UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                -----------------
                                    FORM 10-K

                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
           SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934


|X|  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                    FOR THE FISCAL YEAR ENDED MARCH 31, 2006

                                       OR

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

              FOR THE TRANSITION PERIOD FROM _________ TO _________

                         Commission File Number: 0-21487

                              CARVER BANCORP, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

             DELAWARE                                            13-3904174
   (State or Other Jurisdiction                               (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

 75 WEST 125TH STREET, NEW YORK, NEW YORK                          10027
(Address of Principal Executive Offices)                        (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 230-2900

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

COMMON STOCK, PAR VALUE $.01 PER SHARE               AMERICAN STOCK EXCHANGE
         (Title of Class)                           (Name of each Exchange on
                                                         which registered)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      NONE

     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act. |_| Yes |X| No

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_|Yes |X| No

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer

        |_| Large Accelerated    |_| Accelerated  |X| non-accelerated

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
  defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No

     As of June 15,  2006,  there were  2,502,247  shares of common stock of the
registrant  outstanding.  The aggregate market value of the Registrant's  common
stock held by  non-affiliates  (based on the  closing  sales price of $17.39 per
share of the registrant's common stock on June 15, 2006) was approximately $43.5
million.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of registrant's  proxy statement for the Annual Meeting of stockholders
for the fiscal year ended March 31, 2006 are incorporated by reference into Part
III of this Form 10-K.



                              CARVER BANCORP, INC.
                         2006 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS


      PART I
      ------


      Item 1.       Business
      Item 1A       Risk Factors
      Item 1B       Unresolved Staff Comments
      Item 2.       Properties
      Item 3.       Legal Proceedings
      Item 4.       Submission of Matters to a Vote of Security Holders

      PART II
      -------

      Item 5.       Market for Registrant's Common Equity, Related
                      Stockholder Matters and Issuer Purchases of Equity
                      Securities
      Item 6.       Selected Financial Data
      Item 7.       Management's Discussion and Analysis of Financial
                      Condition and Results of Operations
      Item 7A.      Quantitative and Qualitative Disclosures about Market Risk
      Item 8.       Financial Statements and Supplementary Data
      Item 9.       Changes in and Disagreements with Accountants on
                      Accounting and Financial Disclosure
      Item 9A.      Controls and Procedures
      Item 9B.      Other Information

      PART III
      --------

      Item 10.      Directors and Executive Officers of Carver Bancorp, Inc
      Item 11.      Executive Compensation
      Item 12.      Security Ownership of Certain Beneficial Owners
                      and Management and Related Stockholder Matters
      Item 13.      Certain Relationships and Related Transactions
      Item 14.      Principal Accounting Fees and Services

      PART IV
      -------

      Item 15.      Exhibits, Financial Statement Schedules

      SIGNATURES

      EXHIBIT INDEX


                           FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain  "forward  looking  statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 which
may be  identified  by the use of such  words  as  "may,"  "believe,"  "expect,"
"anticipate,"   "should,"  "plan,"   "estimate,"   "predict,"   "continue,"  and
"potential"  or the  negative  of these terms or other  comparable  terminology.
Examples  of  forward-looking  statements  include,  but  are  not  limited  to,
estimates  with respect to our financial  condition,  results of operations  and
business that are subject to various factors which could cause actual results to
differ  materially  from these  estimates.  These factors  include,  but are not
limited to:

     o    the Company's  success in implementing  its new business  initiatives,
          including  expanding its product line,  adding new branch  offices and
          ATM centers and successfully re-building its brand image;

     o    increases in competitive  pressure  among  financial  institutions  or
          non-financial institutions;

     o    legislative  or  regulatory  changes  which may  adversely  affect the
          Company's business;

     o    technological changes which may be more difficult or expensive than we
          anticipate;

     o    changes in interest  rates which may reduce net  interest  margins and
          net interest income;

     o    changes in deposit flows,  loan demand or real estate values which may
          adversely affect the Company's business;

     o    changes in accounting  principles,  policies or  guidelines  which may
          cause the Company's condition to be perceived differently;

     o    litigation  or  other  matters  before  regulatory  agencies,  whether
          currently  existing or commencing  in the future,  which may delay the
          occurrence or non-occurrence of events longer than anticipated;

     o    the  ability  of the  Company to  originate  and  purchase  loans with
          attractive terms and acceptable credit quality;

     o    success in integrating Community Capital Bank into Carver operations;

     o    the ability of the Company to realize cost efficiencies; and

     o    general economic  conditions,  either nationally or locally in some or
          all areas in which the Company does  business,  or  conditions  in the
          securities   markets  or  the  banking  industry  which  could  affect
          liquidity  in the  capital  markets,  the volume of loan  origination,
          deposit flows, real estate values,  the levels of non-interest  income
          and the amount of loan losses.

Any or all of our  forward-looking  statements  in this Annual Report and in any
other public  statements we make may turn out to be wrong.  They can be affected
by  inaccurate  assumptions  we  might  make or by known or  unknown  risks  and
uncertainties.  Consequently, no forward-looking statement can be guaranteed. We
do not intend to update any of the forward-looking  statements after the date of
this prospectus or to conform these statements to actual events.


                                     PART I


ITEM 1.  BUSINESS

OVERVIEW

     Carver Federal  Savings Bank, a wholly owned  subsidiary of Carver Bancorp,
Inc., is the largest African-American  operated savings bank in the nation, with
$661 million in assets as of March 31, 2006.  Headquartered  in the heart of the
Harlem community of New York City,  Carver Federal Savings Bank has eight branch
offices,  five  stand-alone  24/7 ATM centers,  and over 120  employees.  Carver
Federal  Savings Bank's  consumer and commercial  offerings  include an array of
deposit and real estate loan products  that  facilitate  investing,  savings and
borrowing by its  customers.  Carver  Federal  Savings  Bank also offers  wealth
management products through a third party provider.



GENERAL DESCRIPTION OF BUSINESS

Carver Bancorp, Inc.

     Carver Bancorp,  Inc., a Delaware  corporation (on a stand-alone basis, the
"Holding  Company" or  "Registrant"),  is the holding company for Carver Federal
Savings  Bank,  a  federally   chartered  savings  bank,  and  its  subsidiaries
(collectively,  the "Bank" or "Carver  Federal"),  Carver Statutory Trust I (the
"Trust") and Alhambra Holding Corporation,  a Delaware corporation ("Alhambra").
The Trust,  which was formed in September  2003,  exists for the sole purpose of
issuing  trust  preferred  debt  securities  and  investing  the  proceeds in an
equivalent amount of subordinated debentures of the Holding Company. The Holding
Company formed Alhambra to hold the Holding Company's investment in a commercial
office building that was subsequently sold in March 2000.  Alhambra is currently
inactive.  Collectively, the Holding Company, the Bank and the Holding Company's
other direct and indirect  subsidiaries  are referred to herein as the "Company"
or "Carver."

     On October 24, 1994, Carver Federal converted from mutual to stock form and
issued  2,314,275  shares of its common  stock at a price of $10 per  share.  On
October 17, 1996, the Bank completed its  reorganization  into a holding company
structure  (the  "Reorganization")  and became a wholly owned  subsidiary of the
Holding Company. Pursuant to an Agreement and Plan of Reorganization,  dated May
21, 1996,  each share of the Bank's  outstanding  common stock was exchanged for
one share of common  stock of the  Holding  Company.  On January 11,  2000,  the
Holding Company sold, pursuant to a Securities Purchase Agreement, dated January
11, 2000, in a private placement 40,000 shares of Series A Convertible Preferred
Stock (the  "Series A  Preferred  Stock") to Morgan  Stanley & Co.  Incorporated
("MSDW") and 60,000 Shares of Series B Convertible  Preferred Stock (the "Series
B Preferred Stock") to Provender Opportunities Fund L.P. ("Provender").  On June
1, 2004,  Provender  sold all 60,000 of its  Series B  Preferred  Stock to Keefe
Bruyette & Woods, Inc ("KBW"). On October 15, 2004, both MSDW and KBW elected to
convert  their  Preferred  Shares into shares of the  Holding  Company's  common
stock,  thus an additional  208,333  shares of common stock were issued to these
parties.

     On April 6, 2006, the Company entered into a definitive merger agreement to
acquire  Community  Capital Bank (`CCB"),  a Brooklyn-based  community bank with
approximately  $162  million in assets,  in a cash  transaction  valued at $11.1
million,  or $40.00 per Community Capital share. The agreement has been approved
by the Boards of Directors  of both  companies  and, on June 28, 2006,  was also
approved by the stockholders of Community Capital. The transaction is subject to
and is awaiting  regulatory  approval and is expected to close by September  30,
2006.  The  acquisition  of CCB and its  award-winning  small  business  lending
platform will expand the Company's ability to capitalize on substantial  growth,
especially in the small business market.

     The Holding Company conducts business as a unitary savings and loan holding
company,  and the  principal  business  of the Holding  Company  consists of the
operation  of its wholly  owned  subsidiary,  the Bank.  The  Holding  Company's
executive  offices  are  located at the home office of the Bank at 75 West 125th
Street,  New York, New York 10027.  The Holding  Company's  telephone  number is
(718) 230-2900.

Carver Federal Savings Bank

     Carver Federal was chartered in 1948 and began operations in 1949 as Carver
Federal Savings and Loan Association,  a federally  chartered mutual savings and
loan association, at which time it obtained federal deposit insurance and became
a member of the  Federal  Home Loan  Bank of New York  (the  "FHLB-NY").  Carver
Federal converted to a federal savings bank in 1986 and changed its name at that
time to Carver Federal Savings Bank.

     Carver Federal was founded as an African-American  operated  institution to
provide  residents of under-served  communities with the ability to invest their
savings and obtain  credit.  Carver  Federal's  principal  business  consists of
attracting deposit accounts through its eight branch offices and investing those
funds in  mortgage  loans and other  investments  permitted  to federal  savings
banks.  Based on its asset  size as of March 31,  2006,  Carver  Federal  is the
largest African-American operated financial institution in the United States.

     On March 8, 1995, Carver Federal formed CFSB Realty Corp. as a wholly owned
subsidiary to hold real estate acquired  through  foreclosure  pending  eventual
disposition.  At March 31, 2006,  this  subsidiary had $218,000 in total capital
and a minimal net operating  loss.  At March 31, 2006 no foreclosed  real estate
was held by the Company,  however as a result of a property tax redemption,  the
Bank, through its subsidiary Carver Realty Corp., took fee ownership of a vacant
tract of land in  Bayshore,  NY. See Note 1 of Notes to  Consolidated  Financial
Statements.  Carver Federal also owns CFSB Credit Corp., an inactive  subsidiary
originally  formed to undertake  the Bank's  credit card  issuances.  During the
fourth quarter of the fiscal year ended March 31, 2003 ("fiscal  2003"),  Carver
Federal  formed  Carver  Asset  Corporation,  a wholly  owned  subsidiary  which
qualifies as a real estate  investment  trust ("REIT")  pursuant to the Internal
Revenue Code of 1986, as amended.  This subsidiary  may, among other things,  be
utilized by Carver Federal to raise capital in the future.  As of March 31, 2006
Carver Asset  Corporation  owned  mortgage  loans valued at  approximately  $131
million.  On August 18, 2005 Carver Federal formed Carver Community  Development
Corp. ("CCDC"), a wholly owned community  development entity whose purpose is to
make qualified business loans in low-income  communities.  As of March 31, 2006,
CCDC had no assets or results from operations.

     Carver Federal's current operating  strategy consists primarily of: (1) the
origination  and  purchase  of  one-  to  four-family  residential,  commercial,
construction  and multifamily  real estate loans in its primary market area; (2)
investing funds not utilized for loan  originations or purchases in the purchase
of United States government agency  securities and  mortgage-backed  securities;
(3) developing a commercial line of business through the pending  acquisition of
CCB in the fiscal year ended March 31, 2007 ("fiscal 2007");  (4) generating fee
income by attracting and retaining core deposit accounts,  and expanding its ATM
network and sale of wealth  management  products;  and (5) continuing to monitor
and control its expenses by efficiently  utilizing personnel,  branch facilities
and alternative delivery channels (telephone banking,  online banking, and ATMs)
to service its customers.  The business is not operated in such a way that would
require segment reporting.

     Carver  Federal's  primary  market area for deposits  consists of the areas
currently  served  by its  eight  branch  offices  with an  anticipation  of two
additional  offices  with the  successful  acquisition  of CCB.  Carver  Federal
considers  its primary  lending  market to include  Bronx,  Kings,  New York and
Queens  counties,  together  comprising  New York  City,  and lower  Westchester
County, New York. See "Item 2--Properties."

     Although  Carver  Federal's  branch  offices are located in areas that were
historically  underserved  by other  financial  institutions,  Carver Federal is
facing increasing  competition for deposits and residential  mortgage lending in
its immediate market areas. Management believes that this competition has become
more intense as a result of an increased examination emphasis by federal banking
regulators  on financial  institutions'  fulfillment  of their  responsibilities
under  the  Community  Reinvestment  Act  ("CRA")  and  the  improving  economic
conditions  in  its  market  area.  The  Bank's   competition  for  loans  comes
principally from mortgage banking companies, commercial banks, savings banks and
savings and loan  associations.  The Bank's most direct competition for deposits
comes from commercial  banks,  savings banks,  savings and loan associations and
credit  unions.  Competition  for deposits  also comes from money market  mutual
funds and other corporate and government  securities funds as well as from other
financial  intermediaries such as brokerage firms and insurance companies.  Many
of Carver Federal's competitors have substantially greater resources than Carver
Federal and offer a wider array of financial  services and products  than Carver
Federal.  At times,  these larger financial  institutions may offer below market
interest rates on mortgage  loans and above market  interest rates for deposits.
These pricing concessions  combined with competitors' larger presence in the New
York market add to the challenges  Carver Federal faces in expanding its current
market share and growing its near term profitability.  The Bank believes that it
can compete with these  institutions by offering a competitive range of products
and services  through  personalized  service and  community  involvement  and by
growing the customer base and product suite with the pending acquisition of CCB.

     Carver  continues  to  evaluate  acquisition  opportunities  as part of its
strategic  objective for long term growth and may acquire directly or indirectly
through Carver Federal.

     As of June 15, 2006, Carver Federal had 126 full-time equivalent employees,
none of whom was  represented  by a collective  bargaining  agreement.  The Bank
considers its employee relations to be satisfactory.

AVAILABLE INFORMATION

     The  Company   makes   available  on  or  through  its  internet   website,
http://www.carverbank.com, its Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q,  Current  Reports on Form 8-K, and all  amendments  to those  reports
filed or furnished  pursuant to Section 13(a) or 15(d) of the Exchange Act. Such
reports are free of charge and are available as soon as  reasonably  practicable
after the Company  electronically  files such material with, or furnishes it to,
the Securities and Exchange Commission ("SEC"). The public may read and copy any
materials the Company files with the SEC at the SEC's Public  Reference  Room at
450 Fifth Street, NW, Washington,  DC, 20549. Information may be obtained on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC  maintains an internet  site that contains  reports,  proxy and  information
statements and other information regarding issuers that file electronically with
the SEC, including the Company, at http://www.sec.gov.

     In  addition,  certain  other  basic  corporate  documents,  including  our
Corporate  Governance  Principles,  Code of  Ethics,  Code of Ethics  for Senior
Financial  Officers  and  the  charters  of our  Finance  and  Audit  Committee,
Compensation  Committee and  Nominating/Corporate  Governance  Committee and the
date of our annual  meeting are posted on our website.  Printed  copies of these
documents  are also  available  free of charge to any  stockholder  who requests
them.  Stockholders seeking additional  information should contact the Corporate
Secretary's  office by mail at 75 West 125th  Street,  New York,  NY 10027 or by
e-mail at corporatesecretary@carverbank.com.

LENDING ACTIVITIES

     GENERAL.  Carver Federal's principal lending activity is the origination or
purchase of first  mortgage  loans for the purpose of purchasing or  refinancing
one- to four-family residential,  multifamily, and commercial properties. Carver
Federal  also  originates  or  participates  in loans  for the  construction  or
renovation of commercial  properties and residential  housing  developments.  In
addition,  Carver  Federal  provides  permanent  and  end  loan  financing  upon
completion of construction and, to a lesser extent,  originates secured consumer
and business loans.  First mortgage loan purchases  during the fiscal year ended
March 31, 2006 ("fiscal 2006"),  accounted for 46.5% of loan additions. In order
to  achieve  the Bank's  loan  growth  objectives,  loan  purchases  are made to
supplement originations.

     LOAN  PORTFOLIO  COMPOSITION.  Gross loans  receivable  increased  by $71.4
million,  or 16.7%,  to $496.2  million  at March 31,  2006  compared  to $424.7
million at March 31, 2005.  Carver  Federal's net loan portfolio as a percentage
of total assets  increased to 74.7% at March 31, 2006 compared to 67.4% at March
31, 2005. One- to four-family mortgage loans totaled $143.4 million, or 28.9% of
Carver  Federal's total gross loan portfolio,  multifamily  loans totaled $104.7
million, or 21.1% of total gross loans, non-residential real estate loans, which
includes commercial and church loans,  totaled $154.0 million, or 31.1% of total
gross loans,  and  construction  loans,  net of loans in process,  totaled $92.5
million,  or 18.6% of total gross loans.  Consumer (credit card loans,  personal
loans, and home improvement  loans) and business loans totaled $1.5 million,  or
0.3% of total gross loans.

     Carver  Federal pays a premium when the effective  yield on the loans being
purchased is greater than the current  market rate for comparable  loans.  These
premiums  are  amortized  as the  loan is  repaid.  It is  possible  that,  in a
declining interest rate environment,  the rate or speed at which loans repay may
increase  which may have the  effect of  accelerating  the  amortization  of the
premium and therefore  reducing the effective yield of the loan.  Total premiums
Carver paid on purchased loans increased by $147,000 or 8.4%, to $1.9 million at
March 31, 2006  compared to $1.7  million at March 31,  2005.  The  increase was
attributable to additional premiums recorded on new loans purchased.

     Allowance  for loan losses was  substantially  unchanged at $4.0 million at
March 31, 2006  compared to $4.1 million at March 31, 2005.  During  fiscal 2006
$82,000 in net charge-offs  were recorded and no additional  provisions for loan
losses  were  established.   See  "--Asset  Quality--Asset   Classification  and
Allowance for Losses."

     The following table sets forth selected data relating to the composition of
Carver Federal's loan portfolio by type of loan at the dates indicated.


<TABLE>
<CAPTION>
                                                                AT MARCH 31,
                                   ------------------------------------------------------------------------
                                           2006                      2005                      2004
                                   ----------------------   ----------------------   ----------------------
                                    AMOUNT       PERCENT     AMOUNT       PERCENT     AMOUNT       PERCENT
                                   ---------    ---------   ---------    ---------   ---------    ---------
                                                                                     (DOLLARS IN THOUSANDS)
<S>                                <C>          <C>         <C>          <C>         <C>          <C>
REAL ESTATE LOANS:
    One- to four-family            $ 143,433        28.91%  $ 155,797        36.69%  $  98,645        27.80%
    Multifamily                      104,718        21.11%    101,899        23.99%    120,252        33.88%
    Non-residential                  154,044        31.05%    116,769        27.49%    102,641        28.92%
    Construction                      92,511        18.64%     48,579        11.43%     27,376         7.71%
  Consumer and business (1)            1,453         0.29%      1,697         0.40%      6,010         1.69%
                                   ---------    ---------   ---------    ---------   ---------    ---------
Total gross loans                    496,159       100.00%    424,741       100.00%    354,924       100.00%
                                                =========                =========                =========

ADD:
Premium on loans                       1,890                    1,743                    1,264
LESS:

Deferred fees and loan discounts        (602)                    (400)                    (163)
Allowance for loan Losses             (4,015)                  (4,097)                  (4,125)
                                   ---------                ---------                ---------
Net loan portfolio                 $ 493,432                $ 421,987                $ 351,900
                                   =========                =========                =========
</TABLE>

<TABLE>
<CAPTION>
                                                         AT MARCH 31,
                                     -----------------------------------------------
                                              2003                     2002
                                     ----------------------   ----------------------
                                       AMOUNT      PERCENT     AMOUNT       PERCENT
                                     ---------    ---------   ---------    ---------
<S>                                  <C>          <C>         <C>          <C>
REAL ESTATE LOANS:
    One- to four-family              $  71,735        24.20%  $ 122,814        41.84%
    Multifamily                        131,749        44.45%    118,589        40.39%
    Non-residential                     79,244        26.74%     40,101        13.66%
    Construction                        11,539         3.89%      9,742         3.32%
  Consumer and business (1)              2,125         0.72%      2,328         0.79%
                                     ---------    ---------   ---------    ---------
Total gross loans                      296,392       100.00%    293,574       100.00%
                                                  =========                =========

ADD:
Premium on loans                           867                      906
LESS:

Deferred fees and loan discounts          (363)                    (642)
Allowance for loan Losses               (4,158)                  (4,128)
                                     ---------                ---------
Net loan portfolio                   $ 292,738                $ 289,710
                                     =========                =========
</TABLE>

(1)  Includes personal,  credit card, home equity, home improvement and business
     loans.


     ONE- TO FOUR-FAMILY  RESIDENTIAL LENDING.  Traditionally,  Carver Federal's
lending activity has been the origination and purchase of loans secured by first
mortgages on existing one- to four-family residences.  Carver Federal originates
and purchases  one- to  four-family  residential  mortgage loans in amounts that
usually  range  between  $35,000  and  $750,000.  Approximately  95%  of  Carver
Federal's one- to four-family  residential  mortgage loans at March 31, 2006 had
adjustable  rates and  approximately  5% had fixed  rates.  Over the last fiscal
year,  Carver  Federal has shifted its efforts from  primarily  originating  and
purchasing   one-  to   four-family   residential   loans  to  more   profitable
non-residential and construction real estate loans. This has resulted in a $12.4
million reduction in one- to four-family residential real estate loans.

     Carver  Federal's  one-  to  four-family  residential  mortgage  loans  are
generally for terms of 30 years,  amortized on a monthly  basis,  with principal
and interest due each month. Residential mortgage loans often remain outstanding
for  significantly  shorter periods than their  contractual  terms.  These loans
customarily  contain  "due-on-sale"  clauses that permit the Bank to  accelerate
repayment of a loan upon transfer of ownership of the mortgaged property.  Also,
borrowers may refinance or prepay one- to four-family residential loans at their
option without penalty.

     The Bank's  lending  policies  generally  limit the  maximum  loan-to-value
("LTV")  ratio on one- to  four-family  residential  mortgage  loans  secured by
owner-occupied  properties  to 95% of the  lesser  of  the  appraised  value  or
purchase  price,  with  private  mortgage  insurance  required on loans with LTV
ratios in excess of 80%.  Under certain  special loan  programs,  Carver Federal
originates  and sells loans secured by  single-family  homes  purchased by first
time home buyers where the LTV ratio may be up to 97%.

     Carver Federal's fixed-rate, one- to four-family residential mortgage loans
are  underwritten in accordance with applicable  secondary  market  underwriting
guidelines and  requirements  for sale. From time to time the Bank has sold such
loans to Federal National Mortgage Association  ("FNMA"),  the State of New York
Mortgage  Agency  ("SONYMA") and other third  parties.  Loans are generally sold
with limited  recourse on a servicing  retained basis except to SONYMA where the
sale is made with  servicing  released.  Carver  Federal uses several  servicing
firms to sub-service  mortgage loans, whether held in portfolio or sold with the
servicing  retained.  At March 31, 2006,  the Bank,  through its  sub-servicers,
serviced  $22.8  million  in loans for FNMA and $10.4  million  for other  third
parties.

     Carver   Federal   offers   one-year,    three-year,    five/one-year   and
five/three-year  adjustable-rate one- to four-family residential mortgage loans.
These loans are generally  retained in Carver Federal's  portfolio although they
may be sold on the secondary market. They are indexed to the weekly average rate
on one-year,  three-year and five-year U.S. Treasury  securities,  respectively,
adjusted to a constant maturity (usually one year), plus a margin.  The rates at
which interest  accrues on these loans are  adjustable  every one, three or five
years,  generally with  limitations on adjustments of two percentage  points per
adjustment  period  and six  percentage  points  over  the  life  of a  one-year
adjustable-rate  mortgage and four percentage points over the life of three-year
and five-year adjustable-rate mortgages.

     The retention of adjustable-rate  loans in Carver Federal's portfolio helps
reduce  Carver  Federal's  exposure to increases in prevailing  market  interest
rates.  However,  there are unquantifiable credit risks resulting from potential
increases  in  costs  to   borrowers  in  the  event  of  upward   repricing  of
adjustable-rate  loans.  It is possible that during  periods of rising  interest
rates,  the  risk of  default  on  adjustable-rate  loans  may  increase  due to
increases in interest costs to borrowers.  Although  adjustable-rate loans allow
the Bank to increase the sensitivity of its  interest-earning  assets to changes
in interest  rates,  the extent of this interest rate  sensitivity is limited by
periodic and lifetime interest rate adjustment limitations.  Accordingly,  there
can be no assurance that yields on the Bank's  adjustable-rate  loans will fully
adjust to compensate for increases in the Bank's cost of funds.  Adjustable-rate
loans increase the Bank's  exposure to decreases in prevailing  market  interest
rates,  although decreases in the Bank's cost of funds would tend to offset this
effect.

     MULTIFAMILY REAL ESTATE LENDING.  Carver Federal continued to originate and
purchase multifamily loans during fiscal 2006. Rates offered on this product are
considered  to be  competitive  with  flexible  terms  that  make  this  product
attractive to borrowers.  Multifamily  property lending entails additional risks
compared to one- to four-family residential lending. For example, such loans are
dependent on the successful operation of such buildings and can be significantly
impacted  by  supply  and  demand  conditions  in  the  market  for  multifamily
residential units. Over the past several years,  Carver Federal has expanded its
presence in the  multifamily  lending  market in the New York City  metropolitan
area. At March 31, 2006,  multifamily loans totaled $104.7 million,  or 21.1% of
Carver Federal's gross loan portfolio.

     Carver Federal's  multifamily product guidelines generally require that the
maximum  LTV not  exceed  80%  based on the  appraised  value  of the  mortgaged
property.  The Bank generally requires a debt service coverage ratio ("DSCR") of
at least 1.25 on  multifamily  loans,  which requires the properties to generate
cash flow after  expenses and allowances in excess of the principal and interest
payment.  Carver Federal  originates and purchases  multifamily  mortgage loans,
which are  predominantly  adjustable  rate loans that generally  amortize on the
basis of a 15-, 20-, 25- or 30-year  period and require a balloon  payment after
the first five years,  or the borrower may have an option to extend the loan for
two additional five-year periods. The Bank, on a case-by-case basis,  originates
ten-year fixed rate loans.

     To help ensure  continued  collateral  protection and asset quality for the
term of multifamily real estate loans, Carver Federal employs a loan risk-rating
system.  Under the  risk-rating  system,  all  commercial  real estate loans are
risk-rated  internally at the time of origination and again annually to evaluate
any changes in the credit profile of the borrower and the underlying collateral.
Carver  Federal's  independent  internal loan review  personnel  prepare written
summary  reports of multifamily  real estate loan  relationships  of $250,000 to
$2.0 million while an independent  consulting firm prepares a written report for
relationships  exceeding $2.0 million.  Summary reports are then reviewed by the
Internal Asset Review  Committee for changes in the credit profile of individual
borrowers and the portfolio as a whole.

     NON-RESIDENTIAL REAL ESTATE LENDING. Carver Federal's  non-residential real
estate lending  activity  consists  predominantly  of originating  loans for the
purpose of purchasing or refinancing office, mixed-use (properties used for both
commercial and residential  purposes but predominantly  commercial),  retail and
church buildings in its market area. Non-residential real estate lending entails
additional  risks compared with one- to four-family  residential and multifamily
lending. For example, such loans typically involve large loan balances to single
borrowers or groups of related  borrowers,  and the payment  experience  on such
loans  typically  is  dependent on the  successful  operation of the  commercial
property.  Carver Federal's maximum LTV on non-residential  real estate mortgage
loans is generally 75% based on the appraised  value of the mortgaged  property.
The Bank  generally  requires  a DSCR of at least 1.30 on  non-residential  real
estate loans.  The Bank requires the assignment of rents of all tenants'  leases
in the mortgaged property,  which serves as additional security for the mortgage
loan.  At March 31, 2006,  non-residential  real estate  mortgage  loans totaled
$154.0 million, or 31.1% of the gross loan portfolio. This balance also reflects
a year over year  increase  of $37.3  million  which is in line with the  Bank's
objective of investing in higher yielding loans.

     All non-residential  real estate loans are risk rated internally.  At least
annually, Carver Federal's loan review personnel prepare written summary reports
for  relationships of $250,000 to $2.0 million.  An independent third party also
risk-rates and produce written summary  reports for  non-residential  loans over
$2.0 million.

     Historically,  Carver  Federal has been a New York City  metropolitan  area
leader in the  origination  of loans to churches.  At March 31,  2006,  loans to
churches  totaled  $14.6  million,  or 2.9% of the Bank's gross loan  portfolio.
These loans  generally  have five-,  seven- or ten-year  terms with 15-,  20- or
25-year  amortization  periods and a balloon  payment due at the end of the term
and  generally  have  no  greater  than  a 70%  LTV  ratio.  The  Bank  provides
construction  financing for churches and generally provides permanent  financing
upon  completion  of  construction.  There are  currently 25 church loans in the
Bank's loan portfolio.

     Loans secured by real estate owned by faith-based  organizations  generally
are larger  and  involve  greater  risks  than one- to  four-family  residential
mortgage loans.  Because  payments on loans secured by such properties are often
dependent on voluntary  contributions  by members of the church's  congregation,
repayment of such loans may be subject to a greater extent to adverse conditions
in the  economy.  The Bank seeks to  minimize  these risks in a variety of ways,
including reviewing the organization's financial condition, limiting the size of
such loans and establishing  the quality of the collateral  securing such loans.
The Bank determines the  appropriate  amount and type of security for such loans
based in part upon the governance structure of the particular organization,  the
length of time the church has been  established in the community and a cash flow
analysis of the church to determine  its ability to service the  proposed  loan.
Carver Federal will obtain a first mortgage on the underlying  real property and
often requires personal guarantees of key members of the congregation and/or key
person  life  insurance  on the  pastor of the  congregation.  The Bank may also
require the church to obtain key person life  insurance  on specific  members of
the  church's  leadership.  Asset  quality in the church loan  category has been
strong  throughout  Carver Federal's  history.  Management  believes that Carver
Federal remains a leading lender to churches in its market area.

     CONSTRUCTION  LENDING.  The Bank originates or participates in construction
loans for new  construction and renovation of churches,  multifamily  buildings,
residential  developments,  community service  facilities and affordable housing
programs. Carver Federal also offers construction loans to qualified individuals
and  developers  for new  construction  and  renovation of one- to  four-family,
multifamily or mixed use and  commercial  real estate in the Bank's market area.
The Bank's  construction loans generally have adjustable  interest rates and are
underwritten  in accordance with the same standards as the Bank's mortgage loans
on  existing  properties.  The  loans  provide  for  disbursement  in  stages as
construction is completed. Participation in construction loans may be at various
stages of  funding.  Construction  terms are usually  from 12 to 24 months.  The
construction  loan interest is capitalized  as part of the overall  project cost
and is funded monthly from the loan proceeds.  Borrowers must satisfy all credit
requirements that apply to the Bank's permanent  mortgage loan financing for the
mortgaged  property.  Carver  Federal has  established  additional  criteria for
construction  loans  to  include  an  engineer's  plan and  cost  review  on all
construction  budgets with appropriate  interest reserves for loans in excess of
$250,000.

     Construction  financing  generally is considered to involve a higher degree
of risk of loss than long term  financing on improved and occupied  real estate.
Risk of loss on a  construction  loan is dependent  largely upon the accuracy of
the  initial  estimate  of the  mortgaged  property's  value  at  completion  of
construction  or  development  and the estimated  cost  (including  interest) of
construction. During the construction phase, a number of factors could result in
project delays and cost overruns.  If the estimate of construction  costs proves
to be  inaccurate,  the Bank may be required to advance  funds beyond the amount
originally committed to permit completion of the development. If the estimate of
value proves to be inaccurate,  the Bank may be  confronted,  at or prior to the
maturity  of the loan,  with a project  having a value that is  insufficient  to
assure full repayment of such loan. The ability of a developer to sell developed
lots or completed  dwelling  units will depend on, among other  things,  demand,
pricing, availability of comparable properties and economic conditions. The Bank
has sought to minimize this risk by limiting  construction  lending to qualified
borrowers  in  the  Bank's  market  areas,  limiting  the  aggregate  amount  of
outstanding  construction  loans and imposing a stricter  LTV ratio  requirement
than that required for one- to four-family mortgage loans.

     At March 31,  2006,  the Bank had $92.5  million  (net of $61.0  million of
committed but undisbursed funds) in construction  loans outstanding,  comprising
18.6% of the Bank's total gross loan portfolio. The balance at March 31, 2006 is
reflective  of a $43.9  million,  or 90.4 % increase  over the last fiscal year,
consistent  with  management's   objective  to  add  higher  yielding  loans  to
portfolio.  Purchased  construction  loans represent 66.9% of total construction
loans in portfolio.

     CONSUMER AND BUSINESS LOANS. At March 31, 2006, the Bank had  approximately
$1.5 million in consumer and  business  loans,  or 0.3% of the Bank's gross loan
portfolio.  At March 31, 2006, $1.2 million, or 83.9% of the Bank's consumer and
business  loans,  was unsecured and $234,000,  or 16.1%,  was secured by savings
deposits. At the end of the fiscal year ended March 31, 2005 ("fiscal 2005") the
Bank froze all undrawn  available  credit lines on its credit card product in an
effort to terminate this product and collect repayments on outstanding  balances
and related finance charges.  Effective March 31, 2006 all unsecured credit card
accounts were  converted to fixed rate  installment  loans with an  amortization
period not to exceed 48 months.  The Bank had  discontinued  the  origination of
unsecured commercial business loans during the fourth quarter of the fiscal year
ended  March 31,  1999.  However,  during the fourth  quarter of the fiscal year
ended March 31, 2006, Carver Federal's Board of Directors approved the launch of
an unsecured  Overdraft Line of Credit  ("ODLOC")  product for personal  account
relationships only and approved the Bank to provide back-up liquidity for highly
rated U.S. corporate  commercial paper borrowers ("CP Back-up") where a minority
bank is the administrative  agent and is syndicated  entirely to a minority bank
group. As of March 31, 2006, Carver Federal originated 17 ODLOCs with $25,450 in
commitments.  The  Bank  subsequent  to the  fiscal  year end  entered  into one
minority  bank CP Back-up  facility  for $6.325  million  with an AAA rated U.S.
corporate borrower and more CP Back-up facilities are anticipated for the fiscal
year ending March 31, 2007. The Bank is paid a commitment fee for this product.

     Consumer  loans  generally  involve  more risk than first  mortgage  loans.
Collection  of a  delinquent  loan is  dependent  on the  borrower's  continuing
financial  stability,  and thus is more likely to be  adversely  affected by job
loss,  divorce,  illness or personal  bankruptcy.  Further,  the  application of
various  federal and state laws,  including  federal  and state  bankruptcy  and
insolvency  laws,  may limit the amount which can be recovered.  These loans may
also give rise to claims and defenses by a borrower against Carver Federal,  and
a borrower may be able to assert  claims and  defenses  against  Carver  Federal
which it has against the seller of the underlying  collateral.  In  underwriting
secured consumer loans other than secured credit cards, Carver Federal considers
the borrower's credit history,  an analysis of the borrower's  income,  expenses
and ability to repay the loan and the value of the collateral.  The underwriting
for  secured  credit  cards  only  takes  into  consideration  the  value of the
underlying collateral. See "--Asset Quality--Non-performing Assets."

     LOAN  PROCESSING.  Carver  Federal's loan  originations  are derived from a
number of  sources,  including  referrals  by  realtors,  builders,  depositors,
borrowers  and  mortgage  brokers,  as  well as  walk-in  customers.  Loans  are
originated by the Bank's  personnel who receive a base salary,  commissions  and
other incentive  compensation.  Loan application  forms are available at each of
the Bank's  offices.  All real estate loan and unsecured loan  applications  are
forwarded  to  the  Bank's  Lending  Department  for  underwriting  pursuant  to
standards established in Carver's loan policy.

     The  underwriting  and loan processing for  residential  loans is initiated
internally but undergoes subsequent review by an outsourced third party provider
for loans with LTV ratios greater 80% that require private mortgage insurance. A
commercial  real estate loan  application is completed for all  multifamily  and
non-residential  properties which the Bank finances. Prior to loan approval, the
property is inspected by a loan officer.  As part of the loan approval  process,
consideration  is given to an independent  appraisal,  location,  accessibility,
stability of the neighborhood, environmental assessment, personal credit history
of the applicant(s) and the financial capacity of the applicant(s).

     Upon receipt of a completed loan application from a prospective borrower, a
credit  report  and  other   verifications   are  ordered  to  confirm  specific
information  relating to the loan applicant's income and credit standing.  It is
the Bank's policy to obtain an appraisal of the real estate intended to secure a
proposed mortgage loan from an independent fee appraiser approved by the Bank.

     It is Carver  Federal's policy to record a lien on the real estate securing
the loan and to obtain a title  insurance  policy that insures that the property
is free of prior  encumbrances.  Borrowers  must also  obtain  hazard  insurance
policies  prior  to  closing  and,  when  the  property  is in a flood  plain as
designated  by the  Department  of  Housing  and Urban  Development,  paid flood
insurance policies must be obtained. Most borrowers are also required to advance
funds on a monthly basis,  together with each payment of principal and interest,
to a mortgage escrow account from which the Bank makes  disbursements  for items
such as real estate taxes and hazard insurance.

     LOAN  APPROVAL.  Except for loans in excess of $5.0 million,  mortgage loan
approval authority has been delegated by the Bank's Board of Directors ("Board")
to the Board's  Asset  Liability  and Interest  Rate Risk  Committee.  The Asset
Liability  and  Interest  Rate  Risk  Committee  has  delegated  to  the  Bank's
Management  Loan  Committee,  which  consists  of certain  members of  executive
management,  loan approval authority for loans up to and including $2.0 million.
All one- to four-family mortgage loans that conform to FNMA standards and limits
may be approved by the  Residential  Mortgage  Loan  Underwriter.  Any loan that
represents an exception to the Bank's  lending  policies must be ratified by the
next higher approval authority. Loans above $5.0 million must be approved by the
full  Board.  Purchased  loans  are  subject  to the same  approval  process  as
originated loans.

     LOANS TO ONE BORROWER. Under the loans-to-one-borrower limits of the Office
of Thrift  Supervision  ("OTS"),  with  certain  limited  exceptions,  loans and
extensions  of credit to a single or related group of borrowers  outstanding  at
one time generally may not exceed 15% of the unimpaired capital and surplus of a
savings   bank.   See    "--Regulation    and    Supervision--Federal    Banking
Regulation--Loans  to One Borrower  Limitations." At March 31, 2006, the maximum
loan to one  borrower  under this test would be $9.9 million and the Bank had no
relationships that exceeded this limit.

     LOAN SALES.  Originations  of one- to  four-family  real  estate  loans are
generally made on properties located within the New York City metropolitan area,
although  Carver  Federal does  occasionally  fund loans  secured by property in
other areas. All such loans,  however,  satisfy the Bank's underwriting criteria
regardless  of  location.  The  Bank  continues  to  offer  one- to  four-family
fixed-rate  mortgage loans in response to consumer demand but requires that such
loans satisfy applicable secondary market guidelines of either FNMA or SONYMA to
provide  opportunity for subsequent  sale in the secondary  market as desired to
manage interest rate risk exposure.

     LOAN  ORIGINATIONS AND PURCHASES.  Loan originations were $111.3 million in
fiscal 2006  compared to $85.8  million in fiscal 2005 and $87.1  million in the
fiscal  year  ended  March  31,  2004  ("fiscal  2004").  The  increase  in loan
originations  in fiscal  2006 can be  attributed  to the  Bank's  commitment  to
increasing  its market  share.  The market  continues to be  challenging  as new
lenders enter the already fiercely competitive marketplace.

     During fiscal 2006,  Carver  Federal  purchased a total of $96.1 million of
mortgage loans,  consisting of performing  adjustable-rate  one- to four-family,
construction  and  non-residential  mortgage loans to supplement its origination
efforts.  This  represented  46.5%  of  Carver  Federal's  addition  to its loan
portfolio  during  fiscal 2006.  The Bank  purchases  loans in order to increase
interest  income and to manage its  liquidity  position.  The Bank  continues to
shift its loan  production  emphasis to take  advantage of the higher yields and
better  interest  rate  risk   characteristics   available  on  multifamily  and
non-residential real estate mortgage loans, including those in construction,  as
well as to increase its  participation in multifamily and  non-residential  real
estate  mortgage  loans with other New York  metropolitan  area  lenders.  Loans
purchased in fiscal 2006 decreased $8.1 million, or 7.7%, from loan purchases of
$104.7 million during fiscal 2005.

     The following table sets forth certain  information  with respect to Carver
Federal's loan originations, purchases and sales during the periods indicated.

<TABLE>
<CAPTION>
                                                             YEAR ENDED MARCH 31,
                                  --------------------------------------------------------------------------
                                           2006                      2005                      2004
                                  ----------------------    ----------------------    ----------------------
                                   AMOUNT       PERCENT      AMOUNT       PERCENT      AMOUNT       PERCENT
                                  ---------    ---------    ---------    ---------    ---------    ---------
                                                            (DOLLARS IN THOUSANDS)
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
Loans Originated:
  One- to four-family             $  15,132         8.18%   $  15,437         8.46%   $  14,284         8.33%
  Multifamily                        18,063         9.77       15,969         8.75        5,771         3.37
  Non-residential                    33,582        18.16       30,823        16.89       50,373        29.38
  Construction                       44,040        23.80       23,351        12.79       12,050         7.02
  Consumer and business (1)             532         0.29          221         0.13        4,662         2.72
                                  ---------    ---------    ---------    ---------    ---------    ---------
Total loans originated              111,349        60.21       85,801        47.02       87,140        50.82
Loans purchased (2)                  96,140        51.98      104,734        57.39       93,694        54.64
Loans sold (3)                      (22,543)      (12.19)      (8,043)       (4.41)      (9,358)       (5.46)
                                  ---------    ---------    ---------    ---------    ---------    ---------
Net additions to loan portfolio   $ 184,946       100.00%   $ 182,492       100.00%   $ 171,476       100.00%
                                  =========    =========    =========    =========    =========    =========
</TABLE>

(1)  Comprised of credit card,  personal,  home improvement and secured business
     loans.
(2)  Comprised  primarily of one- to  four-family  mortgage  loans,  multifamily
     mortgage loans and construction loans.
(3)  Comprised primarily of one- to four-family loans.

