Cart V. Howard Citigroup Inc. T 212 559-2938

Deputy General Counsel 425 Park Avenue, 2nd Floor F 212 793-4403
New York, NY 10022 howardc@citicom
oN
Commitments of Citigroup Inc. € ti

Citigroup Inc. (“Acquirer”), and its subsidiaries and affiliates (collectively,
“Acquirer Group”), 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., a Delaware corporation (“Target”), or any of
its subsidiaries;

2. Have or seek to have a representative of Acquirer Group serve on the board of
directors of Target or any of its subsidiaries;

3. Have or seek to have any employee or representative of the Acquirer Group
serve as an officer, agent, or employee of Target or any of its subsidiaries;

4. Take any action that would cause Target or any of its subsidiaries to become a
subsidiary of Acquirer Group;

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

6. Own or control equity interests that would result in the combined voting and
nonvoting equity interests of the Acquirer Group and its officers and directors
to equal or exceed 25 percent of the total equity capital of Target or any of its
subsidiaries, except that, if the Acquirer Group 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 Target, Acquirer Group 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
Target 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 Target or any of
its subsidiaries;

8. Enter into any agreement with Target or any of its subsidiaries that substantially
limits the discretion of Target’s management over major policies and decisions,

Citigroup Inc.


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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,

ht 4

cc: Office of Thrift Supervision


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 Target or any of its subsidiaries;

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

1

. Enter into any other banking or nonbanking transactions with Target or any of
its subsidiaries, except that the Acquirer Group may (1) establish and maintain
deposit accounts with Target, 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 Target; 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 Acquirer, are undertaken to enhance the performance
of that insured depository institution subsidiary of Acquirer under any of the
performance tests under the regulations implementing the Community
Reinvestment Act and (ii) if undertaken by Acquirer or an affiliate or
subsidiary of Acquirer 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 25.12(h), (i), and (t)); 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 the Acquirer Group from compliance with
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 Target.


BOARD OF GOVERNORS

OF THE
FEQERAL RESERVE SYSTEM
WASHINGTON, D.C. 2055!

SCOTT G. ALVAREZ
GENERAL COUNSEL

June 29, 2011

Carl V. Howard, Esq.

Deputy General Counsel
Citigroup, Inc.

425 Park Avenue - 2nd Fl.
New York, New York 10022

Dear Mr. Howard:

This letter relates to your request that Citigroup Inc., New York, New York, and its
subsidiaries and affiliates (collectively, “Citigroup”) 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:

© Citigroup would receive newly issued Series C mandatorily convertible preferred
shares, which, on conversion, would result in Citigroup owning less than 5 percent of
Carver’s outstanding voting shares and up to 14.9 percent of its total equity (through
ownership of newly issued Series D convertible nonvoting preferred shares).

¢ Citigroup is not affiliated with any other investor in Carver.

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

© The Series D convertible preferred shares acquired by Citigroup 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 Citigroup’s hands at any time.

¢ Citigroup will not have representation on Carver’s or Carver FSB’s board of
directors, or any employee interlocks with Carver or Carver FSB.

) 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).


Acquirer understands that these commitments constitute conditions imposed in
writing in connection with the Board’s findings and decisions related to Acquirer
Group’s acquisition of up to 4.9% percent of voting shares of Target, including a
determination that no filing under the Bank Holding Company Act is required for
this transaction by Acquirer Group OR 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.

Executed this a6 day of June, 2011

Citigroup Inc.

By: Cac) V- Heat
OP nrnd

Title: Dua thy Counedt

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Rhow b- Lande

Assoride Gower Guin


In September 2008, the Board revised its policy statement regarding equity investments
in banks, bank holding companies, and nonbanking firms.? 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 Citigroup may hold may not be
converted in Citigroup’s hands. In addition, as noted above, the certificate of designation limits
Citigroup’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 Citigroup.

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.°

Additionally, Citigroup 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,

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(4)(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).

> Citigroup 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.



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Citigroup 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;

Gi) 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.” Citigroup’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 Citigroup 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 Citigroup’s proposed investment. This recommendation could change, however, if the facts or
relationships between Citigroup 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 Citigroup 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(e).
7 See 12 CFR 225.31(d).

8 See Policy Statement.