CARVER BANCORP INC — M&A Activity 2007

Sep 27, 2007

8-K/A 1 p07-1029_8ka.htm CARVER BANCORP Unassociated Document Licensed to: Thacher Proffitt & Wood LLP Document Created using EDGARizer 4.0.1.0 Copyright 2007 EDGARfilings, Ltd., an IEC company. All rights reserved EDGARfilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(A mendment No . 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): September 29, 2006

---

CARVER BANCORP, INC.

(Exact name of registrant as specified in its charter)

---

Delaware	1-13007	13-3904147
(State
or Other Jurisdiction of Incorporation
)	(Commission
File Number)	(IRS
Employer Identification No.)

75 West 125 th Street, New York, NY 10027-4512

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (212) 876-4747

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Explanatory Note

On September 29, 2006, Carver Bancorp, Inc. (the “Company”) completed its acquisition of Community Capital Bank (“CCB”) pursuant to the terms of the Agreement and Plan of Merger between the Company and CCB, dated April 5, 2006, as amended by the First Amendment to the Agreement and Plan of Merger between the Company and CCB, dated June 2, 2006. The Company is filing this Amendment No. 1 to the current report on Form 8-K to include previously omitted audited financial statements and unaudited financial statements of CCB and unaudited pro forma financial information of the Company and CCB.

-2-

ITEM 9.01. Financial statements and exhibits.

(a) Financial statements of businesses acquired.

The audited financial statements of CCB as of and for the year ended December 31, 2005 and the unaudited financial statements of CCB as of and for the six month periods ended June 30, 2006 and June 30, 2005 and related footnotes are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively. An independent accountant has not reviewed the unaudited financial statements of CCB as of and for the six months ended June 30, 2005 and 2006.

(b) Pro forma financial information

The unaudited pro forma condensed combined statement of financial condition of the Company and CCB as of June 30, 2006, unaudited pro forma condensed combined statement of income of the Company and CCB for the twelve months ended March 31, 2006 and December 31, 2005, respectively, unaudited pro forma condensed combined statement of income of the Company and CCB for the three months ended June 30, 2006 and March 31, 2006, respectively and related footnotes are attached hereto as Exhibit 99.3. This information is not necessarily indicative of the results that actually would have been attained if the acquisition had occurred on the date specified nor is it intended to project the Company’s financial position for any future date. This information should be read in conjunction with the historical financial statements of the Company.

(d) Exhibits.

The following exhibits are filed herewith:

| Exhibit
No. | Description |
| --- | --- |
| 99.1 | Audited
financial statements listed in Item 9.01(a) above. |
| 99.2 | Unaudited
financial statements listed in Item 9.01(a) above. |
| 99.3 | Unaudited
pro forma financial information listed in Item 9.01(b)
above. |

-3-

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

| CARVER
BANCORP, INC. | |
| --- | --- |
| By: | /s/ Deborah
C. Wright |
| | Deborah
C. Wright |
| | Chairman
& Chief Executive Officer |

Dated: September 27, 2007

-4-

EXHIBIT INDEX

| Exhibit
No. | Description |
| --- | --- |
| 99.1 | Audited
financial statements listed in Item 9.01(a) above. |
| 99.2 | Unaudited
financial statements listed in Item 9.01(a) above. |
| 99.3 | Unaudited
pro forma financial information listed in Item 9.01(b)
above. |

-5-

Exhibit 99.1

Community Capital Bank

Financial Statements

Year Ended December 31, 2005

Community Capital Bank

Financial Statements

Year Ended December 31, 2005

1

| Community
Capital Bank |
| --- |
| Contents |

| Independent
auditors’ report | 3 |
| --- | --- |
| Financial
statements: | |
| Statement
of financial condition | 4 |
| Statement
of income | 5 |
| Statement
of stockholders’ equity | 6 |
| Statement
of cash flows | 7 |
| Notes
to financial statements | 8-34 |

2

| BDO
Seidman, LLP | 330
Madison Avenue |
| --- | --- |
| Accountants
and Consultants | New
York, New York 10017 |
| | Telephone:
(212) 885-8000 |
| | Fax:
(212) 697-1299 |

Independent Auditors’ Report

Board of Directors

Community Capital Bank

Brooklyn, New York

We have audited the accompanying statement of financial condition of Community Capital Bank (“Bank”) as of December 31, 2005, and the related statements of income, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Bank’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Community Capital Bank as of December 31, 2005, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 14, the Bank has restated its statement of cash flows for the year ended December 31, 2005.

/s/ BDO Seidman, LLP

New York, New York

March 24, 2006, except for Note 14, as to which the date is September 11, 2007

3

| Community
Capital Bank |
| --- |
| Statement
of Financial Condition |

| December 31,
2005 | | |
| --- | --- | --- |
| Assets | | |
| Cash
and due from banks | $ 3,876,143 | |
| Federal
funds sold - overnight | 3,500,000 | |
| Due
from broker | 475,616 | |
| Total
cash and cash equivalents | 7,851,759 | |
| Due
from banks, pledged (Note 7(a)) | 1,046,000 | |
| Interest-bearing
deposits with banks (Note 7(b)) | 1,310,432 | |
| Securities,
available-for-sale (Notes 2, 6 and 7(a)) | 47,203,201 | |
| Federal
Home Loan Bank of New York stock, at cost, which approximates fair
value | 682,100 | |
| Loans,
net (Notes 3 and 7(a)) | 99,138,821 | |
| Premises
and equipment, net (Note 4) | 1,366,910 | |
| Accrued
interest receivable | 1,148,065 | |
| Deferred
tax asset, net (Note 9) | 1,542,166 | |
| Other
assets (Note 3) | 1,233,700 | |
| | $ 162,523,154 | |
| Liabilities
and Stockholders’ Equity | | |
| Liabilities: | | |
| Deposits: | | |
| Demand | $ 18,583,270 | |
| Interest-bearing
(Notes 2 and 5) | 121,407,772 | |
| Total
deposits | 139,991,042 | |
| Accrued
interest payable | 560,513 | |
| Other
borrowed funds (Notes 2 and 7) | 13,300,000 | |
| Other
liabilities | 1,183,437 | |
| Total
liabilities | 155,034,992 | |
| Commitments
and contingencies (Notes 3, 5 and 11) | | |
| Stockholders’
equity (Notes 8 and 12): | | |
| Preferred
stock, $1 par value –100,000 shares authorized; no shares
issued | | |
| Common
stock, $10 par value –690,000 shares authorized; issued and outstanding
269,179 | 2,691,790 | |
| Additional
paid-in capital | 3,985,160 | |
| Retained
earnings | 1,555,380 | |
| Accumulated
other comprehensive loss | (744,168 | ) |
| Total
stockholders’ equity | 7,488,162 | |
| | $ 162,523,154 | |
| Book
value per share | $ 27.82 | |

See accompanying notes to financial statements.

4

| Community
Capital Bank |
| --- |
| Statement
of Income |

| Year
ended December 31, 2005 | | |
| --- | --- | --- |
| Interest
income: | | |
| Loans | $ 6,917,620 | |
| Securities | 1,946,966 | |
| Interest-bearing
deposits with banks | 53,898 | |
| Federal
funds sold | 138,970 | |
| Total
interest income | 9,057,454 | |
| Interest
expense: | | |
| Deposits
(Note 5) | 3,185,367 | |
| Other
borrowed funds (Note 7(a)) | 476,606 | |
| Total
interest expense | 3,661,973 | |
| Net
interest income | 5,395,481 | |
| Provision
for possible loan losses (Note 3) | 1,086,702 | |
| Net
interest income after provision for possible loan
losses | 4,308,779 | |
| Noninterest
income: | | |
| Fees
and service charges | 1,184,132 | |
| Gain
on sales of loans (Note 3) | 634,203 | |
| Loss
on sales of securities (Note 2) | (92,428 | ) |
| Total
noninterest income | 1,725,907 | |
| Noninterest
expenses: | | |
| Salaries
and employee benefits (Notes 10 and 11(b)) | 2,691,809 | |
| General,
administrative, marketing and other | 1,265,879 | |
| Professional
fees | 752,963 | |
| Occupancy
expense (Note 11(a)) | 507,420 | |
| Data
processing and conversion, including consulting | 289,324 | |
| Depreciation
and amortization | 271,823 | |
| Total
noninterest expenses | 5,779,218 | |
| Income
before income taxes | 255,468 | |
| Income
taxes (Note 9) | 51,101 | |
| Net
income | $ 204,367 | |
| Earnings
per share: | | |
| Basic | $ .76 | |
| Diluted | .75 | |

See accompanying notes to financial statements.

5

| Community
Capital Bank |
| --- |
| Statement
of Stockholders' Equity |

| Year
ended December 31, 2005 | | | | | Additional
paid-in capital | Retained
earnings | Accumulated
other comprehensive loss | Total
stockholders’ equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Preferred
stock | | Common
stock | | | | | |
| | Shares | Amount | Shares | Amount | | | | |
| Balance,
January 1, 2005 | - | $- | 269,179 | $2,691,790 | $3,985,160 | $1,404,848 | $(308,787) | $7,773,011 |
| Comprehensive
loss: | | | | | | | | |
| Net
income | - | - | - | - | - | 204,367 | - | 204,367 |
| Other
comprehensive loss: | | | | | | | | |
| Changes
in net unrealized loss on securities available-for- sale, net of
reclassification adjustments and tax effects | - | - | - | - | - | - | (435,381) | (435,381) |
| Total
comprehensive loss | | | | | | | | (231,014) |
| Cash
dividend ($.20 per share) | - | - | - | - | - | (53,835) | - | (53,835) |
| Balance,
December 31,2005 | - | $- | 269,179 | $2,691,790 | $3,985,160 | $1,555,380 | $(744,168) | $7,488,162 |

See accompanying notes to financial statements.