     Loans purchased by the Bank entail certain risks not necessarily associated
with  loans the Bank  originates.  The  Bank's  purchased  loans  are  generally
acquired  without  recourse  and in  accordance  with  the  Bank's  underwriting
criteria for originations. In addition, purchased loans have a variety of terms,
including maturities,  interest rate caps and indices for adjustment of interest
rates,  that may differ from those offered at the time by the Bank in connection
with the loans the Bank  originates.  The Bank initially seeks to purchase loans
in its market area,  however,  the Bank will purchase  loans secured by property
secured outside its market area to meet its financial objectives.  During fiscal
2006, the properties securing purchased loans were concentrated primarily in New
York and to a lesser extent,  Vermont, New Jersey and Massachusetts.  The market
areas in which the  properties  that secure the purchased  loans are located may
differ from Carver Federal's market area and may be subject to economic and real
estate market conditions that may significantly differ from those experienced in
Carver Federal's market area. There can be no assurance that economic conditions
in these  out-of-state  areas will not  deteriorate in the future,  resulting in
increased loan delinquencies and loan losses among the loans secured by property
in these areas.

     In an effort to reduce  these  risks,  the Bank has  sought to ensure  that
purchased loans satisfy the Bank's  underwriting  standards and do not otherwise
have a higher risk of  collection  or loss than loans  originated by the Bank. A
Lending  Department  officer  monitors the inspection and confirms the review of
each purchased loan. Carver Federal also requires appropriate  documentation and
further seeks to reduce its risk by requiring,  in each  buy/sell  agreement,  a
series of warranties and  representations  as to the underwriting  standards and
the  enforceability  of  the  related  legal  documents.  These  warranties  and
representations remain in effect for the life of the loan. Any misrepresentation
must be  cured  within  90 days  of  discovery  or  trigger  certain  repurchase
provisions in the buy/sell agreement.

     INTEREST  RATES AND LOAN FEES.  Interest rates charged by Carver Federal on
mortgage loans are primarily determined by competitive loan rates offered in its
market area and minimum  yield  requirements  for loans  purchased  by secondary
market sources.  Mortgage loan rates reflect  factors such as prevailing  market
interest rate levels,  the supply of money available to the banking industry and
the  demand  for such  loans.  These  factors  are in turn  affected  by general
economic conditions, the monetary policies of the federal government,  including
the Board of  Governors  of the Federal  Reserve  System (the  "Federal  Reserve
Board"),  the  general  supply  of  money  in  the  economy,  tax  policies  and
governmental budget matters.

     Carver  Federal  charges  fees in  connection  with  loan  commitments  and
originations,  rate lock-ins,  loan  modifications,  late  payments,  changes of
property  ownership and for  miscellaneous  services related to its loans.  Loan
origination fees are calculated as a percentage of the loan principal.  The Bank
typically  receives  fees  of  between  zero  and one  point  (one  point  being
equivalent  to 1% of the principal  amount of the loan) in  connection  with the
origination  of  fixed-rate  and   adjustable-rate   mortgage  loans.  The  loan
origination  fee, net of certain direct loan origination  expenses,  is deferred
and accreted into income over the estimated  life of the loan using the interest
method. If a loan is prepaid or sold all remaining deferred fees with respect to
such loan are taken into income at such time.

     In  addition  to the  foregoing  fees,  Carver  Federal  receives  fees for
servicing loans for others,  which in turn generally are sub-serviced for Carver
Federal by a third party servicer.  Servicing  activities include the collection
and processing of mortgage  payments,  accounting  for loan repayment  funds and
paying real estate taxes,  hazard insurance and other loan-related  expenses out
of escrowed  funds.  Income from these  activities  varies from period to period
with the volume and type of loans originated,  sold and purchased, which in turn
is dependent on prevailing  market interest rates and their effect on the demand
for loans in the Bank's market area.

     LOAN MATURITY SCHEDULE. The following table sets forth information at March
31, 2006 regarding the amount of loans maturing in Carver  Federal's  portfolio,
including  scheduled  repayments of  principal,  based on  contractual  terms to
maturity.  Demand loans,  loans having no schedule of  repayments  and no stated
maturity,  and  overdrafts  are  reported as due in one year or less.  The table
below does not include any estimate of prepayments,  which significantly shorten
the average life of all mortgage  loans and may cause  Carver  Federal's  actual
repayment experience to differ significantly from that shown below.

<TABLE>
<CAPTION>
                                      DUE DURING THE YEAR ENDING
                                               MARCH 31,                    DUE THREE
                              ------------------------------------------     TO FIVE      DUE FIVE TO
                                  2007           2008           2009          YEARS        TEN YEARS
                              ------------   ------------   ------------   ------------   ------------
                                                                              (DOLLARS IN THOUSANDS)
<S>                           <C>            <C>            <C>            <C>            <C>
Real Estate Loans:
   One- to four-family        $      2,251   $      2,288   $      1,020   $     32,744   $        456
  Multifamily                        4,407          6,595         16,412         22,945         17,045
  Non-residential                   10,545         10,299         18,029         78,330         17,590
  Construction                      73,444         19,067             --             --             --
Consumer and business loans             14            116             48            938            224
                              ------------   ------------   ------------   ------------   ------------
     Total                    $     90,661   $     38,365   $     35,509   $    134,957   $     35,315
                              ============   ============   ============   ============   ============
</TABLE>

                               DUE TEN TO     DUE AFTER
                                20 YEARS       20 YEARS        TOTAL
                              ------------   ------------   ------------

Real Estate Loans:
   One- to four-family        $      2,446   $    102,228   $    143,433
  Multifamily                       11,228         26,086        104,718
  Non-residential                    8,634         10,617        154,044
  Construction                          --             --         92,511
Consumer and business loans            103             10          1,453
                              ------------   ------------   ------------
     Total                    $     22,411   $    138,941   $    496,159
                              ============   ============   ============

     The  following  table sets forth as of March 31, 2006  amounts in each loan
category that are  contractually due after March 31, 2007 and whether such loans
have  fixed  or  adjustable  interest  rates.  Scheduled  contractual  principal
repayments of loans do not necessarily  reflect the actual lives of such assets.
The average life of long term loans is substantially less than their contractual
terms due to  prepayments.  In addition,  due-on-sale  clauses in mortgage loans
generally give Carver  Federal the right to declare a conventional  loan due and
payable  in the  event,  among  other  things,  that a  borrower  sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage  loans tends to increase  when current  mortgage  loan market rates are
substantially higher than rates on existing mortgage loans and tends to decrease
when current  mortgage loan market rates are  substantially  lower than rates on
existing mortgage loans.

                                       DUE AFTER MARCH 31, 2007
                               -----------------------------------------
                                  FIXED       ADJUSTABLE       TOTAL
                              ------------   ------------   ------------
                                           ( IN THOUSANDS )
Real Estate Loans:
  One- to four-family         $      7,454   $    133,728   $    141,182
  Multifamily                       33,583         66,728        100,311
  Non-residential                   36,526        106,973        143,499
  Construction                          --         19,067         19,067
Consumer and business loans          1,085            354          1,439
                              ------------   ------------   ------------
    Total                     $     78,648   $    326,850   $    405,498
                              ============   ============   ============

Asset Quality

     GENERAL.  One of the Bank's key  operating  objectives  continues  to be to
maintain  a high  level of asset  quality.  Through  a  variety  of  strategies,
including,  but not limited  to,  monitoring  loan  delinquencies  and  borrower
workout  arrangements,  the Bank has been  proactive in  addressing  problem and
non-performing  assets which,  in turn,  has helped to build the strength of the
Bank's financial condition. Such strategies, as well as the Bank's concentration
on one- to four-family,  commercial mortgage lending (which includes multifamily
and non-residential real estate loans) and construction lending, the maintenance
of sound credit  standards  for new loan  originations  and a strong real estate
market,  have  resulted in the Bank  maintaining  a low level of  non-performing
assets.

     The  underlying  credit  quality of the Bank's loan  portfolio is dependent
primarily on each borrower's  ability to continue to make required loan payments
and,  in the event a borrower  is unable to  continue to do so, the value of the
collateral  should be adequate to secure the loan. A  borrower's  ability to pay
typically is  dependent  primarily on  employment  and other  sources of income,
which,  in turn,  is impacted by general  economic  conditions,  although  other
factors, such as unanticipated expenditures or changes in the financial markets,
may also impact the borrower's ability to pay.  Collateral values,  particularly
real estate values, are also impacted by a variety of factors, including general
economic  conditions,  demographics,  maintenance  and collection or foreclosure
delays.

     NON-PERFORMING  ASSETS.  When a  borrower  fails  to  make a  payment  on a
mortgage loan, immediate steps are taken by Carver Federal and its sub-servicers
to have the  delinquency  cured and the loan  restored to current  status.  With
respect to mortgage  loans,  once the payment  grace period has expired (in most
instances  15 days after the due date),  a late notice is mailed to the borrower
within two business days and a late charge is imposed if applicable.  If payment
is not promptly received, the borrower is contacted by telephone and efforts are
made to formulate an affirmative plan to cure the delinquency.  Additional calls
are made by the 20th and 25th day of the delinquency. If a mortgage loan becomes
30 days delinquent,  a letter is mailed to the borrower  requesting payment by a
specified  date. If a mortgage loan becomes 60 days  delinquent,  Carver Federal
seeks to make  personal  contact  with the  borrower  and also has the  property
inspected.  If a mortgage  becomes 90 days  delinquent,  a letter is sent to the
borrower  demanding  payment by a certain date and indicating that a foreclosure
suit will be filed if the deadline is not met. If payment is still not made, the
Bank may pursue foreclosure or other appropriate action.

     When a borrower fails to make a payment on a consumer loan, steps are taken
by Carver Federal's loan servicing  department to have the delinquency cured and
the loan restored to current  status.  Once the payment grace period has expired
(15  days  after  the  due  date),  a late  notice  is  mailed  to the  borrower
immediately  and a late  charge is  imposed  if  applicable.  If  payment is not
promptly received, the borrower is contacted by telephone,  and efforts are made
to formulate an  affirmative  plan to cure the  delinquency.  If a consumer loan
becomes  30 days  delinquent,  a letter  is mailed  to the  borrower  requesting
payment by a specified date. If the loan becomes 60 days delinquent, the account
is given to an independent collection agency to follow up with the collection of
the account.  If the loan becomes 90 days delinquent,  a final warning letter is
sent to the borrower and any co-borrower.  If the loan remains delinquent, it is
reviewed for charge-off.  The Bank's collection efforts generally continue after
the loan is charged off.

     The following table sets forth information with respect to Carver Federal's
non-performing assets at the dates indicated.

<TABLE>
<CAPTION>
                                                                                       AT MARCH 31,
                                                         ------------------------------------------------------------------------
                                                             2006           2005           2004           2003           2002
                                                         ------------   ------------   ------------   ------------   ------------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                      <C>            <C>            <C>            <C>            <C>
Loans accounted for on a non-accrual basis (1):
  Real estate:
    One- to four-family                                  $      1,098   $        149   $        558   $      1,113   $        756
    Multifamily                                                   763            167          1,532             --            253
    Non-residential                                                --            665             --            639          1,754
    Construction                                                  865             --             23             23             23
  Consumer and business                                             4             17             10             27             37
                                                         ------------   ------------   ------------   ------------   ------------
      Total non-accrual loans                                   2,730            998          2,123          1,802          2,823
                                                         ------------   ------------   ------------   ------------   ------------

Accruing loans contractually past due 90 days or more              --             --             --             --             --
                                                         ------------   ------------   ------------   ------------   ------------

Total of non-accrual and accruing 90-day past due loans  $      2,730   $        998   $      2,123   $      1,802   $      2,823
                                                         ------------   ------------   ------------   ------------   ------------

Other non-performing assets (2):
  Real estate:
    Land                                                           26             --             --             --             --
                                                         ------------   ------------   ------------   ------------   ------------
Total other non-performing assets                                  26             --             --             --             --
                                                         ------------   ------------   ------------   ------------   ------------
Total non-performing assets (3)                          $      2,756   $        998   $      2,123   $      1,802   $      2,823
                                                         ============   ============   ============   ============   ============

Non-performing loans to total loans                              0.55%          0.23%          0.60%          0.61%          0.96%
Non-performing assets to total assets                            0.42%          0.16%          0.39%          0.36%          0.63%
</TABLE>


(1)  Non-accrual  status denotes any loan where the delinquency  exceeds 90 days
     past due and in the opinion of  management  the  collection  of  additional
     interest is doubtful.  Payments  received on a non-accrual  loan are either
     applied to the  outstanding  principal  balance  or  recorded  as  interest
     income,  depending  on  assessment  of the  ability to collect on the loan.
     During the fiscal  year ended  March 31,  2006,  gross  interest  income of
     $79,000 would have been recorded on non-accrual loans had they been current
     throughout the year.

(2)  Other  non-performing  assets generally  represent property acquired by the
     Bank in settlement of loans (i.e., through foreclosure,  repossession or as
     an  in-substance  foreclosure).  Although the Bank had no  foreclosed  real
     estate,  as a result  of a  property  tax  redemption,  the  Bank  took fee
     ownership  of a vacant  tract of land in  Bayshore,  NY.  These  assets are
     recorded at the lower of their fair value or the cost to acquire.

(3)  Total non-performing assets consist of non-accrual loans, accruing loans 90
     days or more past due and property acquired in settlement of loans.

     At March 31, 2006, total non-performing assets increased by $1.8 million to
$2.8  million  compared to $998,000 at March 31,  2005.  At March 31, 2006 other
non-performing  assets of  $26,000  relates  to one  parcel of land that  Carver
Federal acquired as a result of a property tax redemption. The increase in total
non-performing assets for fiscal 2006 primarily reflects three additional one-to
four-family  residential real estate loans.  Increases in  non-performing  asset
levels are consistent with the growth the Bank experienced in its loan portfolio
during  the  fiscal  year.  Management  believes  the  Bank's  current  level of
non-performing assets to total loans remains within the range of its peers.

     There  were no  accruing  loans  contractually  past due 90 days or more at
March 31, 2006 and March 31, 2005,  reflecting the continued practice adopted by
the Bank  during the fiscal  year ended  March 31,  2000 to either  write off or
place on non-accrual status all loans contractually past due 90 days or more.

     ASSET CLASSIFICATION AND ALLOWANCES FOR LOSSES. Federal regulations and the
Bank's policies require the  classification of assets on the basis of quality on
a quarterly  basis. An asset is classified as  "substandard" if it is determined
to be inadequately protected by the current net worth and paying capacity of the
obligor or the  current  value of the  collateral  pledged,  if any. An asset is
classified  as  "doubtful"  if  full   collection  is  highly   questionable  or
improbable. An asset is classified as "loss" if it is considered un-collectible,
even if a partial recovery could be expected in the future. The regulations also
provide for a "special  mention"  designation,  described  as assets that do not
currently expose a savings institution to a sufficient degree of risk to warrant
classification  but do  possess  credit  deficiencies  or  potential  weaknesses
deserving  management's  close  attention.  Assets  classified as substandard or
doubtful require a savings  institution to establish general allowances for loan
losses.  If an asset or  portion  thereof  is  classified  as a loss,  a savings
institution  must either  establish  specific  allowances for loan losses in the
amount of the portion of the asset  classified  loss or charge off such  amount.
Federal examiners may disagree with a savings institution's classifications.  If
a savings  institution  does not agree with an examiner's  classification  of an
asset, it may appeal this determination to the OTS Regional Director.

     At March 31, 2006,  Carver Federal had $2.2 million of loans  classified as
substandard  which  represented 0.3% of the Bank's total assets. As of March 31,
2005 the Bank had $1.0 million as loans classified as substandard,  representing
0.2% of the Bank's total assets.  There were no loans  classified as doubtful or
loss at March 31, 2006 and March 31, 2005.

     The OTS,  in  conjunction  with the other  federal  banking  agencies,  has
adopted an  interagency  policy  statement on the  allowance for loan losses and
lease losses. The policy statement provides guidance for financial  institutions
on both the  responsibilities of management for the assessment and establishment
of adequate  allowances  and  guidance  for banking  agency  examiners to use in
determining the adequacy of general valuation guidelines.  Generally, the policy
statement  recommends that  institutions  have effective systems and controls to
identify,  monitor and address asset quality problems,  that management  analyze
all  significant  factors that affect the ability to collect the  portfolio in a
reasonable manner and that management  establish acceptable allowance evaluation
processes that meet the objectives set forth in the policy  statement.  Although
management believes that adequate specific and general loan loss allowances have
been  established,  actual losses are dependent upon future events and, as such,
further  additions to the level of specific and general loan loss allowances may
become necessary. Federal examiners may disagree with the savings institution as
to the appropriate level of the institution's  allowance for loan losses.  While
management  believes Carver Federal has established its existing loss allowances
in accordance with generally  accepted  accounting  principles,  there can be no
assurance  that  regulators,  in reviewing  Carver  Federal's  assets,  will not
require  Carver  Federal to  increase  its loss  allowance,  thereby  negatively
affecting  Carver  Federal's  reported   financial   condition  and  results  of
operations.

     Carver Federal's methodology for establishing the allowance for loan losses
takes into consideration probable losses that have been identified in connection
with specific  loans as well as losses that have not been  identified but can be
expected to occur. Further,  management reviews the ratio of allowances to total
loans (including  projected  growth) and recommends  adjustments to the level of
allowances accordingly.  The Internal Asset Review Committee conducts reviews of
the  Bank's  loans on at  least a  quarterly  basis  and  evaluates  the need to
establish  general  and  specific  allowances  on the basis of this  review.  In
addition,  management  actively  monitors  Carver  Federal's  asset  quality and
charges off loans and  properties  acquired in  settlement  of loans against the
allowances for losses on loans and such properties when appropriate and provides
specific loss reserves when necessary.  Although management believes it uses the
best information available to make determinations with respect to the allowances
for losses,  future  adjustments may be necessary if economic  conditions differ
substantially from the economic conditions in the assumptions used in making the
initial determinations.

     Additionally,  the Internal Asset Review Committee reviews Carver Federal's
assets  on  a  quarterly   basis  to  determine   whether  any  assets   require
classification or  re-classification.  The Bank has a centralized loan servicing
structure that relies upon outside servicers,  each of which generates a monthly
report of delinquent  loans.  The Board has designated the Internal Asset Review
Committee to perform  quarterly  reviews of the Bank's asset quality,  and their
report is submitted to the Board for review.  The Asset  Liability  and Interest
Rate Risk  Committee  of the  Board  establishes  policy  relating  to  internal
classification  of loans and also  provides  input to the Internal  Asset Review
Committee in its review of  classified  assets.  In  originating  loans,  Carver
Federal  recognizes that credit losses will occur and that the risk of loss will
vary with, among other things, the type of loan being made, the creditworthiness
of the borrower over the term of the loan,  general economic  conditions and, in
the case of a secured  loan,  the quality of the  security  for the loan.  It is
management's  policy to maintain a general  allowance  for loan losses based on,
among other things, regular reviews of delinquencies and loan portfolio quality,
character and size, the Bank's and the industry's  historical and projected loss
experience  and  current  and  forecasted  economic  conditions.   In  addition,
considerable uncertainty exists as to the future improvement or deterioration of
the real estate markets in various states, or of their ultimate impact on Carver
Federal  as a result  of its  purchased  loans in such  states.  See  "--Lending
Activities--Loan  Purchases  and  Originations."  Carver  Federal  increases its
allowance for loan losses by charging provisions for possible losses against the
Bank's income.  General  allowances  are  established by the Board on at least a
quarterly basis based on an assessment of risk in the Bank's loans,  taking into
consideration the composition and quality of the portfolio,  delinquency trends,
current charge-off and loss experience,  the state of the real estate market and
economic conditions  generally.  Specific allowances are provided for individual
loans, or portions of loans, when ultimate  collection is considered  improbable
by management based on the current payment status of the loan and the fair value
or net realizable value of the security for the loan.

     At the date of  foreclosure or other  repossession  or at the date the Bank
determines a property is an impaired  property,  the Bank transfers the property
to real  estate  acquired  in  settlement  of loans at the lower of cost or fair
value, less estimated selling costs. Fair value is defined as the amount in cash
or cash-equivalent  value of other consideration that a real estate parcel would
yield in a current sale between a willing buyer and a willing seller. Any amount
of cost in excess of fair value is  charged-off  against the  allowance for loan
losses.  Carver Federal records an allowance for estimated  selling costs of the
property  immediately after foreclosure.  Subsequent to acquisition,  management
periodically  evaluates  the property and an  allowance  is  established  if the
estimated fair value of the property,  less estimated  costs to sell,  declines.
If, upon ultimate disposition of the property, net sales proceeds exceed the net
carrying  value of the property,  a gain on sale of real estate is recorded.  At
March 31, 2006, the Bank had no foreclosed real estate,  however, as a result of
a property tax redemption, the Bank took fee ownership of a vacant tract of land
in Bayshore, NY. See Note 1 of Notes to Consolidated Financial Statements.

     The following  table sets forth an analysis of Carver  Federal's  allowance
for loan losses for the periods indicated.

<TABLE>

                                                                                 YEAR ENDED MARCH 31,
                                                       -------------------------------------------------------------------------
                                                           2006           2005           2004           2003            2002
                                                       ------------   ------------   ------------   ------------    ------------
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                    <C>            <C>            <C>            <C>             <C>
Balance at beginning of year                           $      4,097   $      4,125   $      4,158   $      4,128    $      3,551
Loans charged-off:
  Real Estate:
    One- to four-family                                          17              8              6              2              --
    Non-residential                                              --             --             55             --              --
  Consumer and business                                         100             65            264            226             500
                                                       ------------   ------------   ------------   ------------    ------------
      Total Charge-offs                                         117             73            325            228             500
                                                       ------------   ------------   ------------   ------------    ------------

Recoveries:
  One- to four-family                                             5             --            107             --               3
  Non-residential                                                --             --             10             --              --
  Consumer and business                                          30             45            175            258             174
                                                       ------------   ------------   ------------   ------------    ------------
    Total Recoveries                                             35             45            292            258             177
                                                       ------------   ------------   ------------   ------------    ------------
Net loans charged-off (recovered)                                82             28             33            (30)            323
                                                       ------------   ------------   ------------   ------------    ------------
  Provision for losses                                           --             --             --             --             900
                                                       ------------   ------------   ------------   ------------    ------------
Balance at end of year                                 $      4,015   $      4,097   $      4,125   $      4,158    $      4,128
                                                       ============   ============   ============   ============    ============

Ratio of net charge-offs to average loans outstanding          0.02%          0.01%          0.01%        -0.01%            0.11%
Ratio of allowance to total loans                              0.81%          0.96%          1.16%          1.40%           1.41%
Ratio of allowance to non-performing assets (1)              147.07%        410.65%        194.30%        230.74%         146.23%
</TABLE>

(1)  Non-performing  assets consist of non-accrual loans, accruing loans 90 days
     or more past due and property acquired in settlement of loans.

     The  following  table  allocates  the  allowance  for loan  losses by asset
category  at the  dates  indicated.  The  allocation  of the  allowance  to each
category is not  necessarily  indicative  of future losses and does not restrict
the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
                                                                                                     AT MARCH 31,
                                  ----------------------------------------------------------------------------------------
                                              2006                          2005                          2004
                                  ---------------------------    --------------------------    ---------------------------
                                                  % OF LOANS                    % OF LOANS                    % OF LOANS
                                                   IN EACH                       IN EACH                        IN EACH
                                                   CATEGORY                      CATEGORY                       CATEGORY
                                                   TO TOTAL                      TO TOTAL                       TO TOTAL
                                     AMOUNT       GROSS LOANS       AMOUNT      GROSS LOANS       AMOUNT       GROSS LOANS
                                  ------------   ------------    ------------   -----------    ------------   ------------
<S>                               <C>            <C>             <C>            <C>            <C>            <C>
                                                                     (DOLLARS IN THOUSANDS)
Loans:
  Real Estate
    One- to four-family           $        565          28.91%   $        528          36.69%   $        355          27.80%
    Multifamily                          1,084          21.11%            898          23.99%          1,240          33.88%
    Non-residential                        960          31.05%          1,129          27.49%            853          28.92%
    Construction                           303          18.64%            212          11.43%            158           7.71%
  Consumer and business                    442           0.29%            554           0.40%            487           1.69%
 Unallocated                               661            N/A             776            N/A           1,032            N/A
                                  ------------   ------------    ------------   ------------    ------------   ------------
Total Allowance for loan losses   $      4,015         100.00%   $      4,097         100.00%   $      4,125         100.00%
                                  ============   ============    ============   ============    ============   ============
</TABLE>

<TABLE>
<CAPTION>
                                  ----------------------------------------------------------
                                             2003                           2002
                                  --------------------------     ---------------------------
                                                 % OF LOANS                     % OF LOANS
                                                   IN EACH                       IN EACH
                                                   CATEGORY                      CATEGORY
                                                   TO TOTAL                      TO TOTAL
                                     AMOUNT       GROSS LOANS       AMOUNT      GROSS LOANS
                                  ------------   ------------    ------------   ------------

Loans:
  Real Estate
<S>                               <C>            <C>             <C>            <C>
    One- to four-family           $        298          24.20%   $        429          41.84%
    Multifamily                            656          44.45%          1,468          40.39%
    Non-residential                      1,967          26.74%            729          13.66%
    Construction                           170           3.89%             76           3.32%
  Consumer and business                    344           0.72%            377           0.79%
 Unallocated                               723            N/A           1,049            N/A
                                  ------------   ------------    ------------   ------------
Total Allowance for loan losses   $      4,158         100.00%   $      4,128         100.00%
                                  ============   ============    ============   ============
</TABLE>

INVESTMENT ACTIVITIES

     GENERAL. The Bank utilizes  mortgage-backed and other investment securities
in its asset/liability  management strategy. In making investment decisions, the
Bank considers,  among other things, its yield and interest rate objectives, its
interest rate and credit risk position and its liquidity and cash flow.

     The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations.  Liquidity may increase or decrease depending upon
the  availability of funds and comparative  yields on investments in relation to
the  return  on loans.  The  Bank's  liquidity  policy  requires  that cash flow
projections are regularly reviewed and updated to assure that adequate liquidity
is maintained.

     Generally,  the  investment  policy  of the Bank is to invest  funds  among
categories of investments and maturities  based upon the Bank's  asset/liability
management policies,  investment quality, loan and deposit volume and collateral
requirements, liquidity needs and performance objectives. Statement of Financial
Accounting  Standards ("SFAS") No. 115,  "ACCOUNTING FOR CERTAIN  INVESTMENTS IN
DEBT AND EQUITY  SECURITIES",  requires that securities be classified into three
categories: trading, held-to-maturity,  and available-for-sale.  Securities that
are bought and held principally for the purpose of selling them in the near term
are  classified  as  trading  securities  and are  reported  at fair  value with
unrealized gains and losses included in earnings.  Debt securities for which the
Bank has the positive  intent and ability to hold to maturity are  classified as
held-to-maturity  and  reported at  amortized  cost.  All other  securities  not
classified as trading or held-to-maturity  are classified as  available-for-sale
and  reported at fair value with  unrealized  gains and losses  included,  on an
after-tax basis, in a separate  component of stockholders'  equity. At March 31,
2006, the Bank had no securities classified as trading. At March 31, 2006, $81.9
million, or 75.6% of the Bank's mortgage-backed and other investment securities,
was classified as available-for-sale. The remaining $26.4 million, or 24.4%, was
classified as held-to-maturity.

     MORTGAGE-BACKED  SECURITIES.  The  Bank  has  invested  in  mortgage-backed
securities  in  order  to  achieve  its  asset/liability  management  goals  and
collateral needs. Although mortgage-backed securities generally yield from 60 to
100 basis points less than whole loans, they present  substantially lower credit
risk,  are  more  liquid  than  individual  mortgage  loans  and  may be used to
collateralize  obligations of the Bank.  Because Carver Federal receives regular
payments of principal and interest from its  mortgage-backed  securities,  these
investments  provide more consistent  cash flows than  investments in other debt
securities,  which  generally  only pay  principal at maturity.  Mortgage-backed
securities  also help the Bank meet  certain  definitional  tests for  favorable
treatment   under  federal   banking  and  tax  laws.  See   "--Regulation   and
Supervision--Federal  Banking  Regulation--QTL  Test"  and  "Federal  and  State
Taxation."

     At March 31, 2006,  mortgage-backed  securities  constituted 14.6% of total
assets,  as compared to 20.2% of total assets at March 31, 2005.  Carver Federal
maintains a significant  portfolio of mortgage-backed  securities in the form of
Government National Mortgage  Association  ("GNMA")  pass-through  certificates,
FNMA and FHLMC participation  certificates.  GNMA pass-through  certificates are
guaranteed  as to the payment of  principal  and  interest by the full faith and
credit of the United States  Government  while FNMA and FHLMC  certificates  are
each  guaranteed  by their  respective  agencies as to principal  and  interest.
Mortgage-backed  securities  generally  entitle  Carver Federal to receive a pro
rata portion of the cash flows from an identified  pool of  mortgages.  The cash
flows from such pools are segmented and paid in accordance  with a predetermined
priority to various classes of securities  issued by the entity.  Carver Federal
has also  invested in pools of loans  guaranteed as to principal and interest by
the Small Business Administration ("SBA").

     The Bank seeks to manage interest rate risk by investing in adjustable-rate
mortgage-backed  securities,  which at March 31, 2006 constituted $91.7 million,
or  95.6%  of  the   mortgage-backed   securities   portfolio.   Mortgage-backed
securities,  however,  expose  Carver  Federal to  certain  unique  risks.  In a
declining rate  environment,  accelerated  prepayments of loans underlying these
securities  expose  Carver  Federal to the risk that it will be unable to obtain
comparable  yields  upon  reinvestment  of  the  proceeds.   In  the  event  the
mortgage-backed security has been funded with an interest-bearing liability with
maturity  comparable  to the  original  estimated  life  of the  mortgage-backed
security,   the  Bank's  interest  rate  spread  could  be  adversely  affected.
Conversely,  in a rising  interest rate  environment,  the Bank may experience a
lower than estimated rate of repayment on the underlying mortgages,  effectively
extending the estimated  life of the  mortgage-backed  security and exposing the
Bank to the risk  that it may be  required  to fund the asset  with a  liability
bearing a higher rate of interest.

     The  following  table sets  forth the  carrying  value of Carver  Federal's
mortgage-backed securities at the dates indicated.

                                           AT MARCH 31,
                                  -------------------------------
                                   2006        2005       2004
                                  --------   --------   --------
                                          (IN THOUSANDS)
AVAILABLE-FOR-SALE:
  GNMA                            $ 63,007   $ 83,425   $ 55,512
  Fannie Mae                         4,589      8,149     12,626
  FHLMC                              2,209      3,908      6,712
                                  --------   --------   --------
Total available-for-sale            69,805     95,482     74,850
                                  --------   --------   --------
HELD-TO-MATURITY:
  GNMA                            $    809   $  1,070   $  1,465
  Fannie Mae                         7,900     10,780     20,386
  FHLMC                             17,372     19,115     21,305
   Other                               323        337        318
                                  --------   --------   --------
Total held-to-maturity              26,404     31,302     43,474
                                  --------   --------   --------
Total mortgage-backed securities  $ 96,209   $126,784   $118,324
                                  ========   ========   ========

     The following  table sets forth the scheduled  final  maturities,  book and
fair values for Carver Federal's  mortgage-backed  securities at March 31, 2006.
Expected  maturities  will differ from  contractual  maturities due to scheduled
repayments  and  because  borrowers  may  have  the  right  to  call  or  prepay
obligations with or without prepayment  penalties.  The following table does not
take into  consideration  the effects of scheduled  repayments or the effects of
possible prepayments.

                                                     WEIGHTED
                                  BOOK      FAIR     AVERAGE
                                  VALUE     VALUE      RATE
                                 -------   -------   --------
                                   (Dollars in thousands)

AVAILABLE-FOR-SALE :
One through five years           $   300   $   303       6.23%
Five through ten years             1,524     1,471       4.53%
After ten years                   68,600    68,031       3.78%
                                 -------   -------   --------
                                 $70,424   $69,805       3.81%
                                 =======   =======   ========
HELD-TO-MATURITY:
One through five years           $    50   $    50       5.69%
After ten years                   26,354    25,830       5.65%
                                 -------   -------   --------
                                 $26,404   $25,880       5.65%
                                 =======   =======   ========

     OTHER INVESTMENT SECURITIES. In addition to mortgage-backed securities, the
Bank also  invests  in  high-quality  assets  (primarily  government  and agency
obligations)  with short and intermediate  terms (typically seven years or less)
to  maturity.  Carver  Federal is  permitted  under  federal law to make certain
investments,  including  investments  in  securities  issued by various  federal
agencies and state and municipal governments,  deposits at the Federal Home Loan
Bank  ("FHLB"),  certificates  of deposit  in  federally  insured  institutions,
certain  bankers'  acceptances  and  federal  funds.  The Bank may also  invest,
subject  to  certain  limitations,  in  commercial  paper  having one of the two
highest investment ratings of a nationally  recognized credit rating agency, and
certain other types of corporate  debt  securities  and mutual funds.  In fiscal
2005, as a result of the attempted  acquisition of Independence  Federal Savings
Bank ("IFSB"),  Carver  invested in 150,000 shares of IFSB common stock totaling
$3.1 million.  However,  on May 11, 2005,  subsequent to the termination of that
acquisition agreement, the Company sold its entire equity investment in IFSB for
an aggregate price of $1.6 million.

     The following table sets forth the carrying value of Carver Federal's other
securities available-for-sale at the dates indicated.

                                                      AT MARCH 31,
                                           ---------------------------------
                                              2006        2005        2004
                                           ---------   ---------   ---------
                                                    (IN THOUSANDS)
U.S. Government and Equity securities:
  Available-for-sale                       $  12,077   $  22,551   $  21,553
                                           =========   =========   =========

     The following  table sets forth by scheduled  maturities  the book and fair
values for Carver  Federal's other  securities  available-for-sale  at March 31,
2006.

                                                                 WEIGHTED
                                     BOOK           FAIR          AVERAGE
                                    VALUE          VALUE           RATE
                                 ------------   ------------   ------------
                                       (IN THOUSANDS)
Available-for-sale:
  Less than one year             $      2,000   $      1,982           2.43%
  One through five years               10,386         10,095           3.85%
                                 ------------   ------------   ------------
                                 $     12,386   $     12,077           3.62%
                                 ============   ============   ============


     OTHER EARNING ASSETS.  Federal  regulations require the Bank to maintain an
investment  in FHLB stock and a sufficient  amount of liquid assets which may be
invested in cash and  specified  securities.  For  additional  information,  see
"--Regulation and Supervision--Federal Banking Regulation--Liquidity."

     The  following  table sets  forth the  carrying  value of Carver  Federal's
investment in FHLB stock and liquid assets at the dates indicated.

                                      AT MARCH 31,
                            ------------------------------
                              2006       2005       2004
                            --------   --------   --------
                                    (IN THOUSANDS)

  FHLB stock                $  4,627   $  5,125   $  4,576
  Federal funds sold           8,700      6,800      8,200

Deposit Activity and Other Sources of Funds

     GENERAL.  Deposits  are the primary  source of Carver  Federal's  funds for
lending and other investment purposes.  In addition to deposits,  Carver Federal
derives  funds from loan  principal  repayments,  loan and  investment  interest
payments,   maturing  investments  and  fee  income.  Loan  and  mortgage-backed
securities  repayments and interest  payments are a relatively  stable source of
funds,  while  deposit  inflows and outflows  are  significantly  influenced  by
prevailing market interest rates,  pricing of deposits,  competition and general
economic  conditions.  Borrowed  money  may be used  to  supplement  the  Bank's
available  funds, and from time to time the Bank borrows funds from the FHLB and
has borrowed funds through repurchase agreements.

     DEPOSITS.  Carver Federal  attracts  deposits  principally  from within its
market area by offering a variety of deposit instruments, including passbook and
statement accounts and certificates of deposit, which range in term from 91 days
to seven  years.  Deposit  terms vary,  principally  on the basis of the minimum
balance  required,  the length of time the funds must  remain on deposit and the
interest rate. Carver Federal also offers Individual Retirement Accounts. Carver
Federal's  policies  are  designed  primarily  to  attract  deposits  from local
residents and businesses through the Bank's branch offices.  Carver Federal also
holds  deposits  from  various   governmental   agencies  or   authorities   and
corporations.  At March  31,  2006 the  Bank  held  $10.6  million  in  brokered
deposits, specifically certificates of deposits.

     Deposit interest rates,  maturities,  service fees and withdrawal penalties
on deposits are established  based on the Bank's funds acquisition and liquidity
requirements,  the rates paid by the Bank's  competitors,  current market rates,
the Bank's growth goals and applicable regulatory restrictions and requirements.

     The  following  table sets forth the  change in dollar  amount of  deposits
accounts offered by Carver Federal between the dates  indicated.  In fiscal 2006
the Bank opened one additional stand-alone ATMs in Bedford Stuyvesant, Brooklyn.
During fiscal 2005 the Bank opened two branch offices as well as two stand-alone
ATMs.  The first  branch  office  and ATM was  opened  in July 2004 at  Atlantic
Terminal in Fort  Greene,  Brooklyn.  A second ATM at 116th  Street and a branch
office at 145th Street in Harlem were opened in December  2004 and January 2005,
respectively.  During fiscal 2004 the Bank opened two stand-alone ATMs in Harlem
and a new branch office in Jamaica,  Queens.  The Bank's branch offices on 116th
Street  and 145th  Street in Harlem  and in  Jamaica  operate  in New York State
designated Banking Development Districts ("BDD"),  which allow Carver Federal to
participate in BDD-related activities, including acquiring New York City and New
York State deposits. As of March 31, 2006, Carver Federal held $136.1 million in
BDD deposits.


                                                YEAR ENDED MARCH 31,
                                           --------------------------------
                                             2006        2005        2004
                                           --------------------------------
                                                (DOLLARS IN THOUSANDS)

Deposits at beginning of year              $455,870    $375,519    $349,066
Net increase before interest credited        39,847      74,896      21,804
Interest credited                             8,921       5,455       4,649
                                           --------    --------    --------
Deposits at end of year                    $504,638    $455,870    $375,519
                                           ========    ========    ========

Net increase during the year:
  Amount                                   $ 48,768    $ 80,351    $ 26,453
                                           ========    ========    ========
  Percent                                      10.7%       21.4%        7.6%
                                           ========    ========    ========


     The following table sets forth the distribution in the various types of the
Bank's deposit  accounts and the related weighted average interest rates paid at
the dates indicated.


<TABLE>
<CAPTION>
                                                                       AT MARCH 31,
                                ----------------------------------------------------------------------------------------------
                                                    2006                                            2005
                                ----------------------------------------------  ----------------------------------------------
                                                  PERCENT OF      WEIGHTED                        PERCENT OF       WEIGHTED
                                                    TOTAL         AVERAGE                           TOTAL           AVERAGE
                                    AMOUNT         DEPOSITS         RATE            AMOUNT         DEPOSITS          RATE
                                --------------  --------------  --------------  --------------  --------------  --------------
                                                                                            (DOLLARS IN THOUSANDS)

<S>                             <C>             <C>             <C>             <C>             <C>             <C>
Non-interest-bearing demand     $       31,085             6.2%             --% $       25,570             5.6%             --%
NOW demand                              27,904             5.5            0.31          24,095             5.3            0.30
Savings and clubs                      139,724            27.7            0.68         137,810            30.2            0.62
Money market savings                    40,045             7.9            2.41          36,294             8.0            1.34
Certificates of deposit                263,963            52.3            3.76         229,685            50.4            2.30
Other                                    1,917             0.4            1.47           2,416             0.5            1.13
                                --------------  --------------  --------------  --------------  --------------  --------------
Total                           $      504,638           100.0%           2.37% $      455,870           100.0%           1.47%
                                ==============  ==============  ==============  ==============  ==============  ==============
</TABLE>


                                ----------------------------------------------
                                                    2004
                                ----------------------------------------------
                                                 PERCENT OF        WEIGHTED
                                                    TOTAL          AVERAGE
                                    AMOUNT         DEPOSITS          RATE
                                --------------  --------------  --------------
                                           (DOLLARS IN THOUSANDS)

Non-interest-bearing demand     $       20,966             5.6%             --%
NOW demand                              22,671             6.0            0.30
Savings and clubs                      131,120            34.9            0.60
Money market savings                    30,842             8.2            0.74
Certificates of deposit                168,066            44.8            1.97
Other                                    1,854             0.5            1.46
                                --------------  --------------  --------------
Total                           $      375,519           100.0%           1.18%
                                ==============  ==============  ==============

     The following table sets forth the amount and maturities of certificates of
deposit in specified  weighted  average  interest  rate  categories at March 31,
2006.

<TABLE>
<CAPTION>
                                            PERIOD TO MATURITY                                 MARCH 31,
                 ----------------------------------------------------------------------  ----------------------
                  LESS THAN                            AFTER       TOTAL      PERCENT
    RATE          ONE YEAR   1-2 YEARS   2-3 YEARS    3 YEARS      2006       OF TOTAL      2005        2004
---------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
<S>              <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
                                                    (Dollars in thousands)

0% - 0.99%       $      635  $       16  $       10  $       85  $      746        0.28 % $     688  $   29,848
1% - 1.99%            8,826         304           7          --       9,137        3.46     122,459      69,434
2% - 3.99%          105,120      14,943       7,862       9,677     137,602       52.13      92,181      53,294
4% and over         102,997       4,932       2,577       5,972     116,478       44.13      14,357      15,490
                 ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
  Total          $  217,578  $   20,195  $   10,456  $   15,734  $  263,963      100.00 % $ 229,685  $  168,066
                 ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========
</TABLE>

     Carver  Federal's  certificates  of deposit of $100,000 or more were $183.5
million as of March 31, 2006 compared to $161.7 million at March 31, 2005. These
certificates of deposit over $100,000 include BDD deposits of $136.1 million and
$101.0  million at March 31, 2006 and 2005,  respectively.  Other  deposits with
balances of $100,000 or more totaled $ 80.9  million and $64.8  million at March
31, 2006 and 2005, respectively.

