**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 June 30, 2006**





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




**For
      the transition period from _________ to _________**





Commission
      File Number: **0-21487**





**CARVER BANCORP, INC.**


(Exact
      name of registrant as specified in its charter)








**Delaware**
            
            **13-3904174**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**75
                West 125****th****Street, New York, New York**
            
            **10027**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





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





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
              X
              No




Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      rule
      12b-2 of the Exchange Act).


Yes
                
                No
                X


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


Yes
                  
                  No
                  X


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





**Common
                Stock, par value $.01**
            
            **2,514,147**Class
            
            Outstanding
                at July 31, 2006









**TABLE
      OF**  **CONTENTS**


PART
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  StatementsConsolidated
                  Statements of Financial Condition as ofJune
                  30, 2006 (unaudited) and March 31, 2006Consolidated
                  Statements of Income for the Three MonthsEnded
                  June 30, 2006 and 2005 (unaudited)Consolidated
                  Statement of Changes in Stockholders’ Equity andComprehensive
                  Income for the Three Months Ended June 30, 2006 (unaudited)Consolidated
                  Statements of Cash Flows for the Three MonthsEnded
                  June 30, 2006 and 2005 (unaudited)Notes
                  to Consolidated Financial Statements (unaudited)Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  OperationsItem
                  3.
              Quantitative
                  and Qualitative Disclosures About Market RiskItem
                  4.
              Controls
                  and ProceduresPART
                  II.
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  ProceedingsItem
                  1A.
              Risk
                  FactorsItem
                  2.
              Unregistered
                  Sales of Equity Securities and Use of ProceedsItem
                  3.
              Defaults
                  Upon Senior SecuritiesItem
                  4.
              Submission
                  of Matters to a Vote of Security HoldersItem
                  5.
              Other
                  InformationItem
                  6.
              ExhibitsSIGNATURESEXHIBITS




**PART
      I.**  **FINANCIAL
      INFORMATION**


**ITEM
      1.**  **Financial
      Statements**


**CARVER
                  BANCORP, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF FINANCIAL CONDITION****(In
                  thousands, except share data)****June
                  30,**
              
              **March
                  31,****2006**
              
              **2006****(Unaudited)****ASSETS**Cash
                  and cash equivalents:Cash
                  and due from banks
              
              $
              14,589
              
              $
              13,604Federal
                  funds sold
              
              
              12,450
              
              
              8,700Interest
                  Earning Deposits
              
              
              600
              
              
              600Total
                  cash and cash equivalents
              
              
              27,639
              
              
              22,904Securities:Available-for-sale,
                  at fair value (including pledged as collateral of $71,399 and
                  $79,211**at
                  June 30, 2006 and March 31, 2006, respectively)
              
              
              73,722
              
              
              81,882Held-to-maturity,
                  at amortized cost (including pledged as collateral of $22,174 and
                  $26,039at
                  June 30, 2006 and March 31, 2006, respectively; fair value of
                  $21,858and
                  $25,880 atJune 30, 2006 and March 31, 2006, respectively)
              
              
              22,477
              
              
              26,404Total
                  securities
              
              
              96,199
              
              
              108,286Loans
                  receivable:Real
                  estate mortgage loans
              
              
              495,811
              
              
              495,994Consumer
                  and commercial business loans
              
              
              3,693
              
              
              1,453Allowance
                  for loan losses
              
              
              (4,025
              )
              
              (4,015
              )Total
                  loans receivable, net
              
              
              495,479
              
              
              493,432Office
                  properties and equipment, net
              
              
              13,198
              
              
              13,194Federal
                  Home Loan Bank of New York stock, at cost
              
              
              4,327
              
              
              4,627Bank
                  owned life insurance
              
              
              8,557
              
              
              8,479Accrued
                  interest receivable
              
              
              3,076
              
              
              2,970Other
                  assets
              
              
              6,092
              
              
              7,101Total
                  assets
              
              $
              654,567
              
              $
              660,993**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**Liabilities:Deposits
              
              $
              507,812
              
              $
              504,638Advances
                  from the Federal Home Loan Bank of New York and other borrowed
                  money
              
