**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**_________________________________**





**FORM
      10-Q**


(Mark
      One)





X
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




**For
      the quarterly period ended December 31, 2006**





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 of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**75
                West 125****th****Street, New York, New York**
            
            **10027**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





**Registrant’s
      Telephone Number, Including Area Code:** **(718)
      230-2900**





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.




Yes X No
      ___





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.




Large
      Accelerated Filer ___      Accelerated Filer
      ___      Non-Accelerated Filer X




Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act).




Yes
      ___       No X





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





**Common
                Stock, par value $.01**
            
            **2,512,985**Class
            
            Outstanding
                at January 31, 2007
















**TABLE
      OF**  **CONTENTS**




PagePART
                  I.FINANCIAL
                  INFORMATIONItem
                  1.   Financial StatementsConsolidated
                  Statements of Financial Condition as ofDecember
                  31, 2006 (unaudited) and March 31, 2006
              1Consolidated
                  Statements of Income for the Three and Nine MonthsEnded
                  December 31, 2006 and 2005 (unaudited)
              2Consolidated
                  Statement of Changes in Stockholders’ Equity andComprehensive
                  Income for the Nine Months Ended December 31, 2006 (unaudited)
              3Consolidated
                  Statements of Cash Flows for the Nine MonthsEnded
                  December 31, 2006 and 2005 (unaudited)
              4Notes
                  to Consolidated Financial Statements (unaudited)
              5Item
                  2.   Management’s Discussion and Analysis of Financial Condition
                  and Results of Operations
              12Item
                  3.   Quantitative and Qualitative Disclosures About Market
                  Risk
              26Item
                  4.   Controls and Procedures
              26PART
                  II.OTHER
                  INFORMATIONItem
                  1.   Legal Proceedings
              27Item
                  1A. Risk Factors
              27Item
                  2.   Unregistered Sales of Equity Securities and Use of
                  Proceeds
              27Item
                  6.   Exhibits
              28SIGNATURES
              29EXHIBITS
              E-1













**CERTAIN
        TERMS**
 Throughout
          this Form 10-Q, unless otherwise specified or the context otherwise
          requires:
 
 “Holding
          Company” means Carver Bancorp, Inc., the holding company for the wholly owned
          subsidiaries, Carver Federal Savings Bank (the “Bank” or “Carver Federal”),
          Alhambra Holding Corp., an inactive Delaware corporation, and the Bank’s
          wholly-owned subsidiaries, CFSB Realty Corp. and CFSB Credit Corp., and
          the
          Bank’s majority owned subsidiary, Carver Asset Corporation. 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. On October 5, 2006, in connection with
          the
          acquisition of the Community Capital Bank (‘‘CCB”) acquisition, the Bank
          chartered Carver Municipal Bank, a wholly owned, New York State chartered
          limited purpose commercial bank. In addition, the Holding Company has a
          subsidiary, Carver Statutory Trust I, which is not consolidated with Carver
          for
          financial reporting purposes as a result of our adoption of Financial Accounting
          Standards Board (“FASB”), revised Interpretation No. 46, *“Consolidation
          of Variable Interest Entities, and Interpretation of Accounting Research
          Bulletin No. 51” (“FIN46R”)* ,
          effective January 1, 2004.
 
 “Carver,”
          the “Company,” “we,” “us” or “our” refers to the Holding Company along with its
          consolidated subsidiaries.
  
   **FORWARD-LOOKING
        STATEMENTS**
 
 Statements
        contained in this Quarterly Report on Form 10-Q, which are not historical
        facts,
        are “forward-looking statements” within the meaning of Section 27A of the
        Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of
        the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In
        addition, senior management may make forward-looking statements orally to
        analysts, investors, the media and others. These forward-looking statements
        may
        be identified by the use of such words as “believe,” “expect,” “anticipate,”
“intend,” “should,” “will,” “would,” “could,” “may,” “planned,” “estimated,”
“potential,” “outlook,” “predict,” “project” and similar terms and phrases,
        including references to assumptions. Forward-looking statements are based
        on
        various assumptions and analyses made by the Company in light of the
        management's experience and its perception of historical trends, current
        conditions and expected future developments, as well as other factors believed
        to be appropriate under the circumstances. These statements are not guarantees
        of future performance and are subject to risks, uncertainties and other factors,
        many of which are beyond the Company’s control that could cause actual results
        to differ materially from future results expressed or implied by such
        forward-looking statements. Factors which could result in material variations
        include, without limitation, the Company's success in implementing its
        initiatives, including expanding its product line, adding new branches and
        ATM
        centers, successfully re-branding its image and achieving greater operating
        efficiencies; increases in competitive pressure among financial institutions
        or
        non-financial institutions; legislative or regulatory changes which may
        adversely affect the Company’s business or the cost of doing business;
        technological changes which may be more difficult or expensive than we
        anticipate; changes in interest rates which may reduce net interest margins
        and
        net interest income; changes in deposit flows, loan demand or real estate
        values
        which may adversely affect the Company’s business; changes in accounting
        principles, policies or guidelines which may cause the Company’s condition to be
        perceived differently; 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; the ability
        of
        the Company to originate and purchase loans with attractive terms and acceptable
        credit quality; and 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.
 
 The
        forward-looking statements contained herein are made as of the date of this
        Form
        10-Q, and the Company assumes no obligation to, and expressly disclaims any
        obligation to, update these forward-looking statements to reflect actual
        results, changes in assumptions or changes in other factors affecting such
        forward-looking statements or to update the reasons why actual results could
        differ from those projected in the forward-looking statements. You should
        consider these risks and uncertainties in evaluating forward-looking statements
        and you should not place undue reliance on these statements.









**PART
        I.        FINANCIAL
        INFORMATION**
 ITEM 1.       Financial
        Statements












See
      accompanying notes to consolidated financial statements.






1









See
        accompanying notes to consolidated financial statements.
   2




**CARVER
          BANCORP, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **AND
          COMPREHENSIVE INCOME**
 **(In
          thousands)**
 **(Unaudited)**
 
 **FOR
          THE NINE MONTHS ENDED DECEMBER 31, 2005**




**FOR
          THE NINE MONTHS ENDED DECEMBER 31, 2006**




3




**CARVER
      BANCORP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(In
      thousands)**


**(Unaudited)**











4






**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**





(1)  BASIS
      OF
      PRESENTATION




The
      accompanying unaudited consolidated financial statements of Carver Bancorp,
      Inc.
      (the “Holding Company”) have been prepared in accordance with United States
      generally accepted accounting principles (“US-GAAP”) for interim financial
      information and with the instructions to Form 10-Q and Article 10 of Regulation
      S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly,
      they do not include all of the information and footnotes required by GAAP for
      complete consolidated financial statements. Certain information and note
      disclosures normally included in financial statements prepared in accordance
      with GAAP have been condensed or omitted pursuant to the rules and regulations
      of the SEC. In the opinion of management, all adjustments (consisting of only
      normal recurring adjustments) necessary for a fair presentation of the financial
      condition, results of operations, changes in stockholders’ equity and cash flows
      of the Holding Company and its subsidiaries on a consolidated basis as of and
      for the periods shown have been included.




The
      unaudited consolidated financial statements presented herein should be read
      in
      conjunction with the consolidated financial statements and notes thereto
      included in the Holding Company’s Annual Report on Form 10-K for the fiscal year
      ended March 31, 2006 (“2006 10-K”) previously filed with the SEC. The
      consolidated results of operations and other data for the nine-month period
      ended December 31, 2006 are not necessarily indicative of results that may
      be
      expected for the entire fiscal year ending March 31, 2007 (“fiscal
      2007”).


The
        accompanying unaudited consolidated financial statements include the accounts
        of
        the Holding Company and its wholly owned subsidiaries, Carver Federal Savings
        Bank (the “Bank” or “Carver Federal”), Alhambra Holding Corp., an inactive
        Delaware corporation, and the Bank’s wholly-owned subsidiaries, CFSB Realty
        Corp. and CFSB Credit Corp., and the Bank’s majority owned subsidiary, Carver
        Asset Corporation. On August 18, 2005 Carver Federal formed Carver Community
        Development Corp. (“CCDC”), a wholly owned community development entity whose
        purpose is to make qualified loans in low-income communities. On October
        5,
        2006, in connection with the acquisition of the Community Capital Bank (‘‘CCB”),
        the Bank chartered Carver Municipal Bank, a wholly owned, New York State
        chartered limited purpose commercial bank, with the intention of accepting
        certain of CCB’s municipal and state agency deposits, expanding Carver Federal’s
        ability to compete for municipal and state agency deposits and providing
        other
        fee income based services. The Holding Company and its consolidated subsidiaries
        are referred to herein collectively as “Carver” or the “Company.” All
        significant inter-company accounts and transactions have been eliminated
        in
        consolidation.