6

| Community
Capital Bank |
| --- |
| Statement
of Cash Flows |

| Year
ended December 31, 2005 | | |
| --- | --- | --- |
| Cash
flows from operating activities: | | |
| Net
income | $ 204,367 | |
| Adjustments
to reconcile net income to net cash provided by operating
activities: | | |
| Provision
for possible loan losses | 1,086,702 | |
| Depreciation
and amortization | 285,859 | |
| Gain
on sales of loans | (634,203 | ) |
| Deferred
income taxes | (250,825 | ) |
| Deferred
loan fees, net | 18,335 | |
| Loss
on sales of securities | 92,428 | |
| Changes
in operating assets and liabilities: | | |
| Accrued
interest receivable | (215,335 | ) |
| Other
assets | (778,530 | ) |
| Accrued
interest payable | 109,254 | |
| Accrued
expenses and other liabilities | 226,650 | |
| Net
cash provided by operating activities | 144,702 | |
| Cash
flows from investing activities: | | |
| Decrease
in interest-bearing deposits with banks | 1,029,907 | |
| Activity
in available-for-sale securities: | | |
| Sales | 17,880,215 | |
| Maturities,
prepayments and calls | 12,870,410 | |
| Purchases | (26,741,131 | ) |
| Redemption
of Federal Home Loan Bank of New York stock | 122,900 | |
| Loan
originations, net of repayments and sales | 13,519,305 | |
| Capital
expenditures | (90,631 | ) |
| Net
cash used in investing activities | 8,447,635 | |
| Cash
flows from financing activities: | | |
| Net
increase in deposits | 11,122,886 | |
| Proceeds
from other borrowed funds | 13,300,000 | |
| Repayments
of other borrowed funds | (15,846,266 | ) |
| Dividends | (53,835 | ) |
| Net
cash provided by financing activities | 8,522,785 | |
| Net
increase in cash and cash equivalents | 219,852 | |
| Cash
and cash equivalents, beginning of year | 7,631,907 | |
| Cash
and cash equivalents, end of year | $ 7,851,759 | |
| Supplemental
disclosures of cash flow information: | | |
| Cash
paid during the year for: | | |
| Interest
on deposits and other borrowed funds | $ 3,552,718 | |
| Income
taxes | 1,289,809 | |

See accompanying notes to financial statements.

7

| Community
Capital Bank |
| --- |
| Notes
to Financial Statements |

| 1. |
| --- |
| Community
Capital Bank (the “Bank”) received its charter from the New York State
Banking Department on August 27, 1990 and commenced operations as a
commercial bank. |
| The
Bank provides a full range of banking services to individual and
corporate
customers in the New York City area through its branch locations
in
downtown Brooklyn and Sunset Park, New York. |
| The
Bank is subject to intense competition from other financial institutions.
The Bank is also subject to the regulations of certain Federal and
state
agencies and undergoes periodic examinations by those regulatory
authorities. |
| A
majority of the Bank’s loans are collateralized by real estate in markets
in the New York Metropolitan area. Accordingly, the ultimate
collectibility of those loans collateralized by real estate are
particularly susceptible to changes in market conditions in New
York. |
| The
following is a summary of the significant accounting policies followed
by
the Bank in the preparation of the financial
statements. |
| Use
of Estimates |
| The
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and
with
general practices within the banking industry. In preparing the financial
statements, management is required to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure
of
contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses for
the
reporting period. Actual results could differ from those
estimates. |

8

| Material
estimates that are particularly susceptible to significant change
in the
near term relate to the determination of the allowance for possible
loan
losses. In connection with the determination of the allowance for
possible
loan losses, management obtains independent appraisals for significant
properties which collateralize the loans. |
| --- |
| Securities |
| Investments
in debt securities are classified as available-for-sale and are carried
at
fair value with unrealized gains and losses, net of any tax effect,
excluded from earnings and reported in other comprehensive income
(loss).
Premiums and discounts are recognized on the straight-line method
which
does not differ materially from the level yield method. |
| Gains
and losses on sales of securities are computed using the specific
identification method. |
| Loans
and Allowance for Possible Loan Losses |
| Loans
that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff generally are reported at their
principal amount outstanding, less deferred fees, net of certain
direct
costs, and the allowance for possible loan losses. Interest income
is
accrued on the unpaid principal balance. |
| The
Bank defers non-refundable loan origination and commitment fees,
and
certain direct loan origination costs and amortizes the net amount
as an
adjustment of the yield over the contractual term of the loan. If
a loan
is prepaid or sold, the net deferred amount is recognized in the
statement
of income at that time. |

9

| The
allowance for possible loan losses is evaluated on a regular basis
by
management and is based upon management’s periodic review of the
collectibility of the loans in light of historical experience, changes
in
the composition and risk characteristics of the loan portfolio, adverse
situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates
that are
susceptible to significant revision as more information becomes available.
The allowance for possible loan losses is increased by provisions
charged
to earnings and reduced by charge-offs, net of
recoveries. |
| --- |
| Loans
on which the accrual of interest has been discontinued are designated
as
non-accrual loans. Accrual of interest on loans is discontinued when
principal or interest is past due 90 days or more, or when, in the
opinion
of management, there is reasonable doubt as to collectibility. Generally,
when the loans are placed on non-accrual status, all interest previously
accrued but not collected is reversed against current period interest
income. Income on such loans is then reported only to the extent
that cash
is received. |
| A
loan is considered to be impaired when it is probable that the Bank
will
be unable to collect all principal and interest amounts according
to the
contractual terms of the loan agreement. The allowance for possible
loan
losses related to loans identified as impaired is based on the excess
of
the loan’s current outstanding principal balance over the estimated fair
value of the related collateral. For impaired loans that are not
collateral dependent, the allowance for possible loan losses is recorded
at the amount by which the outstanding recorded principal balance
exceeds
the current best estimate of the future cash flows on the loan, discounted
at the loan’s effective interest
rate. |

10

| Servicing |
| --- |
| Servicing
rights are recognized as separate assets when rights are acquired
through
purchase or through sale of financial assets. Capitalized servicing
rights
are reported in other assets and are amortized into noninterest income
in
proportion to, and over the period of, the estimated future net servicing
income of the underlying financial assets. Capitalized servicing
rights
are evaluated for impairment based upon the fair value of the rights
as
compared to amortized cost. Impairment is determined by stratifying
rights
by predominant characteristics, such as interest rates and terms.
Fair
value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows
using
market-based assumptions. Impairment is recognized through a valuation
allowance for an individual stratum, to the extent that fair value
is less
than the capitalized amount for the stratum. |
| Concentrations
of Credit Risk |
| Financial
instruments which potentially subject the Bank to concentration of
credit
risk consist primarily of temporary cash investments and loans. At
December 31, 2005, the Bank had approximately $282,000 in cash
balances with various financial institutions which were in excess
of
Federally insured limits. |
| The
Bank places its temporary cash investments with high credit quality
financial institutions and limits the amount of credit exposure to
any one
financial institution. |
| The
majority of the Bank’s loans, commitments and commercial letters of credit
have been granted to customers in the Bank’s primary market area, the
Metropolitan New York region. |
| Premises
and Equipment |
| Premises
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on the straight-line method
over
the estimated useful lives of the related assets. Leasehold improvements
are amortized over the shorter of the terms of the respective leases
or
the estimated lives of the
improvements. |

11

| Income
Taxes |
| --- |
| Deferred
taxes are provided to reflect the temporary differences in the tax
bases
of assets and liabilities and their reported amounts in the financial
statements. The differences relate principally to depreciation and
amortization of premises and equipment, provisions for possible loan
losses, interest income on loans and deferred rent. A valuation allowance
is recorded, as necessary, to reduce deferred taxes to an amount
expected
to be realized. |
| Stock-Based
Compensation |
| The
Bank has a stock-based compensation plan which is described more
fully in
Note 13. The Bank accounts for this plan under the recognition and
measurement principles of APB Opinion No. 25, “Accounting for Stock Issued
to Employees”, and related interpretations. No stock-based compensation
cost is reflected in net income, as all options granted under this
plan
had an exercise price equal to the market value of the underlying
common
stock on the date of grant, as determined by the Bank’s Board of
Directors. The following table illustrates the effect on net income
and
earnings per share if the Bank had applied the fair value recognition
provisions of Statement of Financial Accounting Standards (“SFAS”) No.
123, “Accounting for Stock-based Compensation”, to stock-based
compensation: |

| Year
ended December 31, 2005 — Net
income, as reported | $ 204,367 | |
| --- | --- | --- |
| Less: Total
stock-based compensation expense, net of related tax
effects | (5,277 | ) |
| Pro
forma net income | $ 199,090 | |
| Earnings
per share: | | |
| Basic
- as reported | $ .76 | |
| Basic
- pro forma | $ .74 | |
| Diluted
- as reported | $ .75 | |
| Diluted
- pro forma | $ .73 | |