              
              86,850
              
              
              93,792Other
                  liabilities
              
              
              10,762
              
              
              13,866Total
                  liabilities
              
              
              605,424
              
              
              612,296Stockholders'
                  equity:Common
                  stock (par value $0.01 per share: 10,000,000 shares authorized;
                  2,524,691
                  shares issued;2,505,047
                  and 2,506,822 outstanding at June 30, 2006 and March 31, 2006,
                  respectively)
              
              
              25
              
              
              25Additional
                  paid-in capital
              
              
              23,970
              
              
              23,935Retained
                  earnings
              
              
              26,337
              
              
              25,736Unamortized
                  awards of common stock under ESOP and management recognition plan
                  ("MRP")
              
              
              (17
              )
              
              (22
              )Treasury
                  stock, at cost (19,644 and 17,869 shares at June 30, 2006 and March
                  31,
                  2006, respectively)
              
              
              (332
              )
              
              (303
              )Accumulated
                  other comprehensive loss
              
              
              (840
              )
              
              (674
              )Total
                  stockholders' equity
              
              
              49,143
              
              
              48,697Total
                  liabilities and stockholders' equity
              
              $
              654,567
              
              $
              660,993
  See
      accompanying notes to consolidated financial statements.












**CARVER
                  BANCORP, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF INCOME****(In
                  thousands, except per share data)****(Unaudited)****Three
                  Months Ended****June
                  30,****2006**
              
              **2005**Interest
                  Income:Loans
              
              $
              7,891
              
              $
              6,206Mortgage-backed
                  securities
              
              
              932
              
              
              1,125Investment
                  securities
              
              
              181
              
              
              275Federal
                  funds sold
              
              
              116
              
              
              146Total
                  interest income
              
              
              9,120
              
              
              7,752Interest
                  expense:Deposits
              
              
              2,995
              
              
              1,871Advances
                  and other borrowed money
              
              
              1,090
              
              
              1,181Total
                  interest expense
              
              
              4,085
              
              
              3,052Net
                  interest income
              
              
              5,035
              
              
              4,700Provision
                  for loan losses
              
              
              -
              
              
              -Net
                  interest income after provision for loan losses
              
              
              5,035
              
              
              4,700Non-interest
                  income:Depository
                  fees and charges
              
              
              609
              
              
              630Loan
                  fees and service charges
              
              
              246
              
              
              658Gain
                  on sale of loans
              
              
              12
              
              
              26Other
              
              
              78
              
              
              85Total
                  non-interest income
              
              
              945
              
              
              1,399Non-interest
                  expense:Employee
                  compensation and benefits
              
              
              2,285
              
              
              2,524Net
                  occupancy expense
              
              
              584
              
              
              501Equipment,
                  net
              
              
              476
              
              
              442Merger
                  related expenses
              
              
              2
              
              
              5Other
              
              
              1,386
              
              
              1,323Total
                  non-interest expense
              
              
              4,733
              
              
              4,795Income
                  before income taxes
              
              
              1,247
              
              
              1,304Income
                  taxes
              
              
              445
              
              
              464Net
                  income available to common stockholders
              
              $
              802
              
              $
              840Earnings
                  per common share:Basic
              
              $
              0.32
              
              $
              0.34Diluted
              
              $
              0.31
              
              $
              0.33




See
      accompanying notes to consolidated financial statements.









**CARVER
      BANCORP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**


**AND
      COMPREHENSIVE INCOME**


**FOR
      THE THREE MONTHS ENDED JUNE 30, 2006**


**(In
      thousands)**


**(Unaudited)**


**COMMON
                  STOCK**
              
              **ADDITIONAL
                  PAID-IN CAPITAL**
              
              **RETAINED
                  EARNINGS**
              
              **TREASURY
                  STOCK**
              
              **ACCUMULATED
                  OTHER COMPREHENSIVE INCOME (LOSS)**
              
              **COMMON
                  STOCK ACQUIRED BY ESOP**
              
              **COMMON
                  STOCK ACQUIRED BY MRP**
              
              **TOTAL
                  STOCK-HOLDERS’ EQUITY****Balance—March
                  31, 2006**
              
              **$**
              **25**
              
              **$**
              **23,935**
              
              **$**
              **25,736**
              
              **$**
              **(303**
              **)**
              **$**
              **(674**
              **)**
              **$**
              **(11**
              **)**
              **$**
              **(11**
              **)**
              **$**
              **48,697**Comprehensive
                  income :Net
                  income
              
