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, 2007








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: 1-13007





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 125th
      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.


x
Yes                      o 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. (Check
one):


o Large Accelerated
      Filer
            o Accelerated
      Filer
            x Non-accelerated
      Filer




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


o
Yes                      x No





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 $0.01
            
            2,482,458Class
            
            Outstanding
      at February 14, 2008










TABLE OF CONTENTS





PagePART I.  FINANCIAL
      INFORMATIONItem
      1.
            Financial
      StatementsConsolidated Statements of Financial Condition as of December
      31, 2007 (unaudited) and March 31, 2007
            1Consolidated Statements of Income for the Three and Nine
      Months Ended December 31, 2007 and 2006 (unaudited)
            2Consolidated Statement of Changes in Stockholders’ Equity
      and Comprehensive Income for the Nine Months Ended December 31, 2007
      (unaudited)
            3Consolidated Statements of Cash Flows for the Nine Months
      Ended December 31, 2007 and 2006 (unaudited)
            4Notes to Consolidated Financial Statements
      (unaudited)
            6Item
      2.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            10Item
      3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            23Item
      4.
            Controls and Procedures
            23PART II.  OTHER
      INFORMATIONItem
      1.
            Legal Proceedings
            24Item
      1A.
            Risk Factors
            24Item
      2.
            Issuer Purchases of Equity Securities
            24Item
      3.
            Defaults Upon Senior Securities
            24Item
      4.
            Submission of Matters to a Vote of Security
      Holders
            24Item
      5.
            Other Information
            24Item
      6.
            Exhibits
            24SIGNATURES
            
            
            25EXHIBITS
            
            
            E-1





CARVER BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
 (In
thousands, except per share data)
  December
      31,
                
                
                March
      31,2007
                
                
                2007(Unaudited)ASSETSCash
      and cash equivalents:Cash
      and due from banks
                
                $
                14,394
                
                
                $
                14,619Federal
      funds sold
                
                
                3,000
                
                
                
                1,300Interest
      earning deposits
                
                
                1,148
                
                
                
                1,431Total
      cash and cash equivalents
                
                
                18,542
                
                
                
                17,350Securities:Available-for-sale,
      at fair value (including pledged as collateral of $36,275 and $34,649 at
      December 31 and March 31, 2007, respectively)
                
                
                36,463
                
                
                
                47,980Held-to-maturity,
      at amortized cost (including pledged as collateral of $17,124 and
      $18,581 at December 31 and March 31, 2007, respectively; fair value of
      $17,470 and $19,005 at December 31 and March 31, 2007,
      respectively)
                
                
                17,595
                
                
                
                19,137Total
      securities
                
                
                54,058
                
                
                
                67,117Loans
      held-for-sale
                
                
                25,369
                
                
                
                23,226Gross
      loans receivable:Real
      estate mortgage loans
                
                
                577,064
                
                
                
                533,667Consumer
      and commercial loans
                
                
                59,569
                
                
                
                52,293Allowance
      for loan losses
                
                
                (5,573
                )
                
                
                (5,409
                )Total
      loans receivable, net
                
                
                631,060
                
                
                
                580,551Office
      properties and equipment, net
                
                
                15,170
                
                
                
                14,626Federal
      Home Loan Bank of New York stock, at cost
                
                
                2,237
                
                
                
                3,239Bank
      owned life insurance
                
                
                9,058
                
                
                
                8,795Accrued
      interest receivable
                
                
                4,508
                
                
                
                4,335Goodwill
                
                
                6,370
                
                
                
                5,716Core
      deposit intangibles, net
                
                
                570
                
                
                
                684Other
      assets
                
                
                35,797
                
                
                
                14,313Total
      assets
                
                $
                802,739
                
                
                $
                739,952LIABILITIES
      AND STOCKHOLDERS' EQUITYLiabilities:Deposits
                
                $
                642,443
                
                
                $
                615,122Advances
      from the FHLB-NY and other borrowed money
                
                
                72,217
                
                
                
                61,093Other
      liabilities
                
                
                14,932
                
                
                
                12,110Total
      liabilities
                
                
                729,592
                
                
                
                688,325Minority
      Interest
                
                
                19,000
                
                
                
                -Stockholders'
      equity:Common
      stock (par value $0.01 per share: 10,000,000 shares; authorized; 2,532,227
      shares issued; 2,488,258 and 2,507,985 shares outstanding at December 31
      and March 31, 2007, respectively
                
                
                25
                
                
                
                25Additional
      paid-in capital
                
                
                24,084
                
                
                
                23,996Retained
      earnings
                
                
                30,245
                
                
                
                27,436Unamortized
      awards of common stock under ESOP and MRP
                
                
                -
                
                
                
                (4
                )Treasury
      stock, at cost (43,969 and 16,706 shares at December 31 and March 31,
      2007, respectively)
                
                
                (565
                )
                
                
                (277
                )Accumulated
      other comprehensive income
                
                
                358
                
                
                
                451Total
      stockholders' equity
                
                
                54,147
                
                
                
                51,627Total
      liabilities and stockholders' equity
                
                $
                802,739
                
                
                $
                739,952




See
accompanying notes to unaudited consolidated financial
statements.


1





CARVER BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME


(In
thousands, except per share data)


(Unaudited)





Three
      Months Ended
            
            
            Nine
      Months EndedDecember
      31,
            
            
            December
      31,2007
            
            
            2006
            
            
            2007
            
            
            2006Interest
      Income:Loans
            
            $
            11,403
            
            
            $
            10,685
            
            
            $
            33,579
            
            
            $
            26,893Mortgage-backed
      securities
            
            
            518
            
            
            
            556
            
            
            
            1,494
            
            
            
            2,331Investment
      securities
            
            
            328
            
            
            
            476
            
            
            
            1,183
            
            
            
            824Federal
      funds sold
            
            
            68
            
            
            
            53
            
            
            
            109
            
            
            
            222Total
      interest income
            
            
            12,317
            
            
            
            11,770
            
            
            
            36,365
            
            
            
            30,270Interest
      expense:Deposits
            
            
            5,069
            
            
            
            4,639
            
            
            
            13,970
            
            
            
            10,659Advances
      and other borrowed money
            
            
            932
            
            
            
            1,004
            
            
            
            2,962
            
            
            
            3,237Total
      interest expense
            
            
            6,001
            
            
            
            5,643
            
            
            
            16,932
            
            
            
            13,896Net
      interest income before provision for loan losses
            
            
            6,316
            
            
            
            6,127
            
            
            
            19,433
            
            
            
            16,374Provision
      for loan losses
            
            
            222
            
            
            
            120
            
            
            
            222
            
            
            
            120Net
      interest income after provision for loan losses
            
            
            6,094
            
            
            
            6,007
            
            
            
            19,211
            
            
            
            16,254Non-interest
      income:Depository
      fees and charges
            
            
            666
            
            
            
            680
            
            
            
            1,981
            
            
            
            1,891Loan
      fees and service charges
            
            
            327
            
            
            
            206
            
            
            
            1,218
            
            
            
            696Write-down
      of loans held for sale
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (702
            )Gain
      (loss) on sale of securities
            
            
            102
            
            
            
            21
            
            
            
            181
            
            
            
            (624
            )Gain
      on sale of loans
            
            
            75
            
            
            
            53
            
            
            
            103
            
            
            
            141Loss
      on sale of real estate owned
            
            
            -
            
            
            
            (108
            )
            
            
            -
            
            
            
            (108
            )Other
            
            
            2,008
            
            
            
            114
            
            
            
            2,284
            
            
            
            280Total
      non-interest income
            
            
            3,178
            
            
            
            966
            
            
            
            5,767
            
            
            
            1,574Non-interest
      expense:Employee
      compensation and benefits
            
            
            3,413
            
            
            
            2,829
            
            
            
            9,731
            
            
            
            7,427Net
      occupancy expense
            
            
            908
            
            
            
            715
            
            
            
            2,673
            
            
            
            1,908Equipment,
      net
            
            
            827
            
            
            
            531
            
            
            
            1,931
            
            
            
            1,521Merger
      related expenses
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,258Other
            
            
            2,815
            
            
            
            1,809
            
            
            
            7,327
            
            
            
            4,747Total
      non-interest expense
            
            
            7,963
            
            
            
            5,884
            
            
            
            21,662
            
            
            
            16,861Income
      before income benefit
            
            
            1,309
            
            
            
            1,089
            
            
            
            3,316
            
            
            
            967Income
      tax benefit
            
            
            268
            
            
            
            311
            
            
            
            168
            
            
            
            330Net
      income
            
            $
            1,577
            
            
            $
            1,400
            
            
            $
            3,484
            
            
            $
            1,297Earnings
      per common share:Basic
            
            $
            0.63
            
            
            $
            0.56
            
            
            $
            1.40
            
            
            $
            0.52Diluted
            
            $
            0.62
            
            
            $
            0.54
            
            
            $
            1.36
            
            
            $
            0.50










See
accompanying notes to unauditedconsolidated financial
statements.