12

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model on the following weighted-average assumptions:

| Year
ended December 31, 2005 | |
| --- | --- |
| Dividend
yield | 0.7 % |
| Expected
life | 8
years |
| Expected
volatility | - % |
| Risk-free
interest rate | 4.49 % |

| The
application of these assumptions resulted in an estimated average
fair
value per option of $6.42 for the year ended December 31,
2005. |
| --- |
| Earnings
per Share |
| Basic
earnings per share represents income available to common stockholders
divided by the weighted-average number of common shares outstanding
during
the period. Diluted earnings per share reflects additional common
shares
that would have been outstanding if dilutive potential common shares
had
been issued, as well as any adjustment to income that would result
from
the assumed issuance. Potential common shares that may be issued
by the
Bank relate solely to outstanding stock options, and are determined
using
the treasury stock method. |
| Earnings
per common share have been computed based on the
following: |

| Year
ended December 31, 2005 | |
| --- | --- |
| Net
income applicable to common stock | $ 204,367 |
| Average
number of common shares outstanding | 269,179 |
| Effect
of dilutive options | 2,866 |
| Average
number of common shares outstanding used to calculate diluted earnings
per
common share | 272,045 |

13

| Comprehensive
Income |
| --- |
| Comprehensive
income is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. The required
disclosures have been incorporated in the statements of stockholders’
equity. |
| Statement
of Cash Flows |
| For
the purposes of reporting cash flows, cash and cash equivalents include
cash, amounts due from banks and brokers and Federal funds sold,
generally
overnight. |
| Fair
Value of Financial Instruments |
| A
significant portion of the Bank’s assets and liabilities are considered
financial instruments. Many of the Bank’s financial instruments lack an
available trading market. As a result, significant assumptions and
present
value calculations were used in determining estimated fair values.
For
financial instruments bearing a variable interest rate, it is presumed
that recorded book values are reasonable estimates of fair value.
For the
following items, recorded book value represents a reasonable estimate
of
fair value due to their relative short-term nature: cash and due from
banks, federal funds sold, interest-bearing deposits with banks,
deposits
without stated maturities and accrued interest receivable and
payable. |
| For
all other financial instruments, the following methods and assumptions
were used to estimate fair values: |
| (i) Securities |
| Quoted
market prices for the specific instruments owned, or similar securities,
are used to determine fair value. |
| (ii) Loans
Receivable |
| The
Bank holds in its portfolio few loans of the type that are readily
saleable in the secondary market, or that are commonly used to
collateralize investment securities. Therefore, the present value
of
estimated future cash flows from the loan portfolio is used to determine
the fair value. The discount rates used are the current rates at
which
loans with similar terms would be made to borrowers with similar
credit
ratings. |
| (iii) Deposits
with Stated Maturities |
| The
present value of future cash flows for time deposits is used to determine
estimated fair value. The discount rates used are the current rates
offered for time deposits with similar maturities. |
| (iv) Limitations
of the Estimation Process |
| Fair
value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument.
These
estimates do not reflect any premium or discount that could result
from
offering for sale at one time the Bank’s entire holdings of a particular
financial instrument. In addition, these estimates do not reflect
any
premium or discount that could result in any equity offering by the
Bank,
since the fair values of financial instruments were calculated
independently based on the value of one unit without regard to such
factors as concentrations of ownership, possible tax ramifications
or
transaction costs. Because no market exists for a significant portion
of
the Bank’s financial instruments, fair value estimates are based on
judgments regarding further expected loss experience, current economic
conditions, risk characteristics of various financial instruments,
and
other factors. |

15

| These
estimates are subjective in nature and involve uncertainties and
matters
of significant judgment and, therefore, cannot be determined with
exact
precision. Also, changes in assumptions could significantly affect
the
estimates. |
| --- |
| Fair
value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated
future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that
are
not considered financial instruments include premises and equipment
and
advances from borrowers for taxes and insurance. In addition, the
tax
ramifications related to the realization of any unrealized gains
and
losses can have a significant effect on fair value estimates and
have not
been considered in any of the estimates. |
| Recent
Accounting Developments |
| In
November 2005, the Financial Accounting Standards Board (“FASB”) issued
FASB Staff Position (“FSP”) FAS 115-1, “The Meaning of
Other-Than-Temporary Impairment and its Application to Certain
Investments”. This FSP provides additional guidance on when an investment
in a debt or equity security should be considered impaired and when
that
impairment should be considered other-than-temporary and recognized
as a
loss in earnings. The guidance clarifies that an investor should
recognize
an impairment loss no later than when the impairment is deemed
other-than-temporary, even if a decision to sell has not been made.
The
FSP also requires certain disclosures about unrealized losses that
have
not been recognized as other-than-temporary impairments. Management
applied the guidance in this FSP in
2005. |

16

| In
December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,”
a revision of SFAS No. 123, “Accounting for Stock-Based Compensation”,
which supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees,” and its related implementation guidance. The statement focuses
primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123R
requires an entity to measure the cost of employee services received
in
exchange for an award of equity instruments based on the grant-date
fair
value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide service
in
exchange for the award. This statement is effective for the Bank
beginning
with the year ending December 31, 2006. The Bank is currently
evaluating the impact of adopting SFAS No. 123R. |
| --- |
| On
June 7, 2005, the FASB issued SFAS No. 154, “Accounting Changes and
Error Corrections”, a replacement of APB Opinion No. 20, “Accounting
Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim
Financial Statements”. SFAS No. 154 changes the requirements for the
accounting for and the reporting of a change in accounting principle.
Previously, most voluntary changes in accounting principles were
required
to be recognized by way of a cumulative effect adjustment within
net
income during the period of change. SFAS No. 154 requires retrospective
application to prior periods’ financial statements, unless it is
impracticable to determine either the period specific effects or
the
cumulative effect of the change. SFAS No. 154 is effective for accounting
changes made in fiscal years beginning after December 15, 2005;
however, SFAS No. 154 does not change the transition provisions of
any
existing accounting pronouncements. The Bank does not believe the
adoption
of SFAS No. 154 will have a material effect on its financial position,
results of operations or cash
flows. |

17

1. Securities, Available-for-Sale The amortized cost and fair value of securities, with gross unrealized gains and losses follows:

| December 31,
2005 | Amortized
cost | Gross
unrealized gains | Gross
unrealized losses | | Fair
value |
| --- | --- | --- | --- | --- | --- |
| U.S.
Government Agencies | $ 25,051,738 | $ 330 | $ (810,867 | ) | $ 24,241,201 |
| U.S.
Treasury Securities | 750,000 | - | - | | 750,000 |
| State
and municipal | 14,259,204 | 28,203 | (233,518 | ) | 14,053,889 |
| Mortgage-backed
securities | 7,805,021 | 556 | (134,206 | ) | 7,671,371 |
| Corporate
bonds | 500,000 | - | (13,260 | ) | 486,740 |
| | $ 48,365,963 | $ 29,089 | $ (1,191,851 | ) | $ 47,203,201 |

| At
December 31, 2005, securities with an amortized cost of approximately
$18,542,000 and fair value of approximately $18,524,000 were pledged
to
secure other borrowed funds and public deposits. |
| --- |
| The
amortized cost and fair value of debt securities available-for-sale
by
contractual maturity are as
follows: |

| | Amortized
cost | Fair value |
| --- | --- | --- |
| Due
before one year | $ 750,000 | $ 750,000 |
| Due
after one year through five years | 11,072,045 | 10,761,003 |
| Due
five years through ten years | 20,612,275 | 20,092,798 |
| Due
after ten years | 15,931,643 | 15,599,400 |
| | $ 48,365,963 | $ 47,203,201 |

18

The following table shows the gross unrealized losses and fair value of the Bank’s investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2005.

| | Less
than 12 months — Fair value | Unrealized
losses | | 12
months or greater — Fair value | Unrealized
losses | | Total — Fair value | Unrealized
losses | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| U.S.
Government Agencies | $ 5,691,169 | $ (211,714 | ) | $ 18,049,702 | $ (599,153 | ) | $ 23,740,871 | $ (810,867 | ) |
| State
and municipal | 7,903,456 | (120,584 | ) | 3,957,395 | (112,934 | ) | 11,860,851 | (233,518 | ) |
| Mortgage
backed securities | 3,865,079 | (57,858 | ) | 3,306,352 | (76,348 | ) | 7,171,431 | (134,206 | ) |
| Corporate
bonds | - | - | | 486,740 | (13,260 | ) | 486,740 | (13,260 | ) |
| Total | $ 17,459,704 | $ (390,156 | ) | $ 25,800,189 | $ (801,695 | ) | $ 43,259,893 | $ (1,191,851 | ) |

19

| | | The
policies followed by Bank management limit the type of investment
instruments that can be purchased. These are limited to high quality
securities with investment grade ratings. The types of securities
purchased principally consist of U.S. Treasury, U.S. Government Agency,
state and municipal obligations, mortgage-backed securities and corporate
bonds. |
| --- | --- | --- |
| | | Management
does not believe that these securities’ temporary impairment is caused by
credit risk of the issuer. The unrealized losses noted above are
due to
fluctuations in the interest rates between the time these investments
were
purchased and the current market. The contractual terms of these
investments do not permit the issuer to settle the securities at
a price
less than the amortized cost of the investment. All payments of interest
or principal reductions have been received when due and the ratings
on
these investments continue to reflect the strength of these
issues. |
| | | During
the year ended December 31, 2005, proceeds from the sales of
securities amounted to approximately $17,880,000. Gross realized
gains
amounted to $25,280. Gross realized losses amounted to
$117,708. |
| 3. | Loans,
Net | Loans,
net consist of the following: |

| December
31, 2005 — Commercial,
industrial and other | $ 59,095,199 | |
| --- | --- | --- |
| Real
estate mortgage | 37,741,279 | |
| Real
estate construction | 4,757,417 | |
| | 101,593,895 | |
| Less: Allowance
for possible loan losses | (2,030,152 | ) |
| Net
deferred loan fees | (424,922 | ) |
| Loans,
net | $ 99,138,821 | |

At December 31, 2005, loans to directors, officers or employees of the Bank were approximately $105,000.