              
              -
              
              
              -
              
              
              802
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              802Change
                  in net unrealized loss on available-for-sale securities, net of
                  taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (166
              )
              
              -
              
              
              -
              
              
              (166
              )Comprehensive
                  income, net of taxes:
              
              
              -
              
              
              -
              
              
              802
              
              
              -
              
              
              (166
              )
              
              -
              
              
              -
              
              
              636Dividends
                  paid
              
              
              -
              
              
              -
              
              
              (201
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (201
              )Stock
                  based compensation activity, net
              
              
              
              
              
              35
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              35Treasury
                  stock activity, net
              
              
              -
              
              
              -
              
              
              -
              
              
              (29
              )
              
              -
              
              
              -
              
              
              5
              
              
              (24
              )**Balance—June
                  30, 2006**
              
              **$**
              **25**
              
              **$**
              **23,970**
              
              **$**
              **26,337**
              
              **$**
              **(332**
              **)**
              **$**
              **(840**
              **)**
              **$**
              **(11**
              **)**
              **$**
              **(6**
              **)**
              **$**
              **49,143**




See
      accompanying notes to consolidated financial statements.








**CARVER
      BANCORP, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(In
      thousands)**


**(Unaudited)**


**Three
                  Months Ended June 30,****2006**
              
              **2005**Cash
                  flows from operating activities:Net
                  income
              
              $
              802
              
              $
              840Adjustments
                  to reconcile net income to net cash providedby
                  (used in) operating activities:Provision
                  for loan losses
              
              
              -
              
              
              -ESOP
                  and MRP expense
              
              
              70
              
              
              109Depreciation
                  and amortization expense
              
              
              395
              
              
              377Other
                  amortization
              
              
              604
              
              
              (75
              )Gain
                  on sale of loans
              
              
              (12
              )
              
              (26
              )Changes
                  in assets and liabilities:Proceeds
                  from loans sold
              
              
              1,610
              
              
              2,927Increase
                  in accrued interest receivable
              
              
              (106
              )
              
              (290
              )Decrease
                  (increase) in other assets
              
              
              932
              
              
              (8,712
              )Decrease
                  in other liabilities
              
              
              (3,225
              )
              
              (1,643
              )Net
                  cash provided by (used in) operating activities
              
              
              1,070
              
              
              (6,493
              )Cash
                  flows from investing activities:Purchases
                  of securities:Available-for-sale
              
              
              -
              
              
              (14,540
              )Proceeds
                  from principal payments, maturities and calls of
                  securities:Available-for-sale
              
              
              7,834
              
              
              15,035Held-to-maturity
              
              
              3,835
              
              
              2,606Proceeds
                  from sales of available-for-sale securities
              
              
              -
              
              
              1,575Disbursements
                  for loan originations
              
              
              (30,515
              )
              
              (19,198
              )Loans
                  purchased from third parties
              
              
              (21,128
              )
              
              (13,454
              )Principal
                  collections on loans
              
              
              47,810
              
              
              35,790Redemption
                  of FHLB-NY stock
              
              
              300
              
              
              400Additions
                  to premises and equipment
              
              
              (399
              )
              
              (430
              )Net
                  cash provided by investing activities
              
              
              7,737
              
              
              7,784Cash
                  flows from financing activities:Net
                  increase in deposits
              
              
              3,174
              
              
              1,427Net
                  repayment of FHLB advances
              
              
              (6,956
              )
              
              (8,006
              )Common
                  stock repurchased
              
              
              (89
              )
              
              -Dividends
                  paid
              
              
              (201
              )
              