In
      addition, the Holding Company has a subsidiary, Carver Statutory Trust I, which
      is not consolidated with Carver for financial reporting purposes as a result
      of
      our adoption of Financial Accounting Standards Board (“FASB”), revised
      Interpretation No. 46, *“Consolidation
      of Variable Interest Entities, and Interpretation of Accounting Research
      Bulletin No. 51” (“FIN46R”)* ,
      effective January 1, 2004. Carver Statutory Trust I was formed in 2003 for
      the
      purpose of issuing 13,000 shares, liquidation amount $1,000 per share, of
      floating rate capital securities (“trust preferred securities”). Gross proceeds
      from the sale of these trust preferred 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 junior subordinated debt securities which are included in other borrowed
      money on the consolidated statements of financial condition, are repayable
      quarterly at the option of the Holding Company, beginning on or after July
      7,
      2007, and have a mandatory repayment date of September 17, 2033. Interest on
      the
      junior subordinated debt securities is cumulative and payable at a floating
      rate
      per annum (reset quarterly) equal to 3.05% over three-month LIBOR, with a rate
      of 8.41% as of December 31, 2006. The Holding Company has fully and
      unconditionally guaranteed the obligations of Carver Statutory Trust I to
      the trust's capital security holders.







(2)  RESTATEMENT




Restatement
      of the Consolidated Statements of Cash Flows


The
        Company is restating its previously reported Consolidated Statements of Cash
        Flows for the nine months ended December 31, 2005 and for the three month
        periods ended June 30, 2006 and 2005 related to the classification of proceeds
        from the sale of certain mortgage loans. The restatements result from
        misclassification of cash flows from mortgage loans the Company originated
        with
        the intent to sell, which were reflected in cash flows from investing activities
        rather than in cash flows from operating activities. Additionally, the Company
        misclassified other cash flows on loans originated as held-for-investment
        as
        cash flows from operating activities rather than in cash flows from investing
        activities. The Company previously restated its Consolidated Statement of
        Cash
        Flows for the six month periods ended September 30, 2006 and 2005 for this
        issue
        in its quarterly report on Form 10-Q/A filed with the SEC on November 17,
        2006.
        The restatement solely affects the classification of these activities, the
        subtotals of cash flows from






5








operating
      and investing activities presented in the
      affected Consolidated Statement of Cash Flows, and has no impact on the net
      increase in total cash and cash equivalents as set forth in the Consolidated
      Statement of Cash Flows for any of the previously reported periods.
      Additionally, the restatements do not affect the Company’s Consolidated
      Statements of Financial Condition, Consolidated Statement of Operations and
      Consolidated Statement of Changes in Stockholders Equity for the affected
      periods. Accordingly the Company’s historical revenues, net income, earnings per
      share, total assets and regulatory capital remain unchanged. The restated
      Consolidated Statements of Cash Flows for the periods impacted are as
      follows:










6











**CARVER
      BANCORP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(In
      thousands)**


**(Unaudited)**











7






(3)  EARNINGS
      PER COMMON SHARE




Basic
      earnings per common share is computed by dividing income available to common
      stockholders by the weighted-average number of common shares outstanding over
      the period of determination. Diluted earnings per common share include any
      additional common shares as if all potentially dilutive common shares were
      issued (for instance, stock options with an exercise price that is less than
      the
      average market price of the common shares for the periods stated). For the
      purpose of these calculations, unreleased ESOP shares are not considered to
      be
      outstanding. For the three-month periods ended December 31, 2006 and 2005,
      56,486 and 52,692 shares of common stock were potentially issuable from the
      exercise of stock options with an exercise price that is less than the average
      market price of the common shares for the three-months ended December 31, 2006
      and 2005, respectively. For the nine-month periods ended December 31, 2006
      and
      2005, 59,821 and 60,262 shares of common stock were potentially issuable from
      the exercise of stock options with an exercise price that is less than the
      average market price of the common shares for the nine-months ended December
      31,
      2006 and 2005, respectively. The effects of these potentially dilutive common
      shares were considered in determining the diluted earnings per common share.





(4) STOCK
      OPTION PLAN




*Accounting
      for Stock Based Compensation*




The
      Holding Company grants “incentive stock options” only to its employees and
      grants “nonqualified stock options” to employees and non-employee directors.
      Effective April 1, 2006, the Company adopted revised Statement of Financial
      Accounting Standards, or SFAS, No. 123, “Share-Based Payment,” or SFAS No. 123R,
      which requires compensation costs related to share-based payment transactions
      be
      recognized in the financial statements. SFAS No. 123R applies to all awards
      granted after April 1, 2006 and to awards modified, repurchased or cancelled
      after that date. Additionally, beginning April 1, 2006, the Company recognized
      compensation cost for the portion of outstanding awards for which the requisite
      service has not yet been rendered, based on the grant-date fair value of those
      awards calculated under SFAS No. 123 for pro forma disclosures. Stock-based
      compensation expense recognized for the three- and nine- months ended December
      31, 2006 totaled $19,000 and $137,000, respectively.




Prior
      to
      April 1, 2006, the Company applied the intrinsic value method of Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and
      related interpretations in accounting for stock incentive plans. Accordingly,
      no
      stock-based compensation cost was reflected in net income for stock option
      grants, as all options granted under our stock incentive plans had an exercise
      price equal to the market value of the underlying common stock on the date
      of
      grant.




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 following periods:












8






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 4.28% and 4.50% for the quarters
        ended
        December 31, 2006 and 2005, respectively; volatility of 32.78% and 21.42
        %, for
        the quarter ended December 31, 2006 and 2005, respectively; expected dividend
        yield was 1.54% and 1.42% for the quarters ended December 31, 2006 and 2005,
        respectively; and an expected life of seven and ten years were used for all
        option grants in 2006 and 2005, respectively.
 ven
        and
        ten years were used for all option grants in 2006 and 2005,
        respectively.






(5) EMPLOYEE
      BENEFIT PLANS




*Employee
      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 equaled
      the maximum amount deductible for federal income tax purposes. The pension
      plan
      was curtailed and future benefit accruals ceased as of December 31,
      2000.







*Directors’
      Retirement Plan*




Concurrent
      with the conversion to a stock form of ownership, Carver Federal adopted a
      retirement plan for non-employee directors. The benefits are payable based
      on
      the term of service as a director. The directors’ retirement plan was curtailed
      during the fiscal year ended March 31, 2001.







The
      following table sets forth the components of net periodic pension expense for
      the pension plan and directors’ retirement plan for the three months ended
      December 31, of the calendar years indicated.









(6) COMMON
      STOCK DIVIDEND





On
      February 5, 2007, the Board of Directors of the Holding Company declared, for
      the quarter ended December 31, 2006, a cash dividend of nine cents ($0.09)
      per
      common share outstanding. The dividend is payable on March 5, 2007 to
      stockholders of record at the close of business on February 20,
      2007.






(7) RECENT
      ACCOUNTING PRONOUNCEMENTS




*Accounting
      for Fair Value Measurements*




In
      September 2006, the FASB issued SFAS No. 157, *“Fair
      Value Measurements”* (“SFAS
      No. 157”). The Statement establishes a single definition of fair value, sets up
      a framework for measuring it, and requires additional disclosures about the
      use
      of fair value to measure assets and liabilities. SFAS No. 157 also emphasizes
      that fair value is a market-based measurement by establishing a three level
      “fair value hierarchy” that ranks the quality and reliability of inputs used in
      valuation models, i.e., the lower the level, the more reliable the input. The
      hierarchy provides the basis for the Statement’s new disclosure requirements
      which are dependent upon the frequency of an item’s measurement (recurring
      versus nonrecurring). SFAS No. 157 is effective for fair-value measures already
      required or permitted by other standards for financial statements issued for
      fiscal years beginning after November 15, 2007 and interim periods within those
      fiscal years. Its provisions will generally be applied prospectively. The
      adoption of SFAS No. 157 is not expected to have a material impact on our
      consolidated financial statements.




*Accounting
      for Employers’ Defined Benefit Pension and Other Postretirement Plans*






9






In
      September 2006, the FASB issued SFAS No. 158, *“Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans - an
      amendment of FASB Statements No. 87, 88, 106, and 132(R)”* (“SFAS
      No. 158”). SFAS No. 158 requires a calendar year-end company with publicly
      traded equity securities that sponsors a postretirement benefit plan to fully
      recognize the overfunded or underfunded status of its benefit plan in its 2006
      year-end balance sheet. For all other entities, this provision is effective
      for
      fiscal years ending after June 15, 2007. The Statement also requires a company
      to measure its plan assets and benefit obligations as of its year-end balance
      sheet date, eliminating the use of earlier measurement dates currently
      permissible. This provision is effective for fiscal years ending after December
      15, 2008. At this time, we do not anticipate the adoption of SFAS No. 158 will
      have a material impact on our consolidated financial statements.




*Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements*




In
      September 2006, the Securities SEC issued Staff Accounting Bulletin No. 108,
      codified as SAB Topic 1.N, *“Considering
      the Effects of Prior Year Misstatements When Quantifying Misstatements in
      Current Year Financial Statements”* (“SAB
      108”). SAB 108 states that registrants should use both a balance sheet and an
      income statement approach when quantifying and evaluating the materiality of
      a
      misstatement. It also contains guidance on correcting errors under this dual
      approach and provides transition guidance for correcting errors that existed
      in
      prior years. SAB 108 is effective for annual financial statements covering
      the
      first fiscal year ending after November 15, 2006. Earlier application is
      encouraged for any interim period of the first fiscal year ending after November
      15, 2006 and filed after September 13, 2006. We do not anticipate the adoption
      of SAB 108 to have a material impact on our consolidated financial
      statements.