2


CARVERBANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY


AND
COMPREHENSIVE INCOME


FOR
THE NINE MONTHS ENDED DECEMBER 31, 2007


(In
thousands)


(Unaudited)





COMMON
      STOCK
              
              
              ADDITIONAL
      PAID-IN CAPITAL
              
              
              RETAINED
      EARNINGS
              
              
              TREASURY
      STOCK
              
              
              ACCUMULATED
      OTHER COMPREHENSIVE INCOME
              
              
              COMMON
      STOCK ACQUIRED BY ESOP
              
              
              TOTAL
      STOCK-HOLDERS’ EQUITYBalance—March
      31, 2007
              
              $
              25
              
              
              $
              23,996
              
              
              $
              27,436
              
              
              $
              (277
              )
              
              $
              451
              
              
              $
              (4
              )
              
              $
              51,627Comprehensive
      income :Net
      income
              
              
              -
              
              
              
              -
              
              
              
              3,484
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,484Change
      in accumulated other comprehensive income, net of taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (93
              )
              
              
              -
              
              
              
              (93
              )Comprehensive
      income, net of taxes:
              
              
              -
              
              
              
              -
              
              
              
              3,484
              
              
              
              -
              
              
              
              (93
              )
              
              
              -
              
              
              
              3,391Implementation
      of SFAS No. 156
              
              
              -
              
              
              
              -
              
              
              
              49
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              49Dividends
      paid
              
              
              -
              
              
              
              -
              
              
              
              (724
              )
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              (724
              )Treasury
      stock activity
              
              
              -
              
              
              
              88
              
              
              
              -
              
              
              
              (288
              )
              
              
              -
              
              
              
              4
              
              
              
              (196
              )Balance—December
      31, 2007
              
              $
              25
              
              
              $
              24,084
              
              
              $
              30,245
              
              
              $
              (565
              )
              
              $
              358
              
              
              $
              -
              
              
              $
              54,147




See
accompanying notes to unauditedconsolidated financial
statements.




3








CARVER
      BANCORP, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      thousands)(Unaudited)Nine
      Months Ended
              December
      31,2007
            
            
            2006Cash
      flows from operating activities:Net
      income
            
            $
            3,484
            
            
            $
            1,297Adjustments
      to reconcile net income to net cash used in operating
      activities:Provision
      for loan losses
            
            
            222
            
            
            
            120Stock
      based compensation expense
            
            
            97
            
            
            
            306Depreciation
      and amortization expense
            
            
            1,264
            
            
            
            1,222Other
      amortization
            
            
            157
            
            
            
            81(Gain)Loss
      from sale of securities
            
            
            (181
            )
            
            
            624Writedown
      on loans held-for-sale
            
            
            -
            
            
            
            702Loss
      on sales of real estate owned
            
            
            -
            
            
            
            108Gain
      on sale of loans
            
            
            (103
            )
            
            
            (141
            )Originations
      of loans held-for-sale
            
            
            (14,546
            )
            
            
            (21,733
            )Proceeds
      from sale of loans held-for-sale
            
            
            12,506
            
            
            
            9,902Changes
      in assets and liabilities:Increase
      in accrued interest receivable
            
            
            (173
            )
            
            
            (546
            )Increase
      in loan premiums and discounts and deferred charges
            
            
            170
            
            
            
            441(Decrease)
      increase in premiums and discounts - securities
            
            
            (429
            )
            
            
            325(Increase)
      decrease in other assets
            
            
            (22,421
            )
            
            
            2,224Increase
      in other liabilities
            
            
            2,848
            
            
            
            466Net
      cash used in operating activities
            
            
            (17,105
            )
            
            
            (4,602
            )Cash
      flows from investing activities:Proceeds
      from principal payments, maturities and calls of
    securities:Available-for-sale
            
            
            7,358
            
            
            
            20,056Held-to-maturity
            
            
            1,497
            
            
            
            6,679Proceeds
      from sale of available-for-sale securities
            
            
            16,396
            
            
            
            57,942Purchase
      of available-for-sale securities
            
            
            (11,728
            )
            
            
            -Originations
      of loans held-for-investment
            
            
            (134,856
            )
            
            
            (73,783
            )Loans
      purchased from third parties
            
            
            (17,455
            )
            
            
            (50,691
            )Principal
      collections on loans
            
            
            101,468
            
            
            
            101,750Proceeds
      from sale of loans held-for-investment
            
            
            -
            
            
            
            16,548Redemption
      of FHLB-NY stock
            
            
            1,002
            
            
            
            1,658Additions
      to premises and equipment, net
            
            
            (1,808
            )
            
            
            (1,109
            )Proceeds
      from sale of real estate owned
            
            
            -
            
            
            
            404Payments
      for acquisition, net of cash acquired
            
            
            -
            
            
            
            (2,425
            )Net
      cash (used in) provided by investing activities
            
            
            (38,126
            )
            
            
            77,029Cash
      flows from financing activities:Net
      increase (decrease) in deposits
            
            
            27,321
            
            
            
            (19,523
            )Net
      borrowings (repayments) of FHLB advances
            
            $
            11,080
            
            
            $
            (37,153
            )







See
accompanying notes to unaudited consolidated financial
statements.


4





CARVER
BANCORP, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(In
thousands)


(Unaudited)





Nine
      Months Ended
              December
      31,2007
            
            
            2006Cash
      flows from financing activities (continued):Capital
      contribution by minority interest
            
            $
            19,000
            
            
            $
            -Common
      stock repurchased
            
            
            (254
            )
            
            
            (202
            )Dividends
      paid
            
            
            (724
            )
            
            
            (656
            )Net
      cash provided by (used in) financing activities
            
            
            56,423
            
            
            
            (57,534
            )Net
      increase in cash and cash equivalents
            
            
            1,192
            
            
            
            14,893Cash
      and cash equivalents at beginning of the period
            
            
            17,350
            
            
            
            22,904Cash
      and cash equivalents at end of the period
            
            $
            18,542
            
            
            $
            37,797Supplemental
      information:Noncash
      Transfers-Change
      in unrealized gain on valuation of available-for-sale investments,
      net
            
            $
            93
            
            
            $
            656Cash
      paid for-Interest
            
            $
            16,321
            
            
            $
            12,967Income
      taxes
            
            $
            902
            
            
            $
            1,858







See
accompanying notes to unaudited consolidated financial
statements.


5


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(1)
              A)
      Basis of Presentation
  The
accompanying unaudited consolidated financial statements of the Holding Company
have been prepared in accordance with United States generally accepted
accounting principles (“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
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the consolidated financial
statements.  Amounts subject to significant estimates and assumptions
are items such as the allowance for loan losses and lending–related commitments,
goodwill and intangibles, pensions and the fair value of financial
instruments.  Actual results could differ from these
estimates.
  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, 2007, as amended (“2007 Form 10-K”) previously filed with the
SEC.  The consolidated results of operations and other data for the
three- and nine-month periods ended December 31, 2007 are not necessarily
indicative of results that may be expected for the entire fiscal year ending
March 31, 2008 (“fiscal 2008”).
  “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 Carver Federal’s
wholly-owned subsidiaries, CFSB Realty Corp., Carver Municipal Bank (“CMB”),
Carver Community Development Corp. (“CCDC”), CFSB Credit Corp., and Carver
Federal’s majority owned subsidiary, Carver Asset Corporation (collectively, the
“Company”).  “Carver,” the “Company,” “we,” “us” or “our” refers to
the Holding Company along with its consolidated subsidiaries.
  In
addition, the Holding Company has a subsidiary, Carver Statutory Trust I, which
was formed for the purpose of issuing trust preferred securities.  In
accordance with Financial Accounting Standards Board (“FASB”) revised
Interpretation No. 46, Consolidation of Variable Interest Entities, and
Interpretation of Accounting Research Bulletin No. 51, Carver Statutory Trust I
is not consolidated for financial reporting purposes.  In December 2007,
Carver Federal’s subsidiary CCDC became a member of a newly formed limited
liability company in which it exerts a controlling influence.
 
 In
June 2005, the Emerging Issues Task Force (“EITF”) of the FASB reached final
consensus on Issue No. 04-5, Determining Whether a General Partner, or
General Partners as a Group, controls a Limited Partnership or Similar Entity
When the Limited Partners Have Certain Rights (“EITF Issue
No. 04-5”).  EITF Issue No. 04-5 set forth the criteria to
determine whether partnerships are to be consolidated for financial statement
purposes or reported using the Equity Method.  In accordance with guidance
set forth in EITF Issue No. 04-5, this limited liability company has
been consolidated for financial reporting purposes.
 
  B)
Reclassifications
  Certain
amounts in the consolidated financial statements presented for prior year period
have been reclassified to conform to the current year presentation.
  