              (174
              )Net
                  cash used in financing activities
              
              
              (4,072
              )
              
              (6,753
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              4,735
              
              
              (5,462
              )Cash
                  and cash equivalents at beginning of the period
              
              
              22,904
              
              
              20,420Cash
                  and cash equivalents at end of the period
              
              $
              27,639
              
              $
              14,958Supplemental
                  information:Noncash
                  Transfers-Change
                  in unrealized loss on valuation of available-for-saleinvestments,
                  net
              
              $
              (166
              )
              $
              258Cash
                  paid for-Interest
              
              $
              4,034
              
              $
              3,099Income
                  taxes
              
              $
              1,726
              
              $
              2,075
  See
        accompanying notes to consolidated financial
        statements.








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





(1)  BASIS
      OF
      PRESENTATION




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




The
      unaudited consolidated financial statements presented herein should be read
      in
      conjunction with the consolidated financial statements and notes thereto
      included in the Holding Company’s Annual Report on Form 10-K for the fiscal year
      ended March 31, 2006 (“2006 10-K”) previously filed with the SEC. The
      consolidated results of operations and other data for the three-month period
      ended June 30, 2006 are not necessarily indicative of results that may be
      expected for the entire fiscal year ending March 31, 2007 (“fiscal
      2007”).




The
      accompanying unaudited consolidated financial statements include the accounts
      of
      the Holding Company and its wholly owned subsidiaries, Carver Federal Savings
      Bank (the “Bank” or “Carver Federal”), Alhambra Holding Corp., an inactive
      Delaware corporation, and the Bank’s wholly-owned subsidiaries, CFSB Realty
      Corp. and CFSB Credit Corp., and the Bank’s majority owned subsidiary, Carver
      Asset Corporation. On August 18, 2005 Carver Federal formed Carver Community
      Development Corp. (“CCDC”), a wholly owned community development entity whose
      purpose is to make qualified business loans in low-income communities. The
      Holding Company and its consolidated subsidiaries are referred to herein
      collectively as “Carver” or the “Company.” All significant inter-company
      accounts and transactions have been eliminated in consolidation.




In
      addition, the Holding Company has a subsidiary, Carver Statutory Trust I, which
      is not consolidated with Carver for financial reporting purposes as a result
      of
      our adoption of Financial Accounting Standards Board (“FASB”), revised
      Interpretation No. 46, *“Consolidation
      of Variable Interest Entities, and Interpretation of Accounting Research
      Bulletin No. 51” (“FIN46R”)* ,
      effective January 1, 2004. Carver Statutory Trust I was formed in 2003 for
      the
      purpose of issuing 13,000 shares, liquidation amount $1,000 per share, of
      floating rate capital securities (“trust preferred securities”). Gross proceeds
      from the sale of these trust preferred securities were $13.0 million, and,
      together with the proceeds from the sale of the trust's common securities,
      were
      used to purchase approximately $13.4 million aggregate principal amount of
      the
      Holding Company's floating rate junior subordinated debt securities due 2033.
      The junior subordinated debt securities which are included in other borrowed
      money on the consolidated statements of financial condition, are repayable
      quarterly at the option of the Holding Company, beginning on or after July
      7,
      2007, and have a mandatory repayment date of September 17, 2033. Interest on
      the
      junior subordinated debt securities is cumulative and payable at a floating
      rate
      per annum (reset quarterly) equal to 3.05% over three-month LIBOR, with a rate
      of 8.45% as of June 30, 2006. The Holding Company has fully and unconditionally
      guaranteed the obligations of Carver Statutory Trust I to the trust's
      capital security holders. See Note 6 for further discussion of the impact of
      our
      adoption of FIN 46R.