*Accounting
      for Uncertainty in Income Taxes*




In
      June
      2006, the FASB issued Interpretation No. 48, *“Accounting
      for Uncertainty in Income Taxes - an Interpretation of FASB Statement No.
      109”* (“FIN
      48”). FIN 48 clarifies Statement 109 by establishing a criterion that an
      individual tax position would have to meet in order for some or all of the
      associated benefit to be recognized in an entity’s financial statements. The
      Interpretation applies to all tax positions within the scope of Statement 109.
      In applying FIN 48, an entity is required to evaluate each individual tax
      position using a two step-process. First, the entity should determine whether
      the tax position is recognizable in its financial statements by assessing
      whether it is “more-likely-than-not” that the position would be sustained by the
      taxing authority on examination. The term “more-likely-than-not” means “a
      likelihood of more than 50 percent.” Second, the entity should measure the
      amount of benefit to recognize in its financial statements by determining the
      largest amount of tax benefit that is greater than 50 percent likely of being
      realized upon ultimate settlement with the taxing authority. Each tax position
      must be re-evaluated at the end of each reporting period to determine whether
      recognition/derecognition is warranted. The liability resulting from the
      difference between the tax return position and the amount recognized and
      measured under FIN 48 should be classified as current or noncurrent depending
      on
      the anticipated timing of settlement. An entity should also accrue interest
      and
      penalties on unrecognized tax benefits in a manner consistent with the tax
      law.
      FIN 48 requires significant new annual disclosures in the notes to the financial
      statements that include a tabular roll-forward of the beginning to ending
      balances of an entity’s unrecognized tax benefits. The Interpretation is
      effective for fiscal years beginning after December 15, 2006 and the cumulative
      effect of applying FIN 48 should be reported as an adjustment to retained
      earnings at the beginning of the period in which it is adopted. The Company
      will
      adopt this pronouncement as of April 1, 2007 and has not yet determined the
      effect on the consolidated financial condition or results of
      operations.




*Accounting
      for Servicing of Financial Assets*




In
      March
      2006, the FASB issued SFAS No. 156, *“Accounting
      for Servicing of Financial Assets - an Amendment of FASB Statement No.
      140* ,”
which
      amends SFAS No. 140, *“Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities”* with
      respect to the accounting for separately recognized servicing assets and
      servicing liabilities. SFAS No. 156 requires all separately recognized servicing
      assets and servicing liabilities to be initially measured at fair value, if
      practicable, and permits an entity to choose either the amortization or fair
      value measurement method for subsequent measurements. Additionally, at its
      initial adoption, SFAS No. 156 permits a one-time reclassification of
      available-for-sale securities to trading securities by entities with recognized
      servicing rights, without calling into question the treatment of other
      available-for-sale securities, provided that the securities are identified
      in
      some manner as offsetting the entity’s exposure to changes in the fair value of
      servicing assets or servicing liabilities that a servicer elects to subsequently
      measure at fair value. SFAS No. 156 is effective as of the beginning of the
      first fiscal year that begins after September 15, 2006. Carver will adopt this
      pronouncement as of April 1, 2007 and intends to apply the amortization method
      for measurements of mortgage servicing rights, and does not expect the adoption
      of SFAS No. 156 to have a material impact on the Company’s consolidated
      financial condition or results of operations.









10








BUSINESS
      COMBINATIONS




On
      September 29, 2006, the Bank consummated its acquisition of CCB. Since the
      transaction closed at the end of the last quarter, the Company’s year-to-date
      results of operations include the operations of CCB for only the current
      quarter.




Also
      related to the CCB acquisition, the Bank incurred a $1.3 million restructuring
      charge during the second quarter primarily related to severance, early vendor
      contract termination fees, and systems integration and conversion fees.




The
      following is a summary of amounts charged to earnings and the status of reserves
      related to the CCB acquisition:









(8) SIGNIFICANT
      EVENTS




In
      the
      second quarter, as part of its balance sheet re-positioning efforts, the Bank
      committed to sell $23.1 million in interest-only one-to-four family loans.
      During the third quarter, the Bank transacted $16.5 million in sales of those
      interest-only one-to-four family loans, incurring a loss of $13,000 in addition
      to a valuation write-down of $702,000 that was taken in the second quarter
      when
      those loans were transferred from loans held-for-investment to loans
      held-for-sale.




Consistent
      with the Company’s ongoing strategy to reduce lower earning assets, the Bank
      also sold $11.4 million in municipal securities acquired from CCB and recorded
      $21,000 in gains.




On
      June
      1, 2006, the Bank was awarded a $59 million allocation under the New Markets
      Tax
      Credits (NMTC) program from the Community Development Financial Institution
      Fund
      (“CDFI”) of the Department of the Treasury. The award, the first such allocation
      Carver has received in this competitive initiative, is designed to attract
      private-sector investment to help finance community development projects,
      stimulate economic growth and create jobs in lower income communities by
      providing tax credits to private enterprises who participate.




The
      NMTC
      program, established by Congress in December 2000 and administered by the
      Department of the Treasury’s CDFI Fund, permits certain entities to receive a
      credit against federal income taxes for making qualified investments to help
      stimulate growth and create jobs in selected communities. The allocation was
      awarded to CCDC a for-profit subsidiary created by the Bank to administer the
      initiative. The credit provided to the Company totals 39% of the award or
      approximately $23 million in tax credits, and is to be received over a
      seven-year period, subject to CCDC’s ability to make loans and other investments
      which meet CDFI guidelines and in accordance with certain agreements with the
      CDFI. The 39% credit is apportioned 5% over each of the first three years,
      and
      6% over each of the remaining four years.





During
      the quarter the Company made qualifying investments of $29.5 million, which
      triggered the 39% tax credit on that amount and has allowed the Company to
      begin
      recognition of a 5% tax credit, or approximately $1.5 million, during the
      current fiscal year ending March 31, 2007. One half of that amount, or $738,000,
      was recognized in the quarter ended December 31, 2006. However, for the six
      fiscal years following the 2007 fiscal year, the Company will recognize the
      tax
      credit on the $29.5 million qualifying investments over the full fiscal year,
      or
      25% per quarter. The Company will recognize an increase in this tax benefit
      with
      any additional qualifying investment made, however, the maximum tax benefit
      recognizable is $23.0 million which is the total amount of tax credit that
      was
      awarded.





Pursuant
      to the NMTC program, the Company will share a portion of the benefit of the
      tax
      credit with the community and developers through reduced loan pricing and
      provision of financial literacy education.







11







**ITEM
      2.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**




**Overview**




The
      following should be read in conjunction with the audited Consolidated Financial
      Statements, the notes thereto and other financial information included in the
      Company’s 2006 10-K.




The
      Holding Company, a Delaware corporation, is the holding company for Carver
      Federal, a federally chartered savings bank, and, on a parent-only basis, had
      minimal results of operations. The Holding Company is headquartered in New
      York,
      New York. 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, Carver Federal. The Bank is
      focused on successfully building its core business by providing superior
      customer service while offering a wide rang e
      of
      financial products. As of December 31, 2006, the Bank operated ten full-service
      banking locations, four 24/7 ATM centers and four 24/7 stand-alone ATM locations
      in the New York City boroughs of Brooklyn, Queens and Manhattan, including
      two
      branches and one 24/7 stand-alone ATM location acquired with CCB.


Carver
        Federal is the largest African- and Caribbean- American operated bank in
        the
        United States. We continually focus on expanding our principal businesses
        of
        mortgage lending and retail banking while maintaining superior asset quality
        and
        controlling operating expenses. The addition of CCB’s commercial banking
        platform adds an attractive array of offerings to Carver’s product platform.  Carver
        Federal’s net income, like others in the thrift industry, is dependent primarily
        on net interest income, which is the difference between interest income earned
        on its interest-earning assets such as loans, investment and mortgage-backed
        securities portfolios and the interest paid on its interest-bearing liabilities,
        such as deposits and borrowings. The Bank’s earnings are also affected by
        general economic and competitive conditions, particularly changes in market
        interest rates and government and regulatory policies. Additionally, net
        income
        is affected by any incremental provision for loan losses, as well as
        non-interest income and operating expenses.


12







At
      the
      end of the second quarter, on September 29, 2006, Carver Federal completed
      its
      acquisition of CCB, a Brooklyn-based New York State chartered commercial bank
      with two branches and $165.4 million in total assets. With the acquisition,
      the
      Bank gained a commercial banking platform, with particular focus on the small
      business lending area. Carver Federal’s results of operations for the third
      quarter include the net results of operations from CCB for the
      period.





During
      the three months ended December 31, 2006, the local real estate markets remained
      strong and continued to support new and existing lending opportunities. The
      Federal Open Market Committee (“FOMC”) maintained its monetary policy and did
      not increase the federal funds rate during the quarter. Previous tightening
      has
      resulted in a U.S. Treasury yield curve that has been at times flat or inverted
      over the past several months. As a result of the rate environment that prevailed
      throughout fiscal 2006 and continues in fiscal 2007, Carver Federal pursued
      a
      strategy of using proceeds from the repayment and maturities of our lower
      earning investment portfolio and the growth in deposits to fund higher yielding
      commercial real estate and construction loans while at the same time allowing
      for the repayment of higher cost borrowings. During the quarter ended December
      31, 2006, Carver Federal continued this strategy and executed the sale of $16.5
      million in interest-only loans which were previously committed for sale in
      the
      second quarter. The Bank also sold $11.4 million in municipal securities it
      acquired from CCB. The proceeds from the securities sale were used to repay
      matured borrowings and it is expected that the proceeds from the loan sale
      will
      be used either to repay maturing advances or to reduce the Banks overnight
      borrowing needs or both. These ongoing efforts are expected to maintain the
      Bank’s net interest margin, enhance its interest rate risk and liquidity
      profiles, and reduce its exposure to interest-only one-to-four family loans.
      Additionally, these transactions are expected to improve the Bank’s earnings
      quality and capital ratios from what they would otherwise be in the absence
      of
      these efforts. While the balance sheet repositioning, and our lending and retail
      strategies are meant to improve our net interest income and net income in future
      periods through an enhanced net interest margin, there is no assurance that
      these strategies will succeed.