 (2)
              Earnings
      Per Share
  Basic
earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding over the period of
determination.  Diluted earnings per common share includes 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, 2007 and 2006, respectively, 60,823 and 56,486 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 and unvested restricted stock grants for the same period.  For
the nine-month periods ended December 31, 2007 and 2006, 70,125 and 59,821
shares of common stock, respectively, 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, 2007
and 2006, respectively.  The effects of these potentially dilutive
common shares were considered in determining the diluted earnings per common
share.
  6
  (3)
              Accounting
      for Stock Based Compensation
  The
Company follows Statement of Financial Accounting Standards No. 123R,
Share-Based Payment
("SFAS No. 123R"), which requires that all stock-based compensation be
recognized as an expense in the financial statements and that such cost be
measured at the fair value of the award.  This statement was adopted
using the modified prospective method of application, which requires the Company
to recognize compensation expense on a prospective basis.  Therefore,
prior period financial statements have not been restated.  Under this
method, in addition to reflecting compensation expense for new share-based
awards, expense is also recognized to reflect the remaining service period of
awards that had been included in pro forma disclosures in prior
periods.  SFAS No. 123R also requires that excess tax benefits related
to stock option exercises be reflected as financing cash inflows instead of
operating cash inflows.  Stock-based compensation expense and the
related tax benefit recognized for the three months ended December 31, 2007
totaled $23,000 and $9,000, respectively.  For the nine months ended
December 31, 2007, stock-based compensation expense and the related tax benefit
are $97,000 and $37,000, respectively.
   (4)
              Benefit
      Plans
  Employee Pension
Plan
  The Bank
has a non-contributory defined benefit pension plan covering all eligible
employees.  The benefits are based on each employee’s term of
service.  The Bank’s policy was to fund the plan with contributions
equal to 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, the Bank 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 employee pension plan and directors’ retirement plan as follows (in
thousands):
  For
      Three Months Ended December 31,Employee
      Pension Plan
                
                
                Directors'
      Retirement Plan2007
                
                
                2006
                
                
                2007
                
                
                2006Interest
      cost
                
                $
                40
                
                
                $
                40
                
                
                $
                1
                
                
                $
                1Expected
      return on assets
                
                
                (55
                )
                
                
                (55
                )
                
                
                --
                
                
                
                --Unrecognized
      loss (gain)
                
                
                --
                
                
                
                4
                
                
                
                --
                
                
                
                (1
                )Net
      periodic benefit cost (credit)
                
                $
                (15
                )
                
                $
                (11
                )
                
                $
                1
                
                
                $
                --For
      Nine Months Ended December 31,Employee
      Pension Plan
                
                
                Directors'
      Retirement Plan2007
                
                
                2006
                
                
                2007
                
                
                2006Interest
      cost
                
                $
                120
                
                
                $
                120
                
                
                $
                3
                
                
                $
                3Expected
      return on assets
                
                
                (165
                )
                
                
                (165
                )
                
                
                --
                
                
                
                --Unrecognized
      loss (gain)
                
                
                --
                
                
                
                12
                
                
                
                --
                
                
                
                (3
                )Net
      periodic benefit cost (credit)
                
                $
                (45
                )
                
                $
                (33
                )
                
                $
                3
                
                
                $
                --
  7
  (5)
              Common
      Stock Dividend
  On
February 13, 2008, the Board of Directors of the Holding Company declared, for
the quarter ended December 31, 2007, a cash dividend of ten cents ($0.10) per
common share outstanding.  The dividend is payable on March 13, 2008
to stockholders of record at the close of business on February 28,
2008.
  (6)
              Recent
      Accounting Pronouncements
  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.
   The Fair Value Option for
Financial Assets and Liabilities
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities— Including an amendment of FASB Statement No.
115 (“SFAS No. 159”).  SFAS No. 159 permits entities to choose
to measure financial instruments and certain other items at fair value even
though such financial instruments and other items are not currently required to
be measured at fair value.  This Statement is effective as of the
beginning of an entity’s first fiscal year beginning after November 15,
2007.  The Bank is currently assessing the impact of this
pronouncement.
 
  Accounting for Purchases of
Life Insurance
  In
September 2006, the Emerging Issues Task Force (“EITF”) of the FASB reached
final consensus on accounting for life insurance in Issue No. 06-5,
Accounting for Purchases of Life Insurance – Determining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin (“FTB”) No. 85-4,
Accounting for Purchases of Life Insurance (“EITF Issue
No. 06-5”).  EITF Issue No. 06-5 concluded that a
policyholder should consider other amounts included in the contractual terms of
an insurance policy, in addition to cash surrender value, when determining the
asset value that could be realized under the terms of the insurance contract in
accordance with FTB 85-4.  As of April 1, 2007, Carver Federal adopted
this consensus which was effective for fiscal years beginning after
December 15, 2006.  EITF Issue No. 06-5 had no impact on the
Company’s financial position or its results of operations.
   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 or 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 non-current 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.  The Company’s Federal, New York State and City tax filings for
years 2003 through the present are subject to examination.
  8
  FIN 48
requires significant new annual disclosures in the notes to an entity’s
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.  This pronouncement, which was adopted as of April 1, 2007,
had no impact on the Company’s financial position or its results of operations
for the quarter and nine months ended December 31, 2007.
  
 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 (“SFAS No.
156”), 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.  The
Company determines the fair value of its mortgage servicing rights on the basis
of a third party market valuation of the Company’s servicing portfolio
stratified by predominant risk characteristics – loan type and
coupon.  The valuation of the Company’s mortgage servicing rights
utilizes market derived assumptions for discount rates, servicing costs, escrow
earnings rate, and prepayments.  The Company, upon adoption of SFAS
No. 156 as of April 1, 2007, recorded a cumulative effect adjustment of $49,000
to retained earnings (net of tax) as of the beginning of fiscal 2008 for the
difference between the mortgage servicing rights fair value and its carrying
amount as reflected in the consolidated statement of changes in stockholders’
equity.  At December 31, 2007, the fair value of mortgage servicing
rights totaled $0.6 million.
   Application of Accounting
Principles to Loan Commitments
  In
November 2007, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 109 (SAB 109). SAB 109 supersedes Staff Accounting
Bulletin No. 105 (SAB 105), "Application of Accounting Principles to Loan
Commitments." It clarifies that the expected net future cash flows related to
the associated servicing of a loan should be included in the measurement of all
written loan commitments that are accounted for at fair value through earnings.
However, it retains the guidance in SAB 105 that internally-developed intangible
assets should not be recorded as part of the fair value of a derivative loan
commitment. The guidance is effective on a prospective basis to derivative loan
commitments issued or modified in fiscal quarters beginning after
December 15, 2007. In conjunction with the adoption of SFAS 157 and
SFAS 159, this guidance generally would result in higher fair values being
recorded upon initial recognition of derivative loan commitments. The Bank is
currently assessing the impact of this pronouncement.
  9
  ITEM
      2.
              Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
  
 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 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, but are not limited to the following:
  ·
                the
      Company's success in implementing its new business initiatives, including
      expanding its product line, adding new branches and ATM centers and
      successfully re-building its brand
image;
  ·
                increases
      in competitive pressure among financial institutions or non-financial
      institutions;
  ·
                legislative
      or regulatory changes which may adversely affect the Company’s
      business;
  ·
                technological
      changes which may be more difficult or expensive than
      anticipated;
  ·
                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 business;
  ·
                changes
      in accounting principles, policies or guidelines which may cause
      conditions 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 to originate and purchase loans with attractive terms and
      acceptable credit quality;
  ·
                success
      in integrating Community Capital Bank into existing
      operations;
  ·
                the
      ability to realize cost efficiencies;
and
  ·
                general
      economic conditions, either nationally or locally in some or all areas in
      which business is conducted, 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.
 
