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 CorrectionsThe 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;
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 improvements | | 10 to 25 years |
Furnishings and equipment | | 3 to 5 years |
Leasehold improvements | | Lesser 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 | |
| | | | | | | | | | | | |
47
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 | % |
| | | | | | | | | |
48
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 | |
| | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | |
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.
29
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. |
32
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. |
33
| | |
| | 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 |
34
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.
60
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.
61
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.
62
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.
6335
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 | |
| | | | | | | | | | | | |
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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.
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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.
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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.
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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.
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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.
| | | | |
| | | | Chairman and Chief Executive Officer |
Deborah C. Wright | | | | (Principal Executive Officer) |
| | | | |
/s/ Thomas SperzelChris McFadden | | Senior Vice President and Controller | | Chief Financial Officer |
Thomas SperzelChris McFadden | | | | (Principal Financial and Accounting Officer) |
| | | | |
| | | | Director |
Carol Baldwin Moody | | |
| | |
| | Director |
Samuel J. Daniel | | |
| | |
| | Director |
David L. Hinds | | |
| | |
| | Lead Director |
Robert Holland, Jr. | | |
| | |
| | Director |
Pazel G. Jackson, Jr. | | |
| | |
| | Director |
Edward B. Ruggiero | | |
| | |
| | Director |
Robert R. Tarter | | |
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EXHIBIT INDEX
| | | | |
| | | | |
| 23.1 | | | Consent of KPMG LLP | Director |
Samuel J. Daniel | | | | |
| | | | |
| 31.1 | | | Certifications of Chief Executive Officer | Director |
David L. Hinds | | | | |
| | | | |
| 31.2 | | | Certifications of Principal Accounting Officer | Lead 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 1350 | Director |
Pazel G. Jackson, Jr. | | | | |
| | | | |
| 32.2 | | | Written Statement of Principal Accounting Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 | Director |
Edward B. Ruggiero | | | | |
| | | | |
| | | | Director |
Robert R. Tarter | | | | |
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