     BORROWED  MONEY.  Deposits  are the  primary  source  of funds  for  Carver
Federal's lending,  investment and general operating activities.  Carver Federal
is authorized,  however, to use advances and securities sold under agreements to
repurchase  ("Repos") from the FHLB and approved  primary  dealers to supplement
its  supply  of funds  and to meet  deposit  withdrawal  requirements.  The FHLB
functions  as a central  bank  providing  credit for  savings  institutions  and
certain  other member  financial  institutions.  As a member of the FHLB system,
Carver  Federal is required to own stock in the FHLB and is  authorized to apply
for advances.  Advances are made pursuant to several different programs, each of
which has its own interest rate and range of maturities.  Advances from the FHLB
are  secured  by  Carver  Federal's  stock in the FHLB  and a pledge  of  Carver
Federal's mortgage loan and mortgage-backed  securities  portfolios.  One of the
elements of Carver  Federal's  investment  strategy  is to leverage  the balance
sheet by  increasing  liabilities  with FHLB  advances  and Repos and  investing
borrowed funds primarily in  adjustable-rate  mortgage loan and  mortgage-backed
securities products.

     On  September  17,  2003,  Carver  Federal  Trust I issued  13,000  shares,
liquidation amount $1,000 per share, of floating rate capital securities.  Gross
proceeds  from the sale of these  trust  preferred  debt  securities  were $13.0
million  and,  together  with the proceeds  from the sale of the trust's  common
securities,   were  used  to  purchase  approximately  $13.4  million  aggregate
principal amount of the Holding Company's floating rate junior subordinated debt
securities  due  2033.  The  trust  preferred  debt  securities  are  redeemable
quarterly  at the option of the Company  beginning  on or after July 7, 2007 and
have a mandatory  redemption date of September 17, 2033. Cash  distributions  on
the trust  preferred  debt  securities  are cumulative and payable at a floating
rate per annum (reset  quarterly) equal to 3.05% over 3-month LIBOR, with a rate
at March 31, 2006 of 7.97%. The subordinated  debt securities  amounted to $12.9
million  at March  31,  2006 and are  included  in other  borrowed  money on the
consolidated statement of financial condition. The Bank takes into consideration
the term of borrowed money with the repricing cycle of the mortgage loans on the
balance sheet. At March 31, 2006,  Carver Federal had outstanding  $93.8 million
in total borrowed  money,  consisting of the  subordinated  debt  securities and
advances from FHLB.

     The  following  table  sets  forth  certain  information  regarding  Carver
Federal's borrowed money at the dates and for the periods indicated:


<TABLE>
<CAPTION>
                                                                                          AT OR FOR THE YEAR ENDED
                                                                                                  MARCH 31,
                                                                                       --------   ---------   --------
                                                                                         2006       2005        2004
                                                                                       --------   ---------   --------
                                                                                          (DOLLARS IN THOUSANDS)
<S>                                                                                    <C>        <C>         <C>
Amounts outstanding at the end of year:
  FHLB-NY advances                                                                     $ 80,935   $ 102,500   $ 91,516
  Guaranteed preferred beneficial interest in junior subordinated debentures             12,857      12,799     12,741
  Loan for employee stock ownership plan                                                     --          --         25

Rate paid at year end:
  FHLB-NY advances                                                                         4.13%       3.78%      3.92%
  Guaranteed preferred beneficial interest in junior subordinated debentures               7.97%       6.08%      4.16%
  Loan for employee stock ownership plan                                                     --          --       4.00%

Maximum amount of borrowing outstanding at any month end:
  FHLB-NY advances                                                                     $112,488   $ 112,506   $112,030
  Guaranteed preferred beneficial interest in junior subordinated debentures             12,857      12,799     12,742
  Loan for employee stock ownership plan                                                     --          --        207

Approximate average amounts outstanding for year:
  FHLB-NY advances                                                                     $ 94,798   $  97,013   $ 99,359
  Guaranteed preferred beneficial interest in junior subordinated debentures             12,827      12,768      6,854
  Loan for employee stock ownership plan                                                     --          --        137

Approximate weighted average rate paid during the year (1):
  FHLB-NY advances                                                                         3.81%       3.71%      3.74%
  Guaranteed preferred beneficial interest in junior subordinated debentures               7.50%       5.49%      4.78%
  Loan for employee stock ownership plan                                                     --          --       4.07%
</TABLE>

(1)  The approximate  weighted average rate paid during the year was computed by
     dividing the average amounts  outstanding into the related interest expense
     for the year.

REGULATION AND SUPERVISION

GENERAL

     The Bank is subject to extensive regulation, examination and supervision by
its primary  regulator,  the OTS. The Bank's deposit  accounts are insured up to
applicable  limits by the Federal Deposit Insurance  Corporation  ("FDIC") under
the Savings Association Insurance Fund ("SAIF"), and it is a member of the FHLB.
The Bank must file reports with the OTS  concerning its activities and financial
condition,  and it must  obtain  regulatory  approvals  prior to  entering  into
certain transactions, such as mergers with, or acquisitions of, other depository
institutions.  The  Holding  Company,  as a  unitary  savings  and loan  holding
company, is subject to regulation, examination and supervision by the OTS and is
required to file certain reports with, and otherwise  comply with, the rules and
regulations of the OTS and of the Securities and Exchange Commission (the "SEC")
under the federal  securities  laws. The OTS and the FDIC  periodically  perform
safety and soundness  examinations  of the Bank and the Holding Company and test
our  compliance  with  various  regulatory  requirements.  The OTS  has  primary
enforcement  responsibility  over  federally  chartered  savings  banks  and has
substantial discretion to impose enforcement action on an institution that fails
to comply with applicable regulatory requirements,  particularly with respect to
its capital requirements.  In addition,  the FDIC has the authority to recommend
to the  Director of the OTS that  enforcement  action be taken with respect to a
particular  federally  chartered savings bank and, if action is not taken by the
Director,   the  FDIC  has   authority  to  take  such  action   under   certain
circumstances.

     This  regulation and supervision  establishes a comprehensive  framework to
regulate and control the  activities in which an  institution  can engage and is
intended primarily for the protection of the insurance fund and depositors. This
structure  also  gives  the  regulatory   authorities  extensive  discretion  in
connection with their  supervisory  and  enforcement  activities and examination
policies,  including  policies with respect to the  classification of assets and
the  establishment of adequate loan loss reserves for regulatory  purposes.  Any
change in such laws and  regulations  whether  by the OTS,  the FDIC or  through
legislation  could have a material  adverse  impact on the Bank and the  Holding
Company and their operations and stockholders.

     The  description  of statutory  provisions  and  regulations  applicable to
federally chartered savings banks and their holding companies and of tax matters
set forth in this document does not purport to be a complete  description of all
such  statutes  and  regulations  and their  effects on the Bank and the Holding
Company.

FEDERAL BANKING REGULATION

     ACTIVITY  POWERS.  The Bank derives its lending and investment  powers from
the Home Owners' Loan Act, as amended ("HOLA"),  and the regulations of the OTS.
Under these laws and regulations,  the Bank may invest in mortgage loans secured
by  residential  and  commercial  real estate,  commercial  and consumer  loans,
certain types of debt  securities  and certain  other assets.  The Bank may also
establish  service  corporations  that may engage in  activities  not  otherwise
permissible for the Bank,  including certain real estate equity  investments and
securities and insurance  brokerage.  The Bank's  authority to invest in certain
types of loans or other investments is limited by federal law.

     LOANS TO ONE BORROWER  LIMITATIONS.  The Bank is  generally  subject to the
same  limits  on  loans to one  borrower  as a  national  bank.  With  specified
exceptions,  the Bank's total loans or extension of credit to a single  borrower
or group of  related  borrowers  may not  exceed  15% of the  Bank's  unimpaired
capital  and  unimpaired  surplus,  which  does not  include  accumulated  other
comprehensive  income.  The Bank may lend  additional  amounts  up to 10% of its
unimpaired  capital and unimpaired  surplus if the loans or extensions of credit
are fully secured by readily marketable collateral.  The Bank currently complies
with applicable loans to one borrower limitations. At March 31, 2006, the Bank's
limit on loans to one borrower based on its  unimpaired  capital and surplus was
$9.9 million.

     QTL TEST.  Under HOLA, the Bank must comply with a qualified  thrift lender
("QTL") test.  Under this test, the Bank is required to maintain at least 65% of
its "portfolio  assets" in certain  "qualified thrift  investments" on a monthly
basis in at least nine months of the most recent twelve-month period. "Portfolio
assets" means,  in general,  an  association's  total assets less the sum of (a)
specified  liquid  assets  up to 20% of total  assets,  (b)  goodwill  and other
intangible  assets  and (c) the value of  property  used to  conduct  the Bank's
business. "Qualified thrift investments" include various types of loans made for
residential  and  housing  purposes,   investments  related  to  such  purposes,
including certain  mortgage-backed and related securities and consumer loans. If
the Bank fails the QTL test, it must either  operate under certain  restrictions
on its  activities  or  convert  from a thrift  charter  to a bank  charter.  In
addition,  if the Bank does not requalify  under the QTL test within three years
after failing the test, the institution would be prohibited from engaging in any
activity  not  permissible  for a  national  bank and  would  have to repay  any
outstanding  advances from the FHLB as promptly as possible.  At March 31, 2006,
the Bank  maintained  approximately  69.3% of its portfolio  assets in qualified
thrift  investments.  The Bank had also met the QTL test in each of the prior 12
months and was, therefore, a qualified thrift lender.

     CAPITAL  REQUIREMENTS.  OTS  regulations  require  the  Bank to meet  three
minimum capital ratios:

          (1)  a tangible capital ratio  requirement of 1.5% of total assets, as
               adjusted under OTS regulations;

          (2)  a  leverage  ratio  requirement  of 4% of  core  capital  to such
               adjusted total assets; and

          (3)  a  risk-based  capital  ratio  requirement  of  8%  of  core  and
               supplementary capital to total risk-weighted assets.

     In determining compliance with the risk-based capital requirement, the Bank
must  compute its  risk-weighted  assets by  multiplying  its assets and certain
off-balance  sheet  items  by  risk-weights,  which  range  from 0% for cash and
obligations  issued by the U.S.  government or its agencies to 100% for consumer
and commercial  loans, as assigned by the OTS capital  regulations  based on the
risks that the OTS believes are inherent in the type of asset.

     Generally,  tangible  capital  is defined  as common  stockholders'  equity
(including retained earnings),  certain non-cumulative perpetual preferred stock
and  related  earnings  and  minority  interests  in  equity  accounts  of fully
consolidated  subsidiaries,   less  intangibles  (other  than  certain  mortgage
servicing  rights)  and  investments  in and loans to  subsidiaries  engaged  in
activities not permissible for a national bank.

     Core capital is defined  similarly to tangible  capital,  but also includes
certain  qualifying   supervisory   goodwill  less  certain  disallowed  assets.
Supplementary  capital includes  cumulative and other perpetual preferred stock,
mandatory convertible  securities,  subordinated debt and intermediate preferred
stock and the  allowance for loan and lease  losses.  In addition,  up to 45% of
unrealized  gains  on  available-for-sale   equity  securities  with  a  readily
determinable fair value may be included in supplementary  capital. The allowance
for loan and lease losses  includable in  supplementary  capital is limited to a
maximum  of 1.25% of  risk-weighted  assets,  and the  amount  of  supplementary
capital that may be included as total  capital  cannot exceed the amount of core
capital.

     In  assessing  an  institution's  capital  adequacy,  the  OTS  takes  into
consideration  not only these numeric factors but  qualitative  factors as well,
and has the authority to establish  higher capital  requirements  for individual
institutions  where  necessary.  The Bank,  as a matter of  prudent  management,
targets as its goal the maintenance of capital ratios which exceed these minimum
requirements and are consistent with the Bank's risk profile. At March 31, 2006,
the Bank exceeded each of its capital requirements with a tangible capital ratio
of 9.4%,  leverage capital ratio of 9.4% and total  risk-based  capital ratio of
13.2%.

     The  Federal  Deposit  Insurance  Corporation  Improvement  Act, as amended
("FDICIA"),  requires that the OTS and other  federal  banking  agencies  revise
their risk-based capital standards, with appropriate transition rules, to ensure
that they take into account interest rate risk,  concentrations  of risk and the
risks of  non-traditional  activities.  The OTS adopted  regulations,  effective
January 1, 1994, that set forth the methodology for calculating an interest rate
risk  ("IRR")  component  to be  incorporated  into the OTS  risk-based  capital
regulations.  On May 10,  2002,  the OTS  adopted an  amendment  to its  capital
regulations  which  eliminated  the  IRR  component  of the  risk-based  capital
requirement. Pursuant to the amendment, the OTS will continue to monitor the IRR
of individual institutions through the OTS requirements for IRR management,  the
ability  of  the  OTS to  impose  individual  minimum  capital  requirements  on
institutions  that exhibit a high degree of IRR, and the  requirements of Thrift
Bulletin  13a,  which  provides  guidance  on  the  management  of IRR  and  the
responsibility  of  boards of  directors  in that  area.  In  addition,  the OTS
monitors  the  IRR of  individual  institutions  through  a  variety  of  means,
including an analysis of the change in portfolio  value,  or NPV. NPV is defined
as the net present value of the expected future cash flows of an entity's assets
and  liabilities  and  therefore,  hypothetically  represents  the  value  of an
institution's  net worth. The OTS has also used this NPV analysis as part of its
evaluation of certain  applications or notices submitted by thrift institutions.
In addition, OTS Bulletin 13a provides guidance on the management of IRR and the
responsibility of boards of directors in that area. The OTS, through its general
oversight of the safety and soundness of savings associations, retains the right
to impose minimum capital  requirements on individual  institution to the extent
the institution is not in compliance with certain written guidelines established
by the OTS regarding NPV analysis. The OTS has not imposed any such requirements
on the Bank.

     PROMPT  CORRECTIVE ACTION  REGULATIONS.  Under the prompt corrective action
regulations,  the  OTS is  authorized  and,  in  some  cases,  required  to take
supervisory actions against  undercapitalized savings banks. For this purpose, a
savings bank would be placed in one of the following  five  categories  based on
the  bank's  regulatory  capital:   well-capitalized;   adequately  capitalized;
undercapitalized;      significantly     undercapitalized;     or     critically
undercapitalized.

     The  severity  of the action  authorized  or required to be taken under the
prompt  corrective  action  regulations  increases as a bank's capital decreases
within the three  undercapitalized  categories.  All banks are  prohibited  from
paying dividends or other capital distributions or paying management fees to any
controlling  person  if,  following  such   distribution,   the  bank  would  be
undercapitalized.  Generally,  a capital restoration plan must be filed with the
OTS  within  45  days  of  the  date  a  bank   receives   notice   that  it  is
"undercapitalized,"     "significantly    undercapitalized"    or    "critically
undercapitalized."  In addition,  various mandatory  supervisory  actions become
immediately  applicable to the institution,  including restrictions on growth of
assets and other forms of expansion.  Under the OTS  regulations,  generally,  a
federally  chartered  savings bank is treated as well  capitalized  if its total
risk-based capital ratio is 10% or greater,  its Tier 1 risk-based capital ratio
is 6% or greater, and its leverage ratio is 5% or greater, and it is not subject
to any order or  directive  by the OTS to meet a specific  capital  level.  When
appropriate,  the OTS can  require  corrective  action by a savings  association
holding company under the "prompt  corrective action" provisions of federal law.
At March 31, 2006, the Bank was considered well-capitalized by the OTS.

     LIMITATION ON CAPITAL  DISTRIBUTIONS.  The OTS imposes various restrictions
on the Bank's ability to make capital  distributions,  including cash dividends,
payments to repurchase or otherwise  acquire its shares and other  distributions
charged  against  capital.  A savings  institution  that is the  subsidiary of a
savings and loan holding company,  such as the Bank, must file a notice with the
OTS at least 30 days before  making a capital  distribution.  However,  the Bank
must file an  application  for prior approval if the total amount of its capital
distributions  (including  each  proposed  distribution),   for  the  applicable
calendar  year would  exceed the Bank's net income for that year plus the Bank's
retained net income for the previous two years.

     The Bank may not pay  dividends  to the Holding  Company if,  after  paying
those  dividends,  the Bank would fail to meet the required minimum levels under
risk-based  capital  guidelines  and the minimum  leverage and tangible  capital
ratio requirements or the OTS notified the Bank that it was in need of more than
normal supervision.

     The Bank is prohibited from making capital distributions if:

          (1)  the Bank would be undercapitalized following the distribution;

          (2)  the proposed  capital  distribution  raises  safety and soundness
               concerns; or

          (3)  the capital distribution would violate a prohibition contained in
               any statute, regulation or agreement.

     LIQUIDITY.  The Bank maintains  liquidity levels to meet operational needs.
In the normal  course of business,  the levels of liquid assets during any given
period are dependent on operating,  investing and financing activities. Cash and
due from banks, federal funds sold and repurchase  agreements with maturities of
three  months or less are the Bank's most liquid  assets.  The Bank  maintains a
liquidity policy to maintain  sufficient  liquidity to ensure its safe and sound
operations.

     BRANCHING. Subject to certain limitations,  federal law permits the Bank to
establish branches in any state of the United States. The authority for the Bank
to  establish  an  interstate  branch  network  would  facilitate  a  geographic
diversification of the Bank's  activities.  This authority under federal law and
OTS  regulations  preempts  any state law  purporting  to regulate  branching by
federal savings associations.

     COMMUNITY  REINVESTMENT.  Under the Community  Reinvestment Act, as amended
("CRA"),  as  implemented  by OTS  regulations,  the Bank has a  continuing  and
affirmative  obligation  to help meet the credit needs of its entire  community,
including  low and moderate  income  neighborhoods.  The CRA does not  establish
specific  lending  requirements  or programs  for the Bank nor does it limit the
Bank's discretion to develop the types of products and services that it believes
are best suited to its particular  community.  The CRA does however  require the
OTS, in connection with its examination of the Bank, to assess the Bank's record
of meeting  the  credit  needs of its  community  and to take such  record  into
account in its evaluation of certain applications by the Bank.

     In particular, the system focuses on three tests:

          (1)  a lending  test, to evaluate the  institution's  record of making
               loans in its assessment areas;

          (2)  an  investment  test,  to evaluate  the  institution's  record of
               investing in community development  projects,  affordable housing
               and programs  benefiting low or moderate  income  individuals and
               businesses; and

          (3)  a service test, to evaluate the institution's delivery of banking
               services  through  its  branch  offices,  ATM  centers  and other
               offices.

     The CRA also requires all  institutions to make public  disclosure of their
CRA ratings.  The Bank received an  "Outstanding"  CRA rating in its most recent
examination conducted in 2004.

     Regulations  require that we publicly disclose certain  agreements that are
in  fulfillment of CRA. The Holding  Company has no such  agreements in place at
this time.

     TRANSACTIONS  WITH  RELATED  PARTIES.  The  Bank's  authority  to engage in
transactions  with its  "affiliates"  and insiders is limited by OTS regulations
and by Sections 23A, 23B, 22 (g) and 22 (h) of the Federal  Reserve Act ("FRA").
In general,  these  transactions  must be on terms which are as favorable to the
Bank as comparable transactions with non-affiliates. Additionally, certain types
of these  transactions  are restricted to an aggregate  percentage of the Bank's
capital.  Collateral in specified amounts must usually be provided by affiliates
in order to receive loans from the Bank. In addition, OTS regulations prohibit a
savings bank from lending to any of its affiliates that is engaged in activities
that are not  permissible  for bank holding  companies and from  purchasing  the
securities of any affiliate other than a subsidiary.

     The Bank's authority to extend credit to its directors, executive officers,
and 10%  shareholders,  as well as to entities  controlled by such  persons,  is
currently  governed by the  requirements  of Sections 22(g) and 22(h) of the FRA
and Regulation O of the Federal Reserve Board ("FRB"). Among other things, these
provisions  require that  extensions  of credit to insiders (a) be made on terms
that are  substantially the same as, and follow credit  underwriting  procedures
that are not less stringent than, those  prevailing for comparable  transactions
with  unaffiliated  persons and that do not involve more than the normal risk of
repayment  or present  other  unfavorable  features  and (b) not exceed  certain
limitations on the amount of credit extended to such persons,  individually  and
in the aggregate,  which limits are based,  in part, on the amount of the Bank's
capital.  In addition,  extensions of credit in excess of certain limits must be
approved by the Bank's  board of  directors.  At March 31,  2006,  there were no
loans to officers or directors.

     The FRB has confirmed its previous  interpretations of Sections 23A and 23B
of the FRA with  Regulation  W. The OTS has also  conformed its  regulations  to
agree with  Regulation  W.  Regulation  W made  various  changes to existing law
regarding  Sections 23A and 23B,  including  expanding  the  definition  of what
constitutes an "affiliate" subject to Sections 23A and 23B and exempting certain
subsidiaries of state-chartered  banks from the restrictions of Sections 23A and
23B.

     The OTS regulations provide for additional  restrictions imposed on savings
associations  under  Section  11 of HOLA,  including  provisions  prohibiting  a
savings  association  from  making a loan to an  affiliate  that is  engaged  in
non-bank  holding  company  activities  and  provisions  prohibiting  a  savings
association  from  purchasing or investing in securities  issued by an affiliate
that is not a subsidiary.  The OTS  regulations  also include  certain  specific
exemptions from these  prohibitions.  The FRB and the OTS expect each depository
institution  that is subject to Sections 23A and 23B to  implement  policies and
procedures to ensure compliance with Regulation W and the OTS regulation.  These
regulations have had no material adverse effect on our business.

     Section 402 of the  Sarbanes-Oxley  Act prohibits the extension of personal
loans to  directors  and  executive  officers  of  issuers  (as  defined  in the
Sarbanes-Oxley  Act).  The  prohibition,  however,  does not apply to  mortgages
advanced by an insured depository institution, such as the Bank, that is subject
to the insider lending restrictions of Section 22(h) of the FRA.

     ASSESSMENT.  The OTS charges  assessments  to recover the cost of examining
savings associations and their affiliates.  These assessments are based on three
components: the size of the association, on which the basic assessment is based;
the  association's  supervisory  condition,   which  results  in  an  additional
assessment  based  on a  percentage  of the  basic  assessment  for any  savings
institution  with a composite rating of 3, 4, or 5 in its most recent safety and
soundness examination; and the complexity of the association's operations, which
results  in  an  additional  assessment  based  on a  percentage  of  the  basic
assessment  for any savings  association  that  managed over $1 billion in trust
assets,  serviced  for others  loans  aggregating  more than $1 billion,  or had
certain  off-balance  sheet assets  aggregating more than $1 billion.  Effective
July 1,  2004,  the OTS  adopted a final  rule  replacing  examination  fees for
savings and loan holding  companies  with  semi-annual  assessments.  For fiscal
2006, Carver paid $143,000 in OTS assessments.

     ENFORCEMENT.  The OTS has primary enforcement responsibility over the Bank.
This enforcement  authority includes,  among other things, the ability to assess
civil money penalties,  to issue cease and desist orders and to remove directors
and officers. In general, these enforcement actions may be initiated in response
to violations of laws and regulations and unsafe or unsound practices.

     STANDARDS  FOR  SAFETY  AND  SOUNDNESS.  The  OTS  has  adopted  guidelines
prescribing  safety and soundness  standards.  The guidelines  establish general
standards relating to internal controls and information systems,  internal audit
systems, loan documentation,  credit underwriting, interest rate exposure, asset
growth,  asset  quality,  earnings,  and  compensation,  fees and  benefits.  In
general,  the guidelines  require,  among other things,  appropriate systems and
practices  to  identify  and manage  the risks and  exposures  specified  in the
guidelines.  In addition, OTS regulations authorize, but do not require, the OTS
to order an  institution  that has been given  notice that it is not  satisfying
these safety and  soundness  standards to submit a  compliance  plan.  If, after
being so notified,  an institution fails to submit an acceptable compliance plan
or fails in any material  respect to implement an accepted  compliance plan, the
OTS must issue an order directing action to correct the deficiency and may issue
an order  directing  other  actions  of the  types to which an  undercapitalized
association  is subject  under the  "prompt  corrective  action"  provisions  of
federal law. If an institution  fails to comply with such an order,  the OTS may
seek to enforce  such order in judicial  proceedings  and to impose  civil money
penalties.

     INSURANCE  OF DEPOSIT  ACCOUNTS.  The Bank is a member of the SAIF and pays
its deposit  insurance  assessments to the SAIF. The FDIC also maintains another
insurance  fund,  BIF, which  primarily  insures the deposits of banks and state
chartered  savings banks.  Under federal law, the FDIC  established a risk-based
assessment system for determining the deposit  insurance  assessments to be paid
by  insured  depository  institutions.  Under the  assessment  system,  the FDIC
assigns  an  institution  to  one  of  three  capital  categories  based  on the
institution's financial information as of the quarter ending three months before
the beginning of the assessment  period:  (1)  well-capitalized,  (2) adequately
capitalized and (3) undercapitalized.  An institution's  assessment rate depends
on the capital category and supervisory category to which it is assigned.  Under
the  regulation,   there  are  nine  assessment  risk   classifications   (i.e.,
combinations  of capital groups and  supervisory  subgroups) to which  different
assessment  rates are applied.  Assessment  rates  currently  range from 0.0% of
deposits for an institution in the highest category (i.e.,  well-capitalized and
financially  sound,  with no more  than a few  minor  weaknesses)  to  0.27%  of
deposits for an institution in the lowest category (i.e.,  undercapitalized  and
substantial supervisory concern). The FDIC is authorized to raise the assessment
rates as  necessary  to  maintain  the  required  reserve  ratio of the  deposit
insurance fund to 1.25%.

     In addition,  all FDIC insured institutions are required to pay assessments
to the FDIC at an annual  rate of  approximately  1.44% per  $100,000 of insured
deposits  to  fund  interest  payments  on the  bonds  issued  by the  Financing
Corporation  ("FICO"),  an  agency  of the  federal  government  established  to
recapitalize the predecessor to the SAIF. These  assessments will continue until
the FICO bonds mature in 2017.  The Bank's total expense in fiscal 2006 for FDIC
assessment  for FICO bonds  interest  payments  was  $61,000.  Due to the Bank's
favorable   assessment  risk  classification  there  was  no  deposit  insurance
assessment on our deposits for fiscal 2006.

     FEDERAL HOME LOAN BANK  SYSTEM.  The Bank is a member of the FHLB -NY which
is one of the  twelve  regional  FHLBs  composing  the FHLB  System.  Each  FHLB
provides a central credit facility  primarily for its member  institutions.  The
Bank, as an FHLB member, is required to acquire and hold shares of capital stock
in the  FHLB-NY in an amount  equal to the  greater  of (i) 1% of the  aggregate
principal  amount  of its  unpaid  residential  mortgage  loans,  home  purchase
contracts and similar obligations at the beginning of each year, and (ii) 5% (or
such greater  fraction as established by the FHLB) of its  outstanding  advances
from  the  FHLB.  The Bank  was in  compliance  with  this  requirement  with an
investment  in the capital  stock of the FHLB at March 31, 2006 of $4.6 million.
Any advances from a FHLB must be secured by specified  types of collateral,  and
all long term advances may be obtained  only for the purpose of providing  funds
for residential housing finance.

     FHLBs are required to provide funds for the resolution of insolvent thrifts
and to contribute  funds for affordable  housing  programs.  These  requirements
could reduce the amount of earnings that the FHLBs can pay as dividends to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future FHLB
advances increased,  the Bank's net interest income would be adversely affected.
Dividends  from  FHLB-NY to the Bank  amounted  to  $274,000  for  fiscal  2006,
$130,000 for fiscal 2005 and $126,000 for fiscal 2004.  In the third  quarter of
fiscal 2004, the FHLB-NY  suspended  dividend  payments to  stockholders  due to
losses in its securities  portfolio,  but resumed payment in the fourth quarter.
The dividend rate paid on FHLB stock at March 31, 2006 was 5.25%.

     Under the Gramm-Leach-Bliley Act, as amended ("Gramm-Leach"), which repeals
historical  restrictions  and eliminates  many federal and state law barriers to
affiliations  among banks and securities  firms,  insurance  companies and other
financial service providers,  membership in the FHLB system is now voluntary for
all  federally-chartered  savings  banks  such  as the  Bank.  Gramm-Leach  also
replaces  the  existing  redeemable  stock  structure  of the FHLB system with a
capital  structure  that  requires  each  FHLB to meet a  leverage  limit  and a
risk-based permanent capital  requirement.  Two classes of stock are authorized:
Class A (redeemable  on six months notice) and Class B (redeemable on five years
notice).  Pursuant to  regulations  promulgated by the Federal  Housing  Finance
Board, as required by  Gramm-Leach,  the FHLB-NY has adopted a capital plan that
will change the  foregoing  minimum  stock  ownership  requirements  for FHLB-NY
stock.  Under the new capital  plan,  each  member of the  FHLB-NY  will have to
maintain a minimum investment in FHLB-NY capital stock in an amount equal to the
sum of (1) the  greater  of  $1,000  or 0.20% of the  member's  mortgage-related
assets and (2) 4.50% of the dollar amount of any outstanding advances under such
member's  Advances,  Collateral Pledge and Security  Agreement with the FHLB-NY.
The FHLB-NY,  however, has postponed the implementation of the new capital plan,
and the new implementation date has not yet been determined.

     FEDERAL RESERVE SYSTEM.  Under the FRB's regulations,  the Bank is required
to maintain  non-interest-earning reserves against its transaction accounts. FRB
regulations generally require that (a) reserves of 3% must be maintained against
aggregate  transaction  accounts between $7.0 million and $48.3 million (subject
to adjustment by the FRB), and (b) a reserve of $1.2 million and 10% (subject to
adjustment  by the FRB  between  8% and 14%)  must be  maintained  against  that
portion of total transaction accounts in excess of $48.3 million. The first $7.0
million  of  otherwise   reservable  balances  are  exempted  from  the  reserve
requirements. The Bank is in compliance with these reserve requirements. Because
required  reserves  must be  maintained  in the form of  either  vault  cash,  a
non-interest-bearing  account  at a  Federal  Reserve  Bank,  or a  pass-through
account as defined by the FRB,  the  effect of this  reserve  requirement  is to
reduce the Bank's  interest-earning  assets to the extent  that the  requirement
exceeds vault cash.

     PRIVACY   PROTECTION.   Carver  Federal  is  subject  to  OTS   regulations
implementing the privacy protection provisions of Gramm-Leach. These regulations
require the Bank to disclose its privacy policy, including identifying with whom
it  shares  "nonpublic  personal  information,"  to  customers  at the  time  of
establishing the customer relationship and annually thereafter.  The regulations
also require the Bank to provide its customers  with initial and annual  notices
that accurately reflect its privacy policies and practices.  In addition, to the
extent its sharing of such information is not exempted,  the Bank is required to
provide its  customers  with the ability to  "opt-out"  of having the Bank share
their nonpublic personal information with unaffiliated third parties before they
can disclose such information, subject to certain exceptions.

     The Bank is subject to  regulatory  guidelines  establishing  standards for
safeguarding   customer   information.   These  regulations   implement  certain
provisions of Gramm-Leach.  The guidelines  describe the agencies'  expectations
for the creation,  implementation  and  maintenance of an  information  security
program, which would include  administrative,  technical and physical safeguards
appropriate  to the size and  complexity of the  institution  and the nature and
scope of its activities.  The standards set forth in the guidelines are intended
to insure the security and  confidentiality of customer records and information,
protect against any anticipated  threats or hazards to the security or integrity
of such  records  and  protect  against  unauthorized  access  to or use of such
records or information that could result in substantial harm or inconvenience to
any customer. The Bank has a policy to comply with the foregoing guidelines.

     HOLDING  COMPANY  REGULATION.  The  Holding  Company is a savings  and loan
holding company regulated by the OTS. As such, the Holding Company is registered
with and is  subject  to OTS  examination  and  supervision,  as well as certain
reporting requirements.  In addition, the OTS has enforcement authority over the
Holding Company and its subsidiaries. Among other things, this authority permits
the OTS to restrict or prohibit  activities  that are determined to be a serious
risk to the  financial  safety,  soundness or stability of a subsidiary  savings
institution.  Unlike bank holding  companies,  federal  savings and loan holding
companies  are  not  subject  to  any  regulatory  capital  requirements  or  to
supervision by the FRB.

     Gramm-Leach  restricts  the powers of new unitary  savings and loan holding
companies.  Unitary savings and loan holding companies that are "grandfathered,"
i.e.,   unitary  savings  and  loan  holding  companies  in  existence  or  with
applications filed with the OTS on or before May 4, 1999, such as Carver, retain
their  authority under the prior law. All other unitary savings and loan holding
companies are limited to financially  related  activities  permissible  for bank
holding  companies,  as defined under  Gramm-Leach.  Gramm-Leach  also prohibits
non-financial  companies from acquiring  grandfathered  unitary savings and loan
holding companies.

     RESTRICTIONS APPLICABLE TO ALL SAVINGS AND LOAN HOLDING COMPANIES.  Federal
law prohibits a savings and loan holding company, including the Holding Company,
directly or indirectly, from acquiring:

          (1)  control (as defined  under HOLA) of another  savings  institution
               (or a holding company parent) without prior OTS approval;

          (2)  through  merger,  consolidation,  or purchase of assets,  another
               savings  institution or a holding company  thereof,  or acquiring
               all or substantially  all of the assets of such institution (or a
               holding company), without prior OTS approval; or

          (3)  control of any  depository  institution  not  insured by the FDIC
               (except  through  a merger  with and into the  holding  company's
               savings institution subsidiary that is approved by the OTS).

     A savings and loan holding company may not acquire as a separate subsidiary
an insured  institution  that has a principal  office outside of the state where
the principal office of its subsidiary institution is located, except:

          (1)  in the case of certain  emergency  acquisitions  approved  by the
               FDIC;

          (2)  if such holding company controls a savings institution subsidiary
               that operated a home or branch office in such additional state as
               of March 5, 1987; or

          (3)  if the laws of the state in which the savings  institution  to be
               acquired is located specifically  authorize a savings institution
               chartered  by that state to be acquired by a savings  institution
               chartered by the state where the acquiring savings institution or
               savings  and loan  holding  company  is  located  or by a holding
               company that controls such a state chartered association.

     The  HOLA  prohibits  a  savings  and loan  holding  company  (directly  or
indirectly,  or through one or more subsidiaries) from acquiring another savings
association or holding  company  thereof  without prior written  approval of the
OTS;  acquiring  or  retaining,  with  certain  exceptions,  more  than  5% of a
non-subsidiary  savings  association,  a non-subsidiary  holding  company,  or a
non-subsidiary  company engaged in activities  other than those permitted by the
HOLA; or acquiring or retaining control of a depository  institution that is not
federally  insured.  In evaluating  applications by holding companies to acquire
savings  associations,  the OTS  must  consider  the  financial  and  managerial
resources  and future  prospects of the company and  institution  involved,  the
effect of the  acquisition on the risk to the insurance  funds,  the convenience
and needs of the community and competitive factors.

     FEDERAL  SECURITIES  LAWS.  The Holding  Company is subject to the periodic
reporting,  proxy solicitation,  tender offer,  insider trading restrictions and
other  requirements  under  the  Securities  Exchange  Act of 1934,  as  amended
("Exchange Act").

     DELAWARE  CORPORATION  LAW. The Holding Company is  incorporated  under the
laws of the State of Delaware. Thus, it is subject to regulation by the State of
Delaware  and  the  rights  of its  shareholders  are  governed  by the  General
Corporation Law of the State of Delaware.

     NEW YORK STATE BANKING  REGULATIONS.  The New York State Banking Department
has  adopted  Section  6-L to the  banking  law  and  regulations  which  impose
restrictions  and  limitations  on  certain  high  cost home  loans  made by any
individual  or  entity,  including  a  federally-chartered  savings  bank,  that
originates  more than one high cost  home loan in New York  State in a  12-month
period.  Among  other  things,  the  regulations  and statute  prohibit  certain
mortgage  loan  provisions  and certain acts and  practices by  originators  and
impose certain  disclosure  and reporting  requirements.  It is unclear  whether
these  provisions  would be preempted by Section 5(a) of HOLA, as implemented by
the lending and  investment  regulations of the OTS. The OTS has not yet adopted
regulations  regarding  high-cost  mortgage  loans and is currently  considering
whether it will do so.  Although the Bank does not originate loans that meet the
definition of "high-cost mortgage loan" under the proposed  regulations,  in the
event the Bank determines to originate such loans in the future, the Bank may be
subject to such regulation, if adopted as proposed.

     OTHER  FEDERAL   REGULATION.   The  Bank  is  subject  to  OTS  regulations
implementing  the Uniting and  Strengthening  America by  Providing  Appropriate
Tools  Required to Intercept  and  Obstruct  Terrorism  Act of 2001,  or the USA
PATRIOT  Act.  The USA PATRIOT Act gives the  federal  government  new powers to
address terrorist threats through enhanced domestic security measures,  expanded
surveillance  powers,  increased  information  sharing, and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage  information sharing
among bank regulatory  agencies and law  enforcement  bodies.  Further,  certain
provisions  of Title III  impose  affirmative  obligations  on a broad  range of
financial  institutions,  including banks,  thrifts,  brokers,  dealers,  credit
unions,  money  transfer  agents  and  parties  registered  under the  Commodity
Exchange Act.

     Title III of the USA PATRIOT Act and the related OTS regulations impose the
following requirements with respect to financial institutions:

          o    Establishment of anti-money laundering programs.

          o    Establishment  of a program  specifying  procedures for obtaining
               identifying  information  from  customers  seeking  to  open  new
               accounts,  including verifying the identity of customers within a
               reasonable period of time.

          o    Establishment of enhanced due diligence policies,  procedures and
               controls designed to detect and report money laundering.

          o    Prohibition on correspondent accounts for foreign shell banks and
               compliance  with   recordkeeping   obligations  with  respect  to
               correspondent accounts of foreign banks.

FEDERAL AND STATE TAXATION

FEDERAL TAXATION

     GENERAL.  The Holding  Company  and the Bank  currently  file  consolidated
federal income tax returns,  report their income for tax return  purposes on the
basis  of a  taxable-year  ending  March  31st,  using  the  accrual  method  of
accounting  and are  subject to federal  income  taxation  in the same manner as
other corporations with some exceptions,  including in particular the Bank's tax
reserve for bad debts discussed below.  The following  discussion of tax matters
is  intended  only as a  summary  and does  not  purport  to be a  comprehensive
description of the tax rules applicable to the Bank or the Holding Company.

     BAD DEBT RESERVES.  Prior to fiscal 2004 the Bank met the  requirement as a
"small  bank" (one with assets  having an adjusted  tax basis of $500 million or
less) and was  permitted  to  maintain a reserve  for bad debts with  respect to
"qualifying loans," which, in general, are loans secured by certain interests in
real property, and to make, within specified formula limits, annual additions to
the reserve which are  deductible  for purposes of computing the Bank's  taxable
income.  In fiscal years 2006, 2005 and 2004 the Bank was not considered to be a
small bank as total assets exceeded $500 million.

     DISTRIBUTIONS.   To  the   extent   that  the  Bank   makes   "non-dividend
distributions" to shareholders,  such distributions will be considered to result
in  distributions  from the Bank's "base year reserve,"  i.e., its reserve as of
March 31, 1988, to the extent thereof and then from its supplemental reserve for
losses on loans, and an amount based on the amount  distributed will be included
in the Bank's taxable income.  Non-dividend  distributions include distributions
in  excess  of  the  Bank's  current  and  accumulated   earnings  and  profits,
distributions  in redemption of stock and  distributions  in partial or complete
liquidation.  However,  dividends  paid out of the Bank's current or accumulated
earnings and profits,  as calculated for federal  income tax purposes,  will not
constitute  non-dividend  distributions and, therefore,  will not be included in
the Bank's taxable income.

     The  amount  of  additional  taxable  income  created  from a  non-dividend
distribution  is an amount  that,  when reduced by the tax  attributable  to the
income, is equal to the amount of the distribution.  Thus, approximately one and
one-half times the non-dividend distribution would be includable in gross income
for federal  income tax purposes,  assuming a 34% federal  corporate  income tax
rate.

     ELIMINATION OF DIVIDENDS; DIVIDENDS-RECEIVED DEDUCTION. The Holding Company
may exclude from its income 100% of dividends received from the Bank as a member
of the same affiliated group of corporations.  The corporate  dividends-received
deduction is generally 70% in the case of dividends  received from  unaffiliated
corporations  with  which  the  Holding  Company  and the  Bank  will not file a
consolidated  tax return,  except  that if the Holding  Company or the Bank owns
more than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be deducted.


STATE AND LOCAL TAXATION

     STATE OF NEW YORK. The Bank and the Holding Company are subject to New York
State  franchise  tax on their  entire net income or one of several  alternative
bases,  whichever  results in the highest tax. "Entire net income" means federal
taxable income with adjustments.  The Bank and the Holding Company file combined
returns and are  subject to  taxation  in the same manner as other  corporations
with some  exceptions,  including  the Bank's  deductions  for  additions to its
reserve for bad debts.  The New York State  franchise tax rate based upon entire
net  income  for both  fiscal  years  2006 and 2005 was  9.03%,  (including  the
Metropolitan  Commuter  Transportation  District  Surcharge)  of net income.  In
general,  the  Holding  Company  is not  required  to pay New York  State tax on
dividends and interest  received from the Bank or on gains  realized on the sale
of Bank stock.  60% of  dividend  income,  and gains and losses from  subsidiary
capital are  excluded  from New York State entire net income.  Distributions  to
Carver Federal  received from Carver Asset  Corporation are eligible for the New
York State dividends received deduction.  However,  the Holding Company has been
subject to a franchise tax rate of 3.51%  (including the  Metropolitan  Commuter
Transportation  District  Surcharge)  for both fiscal  years 2006 and 2005 based
upon alternative  entire net income.  For this purpose,  alternative  entire net
income is determined by adding back 60% of dividend income, and gains and losses
from subsidiary capital to New York State entire net income.

     New York State has enacted  legislation  that enabled the Bank to avoid the
recapture of the New York State tax bad debt reserves that otherwise  would have
occurred  as a result of the  changes in federal  law and to continue to utilize
either the  federal  method or a method  based on a  percentage  of its  taxable
income for computing additions to its bad debt reserve.

     NEW YORK  CITY.  The Bank and the  Holding  Company  are also  subject to a
similarly  calculated  New York  City  banking  corporation  tax of 9% on income
allocated  to New  York  City.  In  this  connection,  legislation  was  enacted
regarding the use and  treatment of tax bad debt reserves that is  substantially
similar  to the New York State  legislation  described  above.  The Bank and the
Holding  Company are subject to New York City banking  corporation  tax of 3% on
alternative entire net income allocated to New York City.

