an inactive Delaware corporation, and Carver Federal’s wholly-owned subsidiaries, CFSB Realty Corp., Carver Municipal Bank (“CMB”), Carver Community Development Corp. (“CCDC”) and CFSB Credit Corp. which is currently inactive. The Bank has a majority owned interest in Carver Asset Corporation, a real estate investment trust formed in February 2004.
“Carver,” the “Company,” “we,” “us” or “our” refers to the Holding Company along with its consolidated subsidiaries. The Bank was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally chartered mutual savings and loan association. The Bank converted to a federal savings bank in 1986. On October 24, 1994, the Bank converted from mutual to stock form and issued 2,314,275 shares of its common stock, par value $0.01 per share. On October 17, 1996, the Bank completed its reorganization into a holding company structure (the “Reorganization”) and became a wholly owned subsidiary of the Holding Company. Collectively, the Holding Company, the Bank and the Holding Company’s other direct and indirect subsidiaries are referred to herein as the “Company” or “Carver.”
In September 2003, the Holding Company formed Carver Statutory Trust I (the “Trust”) for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Holding Company. In accordance with Financial Accounting Standards Board Interpretation No. 46,Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, Carver Statutory Trust I is not consolidated for financial reporting purposes. In December 2007, Carver Federal’s subsidiary CCDC entered into a NMTC venture in which it exerts a controlling influence.
On October 5, 2006, Carver Federal established Carver Municipal Bank (“CMB”), a wholly-owned, New York State chartered limited purpose commercial bank, with the intention of expanding Carver Federal’s ability to compete for municipal and state agency deposits and provide other fee income based services. The Bank invested $2.0 million of capital into CMB at its formation. In the State of New York, municipal entities may deposit funds only with commercial banks, other than except through limited exceptions, and CMB provided Carver Federal with a platform to enter into this line of business.As of March 31, 2008, Carver Federal has discontinued the operations of CMB and is in the process of dissolution. The $2.0 million capital invested will revert back to the Bank.
Carver Federal’s principal business consists of attracting deposit accounts through its branches and investing those funds in mortgage loans and other investments permitted by federal savings banks. The Bank has ten branches located throughout the City of New York that primarily serve the communities in which they operate.

33

NOTE 2. RESTATEMENT
During the quarter ended December 31, 2008, Carver became aware of certain adjustments to suspense accounts related to check return processing and automated clearing house (“ACH”) return processing that appeared to be incorrect. A review of the suspense account reconciliations commenced and an analysis was performed on Carver’s accounting and financial reporting practices. The review raised questions regarding transactions since fiscal 2007, most of which involved adjustments to various suspense accounts, and identified evidence that certain adjustments were incorrect. The review found evidence that during fiscal 2007, suspense accounts adjustments for check returns and ACH returns were improper and resulted in aged suspense items not being properly cleared. As a result, an adjustment totaling $761,000 ($485,000 net of tax) was necessary to correct the fiscal 2007 financial statements to reflect charge-offs that should have been recorded in the appropriate period. This adjustment resulted in a reduction in diluted earnings per share for fiscal 2007 from $1.00 to $0.81, a decrease of $0.19, or 19%. The errors and irregularities identified in the course of the review revealed deficiencies in Carver’s accounting and financial control environment, some of which were determined to be a material weakness requiring corrective and remedial actions.
Concurrently with the review, Carver also conducted extensive internal reviews for the purpose of the preparation and certification of Carver’s fiscal 2009 financial statements and its assessment of internal controls over financial reporting. Carver’s procedures included expanded account reviews and expanded balance sheet reconciliations to ensure all accounts were fully reconciled, supported, and appropriately documented. Carver also implemented improvements to its quarterly and annual accounting close process to provide for more complete review of the financial results.
As a result of the issues identified in the review, the Finance and Audit Committee, in consultation with management and KPMG, concluded on February 9, 2009 that Carver’s previously issued financial statements for fiscal 2007 and fiscal 2008 (including the interim periods within those years), should no longer be relied upon because of certain accounting errors and irregularities in those financial statements. Accordingly, Carver restated its previously issued financial statements for those periods by filing this Amendment No. 1 to its Form 10-K for the year ended March 31, 2008. Restated financial information is presented in this Amendment No. 1 to its Form 10-K for2009 (collectively, the year ended March 31, 2008.“named executive officers”).
Set forth below is the impact of the adjustment by financial statement line item in Carver’s consolidated statement of financial condition as of March 31, 2008 and 2007, the Consolidated Statements of Income and Cash Flows for the year ended March 31, 2007 and the Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the years ended March 31, 2008 and 2007. In addition, the income tax effect of the above adjustment has been reflected in footnote 11 of the Consolidated Financial Statements.
                                     
                          Change in       
                          Pension Value       
                          and Nonqualified       
  Year                  Non-Equity  Deferred       
  Ended          Stock  Option  Incentive Plan  Compensation  All Other    
Name and Position 3/31  Salary  Bonus  Awards(6)  Awards(6)  Compensation  Earnings  Compensation  Total 
(a) (b)  (c)  (d)  (e)  (f)  (g)  (h)  (i)  (j) 
Deborah C. Wright(1)
  2009  $376,698  $0  $65,765  $42,009  $0  $1,204  $26,298  $511,974 
Chairman and Chief  2008  $350,006  $25,000  $90,846  $50,491  $308,690  $1,378  $12,402  $838,812 
Executive Officer  2007  $315,694  $10,000  $37,742  $50,491  $346,992  $1,005  $26,847  $788,771 
                                     
Roy Swan(2)
  2009  $142,920  $0  $0  $0  $0   —  $2,800  $145,720 
Executive Vice
  2008  $250,010  $32,498  $33,627  $14,620  $112,002   —  $12,390  $455,147 
President and Chief
  2007  $224,597  $10,000  $20,536  $14,620  $114,339   —  $28,710  $412,802 
Financial Officer                                    
                                     
James H. Bason, Jr.(3)
  2009  $176,854  $0  $8,693  $315  $0   —  $8,143  $194,005 
Senior Vice President
  2008  $170,000  $12,300  $13,705  $3,074  $69,300   —  $3,591  $271,970 
and Chief Lending Officer  2007  $154,009  $7,500  $9,915  $3,074  $74,836   —  $15,184  $264,518 
                                     
Charles F. Koehler(4)
  2009  $166,696  $0  $0  $0  $0   —  $9,200  $175,896 
Executive Vice
  2008  $221,442   —   —   —  $68,000   —  $8,800  $298,242 
President, Lending                                    
                                     
Susan M. Ifill(5)
  2009  $173,854  $0  $0  $0  $0   —  $27,169  $201,023 
Senior Vice President
  2008  $170,000   —   —   —  $51,000   —  $26,800  $247,800 
and Chief Retail Officer                                    
                                     
Michael Trinidad(7)
  2009  $150,253  $0  $0  $0  $0   —  $962  $151,215 
Senior Vice President and Controller                                    
                                     
Thomas Sperzel(8)
  2009  $11,923  $0  $0  $0  $0   —  $0  $11,923 
Senior Vice President and Controller                                    
Immaterial Corrections
The Consolidated Statement of Income for the year ended March 31, 2008 reflects an immaterial correction to correctly reflect additional audit expenses in the amount of $28,000. After taxes this resulted in a decrease in net income of $17,000. As a result the corrected basic EPS remains unchanged at $1.59 while the corrected diluted EPS remains unchanged at $1.55.
The Consolidated Statement of Financial Position as of March 31, 2008 and 2007 also reflects an adjustment to reclassify $0.7 million from commercial business loans to goodwill. The adjustment was the result of a re-evaluation of goodwill in connection with the reconciliation matters disclosed above and elsewhere herein.
Management believes these corrections to prior period mistatements to be immaterial.

34

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except per share data)
                         
  March 31,  March 31,  March 31,  March 31,  March 31,  March 31, 
  2008  2008  2008  2007  2007  2007 
  (As Previously          (As Previously       
  Reported)(1)  Adjustment  (As Restated)  Reported)(1)  Adjustment  (As Restated) 
ASSETS
                        
Cash and cash equivalents:                        
Cash and due from banks $15,920  $—  $15,920  $14,619  $—   14,619 
Federal funds sold  10,500   —   10,500   1,300   —   1,300 
Interest earning deposits  948   —   948   1,431   —   1,431 
                   
Total cash and cash equivalents  27,368       27,368   17,350       17,350 
Securities:                        
Available-for-sale, at fair value  20,865   —   20,865   47,980   —   47,980 
Held-to-maturity, at amortized cost  17,307   —   17,307   19,137   —   19,137 
                   
Total securities  38,172   —   38,172   67,117  ��—   67,117 
                         
Loans held-for-sale  23,767   —   23,767   23,226   —   23,226 
                         
Loans receivable:                        
Real estate mortgage loans  578,957   —   578,957   533,667   —   533,667 
Commercial business loans  51,424   —   51,424   50,541   —   50,541 
Consumer loans  1,728   —   1,728   1,067   —   1,067 
Allowance for loan losses  (4,878)  —   (4,878)  (5,409)  —   (5,409)
                   
Total loans receivable, net  627,231   —   627,231   579,866   —   579,866 
                         
Office properties and equipment, net  15,780   —   15,780   14,626   —   14,626 
Federal Home Loan Bank of New York stock, at cost  1,625   —   1,625   3,239   —   3,239 
Bank owned life insurance  9,141   —   9,141   8,795   —   8,795 
Accrued interest receivable  4,063   —   4,063   4,335   —   4,335 
Goodwill  7,055   —   7,055   6,401   —   6,401 
Core deposit intangibles, net  532   —   532   684   —   684 
Other assets  41,870   (422)  41,448   14,313   (422)  13,891 
                   
Total assets $796,604  $(422) $796,182  $739,952  $(422) $739,530 
                   
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
Liabilities:                        
Deposits $654,663  $—  $654,663  $615,122  $—   615,122 
Advances from the FHLB-NY and other borrowed money  58,625   —   58,625   61,093   —   61,093 
Other liabilities  9,800   63   9,863   12,110   63   12,173 
                   
Total liabilities  723,088   63   723,151   688,325   63   688,388 
                         
Minority interest  19,150   —   19,150   —   —   — 
                         
Stockholders’ equity:                        
Common stock  25   —   25   25   —   25 
Additional paid-in capital  24,113   —   24,113   23,996   —   23,996 
Retained earnings  30,473   (485)  29,988   27,436   (485)  26,951 
Unamortized awards of common stock under ESOP              (4)      (4)
Treasury stock, at cost  (670)  —   (670)  (277)  —   (277)
Accumulated other comprehensive income  425   —   425   451   —   451 
                   
Total stockholders’ equity  54,366   (485)  53,881   51,627   (485)  51,142 
                   
Total liabilities and stockholders’ equity $796,604  $(422) $796,182  $739,952  $(422) $739,530 
                   
   
(1) Includes adjustmentsMs. Wright: Other compensation includes $9,200 401k Plan match and 9,014 ESOP shares valued at $3.41 per share on 3/31/2009. Pursuant to the Company’s incentive plan programs, no awards were made for immaterial correctionsfiscal 2009 performance.
(2)Mr. Swan resigned from the Company on 9/23/2008. Other compensation includes $2,800 401k Plan match.
(3)Mr. Bason: Other compensation includes 2,388 ESOP shares valued at $3.41 per shares on 3/31/2009. Pursuant to reclassify $685,000the Company’s incentive plan programs, no awards were made for fiscal 2009 performance.
(4)Mr. Koehler resigned from commercial business loansthe Company on 2/27/2009. Other compensation includes $9,200 401k Plan match.
(5)Ms. Ifill resigned from the Company on 3/31/2009. Other compensation includes $9,169 401k Plan match and $18,000 paid June 2008, the final installment payment of a 2007 signing bonus.
(6)The amounts in columns (e) and (f) reflect the dollar amount recognized for financial statement purposes for the fiscal year ended March 31, 2009 in accordance with SFAS 123(R) and may include amounts from awards granted in and prior to goodwill asthe fiscal year. Assumptions used in the calculation of 3/31/07these amounts are included in the footnotes to the Company’s audited financial statements for the fiscal year ended March 31, 2009 in the Company’s Annual Report on Form 10-k filed with the Securities and to reflect additional audit expenses of $28,000 ($17,000 after tax)Exchange Commission.
(7)Mr. Trinidad resigned from the Company on 3/10/2009. Other compensation includes $962 in fiscal 2008 net income.401k Plan match.
(8)Mr. Sperzel resigned from the Company on 6/27/2009.

 

3518

CARVER BANCORP, INC. AND SUBSIDIARIESThe Company’s current compensation structure was developed based on recommendations and models presented by Towers Perrin. The plan includes three integrated parts: (1) a grading structure based on the employee’s corporate level; (2) an annual cash bonus target and a long-term incentive target based on a recommended performance measure; and (3) an individual performance modifier based on a manager’s assessment of an individual’s performance.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
             
  Years Ended March 31, 
  2007  2007  2007 
  (As Previously      
  Reported)  Adjustment  (As Restated) 
Interest Income:            
Loans $37,277  $—  $37,277 
Mortgage-backed securities  2,877   —   2,877 
Investment securities  1,325   —   1,325 
Federal funds sold  261   —   261 
          
Total interest income  41,740   —   41,740 
             
Interest expense:            
Deposits  15,227   —   15,227 
Advances and other borrowed money  4,007   —   4,007 
          
Total interest expense  19,234   —   19,234 
          
             
Net interest income  22,506   —   22,506 
             
Provision for loan losses  276   —   276 
          
Net interest income after provision for loan losses  22,230   —   22,230 
             
Non-interest income:            
Depository fees and charges  2,476   —   2,476 
Loan fees and service charges  1,238   —   1,238 
Write-down of loans held for sale  (702)  —   (702)
Gain (loss) on sale of securities  (624)  —   (624)
Gain on sale of loans  192   —   192 
Loss on sale of real estate owned  (108)  —   (108)
Other  397   —   397 
          
Total non-interest income  2,869   —   2,869 
             
Non-interest expense:            
Employee compensation and benefits  10,470   —   10,470 
Net occupancy expense  2,667   —   2,667 
Equipment, net  2,071   —   2,071 
Merger related expenses  1,258   —   1,258 
Consulting Expense  496   —   496 
Other  6,377   761   7,138 
          
Total non-interest expense  23,339   761   24,100 
             
Income before income taxes and minority interes  1,760   (761)  999 
Income tax (benefit) expense  (823)  (276)  (1,099)
Minority interest, net of taxes  —   —   — 
          
Net income $2,583  $(485) $2,098 
          
             
Earnings per common share:            
Basic $1.03  $(0.19) $0.84 
          
Diluted $1.00  $(0.19) $0.81 
          

36

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands)
(As Previously Reported)
                                 
              Common  Common           
      Additional      Stock  Stock      Accumulated Other  Total Stock- 
  Common  Paid-In  Treasury  Acquired  Acquired  Retained  Comprehensive  Holders’ 
  Stock  Capital  Stock  By ESOP  By MRP  Earnings  Income (Loss)  Equity 
Balance—March 31, 2005
 $25  $23,937  $(420) $(126) $(128) $22,748  $(235) $45,801 
Net income  —   —   —   —   —   3,770   —   3,770 
Loss on pension liability  —   —   —   —   —   —   (281)  (281)
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   (158)  (158)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,770   (439)  3,331 
Dividends paid  —   —   —   —   —   (782)  —   (782)
Treasury stock activity  —   (2)  117   —   —   —   —   115 
Allocation of ESOP Stock  —   —   —   116   —   —   —   116 
Purchase of shares for MRP  —   —   —   —   116   —   —   116 
                         
Balance—March 31, 2006
  25   23,935   (303)  (10)  (12)  25,736   (674)  48,697 
Adjustment to initially implement SFAS 158  —   —   —   —   —   —   281   281 
                         
Balance post implementation of SFAS 158  25   23,935   (303)  (10)  (12)  25,736   (393)  48,978 
Net income  —   —   —   —   —   2,583   —   2,583 
Minimum pension liability adjustment  —   —   —   —   —   —   79   79 
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   765   765 
                         
Comprehensive income, net of taxes:  —   —   —   —   —   2,583   844   3,427 
Dividends paid  —   —   —   —   —   (883)  —   (883)
Treasury stock activity  —   61   26   —   —   —   —   87 
Allocation of ESOP Stock  —   —   —   6   —   —   —   6 
Purchase of shares for MRP  —   —   —   —   12   —   —   12 
                         
Balance—March 31, 2007
  25   23,996   (277)  (4)  —   27,436   451   51,627 
Net income  —   —   —   —   —   3,980   —   3,980 
Minimum pension liability adjustment  —   —   —   —   —   —   195   195 
Change in net unrealized loss on available-for-sale securities, net of taxes  —   —   —   —   —   —   (221)  (221)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,980   (26)  3,954 
Adjustment to initially implement SFAS 156  —   —   —   —   —   49   —   49 
Dividends paid  —   —   —   —   —   (975)  —   (975)
Treasury stock activity  —   117   (393)  4   —   —   —   (272)
                         
Balance—March 31, 2008
 $25  $24,113  $(670) $—  $—  $30,490  $425  $54,383 
                         

37

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
(In thousands)
(As Restated)
                                 
              Common  Common           
      Additional      Stock  Stock      Accumulated Other  Total Stock- 
  Common  Paid-In  Treasury  Acquired  Acquired  Retained  Comprehensive  Holders’ 
  Stock  Capital  Stock  By ESOP  By MRP  Earnings  Income (Loss)  Equity 
Balance—March 31, 2005
 $25  $23,937  $(420) $(126) $(128) $22,748  $(235) $45,801 
Net income  —   —   —   —   —   3,770   —   3,770 
Loss on pension liability  —   —   —   —   —   —   (281)  (281)
Change in net unrealized loss on available- for-sale securities, net of taxes  —   —   —   —   —   —   (158)  (158)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,770   (439)  3,331 
Dividends paid  —   —   —   —   —   (782)  —   (782)
Treasury stock activity  —   (2)  117   —   —   —   —   115 
Allocation of ESOP Stock  —   —   —   116   —   —   —   116 
Purchase of shares for MRP  —   —   —   —   116   —   —   116 
                         
Balance—March 31, 2006
  25   23,935   (303)  (10)  (12)  25,736   (674)  48,697 
Adjustment to initially implement SFAS 158  —   —   —   —   —   —   281   281 
                         
Balance post implementation of SFAS 158  25   23,935   (303)  (10)  (12)  25,736   (393)  48,978 
Net income (as restated)  —   —   —   —   —   2,098   —   2,098 
Minimum pension liability adjustment  —   —   —   —   —   —   79   79 
Change in net unrealized loss on available- for-sale securities, net of taxes  —   —   —   —   —   —   765   765 
                         