20

| Nonaccrual
loans at December 31, 2005 were approximately $1,547,000. Interest
associated with such loans of approximately $239,000 was excluded
from
income in 2005. |
| --- |
| Information
regarding impaired loans is as
follows: |

| Impaired
loans with a related allowance for possible loan losses | $ |
| --- | --- |
| Impaired
loans without a related allowance for possible loan losses | - |
| Total
impaired loans | $ 1,628,344 |
| Average
balance of impaired loans for the year | $ 2,031,739 |
| Allowance
for possible loan losses related to impaired loans | $ 791,964 |
| Interest
income recognized on a cash basis for the year | $ - |

An analysis of activity in the allowance for possible loan losses follows:

| Balance,
beginning of year | $ | |
| --- | --- | --- |
| Provision
for possible loan losses | 1,086,702 | |
| Loans
charged off | (754,530 | ) |
| Recoveries | 8,927 | |
| Balance,
end of year | $ 2,030,152 | |

21

| | | The
Bank is approved by the United States Small Business Administration
(“SBA”) to make SBA guaranteed loans. These are loans made to small
businesses, often for the start-up of a new business or the expansion
of
an existing business. The loans are guaranteed up to 90% by the SBA.
From
time to time, the Bank sells the SBA guaranteed portion of these
loans in
the secondary market with servicing retained. Under the sales agreement,
the buyer has the right to require the Bank to repurchase the loan
for the
price sold, in the event the borrower defaults on any scheduled payments
of principal or interest within 90 days of the settlement date of
the
sale. Gain on sale of loans was $634,203 during the year ended
December 31, 2005. |
| --- | --- | --- |
| | | Capitalized
servicing rights, net of accumulated amortization and revenues, were
approximately $269,000 at December 31, 2005 and are included in other
assets. At December 31, 2005, the unpaid principal balance of loans
serviced for others, which are not included in the accompanying statements
of financial condition, was approximately $13,241,000. |
| 4. | Premises
and Equipment | The
following is a summary of premises and
equipment: |

| December 31,
2005 | |
| --- | --- |
| Leasehold
improvements | $ 1,409,740 |
| Furniture,
fixtures and equipment | 1,394,804 |
| Computer
software | 209,195 |
| Automobiles | 106,834 |
| | 3,120,573 |
| Less: Accumulated
depreciation and amortization | 1,753,663 |
| | $ 1,366,910 |

22

1. Deposits Interest-bearing deposits were as follows:

| December 31,
2005 | |
| --- | --- |
| NOW
and money market accounts | $ 15,703,920 |
| Savings
accounts | 5,109,132 |
| Time
deposits | 100,594,720 |
| | $ 121,407,772 |

| Included
in time deposits as of December 31, 2005 are $15,000,000 of public
deposits which are collateralized by letters of credit issued by
the
Federal Home Loan Bank of New York under which the Bank is contingently
liable. |
| --- |
| The
aggregate amount of time deposits in denominations of $100,000 or
more
were approximately $62,486,000 at December 31,
2005. |
| Scheduled
maturities of time deposits as
follow: |

| Year
ending December 31, | |
| --- | --- |
| 2006 | $ 84,136,014 |
| 2007 | 11,416,227 |
| 2008 | 2,936,085 |
| 2009 | 809,847 |
| 2010
and thereafter | 1,296,547 |
| | $ 100,594,720 |

| The
average rate of interest paid on time deposits was 2.94% for the
year
ended December 31, 2005. |
| --- |
| At
December 31, 2005, deposits with the Bank which were directly or
indirectly with officers, directors and stockholders, were approximately
$750,000. Such deposits carry the same terms, including interest
rates, as
those prevailing at the time of comparable transactions with
others. |

23

| 6. |
| --- |
| Information
concerning securities sold under agreements to repurchase was as
follows: |

| Average
balance during the year | 231,114 |
| --- | --- |
| Average
interest rate during the year | 1.77 % |
| Maximum
month-end balance during the year | 750,000 |

| 7. |
| --- |
| (a) Federal
Home Loan Bank of New York |
| The
Bank is a member of the Federal Home Loan Bank of New York
(“FHLBNY”). As such, it is eligible to borrow funds at various terms and
maturities offered by the FHLBNY. At December 31, 2005, the Bank had
borrowings of $13,300,000 with terms and maturities as
follows: |

Maturity		Amount
2/1/06	4.04 %	$ 2,000,000
3/1/06	4.08	800,000
6/21/06	4.78	3,000,000
6/30/06	4.77	7,500,000
		$ 13,300,000

24

| | | At
December 31, 2005, the Bank has pledged collateral in the form of
mortgage loans in the approximate amount of $10,874,000, securities
in the
approximate amount of $17,354,000 and a due from bank account with
the
FHLBNY in the approximate amount of $1,046,000 to secure this borrowing
facility and the $15,000,000 of letters of credit discussed in
Note 5. Based on the amount of collateral and the amount of stock
held, the Bank could borrow up to an additional
$513,000. |
| --- | --- | --- |
| | | The
average interest rate paid on the borrowings was 3.43% for the year
ended
December 31, 2005. |
| | | (b) Interbank |
| | | During
May 2005, the Bank repaid $875,000 of borrowings from another financial
institution, which had been collateralized by interest-bearing deposits
with banks. The interest rate on the borrowing was 3.75% per
annum. |
| 8. | Stockholders’
Equity | (a) Minimum
Regulatory Capital Requirements |
| | | The
Bank is subject to various regulatory capital requirements administered
by
the Federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have
a
direct material effect on the Bank’s financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank’s assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Bank’s capital amounts and classification are also subject
to quantitative judgments by the regulators about components, risk
weightings, and other factors. |

25

| Quantitative
measures established by regulation to ensure capital adequacy require
the
Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I Leverage Capital
(as
defined) to average assets (as defined). Management believes, as of
December 31, 2005, that the Bank meets all capital adequacy
requirements to which it is subject. |
| --- |
| As
of December 31, 2005, the Bank is adequately capitalized under the
regulatory framework for prompt corrective action. To be categorized
as
well capitalized the Bank must maintain minimum total risk-based,
Tier I
risk-based and Tier I leverage ratios as set forth in the
table. |
| The
Bank’s actual capital amounts and ratios are also presented in the
following table (dollars in
thousands): |

| December 31,
2005 | Actual | | For
capital adequacy purposes | | To
be well-capitalized under prompt corrective action
provisions | |
| --- | --- | --- | --- | --- | --- | --- |
| | Amount | Ratio | Amount | Ratio | Amount | Ratio |
| Total
Capital (to risk-weighted assets) | $ 9,457 | 9.82 % | $ 7,744 | 8.0 % | $ 9,680 | 10.0 % |
| Tier
1 Capital (to risk-weighted assets) | 8,232 | 8.55 | 3,872 | 4.0 | 5,808 | 6.0 |
| Tier
1 Leverage Capital (to average assets) | 8,232 | 5.01 | 6,521 | 4.0 | 8,152 | 5.0 |

26

1. Income Taxes Allocation of Federal, state and local income taxes between current and deferred portions follows:

| Year
ended December 31, 2005 | | |
| --- | --- | --- |
| Current : | | |
| Federal | $ 199,688 | |
| State
and local | 102,238 | |
| | 301,926 | |
| Deferred: | | |
| Federal | (185,394 | ) |
| State
and local | (65,431 | ) |
| | (250,825 | ) |
| | $ 51,101 | |

The income tax expense differs from that computed at Federal statutory rates due to the following:

| Year
ended December 31, 2005 — Tax
at Federal statutory rate | $ 86,859 | |
| --- | --- | --- |
| Increase
(decrease) resulting from: | | |
| State
and local income taxes (net of Federal income tax benefit) | 29,000 | |
| Tax
– exempt interest | (135,000 | ) |
| Tax
credits | (7,500 | ) |
| Non-deductible
expenses | 115,000 | |
| Prior
years’ overaccruals | - | |
| Other | (37,258 | ) |
| Total
income tax expense | $ 51,101 | |

27

The components of the net deferred tax asset, net follow:

| December 31,
2005 | |
| --- | --- |
| Deferred
tax assets: | |
| Loans | $ 933,870 |
| Rent | 130,860 |
| Interest
income | 109,945 |
| Securities | 418,593 |
| | 1,593,268 |
| Deferred
tax liability: | |
| Premises
and equipment | 26,757 |
| | 1,566,511 |
| Less: Valuation
allowance | 24,345 |
| Net
deferred tax asset | $ 1,542,166 |

| 10. | Employee
Benefit Plan | The
Bank sponsors a profit-sharing retirement and savings plan under
Section
401(k) of the Internal Revenue Code covering all eligible employees.
Under
the plan, employees may make voluntary contributions up to statutory
maximum amounts, and the Bank may make discretionary contributions
based
on 3% percent of eligible compensation. During 2005, the discretionary
employer contributions were approximately $90,000. |
| --- | --- | --- |
| 11. | Commitments
and Contingencies | (a) The
Bank leases office space under noncancellable operating leases expiring
through 2017. |