  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 2007 Form 10-K.
  Carver
Bancorp, Inc., 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.  As of December 31, 2007, Carver Federal operated ten
full-service banking locations and ten stand-alone ATM locations, including six
24/7 ATM centers in the New York City boroughs of Manhattan, Brooklyn and
Queens.
  10
  Carver
Federal operates as a traditional community bank, and offers consumer and
commercial banking services.  Carver Federal provides deposit products
including demand, savings and time deposits for consumers, businesses, and
governmental and non-profit institutions in its local market area within New
York City.  In addition to deposit products, Carver Federal offers
other consumer and commercial banking products and services, including debit
cards, online banking, online bill pay, and telephone
banking.  Through its affiliation with Merrill Lynch & Co., Carver
Federal offers a comprehensive range of wealth management products.
  Carver
Federal offers loan products covering a variety of asset classes, including
commercial and residential mortgages, construction loans and business
loans.  Carver Federal finances its mortgage and loan products through
its deposit operations or borrowings.  Funds not used to originate
mortgages and loans are invested primarily in U.S. government agency securities
and mortgage-backed securities.
  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.  Carver Federal’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 incremental
provisions for loan losses, if any, non-interest income, operating expenses and
tax benefits from the NMTC award.
  During
the three months ended December 31, 2007, the local real estate markets remained
strong and continued to support new and existing lending
opportunities.  The average Federal Funds rate of 4.50% for the three
months ended December 31, 2007 was 74 basis points lower than the average rate
for the corresponding prior year period.  As a result of the rate
environment that prevailed throughout fiscal 2007 and continued in fiscal 2008,
the Company pursued an asset/liability management strategy of using the proceeds
from the repayment and maturities of the Company’s lower earning investment
portfolio and the growth in deposits to fund higher yielding loans.
  Carver
Federal’s total loan portfolio increased during the three months ended December
31, 2007.  The increase in total loans receivable, net, is primarily
the result of an increase in construction loans.  Total deposits also
increased during the three months ended December 31, 2007.  The growth
was primarily the result of an increase in certificates of
deposit.  Available-for-sale and held-to-maturity securities decreased
during the three months ended December 31, 2007 due to principal payments and
maturities.  Advances and borrowings decreased during the three months
ended December 31, 2007, primarily the result of lower FHLB
advances.
  Net
income for the three months ended December 31, 2007 increased compared to the
three months ended December 31, 2006, due to increases in net interest income
and non-interest income, partially offset by an increase in non-interest
expense.  Net interest income increased due to higher average income
earning assets balances and the Bank’s balance sheet repositioning strategy that
involved reducing lower yielding securities and replacing them with higher
yielding loans, while replacing higher cost borrowings with lower cost
deposits. Other non-interest income increased significantly due to a fee
generated by a New Markets Tax Credit transaction. The increase in non-interest
expense is primarily due to investments in new talent, costs
of  preparation for implementation of Sarbanes-Oxley Act Section 404
at the end of this fiscal year, and other professional fees and consulting
assistance.  Occupancy and equipment costs also contributed to the
increase in non-interest expense compared to prior year period due to increased
investments in infrastructure.
  For the
three months ended December 31, 2007, the net interest margin and net interest
rate spread increased primarily as a result of higher yielding loan originations
and the previously discussed asset/liability management strategy.
   Acquisition
of Community Capital Bank
  On
September 29, 2006, the Bank completed its acquisition of Community Capital Bank
(“CCB”), a Brooklyn-based New York State chartered commercial bank, with
approximately $165.4 million in assets and two branches, in a cash transaction
totaling approximately $11.1 million.  Under the terms of the
merger agreement, CCB’s shareholders were paid $40.00 per outstanding share
(including options which immediately vested with the consummation of the merger)
and the Bank incurred an additional $0.8 million in transaction related
costs.  The combined entities operate under Carver Federal’s thrift
charter and Carver Federal continues to be supervised by the Office of Thrift
Supervision (“OTS”).
  The
transaction, which was accounted for under the purchase accounting method,
included the recognition of approximately $0.8 million of core deposit
intangibles and $5.1 million representing the excess of the purchase price
over the fair value of identifiable net assets (“goodwill”).  At
December 31, 2007, goodwill relating to the transaction and subsequent
additional purchase accounting adjustments, primarily income taxes, sales tax
assessment and professional fees, totaled approximately $6.4
million.
  11
  New
Markets Tax Credit Award
  In June
2006, the Bank was selected by the U.S. Department of Treasury to receive an
award of $59 million in New Markets Tax Credits (“NMTC”).  The NMTC award
is used to stimulate economic development in low- to moderate-income
communities.  The NMTC award enables the Bank to invest with community
and development partners in economic development projects with attractive terms
including, in some cases, below market interest rates, which may have the effect
of attracting capital to underserved communities and facilitating the
revitalization of the community, pursuant to the goals of the NMTC
program.  The NMTC award provides a credit to the
Bank against Federal income taxes when the Bank makes qualified
investments.  The credits are allocated over seven years from the time
of the qualified investment. During the seven year period, assuming the
Bank meets compliance requirements, the Bank will receive 39% of the $40.0
million invested award amount (5% over each of the first three years, and 6%
over each of the next four years).  Recognition of the Bank’s NMTC
award began in December 2006 when the Bank invested $29.5 million, one-half of
its $59 million award.  In December 2007, the bank invested an
additional $10.5 million and transferred rights to $19.0 million to an investor
in an NMTC project. The Bank's NMTC allocation has been fully
invested as of December 31, 2007.  For financial reporting purposes,
the $19.0 million transfer of rights to an investor in a NMTC project is
reflected in the other assets and minority interest sections of the balance
sheet in accordance with EITF Issue No. 04-5.  For the three- and
nine-months ended December 31, 2007, the Company recognized a tax benefit of
$0.6 million and $1.4 million, respectively, related to the NMTC
award.
   Critical
Accounting Policies
  Note 1 to
the Company’s audited Consolidated Financial Statements for fiscal 2007 included
in its 2007 Form 10-K, as supplemented by this report, contains a summary of
significant accounting policies and is incorporated by reference.  The
Company believes its policies, with respect to the methodology for determining
the allowance for loan losses and asset impairment judgments, including other
than temporary declines in the value of the Company’s investment 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 the Company’s 2007 Form 10-K:
   Securities
Impairment
  The
Bank’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 income/loss in stockholders’
equity.  Securities that 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 portfolio are based
on published or securities dealers’ market values and are affected by changes in
interest rates.  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, 2007, the Bank carried no other-than-temporarily impaired
securities.
   Allowance
for Loan Losses
  The
allowance for loan losses is maintained at a level considered adequate to
provide for probable loan losses inherent in the portfolio as of December 31,
2007.  During the quarter Carver changed its loan loss methodology to
be consistent with the Interagency Policy Statement on the Allowance for Loan
and Lease Losses (“ALLL”) (the “Interagency Policy Statement”) released by the
Federal Financial Regulatory Agencies on December 13, 2006.  The
change had an immaterial affect on the allowance for loan losses at December 31,
2007.  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.
  12
  The
methodology employed for assessing the appropriateness of the allowance consists
of the following criteria:
  ·
              Establishment of loan loss
      allowance amounts for all specifically identified criticized and
      classified loans that have been designated as requiring attention by
      management’s internal loan review process, bank regulatory examinations or
      Carver Federal’s external
auditors.
  ·
              An average loss factor, giving
      effect to historical loss experience over several years and other
      qualitative factors, is applied to all loans not subject to specific
      review.·
              Evaluation of any changes in 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 performing this evaluation is the concentration of real
      estate related loans located in theNew York Citymetropolitan
      area.
  All new
loan originations are assigned a credit risk grade which commences with loan
officers and underwriters grading the quality of their loans one to five under a
nine-category risk classification scale, the first five categories of which
represent performing loans.  Reserves are held based on actual loss
factors based on several years of loss experience and other qualitative
factors applied to the outstanding balances in each loan
category.  All loans are subject to continuous review and monitoring
for changes in their credit grading.   Grading that falls into
criticized or classified categories (credit grading six through nine) are
further evaluated and reserved amounts are established for each loan based on
each loan’s potential for loss and include consideration of the sufficiency of
collateral.  Any adverse trend in 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
includes:
  ·
              Amount and trend of criticized
      loans;
 ·
              Actual
    losses;
 ·
              Peer comparisons with other
      financial institutions; and
 ·
              Economic data associated with the
      real estate market in the Company’s lending market
      areas.
 
 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 (i) the present value of expected future cash flows,
discounted at the loan’s initial effective interest rate, (ii) the loan’s market
price, or (iii) 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
loan losses or by a provision for loan 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.
 
  Stock
Repurchase Program
  In August
2002, the Company’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.  As of
December 31, 2007, the Company has purchased a total of 152,674 shares at an
average price of $16.44.  Purchases under 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.
   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 ongoing operating expenses.  The Bank’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.
  13
  Carver
Federal monitors its liquidity utilizing guidelines that are contained in a
policy developed by its management and approved by its Board of
Directors.  Carver Federal’s several liquidity measurements are
evaluated on a frequent basis.  Management believes Carver Federal’s
short-term assets have sufficient liquidity to cover loan demand, potential
fluctuations in deposit accounts and to meet other anticipated cash
requirements.  Additionally, Carver Federal 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
certain mortgage loans.  At December 31, 2007, based on available
collateral held at the FHLB-NY, Carver Federal had the ability to borrow from
the FHLB-NY an additional $29.2 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, 2007, total
cash and cash equivalents increased by $1.2 million reflecting cashprovided by
financing activities, offset by cash used in operating and investing
activities.  Net
cash provided by financing activities was $56.4 million, primarily resulting
from increased borrowings, deposits and a minority interest ina NMTC
transaction, offset
partially by the payment of common dividends and repurchases of 19,727 shares of
the Company’s common stock for an aggregate purchase price of $0.3
million.  Net cash used in operating activities during this period was
$17.1million, primarily representing funds
used in originations of loans held for sale and an increase in other
assets resulting from a NMTC transaction, offset partially by proceeds
from sales of loans held-for-sale and an increase in other
liabilities.  Net cash used in investing activities was$38.1million, primarily representing cash
disbursed to fund mortgage loan originations and purchase of available for sale
securities, offset partially by principal collections on loans and proceeds from
sale of available-for-sale securities.  See “Comparison of Financial
Condition at December 31, 2007 and March 31, 2007” for a discussion of the
changes in securities, loans, deposits and FHLB-NY
borrowings.
  The
levels of Carver Federal’s short-term liquid assets are dependent on Carver
Federal’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.  Because Carver Federal generally sells its one- to four-
family 15-year and 30-year fixed rate loan production into the secondary
mortgage market, the origination of such products for sale does not
significantly reduce Carver Federal’s liquidity.
  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,
2007, the Bank exceeded all regulatory minimum capital requirements and
qualified, under OTS regulations, as a well-capitalized institution. The table
below presents certain information relating to the Bank’s regulatory capital
compliance at December 31, 2007 (dollars in thousands):
  Amount
                
                
                %
      of Adj.
                  AssetsTangible
      Equity:Capital
      level
                
                $
                60,187
                
                
                
                7.75
                %Less
      required capital level
                
                
                11,650
                
                
                
                1.50
                %Excess
      capital
                
                $
                48,537
                
                
                
                6.25
                %Core
      Capital:Capital
      level
                
                $
                60,328
                
                
                
                7.77
                %Less
      required capital level
                
                
                31,057
                
                
                
                4.00
                %Excess
      capital
                
                $
                29,271
                
                
                
                3.77
                %Risk-Based
      Capital:Capital
      level
                
                $
                65,901
                
                
                
                10.45
                %Less
      required capital level
                
                
                52,721
                
                
                
                8.00
                %Excess
      capital
                
                $
                13,180
                
                
                