     DELAWARE  TAXATION.  As a Delaware  holding  company not earning  income in
Delaware, the Holding Company is exempted from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
State of Delaware.

EXECUTIVE OFFICERS OF THE HOLDING COMPANY

     The name, position, term of office as officer and period during which he or
she has served as an officer is provided below for each executive officer of the
Holding  Company as of June 15,  2006.  Each of the persons  listed  below is an
executive  officer of the Holding Company and the Bank,  holding the same office
in each.

     DEBORAH C.  WRIGHT,  age 48, has served as  President  and Chief  Executive
Officer and a Director of the Holding  Company and Carver  Federal since June 1,
1999. In February 2005, Ms. Wright was elected  Chairman of the Board.  Prior to
joining Carver,  Ms. Wright was President & Chief Executive Officer of the Upper
Manhattan  Empowerment Zone Development  Corporation,  a position she held since
May 1996.

     ROY SWAN, age 42, has served Senior Vice President, Corporate Secretary and
Chief of Staff since May 2005. Prior to joining Carver,  Mr. Swan served as Vice
President, Finance & Administration at Time Warner Inc. since March 2003.

     JAMES H.  BASON,  age 51, has  served as Senior  Vice  President  and Chief
Lending  Officer since March 2003.  Previously  Mr. Bason was Vice President and
Real  Estate  Loan  Officer at The Bank of New York  where he had been  employed
since 1991. At the Bank of New York,  Mr. Bason was  responsible  for developing
and maintaining  relationships with developers,  builders, real estate investors
and brokers to provide construction and permanent real estate financing.

     FRANK  DEATON,  age 37, has served as Senior Vice  President of  Operations
since  January 2005 and formerly  served as Chief  Auditor  since May 2001.  Mr.
Deaton was  previously  Vice  President and Risk Review Manager with Key Bank in
Cleveland, Ohio where he was responsible for developing the scope and overseeing
completion of credit, operational and regulatory compliance audits for a variety
of business units.

     CARMELO  FELIX,  age 56,  has  served as Senior  Vice  President  and Chief
Auditor since January 2005. Mr. Felix was previously  Deputy General  Manager at
Korea  Exchange  Bank's  Regional  Headquarters  for the  Americas  where he was
responsible for the  administration  of the bank's Internal Audit  Department in
the Western Hemisphere.

     WILLIAM  GRAY,  age 50,  has  served as  Senior  Vice  President  and Chief
Financial  Officer since  February  2002. Mr. Gray had been employed at the Dime
Savings  Bank  of  New  York  since  1992,   most   recently   serving  as  Vice
President/Director  of Business  Unit  Planning and Support in the  Controller's
Department  where he was responsible  for  identifying and evaluating  strategic
initiatives for several businesses.

     MARGARET D. PETERSON, age 54, has served as Senior Vice President and Chief
Human  Resources  Officer since June 2002.  She joined Carver in October 1999 as
Senior Vice President and Chief  Administrative  Officer.  Ms.  Peterson came to
Carver  from  Deutsche  Bank  where she had  served as a  Compensation  Planning
Consultant in Corporate Human Resources.


ITEM IA. RISK FACTORS

     Risk is an inherent part of Carver's business and activities. The following
is a summary of risk factors  relevant to the Company's  operations which should
be carefully reviewed. These risk factors do not necessarily appear in the order
of importance.

     CHANGES IN INTEREST RATE  ENVIRONMENT  MAY NEGATIVELY  AFFECT  CARVER'S NET
INCOME,   MORTGAGE  LOAN  ORIGINATIONS  AND  VALUATION  OF  AVAILABLE  FOR  SALE
SECURITIES.  The Company's  earnings depend largely on the relationship  between
the  yield  on  interest-earning   assets,  primarily  our  mortgage  loans  and
mortgage-backed  securities,  and the  cost of  deposits  and  borrowings.  This
relationship,  known as the interest rate spread,  is subject to fluctuation and
is affected by economic and competitive  factors which influence market interest
rates,  the  volume  and mix of  interest-earning  assets  and  interest-bearing
liabilities,  and the level of  non-performing  assets.  Fluctuations  in market
interest  rates affect  customer  demand for products  and  services.  Carver is
subject  to  interest  rate  risk  to  the  degree  that  its   interest-bearing
liabilities  reprice or mature  more  slowly or more  rapidly or on a  different
basis than its interest-earning assets.

     In  addition,   the  actual  amount  of  time  before  mortgage  loans  and
mortgage-backed  securities are repaid can be significantly  impacted by changes
in mortgage  prepayment  rates and prevailing  market interest  rates.  Mortgage
prepayment  rates will vary due to a number of factors,  including  the regional
economy in the area where the  underlying  mortgages were  originated,  seasonal
factors,  demographic  variables  and  the  ability  to  assume  the  underlying
mortgages.  However, the major factors affecting prepayment rates are prevailing
interest rates, related mortgage refinancing opportunities and competition.

     The Company's  objective is to fund its liquidity needs  primarily  through
lower costing deposit growth.  However, from time to time Carver Federal borrows
from the FHLB.  More recently,  the cost of deposits and the rate to borrow have
become significantly higher with the rising interest rate environment, which has
negatively impacted net interest income.

     During fiscal 2006, the Federal Open Market  Committee  ("FOMC") raised the
federal  funds rate eight  times (a total of 200 basis  points).  U.S.  Treasury
yields have  increased in fiscal 2006 from fiscal 2005 with the exception of the
30-year U.S. Treasury yield, which has decreased.  Although U.S. Treasury yields
have  risen,  yields on the longer  term  maturities  have not risen to the same
degree as shorter term yields. This has resulted in a significant  flattening of
the U.S. Treasury yield curve. The Bank's short-term borrowings,  as well as its
deposits,  are generally  priced  relative to short-term U.S.  Treasury  yields;
whereas its mortgage loans and  mortgage-backed  securities are generally priced
relative to medium-term (two-to-five years) U.S. Treasury yields. The flattening
of the yield curve reduces the spread between the yield on our  interest-earning
assets and the cost of deposits and borrowings, thereby reducing net income.

     Interest rates are expected to continue to fluctuate and the Company cannot
predicT  future  Federal  Reserve Board actions or other factors that will cause
rates to change.

     The estimated fair value of our available-for-sale securities portfolio may
increase or decrease  depending on changes in interest rates.  Carver  Federal's
securities  portfolio is comprised  primarily of adjustable rate securities.  As
interest  rates have  continued to rise,  there has been an  improvement  in the
valuation of the Bank's available for sale securities.

     CARVER'S  RESULTS OF OPERATIONS ARE AFFECTED BY ECONOMIC  CONDITIONS IN THE
NEW YORK  METROPOLITAN  AREA.  At March 31, 2006, a  significant  portion of the
Bank's lending portfolio was concentrated in the New York metropolitan  area. As
a result of this geographic  concentration,  Carver's  results of operations are
largely dependent on economic conditions in this area.  Decreases in real estate
values could adversely affect the value of property used as collateral for loans
to its borrowers. Adverse changes in the economy caused by inflation, recession,
unemployment or other factors beyond our control may also have a negative effect
on the ability of  borrowers to make timely loan  payments,  which would have an
adverse  impact  on  our  earnings.  Consequently,   deterioration  in  economic
conditions  in the New York  metropolitan  area could  have a  material  adverse
impact on the  quality of the  Bank's  loan  portfolio,  which  could  result in
increased delinquencies, decreased interest income results as well as an adverse
impact  on loan loss  experience  with  probable  increased  allowance  for loan
losses.  Such  deterioration also could adversely impact the demand for products
and services, and, accordingly, further negatively affect results of operations.

     STRONG COMPETITION WITHIN CARVER'S MARKET AREAS COULD HURT EXPECTED PROFITS
AND SLOW GROWTH.  The New York metropolitan area has a high density of financial
institutions,  a number  of which  are  significantly  larger  and with  greater
financial  resources.   Additionally,   various  large  out-of-state   financial
institutions  continue to enter the New York metropolitan  area market.  All are
considered competitors to varying degrees.

     Carver  Federal  faces  intense   competition  both  in  making  loans  and
attracting  deposits.  Competition for loans, both locally and in the aggregate,
comes principally from mortgage banking  companies,  commercial  banks,  savings
banks and savings and loan  associations.  Most direct  competition for deposits
comes from commercial  banks,  savings banks,  savings and loan associations and
credit unions.  The Bank also faces  competition  for deposits from money market
mutual funds and other corporate and government securities funds as well as from
other financial  intermediaries such as brokerage firms and insurance companies.
Market area  competition  is a factor in pricing the Bank's loans and  deposits,
which  could  reduce  net  interest  income.  Competition  also  makes  it  more
challenging  to  effectively  grow  loan and  deposit  balances.  The  Company's
profitability  depends upon its continued ability to successfully compete in its
market areas.

     The Bank's increased  emphasis on  non-residential  and  construction  real
estate  lending may create  increased  exposure to lending  risks.  At March 31,
2006,  $246.6  million,  or 49.7%,  of our total  loan  portfolio  consisted  of
non-residential  and construction  real estate loans compared to $165.3 million,
or 38.9% at March 31, 2005.  Non-residential  and construction real estate loans
generally involve a greater degree of credit risk than one- to-four family loans
because they typically have larger balances and are more sensitive to changes in
the economy.  Payments on these loans often depend upon the successful operation
and  management of the underlying  properties  and the businesses  which operate
from within them; repayment of such loans may be affected by factors outside the
borrower's control,  such as adverse conditions in the real estate market or the
economy or changes in government regulation.

     CARVER  FEDERAL'S  ABILITY TO PAY DIVIDENDS OR LEND FUNDS TO THE COMPANY IS
SUBJECT TO  REGULATORY  LIMITATIONS  WHICH MAY PREVENT  THE COMPANY  FROM MAKING
FUTURE  DIVIDEND  PAYMENTS  OR  PRINCIPAL  AND  INTEREST  PAYMENTS  ON ITS  DEBT
OBLIGATION.  Carver is a unitary  savings and loan  association  holding company
regulated by the OTS and almost all of its operating  assets are owned by Carver
Federal.  Carver  relies  primarily  on  dividends  from  the  Bank to pay  cash
dividends to its stockholders, to engage in share repurchase programs and to pay
principal and interest on its trust preferred debt obligation. The OTS regulates
all  capital  distributions  by the  Bank  to the  Company,  including  dividend
payments.  As the subsidiary of a savings and loan association  holding company,
Carver Federal must file a notice or an  application  (depending on the proposed
dividend amount) with the OTS prior to each capital  distribution.  The OTS will
disallow  any  proposed  dividend  that would result in failure to meet the OTS'
minimum  capital  requirements.  Based on  Carver  Federal's  current  financial
condition,  it is not expected that this  provision  will have any impact on the
Company's  receipt of  dividends  from the Bank.  Payment of dividends by Carver
Federal also may be restricted at any time, at the  discretion of the OTS, if it
deems the payment to constitute an unsafe or unsound banking practice.

     The Company operates in a highly regulated industry which limits the manner
and scope of its business activities.

     ACQUISITIONS  MAY  NOT  PRODUCE  REVENUE  ENHANCEMENTS  AND MAY  RESULT  IN
UNFORESEEN   INTEGRATION   DIFFICULTIES.   The  Company  periodically   explores
acquisition  opportunities  through  which  it  seeks to  expand  market  share.
Recently,  the Company entered into a definitive  agreement to acquire CCB in an
effort to expand  its  product  line by  entering  the  small  business  market.
Difficulty in integrating this and any other acquired business may result in the
Company not being able to realize expected  revenue  increases and cost savings,
and may cause disruption of its business, and may otherwise adversely affect its
ability to achieve the anticipated benefits of the acquisition.

     CHANGES  IN LAWS,  GOVERNMENT  REGULATION  AND  MONETARY  POLICY MAY HAVE A
MATERIAL EFFECT ON OUR RESULTS OF OPERATIONS.  Financial institution  regulation
has been the  subject  of  significant  legislation  and may be the  subject  of
further significant legislation in the future, none of which is in the Company's
control.  Significant  new laws or changes  in, or repeals  of,  existing  laws,
including  with  respect to federal  and state  taxation,  may cause  results of
operations to differ materially. In addition, cost of compliance could adversely
affect Carver's ability to operate profitably.  Further, federal monetary policy
significantly  affects credit  conditions for Carver  Federal,  particularly  as
implemented  through the Federal  Reserve  System.  A material  change in any of
these conditions  could have a material impact on Carver Federal,  and therefore
on the Company's results of operations.

     CARVER FACES SYSTEM FAILURE RISKS AND SECURITY RISKS.  The computer systems
and network infrastructure the Company and its third party service providers use
could be vulnerable to unforeseen  problems.  Fire, power loss or other failures
may effect Carver's computer equipment and other technology. Also, the Company's
computer  systems and network  infrastructure  could be damaged by "hacking" and
"identity theft."

     OUR  BUSINESS  COULD  SUFFER  IF WE  FAIL TO  RETAIN  SKILLED  PEOPLE.  The
Company's  success  depends on its ability to attract  and retain key  employees
reflecting current market opportunities and challenges. Competition for the best
people is intense,  and the  Company's  size and limited  resources  may present
additional challenges in being able to retain the best possible employees.

     ACTS OR  THREATS  OF  TERRORISM,  MILITARY  ACTIVITY,  AND OTHER  POLITICAL
ACTIONS  COULD  ADVERSELY  AFFECT  GENERAL  ECONOMIC  OR  INDUSTRY   CONDITIONS.
Geopolitical conditions may affect the Company's earnings.  Furthermore, acts of
terrorism, and the government's reaction to such acts, could affect business and
earnings.

     A NATURAL DISASTER COULD HARM CARVER'S  BUSINESS.  Natural  disasters could
harm the Company's operations directly through interference with communications,
as well as through the  destruction  of  facilities  and  financial  information
systems.


ITEM 1B.  UNRESOLVED STAFF COMMENTS


     Not applicable.


ITEM 2.  PROPERTIES.

The Bank currently conducts its business through one  administrative  office and
eight branch offices  (including  the 125th Street office) and five  stand-alone
ATM  centers  and  stand-alone  ATMs.  Carver  Federal  entered  into a  license
agreement  with Essex  Corporation  on March 23,  2004 to operate an  Investment
Center at the Bank's  Malcolm X Boulevard  branch  office but does not share any
other owned or leased spaces with any other businesses. The following table sets
forth certain information  regarding Carver Federal's offices and other material
properties  at March  31,  2006.  The Bank  believes  that such  facilities  are
suitable and adequate for its operational needs.

<TABLE>
<CAPTION>
                                                                                                   NET BOOK
                                                                 LEASE          PERCENTAGE         VALUE OF
                                 YEAR           OWNED OR       EXPIRATION         SPACE         --------------
                                OPENED           LEASED           DATE          UTILIZATION        PROPERTY
                            --------------   --------------   --------------   --------------   --------------
   <S>                      <C>              <C>              <C>              <C>              <C>
                                                                                                (In thousands)
   MAIN OFFICE
   -----------
   75 West 125th Street          1996            Owned                                    100   $        5,583
   New York, NY

   BRANCH OFFICES
   --------------
   1281 Fulton Street
   Brooklyn, NY                  1989            Owned                                     70            1,403

   1009-1015 Nostrand Avenue
   Brooklyn, NY                  1975            Owned                                    100              312

   115-02 Merrick Boulevard
   Jamaica, NY                   1996            Leased       02/2011                      75              266

   130 Malcolm X Boulevard
   New York, NY                  2001            Leased       05/2006                     100              535

   158-45 Archer Avenue
   Jamaica, New York             2003            Leased       07/2018                     100              847

   1 Hanson Place
   Brooklyn, NY                  2004            Leased       07/2014                     100             1100

   300 West 145 Street
   New York, NY                  2004            Leased       12/2009                     100              461

   ATM CENTERS
   -----------
   503 West 125th Street
   New York, NY                  2003            Leased       03/2013                     100              133

   601 West 137th Street
   New York, NY                  2003            Leased       10/2013                     100              139

   1 Hanson Place
   Brooklyn, NY                  2004            Leased       07/2009                     100               15

   1400 5th Avenue
   New York, NY                  2005            Leased       08/2013                     100              132

   1950 Fulton Street
   New York, NY                  2005            Leased       01/2010                     100              172

                                                                                                --------------
                   Total                                                                        $       11,098
                                                                                                ==============
</TABLE>

     The net book value of Carver Federal's investment in premises and equipment
totaled approximately $13.2 million at March 31, 2006.

ITEM 3.  LEGAL PROCEEDINGS.

     From time to time,  Carver Federal is a party to various legal  proceedings
incident to its business.  Certain claims, suits,  complaints and investigations
involving Carver Federal,  arising in the ordinary course of business, have been
filed or are pending. The Company is of the opinion, after discussion with legal
counsel  representing  Carver Federal in these  proceedings,  that the aggregate
liability  or loss,  if any,  arising  from the  ultimate  disposition  of these
matters would not have a material  adverse effect on the Company's  consolidated
financial  position or results of operations.  At March 31, 2006,  there were no
material legal  proceedings to which the Company or its subsidiaries was a party
or to which any of their property was subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     During the quarter  ended March 31, 2006, no matter was submitted to a vote
of our security holders through the solicitation of proxies or otherwise.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES.

     The Holding Company's common stock is listed on the American Stock Exchange
under the symbol "CNY." As of June 15, 2006,  there were 2,502,247 shares of the
common stock  outstanding,  held by approximately  1,079 stockholders of record.
The following  table shows the high and low per share sales prices of the common
stock and the dividends declared for the quarters indicated.

<TABLE>
<CAPTION>
                         HIGH          LOW        DIVIDEND                                HIGH         LOW          DIVIDEND
                     -----------   -----------   -----------                          -----------   -----------   -----------
<S>                  <C>           <C>           <C>             <C>                  <C>           <C>           <C>
 FISCAL YEAR 2006                                                 FISCAL YEAR 2005
June 30, 2005        $     18.75   $     16.90   $      0.08     June 30, 2004        $     23.95   $     19.15   $      0.05
September 30, 2005   $     17.35   $     16.30   $      0.08     September 30, 2004   $     20.45   $     17.95   $      0.07
December 31, 2005    $     16.70   $     15.00   $      0.08     December 31, 2004    $     20.82   $     18.55   $      0.07
March 31, 2006       $     17.32   $     15.00   $      0.08     March 31, 2005       $     20.07   $     18.38   $      0.07

</TABLE>

     The Board  initially  established  the payment of a  quarterly  dividend to
common  shareholders  on January 9, 2003.  Subsequently,  each quarter the Board
meets to decide on the amount  per share to be  declared.  On May 9,  2006,  the
Holding  Company's  Board  of  Directors  declared  a  $0.08  cash  dividend  to
shareholders  for the fourth quarter of fiscal 2006, this represents a $0.03 per
share  increase  from the $0.05  paid at  inception  of the  Board  establishing
payment of a quarterly dividend.

     Under OTS  regulations,  the Bank will not be permitted to pay dividends to
the Holding  Company on its capital  stock if its  regulatory  capital  would be
reduced below applicable regulatory capital requirements or if its stockholders'
equity  would be reduced  below the amount  required  to be  maintained  for the
liquidation  account,  which  was  established  in  connection  with the  Bank's
conversion to stock form. The OTS capital distribution regulations applicable to
savings  institutions  (such as the Bank)  that meet  their  regulatory  capital
requirements  permit,  after  not less  than 30 days  prior  notice  to the OTS,
capital  distributions  during a calendar year that do not exceed the Bank's net
income for that year plus its retained  net income for the prior two years.  For
information  concerning the Bank's liquidation account, see Note 11 of the Notes
to the Consolidated Financial Statements.

     Unlike  the Bank,  the  Holding  Company is not  subject to OTS  regulatory
restrictions  on the payment of  dividends  to its  stockholders,  although  the
source of such dividends will be dependent,  in part, upon capital distributions
from the Bank. The Holding  Company is subject to the  requirements  of Delaware
law, which generally limit dividends to an amount equal to the excess of the net
assets  of  the  Company  (the  amount  by  which  total  assets   exceed  total
liabilities) over its statutory  capital,  or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year.

     On August 6, 2002 the Holding Company announced a stock repurchase  program
to repurchase up to 231,635  shares of its  outstanding  common stock.  To date,
94,474  shares  of its  common  stock  have  been  repurchased  in  open  market
transactions  at an  average  price of $16.90  per share.  The  Holding  Company
intends  to  use  repurchased  shares  to  fund  its  stock-based   benefit  and
compensation  plans  and for any other  purpose  the Board  deems  advisable  in
compliance  with  applicable  law. The  following  table  details  purchases the
Holding  Company made of its common  stock  during the fourth  quarter of fiscal
2006.

<TABLE>
<CAPTION>
                                                                         Total Number              Maximum
                                     Total                                of Shares            Number of Shares
                                   Number of           Average        Purchased as part        that May Yet Be
                                     Shares          Price Paid          of Publicly         Purchased Under the
                                   Purchased          per Share        Announced Plans              Plans
------------------------------------------------------------------------------------------------------------------
<S>                                <C>               <C>              <C>                    <C>
January 1, 2006 through
    January 31, 2006                       300           15.44                     300                    140,361
February 1, 2006 through
    February 28, 2006                       --              --                      --                    140,361
March 1, 2006 through
    March 31, 2006                          --              --                      --                    140,361
------------------------------------------------------------------------------------------------------------------
                                            --           15.44                      --
------------------------------------------------------------------------------------------------------------------
</TABLE>

     Carver has three equity compensation plans: (1) The Management  Recognition
Plan ("MRP") which provides for automatic  grants of restricted stock to certain
employees  as  of  the  date  the  plan  became   effective  in  June  of  1995.
Additionally,  the  MRP  makes  provision  for  added  discretionary  grants  of
restricted stock to those employees so selected by the Compensation Committee of
the Board who administers the plan. (2) The Incentive  Compensation Plan ("ICP")
provides for grants of cash bonuses,  restricted  stock and stock options to the
employees selected by the Compensation  Committee.  (3) The Option Plan provides
for automatic option grants to certain  employees as of the date the plan became
effective  in June of 1995,  and like the MRP,  also makes  provision  for added
discretionary  option grants to those employees so selected by the  Compensation
Committee.  Additional  information regarding Carver's equity compensation plans
is incorporated by reference from the section  entitled  "Securities  Authorized
for Issuance Under Equity Compensation Plans" in the Proxy Statement.


ITEM 6.  SELECTED FINANCIAL DATA

           Set forth below are our  selected  consolidated  financial  and other
data.  This  financial  data is  derived  in part  from,  and  should be read in
conjunction with our consolidated financial statements and related notes.


<TABLE>
<CAPTION>
                                                              AT OR FOR THE FISCAL YEAR ENDED MARCH 31,
                                                         ----------------------------------------------------
                                                           2006       2005       2004       2003       2002
                                                         --------   --------   --------   --------   --------
<S>                                                      <C>        <C>        <C>        <C>        <C>
                                                            (Dollars in thousands, except per share data)
SELECTED FINANCIAL CONDITION DATA:
Assets                                                   $660,993   $626,377   $538,830   $509,845   $450,306
Loans, net                                                493,432    421,987    351,900    292,738    289,710
Securities                                                108,286    149,335    139,877    165,585    105,464
Cash and cash equivalents                                  22,904     20,420     22,774     23,160     34,851
Deposits                                                  504,638    455,870    375,519    349,066    327,542
Borrowed funds                                             93,792    115,299    104,282    108,996     75,651
Long-term Obligations                                      48,153     84,129     80,506     91,762     60,749
Stockholders' equity                                     $ 48,697   $ 45,801   $ 44,645   $ 41,073   $ 36,742
Number of deposit accounts                                 41,614     40,199     38,578     41,220     41,200
Number of offices                                               8          8          6          5          5

OPERATING DATA:
Interest income                                          $ 32,385   $ 28,546   $ 26,234   $ 27,390   $ 28,395
Interest expense                                           13,493      9,758      8,700      8,983     12,047
                                                         --------   --------   --------   --------   --------
Net interest income                                        18,892     18,788     17,534     18,407     16,348
Provision for loan losses                                      --         --         --         --        900
                                                         --------   --------   --------   --------   --------
  Net interest income after provision for loan losses      18,892     18,788     17,534     18,407     15,448
Non-interest income                                         5,341      4,075      5,278      3,161      4,485
Non-interest expenses                                      19,134     18,696     15,480     14,704     14,339
                                                         --------   --------   --------   --------   --------
Income before income taxes                                  5,099      4,167      7,332      6,864      5,594
Income taxes                                                1,329      1,518      2,493      3,033        881
                                                         --------   --------   --------   --------   --------
Net income                                               $  3,770   $  2,649   $  4,839   $  3,831   $  4,713
                                                         ========   ========   ========   ========   ========
Basis earnings per common share                          $   1.50   $   1.06   $   2.03   $   1.59   $   1.98
                                                         ========   ========   ========   ========   ========
Diluted earnings per common share                        $   1.47   $   1.03   $   1.87   $   1.52   $   1.89
                                                         ========   ========   ========   ========   ========
Cash dividends per common share                          $   0.32   $   0.26   $   0.20   $   0.10   $   0.05
                                                         ========   ========   ========   ========   ========

SELECTED STATISTICAL DATA:
Return on average assets (1)                                 0.60%      0.45%      0.93%      0.83%      1.11
Return on average equity (2)                                 7.93       5.80      11.40       9.77      13.78
Net interest margin (3)                                      2.97       3.41       3.56       4.26       4.09
Average interest rate spread (4)                             3.18       3.26       3.40       4.08       3.89
Efficiency ratio (5)                                        78.96      81.77      67.86      68.18      77.89
Operating expense to average assets (6)                      3.04       3.21       2.97       3.18       3.37
Average equity to average assets                             7.54       7.84       8.13       8.48       8.03
Common Dividend payout ratio (7)                            20.63      24.64       9.86       3.19       2.55

ASSET QUALITY RATIOS:
Non-performing assets to total assets (8)                    0.42%      0.16%      0.39%      0.36%      0.63
Non-performing assets to total loans receivable (8)          0.55       0.23       0.60       0.61       0.96
Allowance for loan losses to total loans receivable          0.81       0.96       1.16       1.40       1.41
</TABLE>

(1)  Net income divided by average total assets
(2)  Net income divided by average total equity
(3)  Net interest income divided by average interest-earning assets.
(4)  The  difference  between the  weighted  average  yield on  interest-earning
     assets and the weighted average cost of interest-bearing liabilities.
(5)  Non-interest expense (other than real estate owned expenses) divided by the
     sum of net interest income and non-interest income (other than net security
     gains and losses and other non-recurring income).
(6)  Non-interest  expense less real estate owned  expenses,  divided by average
     total assets.
(7)  Dividends  paid  to  common  stockholders  as a  percentage  of net  income
     available to common stockholders.
(8)  Non-performing  assets consist of non-accrual loans, loans accruing 90 days
     or more past due, and property acquired in settlement of loans.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     The following  discussion and analysis  should be read in conjunction  with
our  Consolidated  Financial  Statements  and  Notes to  Consolidated  Financial
Statements  presented  elsewhere  in  this  report.  The  Company's  results  of
operations  are  significantly  affected  by general  economic  and  competitive
conditions,  particularly changes in market interest rates, government policies,
changes in accounting standards and actions of regulatory agencies.

EXECUTIVE SUMMARY

     Carver Bancorp, Inc., is a bank holding company organized under the laws of
the state of Delaware and registered as a "bank holding  company" under the Bank
Holding  Company  Act of 1956,  as amended.  Carver is  committed  to  providing
superior  customer  service  while  offering  a range of  banking  products  and
financial services to our retail and commercial customers. The Holding Company's
primary  subsidiary is Carver  Federal  Savings Bank,  which operates from eight
branch offices in the New York City boroughs of Manhattan, Brooklyn and Queens.

     Consistent  with the  thrift  industry,  Carver  Federal's  net  income  is
dependent  primarily on net interest  income,  which is the  difference  between
interest income earned on its loan,  investment and  mortgage-backed  securities
portfolios and the interest paid on its  interest-bearing  liabilities,  such as
deposits and  borrowings.  In  addition,  net income is affected by the level of
provision  for  loan  losses,  as  well as  non-interest  income  and  operating
expenses.  The  interest  rate  climate  in 2006 was a  challenging  one for the
industry  and  therefore  Carver,  as net  interest  margin  declined  following
interest rate policy by the Federal  Reserve over the last two years,  which had
the effect of  substantially  reducing  the margin  between  earning  assets and
liabilities.  Carver's core strategy  continues to emphasize  increasing assets,
namely  commercial real estate loans, and liabilities,  primarily core deposits,
sourced  through our branch  offices.  In addition,  the company is aggressively
working to reduce costs, to improve its efficiency ratio,  following investments
in new branch offices and ATM locations,  to increase the Bank's presence in its
core marketplace.

MERGER WITH COMMUNITY CAPITAL BANK

     In  addition  to these  and  other  steps to grow  organically,  Carver  is
actively  pursuing  acquisition  opportunities to expand its presence in markets
consistent  with its urban niche,  which are designed to increase  assets and/or
fee income.  As a result,  on April 5, 2006,  the Bank entered into a definitive
agreement to acquire Community Capital Bank ("CCB"), a leader in providing loans
to small businesses in New York City's urban marketplace,  in a cash transaction
valued at  approximately  $11.1  million.  The  acquisition  was approved by CCB
shareholders  on June 28, 2006 and is expected to close by  September  30, 2006,
subject to customary closing conditions including regulatory approvals.

     By providing  Carver with a commercial  banking  platform,  the transaction
with CCB will  better  position  the Bank to  capitalize  on one of the  fastest
growing and affluent urban  consumer and small business  markets in the country.
Small business lending, which is typically a higher margin lending platform than
real estate  lending,  will enable  Carver to increase  core  deposits  and loan
balances,  thereby  increasing net interest margin and fee income.  Efficiencies
are also  expected from an in market  merger of an  institution  with two branch
offices in Brooklyn, New York and approximately $162 million in assets.

FISCAL 2006

     Throughout   fiscal  2006  the  interest  rate  environment   continued  to
negatively  impact the Bank's net interest margin. To stem margin loss, the Bank
successfully  implemented  a strategy to increase  assets when  accretive  while
replacing securities with higher yielding mortgage loans.  Additionally,  higher
costing  borrowings  were replaced with lower  costing  deposits.  The growth in
assets and deposits  followed  investments in new branch and ATM locations,  new
product offerings, and marketing efforts.  However, these investments and others
increased the Bank's operating expenses.  With diligent cost cutting efforts and
outsourcing strategies the growth in expenses was limited and resulted in modest
improvements to the Bank's efficiency ratio.

     In fiscal 2006,  the Bank  experienced  strong  growth in its core business
with increases in net loans receivable and deposits, compared to March 31, 2005.
During fiscal 2006, the national and local real estate markets  remained  strong
and  continued  to  support  Carver's  lending  abilities  increasing  the  loan
portfolio  despite the fact that loan  repayments  remained high, at fiscal 2005
levels.  Deposits  rose  through  growth  in  our  checking,  money  market  and
certificate of deposit accounts.  Both the securities and borrowings  portfolios
were  reduced,  consistent  with our  strategy to use normal cash flows from the
repayment of  mortgage-backed  securities as well as the increase in deposits to
fund higher yielding loans and repay borrowings.

     The FOMC raised the federal funds rate eight times resulting in an increase
of 200 basis  points  during the fiscal  year.  While  short term U.S.  treasury
yields have risen, yields on the longer end of the treasury yield curve have not
risen to the same  degree  as  short  term  yields  resulting  in a  significant
flattening of the U.S.  Treasury yield curve.  Additionally,  there was interest
rate volatility within individual quarters, which resulted in volatility in cash
flows and refinance  activity.  As a result of this rate environment and despite
the  growth  in  our  balance  sheet,  Carver's  net  interest  income  remained
relatively flat while net interest margin declined year over year.

     As previously noted, fiscal 2006 reflected strong growth in the Bank's loan
portfolio while  maintaining solid asset quality.  As a result,  the Company did
not provide  for  additional  loan loss  reserves  as it  considers  the current
allowance for loan losses to be adequate.

     The Bank's  strategy to enhance fee income from  operations has resulted in
year over year  increases in  depository  fees and charges,  primarily ATM fees,
debit card income and commissions from the sale of investments and insurance. In
addition, the Bank benefited from improvements in loan fees and service charges,
primarily loan prepayment penalty income.

     Net income for fiscal 2006 was  impacted by  increased  expenses  resulting
from the full year effect of  expanding  the Bank's  franchise  in fiscal  2005.
During   fiscal   2005,   the  Bank   successfully   opened  two  full   service
state-of-the-art  branch  offices,  one in  Brooklyn  and the  other in  Harlem.
Additionally,  the Bank  opened  two 24/7 ATM  banking  centers  in  Harlem  and
Brooklyn in fiscal 2005 and stand alone ATMs in Brooklyn in fiscal  2006.  These
investments increased operating expenses  substantially.  During fiscal 2006, in
an effort to control  expenses,  Carver  implemented  company-wide  cost cutting
initiatives including the outsourcing of several technology functions as well as
a number of  corporate  administrative  functions.  These  efforts  helped  hold
expenses to a modest increase in expenses year over year.

FISCAL 2007

     The outlook for fiscal 2007 reflects  many of the economic and  competitive
factors  that the Bank and the  banking  industry  faced in  fiscal  2006.  As a
result,  we  expect  the  operating   environment  to  remain  challenging  with
short-term  interest  rates  continuing  to rise  while  medium-  and long  term
interest rates remain stable or rise moderately,  which could have the effect of
exerting further pressure on the Bank's net interest margin.  Structurally,  the
Bank's balance sheet  exhibits an asset  sensitive bias over the long term. As a
result,  the Bank's  greatest  exposure is to a lower rate  environment as asset
yields  would be expected to decline  while  deposit  costs would be expected to
stabilize. Should rates continue to rise, additional margin compression would be
expected  in the near  term,  however,  management  anticipates  that the Bank's
balance sheet would benefit over time from a prolonged rising rate environment.

     In this challenging  climate,  the Bank will continue to focus on growth in
its core  businesses,  namely the expansion of commercial  real estate loans and
retail  deposits.  With the acquisition of CCB, we expect to begin to capitalize
on additional new business opportunities noted above. In addition,  based on our
success  in  substantially  increasing  loans in our urban  markets  in the last
several  fiscal  years,  Carver  Federal  has been  consistently  successful  in
competing for attractive resources from the public sector to extend our reach.

     Notably,  on  June  1,  2006,  Carver  Federal  was  selected  by the  U.S.
Department  of Treasury to receive an  allocation  of $59 million in New Markets
Tax  Credits  ("NMTC")  to  provide  loans to  business  willing  to  invest  in
low-income  communities,  including small business and certain real estate loans
and  other   investments.   The  allocation  was  awarded  to  Carver  Community
Development  Corporation,  a for profit  Community  Development  Entity  ("CDE")
created by the Bank.  Tax  credits  awarded by the  government  through the NMTC
program enable loans to be made with advantaged terms including,  in some cases,
below  market  interest  rates,   thereby   increasing  capital  to  underserved
communities.  The NMTC  program  provides  a credit  to Carver  Federal  against
federal income taxes when the Bank makes an equity  investment in its CDE, which
in turn uses this investment to make qualified loans in low-income  communities,
consistent  with Carver's  marketplace.  The allocations are expected to be made
available  during calendar year 2007, and annually  thereafter over a seven year
period. During this period, the Bank will be able to receive 39% of the award or
approximately $23 million in tax credits to be claimed over a seven year period,
consistent   with  the  CDE's   ability  to  make  loans  meeting  the  Treasury
Department's  guidelines. A substantial portion of this benefit will be utilized
for revitalization of our community,  pursuant to the goals of the NMTC program.
However,  executing this program well is expected to increase our lending in our
marketplace and improve  shareholder value by reducing the Bank's taxes.  Carver
is  gratified  to have  been  selected  upon its first  application  in a highly
competitive selection process.

     Deposit growth is expected to follow our new business and marketing  effort
to core customer groups including  landlords,  churches and other non-profits as
residents of the  communities  we serve.  New products  were offered to increase
market share in these customer  segments during fiscal 2006 including a lock-box
service for landlords to collect rental payments,  a checking  overdraft line of
credit (in an effort to continue building our checking account deposit base) and
participation in the Certificate of Deposit Account Registry Services program to
more efficiently address the collateral needs of large balance depositors.

     Regarding  mortgage lending,  the strength of originations and the purchase
mortgage market coupled with the anticipated  reduced level of loan  prepayments
should result in continued strong loan portfolio growth in fiscal 2007. Products
such as sub-prime  and jumbo  mortgages  for sale in the  secondary  market were
introduced  in  fiscal  2006 to  address  the  needs of  additional  prospective
borrowers.  Added  emphasis to promote these products will be provided in fiscal
2007 in an effort to further fuel fee income  growth.  Planned net income growth
in fiscal 2007 will be achieved by expanding non-interest income and emphasizing
cost containment  measures in fiscal 2007 thereby lowering the Bank's efficiency
ratio. It is anticipated that if further  flattening of the U.S.  Treasury yield
curve  occurs,  the Bank may utilize the cash flow of an  expansion  in its core
business to reduce its securities  and borrowing  portfolios,  thereby  limiting
asset growth.

     The retail and lending teams of Carver and CCB are developing a strategy to
onboard CCB customers and increase  products to deepen those  relationships,  in
addition to new business  activities  designed to capitalize on Carver's  larger
footprint. In addition we are evaluating strategies to increase efficiencies and
maximize the combination of the Company's balance sheets.

CRITICAL ACCOUNTING POLICIES

     Various  elements  of  our  accounting  policies,   by  their  nature,  are
inherently  subject to estimation  techniques,  valuation  assumptions and other
subjective  assessments.  Our policy with respect to the  methodologies  used to
determine the allowance for loan losses is our most critical  accounting policy.
This policy is important to the  presentation  of our  financial  condition  and
results  of  operations,  and it  involves  a higher  degree of  complexity  and
requires  management to make  difficult and  subjective  judgments,  which often
require  assumptions or estimates  about highly  uncertain  matters.  The use of
different  judgments,   assumptions  and  estimates  could  result  in  material
differences in our results of operations or financial condition.

     See Note 1 of Notes to Consolidated  Financial Statements for a description
of our critical  accounting  policies  including  those related to allowance for
loan losses and an  explanation  of the methods and  assumptions  underlying its
application.

ASSET/LIABILITY MANAGEMENT

     Net interest income,  the primary component of Carver Federal's net income,
is  determined  by the  difference  or  "spread"  between  the  yield  earned on
interest-earning  assets and the rates paid on its interest-bearing  liabilities
and the  relative  amounts  of  such  assets  and  liabilities.  Because  Carver
Federal's interest-bearing liabilities consist primarily of shorter term deposit
accounts,  Carver  Federal's  interest rate spread can be adversely  affected by
changes  in  general  interest  rates  if its  interest-earning  assets  are not
sufficiently  sensitive  to changes in  interest  rates.  The Bank has sought to
reduce its exposure to changes in interest  rates by more  closely  matching the
effective  maturities and repricing periods of its  interest-earning  assets and
interest-bearing  liabilities  through a variety of  strategies,  including  the
origination  and purchase of  adjustable-rate  mortgage loans for its portfolio,
investment  in  adjustable-rate   mortgage-backed  securities  and  shorter-term
investment  securities and the sale of all long term  fixed-rate  mortgage loans
originated into the secondary market.


DISCUSSION OF MARKET RISK--INTEREST RATE SENSITIVITY ANALYSIS

     As a financial institution,  the Bank's primary component of market risk is
interest rate volatility.  Fluctuations in interest rates will ultimately impact
both the level of income and expense  recorded on a large  portion of the Bank's
assets and  liabilities,  and the market value of all  interest-earning  assets,
other than those which are short term in  maturity.  Since all of the  Company's
interest-bearing liabilities and virtually all of the Company's interest-earning
assets are held by the Bank,  most of the  Company's IRR exposure is retained by
the Bank. As a result,  all significant IRR management  procedures are performed
at the Bank. Based upon the Bank's nature of operations, the Bank is not subject
to foreign currency  exchange or commodity price risk. The Bank does not own any
trading assets.

     Carver  Federal seeks to manage its IRR by monitoring and  controlling  the
variation in repricing intervals between its assets and liabilities. To a lesser
extent,  Carver Federal also monitors its interest rate sensitivity by analyzing
the  estimated  changes in market value of its assets and  liabilities  assuming
various  interest rate  scenarios.  As discussed  more fully below,  there are a
variety of factors which  influence the repricing  characteristics  of any given
asset or liability.

     The matching of assets and  liabilities  may be analyzed by  examining  the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity gap. An asset or liability
is said to be interest rate sensitive within a specific period if it will mature
or reprice within that period.  The interest rate  sensitivity gap is defined as
the  difference  between  the  amount of  interest-earning  assets  maturing  or
repricing  within a specific  period of time and the amount of  interest-bearing
liabilities repricing within that same time period. A gap is considered positive
when the amount of interest rate sensitive assets exceeds the amount of interest
rate  sensitive  liabilities  and is  considered  negative  when the  amount  of
interest  rate  sensitive  liabilities  exceeds  the  amount  of  interest  rate
sensitive  assets.  Generally,  during a period of  falling  interest  rates,  a
negative  gap could  result  in an  increase  in net  interest  income,  while a
positive gap could adversely  affect net interest income.  Conversely,  during a
period of rising  interest  rates a  negative  gap could  adversely  affect  net
interest  income,  while a  positive  gap  could  result in an  increase  in net
interest income.  As illustrated  below,  Carver Federal had a negative one-year
gap equal to 25.48%  of total  rate  sensitive  assets at March 31,  2006.  As a
result,  Carver  Federal's net interest  income could be negatively  affected by
rising interest rates and positively affected by falling interest rates.

     The  following  table  sets  forth  information   regarding  the  projected
maturities,  prepayments  and  repricing of the major  rate-sensitive  asset and
liability  categories of Carver Federal as of March 31, 2006. Maturity repricing
dates have been projected by applying  estimated  prepayment  rates based on the
current rate  environment.  The information  presented in the following table is
derived in part from data incorporated in "Schedule CMR:  Consolidated  Maturity
and Rate," which is part of the Bank's quarterly reports filed with the OTS. The
repricing and other assumptions are not necessarily representative of the Bank's
actual results.  Classifications  of items in the table below are different from
those  presented in other tables and the financial  statements and  accompanying
notes included herein and do not reflect non-performing loans.