Comprehensive income, net of taxes:  —   —   —   —   —   2,098   844   2,942 
Dividends paid  —   —   —   —   —   (883)  —   (883)
Treasury stock activity  —   61   26   —   —   —   —   87 
Allocation of ESOP Stock  —   —   —   6   —   —   —   6 
Purchase of shares for MRP  —   —   —   —   12   —   —   12 
                         
Balance—March 31, 2007 (as restated)
  25   23,996   (277)  (4)  —   26,951   451   51,142 
Net income  —   —   —   —   —   3,963   —   3,963 
Minimum pension liability adjustment  —   —   —   —   —   —   195   195 
Change in net unrealized loss on available- for-sale securities, net of taxes  —   —   —   —   —   —   (221)  (221)
                         
Comprehensive income, net of taxes:  —   —   —   —   —   3,963   (26)  3,937 
Adjustment to initially implement SFAS 156  —   —   —   —   —   49   —   49 
Dividends paid  —   —   —   —   —   (975)  —   (975)
Treasury stock activity  —   117   (393)  4   —   —   —   (272)
Allocation of ESOP Stock  —   —   —   —   —   —   —   — 
Purchase of shares for MRP  —   —   —   —   —   —   —   — 
                         
Balance—March 31, 2008 (as restated)
 $25  $24,113  $(670) $—  $—  $29,988  $425  $53,881 
                         

38

CARVER BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
             
  Years Ended March 31, 
  2007  2007  2007 
  (As Previously       
  Reported)  Adjustment  (As Restated) 
Cash flows from operating activites:
            
Net income $2,583  $(485) $2,098 
Adjustments to reconcile net income to net cash from operating activities:            
Provision for loan losses  276   —   276 
Stock based compensation expense  426   —   426 
Depreciation and amortization expense  1,581   —   1,581 
Amortization of premiums and discounts  (1,145)  —   (1,145)
Impairment charge on securities  —   —   — 
(Gain) Loss from sale of securities  624   —   624 
Gain on sale of loans  (192)  —   (192)
Writedown on loans held-for-sale  702   —   702 
Loss on sale of real estate owned  108   —   108 
Originations of loans held-for-sale  (24,708)  —   (24,708)
Proceeds from sale of loans held-for-sale  14,422   —   14,422 
Changes in assets and liabilities:            
Decrease (increase) in accrued interest receivable  (1,365)  —   (1,365)
Increase in other assets  (2,662)  422   (2,240)
(Decrease) increase in other liabilities  (4,330)  63   (4,267)
          
Net cash (used in) provided by operating activities  (13,680)  —   (13,680)
          
Cash flows from investing activites:
            
Purchases of securities:            
Available-for-sale  —   —   — 
Proceeds from principal payments, maturities and calls of securities:            
Available-for-sale  26,539   —   26,539 
Held-to-maturity  7,185   —   7,185 
Proceeds from sales of available-for-sale securities  57,942   —   57,942 
Originations of loans held-for-investment  (105,284)  —   (105,284)
Loans purchased from third parties  (58,191)  —   (58,191)
Principal collections on loans  146,410   —   146,410 
Proceeds from sales of loan originations held-for-investment  16,548   —   16,548 
Redemption of FHLB-NY stock  1,388   —   1,388 
Additions to premises and equipment  (1,869)  —   (1,869)
Proceeds from sale of real estate owned  404   —   404 
Payments for acquisition, net of cash acquired  (2,425)  —   (2,425)
          
Net cash (used in) provided by investing activities  88,647   —   88,647 
          
Cash flows from financing activites:
            
Net increase (decrease) in deposits  (33,657)  —   (33,657)
Net repayment of FHLB advances and other borrowings  (45,660)  —   (45,660)
Common stock repurchased  (321)  —   (321)
Dividends paid  (883)  —   (883)
          
Net cash provided by (used in) financing activities  (80,521)  —   (80,521)
          
Net (decrease) increase in cash and cash equivalents  (5,554)  —   (5,554)
Cash and cash equivalents at beginning of period  22,904   —   22,904 
          
Cash and cash equivalents at end of period $17,350  $—  $17,350 
          
             
Supplemental information:            
Noncash Transfers-            
Change in unrealized loss on valuation of available-for-sale investments, net $765  $—  $765 
 
Cash paid for-            
Interest $19,510  $—  $19,510 
Income taxes $652  $—  $652 

39

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BasisAt each fiscal year-end, a model is used to calculate bonuses as a percentage of consolidated financial statement presentation
The consolidated financial statements includebase pay for bonus-eligible employees and takes into account the accountsemployee’s grade level, corporate performance, departmental performance against goals, and individual performance. Departmental and individual performance goals are defined and communicated to managers and employees during the budget and performance appraisal processes, which occur at the beginning of the Holding Company, the Bank and the Bank’s wholly-owned or majority owned subsidiaries, Carver Asset Corporation, CFSB Realty Corp., CMB, Carver Community Development Corporation, and CFSB Credit Corp. All significant intercompany accounts and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with accounting principles generally acceptedeach fiscal year. Long-term incentives are provided to executive officers in the United Statesform of America. In preparingrestricted stock, stock options or cash. Awards are granted under the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the period then ended. Amounts subject to significant estimates and assumptions are items such as the allowance for loan losses, goodwill and intangibles, pensions and the fair value of financial instruments. Management believes that prepayment assumptions on mortgage-backed securities and mortgage loans are appropriate and the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses or future write downs of real estate owned may be necessary based on changesplan in economic conditions in the areas where Carver Federal has extended mortgages and other credit instruments. Actual results could differ significantly from those assumptions.
In addition, the Office of Thrift Supervision (“OTS”), Carver Federal’s regulator, as an integral part of its examination process, periodically reviews Carver Federal’s allowance for loan losses and, if applicable, real estate owned valuations. The OTS may require Carver Federal to recognize additions to the allowance for loan losses or additional write downs of real estate owned based on their judgments about information available to themeffect at the time of their examination.the award.
In June 2005,On January 16, 2009, the Emerging Issues Task ForceCompany completed a financing transaction with the United States Treasury under the Troubled Asset Relief Program (“EITF”TARP”). As a result of the FASB reached final consensus on Issue No. 04-5, Determining Whether a General Partner, or General Partners as a Group, controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (“EITF Issue No. 04-5”). EITF Issue No. 04-5 set forth the criteria to determine whether partnerships are to be consolidated for financial statement purposes or reported using the Equity Method. In accordance with guidance set forth in EITF Issue No. 04-5, Carver CDC-Subsdiary CDE 10, LLC has been consolidated for financial reporting purposes.
Cash and cash equivalents
For the purpose of reporting cash flows, cash and cash equivalents include cash, amounts due from depository institutions, federal funds sold and other short-term instruments with original maturities of three months or less. Federal funds sold are generally sold for one-day periods. The amounts due from depository institutions include a non-interest bearing account held at the Federal Reserve Bank (“FRB”) where any additional cash reserve required on demand deposits would be maintained. Currently, this reserve requirement is zero since the Bank’s vault cash satisfies cash reserve requirements for deposits.
Securities
When purchased, securities are designated as either securities held-to-maturity or securities available-for-sale. Securities are classified as held-to-maturity and carried at amortized cost only if the Bank has a positive intent and ability to hold such securities to maturity. Securities held-to-maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity.
If not classified as held-to-maturity, securities are classified as available-for-sale demonstrating management’s ability to sell in response to actual or anticipated changes in interest rates and resulting prepayment risk or any other factors. Available-for-sale securities are reported at fair value. Estimated fair values of securities are based on either published or security dealers’ market value. Unrealized holding gains or losses for securities available-for-sale are excluded from earnings and reported net of deferred income taxes as a separate component of accumulated other comprehensive income (loss), a component of Stockholders’ Equity. Any impairment in the available-for-sale securities deemed other-than-temporary, is written down against the cost basis and charged to earnings. No impairment charge was recorded for fiscal 2008, 2007 or 2006. Gains or losses on sales of securities of all classifications are recognized based on the specific identification method.
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of cost or market value as determined on an aggregate loan basis. Premiums paid and discounts obtained on such loans held-for-sale are deferred as an adjustment to the carrying valuepassage of the loans untilAmerican Recovery and Reinvestment Act of 2009, all participants in TARP transactions are required to comply with substantial restrictions on executive compensation. These restrictions impact the loans are sold.
Loans Receivable
Loans receivable are carried at unpaid principal balances plus unamortized premiums, purchase accounting mark-to-market adjustments, certain deferred direct loan origination costs and deferred loan origination fees and discounts, less the allowance for loan losses.
The Bank defers loan origination fees and certain direct loan origination costs and accretes such amounts as an adjustment of yield over the expected livesterms of the related loans using methodologies which approximate the interest method. PremiumsNamed Executive Officers’ employment agreements and discounts on loans purchased are amortizedthose other agreements described under “Potential Payments Upon Termination or accreted as an adjustment of yield over the contractual lives, of the related loans, adjusted for prepayments when applicable, using methodologies which approximate the interest method.
Loans are generally placed on non-accrual status when they are past due 90 days or more as to contractual obligations or when other circumstances indicate that collection is questionable. When a loan is placed on non-accrual status, any interest accrued but not received is reversed against interest income. Payments received on a non-accrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on an assessment of the ability to collect the loan. A non-accrual loan is restored to accrual status when principal and interest payments become less than 90 days past dueChange in Control.” See “Recent Legislation and its future collectibility is reasonably assured.Impact on Executive Compensation.”

 

4019

Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to provide for probable loan losses inherent in the portfolio as of March 31, 2008. Management is responsible for determining the adequacy of the allowance for loan losses and the periodic provisioning for estimated losses included in the consolidated financial statements. The evaluation process is undertaken on a quarterly basis, but may increase in frequency should conditions arise that would require management’s prompt attention, such as business combinations and opportunities to dispose of non-performing and marginally performing loans by bulk sale or any development which may indicate an adverse trend.
Carver Federal maintains a loan review system, which calls for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Loan loss allowances are established for problem loans based on a review of such information and/or appraisals of the underlying collateral. On the remainder of its loan portfolio, loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of loan portfolio, current economic conditions and management’s judgment. Although management believes that adequate loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of the loan loss allowance may be necessary in the future.
The methodology employed for assessing the appropriateness of the allowance consists of the following criteria:
Establishment of loan loss allowance amounts for all specifically identified criticized and classified loans that have been designated as requiring attention by management’s internal loan review process, bank regulatory examinations or Carver Federal’s external auditors.
An average loss factor, giving effect to historical loss experience over several years and other qualitative factors, is applied to all loans not subject to specific review.
Evaluation of any changes in risk profile brought about by business combinations, customer knowledge, the results of ongoing credit quality monitoring processes and the cyclical nature of economic and business conditions. An important consideration in performing this evaluation is the concentration of real estate related loans located in the New York City metropolitan area.
All new loan originations are assigned a credit risk grade which commences with loan officers and underwriters grading the quality of their loans one to five under a nine-category risk classification scale, the first five categories of which represent performing loans. Reserves are held based on actual loss factors based on several years of loss experience and other qualitative factors applied to the outstanding balances. All loans are subject to continuous review and monitoring for changes in their credit grading. Grading that falls into criticized or classified categories (credit grading six through nine) are further evaluated and reserved amounts are established for each loan based on each loan’s potential for loss and includes consideration of the sufficiency of collateral. Any adverse trend in real estate markets could seriously affect underlying values available to protect against loss.
Other evidence used to support the amount of the allowance and its components includes:
Amount and trend of criticized loans;
Actual losses;
Peer comparisons with other financial institutions; and
Economic data associated with the real estate market in the Company’s lending market areas.

41

A loan is considered to be impaired, as defined by SFAS No. 114,“Accounting by Creditors for Impairment of a Loan”(“SFAS 114”), when it is probable that Carver Federal will be unable to collect all principal and interest amounts due according to the contractual terms of the loan agreement. Carver Federal tests loans covered under SFAS 114 for impairment if they are on non-accrual status or have been restructured. Consumer credit non-accrual loans are not tested for impairment because they are included in large groups of smaller-balance homogeneous loans that, by definition, are excluded from the scope of SFAS 114. Impaired loans are required to be measured based upon (i) the present value of expected future cash flows, discounted at the loan’s initial effective interest rate, (ii) the loan’s market price, or (iii) fair value of the collateral if the loan is collateral dependent. If the loan valuation is less than the recorded value of the loan, an allowance must be established for the difference. The allowance is established by either an allocation of the existing allowance for loan losses or by a provision for loan losses, depending on various circumstances. Allowances are not needed when credit losses have been recorded so that the recorded investment in an impaired loan is less than the loan valuation.
Segment Reporting
In accordance with Statement of Financial Accounting Standard No. 131,“Disclosures about Segments of an Enterprise and Related Information”, the Company has determined that all of its activities constitute one reportable operating segment.
Concentration of Risk
The Bank’s principal lending activities are concentrated in loans secured by real estate, a substantial portion of which is located in New York City. Accordingly, the ultimate collectibility of a substantial portion of the Company’s loan portfolio is susceptible to changes in New York’s real estate market conditions.
Office Properties and Equipment
Office properties and equipment are comprised of land, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed using the straight-line method over the following estimated useful lives:
Buildings and improvements10 to 25 years
Furnishings and equipment3 to 5 years
Leasehold improvementsLesser of useful life or remaining term of lease
Maintenance, repairs and minor improvements are charged to non-interest expense in the period incurred.
Federal Home Loan Bank Stock
The Federal Home Loan Bank of New York (“FHLB-NY”) has assigned to the Bank a mandated membership stock purchase, based on the Bank’s asset size. In addition, for all borrowing activity, the Bank is required to purchase shares of FHLB-NY non-marketable capital stock at par. Such shares are redeemed by FHLB-NY at par with reductions in the Bank’s borrowing levels. The Bank carries this investment at historical cost.
Bank Owned Life Insurance
Bank Owned Life Insurance (“BOLI”) is carried at its cash surrender value on the balance sheet and is classified as a non-interest-earning asset. Death benefits proceeds received in excess of the policy’s cash surrender value are recognized in income. Returns on the BOLI assets are added to the carrying value and included as non-interest income in the consolidated statement of income. Any receipt of benefit proceeds is recorded as a reduction to the carrying value of the BOLI asset. At March 31, 2008, Carver held no policy loans against its BOLI cash surrender values or restrictions on the use of the proceeds.

42

Mortgage Servicing Rights
Mortgage servicing rights on originated loans that have been sold are capitalized by allocating the total cost of the mortgage loans between the mortgage servicing rights and the loans based on their relative fair values. Mortgage servicing rights are carried at the lower of the initial carrying value, adjusted for amortization, or fair value, and are amortized in proportion to, and over the period of, estimated net servicing income using a discounted analysis of future cash flows, incorporating numerous assumptions including servicing income, servicing costs, market discount rates, prepayment speeds and default rates. Mortgage servicing rights are evaluated quarterly for impairment based on the difference between the carrying amount and current fair value. If it is determined that impairment exists, the resulting loss is charged against earnings.
Real Estate Owned
Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at the fair value at the date of acquisition and thereafter carried at the lower of cost or fair value less estimated selling costs. The fair value of such assets is determined based primarily upon independent appraisals and other relevant factors. The amounts ultimately recoverable from real estate owned could differ from the net carrying value of these properties because of economic conditions. Costs incurred to improve properties or prepare them for sale are capitalized. Revenues and expenses related to the holding and operating of properties are recognized in operations as earned or incurred. Gains or losses on sale of properties are recognized as incurred.
Identifiable Intangible Assets
In accordance with Statement of Financial Accounting Standards No.142,“Goodwill and Other Intangible Assets”goodwill and intangible assets with indefinite useful lives are no longer amortized, rather they are assessed, at least annually, for impairment (See Note 3).
Identifiable intangible assets relate primarily to core deposit premiums, resulting from the valuation of core deposit intangibles acquired in the purchase of branches of other financial institutions. These identifiable intangible assets are amortized using the straight-line method over a period of 5 years but not exceeding the estimated average remaining life of the existing customer deposits acquired. Amortization periods for intangible assets are monitored to determine if events and circumstances require such periods to be reduced.
Effective April 1, 2007, the Company adopted SFAS, No. 156,Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140. SFAS No. 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. For subsequent measurements, entities are permitted to choose either the amortization method, which is consistent with the prior requirements of SFAS No. 140, or the fair value method. Upon adoption of SFAS No. 156, the Company elected to adopt the fair value method for measurements of mortgage servicing rights (MSR). The adoption of SFAS No. 156 did not have a material impact on the Company’s financial statements.
The Company recognizes as separate assets the rights to service mortgage loans and such assets are included in other assets in the statements of financial condition.
Income Taxes
Carver Federal accounts for income taxes using the asset and liability method. Temporary differences between the basis of assets and liabilities for financial reporting and tax purposes are measured as of the balance sheet date. Deferred tax liabilities or recognizable deferred tax assets are calculated on such differences, using current statutory rates, which result in future taxable or deductible amounts. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
Effective January 1, 2007, the Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes- An Interpretation of FASB Statement No 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 also prescribes a specified recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The adoption of FIN 48 did not have a material impact on the Company’s financial statements.

43

Securities Impairment
The Bank’s available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. Securities that the Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity and are carried at amortized cost. The fair values of securities in portfolio are based on published or securities dealers’ market values and are affected by changes in interest rates. The Bank periodically reviews and evaluates the securities portfolio to determine if the decline in the fair value of any security below its cost basis is other-than-temporary. The Bank generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience. However, if such a decline is deemed to be other-than-temporary, the security is written down to a new cost basis and the resulting loss is charged to earnings. At March 31, 2008, the Bank carried no other than temporarily impaired securities.
Earnings per Common Share
Basic earnings per share (“EPS”) is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g., outstanding share awards under the Company’s stock option plans). For the purpose of these calculations, unreleased shares of the Carver Federal Savings Bank Employee Stock Ownership Plan (“ESOP”) are not considered to be outstanding.
Treasury Stock
Treasury stock is recorded at cost and is presented as a reduction of stockholders’ equity.
Pension Plans
The Company’s pension benefit and post-retirement health and welfare benefit obligations, and the related costs, are calculated using actuarial concepts, within the framework of SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Post-retirement Benefits Other than Pensions,” respectively. The measurement of such obligations and expenses requires that certain assumptions be made regarding several factors, most notably including the discount rate and the expected return on plan assets. The Company evaluates these critical assumptions on an annual basis. Other factors considered by the Company include retirement patterns, mortality, turnover, and the rate of compensation increase.
Under Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefits Pensionand Other Post-retirement Plans- an amendment of SFAS Statement Nos. 87, 88, 106 and 132(R)”, actuarial gain and losses, prior services cost or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in “accumulated other comprehensive income or loss”, net of taxes effects, until they are amortized as a component of net of periodic benefit cost. In addition, under SFAS No. 158 the measurement date (i.e., the date at which plan assets and the benefit obligation are measured for financial reporting purposes) is required to be the company’s fiscal year end. The company presently uses a December 31 measurement date for its pension, as permitted by SFAS Nos. 87 and 106. In accordance with SFAS No. 158, the Company will adopt a fiscal year-end measurement date on March 31, 2009.
Stock-Based Compensation Plans
Effective April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” (“SFAS No. 123R”). This statement replaces Statement of Financial Accounting Standards No. 123,“Accounting for Stock-Based Compensation,”and supersedes Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,”(“APB No. 25”). SFAS No. 123R requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. This statement was adopted using the modified prospective method of application, which requires the Company to recognize compensation expense on a prospective basis. Therefore, prior period financial statements have not been restated. Under this method, in addition to reflecting compensation expense for new share-based awards, expense is also recognized to reflect the remaining service period of awards that had been included in pro forma disclosures in prior periods. SFAS No. 123R also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows.