                2.45
                %
  14
  Comparison
of Financial Condition at December 31, 2007 and March 31, 2007
  Assets
  Total
assets increased $62.7 million, or 8.5%, to $802.7 million at December 31, 2007
compared to $740.0 million at March 31, 2007.  The increase in total
assets was primarily the result of increases in loans receivable and loans
held-for-sale of $52.8 million, other assets of $21.5 million and cash and cash
equivalents of $1.1 million, partially offset by decreases in investment
securities of $13.0 million and Federal Home Loan Bank of New York stock of $1.0
million.
  Cash and
cash equivalents for the nine months ended December 31, 2007 increased $1.1
million, or 6.9%, to $18.5 million, compared to $17.4 million at March 31,
2007.  The increase was primarily a result of a $1.7 million increase
in Federal funds sold which was partially offset by decreases in interest
earning deposits of $0.3 million and cash and due from banks of $0.2
million.
  Total
securities decreased $13.0 million, or 19.5%, to $54.1 million at
December 31, 2007 compared to $67.1million
at March 31, 2007 due to collection of normal principal repayments and
maturities.  There were $11.7 million purchases of securities during
the nine months ended December 31, 2007.  Total securities also
declined due to an increase in the net unrealized loss on securities of
$0.1 million resulting from the mark-to-market of the available for sale
securities portfolio.
  Total
loans receivable, including loans held-for-sale, increased $52.8 million, or
8.7%, to $662.0 million at December 31, 2007 compared to $609.2 million at March
31, 2007.  The increase resulted primarily from an increase in
construction loans of $27.7 million to $164.8 million at December 31, 2007
compared to $137.1 million at March 31, 2007 and an increase in commercial loans
of $21.2 million to $224.4 million at December 31, 2007 compared to $203.2
million at March 31, 2007.  At December 31, 2007, construction loans
represented 25.9% of the loan portfolio.  Approximately 65.0% of the
Bank’s construction loans are participations in loans originated by Community
Preservation Corporation (“CPC”), a ninety plus member bank organization whose
mission is to enhance the quality and quantity of affordable housing in the New
York-New Jersey-Connecticut tri-state area.  The Bank’s construction
lending activity is concentrated in the New York City market.  At this
time, the New York City real estate market continues to exhibit indications of
insulation from the real estate downturn impacting other parts of the U.S. 
Based on recent reports, various factors including continuing strong demand,
relatively low proportion of subprime loans, interest from international buyers,
and a lack of affordable housing supply contribute to New York City real
estate’s continuing strength.  Despite those favorable factors, the Bank
will continue to closely monitor trends.
  The
Bank’s investment in FHLB-NY stock decreased by $1.0 million, or 31.0%, to $2.2
million at December 31, 2007 compared to $3.2 million at March 31,
2007.  The FHLB-NY requires banks to own membership stock as well as
borrowing activity-based stock.  The decrease in investment in FHLB-NY
stock was the result of the repayment of FHLB-NY borrowings, resulting in the
net redemption of stock during the period.
  Other
assets increased $21.5 million, or 150.1%, to $35.8 million at December 31, 2007
compared to $14.3 million at March 31, 2007.  The increase was
primarily due to the $19.0 million NMTC transaction on December 31,
2007.
  
 Liabilities
and Stockholders’ Equity
  Liabilities
  At
December 31, 2007, total liabilities increased by $41.3 million, or 6.0%, to
$729.6 million compared to $688.3 million at March 31, 2007.  The
increase in total liabilities was primarily the result of $27.3 million of
additional customer deposits, a net increase of $11.1 million in advances and
borrowed money and $2.8 million of other liabilities.
  Deposits
increased $27.3 million, or 4.4%, to $642.4 million at December 31, 2007
compared to $615.1 million at March 31, 2007.  The increase in deposit
balances was largely the result of an increase in certificates of deposit of
$45.9 million which were offset by decreases of $10.5 million in savings
deposits, $3.9 million in checking deposits, and $3.7 million in money market
deposit accounts.  At December 31, 2007, the Bank had $25.0 million in
brokered deposits.
  Advances
from the FHLB-NY and other borrowed money increased $11.1 million, or
18.2%, to $72.2 million at December 31, 2007 compared to $61.1 million at March
31, 2007.  The increase in advances and borrowed money was primarily
the result of an increase in repurchase obligations of $30.0 million at December
31, 2007 compared to zero repurchase obligations at March 31,
2007.  The increase was offset by a $18.9 million, or 39.5%, reduction
in FHLB advances to $28.9 million at December 31, 2007 compared to $47.8 million
at March 31, 2007.
  Other
liabilities increased $2.8 million, or 23.3%, to $14.9 million at December 31,
2007 compared to $12.1 million at March 31, 2007.  The increase was
primarily attributable to an increase of $3.6 million in lending liabilities and
$0.2 million in accrued interest payable, offset by a $1.2 million reduction in
other obligations.
  15
  On
December 31, 2007, Carver Community Development Corp., one of the Company’s
subsidiaries, received an equity investment of $19.0 million related to a New
Markets Tax Credit transaction.  On consolidation, this is reflected
as a $19.0 million increase in other assets and minority interest.
   Stockholders’
Equity
  Total
stockholders’ equity increased $2.5 million, or 4.9%, to $54.1 million at
December 31, 2007 compared to $51.6 million at March 31, 2007.  The
increase in total stockholders’ equity was primarily attributable to net income
for the nine months ended December 31, 2007 totaling $3.5 million, partially
offset by dividends paid of $0.7 million, the repurchase of common stock
totaling $0.3 million in accordance with our stock repurchase program and a
decrease of $0.1 million in accumulated other comprehensive income related to
the mark-to-market of Carver Federal’s available-for-sale
securities.
   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 fluctuations 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
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 the
Company’s 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 primarily
include lending obligations, including commitments to originate mortgage and
consumer loans and to fund unused lines of credit.
  As
of December 31, 2007, the Bank had outstanding loan commitments as follows (in
thousands):
  Commitments
      to fund construction mortgage loans
              
              $
              83,752Commitments
      on loans not closed
              
              
              31,135Commitments
      to commercial and industrial revolving credit
              
              
              16,847Business
      lines of credit
              
              
              7,871Letters
      of credit
              
              
              4,261$
              143,866
 
  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 Federal’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.
  16
 CARVER
BANCORP, INC. AND SUBSIDIARIES
 CONSOLIDATED
AVERAGE BALANCES
 (In
thousands)
 (Unaudited)
 For
      the Three Months Ended December 31,2007
                
                
                2006Average
                
                
                
                
                
                Average
                
                
                Average
                
                
                
                
                
                AverageBalance
                
                
                Interest
                
                
                Yield/Cost
                
                
                Balance
                
                
                Interest
                
                
                Yield/CostInterest
      Earning Assets:Loans
      (1)
                
                $
                642,600
                
                
                $
                11,403
                
                
                
                7.10
                %
                
                $
                621,657
                
                
                $
                10,685
                
                
                
                6.88
                %Mortgage-backed
      securities
                
                
                38,317
                
                
                
                518
                
                
                
                5.41
                %
                
                
                45,316
                
                
                
                556
                
                
                
                4.91
                %Investment
      securities (2)
                
                
                21,439
                
                
                
                328
                
                
                
                6.07
                %
                
                
                40,710
                
                
                
                476
                
                
                
                4.68
                %Fed
      funds sold
                
                
                6,020
                
                
                
                68
                
                
                
                4.48
                %
                
                
                3,928
                
                
                
                53
                
                
                
                5.35
                %Total
      interest-earning assets
                
                
                708,376
                
                
                
                12,317
                
                
                
                6.95
                %
                
                
                711,611
                
                
                
                11,770
                
                
                
                6.62
                %Non-interest-earning
      assets
                
                
                61,406
                
                
                
                
                
                
                
                
                
                
                
                52,840Total
      assets
                
                $
                769,782
                
                
                
                
                
                
                
                
                
                
                $
                764,451Interest
      Bearing Liabilities:Deposits:Now
      demand
                
                $
                26,003
                
                
                
                58
                
                
                
                0.88
                %
                
                $
                24,816
                
                
                
                30
                
                
                
                0.48
                %Savings
      and clubs
                
                
                129,669
                
                
                
                282
                
                
                
                0.86
                %
                
                
                135,716
                
                
                
                238
                
                
                
                0.70
                %Money
      market
                
                
                42,096
                
                
                
                352
                
                
                
                3.32
                %
                
                
                45,513
                
                
                
                308
                
                
                
                2.68
                %Certificates
      of deposit
                
                
                385,035
                
                
                
                4,364
                
                
                
                4.50
                %
                
                
                364,969
                
                
                
                4,056
                
                
                
                4.41
                %Mortgagors
      deposits
                
                
                2,745
                
                
                
                13
                
                
                
                1.88
                %
                
                
                2,862
                
                
                
                7
                
                
                
                0.97
                %Total
      deposits
                
                
                585,548
                
                
                
                5,069
                
                
                
                3.43
                %
                
                
                573,876
                
                
                
                4,639
                
                
                
                3.21
                %Borrowed
      money
                
                
                71,416
                
                
                
                932
                
                
                
                5.18
                %
                
                
                75,890
                
                
                
                1,004
                
                
                
                5.25
                %Total
      interest-bearing liabilities
                
                
                656,964
                
                
                
                6,001
                
                
                
                3.62
                %
                
                
                649,766
                
                
                
                5,643
                
                
                
                3.45
                %Non-interest-bearing
      liabilities:Demand
                
                
                50,117
                
                
                
                
                
                
                
                
                
                
                
                51,102Other
      liabilities
                
                
                11,276
                
                
                
                
                
                
                
                
                
                
                
                16,359Total
      liabilities
                
                
                718,357
                
                
                
                
                
                
                
                
                
                
                
                717,227Stockholders'
      equity
                
                
                51,425
                
                
                
                
                
                
                
                
                
                
                
                47,224Total
      liabilities & stockholders' equity
                
                $
                769,782
                
                
                
                
                
                
                
                
                
                
                $
                764,451Net
      interest income
                
                
                
                
                
                $
                6,316
                
                
                
                
                
                
                
                
                
                
                $
                6,127Average
      interest rate spread
                
                
                
                
                