<TABLE>
<CAPTION>
                                                OR            FOUR TO          THROUGH         OVER THREE
                                               LESS            TWELVE           THREE           THROUGH
                                              MONTHS           MONTHS           YEARS          FIVE YEARS
                                          --------------   --------------   --------------   --------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                       <C>              <C>              <C>              <C>
Rate Sensitive Assets:
Loans and mortgage-backed securities      $       95,862   $       34,878   $       96,802   $       56,499
Federal funds sold and interest earning
deposits                                           9,300               --               --               --
Investment securities                                969            3,839            7,847            4,038
                                          --------------   --------------   --------------   --------------
    Total interest-earning assets                106,131           38,717          104,649           60,537
Rate Sensitive Liabilities:
NOW demand                                         4,539            5,236           12,564           10,652
Savings and clubs                                  9,561            9,647           19,159           12,126
Money market savings                               2,437            1,360            8,668           19,895
Certificates of deposit                           40,617          176,961           30,680           14,883
Borrowings                                        18,867           32,484           44,165               --
                                          --------------   --------------   --------------   --------------
   Total interest-bearing liabilities     $       76,021   $      225,688   $      115,236   $       57,556

Interest Sensitivity Gap                  $       30,110   $     (186,971)  $      (10,587)  $        2,981

Cumulative Interest Sensitivity Gap       $       30,110   $     (156,861)  $     (167,448)  $     (164,467)
Ratio of Cumulative Gap to Total Rate
Sensitive assets                                    4.89%          -25.48%          -27.20%          -26.71%
</TABLE>

                                          OVER FIVE      OVER
                                           THROUGH        TEN
                                          TEN YEARS      YEARS        TOTAL
                                          ---------    ---------    ---------

Rate Sensitive Assets:
Loans and mortgage-backed securities      $ 150,598    $ 155,001    $ 589,640
Federal funds sold and interest earning
deposits                                         --           --        9,300
Investment securities                            11           --       16,704
                                          ---------    ---------    ---------
    Total interest-earning assets           150,609      155,001      615,644
Rate Sensitive Liabilities:
NOW demand                                   14,085       11,914       58,990
Savings and clubs                            29,483       59,747      139,723
Money market savings                          3,018        4,667       40,045
Certificates of deposit                         818            3      263,962
Borrowings                                      194           --       95,710
                                          ---------    ---------    ---------
   Total interest-bearing liabilities     $  47,598    $  76,331    $ 598,430

Interest Sensitivity Gap                  $ 103,011    $  78,670    $  17,214

Cumulative Interest Sensitivity Gap       $ (61,456)   $  17,214           --
Ratio of Cumulative Gap to Total Rate
Sensitive assets                             -9.98%         2.80%


     The table above  assumes that fixed  maturity  deposits  are not  withdrawn
prior to maturity and that  transaction  accounts will decay as disclosed in the
table above.

     Certain  shortcomings  are inherent in the method of analysis  presented in
the table  above.  Although  certain  assets and  liabilities  may have  similar
maturities  or  periods of  repricing,  they may react in  different  degrees to
changes in the market  interest  rates.  The interest  rates on certain types of
assets and  liabilities  may fluctuate in advance of changes in market  interest
rates,  while  rates on other  types of assets  and  liabilities  may lag behind
changes  in market  interest  rates.  Certain  assets,  such as  adjustable-rate
mortgages,  generally have features that restrict changes in interest rates on a
short-term  basis  and over the life of the  asset.  In the event of a change in
interest  rates,  prepayments and early  withdrawal  levels would likely deviate
significantly from those assumed in calculating the table. Additionally,  credit
risk may increase as many borrowers may experience an inability to service their
debt  in  the  event  of  a  rise  in  interest  rate.   Virtually  all  of  the
adjustable-rate  loans in Carver  Federal's  portfolio  contain  conditions that
restrict the periodic change in interest rate.

     NET PORTFOLIO  VALUE ("NPV")  ANALYSIS.  As part of its efforts to maximize
net interest  income while  managing  risks  associated  with changing  interest
rates, management also uses the NPV methodology.

     Under this methodology, IRR exposure is assessed by reviewing the estimated
changes in net interest income ("NII") and NPV that would  hypothetically  occur
if interest rates rapidly rise or fall along the yield curve.  Projected  values
of NII and NPV at both higher and lower  regulatory  defined rate  scenarios are
compared to base case values (no change in rates) to determine  the  sensitivity
to changing interest rates.

     Presented  below, as of March 31, 2006, is an analysis of the Bank's IRR as
measured  by changes in NPV and NII for  instantaneous  and  sustained  parallel
shifts of 100 basis  points in market  interest  rates.  Such  limits  have been
established  with  consideration  of the impact of various  rate changes and the
Bank's current capital position.  The Bank considers its level of IRR for fiscal
2006, as measured by changes in NPV, to be minimal.  The  information  set forth
below  relates  solely  to  the  Bank;  however,  because  virtually  all of the
Company's  IRR exposure  lies at the Bank level,  management  believes the table
below also similarly reflects an analysis of the Company's IRR.

<TABLE>
<CAPTION>

                                  NET PORTFOLIO VALUE                  NPV AS A % OF PV OF ASSETS
                       ------------------------------------------     ---------------------------
   CHANGE IN RATE        $ AMOUNT       $ CHANGE        % CHANGE       NPV RATIO        CHANGE
   --------------      ------------    -----------    -----------     -----------     -----------
   <S>                 <C>             <C>            <C>             <C>             <C>
                                                 (DOLLARS IN THOUSANDS)
           +300 bp           69,337        (18,204)           -21%          10.55%        -226 bp
           +200 bp           76,222        (11,319)           -13%          11.43%        -138 bp
           +100 bp           82,270         (5,271)            -6%          12.18%         -63 bp
              0 bp           87,541             --             --           12.81%          --
           -100 bp           91,875          4,334              5%          13.31%         +50 bp
           -200 bp           95,524          7,983              9%          13.71%         +90 bp
</TABLE>

                                                            MARCH 31, 2006
                                                            --------------
RISK MEASURES: +200 BP RATE SHOCK
Pre-Shock NPV Ratio: NPV as % of PV of Assets                      12.81%
Post-Shock NPV Ratio                                               11.43%
Sensitivity Measure; Decline in NPV Ratio                          138 bp


     Certain  shortcomings are inherent in the methodology used in the above IRR
measurements. Modeling changes in NPV require the making of certain assumptions,
which may or may not reflect the manner in which actual yields and costs respond
to changes in market  interest  rates.  In this regard,  the NPV table presented
assumes that the composition of Carver Federal's  interest  sensitive assets and
liabilities  existing at the  beginning of a period  remains  constant  over the
period being  measured  and also  assumes  that a particular  change in interest
rates is reflected  uniformly  across the yield curve regardless of the duration
to  maturity  or  repricing  of specific  assets and  liabilities.  Accordingly,
although the NPV table  provides an indication of Carver  Federal's IRR exposure
at a particular point in time, such  measurements are not intended to and do not
provide a precise  forecast of the effect of changes in market interest rates on
Carver Federal's net interest income and may differ from actual results.


AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES

     The  following  table sets forth  certain  information  relating  to Carver
Federal's   average   interest-earning   assets  and  average   interest-bearing
liabilities  and  reflects  the average  yield on assets and the average cost of
liabilities  for the years  indicated.  These  yields  and costs are  derived by
dividing  income or expense by the average  balances  of assets or  liabilities,
respectively,  for the periods shown.  Average balances are derived from average
month-end  balances,  except for  federal  funds  which are  derived  from daily
balances.  The use of average monthly balances instead of average daily balances
on  all  other  accounts  should  not  result  in  material  differences  in the
information presented.

     The table also presents information for the years indicated with respect to
the  difference  between the weighted  average yield earned on  interest-earning
assets and the weighted average rate paid on  interest-bearing  liabilities,  or
"interest rate spread," which savings institutions have traditionally used as an
indicator of profitability.  Another indicator of an institution's profitability
is its "net interest  margin,"  which is its net interest  income divided by the
average balance of  interest-earning  assets. Net interest income is affected by
the interest rate spread and by the relative amounts of interest-earning  assets
and interest-bearing  liabilities.  When interest-earning  assets approximate or
exceed  interest-bearing  liabilities,  any positive  interest  rate spread will
generate net interest income.

<TABLE>
<CAPTION>
                                                MONTH ENDED MARCH 31, 2006             YEAR ENDED MARCH 31, 2006
                                               ----------------------------   -------------------------------------------
                                                  AVERAGE        AVERAGE         AVERAGE                       AVERAGE
                                                  BALANCE       YIELD/COST       BALANCE        INTEREST      YIELD/COST
                                               -------------  -------------   -------------  -------------  -------------
                                                                               (Dollars in thousands)
<S>                                            <C>            <C>             <C>            <C>            <C>
INTEREST-EARNING ASSETS:
Loans (1)                                      $     487,937           6.77%  $     443,461  $      26,563           5.99%
Investment securities (2)                             18,105           3.84%         25,698            971           3.78%
Mortgage-backed securities                            98,366           4.22%        113,574          4,439           3.91%
Federal funds                                          5,929           4.37%         12,166            412           3.39%
                                               -------------  -------------   -------------  -------------  -------------
  Total interest-earning assets                      610,337           6.25%        594,899         32,385           5.44%
Non-interest-earning assets                           34,387                         35,198
                                               -------------                  -------------
  Total assets                                 $     644,724                  $     630,097
                                               =============                  =============

INTEREST-BEARING LIABILITIES:
Deposits:
    NOW demand                                 $      25,640           0.30%  $      24,397  $          74           0.30%
    Savings and clubs                                139,304           0.68%        137,934            919           0.67%
    Money market savings                              33,806           2.01%         36,583            601           1.64%
    Certificates of deposit                          259,378           3.76%        237,992          7,297           3.07%
                                               -------------  -------------   -------------  -------------  -------------
  Total deposits                                     458,128           2.50%        436,906          8,891           2.03%
Mortgagors deposits                                    1,789           1.46%          2,044             30           1.47%
Borrowed money                                        98,407           4.56%        107,551          4,572           4.25%
                                               -------------  -------------   -------------  -------------  -------------
  Total deposits and interest-bearing
   liabilities                                       558,324           2.86%        546,501         13,493           2.47%
                                                                                             -------------
Non-interest-bearing liabilities:
    Demand                                            30,940                         29,079
    Other liabilities                                  6,413                          6,980
                                               -------------                  -------------
  Total liabilities                                  595,677                        582,560
Stockholders' equity                                  49,047                         47,537
                                               -------------                  -------------
  Total liabilities and stockholders' equity   $     644,724                  $     630,097
                                               =============                  =============
Net interest income                                                                                         $      18,892
                                                                                                            =============

Average interest rate spread                                           3.39%                                         2.97%
                                                              =============                                 =============

Net interest margin                                                    3.52%                                         3.18%
                                                              =============                                 =============

Ratio of average interest-earning assets to
  interest-bearing liabilities                                       109.32%                                       108.86%
                                                              =============                                 =============
</TABLE>

(1)  Includes non-accrual loans.
(2)  Includes FHLB-NY stock.


RATE/VOLUME ANALYSIS

     The following  table sets forth  information  regarding the extent to which
changes in interest  rates and changes in volume of interest  related assets and
liabilities  have affected Carver  Federal's  interest income and expense during
the  periods  indicated.   For  each  category  of  interest-earning  asset  and
interest-bearing liability, information is provided for changes attributable to:
(1) changes in volume (changes in volume multiplied by new rate); (2) changes in
rates (change in rate multiplied by old volume); and (3) changes in rate/volume.
Changes in rate/volume variance are allocated proportionately between changes in
rate and changes in volume.

<TABLE>
<CAPTION>
                                                                         YEAR ENDED MARCH 31,
                                          -----------------------------------------------------------------------------------------
                                                             2005                                         2004
                                          -------------------------------------------   -------------------------------------------
                                             AVERAGE                                       AVERAGE        AVERAGE        AVERAGE
INTEREST EARNING ASSETS:                     BALANCE       INTEREST      YIELD/COST        BALANCE       INTEREST       YIELD/COST
                                          -------------  -------------  -------------   -------------  -------------  -------------
                                                                        (Dollars in thousands)
<S>                                       <C>            <C>            <C>             <C>            <C>            <C>
Loans (1)                                 $     384,916  $      22,940           5.96%  $     314,297  $      20,117           6.40%
Investment securities (2)                        29,547            827           2.80%         29,708          1,161           3.91%
Mortgage-backed securities                      125,643          4,605           3.67%        126,764          4,789           3.78%
Fed funds sold                                   10,724            174           1.62%         22,194            167           0.75%
                                          -------------  -------------  -------------   -------------  -------------  -------------
Total interest earning assets                   550,830         28,546           5.18%        492,963         26,234           5.32%
Non-interest earning assets                      31,677                                        28,423
                                          -------------                                 -------------
Total assets                              $     582,507                                 $     521,386
                                          =============                                 =============

INTEREST BEARING LIABILITIES:
Deposits
NOW demand                                $      22,933  $          69           0.30%  $      23,286  $          85           0.37%
Savings and clubs                               133,621            801           0.60%        130,509          1,001           0.77%
Money market savings                             30,116            302           1.00%         27,662            235           0.85%
Certificates of deposit                         208,584          4,258           2.04%        163,382          3,304           2.02%
                                          -------------  -------------  -------------   -------------  -------------  -------------
Total deposits                                  395,254          5,430           1.37%        344,839          4,625           1.34%
Mortgagers deposits                               2,217             25           1.15%          1,643             24           1.46%
Borrowed money                                  109,787          4,303           3.92%        106,350          4,051           3.81%
                                          -------------  -------------  -------------   -------------  -------------  -------------
Total interest bearing liabilities              507,258          9,758           1.92%        452,832          8,700           1.92%
                                                         -------------                                 -------------
Non-interest-bearing liabilities:
Demand                                           22,857                                        19,408
Other liabilities                                 6,724                                         6,746
                                          -------------                                 -------------
Total liabilities                               536,839                                       478,986
Stockholders' equity                             45,668                                        42,400
                                          -------------                                 -------------
Total liabilities and stockholders'
  equity                                  $     582,507                                 $     521,386
                                          =============                                 =============
Net interest income                                      $      18,788                                 $      17,534
                                                         =============                                 =============

Average interest rate spread                                                     3.26%                                         3.40%
                                                                        =============                                 =============

Net interest margin                                                              3.41%                                         3.56%
                                                                        =============                                 =============

Ratio of avgerage interest-earning
  assets to interest-bearing liabilities                                       108.59%                                       108.86%
                                                                        =============                                 =============
</TABLE>

(1)  Includes non-accrual loans.
(2)  Includes FHLB-NY stock.

<TABLE>
<CAPTION>
                                                                           YEAR ENDED MARCH 31,
                                          ---------------------------------------------------------------------------------------
                                                     2006 VS. 2005                                 2005 VS. 2004
                                                INCREASE (DECREASE) DUE TO                    INCREASE (DECREASE) DUE TO
                                          ------------------------------------------   ------------------------------------------
                                             VOLUME          RATE          TOTAL          VOLUME          RATE           TOTAL
                                          ------------   ------------   ------------   ------------   ------------   ------------
                                                                           (Dollars in thousands)
<S>                                       <C>            <C>            <C>            <C>            <C>            <C>
INTEREST EARNING ASSETS:
Loans                                     $      3,489   $        134   $      3,623   $      4,209   $     (1,386)  $      2,823
Investment securities                               (1)           145            144             (5)          (329)          (334)
Mortgage-backed securities                        (560)           394           (166)           (41)          (143)          (184)
Fed funds                                           23            215            238           (186)           193              7
                                          ------------   ------------   ------------   ------------   ------------   ------------
Total interest earning assets                    2,951            888          3,839          3,977         (1,665)         2,312

INTEREST BEARING LIABILITIES:
Deposits
NOW demand                                          (4)            (1)            (5)             1             15             16
Savings and clubs                                  (26)           (83)          (109)           (19)           219            200
Money market savings                               (65)          (234)          (299)           (25)           (43)           (68)
Certificates of deposit                           (600)        (2,448)        (3,048)          (923)           (31)          (954)
                                          ------------   ------------   ------------   ------------   ------------   ------------
Total deposits                                    (695)        (2,766)        (3,461)          (966)           160           (806)
Mortgagers deposits                                  2             (7)            (5)             7             (8)            (1)
Borrowed money                                      83           (352)          (269)          (149)          (102)          (251)
                                          ------------   ------------   ------------   ------------   ------------   ------------
Total deposits and interest bearing
 liabilities                                      (610)        (3,125)        (3,735)        (1,108)            50         (1,058)

Net change in interest income             $      2,341   $     (2,237)  $        104   $      2,869   $     (1,615)  $      1,254
                                          ============   ============   ============   ============   ============   ============
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2006 AND 2005

     At March 31, 2006,  total assets  increased by $34.6  million,  or 5.5%, to
$661.0  million  compared to $626.4  million at March 31, 2005.  The increase in
total  assets was  primarily  attributable  to an increase  in loans  receivable
partially offset by a reduction in total securities.

     Loans  receivable,  net,  increased by $71.4 million,  or 16.9%,  to $493.4
million as of March 31, 2006  compared to $422.0  million one year ago.  The net
loan growth during fiscal 2006 reflects loan  originations of $111.3 million and
loan  purchases  of $96.1  million,  offset by  principal  repayments  of $113.5
million and loans sold to various third party purchasers of $22.5 million.  One-
to  four-family  mortgage loans  decreased by $12.4 million,  or 7.9%, to $143.4
million at March 31, 2006  compared  to $155.8  million at March 31,  2005.  The
decrease in one- to  four-family  loans is primarily due to repayments  and loan
sales of  $36.9  and  $22.5  million,  respectively,  partially  offset  by loan
originations and purchases of $15.1 and $32.2 million, respectively. Multifamily
real estate loans increased by $2.8 million, or 2.8%, to $104.7 million at March
31,  2006  compared  to $101.9  million at March 31,  2005 as  originations  and
purchases of $18.1 and $9.5 million, respectively,  exceeded repayments of $24.8
million. Non-residential real estate loans increased by $37.3 million, or 31.9%,
to $154.0 million at March 31, 2006 compared to $116.8 million at March 31, 2005
primarily as a result of originations  and purchases of $33.6 and $27.3 million,
respectively,  partially  offset by repayments of $23.6 million during the year.
Construction  loans  increased by $43.9 million,  or 90.4%,  to $92.5 million at
March 31, 2006  compared to $48.6  million at March 31,  2005  primarily  due to
originations and purchases of $44.0 and $27.1 million,  respectively,  partially
offset by repayments of $27.2  million.  The Bank  continues to grow its balance
sheet through focusing on the origination of real estate loans in the markets it
serves and will  continue to augment  these  originations  with loan  purchases.
Consumer and business loans decreased by $244,000,  or 14.4%, to $1.5 million at
March 31, 2006 compared to $1.7 million at March 31, 2005 reflecting  repayments
of $776,000 partially offset by new originations of $532,000.

     Total  securities  at March 31,  2006  decreased  $41.0  million  to $108.3
million  from $149.3  million at March 31,  2005,  reflecting a decline of $36.2
million  in  available-for-sale  securities  and  a  $4.9  million  decrease  in
held-to-maturity  securities.  The  decrease  in  available-for-sale  securities
primarily  reflects $60.6 million of principal  repayments and maturities,  $1.6
million in proceeds  from sales of securities  partially  offset by purchases of
new available-for-sale securities of $26.8 million. The $4.9 million decrease in
held-to-maturity   securities   reflects   principal  payments  and  maturities.
Available-for-sale   securities   represented  75.6%  of  the  total  securities
portfolio  at March 31, 2006  compared to 79.0% at March 31,  2005.  The current
strategy is to reduce the  investment  portfolio  through  normal cash flows and
reinvest the proceeds into higher yielding loans.  However,  the Bank may invest
in  securities  from  time to time to help  diversify  its asset  portfolio  and
satisfy collateral requirements for certain deposits.

     At March 31, 2006, total liabilities  increased $31.7 million,  or 5.5%, to
$612.3 million compared to $580.6 million at March 31, 2005.  Deposits increased
$48.8 million, or 10.7%, to $504.6 million at March 31, 2006 from $455.9 million
at March 31,  2005.  The  increase in deposits  was  primarily  attributable  to
increases of $34.3 million in  certificates  of deposit,  $9.3 million in demand
accounts,  $3.8  million in money  market  accounts  and $1.9 million in regular
savings and club  accounts.  Deposit  increases  reflects  $35.0  million in new
certificates  of  deposit  from the City and the State  under  New York  State`s
Banking  Development  District  program and new money from the Bank's  increased
retail  depositors from new branch offices.  These additional funds from deposit
growth were used to fund loan originations/purchases and repay borrowings. Total
FHLB-NY borrowings  decreased $21.6 million, or 21.0%, to $80.9 million at March
31, 2006 from $102.5  million at March 31, 2005 as a result of net repayments of
maturing advances.

     At March 31, 2006, stockholders' equity increased $2.9 million, or 6.3%, to
$48.7  million  compared to $45.8  million at March 31,  2005.  The  increase in
stockholders' equity was primarily  attributable to additional retained earnings
of $3.0  million  and net stock  transactions  of $349,000  partially  offset by
$439,000  additional   accumulated  other  comprehensive  loss.  The  change  in
accumulated other  comprehensive loss consists of a net loss of $158,000 related
to the  mark-to-market  of the Bank's  available-for-sale  securities  and a net
reserve of $281,000 for the Company's unfunded employee pension  liability.  The
Bank's  capital  levels  meet  regulatory  requirements  of a  well  capitalized
financial institution.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 2006 AND 2005

NET INCOME

     The Bank  reported net income for fiscal 2006 of $3.8  million  compared to
$2.6  million  for the  prior  fiscal  year.  Net  income  available  to  common
stockholders for fiscal 2006 was $3.8 million, or $1.47 per diluted common share
compared to $2.5 million,  or $1.03 per diluted  common share,  for fiscal 2005.
The increase in net income was  primarily due to higher  non-interest  income of
$1.3 million, a decline in income tax expense of $189,000 and an increase in net
interest  income of $104,000  partially  offset by an  increase in  non-interest
expense of $438,000.

INTEREST INCOME

     Interest income increased in fiscal 2006 by $3.8 million, or 13.5% to $32.4
million,  from the prior fiscal year.  The average  balance of  interest-earning
assets  increased to $594.9  million for fiscal 2006 from $550.8 million for the
prior  fiscal year.  Adding to the  increase was a rise in the average  yield on
interest-earning  assets to 5.44% for fiscal  2006  compared to 5.18% for fiscal
2005.

     Interest  income on loans  increased by $3.6  million,  or 15.8%,  to $26.6
million for fiscal 2006 compared to $22.9 million for the prior fiscal year. The
increase  in  interest  income  from loans was  primarily  the result of a $58.5
million  increase in average  loan  balances  to $443.5  million for fiscal 2006
compared to $384.9  million  for fiscal  2005,  coupled  with the effects of a 3
basis point  increase  in the  average  rate earned on loans to 5.99% for fiscal
2006 from 5.96% for the prior fiscal year.  The increase in the average  balance
of loans reflects originations and purchases in excess of principal collections.
The minimal  increase in the average rate earned on loans was principally due to
the  repricing of certain  construction  loans that are tied to short term rates
that have increased with the rise in the overnight federal funds rate, see "Item
7. Management Discussion and Analysis--Liquidity and Capital Resources."

     Interest income on  mortgage-backed  securities  decreased by $166,000,  or
3.6%,  to $4.4  million for fiscal 2006  compared to $4.6  million for the prior
fiscal year,  reflecting a decrease of $12.1  million in the average  balance of
mortgage-backed  securities to $113.6 million for fiscal 2006 compared to $125.6
million for fiscal 2005.  Partially offsetting the decline was an 24 basis point
increase in the average rate earned on  mortgage-backed  securities to 3.91% for
fiscal 2006 from 3.67% for the prior  fiscal  year.  The decrease in the average
balance  of such  securities  demonstrates  Management's  commitment  to  invest
proceeds received from increased  deposits and the cash flows from the repayment
of investments into higher yielding assets.

     Interest  income  on  investment   securities  increased  by  approximately
$144,000,  or 17.4%,  to $971,000  for fiscal 2006  compared to $827,000 for the
prior fiscal  year.  The increase in interest  income on  investment  securities
reflects a 98 basis  point  increase in the  average  rate earned on  investment
securities  to 3.78% for  fiscal  2006 from  2.80%  for the  prior  fiscal  year
partially  offset by a  decrease  of $3.8  million  in the  average  balance  of
investment securities to $25.7 million for fiscal 2006 compared to $29.5 million
for fiscal 2005.

     Interest income on federal funds increased $238,000, or 136.8%, to $412,000
for fiscal 2006 compared to $174,000 for the prior fiscal year.  The increase is
primarily  attributable to a 177 basis point increase in the average rate earned
on federal funds coupled with a $1.4 million  increase in the average balance of
federal  funds year over year.  This large  increase  in the  returns on federal
funds was realized as the FRB continually raised the federal funds rate over the
course of the entire fiscal year.

INTEREST EXPENSE

     Interest expense increased by $3.7 million,  or 38.3%, to $13.5 million for
fiscal 2006 compared to $9.8 million for the prior fiscal year.  The increase in
interest expense reflects an increase of $39.2 million in the average balance of
interest-bearing  liabilities  to  $546.5  million  in fiscal  2006 from  $507.3
million  in  fiscal  2005.  Additionally,  the  total  cost of  interest-bearing
liabilities  increased 55 basis points to 2.47% in fiscal 2006 compared to 1.92%
in the prior  year.  The  increase in the  average  balance of  interest-bearing
liabilities  in fiscal 2006 compared to fiscal 2005 was due to increases in both
the average  balance of  interest-bearing  deposits  and the average  balance of
borrowed money.

     Interest  expense on deposits  increased  $3.5 million,  or 63.5%,  to $8.9
million for fiscal 2006 compared to $5.5 million for the prior fiscal year. This
increase is attributable to a $41.7 million,  or 10.5%,  increase in the average
balance of interest-bearing  deposits to $436.9 million for fiscal 2006 compared
to $395.3  million for fiscal 2005 coupled with a 66 basis point  increase  year
over year in the cost of average  deposits.  The increase in the average balance
of  interest-bearing  deposits was  primarily  due to an increase in the average
balance of  certificates  of deposit of $29.4 million,  or 14.1%, an increase in
the average  balance of money  market  accounts of $6.5  million,  or 21.5%,  an
increase in the average balance of savings and club accounts of $4.3 million, or
3.2%,  and an  increase  in the  average  balance of  checking  accounts of $1.5
million,  or 6.4%.  The  increase  in the  average  rate  paid on  deposits  was
principally due to the rise in the interest rate environment  throughout  fiscal
2006.

     Interest  expense on borrowed money  increased by $269,000 or 6.3%, to $4.6
million for fiscal 2006 compared to $4.3 million for the prior fiscal year.  The
increase in interest  expense on borrowed  money for fiscal 2006 reflects a rise
of 33 basis points in the average cost of borrowed  money,  primarily the result
of increases in the indexed rate of trust preferred debt securities which adjust
quarterly and have increased in the current interest rate environment. Partially
offsetting  the increase was a $2.2  million  decline in the average  balance of
borrowed money reflecting management's strategy of using deposit growth and cash
flows  from  the  repayment  of  mortgage-backed  securities  to  repay  FHLB-NY
advances.

NET INTEREST INCOME

     Net  interest   income   represents  the   difference   between  income  on
interest-earning  assets  and  expense  on  interest-bearing   liabilities.  Net
interest income depends primarily upon the volume of interest-earning assets and
interest-bearing  liabilities  and the  corresponding  interest rates earned and
paid. Our net interest income is  significantly  impacted by changes in interest
rate and market yield curves.  See "--Discussion of Market  Risk--Interest  Rate
Sensitivity  Analysis" for further discussion on the potential impact of changes
in interest rates on our results of operations.

     Net  interest  income  before  the  provision  for  loan  losses  increased
$104,000,  or 0.6%,  to $18.9  million for fiscal 2006 compared to $18.8 million
for the prior fiscal year.  This modest  increase was achieved as a result of an
increase in both the average balance and the return on average  interest-earning
assets of $44.1 million and 26 basis points, respectively. Mainly offsetting the
increase in net interest  income was an increase in the average balance and cost
of   interest-bearing   liabilities  of  $39.2  million  and  55  basis  points,
respectively.  The result was a 29 basis  point  decrease in the  interest  rate
spread to 2.97% for fiscal 2006 compared to 3.26% for the prior fiscal year. The
net interest  margin also  decreased to 3.18% for fiscal 2006  compared to 3.41%
for fiscal 2005.

PROVISION FOR LOAN LOSSES

     During  fiscal 2005 no provision  was  recorded  for loan losses.  The Bank
records provisions for loan losses,  which are charged to earnings,  in order to
maintain the allowance for loan losses at a level that is considered appropriate
to absorb  probable  losses  inherent in the existing  loan  portfolio.  Factors
considered when evaluating the adequacy of the allowance for loan losses include
the  volume  and type of  lending  conducted,  the  Bank's  previous  loan  loss
experience,  the  known  and  inherent  risks  in the  loan  portfolio,  adverse
situations that may affect the borrowers'  ability to repay, the estimated value
of any underlying  collateral  and trends in the local and national  economy and
trends in the real estate market.

     During fiscal 2006,  the Bank had net  charge-offs  of $82,000  compared to
$28,000 for fiscal 2005.  At March 31, 2006,  non-performing  loans totaled $2.8
million or 0.55% of total loans  compared to $998,000,  or 0.23% of total loans,
at March 31, 2005. At March 31, 2006,  the Bank's  allowance for loan losses was
$4.0 million compared to $4.1 million at March 31, 2005, resulting in a ratio of
the  allowance to  non-performing  loans of 147.1% at March 31, 2006 compared to
410.7% at March 31, 2005,  and a ratio of allowance  for possible loan losses to
total  loans of  0.81%  and  0.96%  at  March  31,  2006  and  March  31,  2005,
respectively.  The Bank  believes its reported  allowance for loan loss at March
31,  2006 is  adequate  to provide  for  estimated  probable  losses in the loan
portfolio. For further discussion of non-performing loans and allowance for loan
losses, see "Item  1--Business--General  Description of Business--Asset Quality"
and Note 1 of Notes to the Consolidated Financial Statements.

NON-INTEREST INCOME

     Non-interest  income is  comprised  of loan fees and service  charges,  fee
income  from  banking  services  and  charges,  gains or losses from the sale of
securities,  loans and other assets and certain other miscellaneous non-interest
income.  Non-interest  income increased $1.3 million,  or 31.1%, to $5.3 million
for  fiscal  2006  compared  to  $4.1  million  for  fiscal  2005.  The  rise in
non-interest  income was  comprised  of an increase of $363,000 in loan fees and
service  charges,  primarily  greater loan  prepayment  penalty  income and late
charge fees.  Additional  depository  fees and charges of $246,000 were achieved
primarily  from higher ATM usage,  growth in debit card  income and  commissions
earned on the sale of investments  and life insurance.  Further  contributing to
the rise in  non-interest  income was  additional  gains on the sale of loans of
$267,000,  predominantly  from the bulk  sale of $10.7  million  of  residential
one-to four family  mortgage  loans.  An increase of $77,000 in other income was
also achieved  primarily as a result of  additional  income earned on the Bank's
investment in a bank owned life insurance program.  Further  contributing to the
increase in non-interest income year over year was the Company's  recognition of
a $1.5  million  impairment  charge  deemed  other than  temporary in the second
quarter of fiscal  2005,  resulting  from the decline in market price of 150,000
shares of IFSB stock that the Company previously held. Partially offsetting that
impairment charge in fiscal 2005 was the receipt of a net $1.1 million Community
Development Financial Institutions grant from the Department of the Treasury and
a $94,000 gain from the sale of securities.

NON-INTEREST EXPENSE

     Non-interest  expense increased by $438,000,  or 2.3%, to $19.1 million for
fiscal 2006 compared to $18.7 million for the prior fiscal year. The increase in
non-interest  expense was primarily  attributable  to increases in net occupancy
and equipment  expenses of $327,000 and $331,000,  respectively,  resulting from
the full year  effect in fiscal  2006 of the new  branch  office  and ATM center
openings in fiscal 2005. Also  contributing to the rise in non-interest  expense
were increases in retail banking  chargeoffs,  legal fees and insurance costs of
$196,000, $160,000 and $112,000, respectively. Partially offsetting the increase
in  non-interest  expense was a charge of $847,000 in fiscal 2005 for merger and
acquisition  expenses related to the attempted  acquisition of IFSB. Much of the
increase in the Bank's operating expenses was a result of the investment made in
fiscal 2004 and 2005 to grow the franchise.  During fiscal 2006, in an effort to
reduce  non-interest  expenses,  the Bank implemented cost cutting strategies by
outsourcing  our  ATM  driving  technology  as  well as a  number  of  corporate
administrative functions.

INCOME TAX EXPENSE

     Income tax expense was $1.3  million for fiscal 2006, a decline of $189,000
or 12.5%,  from $1.5 million for fiscal 2005 as a result of a $500,000  recovery
of income tax expense in fiscal 2006  attributable to the release of contingency
reserves for closed tax examination years. As a result the effective tax rate in
fiscal 2006 was 26.1%, compared to 36.4% for fiscal 2005. It is anticipated that
the  effective  tax rate for  fiscal  2007 will be more  comparative  to that of
fiscal 2005.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 2005 AND 2004

NET INCOME

     The Bank  reported net income for fiscal 2005 of $2.6  million  compared to
$4.8  million  for the  prior  fiscal  year.  Net  income  available  to  common
stockholders for fiscal 2005 was $2.5 million, or $1.03 per diluted common share
compared to $4.6 million,  or $1.87 per diluted  common share,  for fiscal 2004.
The  decrease in net income was  primarily  due to an  increase in  non-interest
expense of $3.2  million and a decrease in  non-interest  income of $1.2 million
partially  offset by an increase in net  interest  income of $1.3  million and a
$975,000 reduction in income tax expense.

INTEREST INCOME

     Interest income increased for fiscal 2005 by $2.3 million, or 8.8% to $28.5
million,  from the prior fiscal year.  The average  balance of  interest-earning
assets  increased to $550.8  million for fiscal 2005 from $493.0 million for the
prior  fiscal  year.  This  increase  was  partially  offset by a decline in the
average  yield on  interest-earning  assets to 5.18% for fiscal 2005 compared to
5.32% for fiscal 2004.

     Interest  income on loans  increased by $2.8  million,  or 14.0%,  to $22.9
million for fiscal 2005 compared to $20.1 million for the prior fiscal year. The
increase  in  interest  income  from loans was  primarily  the result of a $70.6
million  increase in average  loan  balances  to $384.9  million for fiscal 2005
compared to $314.3  million for fiscal 2004, the effects of which were partially
offset by a 44 basis point decrease in the average rate earned on loans to 5.96%
for fiscal  2005 from  6.40% for the prior  fiscal  year.  The  increase  in the
average  balance  of loans  reflects  originations  and  purchases  in excess of
principal  collections.  The  decline in the  average  rate  earned on loans was
principally due to the downward pricing on loan products during the low interest
rate environment experienced during most of fiscal 2005.

     Interest income on  mortgage-backed  securities  decreased by $184,000,  or
3.8%,  to $4.6  million for fiscal 2005  compared to $4.8  million for the prior
fiscal year,  reflecting the combined  effects an 11 basis point decrease in the
average rate earned on mortgage-backed  securities to 3.67% for fiscal 2005 from
3.78% for the prior fiscal  year,  and a decrease of $1.1 million in the average
balance of mortgage-backed securities to $125.6 million for fiscal 2005 compared
to $126.8 million for fiscal 2004.  The decrease in the average  balance of such
securities demonstrates Management's commitment to invest proceeds received from
increased borrowings and deposits into higher yielding assets.

     Interest  income  on  investment   securities  decreased  by  approximately
$334,000, or 28.8%, to $827,000 for fiscal 2005 compared to $1.2 million for the
prior fiscal  year.  The decrease in interest  income on  investment  securities
reflects a 111 basis point  decrease in the  average  rate earned on  investment
securities  to 2.80% for fiscal 2005 from 3.91% for the prior  fiscal year and a
decrease of $161,000 in the average  balance of  investment  securities to $29.5
million for fiscal 2005 compared to $29.7 million for fiscal 2004.

     Interest income on federal funds increased $7,000, or 4.2%, to $174,000 for
fiscal 2005  compared to $167,000  for the prior  fiscal  year.  The increase is
primarily  attributable to an 87 basis point increase in the average rate earned
on federal funds,  partially  offset by a $11.5 million  decrease in the average
balance of federal funds year over year.  This large  increase in the returns on
federal  funds was realized as the FRB  continually  increased the federal funds
rate during the entire fiscal year.

INTEREST EXPENSE

     Interest expense  increased by $1.1 million,  or 12.2%, to $9.8 million for
fiscal 2005 compared to $8.7 million for the prior fiscal year.  The increase in
interest expense reflects an increase of $54.4 million in the average balance of
interest-bearing  liabilities  to  $507.2  million  in fiscal  2005 from  $452.8
million  in  fiscal  2004  as the  total  cost of  interest-bearing  liabilities
remained  unchanged  at 1.92% from year to year.  The  increase  in the  average
balance of  interest-bearing  liabilities in fiscal 2005 compared to fiscal 2004
was due to increases in both the average  balance of  interest-bearing  deposits
and the average balance of borrowed money.

     Interest expense on deposits increased $806,000,  or 17.3%, to $5.5 million
for fiscal  2005  compared  to $4.6  million  for the prior  fiscal  year.  This
increase is attributable to a $50.4 million,  or 14.6%,  increase in the average
balance of interest-bearing  deposits to $395.3 million for fiscal 2005 compared
to $344.8 million for fiscal 2004 and, to a much lesser extent,  a 3 basis point
increase  year over year in the cost of average  deposits.  The  increase in the
average balance of interest-bearing deposits was primarily due to an increase in
the average balance of  certificates  of deposit of $45.2 million,  or 27.7%, an
increase in the average balance of savings and club accounts of $3.1 million, or
2.4%,  and an increase in the average  balance of money market  accounts of $2.5
million,  or 8.92%.  The  increase  in  average  interest-bearing  deposits  was
achieved  largely through  deposits  generated by the two new branch offices and
two new ATM centers in fiscal 2005. The slight increase in the average rate paid
on deposits was principally  due to the ascend in the interest rate  environment
towards the end of fiscal 2005.

     Interest  expense on borrowed money  increased by $252,000 or 6.2%, to $4.3
million for fiscal 2005 compared to $4.1 million for the prior fiscal year.  The
increase in interest  expense on borrowed  money for fiscal 2005 reflects a $3.4
million,  or 3.2%,  increase in the average balance of borrowed money reflecting
the effects of the trust preferred debt securities being  outstanding for twelve
months in fiscal 2005 as compared  to six months in fiscal  2004,  the year they
were issued.  Also contributing to the increase in interest expense is a rise of
11 basis points in the average cost of borrowed  money  primarily  the result of
increases  in the indexed  rate of the trust  preferred  debt  securities  which
adjust quarterly and has increased in the current interest rate environment.

NET INTEREST INCOME

     Net interest  income before the provision  for loan losses  increased  $1.3
million, or 7.2%, to $18.8 million for fiscal 2005 compared to $17.5 million for
the prior fiscal  year.  This  increase  was  achieved  despite a decline in the
return on average interest-earning assets of 14 basis points in fiscal 2005 from
fiscal  2004  while  the  cost  of  interest-bearing  liabilities  used  to fund
interest-earning  assets remained  unchanged from year to year. The result was a
14 basis  point  decrease in the  interest  rate spread to 3.26% for fiscal 2005
compared  to 3.40% for the prior  fiscal  year.  The net  interest  margin  also
decreased to 3.41% for fiscal 2005 compared to 3.56% for fiscal 2004.

PROVISION FOR LOAN LOSSES

     During fiscal 2005 no provision was recorded for loan losses. During fiscal
2005,  the Bank had net  charge-offs  of $28,000  compared to $33,000 for fiscal
2004. At March 31, 2005,  non-performing loans totaled $998,000 or 0.2% of total
loans  compared to $2.1 million,  or 0.6% of total loans,  at March 31, 2004. At
March  31,  2005,  the  Bank's  allowance  for loan  losses  was  $4.1  million,
substantially  unchanged  from the  allowance at March 31, 2004,  resulting in a
ratio of the  allowance  to  non-performing  loans of 410.7%  at March 31,  2005
compared to 194.3% at March 31, 2004, and a ratio of allowance for possible loan
losses to total loans of 0.96% and 1.16% at March 31,  2005 and March 31,  2004,
respectively.

NON-INTEREST INCOME

     Non-interest  income decreased $1.2 million,  or 22.8%, to $4.1 million for
fiscal 2005 compared to $5.3 million for fiscal 2004.  The decrease is primarily
due a $1.5  million  impairment  charge  taken  on the  IFSB  stock  held in our
available  for  sale  portfolio.  Additionally,  with  the  slow  down  in  loan
refinancing activity, lower loan prepayment penalty income resulted in a decline
in loan fees and service charges of $739,000. Further, other non-interest income
declined  $373,000  when  compared  to the same  period  last fiscal year when a
recovery  of  $558,000  was  recorded  as income in  recognition  of  previously
unrecognized  mortgage loan income.  Offsetting these reductions to non-interest
income are income from the receipt of a net $1.1 million  Community  Development
Financial  Institutions  grant from the  Department of Treasury,  an increase of
$287,000 in depository  fees and charges from  additional  depositors of our new
branch offices and ATM centers, and a $63,000 gain from securities sale.

NON-INTEREST EXPENSE

     Non-interest  expense increased by $3.2 million, or 20.8%, to $18.7 million
for fiscal  2005  compared  to $15.5  million  for the prior  fiscal  year.  The
increase in non-interest expense was primarily attributable to increases of $1.9
million in salaries and employee benefits as a result of additions to staff from
the branch  expansion,  severance  and related  costs of $355,000 and  increased
costs of benefits plans. Net occupancy and equipment expenses increased $514,000
and $122,000, respectively, mainly as a result of opening the new branch offices
and ATM centers.  Additionally,  this fiscal year  recorded a charge of $847,000
for merger and  acquisition  expenses  related to the attempted  acquisition  of
IFSB.  These increases in  non-interest  expenses were slightly offset by a year
over year  $141,000  decrease in other  non-interest  expense  primarily the net
result of lower  consulting,  FDIC deposit  assessment and loan related expenses
Offset by higher advertising, telephone and retail related expenses.