(2)  EARNINGS
      PER COMMON SHARE




Basic
      earnings per common share is computed by dividing income available to common
      stockholders by the weighted-average number of common shares outstanding over
      the period of determination. Diluted earnings per common share include any
      additional common shares as if all potentially dilutive common shares were
      issued (for instance, stock options with an exercise price that is less than
      the
      average market price of the common shares for the periods stated). For the
      purpose of these calculations, unreleased ESOP shares are not considered to
      be
      outstanding. For the three-month periods ended June 30, 2006 and 2005, 61,675
      and 67,237 shares of common stock were potentially issuable from the exercise
      of
      stock options with an exercise price that is less than the average market price
      of the common shares for the three-months ended June 30, 2006 and 2005,
      respectively. The effects of these potentially dilutive common shares were
      considered in determining the diluted earnings per common share.




(3) STOCK
      OPTION PLAN




*Accounting
      for Stock Based Compensation*




The
      Holding Company grants “incentive stock options” only to its employees and
      grants “nonqualified stock options” to employees and non-employee directors.
      Effective April 1, 2006, the Company adopted revised Statement of Financial
      Accounting Standards, or SFAS, No. 123, “Share-Based Payment,” or SFAS No.
      123(R), which requires compensation costs related to share-based payment
      transactions be recognized in the financial statements. SFAS No. 123(R) applies
      to all awards granted after April 1, 2006 and to awards modified, repurchased
      or
      cancelled after that date. Additionally, beginning April 1, 2006, the Company
      recognized compensation cost for the portion of outstanding awards for which
      the
      requisite service has not yet been rendered, based on the grant-date fair value
      of those awards calculated under SFAS No. 123 for pro forma disclosures.
      Stock-based compensation expense recognized for the three months ended June
      30,
      2006 totaled $57,000 and a related tax benefit of $22,000.




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




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


**June
                    30,**
                
                **June
                    30,****2006**
                
                **2005**Net
                    Income available to common shareholders:As
                    reported
                
                
                
                
                $
                802
                
                $
                840Add:   
                    Stock-based employee compensation includedin reported net income (loss), net of tax effects
                
                
                
                
                
                35
                
                
                -Less:  
                     Total
                    stock-based employee compensation
                    expense
                      determined under fair value based
                      methods for all awards, net of tax effects
                
                
                
                
                
                (35
                )
                
                (6
                )Pro
                    forma
                
                
                
                
                $
                802
                
                $
                834Basic
                    earnings per share:As
                    reported
                
                
                
                
                $
                0.32
                
                $
                0.34Pro
                    forma
                
                
                
                
                
                0.32
                
                
                0.33Diluted
                    earnings per share:As
                    reported
                
                
                
                
                $
                0.31
                
                $
                0.33Pro
                    forma
                
                
                
                
                
                0.31
                
                
                0.32




The
      fair
      value of the option grants was estimated on the date of the grant using the
      Black-Scholes option pricing model applying the following weighted average
      assumptions for the quarter ended June 30, 2005: risk-free interest rates of
      4.15%, volatility of 24.24%, expected dividend yield was 1.09% and an expected
      life of ten years was used for all option grants.




(4) EMPLOYEE
      BENEFIT PLANS




*Employee
      Pension Plan*




Carver
      Federal has a non-contributory defined benefit pension plan covering all
      eligible employees. The benefits are based on each employee’s term of service.
      Carver Federal’s policy was to fund the plan with contributions which equal the
      maximum amount deductible for federal income tax purposes. The pension plan
      was
      curtailed and future benefit accruals ceased as of December 31,
      2000.




*Directors’
      Retirement Plan*




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




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




**Employee
                  Pension Plan**
              
              **Non-Employee
                  Directors' Plan****2006**
              
              **2005**
              
              **2006**
              
              **2005****(In
                  thousands)**Interest
                  Cost
              
              $
              40
              
              $
              42
              
              $
              1
              
              $
              2Expected
                  Return on Assets
              
              
              (55
              )
              
              (59
              )
              
              -
              
              
              -Unrecognized
                  (Gain)/Loss
              
              
              4
              
              
              -
              
              
              (1
              )
              
              -Net
                  Periodic Benefit Expense / (Credit)
              
              $
              (11
              )
              $
              (17
              )
              $
              -
              
              $
              2




(5) COMMON
      STOCK DIVIDEND





On
      August
      8, 2006, the Board of Directors of the Holding Company declared, for the quarter
      ended June 30, 2006, a cash dividend of nine cents ($0.09) per common share
      outstanding. The dividend is payable on September 5, 2006 to stockholders of
      record at the close of business on August 22, 2006.