                
                
                
                
                
                3.33
                %
                
                
                
                
                
                
                
                
                
                
                3.17
                %Net
      interest margin
                
                
                
                
                
                
                
                
                
                
                3.59
                %
                
                
                
                
                
                
                
                
                
                
                3.47
                %(1)
      Includes non-accrual loans(2)
      Includes FHLB-NY stock
  17
   CARVER
BANCORP, INC. AND SUBSIDIARIES
 CONSOLIDATED
AVERAGE BALANCES (In
thousands)
 (Unaudited)
 For
      the Nine Months Ended December 31,2007
                
                
                2006Average
                
                
                
                
                
                Average
                
                
                Average
                
                
                
                
                
                AverageBalance
                
                
                Interest
                
                
                Yield/Cost
                
                
                Balance
                
                
                Interest
                
                
                Yield/CostInterest
      Earning Assets:Loans
      (1)
                
                $
                633,335
                
                
                $
                33,579
                
                
                
                7.07
                %
                
                $
                541,039
                
                
                $
                26,893
                
                
                
                6.63
                %Mortgage-backed
      securities
                
                
                37,749
                
                
                
                1,494
                
                
                
                5.28
                %
                
                
                72,206
                
                
                
                2,331
                
                
                
                4.30
                %Investment
      securities (2)
                
                
                27,023
                
                
                
                1,183
                
                
                
                5.81
                %
                
                
                24,872
                
                
                
                824
                
                
                
                4.42
                %Fed
      funds sold
                
                
                3,049
                
                
                
                109
                
                
                
                4.74
                %
                
                
                5,842
                
                
                
                222
                
                
                
                5.04
                %Total
      interest-earning assets
                
                
                701,156
                
                
                
                36,365
                
                
                
                6.91
                %
                
                
                643,959
                
                
                
                30,270
                
                
                
                6.27
                %Non-interest-earning
      assets
                
                
                63,448
                
                
                
                
                
                
                
                
                
                
                
                42,130Total
      assets
                
                $
                764,604
                
                
                
                
                
                
                
                
                
                
                $
                686,089Interest
      Bearing Liabilities:Deposits:Now
      demand
                
                $
                25,303
                
                
                
                116
                
                
                
                0.61
                %
                
                $
                24,908
                
                
                
                69
                
                
                
                0.37
                %Savings
      and clubs
                
                
                133,296
                
                
                
                812
                
                
                
                0.81
                %
                
                
                136,935
                
                
                
                681
                
                
                
                0.66
                %Money
      market
                
                
                44,822
                
                
                
                852
                
                
                
                2.52
                %
                
                
                41,285
                
                
                
                784
                
                
                
                2.52
                %Certificates
      of deposit
                
                
                362,265
                
                
                
                12,157
                
                
                
                4.45
                %
                
                
                298,163
                
                
                
                9,103
                
                
                
                4.05
                %Mortgagors
      deposits
                
                
                2,786
                
                
                
                33
                
                
                
                1.57
                %
                
                
                2,200
                
                
                
                22
                
                
                
                1.33
                %Total
      deposits
                
                
                568,472
                
                
                
                13,970
                
                
                
                3.26
                %
                
                
                503,491
                
                
                
                10,659
                
                
                
                2.81
                %Borrowed
      money
                
                
                76,252
                
                
                
                2,962
                
                
                
                5.16
                %
                
                
                85,035
                
                
                
                3,237
                
                
                
                5.05
                %Total
      interest-bearing liabilities
                
                
                644,724
                
                
                
                16,932
                
                
                
                3.49
                %
                
                
                588,526
                
                
                
                13,896
                
                
                
                3.13
                %Non-interest-bearing
      liabilities:Demand
                
                
                52,574
                
                
                
                
                
                
                
                
                
                
                
                38,096Other
      liabilities
                
                
                11,753
                
                
                
                
                
                
                
                
                
                
                
                11,560Total
      liabilities
                
                
                709,051
                
                
                
                
                
                
                
                
                
                
                
                638,182Stockholders'
      equity
                
                
                55,553
                
                
                
                
                
                
                
                
                
                
                
                47,907Total
      liabilities & stockholders' equity
                
                $
                764,604
                
                
                
                
                
                
                
                
                
                
                $
                686,089Net
      interest income
                
                
                
                
                
                $
                19,433
                
                
                
                
                
                
                
                
                
                
                $
                16,374Average
      interest rate spread
                
                
                
                
                
                
                
                
                
                
                3.42
                %
                
                
                
                
                
                
                
                
                
                
                3.14
                %Net
      interest margin
                
                
                
                
                
                
                
                
                
                
                3.71
                %
                
                
                
                
                
                
                
                
                
                
                3.40
                %(1)
      Includes non-accrual loans(2)
      Includes FHLB-NY stock
  18
  Comparison
of Operating Results for the Three and Nine Months Ended December 31, 2007 and
2006
   Overview
  The
Company reported consolidated net income for the quarter ended December 31, 2007
of $1.6 million compared to net income of $1.4 million for the prior year
period, an increase of $0.2 million.  These results primarily reflect
an increase in non-interest income of $2.2 million and an increase in net
interest income of $0.2 million, offset by increases in non-interest expense of
$2.1 million, and provision for loan losses of $0.1 million.
  Net
income for the nine months ended December 31, 2007 was $3.5 million compared to
net income of $1.3million
for the prior year period, an increase of $2.2 million.  These results
primarily reflect an increase in net interest income of $3.1 million and an
increase in non-interest income of $4.2 million, offset by increases in
non-interest expense of $4.8million,
provision for loan losses of $0.1 million and a decline in income tax benefit of
$0.1 million.  The prior year period included special charges of $1.3
million related to CCB acquisition costs and $1.3 million related to the balance
sheet repositioning.
  Selected
operating ratios for the three and nine months ended December 31, 2007 and 2006
are set forth in the table below and the following analysis discusses the
changes in components of operating results:
  CARVER
BANCORP, INC. AND SUBSIDIARIES
 SELECTED
KEY RATIOS
 (Unaudited)
 Three
      Months Ended
                
                
                Nine
      Months EndedSelected
      Financial Data:
                
                December
      31,
                
                
                December
      31,2007
                
                
                2006
                
                
                2007
                
                
                2006Return
      on average assets (1)
                
                
                0.82
                %
                
                
                0.73
                %
                
                
                0.61
                %
                
                
                0.25
                %Return
      on average equity (2)
                
                
                12.27
                
                
                
                11.86
                
                
                
                8.36
                
                
                
                3.61Net
      interest margin (3)
                
                
                3.59
                
                
                
                3.47
                
                
                
                3.71
                
                
                
                3.40Interest
      rate spread (4)
                
                
                3.33
                
                
                
                3.17
                
                
                
                3.42
                
                
                
                3.14Efficiency
      ratio (5)
                
                
                83.87
                
                
                
                82.96
                
                
                
                85.96
                
                
                
                93.94Operating
      expenses to average assets (6)
                
                
                4.14
                
                
                
                3.08
                
                
                
                3.78
                
                
                
                3.28Average
      equity toaverage assets
      (7)
                
                
                6.68
                
                
                
                6.57
                
                
                
                7.27
                
                
                
                6.57Average
      interest-earning assets to average interest-bearing
      liabilities
                