INCOME TAX EXPENSE

     Income tax expense was $1.5  million for fiscal 2005, a decline of $975,000
or 39.1%,  decrease  from $2.5 million for fiscal 2004 due to a reduction in the
Company's  net income  before  taxes.  The effective tax rate in fiscal 2005 was
36.4%, compared to 34.0% for fiscal 2004.

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity is a measure of the Bank's  ability to generate  adequate cash to
meet  financial  obligations.  The principal  cash  requirements  of a financial
institution are to cover potential deposit outflows,  fund increases in its loan
and  investment  portfolios  and  cover  its  ongoing  operating  expenses.  The
Company's primary sources of funds are deposits,  borrowed funds,  principal and
interest payments on loans, mortgage-backed securities and investment securities
and  fee  income.   While  maturities  and  scheduled   amortization  of  loans,
mortgage-backed  securities and investment securities are predictable sources of
funds,  deposit flows and loan and  mortgage-backed  securities  prepayments are
strongly  influenced by changes in general interest rates,  economic  conditions
and competition.

     Management believes the Bank's short-term assets have sufficient  liquidity
to cover loan demand,  potential  fluctuations  in deposit  accounts and to meet
other anticipated cash requirements.  In addition, as previously discussed,  the
Bank has the  ability  to borrow  funds from the  FHLB-NY to meet any  liquidity
needs. The Bank monitors its liquidity  utilizing  guidelines that are contained
in a policy developed by management of the Bank and approved by the Bank's Board
of  Directors.  The Bank's  several  liquidity  measurements  are evaluated on a
frequent  basis.  The Bank was in  compliance  with this  policy as of March 31,
2006.

     Congress  eliminated  the statutory  liquidity  requirement  which required
federal  savings banks to maintain a minimum  amount of liquid assets of between
4% and 10%, as determined by the Director of the OTS, the Bank's primary federal
regulator.  The Bank is required to maintain sufficient  liquidity to ensure its
safe and  sound  operation.  As a result  of the  elimination  of the  liquidity
requirement,  the Bank manages its liquidity through a Board-approved  liquidity
policy. The Bank's most liquid assets are cash and short-term  investments.  The
level of these  assets is  dependent  on the  Bank's  operating,  investing  and
financing activities during any given period. At March 31, 2006 and 2005, assets
qualifying for short-term liquidity,  including cash and short-term investments,
totaled $25.2 million and $30.2 million, respectively.

     The levels of the Bank's  short-term  liquid  assets are  dependent  on the
Bank's  operating,  financing and investing  activities during any given period.
The  most  significant  liquidity  challenge  the  Bank  currently  faces is the
variability  in its cash flows as a result of mortgage  refinance  activity.  As
mortgage  interest  rates  increase,  customers'  refinance  activities  tend to
decline,  causing the cash flow from both the mortgage  loan  portfolio  and the
mortgage-backed  securities  portfolio  to  decelerate.  During  fiscal 2005 the
federal funds rate increased  seven separate times resulting in a total increase
in the federal funds rate of 175 basis points.  The federal funds rate was again
raised in fiscal 2006 eight separate times  resulting in an additional  increase
in the  federal  funds  rate of 200 basis  points.  While  the Bank  experienced
relatively  high loan and securities  repayments  over the last two fiscal years
primarily as a result of increased mortgage loan refinancing  activity caused by
the low longer term interest rate environment, management anticipates a leveling
of these  prepayments  in fiscal  2007 as longer  term  rates  remain at current
levels or begin to climb the effect of which can hinder liquidity.

     The  Consolidated  Statements of Cash Flows present the change in cash from
operating, investing and financing activities. During fiscal 2006, cash and cash
equivalents increased by $2.5 million. Net cash provided by operating activities
was $30.5 million,  representing  primarily the proceeds from the sale of loans.
Net cash used in investing activities was $54.4 million, which was primarily the
result of  originations  and  purchases  of loans and  purchases  of  securities
partially offset by repayments and maturities of loans and securities sales. Net
cash provided by financing  activities was $26.4 million,  reflecting  primarily
net increases in deposits  partially offset by repayments of borrowings from the
FHLB-NY and stock dividend payments.


OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

     The Bank is a party to financial instruments with off-balance sheet risk in
the  normal  course  of  business  in order to meet the  financing  needs of its
customers.  These instruments  involve, to varying degrees,  elements of credit,
interest rate and  liquidity  risk. In  accordance  with  accounting  principles
generally  accepted in the United States of America ("GAAP"),  these instruments
are not recorded in the  consolidated  financial  statements.  Such  instruments
primarily include lending commitments.

     Lending  commitments include commitments to originate mortgage and consumer
loans  and  commitments  to fund  unused  lines of  credit.  The  Bank  also has
contractual obligations related to operating leases. Additionally,  the Bank has
a  contingent  liability  related to a standby  letter of  credit.  The Bank has
outstanding commitments and contractual obligations as follows:

                                                        March 31,
                                              ----------------------------
                                                   2006           2005
                                              ------------    ------------
                                                  (Dollars in thousands)
Commitments to originate mortgage loans       $     64,163    $     44,129
Commitments to originate commercial and
 consumer loans                                        439             515
Letters of credit                                    1,795           1,908
                                              ------------    ------------
        Total                                 $     66,397    $     46,552
                                              ============    ============

The following  table  presents the Bank's  contractual  obligations at March 31,
2006.


<TABLE>
<CAPTION>
                                                                         PAYMENTS DUE BY PERIOD
                                                    -------------------------------------------------------------------------
                      Contractual                                    Less than        1 - 3          3 - 5        More than
                      Obligations                       Total          1 year         years          years         5 years
--------------------------------------------------  -------------  -------------  -------------  -------------  -------------
<S>                                                 <C>            <C>            <C>            <C>            <C>
                                                                                     (IN THOUSANDS)
Long term debt obligations:
  FHLB advances                                     $      80,935  $      49,434  $      31,307  $          --  $         194
  Guaranteed preferred beneficial interest in
    junior subordinated debentures                         12,857                        12,857
                                                    -------------  -------------  -------------  -------------  -------------
      Total long term debt obligations                     93,792         49,434         44,164             --            194

Operating lease obligations:
  Lease obligations for rental properties                   4,452            657          1,338          1,227          1,230
                                                    -------------  -------------  -------------  -------------  -------------
Total contractual obligations                       $      98,244  $      50,091  $      45,502  $       1,227  $       1,424
                                                    =============  =============  =============  =============  =============
</TABLE>


REGULATORY CAPITAL POSITION

     The Bank must satisfy three minimum  capital  standards  established by the
OTS. For a description of the OTS capital  regulation,  see "Item  1--Regulation
and Supervision--Federal Banking Regulation--Capital Requirements."

     The  Bank  presently   exceeds  all  capital   requirements   as  currently
promulgated.  At March  31,  2006,  the  Bank  had  tangible,  core,  and  total
risk-based  capital  ratios  of  9.4%,  9.4%  and  13.2%,  respectively  and was
considered well capitalized.

     The following table reconciles the Bank's stockholders' equity at March 31,
2006 under GAAP to regulatory capital requirements.


<TABLE>
<CAPTION>
                                                                    REGULATORY CAPITAL REQUIREMENTS
                                                    ------------------------------------------------------------------
                                                         GAAP          TANGIBLE          LEVERAGE        RISK-BASED
                                                        CAPITAL         CAPITAL           CAPITAL          CAPITAL
                                                    ---------------  ---------------  ---------------  ---------------
                                                                           (DOLLARS IN THOUSANDS)

<S>                                                 <C>              <C>              <C>              <C>
Stockholders' Equity at March 31, 2006 (1)          $        61,814  $        61,814  $        61,814  $        61,814

Add:
   General valuation allowances                                                   --               --            4,015
   Unrealized loss on securities
   available-for-sale, net                                                       393              393              393
                                                                     ---------------  ---------------  ---------------
Regulatory Capital                                                            62,207           62,207           66,222
Minimum Capital requirement                                                    9,929           26,477           40,074
                                                                     ---------------  ---------------  ---------------
Regulatory Capital Excess                                            $        52,278  $        35,730  $        26,148
                                                                     ===============  ===============  ===============
</TABLE>


(1)  Reflects Bank only.

IMPACT OF INFLATION AND CHANGING PRICES

     The financial  statements and accompanying notes appearing elsewhere herein
have been prepared in accordance  with GAAP,  which require the  measurement  of
financial  position and operating results in terms of historical dollars without
considering the changes in the relative  purchasing power of money over time due
to  inflation.  The impact of inflation is  reflected in the  increased  cost of
Carver Federal's operations.  Unlike most industrial  companies,  nearly all the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on Carver Federal's  performance than do the effects
of the general level of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the prices of goods and services.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The information  required by this item appears under the caption  "Discussion of
Market  Risk--Interest Rate Sensitivity Analysis" in Item 7, incorporated herein
by reference.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



                             LETTERHEAD OF KPMG LLP


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Carver Bancorp, Inc.:

     We have  audited the  accompanying  consolidated  statements  of  financial
condition  of Carver  Bancorp,  Inc. and  subsidiaries  as of March 31, 2006 and
2005,   and  the  related   consolidated   statements  of  income,   changes  in
stockholders'  equity and comprehensive  income,  and cash flows for each of the
years  in the  three-year  period  ended  March  31,  2006.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audits.

     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the  financial  position of Carver
Bancorp Inc. and  subsidiaries as of March 31, 2006 and 2005, and the results of
their  operations  and their cash flows for each of the years in the  three-year
period  ended  March  31,  2006,  in  conformity  with U.S.  generally  accepted
accounting principles.



KPMG LLP
New York, New York
June 29, 2006


<TABLE>
<CAPTION>
                      CARVER BANCORP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                        (In thousands, except share data)

                                                                                    MARCH 31,    MARCH 31,
                                                                                      2006         2005
                                                                                    ---------    ---------
<S>                                                                                 <C>          <C>

ASSETS Cash and cash equivalents:
    Cash and due from banks                                                         $  13,604    $  13,020
    Federal funds sold                                                                  8,700        6,800
    Interest earning deposits                                                             600          600
                                                                                    ---------    ---------
         Total cash and cash equivalents                                               22,904       20,420
Securities:
     Available-for-sale, at fair value (including pledged as collateral of
       $79,211 and $112,503 at March 31, 2006 and 2005, respectively)                  81,882      118,033
     Held-to-maturity, at amortized cost (including pledged as collateral of
       $26,039 and $30,900 at March 31, 2006 and 2005, respectively; fair value
        of $25,880 and $31,310 at March 31, 2006 and 2005, respectively)               26,404       31,302
                                                                                    ---------    ---------
          Total securities                                                            108,286      149,335
Loans receivable:
     Real estate mortgage loans                                                       495,994      424,387
     Consumer and commercial business loans                                             1,453        1,697
     Allowance for loan losses                                                         (4,015)      (4,097)
                                                                                    ---------    ---------
          Total loans receivable, net                                                 493,432      421,987
Office properties and equipment, net                                                   13,194       13,658
Federal Home Loan Bank of New York stock, at cost                                       4,627        5,125
Bank owned life insurance                                                               8,479        8,173
Accrued interest receivable                                                             2,970        2,702
Other assets                                                                            7,101        4,977
                                                                                    ---------    ---------
          Total assets                                                              $ 660,993    $ 626,377
                                                                                    =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Deposits                                                                       $ 504,638    $ 455,870
     Advances from the Federal Home Loan Bank of New York and other borrowed money     93,792      115,299
     Other liabilities                                                                 13,866        9,407
                                                                                    ---------    ---------
          Total liabilities                                                           612,296      580,576
Stockholders' equity:
     Common stock (par value $0.01 per share: 10,000,000 shares authorized;
        2,524,691 shares issued; 2,506,822 and 2,501,338 outstanding at March
        31, 2006 and 2005, respectively)                                                   25           25
     Additional paid-in capital                                                        23,935       23,937
     Retained earnings                                                                 25,736       22,748
     Unamortized awards of common stock under ESOP and management recognition
       plan ("MRP")                                                                       (22)        (254)
     Treasury stock, at cost (17,869 and 23,353 shares at March 31, 2006 and
       2005, respectively)                                                               (303)        (420)
     Accumulated other comprehensive loss                                                (674)        (235)
                                                                                    ---------    ---------
          Total stockholders' equity                                                   48,697       45,801
                                                                                    ---------    ---------
     Total liabilities and stockholders' equity                                     $ 660,993    $ 626,377
                                                                                    =========    =========
</TABLE>


See accompanying notes to consolidated financial statements


<TABLE>
<CAPTION>
                      CARVER BANCORP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)

                                                                                     FOR THE YEAR ENDED MARCH 31,
                                                                                    -------------------------------
                                                                                      2006       2005        2004
                                                                                    --------   --------    --------
<S>                                                                                 <C>        <C>         <C>

Interest Income:
   Loans                                                                            $ 26,563   $ 22,940    $ 20,117
   Mortgage-backed securities                                                          4,439      4,605       4,789
   Investment securities                                                                 971        827       1,161
   Federal funds sold                                                                    412        174         167
                                                                                    --------   --------    --------
     Total interest income                                                            32,385     28,546      26,234

Interest expense:
   Deposits                                                                            8,921      5,455       4,649
   Advances and other borrowed money                                                   4,572      4,303       4,051
                                                                                    --------   --------    --------
     Total interest expense                                                           13,493      9,758       8,700

     Net interest income                                                              18,892     18,788      17,534

Provision for loan losses                                                                 --         --          --
                                                                                    --------   --------    --------
     Net interest income after provision for loan losses                              18,892     18,788      17,534

Non-interest income:
   Depository fees and charges                                                         2,458      2,212       1,925
   Loan fees and service charges                                                       2,231      1,868       2,607
   Gain on sale of securities                                                             --         94          31
   Impairment of securities                                                               --     (1,547)         --
   Gain on sale of loans                                                                 351         84         116
   Gain on sale of fixed assets                                                           --         --           2
   Grant income                                                                           --      1,140          --
   Other                                                                                 301        224         597
                                                                                    --------   --------    --------
      Total non-interest income                                                        5,341      4,075       5,278

Non-interest expense:
   Employee compensation and benefits                                                  9,512      9,461       7,587
   Net occupancy expense                                                               2,284      1,957       1,443
   Equipment, net                                                                      1,939      1,608       1,486
   Merger related expenses                                                                --        847          --
   Other                                                                               5,399      4,823       4,964
                                                                                    --------   --------    --------
      Total non-interest expense                                                      19,134     18,696      15,480

      Income before income taxes                                                       5,099      4,167       7,332
Income taxes                                                                           1,329      1,518       2,493
                                                                                    --------   --------    --------
      Net income                                                                    $  3,770   $  2,649    $  4,839

Dividends applicable to preferred stock                                             $     --   $    114    $    197
                                                                                    --------   --------    --------

      Net income available to common stockholders                                   $  3,770   $  2,535    $  4,642
                                                                                    ========   ========    ========

Earnings per common share:
       Basic                                                                        $   1.50   $   1.06    $   2.03
                                                                                    ========   ========    ========
       Diluted                                                                      $   1.47   $   1.03    $   1.87
                                                                                    ========   ========    ========
</TABLE>


See accompanying notes to consolidated financial statements

<TABLE>
<CAPTION>
                      CARVER BANCORP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                                 (In thousands)
                                                                                ACCUMULATED      COMMON       COMMON      TOTAL
                                                ADDITIONAL                         OTHER         STOCK        STOCK      STOCK-
                             PREFERRED  COMMON   PAID-IN    RETAINED  TREASURY  COMPREHENSIVE  ACQUIRED BY  ACQUIRED BY  HOLDERS'
                                 STOCK   STOCK   CAPITAL    EARNINGS   STOCK    INCOME (LOSS)     ESOP         MRP       EQUITY
                             ---------  ------  ----------  --------  --------  -------------  -----------  -----------  --------
<S>                          <C>        <C>     <C>         <C>       <C>       <C>            <C>          <C>          <C>
Balance - March 31, 2003     $       1  $   23  $   23,781  $ 16,712  $   (190) $         750  $        --  $        (4) $ 41,073
Comprehensive income:
Net income                          --      --          --     4,839        --             --           --           --     4,839
Change in net unrealized
gain on available-for-sale
securities, net of taxes            --      --          --        --        --           (492)          --           --      (492)
                             ---------  ------  ----------  --------  --------  -------------  -----------  -----------  --------
Comprehensive income, net of
taxes:                                                                                                                      4,347
Dividends paid                      --      --          --      (659)       --             --           --           --      (659)
Purchase of treasury stock          --      --          82        --      (200)            --           --           --      (118)
Purchase of shares for MRP          --      --          19        --        --             --           --          (17)        2
                             ---------  ------  ----------  --------  --------  -------------  -----------  -----------  --------
BALANCE - MARCH 31, 2004             1      23      23,882    20,892      (390)           258           --          (21)   44,645
Comprehensive income :
Net income                          --      --       2,649        --        --             --           --        2,649
Change in net unrealized
gain on available-for-sale
securities, net of taxes            --      --          --        --        --           (493)          --           --      (493)
                             ---------  ------  ----------  --------  --------  -------------  -----------  -----------  --------
Comprehensive income, net of
taxes:                                                                                                                      2,156
Dividends paid                      --      --          --      (793)       --             --           --           --      (793)
Preferred stock redemption          (1)      2          --
Treasury stock activity             --      --          55        --       (30)            --           --           --        25
Allocation of ESOP Stock            --      --          --        --        --             --         (126)          --      (126)
Purchase of shares for MRP          --      --          --        --        --             --           --         (107)     (107)
                             ---------  ------  ----------  --------  --------  -------------  -----------  -----------  --------
BALANCE--MARCH 31, 2005             --      25      23,937    22,748      (420)          (235)        (126)        (128)   45,801
Comprehensive income :
Net income                          --      --       3,770        --        --             --           --        3,770
Loss on pension liability                                                                (281)                               (281)
Change in net unrealized
loss on available-for-sale
securities, net of taxes            --      --          --        --        --           (158)          --           --      (158)
                             ---------  ------  ----------  --------  --------  -------------  -----------  -----------  --------
Comprehensive income, net of
taxes:                                                                                                                      3,331
Dividends paid                      --      --          --      (782)       --             --           --           --      (782)
Treasury stock activity             --      --          (2)       --       117             --           --           --       115
Allocation of ESOP Stock            --      --          --        --        --             --          116           --       116
Purchase of shares for MRP          --      --          --        --        --             --           --          116       116
                             ---------  ------  ----------  --------  --------  -------------  -----------  -----------  --------
BALANCE--MARCH 31, 2006      $      --  $   25  $   23,935  $ 25,736  $   (303) $        (674) $       (10) $       (12) $ 48,697
                             =========  ======  ==========  ========  ========  =============  ===========  ===========  ========
</TABLE>

See accompanying notes to consolidated financial statements.


<TABLE>
<CAPTION>
                      CARVER BANCORP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                                                       YEAR ENDED MARCH 31,
                                                               -----------------------------------
                                                                 2006         2005         2004
                                                               ---------    ---------    ---------
<S>                                                            <C>          <C>          <C>
Cash flows from operating activities:
  Net income                                                   $   3,770    $   2,649    $   4,839
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Provision for loan losses                                        --           --           --
     ESOP and MRP expense                                            233          358          128
     Depreciation expense                                          1,546        1,423        1,146
     Amortization of intangibles                                      --           --          178
     Other amortization                                              863        1,502        1,848
     Impairment charge on securities                               1,547           --
     Gain from sale of securities                                     --          (94)         (31)
     Gain on sale of loans                                          (351)        (277)        (116)
   Changes in assets and liabilities:
  Proceeds from loans sold                                        22,908        8,404        9,590
       (Increase) decrease in accrued interest receivable           (268)        (213)         857
       (Increase) decrease in other assets                        (2,430)      (7,618)       4,478
       Increase (decrease) in other liabilities                    4,249       (4,452)       3,481
                                                               ---------    ---------    ---------
          Net cash provided by operating activities               30,520        3,229       26,398
                                                               ---------    ---------    ---------
Cash flows from investing activities:
  Purchases of securities:
     Available-for-sale                                          (26,811)     (83,219)     (58,477)
     Held-to-maturity                                                (19)          --      (19,859)
  Proceeds from principal payments, maturities and
     calls of securities:
     Available-for-sale                                           60,645       51,383       65,060
     Held-to-maturity                                              4,816       11,996       12,693
  Proceeds from sales of available-for-sale securities             1,575        7,288       23,902
  Disbursements for loan originations                           (111,349)     (85,801)     (87,140)
  Loans purchased from third parties                             (96,140)    (104,734)     (93,694)
  Principal collections on loans                                 113,468      112,518      111,821
  Redemption (purchase) of FHLB-NY stock                             498         (549)         864
  Additions to premises and equipment                             (1,082)      (3,399)      (2,779)
                                                               ---------    ---------    ---------
          Net cash used in investing activities                  (54,400)     (94,517)     (47,609)
                                                               ---------    ---------    ---------
Cash flows from financing activities:
  Net increase in deposits                                        48,768       79,789       26,501
  Net (repayment of)/proceeds from FHLB advances and
   other borrowed money                                          (21,507)      10,959       (4,714)
  Common stock repurchased                                          (115)      (1,021)        (303)
  Dividends paid                                                    (782)        (793)        (659)
                                                               ---------    ---------    ---------
          Net cash provided by financing activities               26,364       88,934       20,825
                                                               ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents               2,484       (2,354)        (386)
Cash and cash equivalents at beginning of the year                20,420       22,774       23,160
                                                               ---------    ---------    ---------
Cash and cash equivalents at end of  the year                  $  22,904    $  20,420    $  22,774
                                                               =========    =========    =========

Supplemental information:
Noncash Transfers-
  Change in unrealized loss on valuation of
     available-for-sale
       investments, net                                        $    (158)   $    (493)   $    (492)

Cash paid for-
  Interest                                                     $  13,502    $   9,718    $   8,739
  Income taxes                                                 $   2,107    $   2,395    $   2,825
                                                               =========    =========    =========
</TABLE>

See accompanying notes to consolidated financial statements


                      CARVER BANCORP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

     Carver  Bancorp,  Inc. (on a stand-alone  basis,  the "Holding  Company" or
"Registrant"),  was  incorporated  in May 1996 and its  principal  wholly  owned
subsidiary  is Carver  Federal  Savings  Bank (the "Bank" or "Carver  Federal").
Carver Statutory Trust I (the "Trust") is another wholly owned subsidiary of the
Holding Company.  The Trust,  which was formed in September 2003, exists for the
sole purpose of issuing  trust  preferred  debt  securities  and  investing  the
proceeds  in an  equivalent  amount of  subordinated  debentures  of the Holding
Company.  CFSB Realty Corp., CFSB Credit Corp. and Carver Community  Development
Corp. are wholly owned  subsidiaries of the Bank. CFSB Credit Corp. is currently
inactive. The Bank owns a majority interest in Carver Asset Corporation,  a real
estate  investment trust formed in February 2004. The Bank was chartered in 1948
and began operations in 1949 as Carver Federal Savings and Loan  Association,  a
federally chartered mutual savings and loan association. The Bank converted to a
federal  savings bank in 1986 and changed its name at that time.  On October 24,
1994, the Bank converted from mutual to stock form and issued  2,314,275  shares
of its common stock,  par value $0.01 per share.  On October 17, 1996,  the Bank
completed   its   reorganization   into  a  holding   company   structure   (the
"Reorganization")  and became a wholly owned  subsidiary of the Holding Company.
In  connection  with the  Reorganization,  each share of the Bank's  outstanding
common stock was exchanged for one share of the Holding  Company's common stock,
par value $0.01 per share.  On January 11, 2000,  the Holding  Company sold in a
private placement, pursuant to a Securities Purchase Agreement dated January 11,
2000,  40,000  shares of Series A  Convertible  Preferred  Stock (the  "Series A
Preferred  Stock")  to Morgan  Stanley & Co.  Incorporated  ("MSDW")  and 60,000
Shares of Series B Convertible  Preferred Stock (the "Series B Preferred Stock")
to Provender Opportunities Fund L.P.  ("Provender").  On June 1, 2004, Provender
sold all 60,000 of its Series B Preferred  Stock to Keefe Bruyette & Woods,  Inc
("KBW").  On October  15,  2004,  both MSDW and KBW  elected  to  convert  their
Preferred  Shares  into  shares  of  Holding  Company's  common  stock,  thus an
additional 208,333 shares of common stock were issued to these parties. See Note
11 of Notes to the Consolidated Financial Statements.  Collectively, the Holding
Company,   the  Bank  and  the  Holding  Company's  other  direct  and  indirect
subsidiaries are referred to herein as the "Company" or "Carver."

     Carver Federal's principal business consists of attracting deposit accounts
through its branch offices and investing those funds in mortgage loans and other
investments  permitted  by  federal  savings  banks.  The Bank has eight  branch
offices  located  throughout  the  City of New York  that  primarily  serve  the
communities in which they operate.

BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION

     The consolidated  financial  statements include the accounts of the Holding
Company,  Carver  Statutory  Trust I, the Bank and the  Bank's  wholly  owned or
majority owned  subsidiaries,  Carver Asset  Corporation,  CFSB Realty Corp. and
CFSB Credit Corp. All significant  intercompany  accounts and transactions  have
been eliminated in consolidation.

     The consolidated financial statements have been prepared in conformity with
accounting  principles  generally  accepted in the United States of America.  In
preparing the consolidated financial statements,  management is required to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities as of the date of the consolidated  statement of financial condition
and  revenues  and  expenses  for the  period  then  ended.  Estimates  that are
particularly  susceptible  to  significant  changes in the  near-term  relate to
prepayment  assumptions on  mortgage-backed  securities and mortgage loans,  the
determination of the allowance for loan losses and, if applicable, the valuation
of real estate  owned.  Actual  results  could differ  significantly  from those
estimates.

     Management   believes  that  prepayment   assumptions  on   mortgage-backed
securities and mortgage loans are  appropriate and the allowance for loan losses
is adequate.  While management uses available information to recognize losses on
loans,  future  additions to the allowance for loan losses or future write downs
of real estate owned may be necessary based on changes in economic conditions in
the  areas  where  Carver  Federal  had  extended  mortgages  and  other  credit
instruments.

     In addition, the Office of Thrift supervision ("OTS") our regulator,  as an
integral part of its examination process,  periodically reviews Carver Federal's
allowance for loan losses and, if applicable,  real estate owned valuations. The
OTS may require Carver Federal to recognize  additions to the allowance for loan
losses or additional  write downs of real estate owned based on their  judgments
about information available to them at the time of their examination.

CASH AND CASH EQUIVALENTS

     Cash and cash  equivalents  include  cash and amounts  due from  depository
institutions  and  federal  funds  sold  which are  generally  sold for  one-day
periods.  The amounts due from  depository  institutions  include a non-interest
bearing  account held at the Federal  Reserve Bank ("FRB") where any  additional
cash reserve  required on demand deposits would be maintained.  Currently,  this
reserve  requirement  is zero since the Bank's vault cash satisfies cash reserve
requirements for deposits.

SECURITIES

     The Bank does not have trading  securities but does  differentiate  between
held-to-maturity  securities and available-for-sale  securities. When purchased,
securities are designated in either the securities held-to-maturity portfolio or
securities  available-for-sale  portfolio.  Securities  should be  classified as
held-to-maturity  and carried at amortized  cost only if the Bank has a positive
intent and ability to hold such  securities  to maturity.  If not  classified as
held-to-maturity,    such    securities    are    classified    as    securities
available-for-sale  demonstrating  management's  ability to sell in  response to
actual or anticipated changes in interest rates and resulting prepayment risk or
any other  factors.  Available-for-sale  securities  are reported at fair value.
Unrealized holding gains or losses for securities  available-for-sale  are to be
excluded from  earnings and reported net of deferred  income taxes as a separate
component of  accumulated  other  comprehensive  (loss)  income,  a component of
Stockholders' Equity. Any impairment in the available-for-sale securities deemed
other-than-temporary,  is written  down  against  the cost basis and  charged to
earnings.  No impairment  charge was recorded for fiscal 2006,  however,  during
fiscal 2005 Carver  recorded a $1.5 million charge to earnings for impairment in
available-for-sale  securities deemed other-than-temporary on the 150,000 shares
of  Independence  Federal  Savings  Bank common stock  ("IFSB")  that it held in
portfolio.

     Securities   held-to-maturity   are  carried  at  cost,  adjusted  for  the
amortization  of premiums and the accretion of discounts  using the  level-yield
method over the remaining period until maturity.

     Gains  or  losses  on  sales  of  securities  of  all  classifications  are
recognized based on the specific identification method.

LOANS RECEIVABLE

     Loans receivable are carried at unpaid principal  balances plus unamortized
premiums and certain deferred direct loan origination  costs, less the allowance
for loan losses and deferred loan fees and discounts.

     The Bank defers loan  origination  fees and certain direct loan origination
costs and  accretes  such  amounts as an  adjustment  of yield over the expected
lives of the related loans using  methodologies  which  approximate the interest
method.  Premiums and discounts on loans  purchased are amortized or accreted as
an adjustment of yield over the contractual lives, adjusted for prepayments when
applicable,  of the related  loans using  methodologies  which  approximate  the
interest method.

     Loans are generally placed on non-accrual  status when they are past due 90
days or more as to contractual  obligations or when other circumstances indicate
that collection is  questionable.  When a loan is placed on non-accrual  status,
any  interest  accrued but not  received is reversed  against  interest  income.
Payments  received on a non-accrual  loan are either applied to the  outstanding
principal balance or recorded as interest income,  depending on an assessment of
the  ability to collect  the loan.  A  non-accrual  loan is  restored to accrual
status when  principal and interest  payments  become less than 90 days past due
and its future collectibility is reasonably assured.

ALLOWANCE FOR LOAN LOSSES

     An allowance for loan losses is maintained at a level  considered  adequate
to provide for potential loan losses.  Management is responsible for determining
the adequacy of the allowance for loan losses and the periodic  provisioning for
estimated  losses  included  in  the  consolidated  financial  statements.   The
evaluation  process is  undertaken  on a quarterly  basis,  but may  increase in
frequency  should  conditions  arise  that  would  require  management's  prompt
attention,  such as  business  combinations  and  opportunities  to  dispose  of
non-performing  and marginally  performing loans by bulk sale or any development
which may indicate an adverse trend.

     Carver Federal maintains a loan review system,  which allows for a periodic
review of its loan portfolio and the early  identification  of potential problem
loans.  Such system takes into  consideration,  among other things,  delinquency
status,  size of  loans,  type of  collateral  and  financial  condition  of the
borrowers.  Loan loss  allowances are  established  for problem loans based on a
review of such information  and/or appraisals of the underlying  collateral.  On
the  remainder  of its loan  portfolio,  loan loss  allowances  are based upon a
combination  of  factors  including,  but  not  limited  to,  actual  loan  loss
experience,  composition  of loan  portfolio,  current  economic  conditions and
management's  judgment.  Although  management  believes  that adequate loan loss
allowances have been established, actual losses are dependent upon future events
and, as such,  further  additions to the level of the loan loss allowance may be
necessary in the future.

     The methodology employed for assessing the appropriateness of the allowance
consists of the following criteria:

     o    Establishment  of  reserve  amounts  for all  specifically  identified
          criticized  loans that have been designated as requiring  attention by
          management's   internal   loan   review   program,   bank   regulatory
          examinations or the external auditors.

     o    An average loss factor,  giving effect to historical  loss  experience
          over  several  years and  linked to  cyclical  trends,  is  applied to
          smaller  balance  homogenous  types of loans not  subject to  specific
          review.   These  loans  include   residential   one-  to  four-family,
          multifamily,  nonresidential  and construction  loans and also include
          consumer and business loans.

     Recognition  is also given to the changed  risk  profile  brought  about by
business combinations, customer knowledge, the results of ongoing credit quality
monitoring   processes  and  the  cyclical   nature  of  economic  and  business
conditions.  An important  consideration in applying these  methodologies is the
concentration  of  real  estate  related  loans  located  in the New  York  City
metropolitan area.

     The initial  allocation or  specific-allowance  methodology  commences with
loan  officers  and  underwriters  grading  the  quality  of  their  loans on an
nine-category risk  classification  scale. Loans identified from this process as
below  investment  grade are referred to the Internal Asset Review Committee for
further analysis and  identification of those factors that may ultimately affect
the full recovery or  collectibility  of principal and/or interest.  These loans
are  subject to  continuous  review  and  monitoring  while  they  remain in the
criticized  category.  Additionally,  the  Internal  Asset  Review  Committee is
responsible  for  performing  periodic  reviews of the loan  portfolio  that are
independent  from the  identification  process  employed  by loan  officers  and
underwriters.   Gradings  that  fall  into  criticized  categories  are  further
evaluated and reserve amounts, if necessary, are established for each loan.

     The second  allocation  or loss factor  approach  to common or  homogeneous
loans is made by applying the average loss factor based on several years of loss
experience  to  the  outstanding  balances  in  each  loan  category.  It  gives
recognition  to the loss  experience  of  acquired  businesses,  business  cycle
changes and the real estate  components  of loans.  Since many loans depend upon
the  sufficiency  of  collateral,  any adverse trend in the real estate  markets
could seriously affect underlying values available to protect against loss.

     Other  evidence  used  to  support  the  amount  of the  allowance  and its
components are as follows:

     o    Regulatory examinations

     o    Amount and trend of criticized loans

     o    Actual losses

     o    Peer comparisons with other financial institutions

     o    Economic data  associated with the real estate market in the Company's
          market area

     o    Opportunities  to  dispose  of  marginally  performing  loans for cash
          consideration

     A loan is considered  to be impaired,  as defined by Statement of Financial
Accounting  Standards ("SFAS") No. 114,  "ACCOUNTING BY CREDITORS FOR IMPAIRMENT
OF A LOAN" ("SFAS 114"),  when it is probable that Carver Federal will be unable
to collect all principal and interest  amounts due according to the  contractual
terms of the loan  agreement.  Carver Federal tests loans covered under SFAS 114
for  impairment  if they are on  non-accrual  status or have been  restructured.
Consumer credit non-accrual loans are not tested for impairment because they are
included  in  large  groups  of  smaller-balance   homogeneous  loans  that,  by
definition along with leases,  are excluded from the scope of SFAS 114. Impaired
loans are  required  to be  measured  based upon the  present  value of expected
future cash flows,  discounted at the loan's initial effective interest rate, or
at the  loan's  market  price  or fair  value of the  collateral  if the loan is
collateral  dependent.  If the loan valuation is less than the recorded value of
the loan, an impairment  reserve must be  established  for the  difference.  The
impairment  reserve is  established  by either an  allocation of the reserve for
credit  losses  or by a  provision  for  credit  losses,  depending  on  various
circumstances.  Impairment  reserves are not needed when credit losses have been
recorded so that the recorded  investment  in an impaired  loan is less than the
loan valuation.

CONCENTRATION OF RISK

     The Bank's principal  lending  activities are concentrated in loans secured
by real estate,  a  substantial  portion of which is located in the State of New
York.  Accordingly,  the ultimate collectibility of a substantial portion of the
Company's  loan  portfolio is  susceptible  to changes in New York's real estate
market conditions.

PREMISES AND EQUIPMENT

     Premises and  equipment  are  comprised of land,  at cost,  and  buildings,
building improvements,  furnishings and equipment and leasehold improvements, at
cost,  less  accumulated   depreciation  and   amortization.   Depreciation  and
amortization  charges  are  computed  using the  straight-line  method  over the
following estimated useful lives:

     Buildings and improvements         10 to 25 years

     Furnishings and equipment          3 to 5 years

     Leasehold improvements             Lesser of useful life or remaining term
                                        of lease

     Maintenance,  repairs and minor  improvements  are charged to  non-interest
expense in the period incurred.

BANK OWNED LIFE INSURANCE

     Bank Owned Life Insurance  ("BOLI") is carried at its cash surrender  value
on the balance sheet and is classified as a  non-interest-earning  asset.  Death
benefits  proceeds  received in excess of the policy's cash surrender  value are
recognized to income. Returns on the BOLI assets are added to the carrying value
and included as non-interest income in the consolidated statement of operations.
Any receipt of benefit proceeds is recorded as a reduction to the carrying value
of the BOLI asset.  At March 31, 2006,  Carver held no policy loans  against its
BOLI cash surrender values or restrictions on the use of the proceeds.

MORTGAGE SERVICING RIGHTS

     Mortgage  servicing  rights ("MSR") on mortgage loans are recognized at the
sale of mortgage loans where servicing rights are retained. At recognition, this
asset is recorded onto the balance sheet as a  non-interest-earning  asset.  The
initial  recognition of MSR is based on the fair value of total estimated income
from the  servicing  of  these  loans.  The  asset  is then  amortized  over the
estimated life of the serviced loans.

REAL ESTATE OWNED

     Real  estate  acquired by  foreclosure  or deed in lieu of  foreclosure  is
recorded at the fair value at the date of acquisition and thereafter  carried at
the lower of cost or fair value less estimated  selling costs. The fair value of
such assets is determined based primarily upon independent  appraisals and other
relevant  factors.  The amounts  ultimately  recoverable  from real estate owned
could differ from the net carrying value of these properties because of economic
conditions.

     Costs  incurred  to  improve  properties  or  prepare  them  for  sale  are
capitalized.  Revenues  and  expenses  related to the holding and  operating  of
properties are  recognized in operations as earned or incurred.  Gains or losses
on sale of properties  are  recognized as incurred.  At March 31, 2006, the Bank
had no foreclosed real estate, however as a result of a property tax redemption,
the Bank took fee  ownership of a vacant  tract of land in  Bayshore,  NY with a
carrying amount of $10,000 and is included with other assets on the statement of
condition.

IDENTIFIABLE INTANGIBLE ASSETS

     Carver Federal adopted Statement of Financial  Accounting  Standards No.142
("SFAS No.  142"),  "GOODWILL AND OTHER  INTANGIBLE  ASSETS" on January 1, 2002.
SFAS 142 requires that goodwill and  intangible  assets with  indefinite  useful
lives no longer  be  amortized,  but  instead  tested  for  impairment  at least
annually.

     Identifiable  intangible  assets relate primarily to core deposit premiums,
resulting  from  the  valuation  of core  deposit  intangibles  acquired  in the
purchase of branch offices.  These identifiable  intangible assets are amortized
using the straight-line  method over periods not exceeding the estimated average
remaining life of the existing customer deposits acquired.  Amortization periods
range  from 5 to 15  years.  Amortization  periods  for  intangible  assets  are
monitored to determine  if events and  circumstances  require such periods to be
reduced.

     At March 31, 2006 Carver had no goodwill or identifiable  intangible assets
on its books.

INCOME TAXES

     Carver  Federal  accounts  for income  taxes using the asset and  liability
method.  Temporary  differences  between the basis of assets and liabilities for
financial  reporting and tax purposes are measured as of the balance sheet date.
Deferred tax liabilities or  recognizable  deferred tax assets are calculated on
such differences,  using current statutory rates, which result in future taxable
or deductible amounts.  The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.

IMPAIRMENT

     The Company annually  evaluates  long-lived  assets,  certain  identifiable
intangibles,  deferred costs for indication of impairment in value. There was no
impairment  on these  assets for the past three years and when  required,  asset
impairment will be recorded as an expense in the current period.

EARNINGS (LOSS) PER COMMON SHARE

     Basic earnings per share ("EPS") is computed by dividing  income  available
to  common  stockholders  by  the  weighted-average   number  of  common  shares
outstanding.  Diluted  EPS  includes  any  additional  common  shares  as if all
potentially  dilutive common shares were issued (e.g.  outstanding  share awards
under the Company's stock option plan).  For the purpose of these  calculations,
unreleased  shares of the Carver Federal  Savings Bank Employee Stock  Ownership
Plan ("ESOP") are not considered to be outstanding.

TREASURY STOCK

     Treasury  stock is recorded  at cost and is  presented  as a  reduction  of
stockholders' equity.

PENSION PLANS

     In February  1998,  the FASB issued SFAS No. 132,  "EMPLOYERS'  DISCLOSURES
ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS" ("SFAS 132"). SFAS 132 revises
employers'  disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans.

STOCK-BASED COMPENSATION PLANS

     Compensation  expense is  recognized  for the Bank's ESOP equal to the fair
value of shares committed to be released for allocation to participant accounts.
Any  difference  between  the fair  value at that time and the  ESOP's  original
acquisition  cost is charged or credited  to  stockholders'  equity  (additional
paid-in capital).  The cost of unallocated ESOP shares (shares not yet committed
to be released) is reflected as a reduction of stockholders' equity.

     The Holding Company grants  "incentive stock options" only to its employees
and grants "nonqualified stock options" to employees and non-employee directors.
Under  Accounting  Principle  Board Opinion ("APB") No. 25 "ACCOUNTING FOR STOCK
ISSUED TO  EMPLOYEES",  no  compensation  expense is  recognized if the exercise
price of the option is  greater  than or equal to the fair  market  value of the
underlying  stock on the date of grant.  In  December  2004,  the FASB  issued a
revised  Statement of Financial  Accounting  Standards No. 123  "ACCOUNTING  FOR
STOCK BASED  COMPENSATION,  SHARE BASED  PAYMENT",  ("SFAS 123R") which requires
that  compensation  cost  relating  to  share-based   payment   transactions  be
recognized in the financial  statements.  The associated  costs will be measured
based on the fair value of the equity  instruments  issued.  SFAS 123R  covers a
wide range of share-based  compensation  arrangements  including  share options,
restricted share plans,  performance-based awards, share appreciation rights and
employee  share  purchase  plans.  SFAS 123R is effective as of the first annual
reporting period  beginning after June 15, 2005.  Carver Federal will adopt SFAS
123R as of April 1, 2006.

     The Holding Company's management  recognition and retention plan ("MRP") is
also accounted for in accordance  with APB Opinion No. 25. The fair value of the
shares  awarded,   measured  at  the  grant  date,  is  recognized  as  unearned
compensation   (a  deduction  from   stockholders'   equity)  and  amortized  to
compensation expense as the shares become vested. When MRP shares become vested,
the Company  records a credit to  additional  paid-in  capital for tax  benefits
attributable  to any MRP  deductions  in excess  of the  grant-date  fair  value
charged to expense, for financial reporting purposes.

     Carver Federal applies APB Opinion No. 25,  "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES," and related  interpretations  in accounting for our stock-based Plan
under  which  there is no charge to  earnings  for stock  option  awards and the
dilutive effect of outstanding options is reflected as additional share dilution
in the computation of earnings per share.

