1585 Broadway
New York, NY 10036

Morgan Stanley
June , 2011

Morgan Stanley, and its subsidiaries and affiliates (collectively, “Morgan Stanley”), will not,
without the prior approval of the Board or its staff, directly or indirectly:

1, Exercise or attempt to exercise a controlling influence over the management or policies of
Carver Bancorp, Inc. (“Carver”), New York, NY, or any of its subsidiaries;

2. Have or seek to have a representative of Morgan Stanley serve on the board of directors of
Carver or any of its subsidiaries;

3. Have or seek to have any employee or representative of Morgan Stanley serve as an officer,
agent, or employee of Carver or any of its subsidiaries;

4, Take any action that would cause Carver or any of its subsidiaries to become a subsidiary of
Morgan Stanley;

5. Own, control, or hold with power to vote securities that (when aggregated with securities that
the officers and directors of Morgan Stanley own, control, or hold with power to vote)
represent 25 percent or more of any class of voting securities of Carver or any of its
subsidiaries;

6. Own or control equity interests that would result in the combined voting and nonvoting
equity interests of Morgan Stanley and its officers and directors to equal or exceed 25
percent of the total equity capital of Carver or any of its subsidiaries, except that, if Morgan
Stanley and its officers and directors own, hold, or have the power to vote less than 15
percent of the outstanding shares of any classes of voting securities of Carver, Morgan
Stanley and its officers and directors may own or control equity interests greater than 25
percent, but in no case more than 33.3 percent, of the total equity capital of Carver or any of
its subsidiaries;

7. Propose a director or slate of directors in opposition to a nominee or slate of nominees
proposed by the management or board of directors of Carver or any of its subsidiaries;

8. Enter into any agreement with Carver or any of its subsidiaries that substantially limits the
discretion of Carver’s management over major policies and decisions, including, but not
limited to, policies or decisions about employing and compensating executive officers;
engaging in new business lines; raising additional debt or equity capital; merging or
consolidating with another firm; or acquiring, selling, leasing, transferring, or disposing of
material assets, subsidiaries, or other entities;

9. Solicit or participate in soliciting proxies with respect to any matter presented to the
shareholders of Carver or any of its subsidiaries;

10. Dispose or threaten to dispose (explicitly or implicitly) of equity interests of Carver or any
of its subsidiaries in any manner as a condition or inducement of specific action or non-
action by Carver or any of its subsidiaries; or


To address the possibility of a controlling influence developing in the future, the Board
retains the authority to review the investment and relationships regularly to determine whether,
under all the facts and circumstances, any investor, or any group of investors, are acting ina
manner that suggests it has control of, or the ability to exercise a controlling influence over,
Carver for purposes of the BHC Act. If you have any questions about this matter, please contact
Anna M. Harrington, Attorney (202-452-6406), Christopher M. Paridon, Senior Attorney
(202-452-3274), or Kathleen M. O’Day, Deputy General Counsel (202-452-3786), of the
Board’s Legal Division.

Sincerely,

debe

ce: Office of Thrift Supervision


1585 Broadway
New York, NY 10036

Morgan Stanley

1]. Enter into any other banking or nonbanking transactions with Carver or any of its
subsidiaries, except that Morgan Stanley may (1) establish and maintain deposit accounts
with Carver, provided that the aggregate balance of all such deposit accounts does not
exceed $500,000 and that the accounts are maintained on substantially the same terms as
those prevailing for comparable accounts of persons unaffiliated with Carver; and (2) enter
into arm's length transactions, projects, or joint ventures that either (a) qualify as public
welfare activities under 12 CFR 24, or (b)(i)if undertaken by an insured depository
institution subsidiary of Morgan Stanley, are undertaken to enhance the performance of that
insured depository institution subsidiary of Morgan Stanley under any of the performance
tests under the regulations implementing the Community Reinvestment Act and (ii) if
undertaken by Morgan Stanley or an affiliate or subsidiary of Morgan Stanley that is not an
insured depository institution, meet the definition of community development loans,
qualified investments, or community development services under the regulations
implementing the Community Reinvestment Act (12 CFR __.12(h), (i), and (0); provided
that, in the aggregate, such transactions, projects or joint ventures do not provide to Carver
more than five (5) percent of Carver's total consolidated annual revenue in its most recent
fiscal year.