(6) RECENT
      ACCOUNTING PRONOUNCEMENTS




*Accounting
      for Uncertainty in Income Taxes*




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




*Accounting
      for Servicing of Financial Assets*




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




*Accounting
      for Certain Hybrid Financial Instruments*




In
      February 2006, the FASB issued SFAS No. 155, *“Accounting
      for Certain Hybrid Financial Instruments - an Amendment of FASB Statements
      No.
      133 and 140,”* which
      amends SFAS No. 133, *“Accounting
      for Derivative Instruments and Hedging Activities,* ”
and
      SFAS No. 140 and allows an entity to re-measure at fair value a hybrid financial
      instrument that contains an embedded derivative that otherwise would require
      bifurcation from the host, if the holder irrevocably elects to account for
      the
      whole instrument on a fair value basis. SFAS No. 155 is effective for all
      financial instruments acquired or issued after the beginning of an entity’s
      first fiscal year that begins after September 15, 2006. Any difference between
      the total carrying amount of the individual components of the existing
      bifurcated hybrid financial instrument and the fair value of the combined hybrid
      financial instrument should be recognized as a cumulative-effect adjustment
      to
      beginning retained earnings. Carver does not expect the adoption of SFAS No.
      155
      to have any impact on the Company’s consolidated financial condition or results
      of operations.




*The
      Meaning of Other-Than-Temporary impairment and It’s Application to Certain
      Investments*




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




*Accounting
      Changes and Error Corrections*




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




**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 the
      management's experience and its perception of historical trends, current
      conditions and expected future developments, as well as other factors believed
      to be appropriate under the circumstances. These statements are not guarantees
      of future performance and are subject to risks, uncertainties and other factors,
      many of which are beyond the Company’s control, that could cause actual results
      to differ materially from future results expressed or implied by such
      forward-looking statements. Factors which could result in material variations
      include, without limitation, the Company's success in implementing its
      initiatives, including expanding its product line, adding new branches and
      ATM
      centers, successfully re-branding its image and achieving greater operating
      efficiencies; increases in competitive pressure among financial institutions
      or
      non-financial institutions; legislative or regulatory changes which may
      adversely affect the Company’s business or the cost of doing business;
      technological changes which may be more difficult or expensive than we
      anticipate; changes in interest rates which may reduce net interest margins
      and
      net interest income; changes in deposit flows, loan demand or real estate values
      which may adversely affect the Company’s business; changes in accounting
      principles, policies or guidelines which may cause the Company’s condition to be
      perceived differently; litigation or other matters before regulatory agencies,
      whether currently existing or commencing in the future, which may delay the
      occurrence or non-occurrence of events longer than anticipated; the ability
      of
      the Company to originate and purchase loans with attractive terms and acceptable
      credit quality; and general economic conditions, either nationally or locally
      in
      some or all areas in which the Company does business, or conditions in the
      securities markets or the banking industry which could affect liquidity in
      the
      capital markets, the volume of loan origination, deposit flows, real estate
      values, the levels of non-interest income and the amount of loan losses.




The
      forward-looking statements contained herein are made as of the date of this
      Form
      10-Q, and the Company assumes no obligation to, and expressly disclaims any
      obligation to, update these forward-looking statements to reflect actual
      results, changes in assumptions or changes in other factors affecting such
      forward-looking statements or to update the reasons why actual results could
      differ from those projected in the forward-looking statements. You should
      consider these risks and uncertainties in evaluating forward-looking statements
      and you should not place undue reliance on these statements.




As
      used
      in this Form 10-Q, “we,” “us” and “our” refer to the Holding Company and its
      consolidated subsidiaries, unless the context otherwise requires.