28

The approximate minimum annual rental commitments under such noncancellable leases are as follows:

| Year
ending December 31, | |
| --- | --- |
| 2006 | $ 347,000 |
| 2007 | 355,000 |
| 2008 | 362,000 |
| 2009 | 371,000 |
| 2010 | 362,000 |
| Thereafter | 2,511,000 |
| | $ 4,308,000 |

| Total
rent expense charged to operations was approximately $350,000 in
2005. |
| --- |
| (b) The
Bank has an employment contract with an executive through March 2007,
which provides a minimum base annual salary of $180,000, as well
as annual
base compensation adjustments and performance bonuses based on the
Bank
exceeding performance targets set in an annual plan to be negotiated
by
the executive and the Bank. |
| (c) In
the normal course of business, the Bank makes commitments and incurs
certain contingent liabilities which are appropriately not reflected
in
the accompanying financial statements. These commitments and contingent
liabilities include various commitments to extend credit and standby
and
commercial letters of credit. In the opinion of management, no material
losses are anticipated as a result of these
transactions. |

29

The following is a summary of such commitments and contingent liabilities as of December 31, 2005:

| | Contract
amount |
| --- | --- |
| Letters
of credit | $ 722,000 |
| Commitments
to extend loans | $ 4,550,000 |
| Undrawn
lines of credit | $ 8,955,000 |

| (d) The
Bank is involved in various legal proceedings which have arisen in
the
ordinary course of business which management believes, after consultation
with legal counsel, will not have a material adverse effect on the
financial condition, results of operations or cash flows of the
Bank. — Under
the Bank’s 1999 Stock Incentive Plan (“Plan”), the Bank may grant options
to its directors, officers and employees for up to 100,000 shares
of
common stock. Both incentive stock options and non-statutory stock
options
may be granted under the Plan. The exercise price of each option
granted
under the plan shall not be less than 100% of the fair market value
(as
defined) of the Bank’s common stock on the date of the grant. However, for
a grantee who owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the Bank, the exercise
price of each option granted shall not be less than 110% of the fair
market value of the Bank’s common stock on the date of the grant. The term
of each option granted shall be determined by a committee of the
Board of
Directors but in no event exercisable more than 10 years from the
date of
grant, except for a more than 10% stockholder whose options must
be
exercised no more than five years from the date of grant. |
| --- |
| An
award made under the Plan shall become exercisable based on the number
of
full years of service that such award owner has completed since the
award’s date of grant, in accordance with the following
schedule. |

30

| Number
of years of service since date of grant | Percentage
of award available for exercise (cumulative) |
| --- | --- |
| 1
year | 25% |
| 2
years | 50 |
| 3
years | 75 |
| 4
or more years | 100 |

A summary of the status of the Plan is presented below:

| December
31, 2005 — Shares | | Weighted
average exercise price |
| --- | --- | --- |
| Outstanding
at beginning of year | 12,900 | $ 24.32 |
| Granted | 9,800 | 28.40 |
| Exercised | - | - |
| Forfeited | - | - |
| Outstanding
at end of year | 22,700 | $ 26.41 |
| Options
exercisable at year-end | 9,048 | $ 24.03 |

31

A summary of the stock options outstanding and exercisable is as follows:

| December 31,
2005 — Options
outstanding | | | Options
exercisable | |
| --- | --- | --- | --- | --- |
| Number outstanding | Weighted
average remaining contractual
life | Weighted
average exercise price | Number exercisable | Weighted
average exercise price |
| 22,700 | 8.00 | $26.41 | 9,048 | $24.03 |

32

1. Disclosures about Estimated Fair Value of Financial Instruments The estimated fair value of the Bank’s financial instruments is as follows ($000’s):

| | Carrying
value | Estimated
value |
| --- | --- | --- |
| Financial
assets: | | |
| Cash
and cash equivalents | $ 7,852 | $ 7,852 |
| Due
from banks, pledged | 1,046 | 1,046 |
| Time
deposits with banks | 1,310 | 1,310 |
| Securities | 47,203 | 47,203 |
| Loans | 101,594 | 100,269 |
| Accrued
interest receivable | 1,148 | 1,148 |
| Total
financial assets | $ 160,153 | $ 158,828 |
| Financial
liabilities: | | |
| Deposits | $ 139,991 | $ 139,196 |
| Other
borrowed funds | 13,300 | 13,305 |
| Accrued
interest payable | 561 | 561 |
| Total
financial liabilities | $ 153,852 | $ 153,062 |

The remaining assets and liabilities of the Bank are not considered financial instruments and have not been valued differently than is customary under historical cost accounting. Since assets and liabilities that are not financial instruments are excluded above, the difference between total financial assets and financial liabilities does not, nor is it intended to, represent the market value of the Bank. Furthermore, the estimated fair value information may not be comparable between financial institutions due to the wide range of valuation techniques permitted, and assumptions necessitated, in the absence of an available trading market.

33

| 14. |
| --- |
| As
a result, the following amounts in the statement of cash flows have
been
restated for the year ended December 31,
2005. |

| | As
previously reported | | Restatement
adjustment | | As
restated | |
| --- | --- | --- | --- | --- | --- | --- |
| Cash
flows from operating activities: | | | | | | |
| Proceeds
from sales of loans | $ 6,632,270 | | $ (6,632,270 | ) | $ - | |
| Net
cash provided by operating activities | $ 6,776,972 | | $ (6,632,270 | ) | $ 144,702 | |
| Cash
flows from investing activities: | | | | | | |
| Loan
originations, net of repayments and sales | $ (20,151,575 | ) | $ 6,632,270 | | $ (13,519,305 | ) |
| Net
cash used in investing activities | $ (15,079,905 | ) | $ 6,632,270 | | $ (8,447,635 | ) |

34

Exhibit 99.2

COMMUNITY CAPITAL BANK

STATEMENTS OF FINANCIAL CONDITION

UNAUDITED

(In thousands, except per share data)

| | June
30, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| ASSETS | | | | |
| Cash
and due from
banks | $ 8,265 | $ | 2,912 | |
| Federal
funds sold –
overnight | 2,500 | | 3,700 | |
| Due
from broker | 986 | | 512 | |
| Total
cash and cash
equivalents | 11,751 | | 7,124 | |
| Due
from banks,
pledged | 1,046 | | 1,046 | |
| Interest-bearing
deposits with
banks | 1,322 | | 1,525 | |
| Securities,
available-for-sale
(note 2) | 50,600 | | 53,748 | |
| Federal
Home Loan Bank of New
York stock | 630 | | 710 | |
| Loans,
net (note
3) | 95,016 | | 92,945 | |
| Premises
and equipment, net (note
4) | 1,265 | | 1,466 | |
| Accrued
interest
receivable | 1,073 | | 1,310 | |
| Deferred
tax asset,
net | 1,865 | | 1,003 | |
| Other
assets | 1,556 | | 703 | |
| Total
Assets | $ 166,124 | $ | 161,580 | |
| LIABILITIES
AND STOCKHOLDERS’ EQUITY | | | | |
| Liabilities: | | | | |
| Deposits
(note 5) | | | | |
| Non-interest
bearing
demand | $ 15,858 | $ | 16,198 | |
| Interest-bearing | 130,220 | | 122,823 | |
| | 146,078 | | 139,021 | |
| Accrued
interest
payable | 764 | | 636 | |
| Other
borrowed funds (note
6) | 11,000 | | 13,300 | |
| Other
liabilities | 1,185 | | 709 | |
| Total
Liabilities | 159,027 | | 153,666 | |
| Commitments
and contingencies (note 7) | | | | |
| Stockholders’
equity (note 9): | | | | |
| Preferred
stock, $1 par value –
100,000 shares authorized;
no shares
issued | - | | - | |
| Common
stock, $10.00 par value,
690,000 shares authorized;
issued and
outstanding 269,179 | 2,692 | | 2,692 | |
| Additional
paid-in
capital | 3,985 | | 3,985 | |
| Retained
earnings | 1,695 | | 1,649 | |
| Accumulated
other comprehensive
loss | (1,275 | ) | (412 | ) |
| Total
stockholders’
equity | 7,097 | | 7,914 | |
| Total
liabilities and
stockholders’ equity | $ 166,124 | $ | 161,580 | |

The accompanying notes are an integral

part of these financial statements.

-1-

COMMUNITY CAPITAL BANK

STATEMENTS OF OPERATIONS

UNAUDITED

(In thousands, except per share data)

| | Six
months ended June 30, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| Interest
income: | | | | |
| Loans | $ 3,756 | $ | 3,163 | |
| Securities | 1,056 | | 1,003 | |
| Interest-bearing
deposits with
banks | 18 | | 33 | |
| Federal
funds
sold | 104 | | 60 | |
| Total
Interest
Income | 4,934 | | 4,259 | |
| Interest
expense: | | | | |
| Deposits | 2,335 | | 1,394 | |
| Borrowed
Funds | 255 | | 223 | |
| Total
Interest
Expense | 2,590 | | 1,617 | |
| Net
interest
income | 2,344 | | 2,642 | |
| Provision
for loan losses (note 3) | 210 | | 175 | |
| Net
interest income after provision for loan losses | 2,134 | | 2,467 | |
| Noninterest
income: | | | | |
| Fees
and service
charges | 788 | | 764 | |
| Loss
on sale of
securities | (8 | ) | (69 | ) |
| Total
noninterest
income | 780 | | 695 | |
| Noninterest
expense: | | | | |
| Salaries
and employee
benefits | 1,400 | | 1,375 | |
| General,
administrative,
marketing and other | 466 | | 559 | |
| Professional
fees | 323 | | 309 | |
| Occupancy
expense (note
7) | 259 | | 237 | |
| Data
processing and
conversion | 168 | | 202 | |
| Depreciation
and
amortization | 72 | | 99 | |
| Total
noninterest
expenses | 2,688 | | 2,781 | |
| Income
before income
taxes | 226 | | 381 | |
| Income
taxes | 87 | | 137 | |
| Net
income available to common stockholders | $ 139 | $ | 244 | |
| Basic
earnings per common share: | $ 0.52 | $ | 0.91 | |
| Diluted
earnings per common share: | $ 0.51 | $ | 0.91 | |

The accompanying notes are an integral

part of these financial statements.