Our
      total
      loans receivable portfolio increased during the three months ended December
      31,
      2006. The increase in total loans receivable, net, is primarily the result
      of
      increases in construction and commercial mortgages, partially offset by
      decreases primarily in one-to-four family and multifamily residential loans.
      Total deposits also increased during the three months ended December 31, 2006
      which is consistent with the Bank’s objective to fund loan growth with lower
      cost deposits in lieu of higher cost borrowings. The decrease in our securities
      and borrowings portfolios during the three months ended December 31, 2006 is
      consistent with our strategy of reducing these portfolios in response to the
      challenges related to the U.S. Treasury yield curve.




The
      Company’s net income increased $113,000 for the three months ended December 31,
      2006 compared to the same period last year. Net income included tax benefits
      of
      $738,000 and $500,000 for the periods ended December 31, 2006 and 2005,
      respectively. Net interest income increased as a result of the Bank’s
      acquisition of CCB, and its strategy of reducing lower yielding securities
      and
      replacing them with higher yielding loans, while replacing higher cost
      borrowings with lower cost deposits, partially offset by an increase in interest
      expense. Non-interest income decreased primarily due to a loss realized on
      the
      sale of real estate owned and a decline in loan fees. Non-interest expense
      increased, due primarily to CCB related operating expenses, and to a lesser
      extent, increases in consulting, outsourced internal auditing, advertising
      and
      ATM expenses.


Net
        interest margin and net interest rate spread increased 24 and 14 basis points,
        respectively, for the three months ended December 31, 2006, compared to the
        three months ended December 31, 2005. Purchase accounting adjustments arising
        from the CCB acquisition resulted in a 14 basis points increase in net interest
        margin during the quarter ended December 31, 2006. Additionally, the increase
        in
        margin was due to the yield on our interest-earning assets rising more rapidly
        than the cost of our interest-bearing liabilities as a result of the positive
        momentum achieved from our previously discussed balance sheet
        strategy.




We
      expect
      the operating environment to remain challenging during the last quarter of
      fiscal 2007 as a flat to inverted yield curve has exerted pressure on our net
      interest margin and has dampened the volume of loan prepayments and therefore
      lowered pre-payment penalty income. As a result, we expect to continue our
      strategy of using the proceeds from the reductions in the securities portfolio
      through normal cash flow and the growth in deposits to fund higher yielding
      real
      estate and commercial loans and repay borrowings. Additionally, we understand
      that scale is relevant to our performance growth. As such, we will continue
      to
      pursue prudent acquisitions and alliances that leverage organic growth and
      accelerate our expansion strategy.






**Acquisition
      of Community Capital Bank Update**


On
        September 29, 2006, the Bank acquired CCB, a Brooklyn-based New York State
        chartered commercial bank with approximately $165.4 million in assets and
        two
        branches in a cash transaction of $11.9 million. The transaction resulted
        in the recognition of $760,000 of identifiable intangible assets, or core
        deposit intangible, and an initial excess of purchase price over the fair
        value
        of identifiable net assets (“goodwill”) of $5.1 million. The Company continues
        to evaluate the acquired net assets from CCB, and thus, goodwill is subject
        to
        future adjustments. During the quarter goodwill was adjusted by $325,000
        relating to unrecognized liabilities for accrued interest expense and a
        write-down of CCB’s deferred tax asset which increased the initial $5.1 million
        to $5.4 million.






13







**Critical
      Accounting Policies**




Note
      1 to
      our audited Consolidated Financial Statements for fiscal 2006 included in our
      2006 10-K, as supplemented by this report, contains a summary of our significant
      accounting policies and is incorporated herein. We believe our policies with
      respect to the methodology for our determination of the allowance for loan
      losses and asset impairment judgments, including other than temporary declines
      in the value of our securities, involve a high degree of complexity and require
      management to make subjective judgments which often require assumptions or
      estimates about highly uncertain matters. Changes in these judgments,
      assumptions or estimates could cause reported results to differ materially.
      The
      following description of these policies should be read in conjunction with
      the
      corresponding section of our 2006 10-K.








***Securities
      Impairment***




Carver
        Federal’s available-for-sale securities portfolio is carried at estimated fair
        value, with any unrealized gains and losses, net of taxes, reported as
        accumulated other comprehensive loss/income in stockholders’ equity. Securities,
        which the Bank has the positive intent and ability to hold to maturity, are
        classified as held-to-maturity and are carried at amortized cost. The fair
        values of securities in our portfolio, which are primarily adjustable rate
        mortgage-backed securities at December 31, 2006, are based on published or
        securities dealers’ market values and are affected by changes in interest rates,
        prepayment speeds and credit quality. The Bank periodically reviews and
        evaluates the securities portfolio to determine if the decline in the fair
        value
        of any security below its cost basis is other-than-temporary. The Bank generally
        views changes in fair value caused by changes in interest rates as temporary,
        which is consistent with its experience. However, if such a decline is deemed
        to
        be other-than-temporary, the security is written down to a new cost basis
        and
        the resulting loss is charged to earnings. At December 31, 2006, the Bank
        carried no permanently impaired securities.





***Allowance
      for loan losses***




Allowance
      for loan losses are maintained at a level considered adequate to provide for
      probable loan losses inherent in the portfolio as of December 31, 2006.
      Management is responsible for determining the adequacy of the allowance for
      loan
      losses and the periodic provisioning for estimated losses included in the
      consolidated financial statements. The evaluation process is undertaken on
      a
      quarterly basis, but may increase in frequency should conditions arise that
      would require management’s prompt attention, such as business combinations and
      opportunities to dispose of non-performing and marginally performing loans
      by
      bulk sale or any development which may indicate an adverse trend.




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




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




·
            Establishment
                of 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 Bank’s external
                auditors.




·
            An
                average loss factor, giving effect to historical loss experience
                over
                several years and linked to cyclical trends, is applied to all loans
                not
                subject to specific review. These loans include residential one-
                to
                four-family, multifamily, non-residential 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 a nine-category
      risk classification scale. Loans identified from this process as being higher
      risk are referred to the Bank’s 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






14








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 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
      include:




·  Regulatory
      examinations




·  Amount
      and trend of criticized loans




·  Actual
      losses




·  Peer
      comparisons with other financial institutions




·  Economic
      data associated with the real estate market in the Company’s lending market
      areas




·  Opportunities
      to dispose of marginally performing loans for cash consideration




A
      loan is
      considered to be impaired, as defined by SFAS No. 114, *“Accounting
      by Creditors for Impairment of a Loan”* (“SFAS
      114”), when it is probable that Carver Federal will be unable to collect all
      principal and interest amounts due according to the contractual terms of the
      loan agreement. Carver Federal tests loans covered under SFAS 114 for impairment
      if they are on non-accrual status or have been restructured. Consumer credit
      non-accrual loans are not tested for impairment because they are included in
      large groups of smaller-balance homogeneous loans that, by definition, are
      excluded from the scope of SFAS 114. Impaired loans are required to be measured
      based upon 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 allowance must be
      established for the difference. The allowance is established by either an
      allocation of the existing allowance for credit losses or by a provision for
      credit losses, depending on various circumstances. Allowances are not needed
      when credit losses have been recorded so that the recorded investment in an
      impaired loan is less than the loan valuation.




During
      the third quarter, the Bank recorded a loan loss provision of $120,000, which
      marks the first time since March 31, 2002 that the Company has recorded a
      provision for loan losses. This provision was deemed appropriate in light of
      the
      Company’s move into commercial and industrial lending with the CCB acquisition,
      which generally presents higher risks than real estate lending.







**Stock
      Repurchase Program**




In
      August
      2002, Carver’s Board of Directors authorized a stock repurchase program to
      acquire up to 231,635 shares of the Company’s outstanding common stock, or
      approximately 10 percent of the then outstanding shares. On October 25, 2005,
      the Board of Directors approved accelerating the repurchase of the remaining
      148,051 shares under the 2002 stock repurchase program, or up to a $2.5 million
      total investment, to take place over the following 18 months. The acceleration
      is intended to return capital to shareholders, capitalize on current trading
      values, and fund stock-based benefit and compensation plans. As of December
      31,
      2006 the Company had purchased a total of 103,274 shares at an average price
      of
      $16.89. Purchases for the stock repurchase program may be made from time to
      time
      on the open market and in privately negotiated transactions. The timing and
      actual number of shares repurchased under the plan depends on a variety of
      factors including price, corporate and regulatory requirements, and other market
      conditions.