     The following  table  illustrates  net income and earnings per common share
pro forma results with the  application  of SFAS 123R for Carver's  Stock Option
Plan, for the years ended March 31:

<TABLE>
<CAPTION>
                                                                2006             2005              2004
                                                            -------------    -------------    -------------
<S>                                                         <C>              <C>              <C>
                                                             (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Income available to common shareholders:
    As reported                                             $       3,770    $       2,535    $       4,642
        Total stock-based employee compensation expense
        expense determined under fair value based methods
        for all awards, net of related tax effects                   (105)            (124)            (158)
                                                            -------------    -------------    -------------
    Pro forma                                               $       3,665    $       2,411    $       4,484
                                                            =============    =============    =============

Basic earnings per share:
    As reported                                             $        1.50    $        1.06    $        2.03
    Pro forma                                                        1.46             1.01             1.96

Diluted earnings per share:
    As reported                                             $        1.47    $        1.03    $        1.87
    Pro forma                                                        1.43             0.98             1.81

Weighted average number of shares outstanding                   2,506,029        2,381,980        2,283,802
</TABLE>


     The fair value of the option  grants was estimated on the date of the grant
using the  Black-Scholes  option pricing model  applying the following  weighted
average assumptions: risk-free interest rates of 4.50%, 3.50% and 2.50%, for the
relevant  fiscal  years  ended March 31,  2006,  2005 and 2004  ("fiscal  2006",
"fiscal  2005" and "fiscal  2004"),  respectively;  volatility of 19% for fiscal
2006 and 35%  fiscal  2005 and 45%  fiscal  2004;  expected  dividend  yield was
calculated  using annual dividends of $0.32 per share for fiscal 2006, $0.28 for
fiscal 2005 and $0.20 for fiscal 2004;  and an expected  life of seven years for
employees and directors option grants.


RECLASSIFICATIONS

     Certain  amounts in the  consolidated  financial  statements  presented for
prior years have been reclassified to conform to the current year presentation.


NOTE 2.      SECURITIES

     The following is a summary of securities at March 31, 2006:

<TABLE>
<CAPTION>
                                                           GROSS UNREALIZED
                                                       --------------------------
                                             AMORTIZED                             ESTIMATED
                                               COST        GAINS      LOSSES      FAIR-VALUE
                                             ---------   ---------   ---------    ----------
<S>                                          <C>         <C>         <C>          <C>
                                                            (IN THOUSANDS)
Available-for-Sale:
Mortgage-backed securities:
 Pass-through certificates:
  Government National Mortgage Association   $  63,499   $      48   $    (540)   $   63,007
  Federal Home Loan Mortgage Corporation         2,229           8         (28)        2,209
  Federal National Mortgage Association          4,696           3        (110)        4,589
                                             ---------   ---------   ---------    ----------
    Total mortgage-backed securities            70,424          59        (678)       69,805
U.S. Government Agency Securities               12,386          --        (309)       12,077
                                             ---------   ---------   ---------    ----------
    Total available-for-sale                    82,810          59        (987)       81,882
                                             ---------   ---------   ---------    ----------

HELD-TO-MATURITY:
Mortgage-backed securities:
 Pass-through certificates:
  Government National Mortgage Association         809          36          --           845
  Federal Home Loan Mortgage Corporation        17,372          15        (500)       16,887
  Federal National Mortgage Association          7,900          34        (107)        7,827
  Small Business Administration                    323          --          (2)          321
                                             ---------   ---------   ---------    ----------
    Total held-to-maturity                      26,404          85        (609)       25,880
                                             ---------   ---------   ---------    ----------
    Total securities                         $ 109,214   $     144   $  (1,596)   $  107,762
                                             =========   =========   =========    ==========
</TABLE>


     The following is a summary of securities at March 31, 2005:

<TABLE>
<CAPTION>
                                                                GROSS UNREALIZED
                                                            -------------------------
                                               AMORTIZED                               ESTIMATED
                                                 COST         GAINS        LOSSES      FAIR VALUE
                                               ----------   ----------   ----------    ----------
<S>                                            <C>          <C>          <C>           <C>
                                                                 (IN THOUSANDS)
AVAILABLE-FOR-SALE:
Mortgage-backed securities:
  Pass-through certificates:
    Government National Mortgage Association   $   83,861   $       98   $     (534)   $   83,425
    Federal Home Loan Mortgage Corporation          3,922           14          (28)        3,908
    Federal National Mortgage Association           8,247           17         (115)        8,149
                                               ----------   ----------   ----------    ----------
      Total mortgage-backed securities             96,030          129         (677)       95,482
Equity Securities                                   1,575           --           --         1,575
U.S. Government Agency Securities                  21,144           --         (168)       20,976
                                               ----------   ----------   ----------    ----------
      Total available-for-sale                    118,749          129         (845)      118,033
                                               ----------   ----------   ----------    ----------

HELD-TO-MATURITY:
Mortgage-backed securities:
  Pass-through certificates:
    Government National Mortgage Association        1,070           59           --         1,129
    Federal Home Loan Mortgage Corporation         19,115           32          (71)       19,076
    Federal National Mortgage Association          10,780          110         (120)       10,770
    Small Business Administration                     337           --           (2)          335
                                               ----------   ----------   ----------    ----------
      Total held-to-maturity                       31,302          201         (193)       31,310
                                               ----------   ----------   ----------    ----------
      Total securities                         $  150,051   $      330   $   (1,038)   $  149,343
                                               ==========   ==========   ==========    ==========
</TABLE>

     The net  unrealized  loss on  available-for-sale  securities  was  $928,000
($575,000 after taxes) at March 31, 2006 and $716,000  ($444,000 after taxes) at
March 31,  2005.  On November  30, 2002 the Bank  transferred  $22.8  million of
mortgage-backed  securities from  available-for-sale  to  held-to-maturity  as a
result of  management's  intention to hold these  securities in portfolio  until
maturity.  A related  unrealized  gain of  $468,000  was  recorded as a separate
component of  stockholders'  equity and is being  amortized  over the  remaining
lives of the  securities  as an  adjustment  to yield.  As of March 31, 2006 the
carrying  value  of  these  securities  was  $16.0  million  and a  related  net
unrealized  gain of $183,000  continues  to be reported.  Changes in  unrealized
holding  gains and losses  between  fiscal 2006 and fiscal  2005  resulted in an
after-tax decrease in stockholders'  equity of $158,000.  These gains and losses
will  continue  to  fluctuate  based on  changes  in the  portfolio  and  market
conditions.

     There were no gains or losses resulting from the sale of available-for-sale
securities in fiscal 2006. In fiscal 2005,  an other than  temporary  impairment
charge  related to the  investment  in IFSB common  stock was  recorded  and was
subsequently  sold in fiscal  2006.  Additionally,  sales of  available-for-sale
securities in fiscal 2005 and 2004 resulted in gross  realized  gains of $94,000
and $31,000, respectively.

     At  March  31,  2006 the  Bank  pledged  securities  of  $38.3  million  as
collateral for advances from the Federal Home Loan Bank of New York ("FHLB-NY").

             The following is a summary of the carrying value  (amortized  cost)
and  fair  value of  securities  at March  31,  2006,  by  remaining  period  to
contractual  maturity  (ignoring  earlier call dates, if any). Actual maturities
may differ from contractual maturities because certain security issuers have the
right to call or prepay their obligations.

                            BOOK VALUE   FAIR VALUE    WEIGHTED AVG RATE
                            ----------   ----------    -----------------
                               (Dollars in Thousands)

AVAILABLE-FOR-SALE:
Less than one year          $    2,000   $    1,982                 2.43%
One through five years          10,687       10,398                 3.92%
Five through ten years           1,524        1,471                 4.53%
After ten years                 68,599       68,031                 3.78%
                            ----------   ----------    -----------------
                            $   82,810   $   81,882                 3.78%
                            ==========   ==========    =================

HELD-TO-MATURITY:
One through five years      $       50   $       50                 5.69%
After ten years                 26,354       25,830                 5.65%
                            ----------   ----------    -----------------
                            $   26,404   $   25,880                 5.65%
                            ==========   ==========    =================

     The  unrealized  losses and fair value of securities in an unrealized  loss
position  at March 31, 2006 for less than 12 months and 12 months or longer were
as follows:

<TABLE>
<CAPTION>
                                                                       MARCH 31, 2005
                                    --------------------------------------------------------------------------------
                                       Less than 12 months         12 months or longer                Total
                                    ------------------------    ------------------------    ------------------------
                                    Unrealized       Fair       Unrealized       Fair       Unrealized       Fair
                                      Losses         Value        Losses         Value        Losses         Value
                                    ----------    ----------    ----------    ----------    ----------    ----------
<S>                                 <C>           <C>           <C>           <C>           <C>           <C>
                                                                     (IN THOUSANDS)
AVAILABLE-FOR-SALE:
Mortgage-backed securities          $     (152)   $   19,051    $     (526)   $   39,795    $     (678)   $   58,846
U.S. Government Agency Securities         (141)        5,725          (168)        6,352          (309)       12,077
                                    ----------    ----------    ----------    ----------    ----------    ----------
  Total available-for-sale                (293)       24,776          (694)       46,147          (987)       70,923
                                    ----------    ----------    ----------    ----------    ----------    ----------

HELD-TO-MATURITY:
Mortgage-backed securities                (502)       16,777          (107)        6,224          (609)       23,001
                                    ----------    ----------    ----------    ----------    ----------    ----------
  Total securities                  $     (795)   $   41,553    $     (801)   $   52,371    $   (1,596)   $   93,924
                                    ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>

     The  unrealized  losses and fair value of securities in an unrealized  loss
position  at March 31, 2005 for less than 12 months and 12 months or longer were
as follows:

<TABLE>
<CAPTION>
                                    ------------------------   -----------------------    ------------------------
                                       Less than 12 months        12 months or longer               Total
                                    ------------------------   ------------------------   ------------------------
                                    Unrealized       Fair      Unrealized       Fair      Unrealized       Fair
                                      Losses         Value       Losses         Value       Losses         Value
                                    ----------    ----------   ----------    ----------   ----------    ----------
<S>                                 <C>           <C>          <C>           <C>          <C>           <C>
                                                                     (in thousands)
AVAILABLE-FOR-SALE:
Mortgage-backed securities          $     (225)   $   42,625   $     (452)   $   27,522   $     (677)   $   70,147
U.S. Government Agency Securities         (168)       20,976           --            --         (168)       20,976
                                    ----------    ----------   ----------    ----------   ----------    ----------
  Total available-for-sale                (393)       63,601         (452)       27,522         (845)       91,123
                                    ----------    ----------   ----------    ----------   ----------    ----------

HELD-TO-MATURITY:
Mortgage-backed securities                  (3)        1,186         (190)       10,475         (193)       11,661
                                    ----------    ----------   ----------    ----------   ----------    ----------
  Total securities                  $     (396)   $   64,787   $     (642)   $   37,997   $   (1,038)   $  102,784
                                    ==========    ==========   ==========    ==========   ==========    ==========
</TABLE>

     A total of 46 securities had an unrealized  loss at March 31, 2006 compared
to 33 at March 31, 2005. Based on estimated fair value, all the securities in an
unrealized loss position were United States government agency-backed securities,
which represents 86.7% and 68.8% of total securities at March 31, 2006 and 2005,
respectively.  The cause of the temporary  impairment is directly related to the
change in interest rates. In general,  as interest rates rise, the fair value of
securities  will decline,  and conversely as interest  rates  decline,  the fair
value of securities  will increase.  Management  considers  fluctuations in fair
value as a result of interest rate changes to be temporary,  which is consistent
with the Bank's  experience.  The impairments are deemed  temporary based on the
direct relationship of the decline in fair value to movements in interest rates,
the life of the investments and their high credit quality.

NOTE 3.  LOANS RECEIVABLE, NET

     A summary of loans receivable, net follows:

<TABLE>
<CAPTION>
                                                     MARCH 31,
                                   -----------------------------------------------
                                           2006                      2005
                                   ----------------------   ----------------------
                                    AMOUNT       PERCENT     AMOUNT       PERCENT
                                   ---------    ---------   ---------    ---------
<S>                                <C>              <C>     <C>              <C>
                                               (DOLLARS IN THOUSANDS)

REAL ESTATE LOANS:
  One- to four-family              $ 143,433        28.91%  $ 155,797        36.69%
  Multifamily                        104,718        21.11     101,899        23.99
  Nonresidential                     154,044        31.05     116,769        27.49
  Construction                        92,511        18.64      48,579        11.43
Consumer and business                  1,453         0.29       1,697         0.40
                                   ---------    ---------   ---------    ---------
Total gross loans                    496,159       100.00%    424,741       100.00%
                                                =========                =========

ADD:
Premium on loans                       1,890                    1,743
LESS:
Deferred fees and loan discounts        (602)                    (400)
Allowance for loan Losses             (4,015)                  (4,097)
                                   ---------                ---------
Total                              $ 493,432                $ 421,987
                                   =========                =========
</TABLE>

     At March 31, 2006,  82.3% of the Company's real estate loans receivable was
principally secured by properties located in the State of New York.

     The  mortgage  loan  portfolios  serviced  for  Federal  National  Mortgage
Association   ("FNMA")  and  other  third   parties  are  not  included  in  the
accompanying consolidated financial statements. The unpaid principal balances of
these loans aggregated  $33.2 million,  $17.9 million and $11.7 million at March
31, 2006, 2005 and 2004, respectively.  Custodial escrow balances, maintained in
connection with the above-mentioned loan servicing, were approximately $114,000,
$56,000 and $40,000 at March 31, 2006, 2005 and 2004,  respectively.  During the
year ended March 31, 2006 the Bank sold $22.5 million in loans with a recognized
gain of $158,000,  as compared to $8.0 million in loans sold during  fiscal 2005
with an $84,000  gain  recognized.  Also  recognized  from these loan sales were
gains of $193,000  for both fiscal 2006 and 2005 from other  mortgage  servicing
rights since the loans were sold with servicing retained.

     At March 31, 2006 the Bank pledged  $141.8  million in total mortgage loans
as collateral for borrowings from the FHLB-NY.


     The following is an analysis of the allowance for loan losses:

                                                       Year ended March 31,
                                                  -------    -------    -------
                                                    2006       2005       2004
                                                  -------    -------    -------

Balance at beginning of the year                  $ 4,097    $ 4,125    $ 4,158
Provision charged to operations                        --         --         --
Recoveries of amounts previously charged-off           35         45        292
Charge-offs of loans                                 (117)       (73)      (325)
                                                  -------    -------    -------
Balance at end of the year                        $ 4,015    $ 4,097    $ 4,125
                                                  =======    =======    =======

     Non-accrual  loans  consist of loans for which the accrual of interest  has
been discounted as a result of such loans becoming 90 days or more delinquent as
to principal and/or interest  payments.  Interest income on non-accrual loans is
recorded when received. Restructured loans consist of loans where borrowers have
been granted concessions in regards to the terms of their loans due to financial
or other difficulties, which rendered them unable to repay their loans under the
original contractual terms.

     At March 31, 2006, 2005 and 2004 the recorded  investment in impaired loans
was  $2.8  million,  $998,000  and  $2.1  million,  respectively,  all of  which
represented  non-accrual  loans.  The related  allowance  for credit  losses was
approximately $276,000,  $160,000 and $317,000 at March 31, 2006, 2005 and 2004,
respectively. The impaired loan portfolio is primarily collateral dependent. The
average  recorded  investment  in impaired  loans  during the fiscal years ended
March 31, 2006, 2005 and 2004 was approximately  $2.2 million,  $1.6 million and
$2.0 million,  respectively. For the fiscal years ended March 31, 2006, 2005 and
2004, the Company did not recognize any interest income on these impaired loans.
Interest income of $79,000, $83,000 and $185,000,  respectively,  for the fiscal
years ended March 31, 2006,  2005 and 2004 would have been  recorded on impaired
loans had they performed in accordance with their original terms.

     At March  31,  2006,  2005 and 2004,  there  were no loans to  officers  or
directors.


NOTE 4.      PREMISES AND EQUIPMENT, NET

     The detail of premises and equipment is as follows:

                                                     MARCH 31,
                                                 -----------------
                                                   2006      2005
                                                 -------   -------
                                                   (IN THOUSANDS)
Land                                             $   415   $   415
Building and improvements                          9,391     9,195
Leasehold improvements                             4,404     3,939
Furniture and Equipment                            8,367     7,734
                                                 -------   -------
                                                  22,577    21,283
Less accumulated depreciation and amortization     9,383     7,625
                                                 -------   -------
                                                 $13,194   $13,658
                                                 =======   =======

     Depreciation  and  amortization  charged to operations for the fiscal years
ended March 31, 2006,  2005 and 2004 amounted to $1.5 million,  $1.4 million and
$1.1 million, respectively.


NOTE 5. ACCRUED INTEREST RECEIVABLEGRAPHIC OMITTED]

     The detail of accrued interest receivable is as follows:

                                                             MARCH 31,
                                                          ---------------
                                                           2006     2005
                                                          ------   ------
                                                           (IN THOUSANDS)
Loans receivable                                          $2,300   $1,895
Mortgage-backed securities                                   482      576
Investments and other interest bearing assets                188      231
                                                          ------   ------
Total accrued interest receivable                         $2,970   $2,702
                                                          ======   ======


NOTE 6.  DEPOSITS

     Deposit  balances and weighted  average  stated  interest rates at March 31
follow:

<TABLE>
<CAPTION>
                                                 2006                             2005
                                 ----------------------------------   --------------------------------
                                              PERCENT OF   WEIGHTED              PERCENT OF   WEIGHTED
                                                TOTAL      AVERAGE                 TOTAL      AVERAGE
                                    AMOUNT     DEPOSITS      RATE       AMOUNT   DEPOSITS      RATE
                                 -----------  ----------   --------   ---------  ----------   --------
<S>                              <C>                 <C>              <C>               <C>
                                                          (DOLLARS IN THOUSANDS)

Non-interest -bearing demand     $    31,085         6.2%        --%  $  25,570         5.6%        --%
NOW demand                            27,904         5.5       0.31      24,095         5.2       0.30
Savings and clubs                    139,724        27.7       0.68     137,810        30.2       0.62
Money market savings                  40,045         7.9       2.41      36,294         8.0       1.34
Certificates of deposit              263,963        52.3       3.76     229,685        50.4       2.30
Other                                  1,917         0.4       1.47       2,416         0.5       1.13
                                 -----------  ----------   --------   ---------  ----------   --------
Total                            $   504,638       100.0%      2.37%  $ 455,870       100.0%      1.47%
                                 ===========  ==========              =========  ==========
</TABLE>

     Scheduled maturities of certificates of deposit follow:

                                                      MARCH 31,
                                                -------------------
                                                  2006       2005
                                                --------   --------
                                                   (IN THOUSANDS)

        Certificates of deposit by remaining
        term to contractual maturity:
             Within one year                    $217,578   $186,585
             After one but within two years       20,195     13,412
             After two but within three years     10,456      8,512
             After three years                    15,734     21,176
                                                --------   --------
                         Total                  $263,963   $229,685
                                                ========   ========

     The aggregate amount of certificates of deposit with minimum  denominations
of $100,000 or more was approximately  $183.5 million at March 31, 2006 compared
to $161.7 million at March 31, 2005.

     Interest  expense on deposits  for the years  ended  March 31  follows:

                                             2006       2005       2004
                                            -------    -------    -------
                                                   (IN THOUSANDS)

NOW demand                                  $    74    $    69    $    85
Savings and clubs                               919        801      1,001
Money market savings                            601        302        235
Certificates of deposit                       7,321      4,268      3,315
                                            -------    -------    -------
                                              8,915      5,440      4,636
Mortgagors deposits                              30         25         24
Penalty for early withdrawal of
  certificates of deposit                       (24)       (10)       (11)
                                            -------    -------    -------
    Total interest expense                  $ 8,921    $ 5,455    $ 4,649
                                            =======    =======    =======


NOTE 7.  BORROWED MONEY

     FEDERAL HOME LOAN BANK  ADVANCES.  FHLB-NY  advances  and weighted  average
interest rates by remaining period to maturity at March 31 as follow:


                                 2006                           2005
                        -------------------------    --------------------------
                                         (DOLLARS IN THOUSANDS)
            Maturing
           YEAR ENDED     WEIGHTED                     WEIGHTED
            March 31,   AVERAGE RATE     AMOUNT      AVERAGE RATE      AMOUNT
          ------------  ------------  ------------   ------------  ------------
             2006                 --% $         --           3.41% $     34,840
             2007               4.40        49,434           4.21        36,134
             2008               3.65        16,200           3.65        16,200
             2009               3.78        15,107           3.78        15,107
             2012               3.50           194           3.50           219
                        ------------  ------------   ------------  ------------
                                4.13% $     80,935           3.78% $    102,500
                        ============  ============   ============  ============


     As a  member  of  the  FHLB-NY,  the  Bank  may  have  outstanding  FHLB-NY
borrowings in a combination of term advances and overnight funds of up to 25% of
its total assets,  or approximately  $165 million at March 31, 2006.  Borrowings
are secured by the Bank's  investment in FHLB-NY stock and by a blanket security
agreement.  This agreement  requires the Bank to maintain as collateral  certain
qualifying  assets  (principally  mortgage loans and  securities)  not otherwise
pledged.  At March 31,  2006,  advances  were  secured  by pledges of the Bank's
investment  in the capital  stock of the  FHLB-NY  totaling  $4.6  million and a
blanket assignment of the Bank's unpledged  qualifying  mortgage loans of $141.8
million and mortgage-backed and investment securities of $38.3 million. Included
in the total assets held at the FHLB-NY as collateral  for  borrowings is excess
borrowing capacity of $23.2 million.

     SECURITIES  SOLD UNDER  AGREEMENTS TO REPURCHASE.  In securities sold under
agreements  to  repurchase,  the Bank borrows funds through the transfer of debt
securities  to  the  FHLB-NY,  as  counterparty,   and  concurrently  agrees  to
repurchase  the  identical  securities  at a fixed  price on a  specified  date.
Repurchase  agreements are collateralized by the securities sold and, in certain
cases, by additional margin securities. At March 31, 2006 and 2005 there were no
securities sold under agreements to repurchase outstanding.


     SUBORDINATED DEBT SECURITIES. On September 17, 2003, Carver Statutory Trust
I, issued 13,000 shares,  liquidation  amount $1,000 per share, of floating rate
capital  securities.  Gross proceeds from the sale of these trust preferred debt
securities were $13.0 million,  and, together with the proceeds from the sale of
the trust's common securities, were used to purchase approximately $13.4 million
aggregate  principal  amount  of the  Holding  Company's  floating  rate  junior
subordinated  debt  securities due 2033. The trust preferred debt securities are
redeemable  quarterly at the option of the Company beginning on or after July 7,
2007  and  have  a  mandatory  redemption  date  of  September  17,  2033.  Cash
distributions  on the trust preferred debt securities are cumulative and payable
at a floating rate per annum resetting quarterly with a margin of 3.05% over the
three-month  LIBOR.  At March  31,  2006 and 2005 the rate  paid on these  trust
preferred debt securities was 7.97% and 6.08%, respectively.

     The  following  table  sets  forth  certain  information  regarding  Carver
Federal's borrowings at the dates and for the periods indicated:

<TABLE>
<CAPTION>
                                                                                          AT OR FOR THE YEAR ENDED
                                                                                                  MARCH 31,
                                                                                     ------------------------------------
                                                                                        2006        2005           2004
                                                                                     ---------    ---------     ---------
<S>                                                                                  <C>          <C>              <C>
                                                                                      (DOLLARS IN THOUSANDS)
Amounts outstanding at the end of year:
  FHLB advances                                                                      $  80,935    $ 102,500      $ 91,516
  Guaranteed preferred beneficial interest in junior subordinated debentures            12,857       12,799        12,741
  Loan for employee stock ownership plan                                                    --           --            25

Rate paid at year end:
  FHLB advances                                                                           4.13%        3.78%         3.92%
  Guaranteed preferred beneficial interest in junior subordinated debentures              7.97%        6.08%         4.16%
  Loan for employee stock ownership plan                                                    --           --          4.00%

Maximum amount of borrowing outstanding at any month end:
  FHLB advances                                                                      $ 112,488    $ 112,506      $112,030
  Guaranteed preferred beneficial interest in junior subordinated debentures            12,857       12,799        12,742
  Loan for employee stock ownership plan                                                    --           --           207

Approximate average amounts outstanding for year:
  FHLB advances                                                                      $  94,798    $  97,013      $ 99,359
  Guaranteed preferred beneficial interest in junior subordinated debentures            12,827       12,768         6,854
  Loan for employee stock ownership plan                                                    --           --           137

Approximate weighted average rate paid during year (1):
  FHLB advances                                                                           3.81%        3.71%         3.74%
  Guaranteed preferred beneficial interest in junior subordinated debentures              7.50%        5.49%         4.78%
  Loan for employee stock ownership plan                                                    --           --          4.07%

(1)  The approximate weighted average rate paid during the year was computed by
     dividing the average amounts  outstanding into the related interest expense
     for the year
</TABLE>


NOTE 8. INCOME TAXES

     The  components  of income tax  expense for the years ended March 31 are as
follows:

                                                 2006       2005       2004
                                                -------    -------    -------
                                                       (IN THOUSANDS)
Federal income tax expense (benefit):
    Current                                     $ 1,155    $ 1,978    $ 1,634
    Deferred                                         35       (782)       427
                                                -------    -------    -------
                                                  1,190      1,196      2,061
                                                -------    -------    -------

State and local income tax expense (benefit):
    Current                                         196        418        342
    Deferred                                        (57)       (96)        90
                                                -------    -------    -------
                                                    139        322        432
                                                -------    -------    -------

Valuation allowance                                  --         --         --

Total provision for income tax expense          $ 1,329    $ 1,518    $ 2,493
                                                =======    =======    =======

     The  reconciliation  of  the  expected  federal  income  tax  rate  to  the
consolidated effective tax rate for fiscal years ended March 31 follows:

<TABLE>
<CAPTION>
                                                 2006                   2005                 2004
                                          ------------------     ------------------   ------------------
                                          AMOUNT     PERCENT      AMOUNT    PERCENT    AMOUNT    PERCENT
                                          -------    -------     -------    -------   -------    -------
<S>                                       <C>           <C>      <C>           <C>    <C>           <C>
                                                                (DOLLARS IN THOUSANDS)
Statutory Federal income tax              $ 1,734       34.0%    $ 1,417       34.0%  $ 2,493       34.0%
State and local income taxes, net of           92        1.8         213        5.1       285        3.9
Federal tax benefit
General business credit                       (73)      (1.5)         --         --        --         --
Release of Contingency Reserve               (500)      (9.8)         --         --        --         --
Other                                          76        1.5        (112)      (2.7)     (285)      (3.9)
                                          -------    -------     -------    -------   -------    -------
Total income tax expense                  $ 1,329       26.0%    $ 1,518       36.4%  $ 2,493       34.0%
                                          =======    =======     =======    =======   =======    =======
</TABLE>


     Carver Federal's  stockholders' equity includes  approximately $2.8 million
at each of March 31, 2006, 2005 and 2004,  which has been segregated for federal
income tax purposes as a bad debt  reserve.  The use of this amount for purposes
other than to absorb  losses on loans may result in taxable  income for  federal
income taxes at the then current tax rate.

     Tax effects of existing temporary differences that give rise to significant
portions of deferred tax assets and deferred tax  liabilities at March 31 of the
years indicated follow:

                                                             2006       2005
                                                           --------   --------
                                                               (IN THOSANDS)
Deferred Tax Assets
   Income from affiliate                                   $  1,975   $  1,873
   Allowance for loan losses                                  1,365      1,393
   Deferred loan fees                                           235        137
   Compensation and benefits                                    113        384
   Non-accrual loan interest                                    284        274
   Reserve for losses on other assets                            65         32
   Investment security impairment                                --        588
   Capital loss carryforward                                    591         --
   Unrealized loss on available-for-sale securities             240        144
   Minimum pension liability                                    173         --
   Other                                                          2         --
                                                           --------   --------
Total Deferred Tax Assets                                     5,043      4,825

Deferred Tax Liabilities
   Depreciation                                                 352        428
                                                           --------   --------
Total Deferred Tax Liabilities                                  352        428
                                                           --------   --------
Net Deferred Tax Assets                                    $  4,691   $  4,397
                                                           ========   ========

     A valuation allowance against the deferred tax assets at March 31, 2006 and
2005 was not  established  since it is more  likely than not that the results of
future operations will generate  sufficient future taxable income to realize the
deferred tax asset.


NOTE 9. EARNINGS PER COMMON SHARE

     The  following   table   reconciles   the  earnings   available  to  common
shareholders  (numerator)  and the weighted  average  common  stock  outstanding
(denominator)  for both basic and  diluted  earnings  per share for the  periods
presented:

<TABLE>
<CAPTION>
                                                                YEAR ENDED MARCH 31,
                                                            ----------------------------
                                                              2006      2005       2004
                                                            -------   -------    -------
<S>                                                         <C>       <C>        <C>
                                                                   (IN THOUSANDS)

Net income                                                  $ 3,770   $ 2,649    $ 4,839
Preferred stock dividends                                        --      (114)      (197)
                                                            -------   -------    -------
Net income - basic                                            3,770     2,535      4,642
Impact of conversion/potential conversion of
convertible preferred stock to common stock                      --       114        197
                                                            -------   -------    -------
Net income - diluted                                        $ 3,770   $ 2,649    $ 4,839
                                                            =======   =======    =======

Weighted average common shares outstanding - basic            2,506     2,382      2,284
Effect of dilutive options                                       59        84         97
Effect of dilutive securities convertible preferred stock        --       113        208
                                                            -------   -------    -------
Weighted average common shares outstanding - diluted          2,565     2,579      2,589
                                                            =======   =======    =======
</TABLE>


NOTE 10. STOCKHOLDERS' EQUITY

     CONVERSION AND STOCK  OFFERING.  On October 24, 1994, the Bank issued in an
initial public offering  2,314,375  shares of common stock, par value $0.01 (the
"Common Stock"),  at a price of $10 per share resulting in net proceeds of $21.5
million.  As part  of the  initial  public  offering,  the  Bank  established  a
liquidation account at the time of conversion, in an amount equal to the surplus
and reserves of the Bank at  September  30,  1994.  In the  unlikely  event of a
complete  liquidation of the Bank (and only in such event),  eligible depositors
who continue to maintain  accounts  shall be entitled to receive a  distribution
from the liquidation account. The total amount of the liquidation account may be
decreased  if the  balances of eligible  deposits  decreased  as measured on the
annual   determination  dates.  The  balance  of  the  liquidation  account  was
approximately $2.1 million (unaudited) at both March 31, 2006 and 2005, based on
an assumed  decrease of 15.25% of eligible  deposits  per annum.  On October 17,
1996,  the Bank  completed  the  Reorganization  and  became  the  wholly  owned
subsidiary  of the  Holding  Company.  Pursuant  to an  Agreement  and  Plan  of
Reorganization,  dated May 21, 1996, each share of the Bank's outstanding common
stock was exchanged  for one share of the Holding  Company's  common  stock.  In
connection  with  the  Reorganization,  a  shareholder  of  the  Bank  exercised
appraisal  rights and 100 shares of the Bank's common stock were  purchased from
such  shareholder in the fourth fiscal quarter of 1997.  Accordingly,  2,314,275
shares of the Holding  Company's  common  stock were issued in exchange for each
outstanding  share  of Bank  common  stock.  The  Bank is not  permitted  to pay
dividends  to the  Holding  Company on its capital  stock if the effect  thereof
would cause its net worth to be reduced  below either:  (i) the amount  required
for the liquidation  account, or (ii) the amount required for the Bank to comply
with applicable minimum regulatory capital requirements.

     CONVERTIBLE  PREFERRED STOCK. On January 11, 2000, the Holding Company sold
in a private  placement,  pursuant to a  Securities  Purchase  Agreement,  dated
January 11, 2000,  40,000  shares of Series A Convertible  Preferred  Stock (the
"Series A Preferred  Stock") to Morgan Stanley & Co.  Incorporated  ("MSDW") and
60,000 Shares of Series B Convertible  Preferred  Stock (the "Series B Preferred
Stock") to Provender Opportunities Fund L.P. ("Provender").  In addition, Carver
Federal entered into a Registration  Rights  Agreement,  dated January 11, 2000,
with MSDW and Provender. The gross proceeds from the private placement were $2.5
million.  On June 1, 2004,  Provender  sold all 60,000 of its Series B Preferred
Stock to Keefe Bruyette & Woods, Inc.

     The Series A Preferred Stock and Series B Preferred Stock (collectively the
"Preferred  Stock") accrued annual dividends at $1.97 per share.  Dividends were
paid  semi-annually  on June 15 and  December  15 of each  year.  Each  share of
Preferred Stock was  convertible at the option of the holder,  at any time, into
2.08333 shares of Carver Federal's Common Stock, subject to certain antidilution
adjustments.  The Holding  Company had the option to redeem the Preferred  Stock
beginning  January 15, 2004.  In the event of any  liquidation,  dissolution  or
winding up of Carver Federal,  whether voluntary or involuntary,  the holders of
the shares of  Preferred  Stock  would be  entitled  to receive $25 per share of
Preferred  Stock plus all dividends  accrued and unpaid  thereon.  Each share of
Preferred  Stock would be  entitled  to one vote for each share of Common  Stock
into which the Preferred  Stock would be converted.  On September 15, 2004,  the
Holding  Company  issued a press release and mailed a Notice of Redemption and a
related  Letter of Transmittal  to the holders of the Preferred  Stock,  stating
that it would redeem all 40,000  outstanding  shares of its Series A Convertible
Preferred  Stock and all 60,000  outstanding  shares of its Series B Convertible
Preferred  Stock.  The Preferred Stock shares were to be redeemed on October 15,
2004 ("Redemption Date") at a redemption price of $26.97 per share plus $0.65 in
accrued and unpaid  dividends  to, but  excluding,  the  Redemption  Date for an
aggregate  redemption  price of $27.62 per  Preferred  Share.  Dividends  on the
Preferred  Shares would have ceased to accrue on the Redemption Date. On October
15,  2004  the  holders  of  all  40,000  outstanding  shares  of its  Series  A
Convertible  Preferred Stock and all 60,000  outstanding  shares of its Series B
Convertible Preferred Stock, elected,  prior to the Redemption Date, pursuant to
the Certificate of Designations, Preferences and Rights of the Preferred Shares,
to convert their  Preferred  Shares into shares of Carver's  common  stock,  par
value $0.01 (the "Common Stock"). Upon conversion of their Preferred Shares, the
holders were issued an aggregate of 208,333 shares of Common Stock.

     REGULATORY  CAPITAL.  The  operations  and  profitability  of the  Bank are
significantly affected by legislation and the policies of the various regulatory
agencies.   The  OTS  has  promulgated   capital   requirements   for  financial
institutions  consisting of minimum tangible and core capital ratios of 1.5% and
3.0%,  respectively,  of the  institution's  adjusted total assets and a minimum
risk-based  capital ratio of 8.0% of the  institution's  risk  weighted  assets.
Although the minimum core capital ratio is 3.0%, the Federal  Deposit  Insurance
Corporation   Improvement  Act,  as  amended  ("FDICIA"),   stipulates  that  an
institution  with less than 4.0% core  capital  is deemed  undercapitalized.  At
March  31,  2006 and  2005,  the Bank  exceeded  all of its  regulatory  capital
requirements.

     The following is a summary of the Bank's actual capital  amounts and ratios
as of March 31,  2006 and 2005  compared  to the OTS  requirements  for  minimum
capital adequacy and for classification as a well-capitalized institution:

                                          MINIMUM CAPITAL    CLASSIFICATION AS
                         BANK ACTUAL          ADEQUACY       WELL CAPITALIZED
                       ----------------   ----------------   -----------------
                       AMOUNT    RATIO     AMOUNT   RATIO    AMOUNT     RATIO
                       -------  -------   -------  -------   -------   -------
March 31, 2006                             (DOLLARS IN THOUSANDS)
Tangible capital       $62,207      9.4%  $ 9,929      1.5%      N/A       N/A%
Leverage capital        62,207      9.4    26,477      4.0    33,096       5.0
Risk-based capital:
      Tier 1           $62,207     12.4   $20,037      4.0   $30,056       6.0
      Total             66,222     13.2    40,074      8.0   $50,093      10.0

March 31, 2005
Tangible capital       $57,684      9.2%  $ 9,404      1.5%      N/A       N/A%
Leverage capital        57,684      9.2    25,078      4.0    31,348       5.0
Risk-based capital:
      Tier 1           $57,684     14.6   $15,877      4.0   $23,753       6.0
      Total             61,781     15.6    31,670      8.0    39,587      10.0

     The following table reconciles the Bank's stockholders' equity at March 31,
2006, in accordance with accounting principles generally accepted in the U.S. to
regulatory capital requirements:

<TABLE>
<CAPTION>
                                                                 REGULATORY CAPITAL REQUIREMENTS
                                                            -------------------------------------------
                                                              GAAP     TANGIBLE   LEVERAGE   RISK-BASED
                                                             CAPITAL    CAPITAL    CAPITAL    CAPITAL
                                                            --------   --------   --------   ----------
<S>                                                         <C>        <C>        <C>        <C>
                                                                          (IN THOUSANDS)

Stockholders' Equity at March 31, 2006 (1)                  $ 61,814   $ 61,814   $ 61,814   $   61,814

Add:
   General valuation allowances                                              --         --        4,015
Deduct:
   Unrealized loss on securities available-for-sale, net                    393        393          393
                                                                       --------   --------   ----------
Regulatory Capital                                                       62,207     62,207       66,222
Minimum Capital requirement                                               9,929     26,477       40,074
                                                                       --------   --------   ----------
Regulatory Capital Excess                                              $ 52,278   $ 35,730   $   26,148
                                                                       ========   ========   ==========
</TABLE>

(1) Reflects Bank only.
     COMPREHENSIVE  INCOME.  Comprehensive  income  represents  net  income  and
certain  amounts  reported  directly in  stockholders'  equity,  such as the net
unrealized  gain or loss on  securities  available  for sale and loss on pension
liability.  The Holding Company has reported its comprehensive income for fiscal
2006, 2005 and 2004 in the  Consolidated  Statements of Changes in Stockholders'
Equity  and   Comprehensive   Income.   Carver   Federal's   accumulated   other
comprehensive  income  or loss  (other  than net  income or loss)  included  net
unrealized  losses on  securities  at March 31,  2006 and 2005 of  $393,000  and
$235,000, respectively.  Included in the amounts at March 31, 2006 and 2005 were
unrealized   gains  of  $183,000  and   $209,000,   respectively,   relating  to
available-for-sale  securities  that  were  transferred  during  fiscal  2003 to
held-to-maturity.  This  unrealized  gain is an  unrealized  gain  reported as a
separate  component of stockholders'  equity and is amortized over the remaining
lives of the securities as an adjustment to yield.  Also included in accumulated
other  comprehensive  income or loss at March 31,  2006 was a loss on the Bank's
employee pension plan liability of $281,000, net of taxes.

  NOTE 11. EMPLOYEE BENEFIT AND STOCK COMPENSATION PLANS


     PENSION PLAN. Carver Federal has a non-contributory defined benefit pension
plan covering all eligible employees.  The benefits are based on each employee's
term of service. Carver Federal's policy was to fund the plan with contributions
which equal the maximum amount  deductible for federal income tax purposes.  The
plan was curtailed during the fiscal year ended March 31, 2001.


     The following  table sets forth the plan's  changes in benefit  obligation,
changes in plan assets and funded status and amounts

                                                               MARCH 31,
                                                            2006      2005
                                                          -------    -------
                                                            (IN THOUSANDS)
Change in projected benefit obligation during the year
Projected benefit obligation at the beginning of year     $ 2,785    $ 2,736
Interest cost                                                 163        167
Actuarial loss                                                197        136
Benefits paid                                                (253)      (254)
                                                          -------    -------
Projected benefit obligation at end of year               $ 2,892    $ 2,785
                                                          =======    =======

Change in fair value of plan assets during the year
Fair value of plan assets at beginning of year            $ 2,950    $ 3,068
Actual return on plan assets                                  173        136
Benefits paid                                                (253)      (254)
                                                          -------    -------
Fair value of plan assets at end of year                  $ 2,870    $ 2,950
                                                          =======    =======

Funded status                                             $   (22)   $   165
Unrecognized loss / (gain)                                    454        203
                                                          -------    -------
Accrued pension cost                                      $   432    $   368
                                                          =======    =======

recognized in Carver Federal's consolidated financial statements at March 31:


     Net periodic  pension  benefit  included the following  components  for the
years ended March 31 are:

                                           2006     2005     2004
                                           -----    -----    -----
                                                (IN THOUSANDS)

Interest cost                              $ 164    $ 167    $ 172
Expected return on plan assets              (227)    (236)    (223)
Amortization of:
   Unrecognized (gain)                        --       --       --
                                           -----    -----    -----
Net periodic pension (benefit)             $ (63)   $ (69)   $ (51)
                                           =====    =====    =====

     Significant actuarial assumptions used in determining plan benefits for the
years ended March 31 are:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED MARCH 31,
                                                                2006      2005       2004
                                                              -------    -------    -------
<S>                                                           <C>        <C>        <C>
Annual salary increase (1)                                        N/A        N/A        N/A
Expected long-term return on assets                              8.00%      8.00%      8.00%
Discount rate used in measurement of benefit obligations         5.75%      6.38%      6.50%
</TABLE>

(1) The annual salary increase rate is not applicable as the plan is frozen.

     SAVINGS INCENTIVE PLAN.  Carver has a savings  incentive plan,  pursuant to
Section 401(k) of the Code, for all eligible employees of the Bank.  Pursuant to
the plan, Carver may make an annual non-elective contribution to the 401(k) plan
on behalf of each  eligible  employee  up to 2% of the  employee's  annual  pay,
subject to IRS limitations.  This non-elective  Carver  contribution may be made
regardless  of whether or not the employee  makes a  contribution  to the 401(k)
plan. To be eligible for the non-elective Carver contribution, the employee must
be 21 years of age, have  completed at least one year of service and be employed
as of the last day of the plan year,  December 31. In addition,  Carver  matches
contributions  to the plan equal to 100% of pre-tax  contributions  made by each
employee  up to a maximum of 4% of their pay,  subject to IRS  limitations.  All
such matching contributions to the plan will be fully vested and non-forfeitable
at all times  regardless  of the years of  service.  However,  the  non-elective
Carver  contribution,  if awarded,  vests over a five-year period. Total savings
incentive  plan expenses for the years ended March 31, 2006,  2005 and 2004 were
$198,000, $174,000 and $95,000, respectively.