                
                1.08
                x
                
                
                1.10
                x
                
                
                1.09
                x
                
                
                1.09
                x
  (1) Net
income, annualized, divided by average total assets.
 (2) Net
income, annualized, divided by average total equity.
 (3) Net
interest income, annualized, divided by average interest-earning
assets.
 (4)
Combined weighted average interest rate earned less combined weighted average
interest rate cost.
 (5)
Operating expenses divided by sum of net interest income plus non-interest
income.
 (6)
Non-interest expenses less loss on real estate owned, annualized, divided by
average total assets.
 (7) Total
average equity divided by total average assets for the
period.
  Interest Income
  Interest
income increased by $0.5 million, or 4.6%, to $12.3 million for the quarter
ended December 31, 2007, compared to $11.8 million in the prior year
period.  Interest income increased as a result of an increase in
average loan balances and interest yields due to higher yielding of loan
originations.  These results were primarily driven by an increase in
average loan balances and higher yields offset by a decline in average balances
of mortgage-backed securities and investment securities pursuant to the Bank’s
asset/liability strategy.  The yield earned on the securities
portfolio increased as a result of asset/liability management activities
completed at the end of second quarter.  Overall, the increase in interest
income resulted from an increase of 33 basis points in the annualized average
yield on total interest-earning assets to 6.95% for the three months ended
December 31, 2007 compared to 6.62% for the prior year period, reflecting
increases in yields on loans and total securities of 22 basis points and 64
basis points, respectively.  The yield on federal funds decreased 87
basis points to 4.48% compared to 5.35% for the prior year period.
  19
  For the
nine month period ending December 31, 2007, interest income increased $6.1
million, or 20.1%, to $36.4 million, compared to $30.3 million for the prior
year period.  Interest income increased as a result of an increase in
average loan balances, acquisition of CCB's higher yeilding portfolio and
origination of higher yield loans.  Total average balances of
interest-earning assets increased $57.2 million, which includes an increase
in average loan balances of $92.3 million offset by a decrease in average
balance of mortgage-backed securities of $34.5
million.  Interest-earning assets yields increased 64 basis points,
due to increases in loan yields of 44 basis points and mortgage-backed
securities yields of 98 basis points.
  Interest
income on loans increased by $0.7 million, or 6.7%, to $11.4 million for the
three months ended December 31, 2007 compared to $10.7 million for the prior
year period.  These results were primarily driven by an increase in
average loan balances of $20.9 million to $642.6 million in the quarter ended
December 31, 2007 compared to $621.7 million for the prior year period, and
an increase in yield of 22 basis points to 7.10% in the quarter ended December
31, 2007 compared to 6.88% for the prior year period.
  For the
nine month period ending December 31, 2007, interest income on loans increased
$6.7 million, or 24.9%, to $33.6 million compared to $26.9 million for the prior
year period.  This increase was driven by an increase of $92.3 million
in average loan balance due primarily to the CCB acquisition.  In
addition, yields increased 44 basis points reflecting growth in higher yielding
construction loans and higher yielding small business loans.
  Interest
income on securities decreased by $0.2 million, or 18.0%, to $0.8 million for
the three month period ended December 31, 2007 compared to $1.0 million for the
prior year period.  Interest income on investment securities decreased
by $0.2 million, or 31.1%, to $0.3 million for the three month period ended
December 31, 2007 compared to $0.5 million for the prior year period. The
decrease in interest income on investment securities for the quarter was
primarily the result of a $19.3 million, or 47.4%, reduction in the average
balance of investment securities to $21.4 million for the three month period
ended December 31, 2007 compared to $40.7 million for the prior year
period.  Interest income on mortgage-backed securities also decreased
by $38,000, or 6.8%, to $0.5 million for the three month period ended December
31, 2007 compared to $0.6 million for the prior year period.  The
effect of the decrease in the balance of investment securities was partially
offset by a 139 basis point increase in the annualized average yield on
securities to 6.07% compared to 4.68% in the prior year period as adjustable
rate securities in the portfolio repriced to higher coupon rates.  The
yield on mortgage-backed securities increased by 50 basis points to 5.41%,
compared to 4.91% in the prior year period.
  For the
nine month period ending December 31, 2007, interest income on securities
decreased $0.5 million, or 15.2%, to $2.7 million from $3.2 million for the
prior year period.  Interest income on mortgage-backed securities
decreased by $0.8 million, or 35.9%, to $1.5 million for the nine month period
ended December 31, 2007 compared to $2.3 million for the prior year
period.  The decrease in interest income on mortgage-backed securities
for the nine month period ended December 31, 2007 was primarily the result of a
$34.5 million, or 47.8%, reduction in the average balances of mortgage-backed
securities to $37.7 million, compared to $72.2 million for the prior year
period.  This was offset by an increase in investment securities
interest of $0.4 million, or 43.6%, to $1.2 million for the nine month period
ended December 31, 2007 compared to $0.8 million for the prior year
period.  The increase in interest income on investment securities for
the nine month period ended December 31, 2007 was primarily the result of a $2.1
million, or 8.4%, increase in the average balances of investment securities to
$27.0 million for the nine month period ended December 31, 2007 compared to
$24.9 million for the prior year period.  The effect of the decrease
in the balance of mortgage-backed securities was partially offset by a 98 basis
point increase in the annualized average yield on securities to 5.28% compared
to 4.30% in the prior year period because adjustable rate securities in the
portfolio repriced to higher coupon rates.  The yield on investment
securities increased by 139 basis points to 5.81% compared to 4.42% in the prior
year period.
  Interest
Expense
  Interest
expense increased by $0.4 million, or 6.3%, to $6.0 million for the three months
ended December 31, 2007, compared to $5.6 million for the prior year
period.  The higher interest expense resulted primarily from a 17
basis point increase in the annualized average cost of interest-bearing
liabilities to 3.62% for the three months ended December 31, 2007, compared to
3.45% for the prior year period.  Additionally, the average balance of
interest-bearing liabilities increased $7.2 million, or 1.1%, to $657.0 million,
compared to $649.8 million for the prior year period.
  For the
nine month period ended December 31, 2007, interest expense increased by $3.0
million, or 21.8%, to $16.9 million, compared to $13.9 million for the prior
year period.   The increase in interest expense is primarily due
to growth in the average balance of interest-bearing liabilities of $56.2
million, or 9.5%, to $644.7 million, compared to $588.5 million for the prior
year period.  In addition, the increase in interest expense resulted
from a 36 basis point increase in the annualized average cost of
interest-bearing liabilities to 3.49%, compared to 3.13% for the prior year
period.
  Interest
expense on deposits increased $0.5 million, or 9.3%, to $5.1 million for the
three months ended December 31, 2007, compared to $4.6 million for the prior
year period.  The increase in interest expense on deposits was
primarily due to an increase of $11.6 million, or 2.0%, in the average balance
of interest-bearing deposits to $585.5 million for the three months ended
December 31, 2007, compared to $573.9 million for the prior year
period.  Additionally, a 22 basis point increase in the rate paid on
deposits to 3.43% compared to 3.21% for the prior year period contributed to the
increase.  Customer deposits have historically provided the Bank with
a relatively low cost funding source from which its net interest income and net
interest margin have benefited.  In addition, the Bank’s relationship
with various government entities has been a source of relatively stable and low
cost funding.  As of December 31, 2007, the Bank held $177.8 million
in government deposits.
  20
  For the
nine month period ended December 31, 2007, total interest expense on deposits
increased $3.3 million, or 31.1%, to $14.0 million from $10.7 million for the
prior year period.  The increase in interest expense on deposits was
primarily due to an increase of $65.0 million, or 12.9%, in the average balance
of interest-bearing deposits to $568.5 million for the nine months ended
December 31, 2007, compared to $503.5 million for the prior year
period.  This increase resulted primarily from the CCB acquisition,
which increased the deposit portfolio by $144.1 million on the acquisition date
of September 29, 2006.  Additionally, a 45 basis point increase in the
rate paid on deposits to 3.26% compared to 2.81% for the prior year period
contributed to the increase.
  Interest
expense on advances and other borrowed money decreased $0.1 million, or 7.2%, to
$0.9 million for the three months ended December 31, 2007 compared to $1.0
million for the prior year period.  In the three months ended December
31, 2007, the average balance of total borrowed money outstanding declined,
primarily as a result of a $4.5 million decrease in the average balance of
outstanding borrowings to $71.4 million compared to $75.9 million in the prior
year period.  Additionally, a decrease of 7 basis points lowered the
cost of borrowed money to 5.18% compared to 5.25% for the prior year
period.  This was partially offset by an increased cost of debt
service on the $13.0 million in floating rate junior subordinated notes issued
by the Company in connection with issuance of trust preferred securities by
Carver Statutory Trust I in September 2003.  Cash distributions on the
trust preferred debt securities are cumulative and payable at a floating rate
per annum (reset quarterly) equal to 3.05% over the 3-month LIBOR, with a rate
at December 31, 2007 of 8.04%.
  For the
nine month period ended December 31, 2007, interest expense on advances and
other borrowed money declined $0.2 million, or 8.5%, to $3.0 million, compared
to $3.2 million for the prior year period.  In the nine months ended
December 31, 2007, the average balance of total borrowed money outstanding
declined, primarily as a result of a $8.8 million, or 10.4%, decrease in the
average balance of outstanding borrowings to $76.2 million compared to $85.0
million in the prior year period.  Partially offsetting the decrease
in interest expense was an 11 basis point increase in the cost of borrowed money
to 5.16% compared to 5.05% in the prior year period.
  Net
Interest Income Before Provision for Loan Losses
  Net
interest income before the provision for loan losses increased by $0.2 million,
or 3.1%, to $6.3 million for the three months ended December 31, 2007, compared
to $6.1 million for the prior year period.  The Company’s annualized
net interest margin, represented by annualized net interest income divided by
average total interest-earning assets, increased 12 basis points to 3.59% for
the three months ended December 31, 2007 compared to 3.47% in the prior year
period.
  For the
nine month period ending December 31, 2007, net interest income before the
provision for loan losses increased by $3.0 million, or 18.7%, to $19.4 million,
compared to $16.4 million for the prior year period.  Net interest
margin for the nine month period ending December 31, 2007, increased 31 basis
points to 3.71% compared to 3.40% for the prior year period.
  Provision
for Loan Losses and Asset Quality
  The
Company provided $0.2 million in provision for loan losses for the three- and
nine-month periods ended December 31, 2007 compared to $0.1 million for the
three- and nine-month periods ended December 31, 2006, an increase of $0.1
million.  At December 31, 2007 and March 31, 2007, the Bank’s
allowance for loan losses was $5.6 million and $5.4 million,
respectively.  The ratio of the allowance for loan losses to
non-performing loans was 137.5% at December 31, 2007 compared to 119.9% at
March 31, 2007.  The ratio of the allowance for loan losses to total
loans was 0.84% at December 31, 2007 compared to 0.89% at March 31,
2007.
  At
December 31, 2007, non-performing assets totaled $4.2 million, or 0.52% of total
assets compared to $4.5 million, or 0.62% of total assets at March 31,
2007.  Non-performing assets include loans 90 days past due,
non-accrual loans and other real estate owned.  The level of
non-performing loans to total loans remains within the range the Bank has
experienced over the trailing twelve quarters. The Company’s future levels of
non-performing loans will be influenced by economic conditions, including the
impact of those conditions on the Company’s customers, interest rates and other
internal and external factors existing at the time.
  Subprime
Loans
  On July
10, 2007, the OTS and other Federal bank regulatory authorities (the “Agencies”)
published the final Interagency Statement on Subprime Lending (the “Statement”)
to address emerging issues and questions relating to certain subprime mortgage
lending practices.  Although the Agencies did not provide a specific
definition of a “subprime” loan in the Statement, the Statement did highlight
the Agencies’ concerns with certain adjustable-rate mortgage products offered to
subprime borrowers that have one or more of the following
characteristics:
  21
  ·
              Low
      initial payments based on a fixed introductory rate that expires after a
      short period and then adjusts to a variable index rate plus a margin for
      the remaining term of the loan;
  ·
              Very
      high or no limits on how much the payment amount or the interest rate may
      increase (“payment or rate caps”) on reset
  dates;
  ·
              Limited
      or no documentation of borrowers’
income;
  ·
              Product
      features likely to result in frequent refinancing to maintain an
      affordable monthly payment; and/or
  ·
              Substantial
      prepayment penalties and/or prepayment penalties that extend beyond the
      initial fixed interest rate period.
  In the
2001 Expanded Guidance for Subprime Lending Programs, the Agencies determined
that, generally, subprime borrowers will display a range of credit risk
characteristics that may include one or more of the following:
  ·
              Two
      or more 30-day delinquencies in the last 12 months, or one or more 60-day
      delinquencies in the last 24
months;
  ·
              Judgment,
      foreclosure, repossession, or charge-off in the prior 24
      months;
  ·
              Bankruptcy
      in the last 5 years;
  ·
              Relatively
      high default probability as evidenced by, for example, a credit bureau
      risk score (FICO) of 660 or below (depending on the product/collateral),
      or other bureau or proprietary scores with an equivalent default
      probability likelihood; and/or
  ·
              Debt
      service-to-income ratio of 50% or greater, or otherwise limited ability to
      cover family living expenses after deducting total monthly debt-service
      requirements from monthly income.
  The Bank
has minimal exposure to the subprime loan market and, therefore, we do not
expect the Statement to have a material impact on the Company.  At
December 31, 2007, the Bank’s loan portfolio contained $1.5 million in subprime
loans, all of which were performing loans.
  