-2-

COMMUNITY CAPITAL BANK

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

UNAUDITED

(In thousands, expect per share data)

| Balance,
January 1, 2005 | Common Stock — $ 2,262 | Additional Paid-In Capital — $ 3,985 | Retained Earnings — $ 1,405 | $ (309 | ) | Total — $ 7,773 | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Comprehensive
Income: | | | | | | | |
| Net
Income | | | 244 | | | 244 | |
| Other
comprehensive loss, net of taxes: | | | | | | | |
| Change
in unrealized loss on securities available for sale, net of
taxes | | | | (103 | ) | (103 | ) |
| Total
comprehensive income | | | | | | 141 | |
| Balance
June 30, 2005 | 2,692 | 3,985 | 1,649 | (412 | ) | 7,914 | |
| Comprehensive
Loss: | | | | | | | |
| Net
Loss | | | (39 | ) | | (39 | ) |
| Other
comprehensive loss, net of taxes: | | | | | | | |
| Change
in unrealized loss on securities available for sale, net of
taxes | | | | (332 | ) | (332 | ) |
| Total
comprehensive loss | | | | | | (371 | ) |
| Cash
Dividend ($.20 per share) | | | (54 | ) | | (54 | ) |
| Balance
December 31, 2005 | 2,692 | 3,985 | 1,556 | (744 | ) | 7,489 | |
| Comprehensive
Income: | | | | | | | |
| Net
Income | | | 139 | | | 139 | |
| Other
comprehensive loss, net of taxes: | | | | | | | |
| Change
in unrealized loss on securities available for sale, net of
taxes | | | | (531 | ) | (531 | ) |
| Total
comprehensive loss | | | | | | (392 | ) |
| Balance
June 30, 2006 | $ 2,692 | $ 3,985 | $ 1,695 | $ (1,275 | ) | 7,097 | |

The accompanying notes are an integral

part of these financial statements.

-3-

COMMUNITY CAPITAL BANK

STATEMENTS OF CASH FLOW

UNAUDITED

(In thousands)

| | Six
months ended June 30, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| Cash
flows from operating activities | $ 139 | $ | 244 | |
| Net
income | | | | |
| Adjustments
to reconcile net income to net cash provided (used)
by operating activities | | | | |
| Depreciation | 72 | | 99 | |
| Provision
for loan losses | 210 | | 175 | |
| Loss
on sale of securities | 8 | | 69 | |
| Deferred
income taxes | (323 | ) | 44 | |
| Deferred
loan fees, net | (74 | ) | (64 | ) |
| Change
in operating assets and liabilities: | 75 | | (377 | ) |
| (Increase)
decrease in accrued interest receivable | | | | |
| Increase
in other assets | (323 | ) | (293 | ) |
| Increase
in accrued interest payable | 204 | | 185 | |
| Increase
(decrease) in accrued expenses and other liabilities | 1 | | (248 | ) |
| Net
cash used by operating activities | (11 | ) | (166 | ) |
| Cash
flows from investing activities | | | | |
| Decrease
(increase) in interest-bearing deposits with banks | (12 | ) | 8715 | |
| Purchase
of available-for-sale securities, net | (3,935 | ) | (2,708 | ) |
| Redemption
of Federal Home Loan Bank of New York stock | 52 | | 138 | |
| Loan
originations (payoffs), net of repayment | 3,987 | | (6,179 | ) |
| Changes
in premises and equipment | 31 | | (16 | ) |
| Net
cash provided (used) by investing activities | 123 | | (7,950 | ) |
| Cash
flows from financing activities | | | | |
| Net
increase in deposits | 6,807 | | 10,154 | |
| Net
decrease in borrowed funds | (2,300 | ) | (2,546 | ) |
| Net
cash provided by financing activities | 3,787 | | 7,608 | |
| Net
increase (decrease) in cash and cash equivalents | 3,899 | | (508 | ) |
| Cash
and cash equivalents, at beginning of year | 7,852 | | 7,632 | |
| Cash
and cash equivalents, at end of period | $ 11,751 | $ | 7,124 | |
| Supplemental
information: | | | | |
| Cash
paid during the period for | | | | |
| Interest | $ 2,387 | $ | 1,432 | |
| Income
Taxes | $ 3 | $ | 869 | |

The accompanying notes are an integral

part of these financial statements.

-4-

COMMUNITY CAPITAL BANK NOTES TO FINANCIAL STATEMENTS UNAUDITED

Note 1 Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited financial statements of Community Capital Bank (the “Bank”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, all adjustments (consisting primarily of normal recurring adjustments) necessary for a fair presentation of the financial condition, results of operations, changes in stockholders’ equity and cash flows of the Bank as of and for the periods shown have been included.

The unaudited financial statements presented herein have not been reviewed by any independent accountants.

The unaudited financial statements presented herein should be read in conjunction with the financial statements and notes thereto included in the Bank’s audited financial statements for the fiscal year ended December 31, 2005. The results of operations and other data for the six-month period ended June 30, 2006, are not necessarily indicative of results that may be expected for the entire fiscal year ending December 31, 2006.

Business

The Bank received its charter from the New York State Banking Department on August 27, 1990, and commenced operations as a commercial bank.

The Bank provides a full range of banking services to individual and corporate customers in the New York City area through its branch locations in downtown Brooklyn and Sunset Park, New York.

The following is a brief summary of the significant policies followed by the Bank in the preparation of the financial statements.

Use of Estimates

The financial statements of the Bank have been prepared in conformity with generally accepted accounting principles. In preparing the 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 financial statements. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for loan losses.

-5-

The following is a summary of the significant accounting policies followed by the Bank in the preparation of the financial statements:

Investment Securities

Investment securities to be held for indefinite periods of time and not intended to be held to maturity are classified as Available for Sale and carried at estimated fair value. Unrealized holding gains and losses are excluded from earnings and reported as a separate component of stockholders’ equity. Investment Securities Available for Sale include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, liquidity needs and other factors. Gains or losses on the sale of securities are recorded using the specific identification method on a trade date basis. Purchase premium and discounts are recognized in interest income using the straight-line method which approximates the level-yield method.

Loans

Loans are carried at their principal amount. Interest income on loans is credited to income based on loan principal amounts outstanding.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered by management to be adequate to provide for potential loan losses. The allowance is increased by provisions charged to expense and reduced by net charge-offs. The level of the allowance is based on management’s evaluation of potential losses in the loan portfolio, after consideration of prevailing and anticipated economic conditions and trends, among other factors.

While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are generally computed by the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the lives of the respective leases or the estimated useful lives of the improvements, whichever is shorter.

-6-

Income Taxes

Deferred taxes are provided to reflect the temporary differences in the tax bases of assets and liabilities and their reported amounts in the financial statements. The differences relate principally to depreciation and amortization of premises and equipment, provisions for possible loan losses, interest income on loans and deferred rent. A valuation allowance is recorded, as necessary, to reduce deferred taxes to an amount expected to be realized.

Basic and Diluted Net Income per Common Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Bank relate solely to outstanding stock options, and are determined using the treasury stock method. Basic net income per share of common stock is based on 269,179 and 266,571 weighted average numbers of common shares outstanding for the six-month periods ended June 30, 2006, and June 30, 2005, respectively. Diluted net income per share of common stock is based on 272,045 and 268,171, the weighted average number of common shares and potentially dilutive common shares outstanding for the six-month periods ended June 30, 2006, and June 30, 2005, respectively.

Statement of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and brokers and federal funds sold. Federal funds are generally purchased and sold for one-day periods.

Comprehensive Income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The required disclosures have been incorporated in the statements of stockholders’ equity.

-7-

Note 2 Securities, Available-for-Sale

Investment securities available for sale are as follows:

| | June
30, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| | (In
thousands) | | | |
| U.
S. Government Agencies | $ 31,818 | $ | 22,758 | |
| U.
S. Treasury Securities | - | | 10,732 | |
| State
and municipal | 12,689 | | 12,827 | |
| Mortgage-backed
securities | 7,584 | | 7,575 | |
| Corporate
bonds | 500 | | 500 | |
| Fair
value adjustment | (1,991 | ) | (644 | ) |
| | $ 50,600 | $ | 53,748 | |

At June 30, 2006, and 2005, investment securities did not include any securities that were considered to be other than temporarily impaired.

Note 3 Loans, net

Major classifications of loans are as follows:

| | June
30, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| | (In
thousands) | | | |
| Commercial
and industrial and other | $ 55,151 | $ | 46,729 | |
| Real
estate mortgages | 36,476 | | 41,622 | |
| Real
estate construction | 5,238 | | 6,197 | |
| | 96,865 | | 94,548 | |
| Less: | | | | |
| Allowance
for loan losses | (1,498 | ) | (1,261 | ) |
| Net
deferred loan fees | (351 | ) | (342 | ) |
| | $ 95,016 | $ | 92,945 | |

-8-

Note 4 Premises and Equipment

Premises, software and equipment consist of the following:

| | June
30, — 2006 | 2005 | | |
| --- | --- | --- | --- | --- |
| | (In
thousands) | | | |
| Leasehold
improvements | $ 1,410 | $ | 1,410 | |
| Furniture,
fixtures and equipment | 1,512 | | 1,466 | |
| Computer
software | 209 | | 209 | |
| | 3,131 | | 3,085 | |
| Less
accumulated depreciation and amortization | (1,866 | ) | (1,618 | ) |
| | $ 1,265 | $ | 1,466 | |

Note 5 Deposits

Deposit interest-bearing account balances are summarized as follows:

| | June
30, — 2006 | 2005 |
| --- | --- | --- |
| | (In
thousands) | |
| NOW
and money market accounts | $ 13,923 | $ 14,993 |
| Savings
accounts | 4,694 | 6,342 |
| Time
deposits | | |
| 100,000
or greater | 96,854 | 85,685 |
| under
100,000 | 14,749 | 15,803 |
| | $ 130,220
$ | $ 122,
823 |

Note 6 Other Borrowed Funds

The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”). As such, it is eligible to borrow funds at various terms and maturities offered by the FHLBNY. At June 30, 2006, and 2005, the Bank had borrowings of $11,000,000 and $13,300,000, respectively.