     DIRECTORS'  RETIREMENT  PLAN.  Concurrent  with the conversion to the stock
form of ownership,  Carver Federal  adopted a retirement  plan for  non-employee
directors.  The plan was curtailed  during the fiscal year ended March 31, 2001.
The  benefits  are  payable  based on the term of  service  as a  director.  The
following table sets forth the plan's changes in benefit obligation,  changes in
plan  assets  and funded  status  and  amounts  recognized  in Carver  Federal's
consolidated financial statements at March 31:

                                                          2006     2005
                                                          -----    -----
                                                          (IN THOUSANDS)
Change in projected benefit obligation during the year
Projected benefit obligation at beginning of year         $ 136    $ 169
Interest cost                                                 7        9
Actuarial (gain) loss                                        (7)       1
Benefits paid                                               (34)     (43)
                                                          -----    -----
    Projected benefit obligation at end of year           $ 102    $ 136
                                                          =====    =====

Change in fair value of plan assets during the year
Fair value of plan assets at beginning of year            $  --    $  --
Employer contributions                                       34       43
Benefits paid                                               (34)     (43)
                                                          -----    -----
Fair value of plan assets at end of year                  $  --    $  --
                                                          =====    =====

Funded Status                                             $(102)   $(136)
Unrecognized (gain)                                         (22)     (16)
                                                          -----    -----
Accrued pension cost                                      $(124)   $(152)
                                                          =====    =====

     Net periodic pension cost for the years ended March 31, 2006, 2005 and 2004
included the following:

                                  2006    2005    2004
                                 -----   -----   -----
                                     (IN THOUSANDS)
Interest cost                    $   6   $   9   $  12
                                 -----   -----   -----
Net periodic pension cost        $   6   $   9   $  12
                                 =====   =====   =====

     The actuarial  assumptions  used in  determining  plan  benefits  include a
discount rate of 5.75%,  6.1% and 6.4% for the years ended March 31, 2006,  2005
and 2004, respectively.

     BOLI.  The Bank owns one BOLI  plan  which  was  formed  to  offset  future
employee  benefit  costs and provide  additional  benefits due to its tax exempt
nature. Only officer level employees are covered under this program.

     An  initial  investment  of $8.0  million  was made to the BOLI  program on
September 21, 2004. At March 31, 2006 the  Consolidated  Statement of Conditions
reflects a net cash  surrender  value of $8.5  million.  The  related  income is
reflected in the  Consolidated  Statement of  Operations as a component of other
non-interest income.


     MANAGEMENT  RECOGNITION PLAN ("MRP"). The MRP provides for automatic grants
of restricted  stock to certain  employees as of the September 12, 1995 adoption
of the MRP. On March 28, 2005 the plan was  amended for all future  awards.  The
MRP provides for additional  discretionary  grants of restricted  stock to those
employees  selected by the committee  established to administer the MRP.  Awards
granted  prior to March 28, 2005,  generally  vest in three to five equal annual
installments commencing on the first anniversary date of the award, provided the
recipient is still an employee of the Holding  Company or the Bank on such date.
Under the  amended  plan  awards  granted  after  March 28, 2005 vest based on a
five-year  performance-accelerated  vesting schedule. Ten percent of the awarded
shares vest in each of the first four years and the remainder in the fifth year.
Using a performance-accelerated  vesting schedule, with return on assets ("ROA")
as the performance measure, the vesting period can be accelerated in years three
and four if the Bank meets or exceeds  the  three-year  average ROA for its peer
group.  Awards will become 100% vested upon  termination of service due to death
or  disability.  When shares become vested and are  distributed,  the recipients
will receive an amount equal to any accrued  dividends with respect thereto.  On
September  23,  2003,  the MRP was  amended  to  increase  the  number of shares
available  to  119,431.  Pursuant  to the  MRP,  the Bank  recognized  $134,000,
$158,000 and  $128,000 as expense for the years ended March 31,  2006,  2005 and
2004, respectively.

     EMPLOYEE  STOCK  OWNERSHIP  PLAN.  Effective upon  conversion,  an ESOP was
established  for all eligible  employees.  The ESOP used  $1,821,320 in proceeds
from a term loan  obtained from a third-party  institution  to purchase  182,132
shares  of Bank  common  stock in the  initial  public  offering.  The term loan
principal was payable over forty equal quarterly  installments through September
2004.  Interest on the term loan was payable  quarterly,  initially at a rate of
3.0% over the average  federal  funds rate.  On May 20, 2002,  the term loan was
modified  to provide for  interest at a fixed rate of 4.0% per annum.  Each year
until  the  loan  paid  off  in  June  of  2004,  the  Bank  made  discretionary
contributions to the ESOP,  which were equal to principal and interest  payments
required on the term loan less any dividends received by the ESOP on unallocated
shares.

     Shares  purchased  with  the  loan  proceeds  were  initially   pledged  as
collateral for the term loan. Currently, shares are purchased in the open market
in accordance  with Carver's common stock  repurchase  program and are held in a
suspense  account for future  allocation  among the participants on the basis of
compensation, as described by the Plan, in the year of allocation.  Accordingly,
the ESOP shares  pledged as  collateral  are reported as unearned ESOP shares in
the consolidated  statements of financial condition.  As shares are committed to
be released from collateral,  the Bank reports compensation expense equal to the
current market price of the shares,  and the shares become  outstanding  for net
income per common share  computations.  ESOP compensation  expense was $200,000,
$200,000 and $0 for the years ended March 31, 2006, 2005 and 2004, respectively.

           The ESOP shares at March 31 follow:

                                              2006     2005
                                            ------   ------
                                             (IN THOUSANDS)
        Allocated shares                        72       78
        Unallocated shares                       1        5
                                            ------   ------
        Total ESOP shares                       73       83
                                            ======   ======

        Fair value of unallocated shares    $   10   $   95
                                            ======   ======

     STOCK OPTION PLAN.  During 1995, the Holding Company adopted the 1995 Stock
Option Plan (the "Plan") to advance the interests of the Bank through  providing
stock  options  to  select  key  employees  and  directors  of the  Bank and its
affiliates.  The  number  of  shares  reserved  for  issuance  under the plan is
338,862.  At March 31, 2006, there were 238,061 options  outstanding and 144,836
were exercisable. Options are granted at the fair market value of Carver Federal
common  stock at the time of the grant for a period  not to  exceed  ten  years.
Under the Plan option  grants  generally  vest on an annual  basis  ratably over
either  three or five years,  commencing  after one year of service and, in some
instances, portions of option grants vest at the time of the grant. On March 28,
2005,  the plan was amended and vesting of future awards is based on a five-year
performance-accelerated  vesting  schedule.  Ten percent of the awarded  options
vest in each of the first four years and the remainder in the fifth year.  Using
a performance-accelerated  vesting schedule, ROA as the performance measure, the
vesting  period can be  accelerated in years three and four if the Bank meets or
exceeds  the  three-year  average  ROA for  its  peer  group.  All  options  are
exercisable  immediately upon a participant's  disability,  death or a change in
control, as defined in the Plan.

     Information  regarding stock options as of and for the years ended March 31
follows:

<TABLE>
<CAPTION>
                                        2006                    2005                   2004
                                 --------------------   --------------------   --------------------
                                             WEIGHTED               WEIGHTED               WEIGHTED
                                              AVERAGE                AVERAGE                AVERAGE
                                             EXERCISE               EXERCISE               EXERCISE
                                  OPTIONS      PRICE    OPTIONS       PRICE    OPTIONS       PRICE
                                 --------    --------   --------    --------   --------    --------
<S>                               <C>        <C>         <C>        <C>         <C>        <C>
Outstanding, beginning of year    225,292    $  12.37    229,636    $  11.25    192,176    $  10.07
Granted                            35,277       16.98     39,347       19.65     43,638       16.35
Exercised                          (9,903)       9.57    (35,954)      12.75        (77)      12.06
Forfeited                         (12,605)      17.44     (7,737)      14.38     (6,101)      10.39
                                 --------    --------   --------    --------   --------    --------
Outstanding, end of year          238,061       12.90    225,292       12.37    229,636       11.25
                                 ========    ========   ========    ========   ========    ========
Exercisable at year end           144,836                151,846                108,925
                                 ========               ========               ========
</TABLE>

     Information regarding stock options at March 31, 2006 follows:

                             OPTIONS OUTSTANDING           OPTIONS EXERCISABLE
                      ---------------------------------   ---------------------
                                  WEIGHTED    WEIGHTED                WEIGHTED
                                   AVERAGE     AVERAGE                 AVERAGE
      RANGE OF                    REMAINING    EXERCISE                EXERCISE
  EXERCISE PRICES      SHARES        LIFE       PRICE      SHARES       PRICE
-------------------   ---------   ---------   ---------   ---------   ---------
$     8.00$    8.99      60,000     4 years   $    8.17      60,000   $    8.17
      9.00     9.99      38,060     5 years        9.92      38,060        9.92
     10.00    10.99       6,000     5 years       10.52       6,000       10.52
     12.00    12.99      40,576     6 years       12.10      39,776       12.09
     13.00    13.99       1,000     2 years       13.81       1,000       13.81
     15.00    15.99       2,265    10 years       15.10          --          --
     16.00    16.99      30,480     7 years       16.47          --          --
     17.00    17.99      29,327     9 years       17.13          --          --
     19.00    19.99      29,243     8 years       19.64          --          --
     20.00    20.99         729     9 years       20.00          --          --
     21.00    21.99         381     8 years       21.76          --          --
                      ---------                           ---------
 Total                  238,061                             144,836
                      =========                           =========


NOTE 12. COMMITMENTS AND CONTINGENCIES

     CREDIT RELATED  COMMITMENTS.  The Bank is a party to financial  instruments
with  off-balance  sheet  risk in the  normal  course  of  business  to meet the
financing needs of its customers.

     These financial  instruments primarily include commitments to extend credit
and to sell loans. Those instruments  involve,  to varying degrees,  elements of
credit  and  interest  rate  risk in  excess  of the  amount  recognized  in the
statements of financial  condition.  The contract  amounts of those  instruments
reflect  the  extent  of  involvement  the Bank  has in  particular  classes  of
financial instruments.

     The Bank's  exposure to credit loss in the event of  nonperformance  by the
other party to the  financial  instrument  for  commitments  to extend credit is
represented by the contractual  notional amount of those  instruments.  The Bank
uses the same credit policies making commitments as it does for on-balance-sheet
instruments.

     The Bank has outstanding various commitments as follows:

<TABLE>
<CAPTION>
                                                                March 31,
                                                            -----------------
                                                             2006      2005
                                                            -------   -------
<S>                                                         <C>       <C>
                                                              (In thousands)
Commitments to originate mortgage loans                     $64,163   $44,129
Commitments to originate commercial and consumer loans          439       515
Letters of credit                                             1,795     1,908
                                                            -------   -------
        Total                                               $66,397   $46,552
                                                            =======   =======
</TABLE>

     At March 31,  2006,  of the $64.2  million in  outstanding  commitments  to
originate  mortgage loans,  $61.0 million  represented  construction loans at an
average  rate of  5.70%,  $1.3  million  represented  commitments  to  originate
non-residential  mortgage  loans at rates  within a range of 6.50% to 7.00%  and
$1.9  million  represented  the balance of one-four  residential  loans at rates
between 6.38% and 7.25%.

     The balance of  commitments  on commercial  and consumer loans at March 31,
2006 is primarily  undisbursed funds from approved unsecured commercial lines of
credit. All such lines carry adjustable rates mainly tied to prime. At March 31,
2006, the Bank maintained one letter of credit in the amount of $1.8 million.

     Commitments  to extend credit are  agreements to lend to a customer as long
as  there  is no  violation  of  any  condition  established  in  the  contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent  future  cash   requirements.   The  Bank  evaluates  each  customer's
creditworthiness  on a case-by-case  basis. The amount of collateral obtained if
deemed  necessary by the Bank upon extension of credit is based on  management's
credit evaluation of the counter-party.

     LEASE  COMMITMENTS.  Rentals,  including real estate taxes, under long term
operating leases for certain branch offices aggregated  approximately  $717,000,
$479,000,  and  $245,000  for the years  ended  March 31,  2006,  2005 and 2004,
respectively.  As of March  31,  2005,  minimum  rental  commitments  under  all
noncancellable  leases with initial or remaining terms of more than one year and
expiring through 2018 follow:


                        YEAR ENDING     MINIMUM
                         March 31,       RENTAL
                        -----------   -----------
                                   (In Thousands)
                               2007           657
                               2008           677
                               2009           662
                               2010           621
                               2011           605
                         Thereafter         1,230
                                      -----------
                                      $     4,452
                                      ===========


     The Bank also  has,  in the  normal  course of  business,  commitments  for
services and supplies.  Management  does not  anticipate  losses on any of these
transactions.

     LEGAL PROCEEDINGS.  From time to time, Carver Federal is a party to various
legal proceedings incident to its business.  Certain claims,  suits,  complaints
and investigations  involving Carver Federal,  arising in the ordinary course of
business,  have been filed or are pending. The Company is of the opinion,  after
discussion with legal counsel  representing Carver Federal in these proceedings,
that  the  aggregate  liability  or loss,  if any,  arising  from  the  ultimate
disposition  of these  matters would not have a material  adverse  effect on the
Company's consolidated financial position or results of operations. At March 31,
2006,  there were no  material  legal  proceedings  to which the  Company or its
subsidiaries was a party or to which any of their property was subject.


NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS 107 "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL  INSTRUMENTS"  requires
the Bank to  disclose,  in addition  to the  carrying  value,  the fair value of
certain financial  instruments,  both assets and liabilities recorded on and off
balance  sheet,  for which it is  practicable  to estimate fair value.  SFAS 107
defines financial  instrument as cash,  evidence of ownership of an entity, or a
contract  that  conveys  or  imposes  on an  entity  the  contractual  right  or
obligation to either  receive or deliver cash or another  financial  instrument.
The fair value of a financial  instrument  is defined as the amount at which the
instrument could be exchanged in a current  transaction between willing parties,
other than a forced or liquidation sale and is best evidenced by a quoted market
price if one exists.  In cases where  quoted  market  prices are not  available,
estimated fair values have been  determined by the Bank using the best available
data  and  estimation  methodology  suitable  for  each  category  of  financial
instrument.  For those loans and deposits with floating  interest  rates,  it is
presumed that estimated fair values  generally  approximate  their recorded book
balances.  The estimation  methodologies  used and the estimated fair values and
carrying values of the Bank's financial instruments are set forth below:

CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST RECEIVABLE

     The carrying  amounts for cash and cash  equivalents  and accrued  interest
receivable approximate fair value because they mature in three months or less.

SECURITIES

     The  fair  values  for   securities   available-for-sale,   mortgage-backed
securities held-to-maturity and investment securities held-to-maturity are based
on quoted  market or dealer  prices,  if  available.  If quoted market or dealer
prices are not available,  fair value is estimated using quoted market or dealer
prices for similar securities.

LOANS RECEIVABLE

     The fair value of loans receivable is estimated by discounting  future cash
flows,  using  current  rates at which  similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities of such loans.

MORTGAGE SERVICING RIGHTS

     The fair value of mortgage servicing rights is estimated by discount future
cash  flows,  using  current  rates  at  which  similar  loans  would be made to
borrowers with similar  credit ratings and for the same remaining  maturities of
such loans.

DEPOSITS

     The fair value of demand,  savings and club accounts is equal to the amount
payable  on demand at the  reporting  date.  The fair value of  certificates  of
deposit is  estimated  using rates  currently  offered  for  deposits of similar
remaining  maturities.  The fair value estimates do not include the benefit that
results from the low-cost  funding provided by deposit  liabilities  compared to
the cost of borrowing funds in the market.

BORROWINGS

     The fair  values of advances  from the Federal  Home Loan Bank of New York,
securities  sold under  agreement to  repurchase  and other  borrowed  money are
estimated using the rates currently  available to the Bank for debt with similar
terms and remaining maturities.

COMMITMENTS

     The  fair  market  value  of  unearned  fees   associated   with  financial
instruments with off-balance  sheet risk at March 31, 2005 approximates the fees
received. The fair value is not considered material.

     The  carrying  amounts and  estimated  fair values of the Bank's  financial
instruments for the following years:

<TABLE>
<CAPTION>
                                                                     AT MARCH 31,
                                                   -------------------------------------------------
                                                            2006                      2005
                                                   -----------------------   -----------------------
                                                    CARRYING    ESTIMATED     CARRYING    ESTIMATED
                                                     AMOUNT     FAIR VALUE     AMOUNT     FAIR VALUE
                                                   ----------   ----------   ----------   ----------
<S>                                                <C>          <C>          <C>          <C>
                                                                     (IN THOUSANDS)
Financial Assets:
    Cash and cash equivalents                      $   22,904   $   22,904   $   20,420   $   20,420
    Investment securities available-for-sale           12,078       12,078       22,551       22,551
    Mortgage backed securities available-for-sale      69,804       69,804       95,482       95,482
    Mortgage backed securities held-to-maturity        26,404       25,880       31,302       31,310
    Loans receivable                                  493,432      488,258      421,987      424,886
    Accrued interest receivable                         2,970        2,970        2,702        2,702
    Mortgage servicing rights                             339          325          179          161
Financial Liabilities:
    Deposits                                       $  504,638   $  506,886   $  453,454   $  451,752
    Advances from FHLB of New York                     80,935       79,848      102,500      101,651
    Other borrowed money                               12,857       12,857       12,799       12,799
</TABLE>

LIMITATIONS

     The fair  value  estimates  are made at a  discrete  point in time based on
relevant market information about the financial instruments.  These estimates do
not reflect any premium or discount  that could result from offering for sale at
one time the entire holdings of a particular  financial  instrument.  Because no
quoted  market value exists for a  significant  portion of the Bank's  financial
instruments,  fair  value  estimates  are based on  judgments  regarding  future
expected loss experience,  current economic conditions,  risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve  uncertainties  and matters of  significant  judgment and,
therefore,  cannot be determined  with precision.  Changes in assumptions  could
significantly affect the estimates.

     In  addition,  the fair value  estimates  are based on existing off balance
sheet  financial  instruments  without  attempting to value  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial  instruments.  Other  significant  assets and liabilities that are not
considered  financial assets and liabilities  include premises and equipment and
advances  from  borrowers  for  taxes  and  insurance.   In  addition,  the  tax
ramifications related to the realization of unrealized gains and losses can have
a significant effect on fair value estimates and have not been considered in any
of the estimates.

Finally,  reasonable  comparability  between  financial  institutions may not be
likely due to the wide range of  permitted  valuation  techniques  and  numerous
estimates which must be made given the absence of active  secondary  markets for
many of the financial instruments.  This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.

NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following is a summary of unaudited quarterly financial data for fiscal
years ended March 31, 2006 and 2005:

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED
                               ------------------------------------------------------------
                                 JUNE 30       SEPTEMBER 30     DECEMBER 31        MARCH 31
                               ------------    ------------    ------------    ------------
<S>                            <C>             <C>             <C>             <C>
                                       (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 2006
Interest income                $      7,752    $      7,748    $      8,210    $      8,676
Interest expense                     (3,052)         (3,213)         (3,438)         (3,791)
                               ------------    ------------    ------------    ------------
    Net interest income               4,700           4,535           4,772           4,885
Provision for loan losses                --              --              --              --
Non-interest income                   1,399           1,031           1,123           1,788
Non-interest expense                 (4,795)         (4,636)         (4,668)         (5,037)
Income tax expense                     (464)           (329)             60            (595)
                               ------------    ------------    ------------    ------------
    Net income                 $        840    $        601    $      1,287    $      1,041
                               ============    ============    ============    ============
Earnings per common share
    Basic                      $       0.34    $       0.24    $       0.51    $       0.42
    Diluted                    $       0.33    $       0.23    $       0.50    $       0.41

FISCAL 2005
Interest income                $      6,712    $      7,013    $      7,223    $      7,597
Interest expense                     (2,168)         (2,368)         (2,485)         (2,737)
                               ------------    ------------    ------------    ------------
    Net interest income               4,544           4,645           4,738           4,860
Provision for loan losses                --              --              --              --
Non-interest income                   1,139           1,198           1,203             901
Non-interest expense                 (3,938)         (5,069)         (4,507)         (5,179)
Income tax expense                     (663)           (291)           (514)           (190)
                               ------------    ------------    ------------    ------------
    Net income                 $      1,082    $        483    $        920    $        392
                               ============    ============    ============    ============
Earnings per common share
    Basic                      $       0.45    $       0.09    $       0.37    $       0.16
    Diluted                    $       0.42    $       0.09    $       0.36    $       0.15
</TABLE>


NOTE 15. CARVER BANCORP, INC. (PARENT COMPANY ONLY) FINANCIAL STATEMENTS

CONDENSED STATEMENTS OF FINANCIAL CONDITION

                                                  AS OF MARCH 31,
                                                -----------------
                                                 2006      2005
                                                -------   -------
                                                  (IN THOUSANDS)

ASSETS
Cash on deposit with the Bank                   $    59   $   289
Investment securities                                --     1,575
Investment in subsidiaries                       62,219    57,851
Other assets                                          3       140
                                                -------   -------
TOTAL ASSETS                                    $62,281   $59,855
                                                =======   =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Borrowings                                      $13,260   $13,202
Accounts payable to subsidiaries                     66       667
Other liabilities                                   258       185
                                                -------   -------
Total liabilities                               $13,584   $14,054
                                                -------   -------

Stockholders' equity                             48,697    45,801
                                                -------   -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $62,281   $59,855
                                                =======   =======

CONDENSED STATEMENTS OF OPERATIONS

                                                  YEAR ENDED MARCH 31,
                                              ------------------------------
                                                2006       2005       2004
                                              --------   --------   --------
                                                      (IN THOUSANDS)
INCOME
Equity in net income from Subsidiaries        $  6,758   $  7,119   $  8,328
Interest income from deposit with the Bank           5          7          9
Other income                                        22         23          9
                                              --------   --------   --------
Total income                                     6,785      7,149      8,346

EXPENSES
Interest Expense on Borrowings                     985        721        337
Salaries and employee benefits                     287        225        169
Legal expense                                       --         --         --
Shareholder expense                                407        488        458
Other                                                7      1,548         50
                                              --------   --------   --------
Total expense                                    1,686      2,982      1,014

Income before income taxes                       5,099      4,167      7,332
Income tax expense                               1,329      1,518      2,493
                                              --------   --------   --------
NET INCOME                                    $  3,770   $  2,649   $  4,839
                                              ========   ========   ========

CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                            YEAR ENDED MARCH 31,
                                                       --------------------------------
                                                         2006        2005        2004
                                                       --------    --------    --------
<S>                                                    <C>         <C>         <C>
                                                                (IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                             $  3,770    $  2,649    $  4,839
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Equity in net income of Subsidiaries                     (6,758)     (7,119)     (8,328)
Income taxes from the Bank                                1,329       1,518       2,493
(Decrease) increase in accounts payable to Bank            (443)        645          21
Increase (decrease) in other liabilities                     40         (14)        131
Other,  net                                                 299       2,534       1,772
                                                       --------    --------    --------
Net cash (used in ) provided by operating activities     (1,763)        213         928

CASH FLOWS FROM INVESTING ACTIVITIES
Dividends Received from Bank                                850       4,866          --
Additional Investment in Bank & other subsidiaries           --          --     (13,153)
Proceeds from sale of investment securities               1,575          --          --
Purchase of investment securities                            --      (3,074)        (59)
                                                       --------    --------    --------
Net cash provided by (used in) investing activities       2,425       1,792     (13,212)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Sub Debt                                         --          --      13,144
Purchase of treasury stock, net                            (115)     (1,021)       (200)
Dividends paid                                             (777)       (788)       (654)
                                                       --------    --------    --------
Net cash (used in) provided by financing activities        (892)     (1,809)     12,290
                                                       --------    --------    --------
Net (decrease) increase in cash                            (230)        196           6

Cash and cash equivalents - beginning                       289          93          87
                                                       --------    --------    --------
Cash and cash equivalents - ending                     $     59    $    289    $     93
                                                       ========    ========    ========
</TABLE>


NOTE 16.  RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING FOR SERVICING OF FINANCIAL ASSETS


     In March, 2006 FASB issued SFAS 156,  ACCOUNTING FOR SERVICING OF FINANCIAL
ASSETS,  which  amends  SFAS.140,  ACCOUNTING  FOR  TRANSFERS  AND  SERVICING OF
FINANCIAL  ASSETS  AND  EXTINGUISHMENTS  OF  LIABILITIES,  with  respect  to the
accounting for separately recognized servicing assets and servicing liabilities.
The Statement addresses the recognition and measurement of separately recognized
servicing assets and liabilities and provides an approach to simplify efforts to
obtain hedge-like (offset) accounting.

SFAS 156 is effective  as of the  beginning of the first fiscal year that begins
after September 15, 2006.  Earlier  adoption is permitted as of the beginning of
an  entity's  fiscal  year,  provided  the entity  has not yet issued  financial
statements,  including  financial  statements  for any  interim  period for that
fiscal year. CARVER will adopt this  pronouncement as of April 1, 2007 and it is
not expected to have a material impact on the Company's  consolidated  financial
condition or results of operations.


THE MEANING OF  OTHER-THAN-TEMPORARY  IMPAIRMENT AND ITS  APPLICATION TO CERTAIN
INVESTMENTS

     In November  2005,  the FASB issued  Staff  Position No. FASB 115-1 and FAS
124-1,  "THE MEANING OF  OTHER-THAN-TEMPORARY  IMPAIRMENT AND ITS APPLICATION TO
CERTAIN INVESTMENTS" (FSP FAS 115-1 AND FAS 124-1), which amends FASB Statements
No. 115, Accounting for Certain  Investments in Debt and Equity Securities,  and
No.  124,   Accounting   for   Certain   Investments   Held  by   Not-for-Profit
Organizations,  and APB  Opinion  No. 18, The Equity  Method of  Accounting  for
Investments  in  Common  Stock.  FSP FAS  115-1  and  FAS  124-1  addresses  the
determination  of  when  an  investment  is  considered  impaired;  whether  the
impairment is other than  temporary;  and how to measure an impairment  loss and
also addresses  accounting  considerations  subsequent to the  recognition of an
other-than-temporary  impairment  on  a  debt  security,  and  requires  certain
disclosures   about   unrealized   losses  that  have  not  been  recognized  as
other-than-temporary  impairments. Under FSP FAS 115-1 and FAS 124-1, impairment
losses must be recognized in earnings equal to the entire difference between the
security's cost and it fair share value at the financial statement date, without
considering  partial  recoveries  subsequent to that date. FSP FAS 115-1 and FAS
124-1  also  requires  that  an  investor   recognize  an   other-than-temporary
impairment  loss  when a  decision  to sell a  security  has  been  made and the
investor  does not expect the fair value of the security to fully  recover prior
to the expected  time of sale.  This  pronouncement  is effective  for reporting
periods  beginning  after  December  15,  2005.  The  Company  does  not  expect
application to have any impact on its financial condition, results of operations
or financial statement disclosures.

ACCOUNTING CHANGES AND ERROR CORRECTIONS

     In May 2005,  the FASB issued SFAS No. 154,  "ACCOUNTING  CHANGES AND ERROR
CORRECTIONS"(SFAS  No.  154),  which  replaces  APB Opinion No. 20,  "Accounting
Changes,"  or APB No.  20,  and SFAS No. 3,  "Reporting  Accounting  Changes  in
Interim  Financial  Statements," and changes the requirements for the accounting
for and reporting of a change in accounting  principle.  SFAS No. 154 applies to
all  voluntary  changes in accounting  principle  and to changes  required by an
accounting  pronouncement  when  the  pronouncement  does not  include  specific
transaction  provisions.  SFAS No. 154  requires  retrospective  application  of
changes in accounting principle to prior periods' financial statements unless it
is  impracticable  to  determine  either  the  period-specific  effects  or  the
cumulative  effect of the  change.  APB No.  20  previously  required  that most
voluntary  changes in  accounting  principle  be  recognized  by  including  the
cumulative  effect of the  change in net  income for the period of the change in
accounting  principle.  SFAS No. 154 carries forward without change the guidance
contained in APB No. 20 for reporting  the  correction of an error in previously
issued financial  statements and a change in accounting  estimate.  SFAS No. 154
also carries  forward the guidance in APB No. 20  requiring  justification  of a
change in accounting  principle on the basis of  preferability.  SFAS No. 154 is
effective for accounting  changes and corrections of errors made in fiscal years
beginning  after December 15, 2005, with early adoption  permitted.  Carver will
adopt this pronouncement as of April 1, 2006.

ACCOUNTING  FOR STOCK BASED COMPENSATION

     In December  2004,  the FASB issued SFAS 123R  "ACCOUNTING  FOR STOCK BASED
COMPENSATION,  SHARE BASED PAYMENT",  which replaces the guidance  prescribed in
SFAS 123.  SFAS 123R  requires that  compensation  cost relating to  share-based
payment transactions be recognized in the financial  statements.  The associated
costs  will be  measured  based on the fair  value of the  equity  or  liability
instruments  issued.  SFAS 123R covers a wide range of share-based  compensation
arrangements including share options, restricted share plans,  performance-based
awards,  share appreciation  rights and employee share purchase plans. SFAS 123R
is effective as of the first interim or annual  reporting period beginning after
June 15, 2005.  Carver will adopt this  pronouncement as of April 1, 2006 and it
is not  expected  to  have a  material  impact  on  the  Company's  consolidated
financial condition or results of operations.


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

     None.


ITEM 9A.  CONTROLS AND PROCEDURES.

     The  Company  maintains  controls  and  procedures  designed to ensure that
information  required to be disclosed  in the reports that the Company  files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in the rules and forms of the  Securities and
Exchange  Commission (the "SEC").  As of March 31, 2006, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management,  including the Company's Chief Executive Officer and Chief Financial
Officer,  of  the  effectiveness  of  the  Company's   disclosure  controls  and
procedures pursuant to Exchange Act Rule 13a-15.  Based on that evaluation,  the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure  controls and procedures are effective and timely in alerting them to
material  information  relating  to  the  Company  (including  its  consolidated
subsidiaries) required to be included in the Company's periodic SEC filings.


ITEM 9B.  OTHER INFORMATION

     None



                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Information  concerning Executive Officers of the Company which responds to
this Item is  incorporated  by reference  from the section  entitled  "Executive
Officers and Key Managers of Carver and Carver Federal" in the Holding Company's
definitive proxy statement for the Annual Meeting of Stockholders for the fiscal
year ended March 31, 2006 (the "Proxy Statement"). The information that responds
to this Item with  respect to Directors is  incorporated  by reference  from the
section  entitled  "Election of Directors" in the Proxy  Statement.  Information
with respect to  compliance by the  Company's  Directors and Executive  Officers
with Section  16(a) of the Exchange Act is  incorporated  by reference  from the
subsection entitled "Section 16 (a) Beneficial  Ownership Reporting  Compliance"
in the Proxy Statement.

AUDIT COMMITTEE FINANCIAL EXPERT

     Information  regarding  the  audit  committee  of the  Company's  Board  of
Directors,  including  information  regarding audit committee  financial experts
serving  on the audit  committee,  is  presented  under the  heading  "Corporate
Governance"  in the  Company's  Proxy  Statement and is  incorporated  herein by
reference.


ITEM 11.  EXECUTIVE COMPENSATION.

     The  information  required  in  response  to this Item is  incorporated  by
reference  from the section  entitled  "Compensation  of Directors and Executive
Officers" in the Proxy Statement.


ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

     The  information  required  in  response  to this Item is  incorporated  by
reference from the section entitled  "Security  Ownership of Certain  Beneficial
Owners and Management" in the Proxy Statement.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  information  required  in  response  to this Item is  incorporated  by
reference from the section entitled  "Transactions with Certain Related Persons"
in the Proxy Statement.


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

     The  information  required  in  response  to this Item is  incorporated  by
reference  from the section  entitled  "Auditor  Fee  Information"  in the Proxy
Statement.


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

(a) List of Documents Filed as Part of this Annual Report on Form 10-K

     (1)  The following  consolidated financial statements are in Item 8 of this
          annual report:

     o    Report of Independent Registered Public Accounting Firm

     o    Consolidated Statement of Financial Condition as of March 31, 2006 and
          2005

     o    Consolidated  Statements of Operations for the years ended as of March
          31, 2006, 2005 and 2004

     o    Consolidated   Statements  of  Changes  in  Stockholders'  Equity  and
          Comprehensive Income for the years ended March 31, 2006, 2005 and 2004

     o    Consolidated  Statements  of Cash Flows for the years  ended March 31,
          2006, 2005 and 2004

     o    Notes to Consolidated Financial Statements

     (2)  Financial Statement Schedules.  All financial statement schedules have
          been omitted,  as the required  information is either  inapplicable or
          included under Item 8, "Financial Statement and Supplementary Data".

(b)  Exhibits required by Item 601 of Regulation S-K:

     (1)  See Index of Exhibits on page E-1.



                                   SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.


                                 CARVER BANCORP, INC.

June 29, 2006               By   /s/ Deborah C. Wright
                                 -----------------------------------------------
                                 Deborah C. Wright
                                 Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below on June 28, 2006 by the  following  persons on
behalf of the Registrant and in the capacities indicated.


/s/ Deborah C. Wright
------------------------
Deborah C. Wright              Chairman, President and Chief Executive Officer
                               (Principal Executive Officer)

/s/ William Gray
------------------------
William Gray                   Senior Vice President and Chief Financial Officer
                               (Principal Financial and Accounting Officer)

/s/ Carol Baldwin Moody
------------------------
Carol Baldwin Moody            Director

/s/ David L. Hinds
------------------------
David L. Hinds                 Director

/s/ Robert Holland, Jr.
Robert Holland, Jr.            Director

/s/ Pazel Jackson
------------------------
Pazel G. Jackson, Jr.          Director

/s/ Edward B. Ruggiero
------------------------
Edward B. Ruggiero             Director

/s/ Strauss Zelnick
------------------------
Strauss Zelnick                Director


EXHIBIT INDEX


EXHIBIT NUMBER                 DESCRIPTION

2.2                     Agreement  and Plan of Merger  dated as of April 6, 2006
                        by and between  Carver  Bancorp,  Inc.,  Carver  Federal
                        Savings Bank and Community Capital Bank (2.2)

3.1                     Certificate of Incorporation of Carver Bancorp, Inc. (1)

3.2                     Amended and Restated Bylaws of Carver Bancorp, Inc. (12)

4.1                     Stock Certificate of Carver Bancorp, Inc. (1)

4.2                     Federal Stock Charter of Carver Federal Savings Bank (1)

4.3                     Bylaws of Carver Federal Savings Bank (1)

4.4                     Amendments to Bylaws of Carver Federal Savings Bank (2)

4.5                     Certificate of  Designations,  Preferences and Rights of
                        Series A Convertible Preferred Stock (4)

4.6                     Certificate of  Designations,  Preferences and Rights of
                        Series B Convertible Preferred Stock (4)

10.1                    Carver Bancorp,  Inc. 1995 Stock Option Plan,  effective
                        as of September 12, 1995 (1)

10.2                    Carver Federal Savings Bank  Retirement  Income Plan, as
                        amended and restated effective as of January 1, 1997 and
                        as further amended through January 1, 2001 (9)

10.3                    Carver  Federal  Savings Bank 401(k) Savings Plan in RSI
                        Retirement  Trust, as amended and restated  effective as
                        of January 1, 1997 and  including  provisions  effective
                        through January 1, 2002 (9)

10.4                    Carver  Bancorp,  Inc.  Employee Stock  Ownership  Plan,
                        effective as of January 1, 1994, incorporating Amendment
                        No. 1,  incorporating  Second  Amendment,  incorporating
                        Amendment  No.  2,   incorporating   Amendment  No.  2A,
                        incorporating   Amendment   No.   3  and   incorporating
                        Amendment No. 4 (9)

10.5                    Carver Federal Savings Bank Deferred  Compensation Plan,
                        effective as of August 10, 1993 (1)

10.6                    Carver  Federal   Savings  Bank   Retirement   Plan  for
                        Nonemployee Directors,  effective as of October 24, 1994
                        (1)

10.7                    Carver  Bancorp,   Inc.  Management   Recognition  Plan,
                        effective as of September 12, 1995 (1)

10.8                    Carver  Bancorp,   Inc.  Incentive   Compensative  Plan,
                        effective as of September 12, 1995 (1)

10.9                    Employment  Agreement  by  and  between  Carver  Federal
                        Savings Bank and Deborah C.  Wright,  entered into as of
                        June 1, 1999 (3)

10.10                   Employment Agreement by and between Carver Bancorp, Inc.
                        and Deborah C.  Wright,  entered into as of June 1, 1999
                        (3)

10.11                   Securities   Purchase  Agreement  by  and  among  Carver
                        Bancorp,  Inc.,  Morgan Stanley & Co.  Incorporated  and
                        Provender Opportunities Fund L.P. (5)

10.12                   Registration   Rights  Agreement  by  and  among  Carver
                        Bancorp,  Inc.,  Morgan Stanley & Co.  Incorporated  and
                        Provender Opportunities Fund L.P. (5)

10.13                   Settlement Agreement and Mutual Release by and among BBC
                        Capital Market, Inc., The Boston Bank of Commerce, Kevin
                        Cohee and Teri Williams;  Carver Bancorp,  Inc., Deborah
                        C. Wright, David N. Dinkins,  Linda H. Dunham, Robert J.
                        Franz,  Pazel G. Jackson,  Jr., Herman Johnson and David
                        R.  Jones;  Morgan  Stanley  &  Co.,  Incorporated;  and
                        Provender  Opportunities  Fund,  L.P.  and  Frederick O.
                        Terrell (5)

10.14                   Amendment to the Carver Bancorp,  Inc. 1995 Stock Option
                        Plan (6)

10.15                   Amended and Restated Employment Agreement by and between
                        Carver  Federal  Savings  Bank and  Deborah  C.  Wright,
                        entered into as of June 1, 1999 (7)

10.16                   Amended and Restated Employment Agreement by and between
                        Carver Bancorp, Inc. and Deborah C. Wright, entered into
                        as of June 1, 1999 (7)

10.17                   Form of Letter  Employment  Agreement  between Executive
                        Officers and Carver Bancorp, Inc. (7)

10.18                   Employment  Agreement  by  and  between  Carver  Federal
                        Savings Bank and Catherine A. Papayiannis,  entered into
                        as of April 22, 2002 (7)

10.19                   Carver Bancorp,  Inc. Compensation Plan for Non-Employee
                        Directors (9)

10.20                   Amendment  Number  One to Carver  Federal  Savings  Bank
                        Retirement   Income   Plan,   as  amended  and  restated
                        effective  as of January 1, 1997 and as further  amended
                        through January 1, 2001 (9)

10.21                   First Amendment to the Restatement of the Carver Federal
                        Savings Bank 401(k) Savings Plan (9)

10.22                   Second  Amendment  to  the  Restatement  of  the  Carver
                        Federal Savings Bank 401(k) Savings Plan for EGTRRA (9)

10.23                   Guarantee Agreement by and between Carver Bancorp,  Inc.
                        and  U.S.  Bank  National   Association,   dated  as  of
                        September 17, 2003 (8)

10.24                   Amended and Restated  Declaration of Trust by and among,
                        U.S.  Bank  National   Association,   as   Institutional
                        Trustee,  Carver  Bancorp,  Inc., as Sponsor,  and Linda
                        Dunn,    William   Gray   and   Deborah    Wright,    as
                        Administrators, dated as of September 17, 2003 (8)

10.25                   Indenture,  dated  as of  September  17,  2003,  between
                        Carver Bancorp,  Inc., as Issuer, and U.S. Bank National
                        Association, as Trustee (8)

10.26                   Second Amendment to the Carver Bancorp,  Inc. Management
                        Recognition  Plan,  effective as of  September  23, 2003
                        (11)


10.27                   Amended Share Voting Stipulation and Undertaking made by
                        Carver  Bancorp,  Inc.  in favor of the OTS,  made as of
                        April 22, 2004 (11)


10.28                   Trust  Agreement   between  Carver  Bancorp,   Inc.  and
                        American Stock & Transfer  Trust  Company,  dated May 3,
                        2004 (11)

10.29                   First  Amendment to Employment  Agreement by and between
                        Carver   Federal   Savings   Bank   and   Catherine   A.
                        Papayiannis, entered into as of May 27, 2004 (11)

10.30                   First Amendment to the Carver Bancorp,  Inc.  Retirement
                        Income Plan, effective as of March 28, 2005 (12)

10.31                   Sixth  Amendment to the Carver  Bancorp,  Inc.  Employee
                        Stock  Ownership  Plan,  effective  as of March 28, 2005
                        (12)

14                      Code of ethics (*)

21.1                    Subsidiaries of the Registrant (11)

23.2                    Consent of KPMG LLP (*)

31.1                    Certifications of Chief Executive Officer (*)

31.2                    Certifications of Chief Financial Officer (*)

32.1                    Written  Statement of Chief Executive  Officer furnished
                        pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
                        2002, 18 U.S.C. Section 1350 (*)

32.2                    Written  Statement of Chief Financial  Officer furnished
                        pursuant  to Section  906 of the  Sarbanes-Oxley  Act of
                        2002, 18 U.S.C. Section 1350 (*)

(*)     Filed  herewith.  Copies of these  exhibits  are  available at no charge
        through the SEC website at http://www.sec.gov.

(1)     Incorporated herein by reference to Registration  Statement No. 333-5559
        on Form S-4 of the  Registrant  filed with the  Securities  and Exchange
        Commission on June 7, 1996.

(2)     Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Annual Report on Form 10-K for the fiscal year ended March 31, 1998.

(2.2)   Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Report on Form 8-K, dated April 6, 2006.

(3)     Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Annual Report on Form 10-K for the fiscal year ended March 31, 1999.

(4)     Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Report on Form 8-K, dated January 14, 2000.

(5)     Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Annual Report on Form 10-K for the fiscal year ended March 31, 2000.

(6)     Incorporated  herein by reference to the  Registrant's  Proxy  Statement
        dated January 25, 2001.

(7)     Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Annual Report on Form 10-K for the fiscal year ended March 31, 2002.

(8)     Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Quarterly  Report on Form 10-Q for the three months ended  September 30,
        2003.

(9)     Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Annual Report on Form 10-K for the fiscal year ended March 31, 2003.

(10)    Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Report on Form 8-K, dated March 16, 2004.

(11)    Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Annual Report on Form 10-K for the fiscal year ended March 31, 2004.

(12)    Incorporated  herein by reference  to the  Exhibits to the  Registrant's
        Annual Report on Form 10-K for the fiscal year ended March 31, 2005.