15






**Liquidity
      and Capital Resources**




Liquidity
      is a measure of the Bank’s ability to generate adequate cash to meet its
      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 ongoing operating expenses. The Company’s
      primary sources of funds are deposits, borrowed funds and principal and interest
      payments on loans, mortgage-backed securities and investment securities. 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.




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. 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. Additionally, the Bank has other
      sources of liquidity including the ability to borrow from the Federal Home
      Loan
      Bank of New York (“FHLB-NY”) utilizing unpledged mortgage-backed securities and
      certain mortgage loans, the sale of available-for-sale securities and the sale
      of loans. At December 31, 2006, based on available collateral held at the
      FHLB-NY the Bank had the ability to borrow from the FHLB-NY an additional $57.5
      million on a
      secured basis, utilizing mortgage-related loans and securities as collateral.




The
      unaudited Consolidated Statements of Cash Flows present the change in cash
      from
      operating, investing and financing activities. During the nine months ended
      December 31, 2006, total cash and cash equivalents increased by $14.9 million
      reflecting cash provided by investing activities partially offset by cash used
      in financing and operating activities. Net cash used in operating activities
      during this period was $4.6 million, primarily representing cash distributions
      made to originate loans held-or-sale which was offset in part by cash provided
      from sale of loans held-for-sale, satisfaction of receivables included in other
      assets and cash provided from results of operations. Net cash provided by
      investing activities was $77.0 million, primarily representing cash received
      from principal collections on loans, sale of available-for-sale investment
      securities, repayment of principal on securities, and sale of loans which were
      originated for held-for-investment, partially offset by disbursements to fund
      mortgage loan originations, purchases of loans and net cash used in the
      acquisition of CCB. Net cash used in financing activities was $57.5 million,
      primarily representing net repayments of advances from the FHLB-NY and net
      deposit outflows. See “Comparison of Financial Condition at December 31, 2006
      and March 31, 2006” for a discussion of the changes in securities, loans,
      deposits and FHLB-NY borrowings




The
      levels of the Bank’s short-term liquid assets are dependent on the Bank’s
      operating, investing and financing activities during any given period. The
      most
      significant liquidity challenge the Bank faces is variability in its cash flows
      as a result of mortgage refinance activity. When mortgage interest rates
      decline, customers’ refinance activities tend to accelerate, causing the cash
      flow from both the mortgage loan portfolio and the mortgage-backed securities
      portfolio to accelerate. In contrast, when mortgage interest rates increase,
      refinance activities tend to slow causing a reduction of liquidity. However,
      in
      a rising rate environment, customers generally tend to prefer fixed rate
      mortgage loan products over variable rate products.




Over
      the
      past two years, the FOMC raised the federal funds rate twelve consecutive times
      however rates have not been raised since June 2006. When mortgage interest
      rates
      increase, customers’ refinance activities tend to decelerate, causing the cash
      flow from both the mortgage loan portfolio and the mortgage-backed securities
      portfolio to decline.




The
      OTS
      requires that the Bank meet minimum capital requirements. Capital adequacy
      is
      one of the most important factors used to determine the safety and soundness
      of
      individual banks and the banking system. At December 31, 2006, the Bank exceeded
      all regulatory minimum capital requirements and qualified, under OTS
      regulations, as a well-capitalized institution.







16









The
      table
      below presents certain information relating to the Bank’s capital compliance at
      December 31, 2006.















**Comparison
      of Financial Condition at December 31, 2006 and March 31,
      2006**




***Assets***




Total
      assets increased $103.9 million, or 15.7%, to $764.9 million at December 31,
      2006 compared to $661.0 million at March 31, 2006. The increase in total assets
      was primarily the result of the acquisition of $165.4 million of CCB assets
      in
      the second quarter, partially
      offset by decreases in certain securities and loan portfolios resulting from
      balance sheet repositioning efforts.




Cash
      and
      cash equivalents for the nine months ended December 31, 2006 increased $14.9
      million or 65.0%, to $37.8 million, compared to $22.9 million at March 31,
      2006.
      The increase was primarily the result of the Bank’s increased investment in
      federal funds to $17.0 million compared to an investment of $8.7 million at
      March 31, 2006 which resulted from the Bank having excess liquidity from loan
      sales at the end of the quarter. Additionally, the Bank acquired cash and due
      from banks balances from CCB.


Total
        securities decreased $34.5 million, or 31.9%, to $73.8 million at December
        31,
        2006 from $108.3 million at March 31, 2006 primarily
        from second quarter sales of $47.1 million of securities in conjunction with
        the
        balance sheet repositioning and from
        portfolio declines of $22.6 million from normal cash flows as a result of
        security repayments and maturities. Partially offsetting the decrease was
        the
        $50.7 million of securities acquired with the CCB acquisition of which $11.4
        million was sold in the third quarter.
  Total
        loans receivable, net, increased $98.1 million, or 19.9%, to $591.5 million
        at
        December 31, 2006 from $493.4 million at March 31, 2006. The increase resulted
        primarily from $98.8 million of loans acquired from CCB in the second quarter.
        In addition, loan originations and purchases of $124.5 million exceeded the
        $101.8 million in
        repayments proceeds during the nine months ending December 2006. Loan
        originations for the period total $73.8 million and were comprised of
        $38.6
        million in
        construction, $21.0 million
        in non-residential, $ 8.9 million
        in multifamily, $2.8
        million in
        one-to-four family, $2.0 million in commercial business loans and $512,000 in
        consumer loans. Management continues to evaluate yields and loan quality
        in the
        competitive New York metropolitan area market and in certain instances has
        decided to purchase loans to supplement internal originations. Total loan
        purchases amounted to $ 50.7 million
        of which $18.6
        million were
        construction ,
        $11.4
        million were
        non-residential real estate, $10.5 million
        were multifamily loan and $10.2 million were commercial business loans. The
        commercial business loan purchases were primarily comprised of New York City
        taxi medallion loans.




At
      December 31, 2006, the Bank held $16.7 million in loans held-for-sale. During
      the second quarter management reclassified approximately $23.1 million
      in one-to-four family loans from held-for-investment to held-for-sale with
      a
      recorded valuation write-down of $702,000 as part of the Company’s balance sheet
      repositioning. Prior to September 30, 2006 the Bank did not separately report
      on
      the balance for loans in held-for-sale as virtually all loans originated for
      sale were sold by each reporting period end. For the nine month period ended
      December 31, 2006, the Bank originated $21.7 million in loans held-for-sale
      and
      sold $26.3 million in loans held-for sale. Sales during the third quarter
      included $16.5 million of the loans which were transferred to held-for-sale
      from
      held-for-investment in the second quarter.






17






Management
      continues to assess yields and economic risk in determining the balance of
      interest-earning assets allocated to loan originations and purchases compared
      to
      additional purchases of mortgage-backed
      securities .




The
      Bank’s investment in FHLB-NY stock decreased by $1.0 million, or 21.7%, to $3.6
      million compared to $4.6 million at March 31, 2006. The decrease results
      primarily from redemptions of stock holdings as the Bank continues to repay
      matured borrowings. Partially offsetting the decrease from stock redemptions
      was
      $653,000 in additional stockholdings from the CCB acquisition. FHLB-NY requires
      Banks to own membership stock as well as stock based on the level of borrowings
      from the FHLB-NY.




At
      December 31, 2006, the Bank reflected goodwill and core deposit intangibles
      of
      $5.4 million and $722,000, respectively.




Office
      property and equipment increased $1.1 million, or 8.5% to $14.3 million at
      December 31, 2006 compared to $13.2 million at last fiscal year end. The
      acquisition of CCB accounted for $1.2 million of the increase and was partially
      offset by depreciation of assets held.




The
      Bank’s accrued interest receivable also increased $1.5 million or 51.7% to $4.5
      million at December 31, 2006 compared to $3.0 million at March 31, 2006. The
      increase is primarily attributed to additional interest accruals as a result
      of
      increased interest-earning assets due to the CCB acquisition and also due to
      organic growth.







**Liabilities
      and Stockholders’ Equity**




***Liabilities***




At
      December 31, 2006, total liabilities increased by $102.3 million, or 16.7%,
      to
      $714.6 million compared to $612.3 million at March 31, 2006. The increase in
      total liabilities was primarily
      the result of the $159.3 million of liabilities acquired with CCB partially
      offset by a $49.4 million repayment of borrowings resulting primarily from
      the
      repositioning of the balance sheet.




Deposits
      increased $124.6 million, or 24.7%, to $629.3 million at December 31, 2006
      from
      $504.6 million at March 31, 2006. The increase resulted primarily from $144.1
      million of deposits acquired with the CCB. Excluding acquired deposits, at
      December 31, 2006, the Bank had net outflows of deposits of $20.5 million
      primarily from declines of $15.3 million in certificates of deposit, $10.0
      million in savings accounts, and $1.4 million in checking accounts, and were
      offset in part by an increase of $4.8 million in money market accounts. Included
      in the $15.3 million decrease in certificates of deposit, is a $12.9 million
      attrition in CCB certificates of deposit subsequent to the acquisition as the
      Bank is allowing higher cost brokered deposits in that portfolio to run
      off.




At
      December 31, 2006, the Bank had ten branches, four 24/7 ATM centers and four
      24/7 stand-alone ATM locations. Management believes that deposits will grow
      as
      the Bank continues to capitalize on its investment in franchise expansions,
      customer service and the offering of a wider array of financial
      products.