-9-

Note 7 Commitments and Contingent Liabilities

The Bank leases office space under non-cancelable operating leases expiring through 2017. At June 30, 2006, minimum annual rental commitments under such non-cancelable operating leases are as follows:

| Year
ending December 31, | Amount |
| --- | --- |
| | (In
thousands) |
| 2006
(six months) | $ 165 |
| 2007 | 355 |
| 2008 | 362 |
| 2009 | 371 |
| 2010 | 362 |
| Thereafter | 2,511 |
| | $ 4,126 |

Total net rental expense for six-month period ended June 30, 2006, and 2005, was approximately $182,000 and $178,000, respectively.

Note 8 Employee Benefit Plan

The Bank sponsors a profit-sharing retirement and savings plan under section 401(k) of the Internal Revenue Code covering all eligible employees. Under the plan, employees may make voluntary contributions up to statutory maximum amounts, and the Bank may make discretionary contributions based on 3% percent of eligible compensation. During the six-month period ended June 30, 2006, and 2005, the discretionary employer contributions were approximately $ 45,145 and $ 46,725, respectively.

Note 9 Stockholders’ Equity

The Bank is subject to various regulatory capital requirements administered by the Federal and state banking agencies. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that if undertaken, could have a direct material affect on the Bank and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

-10-

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of: total risk-based capital and Tier I capital to risk-weighted assets (as defined in the regulations), and Tier I capital to adjusted total assets (as defined). Management believes, as of June 30, 2006, the Bank meets all the capital adequacy requirements to which it is subject.

As of the most recent notification from its primary regulator, the Bank was categorized as adequately capitalized under the regulatory framework for prompt corrective action. To be categorized as adequately capitalized, the Bank must maintain minimum total risk-based, Tier I risked-based, and Tier I leverage ratios as set forth in the following table.

-11-

There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual and required capital amounts and ratios are as follows:

| | Actual — Amount | Ratio | Required
for capital adequacy purpose — Amount | Ratio | To
be well capitalized under prompt corrective action
provision — Amount | Ratio |
| --- | --- | --- | --- | --- | --- | --- |
| | (In
thousands, except ratio data) | | | | | |
| As
of June 30, 2006 | | | | | | |
| Total
capital (to risk-weighted assets) | $ 9,560 | 10.02 % | $ 7,633 | 8.00 % | $ 9,541 | 10.00 % |
| Tier
I capital (to risk-weighted assets) | $ 8,
371 | 8.77 % | $ 3,818 | 4.00 % | $ 5,727 | 6.00 % |
| Tier
I capital (to total assets) | $ 8,371 | 5.02 % | $ 6,670 | 4.00 % | $ 8,338 | 5.00 % |
| As
of June 30, 2005 | | | | | | |
| Total
capital (to risk-weighted assets) | $ 9,382 | 10.58 % | $ 7,094 | 8.00 % | $ 8,868 | 10.00 % |
| Tier
1 capital (to risk-weighted assets) | $ 8,271 | 9.33 % | $ 3,546 | 4.00 | $ 5,319 | 6.00 % |
| Tier
1 capital (to total assets) | $ 8,271 | 5.08 % | $ 6,513 | 4.00 | $ 8,141 | 5.00 % |

-12-

Exhibit 99.3

CARVER BANCORP, INC. AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Financial Statements

On September 29, 2006, the Carver Federal Savings Bank (the “Bank”) consummated its acquisition of Community Capital Bank (“CCB”), contributing an additional $165.4 million in assets to its Statement of Financial Condition. Under the terms of the merger agreement, CCB’s shareholders were paid $40 per share. Together with deal costs of $0.9 million, the total transaction cost was $11.9 million. Also in connection with the acquisition, the Bank recorded a one time charge of $1.3 million for acquisition-related charges which were primarily related to severance, early vendor contract termination fees, and systems integration and conversion fees.

The unaudited pro forma condensed combined Statement of Financial Condition as of June 30, 2006, and the unaudited pro forma condensed combined statements of income for the twelve-month and three-month periods ended March 31, 2006, and June 30, 2006, respectively, are presented herein. For comparison purposes, such unaudited pro forma condensed financial information uses CCB’s previously reported financial information for the twelve-month period ended December 31, 2005, and for the three-month period ended March 31, 2006. The following unaudited pro forma financial statements have been prepared to give effect to the completed acquisition which was accounted for as a purchase.

The unaudited pro forma condensed financial statements presented are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed financial statements are presented for illustrative purposes and do not purport to represent what the financial position or results of operations actually would have been if the events described above occurred as of the dates indicated or what such financial position or results would be for any future periods. The unaudited pro forma condensed financial statements, and the accompanying notes, are based upon the respective historical consolidated and combined financial statements of the Bank and CCB and should be read in conjunction with the Bank’s and CCB’s historical financial statements and related notes.

CARVER BANCORP, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION

(In thousands)

	Carver
	June
30,	June
30,		Pro
Forma				Pro
Forma
	2006	2006		Adjustments				Combined
ASSETS	(As
reported)			(Note
3)
Cash
and cash equivalents:
Cash
and due from banks	$ 14,589	$	10,297	$	(11,985	)	(A)	$ 12,901
Federal
funds sold	12,450		2,500					14,950
Interest
earning deposits	600		1,322					1,922
Total
cash and cash equivalents	27,639		14,119		(11,985	)		29,773
Securities:
Available-for-sale,
at fair value	73,722		50,600					124,322
Held-to-maturity,
at amortized cost	22,477		-					22,477
Total
securities	96,199		50,600		-			146,799
Loans
receivable:
Real
estate mortgage loans	495,811		41,363					537,174
Consumer
and commercial business loans	3,693		55,151					58,844
Allowance
for loan losses	(4,025	)	(1,498	)				(5,523	)
Total
loans receivable, net	495,479		95,016		-			590,495
Office
properties and equipment, net	13,198		1,265					14,463
Federal
Home Loan Bank of New York stock, at cost	4,327		630					4,957
Bank
owned life insurance	8,557		-					8,557
Accrued
interest receivable	3,076		1,073					4,149
Goodwill
(Note 2)	-		-		5,386		(B)	5,386
Other
assets	6,092		3,421		760		(B)	10,273
Total
assets	$ 654,567	$	166,124	$	(5,839	)		$ 814,852
LIABILITIES
AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$ 507,812	$	146,078					$ 653,890
Advances and
other borrowed money	86,850		11,000					97,850
Other
liabilities	10,762		1,949	$	1,258		(C)	13,969
Total
liabilities	605,424		159,027		1,258			765,709
Stockholders'
equity:
Common
stock	25		2,692		(2,692	)	(D)	25
Additional
paid-in capital	23,970		3,985		(3,985	)	(D)	23,970
Retained
earnings	26,337		1,695		(1,695	)	(D)	26,337
Unamortized
awards of common stock	(17	)	-					(17	)
Treasury
stock, at cost	(332	)	-					(332	)
Accumulated
other comprehensive loss	(840	)	(1,275	)	1,275		(D)	(840	)
Total
stockholders' equity	49,143		7,097		(7,097	)		49,143
Total
liabilities and stockholders' equity	$ 654,567	$	166,124	$	(5,839	)		$ 814,852

The accompanying notes are an integral

part of these financial statements.

-2-

CARVER BANCORP, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

(In thousands, except per share data)

| | For
the Twelve Months Ended | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | Carver | CCB | | | | | |
| | March
31, | December
31, | Pro
Forma | | Pro
Forma | | |
| | 2006 | 2005 | Adjustments | | Combined | | |
| | (As Reported) | | (Note
3) | | | | |
| Interest
Income: | | | | | | | |
| Loans | $ 26,563 | $ 6,918 | | | $ | 33,481 | |
| Mortgage-backed
securities | 4,439 | 270 | $ (67 | ) | (E) | 4,642 | |
| Investment
securities | 971 | 1,730 | | | | 2,701 | |
| Federal
funds sold | 412 | 139 | | | | 551 | |
| Total
interest income | 32,385 | 9,057 | (67 | ) | | 41,375 | |
| Interest
expense: | | | | | | | |
| Deposits | 8,921 | 3,185 | | | | 12,106 | |
| Advances
and other borrowed money | 4,572 | 477 | | | | 5,049 | |
| Total
interest expense | 13,493 | 3,662 | - | | | 17,155 | |
| Net
interest income | 18,892 | 5,395 | (67 | ) | | 24,220 | |
| Provision
for loan losses | - | 1,087 | | | | 1,087 | |
| Net
interest income after provision for loan losses | 18,892 | 4,308 | (67 | ) | | 23,133 | |
| Non-interest
income: | | | | | | | |
| Fees
and charges | 4,689 | 1,184 | | | | 5,873 | |
| Loss
on sale of securities | - | (92 | ) | | | (92 | ) |
| Gain
on sale of loans | 351 | 634 | | | | 985 | |
| Other | 301 | - | | | | 301 | |
| Total
non-interest income | 5,341 | 1,726 | - | | | 7,067 | |
| Non-interest
expense: | | | | | | | |
| Employee
compensation and benefits | 9,512 | 2,692 | | | | 12,204 | |
| Net
occupancy expense | 2,284 | 507 | | | | 2,791 | |
| Equipment,
net | 1,939 | 272 | | | | 2,211 | |
| Other | 5,399 | 2,308 | 152 | | (F) | 7,859 | |
| Total
non-interest expense | 19,134 | 5,779 | 152 | | | 25,065 | |
| Income
before income taxes | 5,099 | 255 | (219 | ) | | 5,135 | |
| Income
taxes | 1,329 | 51 | (57 | ) | (F) | 1,323 | |
| Net
income available to common stockholders | $ 3,770 | $ 204 | $ (162 | ) | $ | 3,812 | |
| Earnings
per common share: | | | | | | | |
| Basic | $ 1.50 | | | | $ | 1.52 | |
| Diluted | $ 1.45 | | | | $ | 1.47 | |

The accompanying notes are an integral

part of these financial statements.