 Non-Interest
Income
  Total
non-interest income increased by $2.2 million, or 229.0%, to $3.2 million for
the quarter ended December 31, 2007, compared to $1.0 million in the prior year
period.  The increase in non-interest income was primarily due to an
increase of $1.9 million in other non-interest income to $2.0 million compared
to $0.1 million for the prior year period.  Other non-interest income
primarily consists of a $1.7 million fee generated by a New Markets Tax Credit
transaction.  The Bank will receive additional non-interest income over the
next eight years from the NMTC transaction.
  For the
nine month period ended December 31, 2007, non-interest income increased $4.2
million, or 266.4%, to $5.8 million compared to $1.6 million for the prior year
period.  The increase in non-interest income was primarily due to an
increase of $2.0 million in other non-interest income to $2.3 million compared
to $0.3 million and an increase of $0.5 in loan fees and service charges to $1.2
million compared to $0.7 million, respectively, for the prior year
period.  Other income primarily consists of a $1.7 million fee
generated by a New Markets Tax Credit transaction.  The prior year
period included a $1.3 million charge related to the balance sheet
repositioning.
   Non-Interest
Expense
  For the
quarter ended December 31, 2007, total non-interest expense increased $2.1
million, or 35.3%, to $8.0 million compared to $5.9 million for the prior year
period.  The increase in non-interest expense was primarily due to
increases of $0.6 million in employee compensation and benefits to $3.4 million
compared to $2.8 million, $0.2 million in net occupancy expense to $0.9 million
compared to $0.7 million, $0.3 million in equipment net to $0.8 million compared
to $0.5 million and $1.0 million in other non-interest expense to $2.8 million
compared to $1.8 million, respectively, for the prior year
period.  The $0.6 million increase in employee compensation and
benefits primarily reflects investments in new talent, primarily in the retail,
lending and accounting departments.  The $1.0 million in other
non-interest expense includes consulting assistance on several projects, and
costs recognized following termination of a potential strategic
transaction.
  During
the nine month period ended December 31, 2007, non-interest expense increased
$4.8 million, or 28.5%, to $21.7 million compared to $16.9 million for the prior
year period.  The increase in non-interest expense was primarily due
to increases of $2.3 million in employee compensation and benefits to $9.7
million compared to $7.4 million, $0.8 million in net occupancy expense to $2.7
million compared to $1.9 million, and $2.6 million increase in other expenses to
$7.3 million compared to $4.7 million, respectively, for the prior year period,
offset by a decrease of $1.3 million in merger related expenses in the prior
year period.  The increase in employee compensation and benefits is
primarily due to the CCB acquisition and investments in new talent, primarily in
the retail, lending and accounting departments. The $2.6 million increase
in other expense includes consulting assistance on several projects, and costs
recognized following termination of a potential strategic
transaction.
  22
  Income
Tax Expense
  For the
quarter ended December 31, 2007, income tax benefit decreased $43,000, or 13.8%,
resulting in a tax benefit of $0.3 million for both the current and the prior
year period.  The reduction in tax benefit reflects income before
income taxes of $1.3 million for the quarter ended December 31, 2007 compared to
$1.1 million in the prior year period.  The current period income tax
expense of $0.3 million was offset by the benefit of the NMTC award totaling
$0.6 million for the quarter ended December 31, 2007.  The Company is
expected to receive benefits from the NMTC award on its $40 million investment
over approximately seven years.
  For the
nine month period ended December 31, 2007, income tax benefit
decreased $0.1 million, resulting in a tax benefit of $0.2 million compared to a
tax benefit of $0.3 million for the prior year period.  The reduction
in tax benefit reflects income before income taxes of $3.3 million for the nine
month period ended December 31, 2007 compared to $1.0 million for the prior year
period.  The income tax expense of $1.2 million for the nine month
period ended December 31, 2007 was offset by the benefit of the NMTC award
totaling $1.4 million.
   ITEM
3. Quantitative and Qualitative Disclosure about Market
Risk
  Quantitative
and qualitative disclosure about market risk is presented at March 31, 2007 in
Item 7A of the Company’s 2007 Form 10-K and is incorporated herein by
reference.  The Company believes that there has been no material
change in the Company’s market risk at December 31, 2007 compared to March 31,
2007.
   ITEM
4.          Controls and Procedures
  The
Company maintains controls and procedures designed to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Securities Exchange Act of 1934 (“Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC.  As of December 31, 2007, the Company carried out an
evaluation, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Chief Financial
Officer (the Company’s principal executive officer and principal financial
officer, respectively), of the effectiveness of the Company’s disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15.  Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were effective
to ensure that information required to be disclosed in the reports we file and
submit under the Exchange Act is recorded, processed, summarized and reported as
and when required and that such information is accumulated and communicated to
the Company’s management as appropriate to allow timely decisions regarding
required disclosure.
  There
were no changes in the Company’s internal control over financial reporting that
occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
  23
  PART
II. OTHER
INFORMATION
   ITEM 1. Legal
Proceedings
  Disclosure
regarding legal proceedings to which the Company is a party is presented in Note
13 to the audited Consolidated Financial Statements in the 2007 Form 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 2007 Form
10-K.
   ITEM 1A. Risk
Factors
  For a
summary of risk factors relevant to the Company’s operations, see Part I, Item
1A, “Risk Factors,” in the Company’s 2007 Form 10-K.  There has been
no material change in risk factors relevant to the Company’s operations since
March 31, 2007.
   ITEM 2. Issuer
Purchases of Equity Securities
  During
the quarter ended December 31, 2007, the Company purchased an additional 6,500
shares of its common stock under its stock repurchase program.  As of
December 31, 2007, the Company has purchased a total of 152,674 shares at an
average price per share of $16.44.
  Period
              
              Total
                number
                of
      shares
                purchased
              
              
              Average
                price
      paid
                per
      share
              
              
              Total
      number
                of
      shares
                as
      part of
                publicly
                announced
      plan (1)
              
              
              Total
                number
                of
      shares that
                may
      yet be
                purchased
      (2)October
      1, 2007 to October 31, 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              85,461November
      1, 2007 to November 30, 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              85,461December
      1, 2007 to December 31, 2007
              
              
              6,500
              
              
              $
              14.29
              
              
              
              6,500
              
              
              
              78,961
 
  (1) The
Company’s stock purchase program was announced on August 2002 without an
expiration date.
   (2) As
part of the stock repurchase program, the Company approved the repurchase of up
to 231,635 shares of its common stock.
  
  ITEM 3. Defaults
Upon Senior Securities
  Not
applicable.
   ITEM4. Submission
of Matters to a Vote of Security Holders
  Not
applicable.
   ITEM 5. Other
Information
  Not
applicable.
   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
              Second
      Amended and Restated Bylaws of Carver Bancorp, Inc.
  (2)
  Exhibit 11.
              Computation
      of Earnings Per Share.
  Exhibit 31.1
              Certification
      of Chief Executive Officer.
  Exhibit 31.2
              Certification
      of Chief Financial Officer.
  Exhibit 32.1(*)
              Certification
      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(*)
              Certification
      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
      by reference to Exhibits 3.2 to the Registrant’s Current Report on Form
      8-K filed with the Securities and Exchange Commission on December 19,
      2007.
  * This
certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for
purposes of Section 18 of the Securities Exchange Act of 1934, as
amended.
  24
  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 14,
      2008
              
              /s/ Deborah C.
      WrightDeborah
      C. WrightChairman
      and Chief Executive Officer(Principal
      Executive Officer)Date:
      February 14,
      2008
              
              /s/ Roy
      SwanRoy
      SwanExecutive
      Vice President and Chief Financial Officer(Principal
      Financial and Accounting Officer)
   25