Advances
      from the FHLB-NY and other borrowed money decreased $24.6 million, or 26.2%,
      to
      $69.2 million at December 31, 2006 compared to $93.8 million at March 31, 2006.
      This decrease is primarily the result of the repayment of $49.4 million in
      matured FHLB-NY advances. Offsetting the decrease in FHLB borrowed funds is
      the
      acquisition of $12.5 million in advances from the CCB acquisition, $4.0 million
      of which subsequently matured and repaid, a new short-term borrowing in the
      third quarter of $4.0 million and period end overnight borrowings of $12.3
      million. Management, with its commitment to manage the impact of margin
      compression, elected to repay these borrowings with available excess liquidity
      some, of which resulted from the balance sheet repositioning.


Other
        liabilities increased $2.3 million, or 16.7%, to $16.2 million at December
        31,
        2006 from $13.9 million at March 31, 2006. The increase was primarily
        attributable to the
        $2.7
        million in other liabilities acquired through the CCB acquisition and
        increases in liabilities related to loan servicing which was partially offset by payments of income taxes .




***Stockholders’
      Equity*** **




Total
      stockholders’ equity increased $1.6 million or 3.2%, to $50.3 million at
      December 31, 2006 compared to $48.7 million at March 31, 2006. The increase
      in
      total stockholders’ equity was primarily attributable to an increase in retained
      earnings of $641,000, a decrease of $656,000 in accumulated other comprehensive
      loss, a decrease of $138,000 in holding of treasury stock and an increase in
      additional paid in capital of $121,000. The increase in retained earnings
      resulted from $1.3 million in net income for the nine months ended December
      31,
      2006 and was offset by dividends paid of $656,000 during the same period.




The
      decrease in accumulated other comprehensive loss related to the mark-to-market
      of the Bank’s available-for-sale securities, as required by SFAS No. 115
“ *Accounting
      for Certain Investments in Debt and Equity Securities”.*  The
      improvement in **






18






accumulated
      other comprehensive loss resulted primarily from the sale of securities as
      part
      of the balance sheet repositioning where the loss was recognized in the results
      of operations. Treasury stock decreased primarily from the distribution of
      stock
      in for certain compensation plans, net of the year-to-date purchase of 12,000
      shares of its common stock pursuant to its stock repurchase program.






**Asset/Liability
      Management**




The
      Company’s primary earnings source is net interest income, which is affected by
      changes in the level of interest rates, the relationship between the rates
      on
      interest-earning assets and interest-bearing liabilities, the impact of interest
      rate fluctuation on asset prepayments, the level and composition of deposits
      and
      the credit quality of earning assets. Management’s asset/liability objectives
      are to maintain a strong, stable net interest margin, to utilize its capital
      effectively without taking undue risks, to maintain adequate liquidity and
      to
      manage its exposure to changes in interest rates.




The
      Company’s Asset/Liability and Interest Rate Risk Committee, comprised of members
      of the Board of Directors, meets periodically with senior management to evaluate
      the impact of changes in market interest rates on assets and liabilities, net
      interest margin, capital and liquidity. Risk assessments are governed by Board
      policies and limits.




The
      economic environment is uncertain regarding future interest rate trends.
      Management regularly monitors the Company’s cumulative gap position, which is
      the difference between the sensitivity to rate changes on our interest-earning
      assets and interest-bearing liabilities. In addition, the Company uses various
      tools to monitor and manage interest rate risk, such as a model that projects
      net interest income based on increasing or decreasing interest
      rates.






**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 and
      in
      connection with its overall investment strategy. These instruments involve,
      to
      varying degrees, elements of credit, interest rate and liquidity risk. In
      accordance with GAAP, these instruments are not recorded in the consolidated
      financial statements. Such instruments are primarily lending commitments.




Lending
      obligations include commitments to originate mortgage and consumer loans and
      to
      fund unused lines of credit. Additionally, the Bank has contingent liabilities
      related to letters of credit.




As
      of
      December 31, 2006, the Bank has outstanding loan commitments and seven letters
      of credit as follows:













19










The
      Bank
      also has contractual obligations related to long-term debt obligations and
      operating leases. As of December 31, 2006, the Bank has contractual obligations
      as follows:









**Analysis
      of Earnings**




The
      Company’s profitability is primarily dependent upon net interest income and
      further affected by provisions for loan losses, non-interest income,
      non-interest expense and income taxes. The earnings of the Company, which are
      principally earnings of the Bank, are significantly affected by general economic
      and competitive conditions, particularly changes in market interest rates,
      and
      to a lesser extent by government policies and actions of regulatory
      authorities.




The
      following table sets forth, for the periods indicated, certain information
      relating to Carver’s average interest-earning assets, average interest-bearing
      liabilities, net interest income, interest rate spread and interest rate margin.
      It reflects the average yield on assets and the average cost of liabilities.
      Such yields and costs are derived by dividing annualized income or expense
      by
      the average balances of assets or liabilities, respectively, for the periods
      shown. Average balances are derived from daily or month-end balances as
      available. Management does not believe that the use of average monthly balances
      instead of average daily balances represents a material difference in
      information presented. The average balance of loans includes loans on which
      the
      Company has discontinued accruing interest. The yield and cost include fees,
      which are considered adjustments to yields.






20














21




22




**Comparison
      of Operating Results for the Three and Nine Months Ended December 31, 2006
      and
      2005**




**Overview.** For the
      quarter ended December 31, 2006, the Company reported an increase of $113,000
      or
      8.8% in consolidated net income  available  to
      common
      stockholders to $1.4 million, or $0.54 per diluted share compared to $1.3
      million, or $0.50 per diluted share for the same period last year. For the
      nine
      months ended December 31, 2006 the Company reported a decrease of $1.4 million
      in net income to $1.3 million, or $0.50 per diluted share compared to $2.7
      million, or $1.06 per diluted share for the nine month period ended December
      31,
      2005. The three month period results reflect an increase in net interest income
      after the establishment of provisions for loan losses of $1.2 million and an
      increase in net tax benefits of $251,000 partially offset by an increase in
      non-interest expense of $1.2 million. For the nine month period, the change
      reflects an increase in non-interest expense of $2.8 million and a decrease
      in
      non-interest income of $2.0 million, which were partially offset by an increase
      of $2.2 million in net interest income after provision and a reduction of income
      tax provision of $1.1 million.




Selected
      operating ratios for the three and nine months ended December 31, 2006 and
      2005
      are set forth in the table below and the following analysis discusses the
      changes in components of operating results.





**Interest
      Income.** During
      the three months ended December 31, 2006, interest income increased by $3.6
      million, or 43.4%, to $11.8 million for the three months ended December 31,
      2006, compared to $8.2 million in the prior year period. Contributing to this
      increase is $2.2 million and $473,000 in interest income from CCB loans and
      securities, respectively. Excluding the impact of the balances acquired from
      CCB, the increase in interest income is primarily a result of higher average
      loan balances and yields this fiscal period compared to the prior year period.
      The increase in interest income was partially offset by a decline in interest
      income on total securities. While the average balance of the securities
      portfolio declined mainly from the sale of held-for-sale securities during
      the
      second quarter, the yield earned on the portfolio increased as a result of
      the
      current rate environment. Overall, the increase in interest income resulted
      from
      an increase of 109 basis points in the annualized average yield on total
      interest-earning assets to 6.62% for the three months ended December 31, 2006
      compared to 5.53% for the prior year period, reflecting increases in yields
      on
      federal funds, loans and total securities of 142 basis points, 89 basis points
      and 77 basis points, respectively. Additionally, the average balance of total
      interest earning assets increased $117.3 million. CCB’s balances are included in
      average balance calculations for the entire quarter ended December 31, 2006
      since the merger was consummated on the last day of last quarter.




For
      the
      nine month period ending December 31, 2006, interest income increased $6.6
      million, or 27.7% to $30.3 million, compared to $23.7 million for the same
      period last year. The rise in interest income was primarily due to an increase
      in both yields






23








and
      average balances of interest-earning assets of 93 basis points and $52.3
      million, respectively. As in the three month results these increases were
      primarily driven by increases in yields on federal funds, loans and securities
      of 182 basis points, 71 basis points and 51 basis points, respectively. For
      the
      nine month period ending December 31, 2006, there was also an increase in
      average loan balances of $108.7 million, however, total securities and federal
      funds balances decreased by $48.4 million and $8.0 million,
      respectively.


Purchase
        accounting adjustments arising from the CCB acquisition resulted in a 14
        and 6
        basis points increase in net interest margin during the three- and nine-
        months
        periods ended December 31, 2006. Purchase accounting adjustments relate to
        the
        recording of acquired assets and liabilities at their fair values and the
        amortization and or accretion of the adjustment into net interest income
        over
        the estimated average life of the corresponding asset or liability.