-3-

CARVER BANCORP, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

(In thousands, except per share data)

| | For
the Three Months Ended | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | Carver | CCB | | | | | |
| | June
30, | March
31, | Pro
Forma | | Pro
Forma | | |
| | 2006 | 2006 | Adjustments | | Combined | | |
| | (As
Reported) | | (Note
3) | | | | |
| Interest
Income: | | | | | | | |
| Loans | $ 7,891 | $ 1,830 | | | $ | 9,721 | |
| Mortgage-backed
securities | 932 | 82 | $ (17 | ) | (E) | 997 | |
| Investment
securities | 181 | 432 | | | | 613 | |
| Federal
funds sold | 116 | 42 | | | | 158 | |
| Total
interest income | 9,120 | 2,386 | (17 | ) | | 11,489 | |
| Interest
expense: | | | | | | | |
| Deposits | 2,995 | 1,056 | | | | 4,051 | |
| Advances
and other borrowed money | 1,090 | 123 | | | | 1,213 | |
| Total
interest expense | 4,085 | 1,179 | - | | | 5,264 | |
| Net
interest income | 5,035 | 1,207 | (17 | ) | | 6,225 | |
| Provision
for loan losses | - | 110 | | | | 110 | |
| Net
interest income after provision for loan losses | 5,035 | 1,097 | (17 | ) | | 6,115 | |
| Non-interest
income: | | | | | | | |
| Fees
and charges | 855 | 295 | | | | 1,150 | |
| Loss
on sale of securities | - | (1 | ) | | | (1 | ) |
| Gain
on sale of loans | 12 | - | | | | 12 | |
| Other | 78 | 52 | | | | 130 | |
| Total
non-interest income | 945 | 346 | - | | | 1,291 | |
| Non-interest
expense: | | | | | | | |
| Employee
compensation and benefits | 2,285 | 710 | | | | 2,995 | |
| Net
occupancy expense | 584 | 123 | | | | 707 | |
| Equipment,
net | 476 | 139 | | | | 615 | |
| Merger
related expenses | 2 | - | | | | 2 | |
| Other | 1,386 | 392 | 38 | | (F) | 1,816 | |
| Total
non-interest expense | 4,733 | 1,364 | 38 | | | 6,135 | |
| Income
before income taxes | 1,247 | 79 | (55 | ) | | 1,271 | |
| Income
taxes | 445 | 29 | (20 | ) | (G) | 454 | |
| Net
income available to common stockholders | $ 802 | $ 50 | $ (35 | ) | $ | 817 | |
| Loss
per common share: | | | | | | | |
| Basic | $ 0.32 | | | | $ | 0.33 | |
| Diluted | $ 0.31 | | | | $ | 0.32 | |

The accompanying notes are an integral

part of these financial statements.

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CARVER BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Note 1 Basis of Presentation

The unaudited pro forma condensed combined Statement of Financial Condition of Carver Bancorp, Inc. and Subsidiaries (the “Company”) as of June 30, 2006, gives effect to the acquisition of Community Capital, Corp. (“CCB”), as if it had been completed on June 30, 2006. The unaudited pro forma condensed combined statements of income for the twelve-month period ended March 31, 2006, and three-month period ended June 30, 2006, give effect to the acquisition of CCB as if it had occurred April 1, 2005.

The unaudited pro forma condensed combined statements of income and unaudited pro forma condensed combined Statement of Financial Condition were derived by adjusting the Company’s historical financial statements for the acquisition of CCB. The unaudited pro forma condensed combined Statement of Financial Condition and the unaudited pro forma condensed combined statements of income are provided for informational purposes only and should not be construed to be indicative of the Company’s financial position or results of operations had the transaction been consummated on the dates indicated and do not project the Company’s financial position or results of operations for any future period or date.

The unaudited pro forma condensed combined Statement of Financial Condition and the unaudited pro forma condensed combined statements of income and accompanying notes should be read in conjunction with the Company’s historical financial statements and related notes, the Company’s “Management’s Discussion and Analysis of Financial Condition and Results of Operation” contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2006 and CCB’s financial statements presented herein.

Certain amounts in the unaudited pro forma condensed combined financial statements for CCB have been reclassified to conform to the Company’s presentation.

Note 2 Purchase Price

The unaudited pro forma condensed combined financial information was prepared using the purchase method of accounting as required by FASB Statement of Financial Accounting Standards No. 141, “Business Combinations”. The purchase price has been allocated to the assets acquired and liabilities assumed based upon management’s preliminary estimate of their respective fair values as of the date of acquisition. Any differences between the fair value estimates for the purchase price allocation may be refined as additional information becomes available.

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The allocation of the total transaction cost for the acquisition of CCB as of June 30, 2006, as determined by the Company on a proforma basis is as follows:

| Goodwill | (in
thousands) — $ 5,386 | |
| --- | --- | --- |
| Other
intangible assets | 760 | |
| Tangible
assets acquired and liabilities assumed : | | |
| Cash
and due from banks | 14,119 | |
| Securities | 50,600 | |
| Loans
receivable, net | 95,016 | |
| Other
assets | 6,389 | |
| Deposits | (146,078 | ) |
| Borrowings | (11,000 | ) |
| Other
liabilities | (1,949 | ) |
| Total
purchase price | 13,243 | |
| Less
cash acquired from acquisition | (14,119 | ) |
| Net
cash used in acquisition (on a proforma basis) | $ (876 | ) |

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. The intangible asset relating to customer relationships and core deposits is being amortized on a straight-line basis over five years.

Note 3 Pro Forma Adjustments

The following pro forma adjustments are based upon management’s preliminary estimates of the value of the tangible and intangible assets acquired. These estimates are subject to finalization.

(A) Represents approximately $11.1 million paid in cash to CCB shareholders and approximately $0.9 million in deal costs in connection with the acquisition.

(B) Represents $5.4 million of goodwill and $0.8 million of other intangible assets resulting from the transaction, as if the acquisition had been completed June 30, 2006. The final valuation of the purchase price allocation between goodwill and identifiable intangible assets is stipulated in Note 2.

(C) The Company recorded one time charge of approximately $1.3 million through September 29, 2006 for acquisition-related charges which are primarily related to severance, early vendor contract termination fees, and systems integration and conversion fees. These charges are not included in the preceding unaudited pro forma condensed combined statements of income. However, in Carver Bancorp Inc.’s annual 10-K filing for fiscal year ended March 31, 2007, this one time charge of approximately $1.3 million is included in footnote 14 Acquisition of Community Capital Bank, unaudited pro forma results of operations for the years ended March 31, 2007 and 2006.

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(D) Represents the elimination of equity accounts of CCB.

(E) Represents the reduction of interest income related to the net cash paid for CCB’s acquisition had the transaction been completed at the beginning of the pro forma condensed financial income statement period.

(F) Represents the acquired intangible assets amortization resulting from the transaction, as if the acquisition has been completed at the beginning of the pro forma condensed financial income statement period.

(G) Represents the tax effect of the adjustments to the combined statements of income at an effective tax rate of 35.7% and 26.1% for the three-month period ended June 30, 2006, and the twelve-month period ended March 31, 2006, respectively.

Note 4 Community Capital Bank’s Results for Three Months Ended June 30, 2006

The total securities for Community Capital Bank increased by $5.4 million for three months ended June 30, 2006. The increased investments included a rise of $2.5 million in federal funds sold and of $3.2 million in US agency commercial paper. The total loan portfolio for CCB decreased by $0.5 million during the three months ended June 30, 2006. The primary decreases in total loans receivable (net) are loans sold of $1.5 million and a reduction of $3.4 million in commercial mortgage loans. The decreases were offset by increases in term loans of $3.1 million and line of credits of $1.9 million. Total deposits increased by $6.3 million during the three months ended June 30, 2006. The growth was primarily the result of increases in one-year jumbo deposits of $4.1 million and two-year jumbo deposits of $5.1 million. The increased deposits were partially offset by a decrease of $2.5 million in money market deposits.

CCB’s net income for the three months ended June 30, 2006, was $89 thousand, a $39 thousand increase compared with the $50 thousand for the three months ended March 31, 2006. The results primarily reflect a decrease in net interest income of $60 thousand due to higher customer deposits and the related interest expense. Non-interest income increased by $88 thousand primarily from fees, service charges and a decline of $40 thousand in non-interest expenses, which was offset by an increase in the provision for income taxes of $29 thousand.

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