44

Prior to the adoption of SFAS No. 123R on April 1, 2006, the Company applied APB No. 25 and related interpretations in accounting for its stock option plans. As each granted stock option entitled the holder to purchase shares of the Company’s common stock at an exercise price equal to 100% of the fair market value of the stock on the date of grant, no compensation cost for such options was recognized. Had compensation cost for the stock option plans been determined, using a Black-Scholes option-pricing model, based on the fair value at the date of grant for awards made under those plans, consistent with the method set forth in SFAS No. 123, “Accounting for Stock-based Compensation,” as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-based Compensation — Transition and Disclosure,” (“SFAS No. 148”), the Company’s pro forma net income in the year ended March 31, 2006 would have been as follows:
     
  2006 
Net Income available to common shareholders:    
As reported $3,770 
Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects  (105)
    
Pro forma $3,665 
    
     
Basic earnings per share:    
As reported $1.50 
Pro forma  1.46 
     
Diluted earnings per share:    
As reported $1.45 
Pro forma  1.43 
 
Weighted average number of shares outstanding  2,506,029 
Compensation expense is recognized for the Bank’s ESOP equal to the fair value of shares committed to be released for allocation to participant accounts. Any difference between the fair value at that time and the ESOP’s original acquisition cost is charged or credited to stockholders’ equity (additional paid-in capital). The cost of unallocated ESOP shares (shares not yet committed to be released) is reflected as a reduction of stockholders’ equity.
The Company grants “incentive stock options” only to its employees and grants “nonqualified stock options” to employees and non-employee directors. All options granted, vested and unexercised as of March 31, 2006 will still be accounted for under APB No. 25. No compensation expense is recognized if the exercise price of the option is greater than or equal to the fair market value of the underlying stock on the date of grant.

45

Reclassifications
Certain amounts in the consolidated financial statements presented for prior years have been reclassified to conform to the current year presentation.
NOTE 4. IMPAIRMENT AND GOODWILL
The Company annually evaluates long-lived assets, certain identifiable intangibles and deferred costs for indication of impairment in value. When required, asset impairment will be recorded as an expense in the current period. The Company reported goodwill from its acquisition of Community Capital Bank in 2006 in the amount of $7.1 million
In accordance with Statement of Financial Accounting Standards No.142, “Goodwill and Other Intangible Assets” (“SFAS No.142”) goodwill and intangible assets with indefinite useful lives are no longer amortized, rather they are assessed, at least annually, for impairment. The Company tests goodwill for impairment on an annual basis as of January 31, or more often if events or circumstances indicate there may be impairment. The Company has determined that all of its activities constitute one reporting and operating segment.
The Company performed the annual goodwill impairment test as of January 31, 2008, and determined that the fair value of the reporting unit was in excess of its carrying value, using the guideline company and guideline transaction methodologies. There was no indication of goodwill impairment as of the annual impairment test date.

46

NOTE 5. SECURITIES
The following is a summary of securities at March 31, 2008 (in thousands):
                 
  Amortized  Gross Unrealized  Estimated 
  Cost  Gains  Losses  Fair-Value 
Available-for-Sale:
                
Mortgage-backed securities:                
Government National Mortgage Association $8,303  $—  $(123) $8,180 
Federal Home Loan Mortgage Corporation  4,077   19   —   4,096 
Federal National Mortgage Association  6,748   107   —   6,855 
Other  205   4   —   209 
             
Total mortgage-backed securities  19,333   130   (123)  19,340 
U.S. Government Agency Securities  1,473   52   —   1,525 
             
Total available-for-sale  20,806   182   (123)  20,865 
             
                 
Held-to-Maturity:
                
Mortgage-backed securities:                
Government National Mortgage Association  573   34   —   607 
Federal Home Loan Mortgage Corporation  12,343   11   (230)  12,124 
Federal National Mortgage Association  4,216   78   (32)  4,262 
             
Total mortgage-backed securities  17,132   123   (262)  16,993 
Other  175   —   (1)  174 
             
Total held-to-maturity  17,307   123   (263)  17,167 
             
Total securities $38,113  $305  $(386) $38,032 
             
The following is a summary of securities at March 31, 2007 (in thousands):
                 
  Amortized  Gross Unrealized  Estimated 
  Cost  Gains  Losses  Fair-Value 
Available-for-Sale:
                
Mortgage-backed securities:                
Government National Mortgage Association $13,637  $47  $(65) $13,619 
Federal Home Loan Mortgage Corporation  1,116   12   (3)  1,125 
Federal National Mortgage Association  5,905   30   (40)  5,895 
Other  517   20   —   537 
             
Total mortgage-backed securities  21,175   109   (108)  21,176 
U.S. Government Agency Securities  26,417   387   —   26,804 
             
Total available-for-sale  47,592   496   (108)  47,980 
             
                 
Held-to-Maturity:
                
Mortgage-backed securities:                
Government National Mortgage Association  727   25   —   752 
Federal Home Loan Mortgage Corporation  13,308   9   (166)  13,151 
Federal National Mortgage Association  4,792   53   (50)  4,795 
Other  120   —   —   120 
             
Total mortgage-backed securities  18,947   87   (216)  18,818 
Other  190   —   (3)  187 
             
Total held-to-maturity  19,137   87   (219)  19,005 
             
Total securities $66,729  $583  $(327) $66,985 
             

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The following is a summarytable sets forth information regarding securities and/or callsgrants of available-for-sale portfolio at March 31, 2008 (in thousands):
             
  2008  2007  2006 
Available-for-Sale:
            
Proceeds $22,428  $14,422  $12,197 
Gross gains  431   22   — 
Gross losses  —   646   — 
The net unrealized gain on available-for-sale securities was $0.1 million ($36,000 after taxes) at March 31, 2008 and net unrealized gain of $0.4 million ($0.2 million after taxes) at March 31, 2007. On November 30, 2002 the Bank transferred $22.8 million of mortgage-backed securities from available-for-sale to held-to-maturity as a result of management’s intention to hold these securities in portfolio until maturity. A related unrealized gain of $0.5 million was recorded as a separate component of stockholders’ equity and is being amortized over the remaining lives of the securities as an adjustment to yield. As of March 31, 2008 the carrying value of these securities was $8.8 million and a related net unrealized gain of $0.1 million continues to be reported. There was a loss of $0.6 million resulting from the sale of available-for-sale securities in fiscal 2007. At March 31, 2008 the Bank pledged securities of $9.7 million as collateral for advances from the FHLB-NY.
The following is a summary of the carrying value (amortized cost) and fair value of securities at March 31, 2008, by remaining period to contractual maturity (ignoring earlier call dates, if any). Actual maturities may differ from contractual maturities because certain security issuers have the right to call or prepay their obligations. The table below does not consider the effects of possible prepayments or unscheduled repayments.
             
  Amortized      Weighted 
  Cost  Fair Value  Avg Rate 
Available-for-Sale:
            
Less than one year $42  $43   5.44%
One through five years  181   188   5.31%
Five through ten years  6,706   6,264   5.42%
After ten years  14,280   14,370   5.02%
          
  $21,209  $20,865   5.13%
          
             
Held-to-maturity:
            
One through five years $11  $11   5.15%
Five through ten years  493   486   5.00%
After ten years  16,803   16,670   5.78%
          
  $17,307  $17,167   5.76%
          

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The unrealized losses and fair value of securities in an unrealized loss position at March 31, 2008 for less than 12 months and 12 months or longer were as follows (in thousands):
                         
  Less than 12 months  12 months or longer  Total 
  Unrealized  Fair  Unrealized  Fair  Unrealized  Fair 
  Losses  Value  Losses  Value  Losses  Value 
Available-for-Sale:
                        
Mortgage-backed securities $(33) $3,857  $(90) $4,033  $(123) $7,890 
                   
Total available-for-sale  (33)  3,857   (90)  4,033   (123)  7,890 
                   
                         
Held-to-Maturity:
                        
Mortgage-backed securities  (7)  451   (255)  13,800   (262)  14,251 
U.S. Government Agency Securities  —   —   (1)  174   (1)  174 
                   
Total held-to-maturity  (7)  451   (256)  13,974   (263)  14,425 
                   
Total securities $(40) $4,308  $(346) $18,007  $(386) $22,315 
                   
The unrealized losses and fair value of securities in an unrealized loss position at March 31, 2007 were as follows (in thousands):
                         
  Less than 12 months  12 months or longer  Total 
  Unrealized  Fair  Unrealized  Fair  Unrealized  Fair 
  Losses  Value  Losses  Value  Losses  Value 
  (in thousands) 
Available-for-Sale:
                        
Mortgage-backed securities  (108)  9,498   —   —   (108)  9,498 
                   
Total available-for-sale  (108)  9,498   —   —   (108)  9,498 
                   
                         
Held-to-Maturity:
                        
Mortgage-backed securities  (216)  15,241   —   —   (216)  15,241 
U.S. Government Agency Securities  (3)  187   —   —   (3)  187 
                   
Total Held-to- Maturity  (219)  15,428   —   —  ��(219)  15,428 
                   
Total securities  (327)  24,926   —   —   (327)  24,926 
                   
A total of 29 securities had an unrealized loss at March 31, 2008 compared to 24 at March 31, 2007. Based on estimated fair value, all the securities in an unrealized loss position were United States government agency-backed securities, which represents 32.4% and 20.3% of total securities at March 31, 2008 and 2007, respectively. The cause of the temporary impairment is directly relatedPlan-based awards granted to the change in interest rates. In general, as interest rates decline,Named Executive Officers during the fair value of securities will rise, and conversely as interest rates rise, the fair value of securities will decline. Management considers fluctuations in fair value as a result of interest rate changes to be temporary, which is consistent with the Bank’s experience. The impairments are deemed temporary based on the direct relationship of the rise in fair value to movements in interest rates, the life of the investments and their high credit quality.last fiscal year.

49

NOTE 6. LOANS RECEIVABLE, NETGRANTS OF PLAN-BASED AWARDS at FISCAL YEAR-END 2009
The following is a summary of loans receivable, net of allowance for loan losses at March 31 (dollars in thousands):
                 
  2008  2007 
  Amount  Percent  Amount  Percent 
Gross loans receivable:                
One- to four-family $103,419   16.33% $100,910   17.22%
Multifamily  78,657   12.42%  91,877   15.68%
Non-residential  238,508   37.66%  203,187   34.68%
Construction  158,877   25.09%  137,697   23.50%
Business  51,424   8.23%  51,226   8.74%
Consumer and other(1)
  1,728   0.27%  1,067   0.18%
             
Total loans receivable  633,298   100.00%  585,964   100.00%
               
                 
Add:                
Premium on loans  725       990     
Less:                
Deferred fees and loan discounts  (1,229)      (994)    
Allowance for loan losses  (4,878)      (5,409)    
               
Total loans receivable, net $627,231      $580,551     
               
                                             
                                  All other        
                              All  option        
                              other  awards:      Grant date 
                              stock  Number      fair 
                              awards:  of  Exercise  market 
                              Number  securities  or base  value of 
      Estimated future payouts under  Estimated future payouts under  of shares  under-  price of  stock and 
      non-equity incentive plan awards(1)  equity incentive plan awards(2)  of stock  lying  option  option 
  Grant  Threshold  Target  Maximum  Threshold  Target  Maximum  or units  options  awards  awards 
Name date  ($)  ($)  ($)  (#)  (#)  (#)  (#) (3)  (#)  ($/Sh)  ($) (4) 
(a) (b)  (c)  (d)  (e)  (f)  (g)  (h)  (i)  (j)  (k)  (l) 
Deborah C. Wright annual bonus
     $96,250  $192,500  $375,375                             
LTIP cash     $92,400  $184,800  $360,360                             
stock  6/11/2008               6,774   13,548   26,419   4,807          $40,860 
options  —                                         
                                             
Roy Swan annual bonus
     $43,127  $86,253  $168,193                             
LTIP cash     $34,501  $69,002  $134,555                             
stock  6/11/2008               2,529   5,059   9,865   2,000          $17,000 
options                                            
                                             
James Bason, Jr. annual bonus
     $22,313  $44,625  $87,019                             
LTIP cash     $17,850  $35,700  $69,615                             
stock  6/11/2008               1,309   2,617   5,104   775          $6,588 
options  —                                         
                                             
Charles F. Koehler annual bonus
     $21,244  $42,488  $82,851                             
LTIP cash     $16,995  $33,990  $66,281                             
stock  6/11/2008               1,528   3,055   5,958   941          $7,999 
options  —                                         
                                             
Susan M. Ifill annual bonus
     $21,888  $43,775  $85,361                             
LTIP cash     $17,510  $35,020  $52,530                             
stock  6/11/2008               1,275   2,549   4,971   705          $5,993 
options  —                                         
                                             
Michael Trinidad annual bonus
     $15,749  $31,499  $61,423                             
LTIP cash     $12,600  $25,199  $37,799                             
stock  6/11/2008               881   1,762   3,437   435          $3,698 
options  —                                         
                                             
Thomas Sperzel annual bonus
     $15,500  $31,000  $60,450                             
LTIP cash     $12,400  $24,800  $37,200                             
stock  —               909   1,818   3,545   0          $0 
options  —                                         
   
(1) Includes personal, credit card,The threshold amounts reflect the minimum payment level under the Company’s current incentive compensation plans, which is 50% of the target amount. The maximum amount is 150% of the target amount plus up to an additional 30% for exceptional performance. These amounts are based on the individual’s base salary and home improvement.position at the end of the fiscal year.
(2)The equity threshold amounts reflect the same minimums and maximums discussed in footnote (1). The stock award thresholds are based on the calculated cash value pursuant to the Company’s incentive compensation plan divided by the share price of $3.41 on 3/31/09. No option awards were granted in the fiscal year. Option award thresholds, if awarded, would have been based on the calculated cash value pursuant to the Company’s incentive compensation plan, a fiscal year end Black-Scholes value and the share price on 3/31/09. To reduce dilution and maintain a 3-year average burn-rate in line with industry practices, fiscal 2008 equity awards were limited to restricted stock equal to 20% of the value of the long-term incentive award with the remaining 80% given in cash with the same vesting schedule as the equity awards. The mix of restricted stock, options and cash may change from year to year to limit shareholder dilution.
(3)The amounts reflect the number of shares of stock granted in the fiscal year ended 3/31/09 for fiscal 2008 performance to each Named Executive Officer pursuant to the Company’s Stock Incentive Plan.
(4)The amounts reflect the value of the shares of stock at $8.50 per share on the grant date.
At March 31, 2008 and 2007, 89.3% and 89.9%, respectively, of the Bank’s real estate loans receivable was principally secured by properties located in New York City.
Mortgage loan portfolios serviced for Federal National Mortgage Association (“FNMA”) and other third parties are not included in the accompanying consolidated financial statements. The unpaid principal balances of these loans aggregated $52.0 million, $38.8 million and $33.2 million at March 31, 2008, 2007, and 2006, respectively. Custodial escrow balances, maintained in connection with the above-mentioned loan servicing, were approximately $0.2 million, $0.1 million and $0.1 million at March 31, 2008, 2007 and 2006, respectively. During the years ended March 31, 2008, 2007 and 2006, the Bank recognized gains on the sale of loans of $0.3 million, $0.2 million and $0.4 million, respectively.
At March 31, 2008 the Bank pledged $187.9 million in total mortgage loans as collateral for advances from the FHLB-NY.
The following is an analysis of the allowance for loan losses for the years ended March 31 (in thousands):
             
  2008  2007  2006 
 
Balance at beginning of the year $5,409  $4,015  $4,097 
Provision charged to operations  222   276   — 
Recoveries of amounts previously charged-off  153   47   35 
Charge-offs of loans  (906)  (120)  (117)
Acquisition of CCB  —   1,191   — 
          
Balance at end of the year $4,878  $5,409  $4,015 
          
Non-accrual loans consist of loans for which the accrual of interest has been discontinued as a result of such loans becoming 90 days or more delinquent as to principal and/or interest payments. Interest income on non-accrual loans is recorded when received. Restructured loans consist of loans where borrowers have been granted concessions in regards to the terms of their loans due to financial or other difficulties, which rendered them unable to repay their loans under the original contractual terms.