The terms used in these commitments have the same meanings as set forth in the Bank Holding
Company Act of 1956, as amended, and the Board’s Regulation Y.

Nothing in these commitments releases Morgan Stanley from compliance with the Bank Holding
Company Act or the Change in Bank Control Act and the Board’s regulations thereunder for any
subsequent acquisition or increase in the percentage ownership of any class of voting shares of
Carver.

Morgan Stanley understands that these commitments constitute conditions imposed in writing in
connection with the Board’s findings and decisions related to Morgan Stanley’s acquisition of up
to 4.9 percent of voting shares of Carver, including a determination that no filing is required for
this transaction by Morgan Stanley pursuant to sections 3 and 4 of the Bank Holding Company
Act of 1956, as amended (“BHC Act”) and the Board’s Regulation Y, and, as such, may be
enforced in proceedings under applicable law.

Morgan Stanley

By:
Name: AudireqCha
Title: Marosity Divecto


BOARD OF GOVERNORS

OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

SCOTT G, ALVAREZ
GENERAL COUNSEL,

June 29, 2011

Peter Heyward, Esq.

Executive Director, ‘
Legal & Compliance Division

Morgan Stanley

1221 Avenue of the Americas

34" Floor

New York, New York 10020

Dear Mr. Heyward:

This letter relates to your request that Morgan Stanley, New York, New York, and its
subsidiaries and affiliates (collectively, “Morgan Stanley”), would not be deemed to control
Carver Bancorp, Inc, (“Carver”), and its wholly owned insured depository institution subsidiary,
Carver Federal Savings Bank (“Carver FSB”), both of New York, New York, for purposes of the
Bank Holding Company Act of 1956, as amended, as a result of its investment in Carver. There
are multiple investors participating in the recapitalization of Carver.

Based on the facts and representations provided to the Board, we understand the
following:

© Morgan Stanley would receive newly issued Series C mandatorily convertible
preferred shares, which, on conversion, would result in Morgan Stanley owning less
than 5 percent of Carver’s outstanding voting shares and up to 19.9 percent of its total
equity (through ownership of newly issued Series D convertible nonvoting preferred
shares).

¢ Morgan Stanley is not affiliated with any other investor in Carver.

© The Series C convertible preferred shares acquired by Morgan Stanley may convert
into no more than 4.9 percent of the voting shares of Carver in Morgan Stanley’s
hands or in the hands of any direct or indirect transferee of Morgan Stanley.

¢ The Series D convertible preferred shares acquired by Morgan Stanley upon
conversion of Series C are nonvoting shares that convert automatically into voting
common shares on certain transfers to a third party.! The Series D shares cannot
convert into voting shares in Morgan Stanley’s hands at any time.

' Under Delaware law, the Series D nonvoting shares retain rights to vote on matters that would
significantly and adversely affect the rights and preferences of the shareholders. Shares with
such limited rights meet the definition of nonvoting shares in the Board’s Regulation Y. See 12
CFR 225.2(q)(2)(i).


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© Morgan Stanley will not have representation on Carver’s or Carver FSB’s board of
directors, or any employee interlocks with Carver or Carver FSB.

In September 2008, the Board revised its policy statement regarding equity investments
in banks, bank holding companies, and nonbanking firms. 2 The Board’s Policy Statement states
that nonvoting shares that are convertible into voting shares carry less influence when such
shares may not be converted into voting shares in the hands of the investor and may only be
transferred by the investor: (i) to an affiliate of the investor or to the nonbanking organization;
(ii) in a widespread public distribution; (iii) in transfers in which no transferee (or group of
associated transferees) would receive 2 percent or more of any class of voting securities of the
nonbanking organization; or (iv) to a transferee that would control more than 50 percent of the
voting securities of the nonbanking organization without any transfer from the investor.

The Series D nonvoting convertible preferred shares that Morgan Stanley may hold may
not be converted in Morgan Stanley’s hands. In addition, as noted above, the certificate of
designation limits Morgan Stanley’s ability to transfer those shares to third parties to methods
that are consistent with the Policy Statement. Accordingly, the transfer restrictions effectively
limit the influence over Carver that such shares might otherwise confer on Morgan Stanley.