Interest
        income on loans increased by $3.9 million, or 57.5%, to $10.7 million for
        the
        three months ended December 31, 2006 compared to $6.8 million for the prior
        year
        period. The addition of CCB loans accounted for $2.2 million of the increase.
        The overall change was primarily due to an increase in the average mortgage
        loan
        balances for the quarter of $168.9 million to $621.6 million compared to
        $452.7
        million for the prior year period. The increase was augmented by an 89 basis
        points increase in the annualized average yield on loans for the three months
        ended December 31, 2006 to 6.88% compared to 5.99% for the prior year period.
        Similarly, for the nine month period ending December 31, 2006, interest income
        on loans increased $7.7 million, or 40.0%, to $26.9 million from $19.2 million
        for the comparable period last year. This increase was again driven by increases
        of $108.7 million in average balances and 71 basis points in yields. The
        year
        over year growth in loan balance is a combination of the acquisition of $98.5
        million in loans from CCB in the second quarter and management’s strategy to
        grow assets primarily through originations and purchases of high quality
        mortgage and construction loans for its portfolio at a level that exceeds
        loan
        repayments. The increase in loan yields is reflective of the current mix
        of our
        loan portfolio. For the three- and nine- months ended December 31, 2006,
        the
        average balances of commercial real estate and construction loans were higher
        compared to the prior year period when one-to-four and multifamily residential
        loans were predominant.




Interest
      income on total securities decreased by $326,000, or 24.0%, to $1.0 million
      for
      the three month period ended December 31, 2006 compared to $1.4 million for
      the
      prior year period. For the nine month period ending December 31, 2006, total
      interest income on securities decreased $1.0 million, or 24.3%, to $3.2 million
      from $4.2 million for the same period last year. The decrease in interest income
      on securities for the quarter and the year-to-date was primarily the effect
      of a
      reduction in the average balance of total securities of $48.6 million and $48.4
      million for the periods, respectively. The decline in average balances is
      primarily attributable to the sale of $47.1 million in available-for-sale
      investment securities during the quarter. Also contributing to the decline
      in
      the average balances of securities are normal run-offs due to maturities and
      repayments on securities during the year. For both the three- and nine- month
      periods, the effect of the decrease in the balance of securities was partially
      offset by a rise in annualized average yield on securities of 51 basis points
      and 77 basis points, respectively. The sale of $11.5 million in municipal
      securities acquired from CCB had minimal effect on average balances and income
      as they were sold immediately after the acquisition.




Interest
      income on federal funds sold decreased by $16,000 and $115,000 for the three-
      and nine- months ended December 31, 2006 compared to the same prior year
      periods. The decline was primarily attributable to a decrease in the average
      balance of federal funds for the periods partially offset by an increase in
      the
      annualized yields on federal funds sold for the same periods. The reduction
      in
      the average balance of federal funds sold is a result of using excess liquidity
      to fund loan growth and repay borrowings. Yields on federal funds increased
      year
      over year for both periods as the FOMC consistently raised the federal funds
      rate during that time.




**Interest
      Expense.** For
      the
      three month period
      ended December 31, 2006, total interest expense increased by $2.2 million,
      or
      64.1%, to $5.6 million, compared to $3.4 million for the prior year period.
      The
      additional deposits from the CCB acquisition accounted for $1.4 million of
      the
      increase in deposit expense. Higher annualized average cost of interest-bearing
      liabilities of 95 basis points to 3.45% from 2.50% for the prior year period
      also contributed to the increase. Additionally, the average balance of
      interest-bearing liabilities increased $104.3 million, or 19.1%, to $649.8
      million from $545.5 million during the prior year period.




During
      the nine month period ended December 31, 2006, total interest expense increased
      by $4.2 million, or 43.2%, to $13.9 million compared to $9.7 million for the
      corresponding prior year period. Including the impact of CCB’s interest-bearing
      liabilities, the increase in interest expense is due to higher average balances
      of interest-bearing liabilities of $44.2 million, or 8.1%, to $588.5 million
      from $544.4 million for the corresponding prior year period. Also contributing
      to the increase in total interest expense was an increase in the annualized
      average cost of interest-bearing liabilities of 76 basis points to 3.13% from
      2.37% for the corresponding prior year period.




Interest
      expense on deposits increased $2.4 million or 103.7%, to $4.6 million for the
      three months ended December 31, 2006, compared to $2.3 million for the prior
      year period. As previously mentioned, CCB deposits accounted for $1.4 million,
      or 58.7% of that increase. Overall, the increase in interest expense on deposits
      was due primarily to a $137.5 million, or 31.5%, increase in the average balance
      of interest-bearing deposits to $573.9 million for the current quarter from
      $436.4 million for the prior year period. Additionally, a 114 basis point rise
      in the rate paid on deposits to 3.21% compared to 2.07% for the prior year
      period added to the increase. Customer deposits have historically provided
      Carver with a relatively low cost funding source from which its net interest
      income and net interest margin have benefited.




For
      the
      nine month period ended December 31, 2006, interest expense on deposits
      increased $4.4 million, or 70.7%, to $10.6 million compared to $6.2 million
      for
      the prior year period. The increase in interest expense on deposits was
      primarily due to






24






a
      $69.3
      million, or 16.0%, increase in the average balance of interest-bearing deposits
      to $503.5 million from $434.2 million for the prior year period. Additionally,
      a
      90 basis point rise in the rate paid on deposits to 2.81% compared to 1.91%
      for
      the prior year period added to the increase. Year over year, rates on deposits
      have increased with the rise in short-term rates, thus impacting the Bank’s net
      interest margin.




Interest expense
      on advances and other borrowed money decreased modestly by $157,000, to $1.0
      million for the three months ended December 31, 2006 compared to $1.2 million
      for the prior year period. The nine month period interest expense on advances
      and borrowed money also declined by $222,000 to $3.2 million from $3.4 million
      for the prior year period. In both the three and nine month periods ended
      December 31, 2006, the average balance of total borrowed money outstanding
      declined, however, that decline was offset by increases in the rates paid on
      these borrowings. Interest expense for the three- and nine- month periods
      include $155,000 in expenses on FHLB-NY advances acquired with CCB. The Bank
      originally acquired $12.5 million in such advances from CCB at an average rate
      of 5.6%, however, $4.0 million has since matured and was repaid during the
      quarter. Consistent with the Company’s balance sheet repositioning strategy, the
      Bank’s management has replaced matured FHLB-NY advances with lower cost
      deposits. The increase in yields for both the three and nine month periods
      ending December 31, 2006, is mainly related to the cost of debt service of
      the
      $13 million in floating rate junior subordinated notes raised by the Company
      through an issuance of trust preferred securities by Carver Statutory Trust
      I in
      September 2003, which has increased to a rate of 8.41% at December 31, 2006
      from
      7.55% a year earlier.


**Net
        Interest Income Before Provision for Loan Losses.** Net
        interest income before the provision for loan losses increased by $1.4 million,
        or 28.4%, to $6.1 million for the three months ended December 31, 2006, compared
        to $4.8 million for the prior year period. For the nine month period ending
        December 31, 2006, net interest income before the provision for loan losses
        increased by $2.4 million, or 16.9%, to $16.4 million, compared to $14.0
        million
        for the prior year period. The Company’s annualized average interest rate spread
        for the three months ended December 31, 2006, increased by 14 basis points
        to
        3.17% compared to 3.03% in the prior year period. For the nine month period
        ending December 31, 2006, the Company’s annualized average interest rate spread
        increased by 17 basis points to 3.14% compared to 2.97% in the prior year
        period. Net interest margin, which represents annualized net interest income
        divided by average total interest-earning assets, increased 24 basis points
        to
        3.47% for the three months ended December 31, 2006, from 3.23% in the prior
        year
        period. For the nine month period ending December 31, 2006, net interest
        margin
        increased 23 basis points to 3.40% from 3.17% in the prior year period.


**Provision
        for Loan Losses and Asset Quality.** The
        Company provided $120,000 in additional provisions for loan losses during
        the
        quarter, the first provision for loan losses recorded by the Company since
        the
        fourth quarter of 2002. This provision was deemed appropriate in light of
        the
        Company’s move into commercial and industrial lending, which generally presents
        higher risks than real estate lending.  During
        the third quarter of fiscal 2007, the Company recorded net charge-offs of
        $42,000 compared to $37,000 for the prior year period. On a year-to-date
        basis,
        Carver recorded net charge-offs of $26,000 at December 31, 2006, compared
        to
        $65,000 December 31, 2005. At December 31, 2006, the Bank’s allowance for loan
        losses was $5.3 million, compared to $4.0 million at March 31, 2006, reflecting
        the $1.2 million allowance for loan losses acquired from CCB. For the nine
        month
        period, the ratio of the allowance for loan losses to non-performing loans
        was
        142.6% at December 31, 2006, compared to 147.1% at March 31, 2006. The ratio
        of
        the allowance for loan losses to total loans receivable was 0.89% at December
        31, 2006, compared to 0.81% at March 31, 2006. The Bank plans to continue
        to
        grow its commercial real estate loan portfolio and expand its business loan
        portfolio, and will review the risk basis of respective loans and make
        additional provisions accordingly.




At December
      31, 2006, non-performing assets totaled $3.7 million, or 0.49% of total assets
      compared to $2.8 million, or 0.42% at March 31, 2006. Non-performing assets
      include loans 90 days past due, non-accrual loans and other real estate owned.
      At December 31, 2006, $1.4 million of total non-performing assets was
      attributable to the CCB acquisition. As of December 31, 2006, the Bank held
      one
      real estate owned property with a carrying cost of $28,000 as the Bank sold
      the
      other real estate property it owned during the quarter. Future levels of
      non-performing assets will be influenced by economic conditions, including
      the
      impact of those conditions on our customers, interest rates and other internal
      and external factors existing at the time.