 

5020

At March 31, 2008, 2007 and 2006, the recorded investment in impaired loans was $2.9 million, $4.5 million and $2.8 million, respectively, all of which represented non-accrual loans. The related allowance for loan losses for these impaired loans was approximately $0.3 million, $0.8 million and $0.3 million at March 31, 2008, 2007 and 2006, respectively. The impaired loan portfolio is primarily collateral dependent. The average recorded investment in impaired loans during the fiscal years ended March 31, 2008, 2007 and 2006 was approximately $4.7 million, $3.6 million and $2.2 million, respectively. For the fiscal years ended March 31, 2008, 2007 and 2006, the Company did not recognize any interest income on these impaired loans. Interest income of $0.6 million, $0.3 million, and $0.1 million, for the fiscal years ended March 31, 2008, 2007 and 2006, respectively, would have been recorded on impaired loans had they performed in accordance with their original terms.
At March 31, 2008, other non-performing assets totaled $4.0 million which consists of non-performing loans of $2.9 million and other real estate owned of $1.2 million. Other non-performing loans of $2.9 million consist of 18 small business and SBA loans, two multi-family loans and two 1-4 family loans. All are relatively small balance loans. Other real estate owned of $1.2 million reflects four foreclosed properties.
At March 31, 2008 and 2007, there were no loans to officers or directors of the Company.
NOTE 7. OFFICE PROPERTIES AND EQUIPMENT, NET
The detail of office properties and equipment as of March 31 is as follows (in thousands):
         
  2008  2007 
         
Land $415  $415 
Building and improvements  9,874   9,834 
Leasehold improvements  6,041   5,262 
Furniture and equipment  12,079   10,039 
       
   28,409   25,550 
Less accumulated depreciation and amortization  (12,629)  (10,924)
       
Office properties and equipment, net $15,780  $14,626 
       
Depreciation and amortization charged to operations for the fiscal years ended March 31, 2008, 2007 and 2006 amounted to $1.7 million, $1.6 million and $1.5 million, respectively.
NOTE 8. ACCRUED INTEREST RECEIVABLE
The detail of accrued interest receivable as of March 31 is as follows (in thousands):
         
  2008  2007 
         
Loans receivable $3,751  $3,689 
Mortgage-backed securities  273   590 
Investments and other interest bearing assets  39   56 
       
Total accrued interest receivable $4,063  $4,335 
       

51

NOTE 9. DEPOSITS
Deposit balances and weighted average stated interest rates as of March 31 are as follows (dollars in thousands):
                         
  2008  2007 
      Percent  Weighted      Percent  Weighted 
      of Total  Average      of Total  Average 
  Amount  Deposits  Rate  Amount  Deposits  Rate 
                         
Non-interest-bearing demand $51,736   7.90%  0.00% $50,891   8.27%  0.00%
NOW accounts  28,168   4.30%  0.20%  28,910   4.70%  0.31%
Savings and club  125,819   19.22%  0.53%  137,960   22.43%  0.78%
Money market savings account  45,514   6.95%  2.94%  46,996   7.64%  2.18%
Certificates of deposit  400,587   61.20%  4.10%  347,753   56.53%  4.28%
Other  2,839   0.43%  1.51%  2,612   0.43%  1.39%
                   
Total $654,663   100.00%  2.83% $615,122   100.00%  2.78%
                   
Scheduled maturities of certificates of deposit are as follows for the year ended March 31, 2008 (in thousands):
                         
  Period to Maturity 
                  Total  Percent 
Rate < 1 Yr.  1-2 Yrs.  2-3 Yrs.  3+ Yrs.  2007  of Total 
0% – 0.99% $2,993  $389  $48  $231  $3,661   0.91%
1% – 1.99%  27,640   —   —   —   27,640   6.90%
2% – 3.99%  98,003   9,577   4,202   1,743   113,525   28.34%
4% and over  231,542   9,054   3,995   11,170   255,761   63.85%
                   
Total $360,178  $19,020  $8,245  $13,144  $400,587   100.00%
                   
The aggregate amount of certificates of deposit with minimum denominations of $100,000 or more was approximately $229.7 million at March 31, 2008 compared to $217.4 million at March 31, 2007. As of March 31, 2008 the Bank had pledged $1.3 million of investment securities as collateral for certain large deposits.
Interest expense on deposits is as follows for the years ended March 31 (in thousands):
             
  2008  2007  2006 
             
NOW demand $138  $98  $74 
Savings and clubs  1,004   931   919 
Money market savings  1,193   1,133   601 
Certificates of deposit  16,522   13,079   7,321 
Mortgagors deposits  42   30   30 
          
   18,899   15,271   8,945 
             
Penalty for early withdrawal of certificates of deposit  (33)  (44)  (24)
          
Total interest expense $18,866  $15,227  $8,921 
          

52

NOTE 10. BORROWED MONEY
Federal Home Loan Bank Advances and Repurchase agreements.FHLB-NY advances and repurchase agreements weighted average interest rates by remaining period to maturity at March 31 are as follows (dollars in thousands):
                 
Maturing 2008  2007 
Year Ended Weighted      Weighted    
March 31, Average Rate  Amount  Average Rate  Amount 
2008  0.00% $—   4.58% $32,500 
2009  3.77% $15,107   3.78%  15,107 
2012  4.63%  30,143   3.50%  168 
             
   4.34% $45,250   4.32% $47,775 
             
As a member of the FHLB-NY, the Bank may have outstanding FHLB-NY borrowings in a combination of term advances and overnight funds of up to 25% of its total assets, or approximately $199.0 million at March 31, 2008. Borrowings are secured by the Bank’s investment in FHLB-NY stock and by a blanket security agreement. This agreement requires the Bank to maintain as collateral certain qualifying assets (principally mortgage loans and securities) not otherwise pledged. At March 31, 2008, advances were secured by pledges of the Bank’s investment in the capital stock of the FHLB-NY totaling $1.6 million and a blanket assignment of the Bank’s unpledged qualifying mortgage loans of $187.9 million and mortgage-backed and investment securities of $9.7 million. The Bank has sufficient collateral at the FHLB-NY to be able to borrow an additional $29.4 million from the FHLB-NY at March 31, 2008.
Repurchase agreements.Repurchase agreements (“REPO”) are contracts for the sale of securities owned or borrowed by the Bank with an agreement to repurchase those securities at an agreed-upon price and date. The Banks’ repurchase agreements are primarily collateralized by $30.0 million obligations and other mortgage-related securities, and are entered into with either the Federal Home Loan Bank of New York (the “FHLB-NY”) or selected brokerage firms. Repurchase agreements totaled $30.0 million at March 31, 2008. At March 31, 2008, the accrued interest on repurchase agreements amounted to $0.2 million and the interest expense was $1.1 million for the year ended March 31, 2008. The Bank had no repurchase agreements at March 31, 2007 and no related interest expense for fiscal 2007.
Subordinated Debt Securities.On September 17, 2003, Carver Statutory Trust I, issued 13,000 shares, liquidation amount $1,000 per share, of floating rate capital securities. Gross proceeds from the sale of these trust preferred debt securities of $13.0 million, and proceeds from the sale of the trust’s common securities of $0.4 million, were used to purchase approximately $13.4 million aggregate principal amount of the Holding Company’s floating rate junior subordinated debt securities due 2033. The trust preferred debt securities are redeemable at par quarterly at the option of the Company beginning on or after September 17, 2008 and have a mandatory redemption date of September 17, 2033. Cash distributions on the trust preferred debt securities are cumulative and payable at a floating rate per annum resetting quarterly with a margin of 3.05% over the three-month LIBOR.

53

The following table sets forth certain information regarding Carver Federal’s borrowings as ofstock awards, stock options and for the years ended March 31 (dollars in thousands):
             
  2008  2007  2006 
Amounts outstanding at the end of year:            
FHLB advances $15,250  $47,775  $80,935 
Guaranteed preferred beneficial interest in junior subordinated debentures $13,375  $13,318  $13,260 
             
Rate paid at year end:            
FHLB advances  3.77%  4.32%  4.13%
Guaranteed preferred beneficial interest in junior subordinated debentures  5.85%  8.40%  7.97%
             
Maximum amount of borrowing outstanding at any month end:            
FHLB advances $60,874  $93,975  $112,488 
Guaranteed preferred beneficial interest in junior subordinated debentures $13,375  $13,318  $13,260 
             
Approximate average amounts outstanding for year:            
FHLB advances $36,724  $65,567  $94,798 
Guaranteed preferred beneficial interest in junior subordinated debentures $13,344  $13,286  $13,230 
             
Approximate weighted average rate paid during year:            
FHLB advances  5.18%  4.36%  3.81%
Guaranteed preferred beneficial interest in junior subordinated debentures  7.76%  8.33%  7.50%
NOTE 11. INCOME TAXES
The components of income tax (benefit) expense for the years ended March 31 are as follow (in thousands):
             
  2008  2007  2006 
  (Restated) 
Federal income tax expense (benefit):            
Current $70  $1,628  $1,155 
Deferred  (1,107)  (3,018)  35 
          
   (1,037)  (1,390)  1,190 
          
             
State and local income tax expense:            
Current  169   296   196 
Deferred  (24)  (5)  (57)
          
   145   291   139 
          
             
Total provision for income tax (benefit) expense $(892) $(1,099) $1,329 
          
The following is a reconciliation of the expected Federal income tax rate to the consolidated effective tax rate for the years ended March 31 (dollars in thousands):
                         
  2008  2007  2006 
  Amount  Percent  Amount  Percent  Amount  Percent 
  (Restated) 
Statutory Federal income tax $1,094   34.0% $339   34.0% $1,734   34.0%
State and local income taxes, net of Federal tax benefit  86   2.7%  187   11.6%  92   1.8%
New markets tax credit  (2,000)  -61.6%  (1,475)  -83.8%  —   — 
General business credit  (41)  -1.3%  (69)  -3.9%  (73)  -1.5%
Release of contingency reserve  —   —   —   —   (500)  -9.8%
Other  (31)  -1.0%  (81)  -4.6%  76   1.5%
                   
Total income tax (benefit) expense $(892)  -27.2% $(1,099)  -46.7% $1,329   26.0%
                   

54

Carver Federal’s stockholders’similar equity includes approximately $2.8 million at the end of each year ended March 31, 2008, 2007 and 2006, which has been segregated for federal income tax purposes as a bad debt reserve. The use of this amount for purposes other than to absorb losses on loans may result in taxable income for federal income taxes at the then current tax rate.
Tax effects of existing temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are included in other assetscompensation outstanding at March 31, are as follows (in thousands):
         
  2008  2007 
Deferred Tax Assets:        
Income from affiliate $—  $1,876 
Allowance for loan losses  1,427   1,839 
Deferred loan fees  461   371 
Compensation and benefits  102   109 
Non-accrual loan interest  579   587 
Capital loss carryforward  591   591 
Deferred rent  111   111 
Purchase accounting adjustment  159   702 
Net operating loss carry forward  2,072   — 
New markets tax credit  3,227   1,242 
Depreciation  330   — 
Other  28   2 
       
Total Deferred Tax Assets  9,087   7,430 
       
 
Deferred Tax Liabilities:        
Depreciation  —   128 
Income from affiliate  690   — 
Minimum pension liability  170   50 
Unrealized gain on available-for-sale securities  92   228 
       
Total Deferred Tax Liabilities  952   406 
       
 
Net Deferred Tax Assets $8,135  $7,024 
       
In June 2006, Carver Federal was selected by the U.S. Department of Treasury to receive an award of $59 million in New Markets Tax Credits. The NMTC award is used to stimulate economic development in low- to moderate-income communities. The NMTC award enables the Bank to invest with community and development partners in economic development projects with attractive terms including, in some cases, below market interest rates, which may2009, whether granted during fiscal 2009 or earlier. No awards have the effect of attracting capital to underserved communities and facilitating the revitalization of the community, pursuant to the goals of the NMTC program. The NMTC award provides a credit to Carver Federal against Federal income taxes when the Bank makes qualified investments. The credits are allocated over seven years from the time of the qualified investment. Recognition of the Bank’s NMTC award began in December 2006 when the Bank invested $29.5 million, one-half of its $59 million award. In December 2007, the Bank invested an additional $10.5 million and transferred rights to $19.0 million of its $59 million NMTC award to an investor pursuant to its investment in a NMTC project. The Bank’s NMTC allocation has been fully invested as of December 31, 2007. During the seven year period, assuming the Bank meets compliance requirements, the Bank will receive 39% of the $40.0 million invested award amount (5% over each of the first three years, and 6% over each of the next four years). The Company expects to receive additional NMTC tax benefits of approximately $12.1 million from its $40.0 million investment over approximately six years.
A valuation allowance against the deferred tax asset at March 31, 2008 and 2007 was not required since it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset.
The Company has no uncertain tax positions. The Company and its subsidiaries are subject to U.S. federal, New York State and New York City income taxation. The Company is no longer subject to examination by taxing authorities for years before March 31, 2005. CCB, a subsidiary of the Holding Company, which was purchased in 2006, is currently subject to a New York State examination by the taxing authorities for tax years 2003 and 2004.

55

The Company adopted FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), as of April 1, 2007. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. FIN 48 had no affect on the Company’s financial statements.transferred.
NOTE 12. EARNINGS PER COMMON SHAREOUTSTANDING EQUITY AWARDS at FISCAL YEAR-END 2009
The following table reconciles the earnings available to common shareholders (numerator) and the weighted average common stock outstanding (denominator) for both basic and diluted earnings per share for years ended March 31 (in thousands):
             
  2008  2007  2006 
  (Restated) 
Net income — basic and diluted $3,963  $2,098  $3,770 
          
             
Weighted average common shares outstanding — basic  2,492   2,511   2,506 
Effect of dilutive options  50   57   59 
Effect of dilutive MRP shares  19   18   27 
          
Weighted average common shares outstanding — diluted  2,561   2,586   2,592 
          
NOTE 13. STOCKHOLDERS’ EQUITY
Conversion and Stock Offering.On October 24, 1994, the Bank issued in an initial public offering 2,314,375 shares of common stock, par value $0.01 (the “Common Stock”), at a price of $10 per share resulting in net proceeds of $21.5 million. As part of the initial public offering, the Bank established a liquidation account at the time of conversion, in an amount equal to the surplus and reserves of the Bank at September 30, 1994. In the unlikely event of a complete liquidation of the Bank (and only in such event), eligible depositors who continue to maintain accounts shall be entitled to receive a distribution from the liquidation account. The total amount of the liquidation account may be decreased if the balances of eligible deposits decreased as measured on the annual determination dates. The Bank is not permitted to pay dividends to the Holding Company on its capital stock if the effect thereof would cause its net worth to be reduced below either: (i) the amount required for the liquidation account, or (ii) the amount required for the Bank to comply with applicable minimum regulatory capital requirements.
Regulatory Capital. The operations and profitability of the Bank are significantly affected by legislation and the policies of the various regulatory agencies. The OTS has promulgated capital requirements for financial institutions consisting of minimum tangible and core capital ratios of 1.5% and 3.0%, respectively, of the institution’s adjusted total assets and a minimum risk-based capital ratio of 8.0% of the institution’s risk weighted assets. Although the minimum core capital ratio is 3.0%, the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”), as amended, stipulates that an institution with less than 4.0% core capital is deemed undercapitalized. At March 31, 2008 and 2007, the Bank exceeded all of its regulatory capital requirements.

56

The following is a summary of the Bank’s actual capital amounts as of March 31, 2008 compared to the OTS requirements for minimum capital adequacy and for classification as a well-capitalized institution (in thousands):
                 
  GAAP  Tangible  Leverage  Risk-Based 
  Capital  Equity  Capital  Capital 
Stockholders’ Equity at March 31, 2008(1)
(As restated)
 $68,184  $68,184  $68,184  $68,184 
             
                 
Add:                
General valuation allowances      —   —   4,878 
Deduct:                
Unrealized gains on securities available-for-sale, net      (151)  (151)  (151)
Goodwill and qualifying intangible assets, net      (7,587)  (7,587)  (7,587)
Other      (33)  (33)  (33)
              
Regulatory Capital      60,413   60,413   65,291 
Minimum Capital requirement      11,852   23,709   51,673 
              
Regulatory Capital Excess     $48,561  $36,704  $13,618 
              
                                         
  Option Awards  Stock Awards 
                                      Equity 
                                      incentive 
                                  Equity  plan 
                                  incentive  awards: 
             plan  market or 
              Equity              Market  awards:  payout 
              incentive plan              value of  number of  value of 
      Number of  Number of  awards number          Number of  shares or  unearned  unearned 
      securities  securities  of securities          shares or  units of  shares,  shares, 
      underlying  underlying  underlying          units of  stock  units or  units or 
      unexercised  unexercised  unexercised  Option      stock that  that  other rights  other rights 
  Date of  options  options  unearned  exercise  Option  have not  have not  that have  that have 
  Option  (#)  (#)  options  price  Expiration  vested  vested  not vested  not vested 
Name Grant  exercisable  unexercisable  (#)  ($)  date  (#)  ($)  (#)  ($)(1) 
(a)    (b)  (c)  (d)  (e)  (f)  (g)  (h)  (i)  (j) 
Deborah C. Wright  06/01/99   30,000           8.125   5/29/2009           16,847  $57,448 
   06/01/00   30,000           8.210   5/30/2010                 
   8/22/2001   30,000           9.930   8/20/2011                 
   6/12/2002   30,000           12.060   6/9/2012                 
   6/24/2003   20,000           16.410   6/21/2013                 
   6/24/2004   15,000           19.630   6/22/2014                 
   6/9/2005   4,074   9,507       17.130   6/7/2015                 
   11/20/2006   4,696   7,046       16.500   11/17/2016                 
   5/11/2007   2,624   10,496       16.900   5/11/2017                 
                                         
Roy Swan  6/9/2005       7,250       17.130   12/23/2008           3,842  $13,101 
   11/20/2006       2,727       16.500   12/23/2008                 
   5/4/2007       2,858       17.040   12/23/2008                 
                                         
James H. Bason, Jr.  2/5/2003   2,700           12.410   2/2/2013           2,931  $9,995 
   6/24/2004   1,250           19.630   6/22/2014                 
   6/9/2005   273   640       17.130   6/7/2015                 
   5/4/2007   —                                 
                                         
Charles F. Koehler  —                               941  $3,209 
                                         
Susan M. Ifill  —                               705  $2,404 
                                         
Michael Trinidad  —                               435  $1,483 
                                         
Thomas Sperzel  —                       —             
   
(1) Carver Federal only.Unvested shares value is based on Carver’s stock price of $3.41 at close of business on 3/31/2009.

21

Grant dates and vesting schedules for unvested shares are shown below for each Named Executive Officer.
                                     