Under the BHC Act, a “company” includes any bank, corporation, general or limited
partnership, association or similar organization, business trust, or any other trust that does not
terminate within the specified time frame in the statute.’ The Board has stated that a group of
unrelated companies or individuals may constitute a single company for purposes of the BHC
Act if such group exhibits a “formalized structure” that functions like a separate | corporate entity
for the purpose of acquiring, managing, and controlling a depository institution.’ The Board has
looked to various indicia as evidence of such an association, including the existence of written
agreements among the shareholders that materially limit such shareholder’s ability to vote,
transfer or control their shares of an insured depository institution or its holding company. In the
instant case, none of the agreements that have been presented to the Board contain provisions
that unduly restrict an investor’s ability to vote, transfer, or otherwise control its shares of
Carver, and no other indicia of an association appears in the record.

2 See Policy statement on equity investments in banks and bank holding companies
(Sept. 21, 2008) (“Policy Statement”).

3 12 USC § 1841(b); 12 CFR 225.2(d)(1).

4 WISCUB, Inc., 65 Federal Reserve Bulletin 773 (1979); see also Letter from Theodore E.
Allison to John P. Roemer, September 13, 1977, re: Tri City National Bank of West Allis, aff'd,
Central Bank v. Board of Governors, No. 77-1937 at 5 (D.C. Cir. 1978).

5 Morgan Stanley and the other investors entered into a stock purchase agreement and
stockholder rights agreement with Carver. The stock purchase agreements set forth the terms
under which the investors may purchase shares in Carver. The stockholder rights agreement sets
forth relevant registration procedures and requirements for shares of Carver, as well as provides
investors with certain “piggyback registration” rights and provides the company with a “right of
first refusal” related to the recapitalization.



-3-

Additionally, Morgan Stanley has stated that it does not propose to control or exercise a
controlling influence over Carver and that its investment is a passive investment. Accordingly,
Morgan Stanley has provided commitments substantially similar to those on which the Board has
previously relied in determining that an investing bank holding company would not be able to
exercise a controlling influence over a nonbanking organization for purposes of the BHC Act.

For purposes of the BHC Act, a company has control over another company if the first
company (i) directly or indirectly or acting through one or more other persons owns, controls, or
has power to vote 25 percent or more of any class of voting securities of the other company;

(ii) controls in any manner the election of a majority of the directors of the other company; or
(iii) directly or indirectly exercises a controlling influence over the management or policies of
the other company.‘ The Board’s Regulation Y also sets forth a set of rebuttable presumptions
of control.” Morgan Stanley’s investment would not trigger any of the rebuttable presumptions
of control in Regulation Y with respect to Carver as a result of the transaction.

The Board noted in its 2008 policy statement regarding equity investments in banks,
bank holding companies, and nonbanking firms that minority investors have avoided exercising a
controlling influence over a nonbanking organization by, among other means, restricting the size
of their voting and total equity investment in the nonbanking organization; avoiding agreements
that restrict the ability of the nonbanking organization’s management to determine the major
policies and operations of the nonbanking organization; not attempting to influence the
nonbanking organization’s process for making decisions about major policies and operations;
limiting director and officer interlocks with the nonbanking organization; and significantly
limiting business relationships between the investor and the nonbanking organization.’ The
Board typically has been concerned that a company could exercise a controlling influence over
control of an insured depository institution for BHC Act purposes if the company has invested in
the organization and has significant business relationships with the organization.

In this case, staff would not at this time recommend that the Board find Morgan Stanley
to be acting as part of an association with regard to Carver or to have a controlling influence over
the management or policies of Carver, for purposes of the BHC Act, based on the current
structure of Morgan Stanley’s proposed investment. This recommendation could change,
however, if the facts or relationships between Morgan Stanley and Carver (or its affiliates) or the
other investors change in any material way.

In reaching this opinion, staff relied on all the facts of record, including all the
representations and commitments made by or on behalf of Morgan Stanley and Carver (whether
noted in this letter or otherwise contained in correspondence with the Board). In this regard, you
should advise Board staff immediately of any material changes in the facts noted above.

§ 12 U.S.C. § 1841(a)(2); 12 CFR 225.2().
T See 12 CFR 225.31(d).
§ See Policy Statement.