**Non-Interest
      Income.** For
      the
      three month period ended December 31, 2006, non-interest income decreased
      $157,000, or 14.0%, to $966,000 compared to income of $1.1 million for the
      same
      period last year. Non-interest income declined primarily as a result of a
      $180,000 decrease in loan fees and service charges, and a $108,000 realized
      loss
      on the sale of real estate owned. This decrease was partially offset by a
      $96,000 increase in depository fees and charges and a $45,000 increase in
      combined gains on sales of loans and securities. The quarter’s results include
      CCB non-interest income additions of $105,000 and $77,000 in loan fees and
      service charges and depository fees and charges, respectively, and a $21,000
      gain on the sale of municipal securities. For the nine month period ended
      December 31, 2006, non-interest income decreased by $2.0 million to $1.6 million
      from $3.6 million for the prior year-to-date. The nine month year over year
      change resulted primarily from $702,000 in valuation write-downs taken on the
      Bank’s held-for-sale loans and a $624,000 recognized loss on the sale of certain
      available-for-sale investment securities, both related to initiatives taken
      in
      the second quarter to restructure the Company’s balance sheet to improve the net
      interest margin. Additionally, for the nine month period, there was a $650,000
      decrease in loan fees and service charges compared to the same period last
      year,
      mainly from reduced loan prepayment penalties.






25






**Non-Interest
        Expense.** For
        the
        three month period ended December 31, 2006, non-interest expense increased
        $1.2
        million, or 26.1%, to $5.9 million compared to $4.7 million for the same
        period
        last year. Salaries and benefits and other non-interest expense accounted
        for
        $567,000 and $540,000, respectively. The increase in salaries and benefits
        expense resulted primarily from CCB which accounted for $451,000 of the
        increase. Other non-interest expenses increased primarily due to CCB related
        charges of $164,000, and costs associated with outsourced internal audit,
        consulting and advertising costs. During the nine month period ended December
        31, 2006, non-interest expense increased $2.8 million, or 19.6%, to $16.9
        million compared to $14.1 million for the same period last year. The increase
        in
        non-interest expense was primarily due to $1.3 million in merger expenses
        related to the CCB acquisition, $791,000 in total CCB related operations
        expenses and other increases related to consulting, outsourced audit,
        advertising and ATM charges. While the Company’s efficiency ratio exceeds its
        peers, it reflects investment in the franchise that the Company believes
        will
        result in higher earnings going forward. In addition, management continues
        to
        conduct reviews of costs to improve the Company’s efficiency ratio and expects
        to realize synergies upon full conversion of CCB’s core banking processing
        systems.
  **Income
        Tax Expense.**  For
        the
        three months ended December 31, 2006, the Company recorded income before
        taxes
        of $1.1 million compared to $1.2 million for the same period last year. The
        recorded income tax expense for the period was $427,000 compared to $440,000
        for
        the same period last year. However, during the quarter the Bank recorded
        $738,000 in tax credits resulting from qualifying funding under the terms
        of the
        NMTC award. The third quarter of fiscal 2006 included a $500,000 credit from
        the
        recovery of income tax expense attributable to the release of contingency
        reserves for closed tax examination years. The net effect of these tax
        adjustments resulted in net tax benefits of $311,000 and $60,000 for the
        third
        quarters of fiscal 2007 and 2006, respectively. For the nine months ended
        December 31, 2006, the Company’s income before taxes decreased $2.5 million to
        $967,000 compared to income of $3.5 million from the same period last year.
        The
        Company’s income tax provision also decreased $1.1 million to a tax benefit of
        $330,000 for the nine months ended December 31, 2006, compared to a tax expense
        of $733,000 for the same period last year. The Company will be required to
        adopt FIN48 as
        of
        April 1, 2007, and has not yet determined the effect on the consolidated
        financial condition or results of operations. For additional disclosure
        regarding FIN48 see Notes to Consolidated Financial Statements, Note 6, “Recent
        Accounting Pronouncements.”






**ITEM
          3.** **Quantitative
          and Qualitative Disclosure about Market Risk**




Quantitative
      and qualitative disclosure about market risk is presented at March 31, 2006
      in
      Item 7A of the Company’s 2006 10-K and is incorporated herein by reference. The
      Company believes that there has been no material changes in the Company’s market
      risk at December 31, 2006 compared to March 31, 2006.







**ITEM
      4.**  **Controls
      and Procedures**




Disclosure
      Controls and Procedures


The
        Company's management, including the Company's Chief Executive Officer and
        Chief
        Financial Officer, has evaluated the effectiveness of the Company's disclosure
        controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
        the
        Exchange Act), as of the end of the period covered by this quarterly report.
        During the period covered by this quarterly report, the Company identified
        a
        material weakness in its internal control over financial reporting, which
        is a
        significant portion of its disclosure controls and procedures, which affected
        the Company's cash flow statement as of June 30, 2006. As a result of carrying
        out the remediation efforts described below, however, the Chief Executive
        Officer and Chief Financial Officer concluded that the Company's disclosure
        controls and procedures were effective as of the end of the period covered
        by
        this quarterly report.




Material
      Weakness in Internal Control Over Financial Reporting




A
      material weakness is a significant deficiency, or combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. A significant deficiency is a control deficiency, or combination
      of
      control deficiencies, that adversely affects the Company's ability to initiate,
      authorize, record, process, or report external financial information reliably
      in
      accordance with generally accepted accounting principles such that there is
      more
      than a remote likelihood that a misstatement of the Company's annual or interim
      financial statements that is more than inconsequential will not be prevented
      or
      detected.


During
        the period covered by this quarterly report, the Company identified a material
        weakness, in internal control over financial reporting ,
        that
        existed as of June 30, 2006 .
        Specifically, the Company’s controls intended to ensure the proper
        classification of cash flows related to certain mortgage loans that the Company
        had originated with the intent to sell and related to certain sales of loans
        that it originally intended for its portfolio were not effective as of June
        30,
        2006. As a result of this material weakness, the Company is filing this report
        on Form 10-Q to restate its Consolidated Statements of Cash Flows for the
        quarter ended June 30, 2006 and the Company will amend its 2006 Form 10-K
        to
        restate its Consolidated Statements of Cash Flows for Fiscal Years 2006,
        2005
        and 2004.






26








The
      restatements will solely affect the classification of these activities and
      subtotals of cash flows from operating and investing activities presented in
      the
      affected Consolidated Statement of Cash Flows and will have no impact on the
      net
      increase in total cash and cash equivalents as set forth in the Consolidated
      Statement of Cash Flows for any of the previously reported periods. The
      restatements will not affect the Company’s Consolidated Statements of Financial
      Condition, Consolidated Statement of Operations and Consolidated Statement
      of
      Changes in Stockholders Equity for the affected periods. Accordingly, the
      Company’s historical revenues, net income, earnings per share, total assets and
      regulatory capital remain unchanged.




Changes
      in Internal Control Over Financial Reporting


Since
        the
        Company identified the material weakness of internal control over financial
        reporting described above, it has engaged in the following remediation
        efforts.  The Company has completed an analysis of the components of the
        Consolidated Statements of Cash Flows which resulted in the above described
        restatements, and, as a result, it has redesigned and strengthened the control
        processes surrounding the preparation of the Consolidated Statements of Cash
        Flows.







**PART
      II.**  **OTHER
      INFORMATION** ****




**ITEM
          1.** **Legal
          Proceedings**




Disclosure
      regarding legal proceedings that the Company is a party to is presented in
      Note
      13 to our audited Consolidated Financial Statements in the 2006 10-K and is
      incorporated herein by reference. There have been no material changes with
      regard to such legal proceedings since the filing of the 2006 10-K.







**ITEM
          1A.** **Risk
          Factors**




For
      a
      summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk
      Factors,” in our 2006 10-K and Part II, Item 1A, “Risk Factors,” in our
      Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. There
      has been no material change in risk factors relevant to our operations since
      September 30, 2006.







**ITEM
          2.** **Unregistered
          Sales of Equity Securities and Use of Proceeds**




During
      the quarter ended December 31, 2006, the Holding Company purchased an additional
      3,000 shares of its common stock under its stock repurchase program. To date,
      Carver has purchased a total of 103,274 shares of the total 231,635 approved
      under the program which leaves the number of shares yet to be repurchased at
      128,361. Based on the closing price of Carver’s common stock on December 31,
      2006 of $15.58, the approximate value of the 128,361 shares was
      $2,000,000.











27









**ITEM
      6.**  **Exhibits**




The
                following exhibits are submitted with this
                report:




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




Exhibit
      3.2  Amended
      and Restated Bylaws of Carver Bancorp, Inc. (2)




Exhibit
      11.  Computation
      of Earnings (Loss) Per Share.




Exhibit
      31.1  Certification
      of Chief Executive Officer.




Exhibit
      31.2  Certification
      of Chief Financial Officer.




Exhibit
      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.




Exhibit
      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.




(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, 2005.






28









**SIGNATURES**








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






CARVER
      BANCORP, INC.





Date:
      February 20,
      2007     /s/
      Deborah C.
      Wright


Deborah
      C. Wright


Chairman
      and Chief Executive Officer








Date:
      February 20,
      2007     /s/
      Roy
      Swan


Roy
      Swan


Executive
      Vice President and Chief Financial Officer










29