  Grant Date  Shares granted  Unvested  Vesting Dates of Unvested Shares  Vesting Schedule 
Deborah Wright  6/9/2005   5,432   3,803   6/9/2009   6/9/2010              10% yrs 1 – 4; 60% year 5
   11/20/2006   5,513   3,309   6/14/2009   6/14/2010   6/14/2011          20% per year
   5/11/2007   6,160   4,928   5/11/2009   5/11/2010   5/11/2011   5/11/2012      20% per year
   6/11/2008   4,807   4,807   6/11/2009   6/11/2010   6/11/2011   6/11/2012   6/11/2013  20% per year
                                    
Total Unvested          16,847                         
                                    
                                     
Roy Swan Resigned 9/23/2008  5/26/2005   3,625                             
   11/20/2006   1,280   768                         
   5/4/2007   1,342   1,074                         
   6/11/2008   2,000   2,000                         
                                    
Total Forfeited          3,842                         
                                    
                                     
James Bason  6/9/2005   1,096   768   6/9/2009   6/9/2010              10% yrs 1 – 4; 60% year 5
   11/20/2006   690   414   6/14/2009   6/14/2010   6/14/2011          20% per year
   5/4/2007   775   620   5/4/2009   5/4/2010   5/4/2011   5/4/2012      20% per year
   6/11/2008   1,129   1,129   6/11/2009   6/11/2010   6/11/2011   6/11/2012   6/11/2013  20% per year
                                    
Total Unvested          2,931                         
                                    
                                     
Charles F. Koehler Resigned 2/27/2009  06/11/08   941   941                         
                                    
Total Forfeited          941                         
                                    
                                     
Susan M. Ifill Resigned 3/31/2009  06/11/08   705   705                         
                                    
Total Forfeited          705                         
                                    
                                     
Michael Trinidad Resigned 3/10/2009  06/11/08   435   435                         
                                    
Total Forfeited          435                         
                                    
                                     
Thomas Sperzel Resigned 6/27/2009  —                                 
                                    
Total Unvested          0                         
                                    

22

The following table sets forth the stock awards that vested and the option grants that were exercised for the Named Executive Officers during the last fiscal year.
OPTION EXERCISES AND STOCK VESTED at FISCAL YEAR-END 2009
                 
  Option awards  Stock awards(1) 
     Number of    
  Number of  Value  shares  Value 
  shares  realized  acquired  realized 
  acquired  upon  on  on 
  on exercise  exercise  vesting  vesting 
Name (#)  ($)  (#)  ($) 
(a) (b)  (c)  (d)  (e) 
Deborah C. Wright(2)
  —   —   2,877(2) $26,547 
Roy Swan(3)
  —   —   1,733(3) $16,637 
James H. Bason, Jr.(4)
  —   —   402(4) $3,943 
Charles F. Koehler  —       —  $0 
Susan M. Ifill  —   —   —  $0 
Michael Trinidad  —   —   —  $0 
Thomas Sperzel  —   —   —  $0 
(1)All vested shares are time-based. Price is based on the average of the high and low stock price on the vesting date.
(2)Deborah Wright
Comprehensive Income.Comprehensive income represents net income and certain amounts reported directly in stockholders’ equity, such as the net unrealized gain or loss on securities available for sale and loss on pension liability. The Holding Company has reported its comprehensive income for fiscal 2008, 2007 and 2006No options exercised in the Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income. Carver Federal’s accumulated other comprehensive income or loss included net unrealized losses on securities at March 31, 2008 and 2007 was $0.2 million and $0.4 million, respectively. Includedfiscal year
Stock Awards
                 
Grant Date Vested Shares  Vesting Date  Vesting Price 
06/09/05  543   06/09/08   8.83  $4,792 
11/20/06  1,102   06/14/08   8.50  $9,367 
05/11/07  1,232   05/11/08   10.06  $12,388 
             
Total  2,877          $26,547 
             
(3)Roy Swan
No options exercised in the amounts at March 31, 2006 were unrealized gainsfiscal year
Stock Awards
                 
Grant Date Vested Shares  Vesting Date  Vesting Price 
05/26/05  1,209   05/27/08   9.38  $11,334 
11/20/06  256   06/14/08   8.50  $2,176 
05/04/07  268   05/04/08   11.67  $3,126 
             
Total  1,733          $16,637 
             
(4)James Bason
No options exercised in the fiscal year
Stock Awards
                 
Grant Date Vested Shares  Vesting Date  Vesting Price 
06/09/05  109   06/09/08   8.83  $962 
11/20/06  138   06/14/08   8.50  $1,173 
05/04/07  155   05/04/08   11.67  $1,808 
             
Total  402          $3,943 
             

23

Nonqualified Deferred Compensation Plans
The Company did not have any non-qualified deferred compensation plans in fiscal 2009.
Benefits and Perquisites
The Company’s executive officers participate in benefit plans available to all employees including the Carver Federal Savings Bank 401(k) Savings Plan. The Company does not currently offer additional perquisites in excess of $0.2 million relating to available-for-sale securities that were transferred during fiscal 2003 to held-to-maturity. This unrealized gain is an unrealized gain reported as a separate component of stockholders’ equity and is amortized over the remaining lives of the securities as an adjustment to yield. Also included in accumulated other comprehensive income at March 31, 2008 and 2007 was gains on the Bank’s pension plan liabilities of $0.3 million and $0.1 million, net of taxes, respectively. At March 31, 2006, there was a loss on the Bank’s employee pension plan liability of $0.3 million, net of taxes, included in accumulated other comprehensive loss.$10,000 per year.
NOTE 14. EMPLOYEE BENEFIT AND STOCK COMPENSATION PLANSBenefits Plans
Pension Plan.The Carver Federal hasSavings Bank Retirement Income Plan is a non-contributorynoncontributory, tax-qualified defined benefit pension plan covering all who(the“Pension Plan”). The Pension Plan was amended such that future benefit accruals ceased as of December 31, 2000. Since that date, no new participants were eligible to enter into the Pension Plan and participants prior to curtailmentas of the plan. The benefits are based on each employee’s termsuch date have not been credited with additional years of service through the date of curtailment. Carver Federal’s policy was to fund the plan with contributions which equal the maximum amount deductible for federal income tax purposes. The plan was curtailed during the fiscal year ended March 31, 2001.or increased compensation.

57

The following table sets forth information regarding pension benefits accrued by the plan’s changes in benefit obligation, changes in plan assets and funded status and amounts recognized in Carver Federal’s consolidated financial statements at March 31 (in thousands):Named Executive Officers during the last fiscal year.
         
  2008  2007 
Change in projected benefit obligation during the year:    
Projected benefit obligation at the beginning of year $2,887  $2,892 
Interest cost  163   159 
Actuarial (gain) loss  (308)  55 
Benefits paid  (170)  (219)
Settlements  (173)  — 
       
Projected benefit obligation at end of year $2,399  $2,887 
       
 
Change in fair value of plan assets during the year:        
Fair value of plan assets at beginning of year $2,877  $2,870 
Actual return on plan assets  232   226 
Benefits paid  (170)  (219)
Settlements  (173)  — 
       
Fair value of plan assets at end of year $2,766  $2,877 
       
         
Funded status $367  $(10)
Unrecognized loss  —   — 
       
Accrued pension cost $367  $(10)
       
Net periodic pension benefit includes the following components for the years ended March 31 (in thousands):
             
  2008  2007  2006 
             
Interest cost $163  $159  $163 
Expected return on plan assets  (221)  (220)  (227)
          
Net periodic pension (benefit) $(58) $(61) $(64)
          
Significant actuarial assumptions used in determining plan benefits for the years ended March 31 are as follows:
             
  YEAR ENDED MARCH 31, 
  2008  2007  2006 
Annual salary increase (1)  —   —   — 
Expected long-term return on assets  8.00%  8.00%  8.00%
Discount rate used in measurement of benefit obligations  6.50%  5.88%  5.75%
                 
      Number of  Present    
      years  value of  Payments 
      Credited  accumulated  during last 
      service  benefit  fiscal year 
Name Plan name  (#)  ($)  ($) 
(a) (b)  (c)  (d)  (e) 
CEO — Deborah C. Wright Carver Federal Savings Bank Retirement Income Plan   1  $15,919.18(1)  — 
CFO — Roy Swan  —   —   —   — 
James H. Bason, Jr.  —   —   —   — 
Charles F. Koehler  —   —   —   — 
Susan M. Ifill  —   —   —   — 
Michael Trinidad  —   —   —   — 
Thomas Sperzel  —   —   —   — 
   
(1) The annual salary increase rate is not applicable asCompany’s defined benefit pension plan was frozen 12/31/2000. Active employees with at least one year of service on December 31, 2000 are eligible to receive a benefit under the Plan should the Plan be terminated. The amount of the benefit will be calculated based on age, credited years of service and pay at the time the plan was frozen. Employees with more than five years of service on December��31, 2000 who reach retirement age before the Plan is frozenterminated are eligible for a benefit calculated based on the Plan’s definitions of earnings and no new benefits accrue.eligibility. Ms. Wright is the only Named Executive Officer in the plan.

58

Directors’ Retirement401(k) Savings Plan.ConcurrentThe Company maintains a 401(k) Savings Plan (“401(k) Plan”) with the conversion to the stock form of ownership, Carver Federal adopted a retirement plan for non-employee directors. The plan was curtailed during the fiscal year ended March 31, 2001. The benefits are payable based on the term of service as a director through the date of curtailment. The following table sets forth the plan’s changes in benefit obligation, changes in plan assets and funded status and amounts recognized in Carver Federal’s consolidated financial statements at March 31 (in thousands):
         
  2008  2007 
Change in projected benefit obligation during the year:        
Projected benefit obligation at beginning of year $36  $102 
Interest cost  2   5 
Actuarial gain  —   (50)
Benefits paid  (13)  (21)
       
Projected benefit obligation at end of year $25  $36 
       
 
Change in fair value of plan assets during the year:        
Fair value of plan assets at beginning of year $—  $— 
Employer contributions  13   21 
Benefits paid  (13)  (21)
       
Fair value of plan assets at end of year $—  $— 
       
         
Funded status $(25) $(36)
Unrecognized (gain)  —   — 
       
Accrued pension cost $(25) $(36)
       
Savings Incentive Plan.Carver has a savings incentive plan, pursuant to Section 401(k) of the Code,profit sharing feature for all eligible employees of the Bank.Company. The BankCompany matches contributions to the 401(k) Plan equal to 100% of pre-tax contributions made by each employee up to a maximum of 4% of their pay, subject to IRS limitations. All such matching contributions are fully vested and non-forfeitable at all times regardless of the years of service with the Bank. To be eligible for the matching contribution, the employee must be 21 years of age and have completed at least three months of service. Under the profit-sharing feature, ifthe Company has the discretion to make a contribution. If the Bank achieves a minimum of 70% of its net incomefiscal year performance goal, as mentioned previously, the Compensation Committee may authorize an annual non-elective contribution to the 401(k) Plan on behalf of each eligible employee up to 2% of the employee’s annual pay, subject to IRS limitations. This non-elective contribution, may beif made, is awarded regardless of whether the employee makes a contributionvoluntary contributions to the 401(k) Plan. Non-elective BankCompany contributions if awarded, vest 20% each year for the first five years of employment and are fully vested thereafter. To be eligible for the matchingnon-elective company contribution, the employee must be 21 years of age, and have completed at least one year of service. To be eligible for the non-elective Carver contribution, the employee must alsoservice and be employed as ofon the last day of the plan year. Total savings incentive plan expensesyear, currently December 31, or have terminated employment for death, disability or retirement. The Company did not award a non-elective contribution for the years401(k) Plan year that ended MarchDecember 31, 2008, 2007 and 2006 were $0.1 million, $0.2 million and $0.2 million, respectively.
BOLI.The Bank owns one BOLI plan which was formed to offset future employee benefit costs and provide additional benefits due to its tax exempt nature. Only officer level employees are covered under this program.
An initial investment of $8.0 million was made to the BOLI program on September 21, 2004. At March 31, 2008 the Consolidated Statement of Conditions reflects a net cash surrender value of $9.1 million. The related income is reflected in the Consolidated Statement of Operations as a component of other non-interest income.
Management Recognition Plan(“MRP”).The MRP provided for grants of restricted stock to certain employees at September 12, 1995 adoption of the MRP. On March 28, 2005 the plan was amended for all future awards. The MRP provides for additional discretionary grants of restricted stock to those employees selected by the committee established to administer the MRP. Awards granted prior to March 28, 2005, generally vest in three to five equal annual installments commencing on the first anniversary date of the award, provided the recipient is still an employee of the Holding Company or the Bank on such date. Under the amended plan awards granted after March 28, 2005 vest based on a five-year performance-accelerated vesting schedule. Ten percent of the awarded shares vest in each of the first four years and the remainder in the fifth year but the Compensation Committee may accelerate vesting at any time. Awards will become 100% vested upon termination of service due to death or disability. When shares become vested and are distributed, the recipients will receive an amount equal to any accrued dividends with respect thereto. There are no shares available to grant under the MRP. Pursuant to the MRP, the Bank recognized $155,000, $118,000 and $134,000 as expense for the years ended March 31, 2008, 2007and 2006, respectively.2008.

 

5924

Employee Stock Ownership Plan.Effective upon conversion to a publicly traded company, an ESOPEmployee Stock Ownership Plan (“ESOP”) was established for all eligible employees. The ESOP used $1,821,000 in proceeds from a term loan obtained from a third-party institution to purchase 182,132 shares of BankCarver’s common stock in the initial public offering. Each year untiloffering to pledge as collateral for the loan. In June 2004, the loan was paid off in June of 2004,and the Bank madecontinued to make discretionary contributions to the ESOP which was equal to principal and interest payments required on the term loan less any dividends received by the ESOP on unallocated shares.
Shares purchased with the loan proceeds were initially pledged as collateral for the term loan. Currently,purchasing shares are purchased in the open marketmarket. This was in accordance with Carver’s common stock repurchase program andwhere shares are held in a suspense account for future allocation among the participants based on the basis of compensation, as described by the Plan, in the year of allocation. In May 2006, Carver amended the ESOP so thatCompensation Committee approved management’s recommendation and voted to freeze the ESOP. Discretionary contributions ceased and no new participants arewere eligible to enter the ESOP after December 31, 20062006.
Employment and Other Agreements with Executive Officers
As of June 1, 1999, both Carver and Carver Federal entered into employment agreements to secure the services of Deborah C. Wright as President and CEO. The employment agreements are intended to set forth the aggregate compensation and benefits payable to Ms. Wright for all services rendered to them and any of their subsidiaries. Both employment agreements provided for an initial term of three years beginning June 1, 1999 and, pursuant to the terms of the employment agreements, each year thereafter have been extended an additional year following a review of Ms. Wright’s performance by the Compensation Committee votedand the Board of Directors.
In addition, the employment agreements provide for an annual incentive payment based on the achievement of certain performance goals, future grant of stock awards, a supplemental retirement benefit, additional life insurance protection and participation in the various employee benefit plans maintained by Carver and Carver Federal from time to cease discretionary contributions aftertime. The agreements also provide customary corporate indemnification and errors and omissions insurance coverage throughout the 2006 allocation. ESOPterm of the agreements and for six years thereafter.
Carver may terminate Ms. Wright’s employment at any time for cause as defined in the employment agreements. In the event that Carver terminates Ms. Wright’s employment for reasons other than for cause, she would be entitled to a severance benefit equal in value to the cash compensation, expense was $0.1 million, $0.1 millionretirement and $0.2 millionother fringe benefits she would have earned had she remained employed for the remaining term of the agreements. The same severance benefits would be available if Ms. Wright resigns during the term of the employment agreements following a loss of title, office or membership on the Board; a material reduction in her duties, functions or responsibilities; involuntary relocation of her principal place of employment by over 30 miles from its location as of June 1, 1999, other material breaches of contract by Carver that are not cured within 30 days; or, in certain circumstances, a change in control. In the event of a change in control, the remaining term of Ms. Wright’s agreement with Carver at any point in time will be three years endedunless written notice of non-renewal is given by the Board or Ms. Wright.
A portion of the severance benefits payable to Ms. Wright under her employment agreements in the event of a change in control might constitute“excess parachute payments”under current federal tax laws. Federal tax laws impose a 20% excise tax, payable by the executive, on excess parachute payments. In the event that any amounts paid to Ms. Wright following a change of control would constitute“excess parachute payment”,Ms. Wright’s employment agreement with Carver provides that she will be indemnified for any excise taxes imposed due to such excess parachute payments, and any additional income and employment taxes imposed as a result of such indemnification of excise taxes. Any excess parachute payments and indemnification amounts paid will not be deductible compensation expenses for the Company.

25

Letter Agreements
The Company entered into letter employment agreements with Mr. Swan, Mr. Bason, Mr. Trinidad, Mr. Sperzel and Ms. Ifill. Generally, each letter employment agreement provides for“at-will” employment and compensation in the form of base salary and benefits continuation based on length of service and in certain instances, a one-time payment. Mr. Swan, Mr. Trinidad and Ms. Ifill resigned from the Company during fiscal 2009 and did not receive additional compensation beyond their termination dates other than salary and benefits previously earned.
In conjunction with the Company’s acquisition of Community Capital Bank, the Company entered into an employment agreement with the former President and CEO of Community Capital Bank, Mr. Charles F. Koehler, to secure his services as the Executive Vice President of the Lending Division. The employment agreement with Mr. Koehler set forth the aggregate compensation and benefits payable to Mr. Koehler for all services rendered to the Company and any of its subsidiaries for an initial term of 18 months beginning October 1, 2006 and ending March 31, 2008, 20072008. Mr. Koehler’s employment agreement was amended and 2006, respectively.provided a second term of 12 months, ending March 31, 2009. Mr. Koehler resigned from the Company effective February 27, 2009 and did not receive additional compensation beyond his termination date other than earned salary and benefits.
Change in Control Arrangements
In the event of a change in control, pursuant to her employment agreement, Ms. Wright is eligible for three years of base salary and benefits continuation. Pursuant to their letter agreements, as of March 31, 2009, Mr. Bason is and Mr. Sperzel would have been eligible for 39 weeks of base salary and benefits continuation. Notwithstanding their change in control arrangements, the Company’s senior executive officers have agreed in writing to accept the ARRA standards discussed earlier in this document. Under ARRA, during the period in which the Treasury holds an equity position in the Company, the Company is prohibited from paying severance resulting from termination for any reason, except for payments for services performed or benefits accrued.

26

The following table reflects the amount of compensation to each of the Named Executive Officers in the event of termination of such executive’s employment under such executive’s employment agreement or employment letter. The amount of compensation payable to each Named Executive Officer upon voluntary termination, early retirement, involuntary not-for-cause termination, termination following a Change in Control (“CIC”) or in the event of disability or death of the executive is shown. The amounts assume that such termination was effective as of March 31, 2009, and thus includes amounts earned through such time or are estimates of the amounts, which would be paid to the Named Executive Officers upon their termination. The actual amounts to be paid can only be determined at the time of such executive’s separation from the Company.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL at FISCAL YEAR-END 2009
                         
  Involuntary  For Cause                
  Not For  or by                
  Cause or by  Executive                
  Executive  without                
  with Good  Good              Change in 
  Reason  Reason  Disability  Retirement  Death  Control 
Deborah Wright, Chairman and Chief Executive Officer
                        
Cash Wages(1)
 $834,167  $0  $625,625   —   —  $1,155,000 
Incentive(2)
 $577,500  $0  $0   —   —  $577,500 
Health, Welfare, Perquisites and Other Personal Benefits (3)
 $43,100  $0  $28,600   —   —  $54,100 
Retirement Plans(4)
 $42,300  $0  $0   —   —  $42,300 
Long Term Incentive Plan(5)
 $677,800  $0  $0   —   —  $677,800 
                   
Total $2,174,867  $0  $654,225   —   —  $2,506,700 
                   
                         
Roy Swan, Executive Vice President and Chief Financial Officer(1)
                        
                   
Total  n/a  $0   n/a   —   —   n/a 
                   
                         
James Bason, Senior Vice President and Chief Lending Officer
                        
Cash Wages(1)
 $13,731  $0  $107,101   —   —  $133,876 
Incentive(2)
 $0  $0  $0   —   —   — 
Health, Welfare, Perquisites and Other Personal Benefits (3)
 $5,100  $0  $0   —   —  $13,900 
Retirement Plans(4)
     $0  $0   —   —   — 
Long Term Incentive Plan(5)
 $0  $0  $0   —   —  $88,980 
                   
Total $18,831  $0  $107,101   —   —  $236,755 
                   
                         
Charles Koehler, Executive Vice President, Lending (1)
                        
                   
Total  n/a  $0   n/a   —   —   n/a 
                   
                         
Susan M. Ifill, Senior Vice Present and Chief Retail Officer(1)
                        
                   
Total  n/a  $0   n/a   —   —   n/a 
                   
                         
Michael Trinidad, Senior Vice President and Controller (1)
                        
                   
Total  n/a  $0   n/a   —   —   n/a 
                   
                         
Thomas Sperzel, Senior Vice President and Controller (1)
                        
Cash Wages(1)
 $35,769  $0  $93,000   —   —  $116,250 
Incentive(2)
 $0  $0  $0   —   —   — 
Health, Welfare, Perquisites and Other Personal Benefits (3)
 $3,300  $0  $0   —   —  $13,900 
Retirement Plans(4)
 $0  $0  $0   —   —   — 
Long Term Incentive Plan(5)
 $0  $0  $0   —   —  $0 
                   
Total $39,069  $0  $93,000   —   —  $130,150 
                   
(1)For Mr. Bason, cash wages reflect the value of severance payments in accordance with CIC letter agreements or pursuant to the Company’s Severance Pay Plan if other than CIC. For Ms. Wright, cash payments reflect the terms of her contract. For Mr. Sperzel, payments reflect the value of severance payments he was eligible to receive as of March 31, 2009 had he not resigned from the company. Mr. Sperzel resigned from the Company on June 27, 2009. Messrs Swan, Koehler, Trinidad, and Ms. Ifill resigned from the Company on or before the fiscal year end and were not entitled to further compensation.
(2)Incentive reflects payments at target awards paid as directed by the terms of the CIC agreement or current incentive compensation plan.
(3)Health, Welfare and Other Personal Benefits reflect the cost of the Company continuing medical, dental, vision, and life insurance benefits per the CIC agreement or severance pay plan.
(4)Retirement Benefits reflect the 401k Plan matching and profit sharing contributions and acceleration of vesting of unvested profit sharing contributions.
(5)Long-term Incentive Plan payments reflect the value of accelerated vesting of unvested cash, shares and options.

27

Recent Legislation and Its Impact On Executive Compensation
On January 16, 2009, the Company completed a financing transaction with the United States Treasury under the TARP. The Company is therefore subject to these restrictions, and would be unable to make any of the payments described above under the caption “Potential Payments Upon Termination or Change in Control.” To comply with these restrictions, Ms. Wright and Messrs. Bason and Sperzel have signed agreements waiving their respective rights to severance payments for so long as the Company is legally prohibited from making such payments.
On February 17, 2009, the American Recovery and Reinvestment Act (“ARRA”) became law. Under the Act, all institutions that have received government investments under the TARP are required to comply with new executive compensation restrictions. Among other things, these restrictions prohibit the payment of severance to the Company’s senior executive officers upon their departure from the institution for any reason. In addition, for institutions like the Company that have received less than $25 million under the TARP, the institution’s highest paid executive officer may not receive a cash bonus, but may receive a bonus in the form of restricted stock provided that (i) the restricted stock does not vest until the Treasury’s investment is redeemed, and (ii) the value of the restricted stock does not exceed one-third of the officer’s annual compensation. These restrictions remain in place for so long as the government’s investment in the institution is outstanding.
Director Compensation
The ESOP shares at March 31 are as follows (in thousands):
         
  2008  2007 
Allocated shares  69   73 
Unallocated shares  —   — 
       
Total ESOP shares  69   73 
       
Fair value of unallocated shares $3  $10 
       
Stock Option Plans.During 1995, the Holding Company adopted the 1995 Stock Option Plan (the “Plan”) to advance the interestsChairman of the Bank through providingBoard of Directors is currently the Chief Executive Officer and does not receive any additional compensation for serving as the Board Chairman. The Company’s outside directors are paid an annual cash retainer of $10,000 to serve as a Director of both Carver and Carver Federal and receive a meeting fee of $600 for Board Meetings attended and $700 per Executive Committee meeting attended.. The chairs of the Asset Liability and Interest Rate Risk Committee (“ALCO”) and Audit committees receive an annual retainer of $7,500 and $5,000, respectively, and a meeting fee of $650.The chairs of the remaining committees receive an annual retainer of $1,500 and all committee members including the chairs thereof receive $475 per committee meeting attended. Upon shareholder approval of new directors, the Compensation Committee may approve a grant of 1,000 shares of restricted stock and 1,000 stock options, which vest pursuant to select key employees and directors of the Bank and its affiliates. The number of shares reserved for issuance under theCompany’s incentive plan was 338,862. The 1995 plan expired by its term and no new options may be granted under it, however, stock options granted under the 1995 Plan continue in accordance with their terms. At March 31, 2008, there were 237,182 options outstanding and 198,088 were exercisable. Options are granted at the fair market value of Carver Federal common stockeffect at the time of the grant forgrant.
The following table sets forth information regarding compensation earned by the non-employee directors of the Company during the last fiscal year.
DIRECTOR COMPENSATION at FISCAL YEAR-END 2009
                             
                  Change In       
  Fees              Pension       
  Earned              Value And       
  or          Non-Equity  Nonqualified       
  Paid In  Stock  Option  Incentive Plan  Deferred  All Other    
  Cash  Awards  Awards  Compensation  Compensation  Compensation  Total 
Name ($)  ($)  ($)  ($)  Earnings  ($)  ($) 
(a) (b)  (c)  (d)  (e)  (f)  (g)  (h) 
Carol Baldwin Moody $25,525   —   —   —   —   —  $25,525 
Dr. Samuel Daniel $22,850   —   —   —   —   —  $22,850 
David L. Hinds $34,100   —   —   —   —   —  $34,100 
Robert Holland, Jr. $27,300   —   —   —   —   —  $27,300 
Pazel G. Jackson Jr. $36,950   —   —   —   —   —  $36,950 
Edward B. Ruggiero $23,550   —   —   —   —   —  $23,550 
Robert Tarter $21,900   —   —   —   —   —  $21,900 

28

Impact of Accounting and Tax on the Form of Compensation
The Compensation Committee and the Company consider the accounting and tax (individual and corporate) consequences of the compensation plans prior to making changes to the plans. The Compensation Committee has considered the impact of the Statement of Financial Accounting Standard No. 123, or SFAS No. 123, as issued by the FASB in 2004, on the Company’s use of equity incentives as a periodkey retention tool.
As part of its role, the Compensation Committee also reviews and considers sections of the Internal Revenue Code (“IRC”), including but not limited to, exceed ten years.Golden Parachutes Under IRC Section 280(g) and the 1995 Plandeductibility of executive compensation under Section 162(m) which limits deduction of compensation paid to Named Executive Officers to $1,000,000 unless the compensation is“performance-based”. This applies to base salary, all cash incentive plans and equity grants other than stock options. During fiscal 2009, no employee received taxable compensation in excess of $1,000,000 and therefore, deductibility of compensation was not limited by these sections of the IRC.
Option Granting Practices
The timing of the Company’s option grants generallyhas historically been and continues to be determined upon appointment to the Board, upon hire, or in conjunction with incentive grants after the Company’s fiscal year end and approved by the Compensation Committee. In fiscal 2009, no options were granted to Named Executive Officers. When granted, however, grants vest on an annual basis ratably over either three or five years, commencing after one year of service and,pursuant to the Company’s incentive plan in some instances, portions of option grants vesteffect at the time of the grant. On March 28, 2005,
Ownership Guidelines
The Company regularly reviews the plan was amendedownership levels of its directors and vestingofficers and has not established minimum stock ownership guidelines as the Company’s directors and the Named Executive Officers collectively own a significant amount of future awards isCompany Stock.
Conclusion
The Compensation Committee retains the discretion to decrease all forms of incentive payouts based on a five-year performance-accelerated vesting schedule. Ten percentsignificant individual or Company performance shortfalls. Likewise, the Committee retains the discretion to increase payouts and/or consider special awards for significant achievements, including but not limited to superior asset management, investment or strategic accomplishment and/or consummation of beneficial acquisitions.
Overall, the level and mix of compensation that is finally decided upon is considered within the context of both the objective data from Carver’s competitive assessment of compensation and performance, as well as discussion of the awarded options vest insubjective factors as outlined above. The Compensation Committee believes that each executive’s compensation is within the competitive range of practices when compared to the first four yearsobjective comparative data and reasonable given Company and individual performance.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information about the remainder in the fifth year, but the Committee may accelerate vesting at any time. All options are exercisable immediately upon a participant’s disability, death or a change in control,shares of Voting Stock authorized by Carver for issuance under equity compensation plans as defined in the Plan.of March 31, 2009.
In September 2006, Carver stockholders approved the 2006
             
          Number of 
          securities 
          remaining 
  Number of  Weighted-  available for future 
  securities to be  average  issuance under 
  issued upon  exercise  equity 
  exercise of  price of  compensation plans 
  outstanding  outstanding  (excluding 
  options,  options,  securities 
  warrants and  warrants  reflected in column 
Plan Category rights  and rights  (a)) 
 
Equity compensation plans approved by security holders  235,766  $13.12   117,553 
 
Equity compensation plans not approved by security holders  —   —   — 
          
 
Total  235,766  $13.12   117,533 
          
The Company’s Stock Incentive Plan which providesPlans do not provide for the grantre-pricing of stock options, which is the cancellation of shares in consideration of the exchange for other stock appreciation rightsoptions to be issues at a lower price, and restrictedthe Company has not acted to re-price stock options.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of November 2, 2009, certain information as to employeesshares of Voting Stock beneficially owned by persons owning in excess of 5% of any class of Carver’s outstanding Voting Stock. Carver knows of no person, except as listed below, who beneficially owned more than 5% of any class of the outstanding shares of Carver’s Voting Stock as of November 2, 2009. Except as otherwise indicated, the information provided in the following table was obtained from filings with the Securities and directors whoExchange Commission (“SEC”) and with Carver pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Addresses provided are selectedthose listed in the filings as the address of the person authorized to receive awardsnotices and communications. For purposes of the table below and the table set forth under “Security Ownership of Management,” in accordance with Rule 13d-3 under the Exchange Act, a person is deemed to be the beneficial owner, for purposes of these tables, of any shares of stock (1) over which he or she has or shares, directly or indirectly, voting or investment power, or (2) of which he or she has the right to acquire beneficial ownership at any time within 60 days after November 2, 2009. As used in this proxy statement, “voting power” is the power to vote or direct the voting of shares, and “investment power” includes the power to dispose or direct the disposition of shares.
         
  Amount and Nature of  Percent of 
  Beneficial  Common Stock 
Name and Address of Beneficial Owner Ownership  Outstanding(1) 
         
Wellington Management Company, LLP
75 State Street
Boston, MA 02109		  244,500(2)  9.90%
         
Donald Leigh Koch
c/o Koch Asset Management, L.L.C.
1293 Mason Road
Town & Country, MO 63131		  207,350(3)  8.40%
         
Third Avenue Management LLC
622 Third Avenue, 32nd Floor
New York, NY 10017
  218,500(4)  8.82%
         
Deborah C. Wright
c/o Carver Federal Savings Bank
75 West 125th Street
New York, NY 1027
  191,946(5)  7.32%
         
Northstar Investment Corp.
20 North Wacker Drive, Suite 1416
Chicago, IL 60606		  228,639(6)  9.23%
         
Kuby Gottlieb Special Value Fund, LP
20 North Wacker Drive, Suite 1416
Chicago, IL 60606		  186,355(7)  7.53%
         
Keefe, Bruyette & Woods
787 Seventh Avenue
New York, NY 10019		  152,500(8)  6.20%
(1)On November 2, 2009, there were 2,474,719 outstanding shares of Common Stock.
(2)Based on a Schedule 13G/A filed with the SEC on February 14, 2007 by Wellington Management Company, LLP.

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(3)Based on a Schedule 13G filed with the Securities and Exchange Commission jointly by Koch Asset Management, L.L.C. (“KAM”) and Donald Leigh Koch on February 9, 2009. In its role as an investment manager having trading authority over securities held in accounts on behalf of its clients (“Managed Portfolios”), KAM has sole dispositive power over 207,350 shares of Common Stock and, as a result, may be deemed to be the beneficial owner of the same. Donald Leigh Koch owns 100% of KAM and serves as its managing member, from which Mr. Koch may be deemed to have the power to exercise any dispositive power that KAM may have with respect to Carver Common Stock. Additionally, Mr. Koch, individually, and Mr. Koch and his spouse, jointly, own and hold voting power with respect to Managed Portfolios containing approximately 70,500 shares of Common Stock (the “Koch Shares”). Other than with respect to the Koch Shares, Mr. Koch specifically disclaims beneficial ownership over any shares of Common Stock that he or KAM may be deemed to beneficially own.
(4)Based on a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2007 by Third Avenue Management LLC.
(5)Includes 145,808 vested options to purchase shares of Common Stock. See footnote (4) to the table set forth under “Security Ownership of Management” for additional information regarding these stock options.
(6)Based on a Schedule 13G/A filed with the Securities and Exchange Commission on March 10, 2009 by North Star Investment Management Corp.
(7)Based on a Schedule 13G/A filed with the securities Exchange Commission on February 17, 2009 by Kuby Gottlieb Special Value Fund, LP.
(8)Based on a Schedule 13G filed with the Securities and Exchange Commission on February 17, 2009 by Keefe, Bruyette & Woods.

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Security Ownership of Management
The following table sets forth information about the shares of Voting Stock beneficially owned by each nominee, each Continuing Director (as defined herein), each Named Executive Officer identified in the Committee. The 2006 Incentive Plan authorizesSummary Compensation Table included in this proxy statement, and all directors and executive officers of Carver to grant awardsor Carver Federal, as a group, as of November 2, 2009. Except as otherwise indicated, each person and each group shown in the table has sole voting and investment power with respect to 300,000 shares, but no more than 150,000the shares of restricted stock mayVoting Stock indicated.
             
      Amount and Nature    
      of Beneficial    
      Ownership of  Percent of 
      Common Stock  Common Stock 
Name Title (1) (2)  Outstanding (3) 
             
Deborah C. Wright Chairman and Chief Executive Officer  191,946   7.32%
             
Carol Baldwin Moody Director  5,417   * 
             
Samuel J. Daniel Director  1,727   * 
             
David L. Hinds Director  10,238   * 
             
Robert Holland, Jr. Director  19,347   * 
             
Pazel G. Jackson, Jr. Director  1,326   * 
             
Edward B. Ruggiero (4) Director  11,486   * 
             
Robert R. Tarter Director  1,200   * 
             
Roy Swan (5) Executive Vice President and Chief Financial Officer  0   * 
             
Michael A. Trinidad (5) Senior Vice President and Controller  0   * 
             
Thomas Sperzel (5) Senior Vice President and Controller  0   * 
             
James H. Bason Senior Vice President and Chief Lending Officer  10,033   * 
             
All directors and other executive officers as a group persons (15 persons)      264,164   10.00%
*Less than 1% of outstanding Common Stock.
(1)Amounts of equity securities shown include shares of common stock subject to option exercisable within 60 days as follows: Ms. Wright — 145,808; Ms. Baldwin Moody — 1,000; Dr. Daniel 400; Mr. Hinds — 1,000; Mr. Holland — 3,986; Mr. Ruggiero — 6,066 Mr. Tarter — 600; Mr. Bason — 4,315; all officers and directors as a group — 174,619. Options to purchase 30,000 shares of common stock that were held by Ms. Wright expired on June 1, 2009 without being exercised. All stock options granted in fiscal year 2004 represented in this table are exercisable as to one-third of the options on the first anniversary of the date of grant, another one-third on the second anniversary of the date of grant, and the remaining one-third on the third anniversary of the date of grant. For grants made in fiscal year 2005, the Compensation Committee approved management’s recommendation to use a five-year performance-accelerated vesting schedule with 10% vesting in years one through four and the remaining 60% in year five, with accelerated vesting in year three or four using return on assets as the performance measure. For grants made in 2006, the Compensation Committee approved management’s recommendation to simplify the vesting scheduled to 20% each with return on equity as the performance measure.

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Amounts of equity securities shown excludes 17,623 unvested shares of restricted stock awarded to the executive officers and directors under the Management Recognition Plan with respect to which such executive officers and directors have neither voting nor dispositive power.
(2)Includes 16,902 shares in the aggregate held by the ESOP Trust that have been allocated as of December 31, 2008 to the individual accounts of executive officers under the ESOP and as to which an executive officer has sole voting power for the shares allocated to such person’s account, but no dispositive power, except in limited circumstances.
(3)Percentages with respect to each person or group of persons have been calculated on the basis of 2,474,719 shares of Common Stock, exclusive of shares held by Carver the total number of shares of Common Stock outstanding as of November 2, 2009 plus the number of shares of Common Stock which such person or group has the right to acquire within 60 days after November 2, 2009 by the exercise of stock options.
(4)Shared voting and dispositive power with spouse.
(5)Mr. Swan resigned from the Company effective September 23, 2008.
Mr. Trinidad resigned from the Company effective March 10, 2009.
Mr. Sperzel resigned from the Company effective June 27, 2009

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Item 13. Certain Relationships and Related Transactions, and Director Independence
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Applicable law requires that all loans or extensions of credit to executive officers and directors must be granted. Options are granted at a price not less than fair market value of Carver Federal common stockmade on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public and must not involve more than the normal risk of the grant for a period notrepayment or present other unfavorable features. Carver Federal offers loans to exceed 10 years. Shares generally vest in 20% increments over 5 years, however, the Committee may specify a different vesting schedule. At March 31, 2008, there were 32,447 options outstanding under the 2006 Incentive Planits directors, officers and none were exercisable. All options are exercisable immediately upon a participant’s disability, death or a change in control, as defined in the Plan, if the person is employed on that date.

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Information regarding stock options as of and for the years ended March 31 is as follows:
                         
  2008  2007  2006 
      Weighted      Weighted      Weighted 
      Average      Average      Average 
      Exercise      Exercise      Exercise 
  Options  Price  Options  Price  Options  Price 
Outstanding, beginning of year  240,087  $13.24   238,061  $12.90   225,292  $12.37 
Granted  15,978   16.93   21,019   16.50   35,277   16.98 
Exercised  (3,475)  11.58   (11,776)  9.57   (9,903)  9.57 
Forfeited  (15,408)  17.72   (7,217)  17.44   (12,605)  17.44 
                   
Outstanding, end of year  237,182  $13.22   240,087  $13.24   238,061  $12.90 
                   
Exercisable, at year end  198,088       192,110       144,836     
                      
Information regarding stock options as of and for the year ended March 31, 2008 is as follows:
                           
        Options Outstanding  Options Exercisable 
            Weighted  Weighted      Weighted 
            Average  Average      Average 
Range of      Remaining  Exercise      Exercise 
Exercise Prices  Shares  Life  Price  Shares  Price 
$8.00  $8.99   60,000  2 years $8.17   60,000  $8.17 
 9.00   9.99   32,000  3 years  9.93   32,000   9.93 
 10.00   10.99   2,000  2 years  10.38   2,000   10.38 
 12.00   12.99   37,400  4 years  12.10   37,400   12.10 
 16.00   16.99   54,721  7 years  16.59   38,252   16.59 
 17.00   17.99   29,033  6 years  17.18   6,408   17.18 
 19.00   19.99   20,918  6 years  19.66   20,918   19.66 
 20.00   20.99   729  7 years  20.00   729   20.00 
 21.00   21.99   381  6 years  21.76   381   21.76 
                         
Total      237,182           198,088     
                         
The fair value of the option grants was estimated on the date of the grant using the Black-Scholes option pricing model applying the following weighted average assumptions for the years ended March 31:
             
  2008  2007  2006 
Risk-free interest rate  4.3%  4.5%  3.5%
Volatility  31.2%  19.0%  35.0%
Annual dividends $0.29  $0.32  $0.28 
Expected life of option grants 7 yrs  7 yrs  7 yrs 
Under the provisions of SFAS No. 123R, the Company recorded compensation expense of $0.3 million during the year ended March 31, 2008. As of March 31, 2008, the total remaining unrecognized compensation cost related to stock options granted under the Company’s plan was $0.1 million,employees, which is expected to be recognized over a weighted-average vesting period of 1.3 years.

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Performance Compensation Plan.In 2006, Carver adopted the Performance Compensation Plan of Carver Bancorp, Inc. This plan provides for cash payments to officers or employees designated by the Compensation Committee, which also determines the amount awarded to such participants. Vesting is generally 20% a year over 5 years and awards are fully vested on a change in control (as defined), or termination of employment by death or disability, but the Committee may accelerate vesting at any time. Paymentsloans are made as soon as practicable after the end of the fiscal year in which amounts vest. In fiscal year 2007, the Company granted its first awards under the new Plan. The total fair value of options granted was $0.4 million. The amount of compensation expense recognized in fiscal year 2008 was $0.1 million.
NOTE 14. 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.
These financial instruments primarily include commitments to extend credit and to sell loans. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements of financial condition. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.
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 commitments at March 31 as follows (in thousands):
         
  2008  2007 
         
Commitments to originate mortgage loans $81,754  $107,115 
Commitments to originate commercial and consumer loans  4,236   214 
Lines of credit  24,518   300 
Letters of credit  4,518   — 
       
Total $115,026  $107,629 
       
At March 31, 2008, of the $115.0 million in outstanding commitments to originate loans, $74.9 million represented construction loans at a weighted average rate of 6.44%, $37.3 million represented commitments to originate non-residential mortgage loans at a weighted average rate of 6.03% and $2.8 million represented one- to four-family residential loans at a weighted average rate of 6.24%.
The balance of commitments on commercial and consumer loans at March 31, 2008 is primarily undisbursed funds from approved unsecured commercial lines of credit. All such lines carry adjustable rates mainly tied to prime.
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 counter-party.

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Lease Commitments.Rentals under long term operating leases for certain branches aggregated approximately $1.4 million, $0.9 million and $0.7 million for the years ended March 31, 2008, 2007 and 2006, respectively. As of March 31, 2008, minimum rental commitments under all noncancellable leases with initial or remaining terms of more than one year and expiring through 2018 follow (in thousands):
     
Year Ending Minimum 
March 31, Rental 
2009 $1,517 
2010  1,556 
2011  1,458 
2012  1,137 
2013  1,125 
Thereafter  4,663 
    
  $11,456 
    
The Bank also has, in the normal course of business, commitments for services and supplies.
Legal Proceedings. From time to time, Carver Federal is a party to various legal proceedings incidental to its business. Certain claims, suits, complaints and investigations involving Carver Federal, arising in the ordinary course of business have been filedand are not made with more favorable terms nor do they involve more than the normal risk of collectability or are pending. The Company ispresent unfavorable features. Furthermore, loans above the greater of $25,000, or 5% of Carver Federal’s capital and surplus (up to $500,000), to Carver Federal’s directors and executive officers must be approved in advance by a disinterested majority of Carver Federal’s Board of Directors. As of the opinion, after discussion with legal counsel representingdate of this proxy statement, neither Carver nor Carver Federal had made any loans or extensions of credit to executive officers or directors.
DIRECTOR INDEPENDENCE
Independence.Under the Company’s Bylaws, at least three members of the Board must be independent under the criteria set forth in these proceedings,the Bylaws and, as a company listed on the Nasdaq Global Market, a majority of the Company’s Board must be independent under the criteria set forth in its listing requirements. In addition, pursuant to listing requirements of the NASDAQ Stock Market, the respective committee’s charter requires that all members of the aggregate liability Finance and Audit Committee must be independent and requires independent director oversight of the Nominating/Corporate Governance and Compensation Committees.
Lead Independent Director.The Board of Directors has created the position of lead independent director, whose primary responsibility is to preside over periodic executive sessions of the independent members of the Board of Directors. The lead independent director also prepares the agenda for meetings of the independent directors, serves as a liaison between the independent directors and management and outside advisors, and makes periodic reports to the Board of Directors regarding the actions and recommendations of the independent directors. The independent members of the Board of Directors have designated Robert Holland, Jr. to serve in this position for fiscal 2010.
Director Terms.Directors serve for three-year terms. See “Proposal One—Election of Directors—General.”
Executive Sessions.The Board of Directors holds executive sessions for non-employee directors only at which management is not present. These sessions are presided over by Robert Holland, Jr., the presiding independent director. In addition, the Finance and Audit Committee regularly holds executive sessions at which management is not present, including executive sessions with the Company’s independent auditors and internal auditors. Each director also has access to any member of management and the Company’s independent auditors.
Outside Advisors.The Board and its committees may retain outside advisors and consultants as they, in their discretion, deem appropriate.
Board Self-Evaluation.The Nominating/Corporate Governance Committee, among other things, reviews the Company’s and the Board’s governance profile. In addition, the Board and/or loss, if any, arising fromits committees regularly review their role and responsibilities, composition and governance practices.
Corporate Governance Principles
The Board of Directors adopted Corporate Governance Principles during the ultimate dispositionfiscal year ended March 31, 2004. From time to time the Board anticipates that it will revise the Corporate Governance Principles in response to changing regulatory requirements, evolving best practices and the concerns of these matters would not have a material adverse effectthe Company’s stockholders and other constituents. The Corporate Governance Principles are published on the Company’s consolidated financial position or results of operations. At March 31, 2008, there were no material legal proceedings to whichwebsite atwww.carverbank.com in the Company or its subsidiaries was a party or to which any of their property was subject.
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107“Disclosures about Fair Value of Financial Instruments”requires the Bank to disclose, in addition to the carrying value, the fair value of certain financial instruments, both assets and liabilities recorded on and off balance sheet, for which it is practicable to estimate fair value. SFAS 107 defines financial instruments as cash, evidence of ownership of an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than a forced or liquidation sale and is best evidenced by a quoted market price if one exists. In cases where quoted market prices are not available, estimated fair values have been determined by the Bank using the best available data and estimation methodology suitable for each such category of financial instruments. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate their recorded carrying value. The estimation methodologies used and the estimated fair values and carrying valuesCorporate Governance section of the Bank’s financial instruments are set forth below:
Cash and cash equivalents and accrued interest receivable
The carrying amounts for cash and cash equivalents and accrued interest receivable approximate fair value because they mature in three months or less.
Securities
The fair values for securities available-for-sale, mortgage-backed securities held-to-maturity and investment securities held-to-maturity are based on quoted market or dealer prices, if available. If quoted market or dealer prices are not available, fair value is estimated using quoted market or dealer prices for similar securities.
Loans receivable and loan held-for-sale
The fair value of loans receivable and held-for-sale is estimated by discounting future cash flows, using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities of such loans.Investor Relations webpage.

 

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Mortgage servicing rightsDirector Independence Determination
The fair valueBoard of mortgage servicing rightsDirectors has determined that each of its non-management directors is independent according to the Board’s independence standards as set out in its Bylaws, Corporate Governance Principles, applicable rules of the SEC and the rules of the NASDAQ Stock Market. They are Carol Baldwin Moody, Dr. Samuel J. Daniel, David L. Hinds, Robert Holland, Jr., Pazel G. Jackson, Jr., Edward B. Ruggiero and Robert R. Tarter. Deborah C. Wright was determined by discountingnot to be independent because she is currently an executive officer of the present value of estimated future servicing cash flows using current market assumptions for prepayments, servicing costs and other factors.
DepositsCompany.
The fair valueFinance and Audit Committee of demand, savings and club accounts is equal to the amount payable on demand atBoard of Directors of Carver has appointed the reporting date. The fair valuefirm of certificates of deposit is estimated using rates currently offeredKPMG LLP as independent auditors for deposits of similar remaining maturities. The fair value estimates do not includeCarver for the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market.
Borrowings
The fair values of advances from the Federal Home Loan Bank of New York and other borrowed money are estimated using the rates currently available to the Bank for debt with similar terms and remaining maturities.
Commitments
The fair market value of unearned fees associated with financial instruments with off-balance sheet risk atfiscal year ending March 31, 2008 approximates the fees received. The fair value is not considered material.
The carrying amounts and estimated fair values of the Bank’s financial instruments at March 31 are as follows (in thousands):
                 
  2008  2007 
  Carrying  Estimated  Carrying  Estimated 
  Amount  Fair Value  Amount  Fair Value 
Financial Assets:                
Cash and cash equivalents $27,368  $27,368  $17,350  $17,350 
Investment securities available-for-sale  1,735   1,525   26,804   26,804 
Mortgage backed securities available-for-sale  19,130   19,340   21,176   21,176 
Mortgage backed securities held-to-maturity  17,307   17,167   19,137   19,005 
Loans receivable  627,231   644,702   580,551   580,854 
Loans held-for-sale  23,767   24,084   23,226   23,226 
Accrued interest receivable  4,063   4,063   4,335   4,335 
Mortgage servicing rights  605   605   388   467 
Financial Liabilities:                
Deposits $654,663  $660,813  $615,122  $614,199 
Advances from FHLB of New York  15,249   15,191   47,775   47,307 
Other borrowed money  43,375   44,984   13,318   13,318 
Limitations
The fair value estimates are made at a discrete point in time based on relevant market information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no quoted market value exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
In addition, the fair value estimates are based on existing off balance sheet financial instruments without attempting to value anticipated future business2010 and the valueBoard of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.

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NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for fiscal years ended March 31, 2008 and 2007 (in thousands, except per share data):
                 
  June 30  September 30  December 30  March 31 
Fiscal 2008
                
Interest income $11,968  $12,088  $12,309  $11,767 
Interest expense  (5,315)  (5,625)  (5,992)  (5,724)
             
Net interest income  6,653   6,463   6,317   6,043 
Provision for loan losses  —   —   (222)  — 
Non-interest income  1,137   1,453   3,178   2,093 
Non-interest expense  (6,504)  (7,196)  (7,963)  (8,235)
Income tax benefit (expense)  (143)  44   268   723 
Minority interest, net of taxes  —   —   —   (146)
             
Net income $1,143  $764  $1,578  $478 
             
Earnings per common share              . 
Basic $0.46  $0.31  $0.63  $0.19 
Diluted $0.44  $0.30  $0.62  $0.19 
                 
Fiscal 2007 (As Previously Reported)
                
Interest income $9,120  $9,380  $11,770  $11,470 
Interest expense  (4,085)  (4,169)  (5,643)  (5,337)
             
Net interest income  5,035   5,211   6,127   6,133 
Provision for loan losses  —   —   (120)  (156)
Non-interest income  945   (337)  966   1,295 
Non-interest expense  (4,733)  (6,242)  (5,884)  (6,479)
Income tax benefit (expense)  (445)  464   311   493 
             
Net income (loss) $802  $(904) $1,400  $1,286 
             
Earnings (loss) per common share                
Basic $0.32  $(0.36) $0.56  $0.51 
Diluted $0.31  $(0.36) $0.54  $0.50 
                 
Fiscal 2007 (Restated)
                
Interest income $9,120  $9,380  $11,770  $11,470 
Interest expense  (4,085)  (4,169)  (5,643)  (5,337)
             
Net interest income  5,035   5,211   6,127   6,133 
Provision for loan losses  —   —   (120)  (156)
Non-interest income  945   (337)  966   1,295 
Non-interest expense  (4,861)  (6,305)  (6,001)  (6,933)
Income tax benefit (expense)  (399)  487   354   657 
             
Net income (loss) $720  $(944) $1,326  $996 
             
Earnings (loss) per common share                
Basic $0.29  $(0.38) $0.53  $0.40 
Diluted $0.28  $(0.38) $0.52  $0.39 

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NOTE 18. CARVER BANCORP, INC. — PARENT COMPANY ONLY
CONDENSED STATEMENTS OF FINANCIAL CONDITION (in thousands):
                 
  As of March 31, 
  2008  2008  2007  2007 
  (As Previously      (As Previously     
  Reported)  (Restated)  Reported)  (Restated) 
Assets
                
Cash on deposit with subsidiaries $384  $384  $399  $399 
Investment in subsidiaries  69,401   68,916   64,996   64,511 
Other assets  32   32   16   16 
          ��  
Total Assets $69,817  $69,332  $65,411  $64,926 
             
                 
Liabilities and Stockholders’ Equity
                
Borrowings $13,376  $13,376  $13,318  $13,318 
Accounts payable to subsidiaries  1,945   1,945   291   291 
Other liabilities  113   113   175   175 
             
Total liabilities $15,434  $15,434  $13,784  $13,784 
             
                 
Stockholders’ equity  54,383   53,898   51,627   51,142 
             
Total Liabilities and Stockholders’ Equity
 $69,817  $69,332  $65,411  $64,926 
             
CONDENSED STATEMENTS OF INCOME (in thousands):
                 
  Years Ended March 31, 
  2008  2007  2007  2006 
      (As Previously         
      Reported)  (Restated)     
Income
                
Equity in net income from subsidiaries $5,089  $3,551  $2,790  $6,758 
Interest income from deposit with subsidiaries  —   —   —   5 
Other income  34   34   34   22 
             
Total income  5,123   3,585   2,824   6,785 
                 
Expenses
                
Interest Expense on Borrowings  1,185   1,196   1,196   985 
Salaries and employee benefits  157   180   180   287 
Shareholder expense  664   439   439   407 
Other  46   10   10   7 
             
Total expense  2,052   1,825   1,825   1,686 
             
  
Income before income taxes  3,071   1,760   999   5,099 
Income tax (benefit) expense  (892)  (823)  (1,099)  1,329 
             
Net Income
 $3,963  $2,583  $2,098  $3,770 
             

66

CONDENSED STATEMENTS OF CASH FLOWS (in thousands):
                 
  Years Ended March 31, 
  2008  2007  2007  2006 
      (As Previously         
      Reported)  (Restated)     
Cash Flows From Operating Activities
                
Net income $3,963  $2,583  $2,098  $3,770 
Adjustments to reconcile net income to net cash from operating activities:                
Equity in net income of Subsidiaries  (5,224)  (3,551)  (2,790)  (6,758)
Income taxes from the Bank  (881)  (823)  (1,099)  1,329 
Increase in other assets  (27)  —   —   — 
Increase (decrease) in accounts payable to subsidiaries  1,654   225   225   (443)
(Decrease) increase in other liabilities  (34)  (83)  (83)  40 
Other, net  140   (13)  (13)  299 
             
Net cash used in operating activities  (409)  (1,662)  (1,662)  (1,763)
                 
Cash Flows From Investing Activities
                
Dividends Received from Bank  1,700   3,201   3,201   850 
Proceeds from sale of investment securities  —   —   —   1,575 
             
Net cash from investing activities  1,700   3,201   3,201   2,425 
                 
Cash Flows From Financing Activities
                
Purchase of treasury stock, net  (331)  (321)  (321)  (115)
Dividends paid  (975)  (878)  (878)  (777)
Net cash used in financing activities ��(1,306)  (1,199)  (1,199)  (892)
             
Net increase (decrease) in cash  (15)  340   340   (230)
                 
Cash and cash equivalents — beginning  399   59   59   289 
             
Cash and cash equivalents — ending $384  $399  $399  $59 
             

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NOTE 19. RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Certain Hybrid Financial Instruments
In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. This statement amends FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. This statement resolves issues addressed in “Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interest in Securitized Financial Assets”. SFAS No. 155 is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS No. 155 had no material impact on the Company’s financial position or its results of operations for fiscal 2008.
Accounting for Servicing of Financial Assets
In March 2006, the FASB issued SFAS No. 156,Accounting for Servicing of Financial Assets — an Amendment of FASB Statement No. 140(“SFAS No. 156”), which amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable, and permits an entity to choose either the amortization or fair value measurement method for subsequent measurements. The Company determines the fair value of its mortgage servicing rights on the basis of a third party market valuation of the Company’s servicing portfolio stratified by predominant risk characteristics — loan type and coupon. The valuation of the Company’s mortgage servicing rights utilizes market derived assumptions for discount rates, servicing costs, escrow earnings rate, and prepayments. The Company, upon adoption of SFAS No. 156 as of April 1, 2007, recorded a cumulative effect adjustment of $49,000 to retained earnings (net of tax) as of the beginning of fiscal 2008 for the difference between the mortgage servicing rights fair value and its carrying amount as reflected in the consolidated statement of changes in stockholders’ equity. At March 31, 2008, the fair value of mortgage servicing rights totaled $0.6 million.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). The Statement establishes a single definition of fair value, sets up a framework for measuring it, and requires additional disclosures about the use of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes that fair value is a market-based measurement by establishing a three level “fair value hierarchy” that ranks the quality and reliability of inputs used in valuation models, i.e., the lower the level, the more reliable the input. The hierarchy provides the basis for the Statement’s new disclosure requirements which are dependent upon the frequency of an item’s measurement (recurring versus nonrecurring). SFAS No. 157 is effective for fair-value measures already required or permitted by other standards for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. Its provisions will generally be applied prospectively. The adoption of SFAS No. 157 had no material impact on the Company’s financial position or its results of operations for fiscal 2008.
The Fair Value Option for Financial Assets and Liabilities
In February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities— including an amendment of FASB Statements No. 115(“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Carver is currently assessing the impact of this pronouncement.
As outlined in SFAS No.142 the Goodwill impairment analysis involves a two-step test. The first step, used to identify potential impairment, involves comparing the fair value of the reporting unit to its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment. The second step involves calculating an implied fair value of goodwill for the reporting unit, in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of reporting unit goodwill, there is no impairment. If the carrying value of reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded in earnings for the excess. Subsequent reversal of goodwill impairment losses is not permitted.

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Accounting for Uncertainty in Income Taxes
In June 2006, the FASB issued Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109(“FIN 48”). FIN 48 clarifies Statement 109 by establishing a criterion that an individual tax position would have to meet in order for some or all of the associated benefit to be recognized in an entity’s financial statements. The Interpretation applies to all tax positions within the scope of Statement 109. In applying FIN 48, an entity is required to evaluate each individual tax position using a two step-process. First, the entity should determine whether the tax position is recognizable in its financial statements by assessing whether it is “more-likely-than-not” that the position would be sustained by the taxing authority on examination. The term “more-likely-than-not” means “a likelihood of more than 50 percent.” Second, the entity should measure the amount of benefit to recognize in its financial statements by determining the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with the taxing authority. Each tax position must be re-evaluated at the end of each reporting period to determine whether recognition or derecognition is warranted. The liability resulting from the difference between the tax return position and the amount recognized and measured under FIN 48 should be classified as current or non-current depending on the anticipated timing of settlement. An entity should also accrue interest and penalties on unrecognized tax benefits in a manner consistent with the tax law. The Company’s Federal, New York State and City tax filings for years 2003 through the present are subject to examination.
FIN 48 requires significant new annual disclosures in the notes to an entity’s financial statements that include a tabular roll-forward of the beginning to ending balances of an entity’s unrecognized tax benefits. The Interpretation is effective for fiscal years beginning after December 15, 2006 and the cumulative effect of applying FIN 48 should be reported as an adjustment to retained earnings at the beginning of the period in which it is adopted. The adoption and evaluation under FAS 109 and FIN 48 had no material impact on the Company’s financial position or its results of operations for fiscal 2008.
Accounting for Purchases of Life Insurance
In September 2006, the Emerging Issues Task Force (“EITF”) of the FASB issued EITF No. 06-5,Accounting for Purchases of Life Insurance — Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4(“FTB No. 85-4”), Accounting for Purchases of Life Insurance(“EITF No. 06-5”). EITF No. 06-5 explains how to determine “the amount that could be realized” from a life insurance contract, which is the measurement amount for the asset in accordance with FTB No. 85-4. EITF No. 06-5 would require all amounts that would ultimately be realized by a policyholder upon the assumed surrender of a final policy to be included in the amount that could be realized under the insurance contract. Thus, contractual provisions that limit the amount that could be realized in specified circumstances would be considered if it is probable that those circumstances would occur. The consensus on EITF No. 06-5 is effective for fiscal years beginning after December 15, 2006 and would be recognized through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The adoption of EITF No. 06-5 had no material impact on the Company’s financial position or its results of operations for fiscal 2008.
Prior Year Misstatements
In September 2006, the SEC Staff issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 will require registrants to quantify misstatements using both the balance sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is determined to be material, SAB No. 108 allows registrants to record that effect as a cumulative effect adjustment to beginning retained earnings. The requirements are effective for the Company beginning April 1, 2007. CarverDirectors has evaluated the requirements of SAB No. 108 and determined that it didwould be desirable to request that stockholders ratify such appointment. Representatives of KPMG LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Item 14. Principal Accountant Fees and Services
The appointment of KPMG LLP is being submitted for ratification at the Annual Meeting with a view towards soliciting stockholders opinions, which the Finance and Audit Committee will take into consideration in future deliberations. Stockholder approval is not have a material effect on its financial condition or resultsrequired for the appointment of operations.

69

Application of Accounting Principles to Loan Commitments
In November 2007,KPMG LLP since the SecuritiesFinance and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 109 (SAB 109). SAB 109 supersedes Staff Accounting Bulletin No. 105 (SAB 105), “Application of Accounting Principles to Loan Commitments.” It clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. However, it retains the guidance in SAB 105 that internally-developed intangible assets should not be recorded as partAudit Committee of the fair valueBoard of a derivative loan commitment. The guidance is effective on a prospective basis to derivative loan commitments issued or modified in fiscal quarters beginning after December 15, 2007. In conjunction with the adoption of SFAS 157 and SFAS 159, this guidance generally would result in higher fair values being recorded upon initial recognition of derivative loan commitments. The adoption of SAB 109 is not expected to have a material impact on the Bank’s financial condition or results of operations.Directors has direct responsibility for selecting auditors.
Business CombinationsAuditor Fee Information
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations (revised 2007).” SFAS No. 141R improves reporting by creating greater consistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable, and relevant information for investors and other users of financial statements. To achieve this goal, the new standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose the information necessary to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first fiscal year that commences after December 15, 2008.
Non-controlling Interests in Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements.” SFAS No. 160 improves the relevance, comparability, and transparency of financial information provided to investors by requiring all entities to report non-controlling (minority) interests in subsidiaries in the same way, i.e., as equity in the consolidated financial statements. In addition, SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and non-controlling interests by requiring that they be treated as equity transactions. SFAS No. 160 is effectiveKPMG’s fees billed for fiscal years beginning after December 15, 2008 and is not expected to have a material impact on the Bank’s financial condition or results of operations.
Sale with Repurchase Financing Agreements
In February 2008, the FASB issued FASB Staff Position (FSP) FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.” The objective of this FSP is to provide implementation guidance on whether the security transfer and contemporaneous repurchase financing involving the transferred financial asset must be evaluated as one linked transaction or two separate de-linked transactions.
Current practice records the transfer as a sale2009 and the repurchase agreement as a financing. The FSP requires the recognition of the transfer and the repurchase agreement as one linked transaction, unless all of the following criteria are met: (1) the initial transfer and the repurchase financing are not contractually contingent on one another; (2) the initial transferor has full recourse upon default, and the repurchase agreement’s price is fixed and not at fair value; (3) the financial asset is readily obtainable in the marketplace and the transfer and repurchase financing are executed at market rates; and (4) the maturity of the repurchase financing is before the maturity of the financial asset. The scope of this FSP is limited to transfers and subsequent repurchase financings that are entered into contemporaneously or in contemplation of one another. The FSP will be effective for the Carver on March 31, 2009. Early adoption is prohibited. The Company is currently evaluating the impact of adopting this FSP.

70

Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS 161), an amendment of SFAS 133. The standard requires enhanced disclosures about derivative instruments and hedged items that are accounted for under SFAS 133 and related interpretations. The standard will be effective for all of the Company’s interim and annual financial statements for periods beginning after November 15, 2008, with early adoption permitted. The standard expands the disclosure requirements for derivatives and hedged items and has no impact on how Carver accounts for these instruments. The Bank is currently assessing the impact of this pronouncement.
Elimination of QSPEs and Changes in the FIN 46(R) Consolidation Model
In April of 2008, the FASB voted to eliminate Qualifying Special Purpose Entities (QSPEs) from the guidance in SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.” While the revised standard has not been finalized and the proposals will be subject to a public comment period, this change may have a significant impact on Carver’s consolidated financial statements as the Company may lose sales treatment for future assets sales to a QSPE. This proposed revision could be effective as early as April 2009.
In connection with the proposed changes to SFAS 140, the FASB also is proposing three key changes to the consolidation model in FIN 46(R). First, former QSPEs would now be included in the scope of FIN 46(R). In addition, the FASB supports amending FIN 46(R) to change the method of analyzing which party to a variable interest entity (VIE) should consolidate the VIE to a primarily qualitative determination of control instead of today’s risks and rewards model. Finally, the proposed amendment is expected to require all VIEs and their primary beneficiaries to be reevaluated quarterly. The previous rules required reconsideration only when specified reconsideration events occurred.
NOTE 20. SUBSEQUENT EVENT
As outlined in SFAS No.142 the Goodwill impairment analysis involves a two-step test. The first step, used to identify potential impairment, involves comparing the fair value of the reporting unit to its carrying value including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired. If the carrying value exceeds fair value, there is an indication of impairment and the second step is performed to measure the amount of impairment. The second step involves calculating an implied fair value of goodwill for the reporting unit, in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of reporting unit goodwill, there is no impairment. If the carrying value of reporting unit goodwill exceeds the implied fair value of the goodwill, an impairment charge is recorded in earnings for the excess. Subsequent reversal of goodwill impairment losses is not permitted.
Subsequent to the issuance of the Form 10-K for thefiscal year ended March 31, 2008 in the second quarterwere as follows:
         
  2009  2008 
Audit fees (a) $424,500  $401,500 
Other fees $8,500   7,000 
       
Total $433,000  $408,500 
       
(a)The amounts for the fiscal 2009 proxy statement for fiscal year 2009 audit fees was $424,500, which excluded 2009 fees of $105,000 billed in 2010.
Pre-Approval Policy for Services by Independent Auditors
During fiscal 2009, the Company commenced an interim goodwill impairment analysis, based on indicationsFinance and Audit Committee of Carver’s Board of Directors pre-approved the engagement of KPMG LLP to provide non-audit services and considered whether, and determined that, the fair valueprovision of such other services by KPMG LLP is compatible with maintaining KPMG LLP’s independence.
In June 2004 the Finance and Audit Committee established a policy to pre-approve all audit and permissible non-audit services provided by KPMG LLP consistent with applicable SEC rules. Under the policy, prior to the engagement of the independent auditors for the next year’s audit, management submits an aggregate of services expected to be rendered during that year for each of the four categories of services described above to the Finance and Audit Committee for approval. Prior to engagement, the Finance and Audit Committee pre-approves these services by category of service. The fees are budgeted and the Finance and Audit Committee will receive periodic reports from management on actual fees versus the budget by category of service. During the year, circumstances may arise when it may become necessary to engage the independent auditors for additional services not contemplated in the pre-approval. In those instances, the Finance and Audit Committee requires specific pre-approval before engaging the independent auditor.
The Finance and Audit Committee has delegated pre-approval authority, subject to certain limits, to the chairman of the committee. The Chairman is required to report, for informational purposes, any pre-approval decisions to the Finance and Audit Committee at its next regularly scheduled meeting.

36

Report of the Finance and Audit Committee of the Board of Directors
This report is furnished by the Carver Finance and Audit Committee of the Board of Directors as required by the rules of the SEC under the Exchange Act. The report of the Finance and Audit Committee shall not be deemed to be incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933, as amended (“Securities Act”), or the Exchange Act, except to the extent that Carver specifically incorporates this information by reference, and shall not otherwise be deemed to be filed under the Securities Act or the Exchange Act.
The Board of Directors has adopted a written charter that sets forth the Finance and Audit Committee’s duties and responsibilities and reflects applicable rules of the NASDAQ Stock Market and SEC regulations.
All members of the Finance and Audit Committee have been determined to be independent as defined in the listing requirements of the NASDAQ Stock Market. The Board of Directors has determined that Edward B. Ruggiero qualifies as an “audit committee financial expert.” The Finance and Audit Committee received the required written disclosures and letter from KPMG LLP, Carver’s independent accountants, required by Independence Standards Board Standard No. 1, as amended or supplemented, and has discussed with KPMG LLP its independence. The Finance and Audit Committee reviewed and discussed with the Company’s management and KPMG LLP the audited financial statements of the Company contained in the Company’s fiscal 2009 annual report on Form 10-K. The Finance and Audit Committee has also discussed with KPMG LLP the matters required to be discussed pursuant to the Codified Statements on Auditing Standards (SAS 61), as amended or supplemented.
Throughout the year, the Finance and Audit Committee had full access to management and the independent and internal auditors for the Company. The Finance and Audit Committee consulted with advisors regarding the Sarbanes-Oxley Act of 2002, the NASDAQ Stock Market’s corporate governance listing standards and the corporate governance environment in general and considered any additional requirements of the Finance and Audit Committee as well as additional procedures or matters the Finance and Audit Committee should consider. During fiscal 2009, the Finance and Audit Committee approved the retention of the Company’s reporting unit may have declined below its carrying value as a resultindependent accounting firm, KPMG LLP, and received the Board’s ratification of factors includingthis decision. The Finance and Audit Committee acts only in an oversight capacity and necessarily relies on the further decline in the Company’s market capitalization relative to the book value of shareholders’ equityassurances and the adverse market conditions impacting the financial services sector generally. This analysis, which incorporates the second step test noted above, was completed during the third fiscal quarter ended December 31, 2008. A valuation specialist was engaged to assist management in its fair value assessment of goodwill. As a result of the finalization of the goodwill impairment analysis the Company determined that goodwill was impaired and recorded an impairment charge of $7.1 million as of December 31, 2008.

71

ITEM 9A. DISCLOSURE CONTROLS AND PROCEDURES.
The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”). As of March 31, 2007, the Company carried out an evaluation, under the supervision and with the participationwork of the Company’s management and independent auditors who expressed an opinion on the Company’s annual financial statements. The Company’s management has the primary responsibility for the financial statements and the reporting process, including the Company’s Chief Executive Officer and Chief Financial Officer,systems of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. internal control.
Based on that evaluation,its review and discussions described in the Chief Executive Officerimmediately preceding paragraph, the Finance and Chief Financial Officer concludedAudit Committee recommended to the Board of Directors that the Company’s disclosure controls and procedures were effective and timely in alerting them to material information relating to the Company (including its consolidated subsidiaries) required to beaudited financial statements included in the Company’s periodic SEC filings.
Subsequent to the original filing of the March 31, 2007 Form 10-K, the Company’s management, including the Company’s Chief Executive Officer and acting Chief Accounting Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Controller concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2007 and that the Company’s consolidated financial statements could not be relied on for the fiscal years ended March 31, 2007 and March 31, 2008. As a result of carrying out the remediation efforts described below, however, the Chief Executive Officer and Principal Accounting Officer concluded that the Company’s disclosure controls and procedures were effective as of the date of this Form 10-K/A.
Material Weakness in Internal Control Over Financial Reporting
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the2009 annual or interim financial statements will not be prevented or detected. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial information reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.
During the period covered by this annual report, the Company identified a material weakness in the internal control over financial reporting. Specifically, the Company’s controls related to the reconciliation and review of automatic clearing house transactions and checks issued and received by the Bank’s customers existed during fiscal 2007 but was not discovered until February 9, 2009. All charges to income occurred during the Company’s 2007 fiscal year. As a result of this material weakness, the Company is amending this report on Form 10-K to restate its Consolidated Financial Statements for the fiscal years ended March 31, 2008 and 2007.
The restatements reflect the classification of the reconciliation matter presentedbe included in the affected Consolidated Financial Statements.
Changes in Internal Control Over Financial Reporting
Since the Company identified the material weakness of internal control over financial reporting described above, it has engaged in the following remediation efforts. The Company has completed an analysis of the controls over the suspense reconciliation review process which resulted in the above described restatements, and, as a result, it has redesigned and strengthened the internal control processes as it pertains to the preparation of the Consolidated Financial Statements.that report.

 

7237

PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
I.List of Documents Filed as Part of this Annual Report on Form 10-K/A
A.The following consolidated financial statements are included in Item 8 of this annual report:
1.Report of Independent Registered Public Accounting Firm
2.Consolidated Statement of Financial Condition as of March 31, 2008 and 2007
3.Consolidated Statements of Income for the years ended as of March 31, 2008, 2007 and 2006
4.Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the years ended March 31, 2008, 2007 and 2006
5.Consolidated Statements of Cash Flows for the years ended March 31, 2008, 2007 and 2006
6.Notes to Consolidated Financial Statements.
B.Financial Statement Schedules. All financial statement schedules have been omitted, as the required information is either inapplicable or included under Item 8, “Financial Statement and Supplementary Data”.
II.Exhibits required by Item 601 of Regulation S-K:
A.See Index of Exhibits on page E-1.

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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
     
 CARVER BANCORP, INC.
 		 
June 29,November 9, 2009 By:  /s/ Deborah C. Wright 
  Deborah C. Wright  
  Chairman and Chief Executive Officer  
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below on June 29, 2009 by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
   
/s/ Deborah C. Wright
 
 Chairman and Chief Executive Officer 
Deborah C. Wright (Principal Executive Officer)
   
/s/ Thomas SperzelChris McFadden
 
 Senior Vice President and ControllerChief Financial Officer 
Thomas SperzelChris McFadden (Principal Financial and Accounting Officer)
   
/s/ Carol Baldwin Moody
 
 Director 
Carol Baldwin Moody
/s/ Dr. Samuel J. Daniel
Director 
Samuel J. Daniel
/s/ David L. Hinds
Director 
David L. Hinds
/s/ Robert Holland, Jr.
Lead Director 
Robert Holland, Jr.
/s/ Pazel Jackson
Director 
Pazel G. Jackson, Jr.
/s/ Edward B. Ruggiero
Director 
Edward B. Ruggiero
/s/ Robert R. Tarter
Director 
Robert R. Tarter

74

EXHIBIT INDEX
    
     
23.1
/s/ Samuel J. Daniel
  Consent of KPMG LLPDirector 
Samuel J. Daniel
     
31.1
/s/ David L. Hinds
  Certifications of Chief Executive OfficerDirector 
David L. Hinds
     
31.2
/s/ Robert Holland, Jr.
  Certifications of Principal Accounting OfficerLead Director 
Robert Holland, Jr.
     
32.1
/s/ Pazel G. Jackson, Jr.
  Written Statement of Chief Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350Director 
Pazel G. Jackson, Jr.
     
32.2
/s/ Edward B. Ruggiero
  Written Statement of Principal Accounting Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350Director 
Edward B. Ruggiero
/s/ Robert R. Tarter
Director 
Robert R. Tarter

 

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