**Overview**




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




The
      Holding Company, a Delaware corporation, is the holding company for Carver
      Federal, a federally chartered savings bank, and, on a parent-only basis, had
      minimal results of operations. The Holding Company is headquartered in New
      York,
      New York. The Holding Company conducts business as a unitary savings and loan
      holding company, and the principal business of the Holding Company consists
      of
      the operation of its wholly-owned subsidiary, Carver Federal. The Bank is
      focused on successfully building its core business by providing superior
      customer service while offering a wide range of financial products. As of June
      30, 2006,
      the
      Bank operated eight full-service banking locations, four 24/7 ATM centers and
      three 24/7 stand-alone ATM locations in the New York City boroughs of Brooklyn,
      Queens and Manhattan.




As
      the
      largest African-American operated bank in the United States, we are well
      positioned to address the diverse financial opportunities in urban markets.
      Our
      goal is to build a solid banking franchise while enhancing shareholder value.
      We
      continually focus on expanding our principal businesses of mortgage lending
      and
      retail banking while maintaining superior asset quality and controlling
      operating expenses. Carver Federal’s net income, like others in the thrift
      industry, is dependent primarily on net interest income, which is the difference
      between interest income earned on its interest-earning assets such as loans,
      investment and mortgage-backed securities portfolios and the interest paid
      on
      its interest-bearing liabilities, such as deposits and borrowings. The Bank’s
      earnings are also affected by general economic and competitive conditions,
      particularly changes in market interest rates and government and regulatory
      policies. Additionally, net income is affected by any incremental provision
      for
      loan losses, as well as non-interest income and operating expenses.





During
      the three months ended June 30, 2006, the local real estate markets remained
      strong and continued to support new and existing lending opportunities. The
      Federal Open Market Committee (“FOMC”), continued its policy of monetary
      tightening with its seventeenth consecutive federal funds rate increase, the
      result of which has significantly flattened the U.S. Treasury yield curve.
      As a
      result of the rate environment that prevailed throughout fiscal 2006 and
      continues in fiscal 2007, we pursued a strategy of using the proceeds from
      the
      repayment and maturities of our lower earning investment portfolio and the
      growth in deposits to fund higher yielding commercial real estate and
      construction loans while at the same time allowing for the repayment of
      borrowings.




Our
      total
      loan portfolio increased during the three months ended June 30, 2006. The
      increase in total loans receivable, net, is primarily the result of increases
      in
      construction and commercial business loans, partially offset by decreases in
      one-to four and multifamily residential loans. Total deposits also increased
      during the three months ended June 30, 2006. The growth was primarily the result
      of increases in certificate of deposit accounts, largely from the receipt of
      brokered deposits, which has enabled us to reduce our borrowing levels. Our
      securities and borrowings portfolios decreased during the three months ended
      June 30, 2006, which is consistent with our strategy of reducing these
      portfolios through normal cash flow in response to the continued flat U.S.
      Treasury yield curve.




Net
      income for the three months ended June 30, 2006 decreased compared to the three
      months ended June 30, 2005. The decline in quarterly results was primarily
      due
      to a decrease in non-interest income partially offset by an increase in net
      interest income, a decrease in non-interest expense and a decrease in income
      tax
      expense. The decrease in non-interest income was the result of decreases in
      mortgage prepayment penalty income, loan origination fees, commissions earned
      from the sale of investment and insurance products and the gain on sale of
      mortgage loans. Net interest income increased as a result of the Bank’s strategy
      of reducing lower yielding securities and replacing them with higher yielding
      loans, while replacing higher cost borrowings with lower cost deposits,
      resulting in an increase in interest income, partially offset by an increase
      in
      interest expense. The decrease in non-interest expense is primarily due to
      a
      reduction in employee compensation and benefits expenses achieved through
      outsourcing efforts and staff attrition as well as reductions in medical
      insurance and search firm fees. Partially offsetting the decrease in
      non-interest expense was an increase in net occupancy and equipment expenses
      primarily a result of higher utility costs, real estate taxes and investments
      in
      computer and banking equipment.




Net
      interest margin and net interest rate spread increased for the three months
      ended June 30, 2006, compared to the three months ended June 30, 2005. These
      increases were primarily due to the yield on our interest-earning assets rising
      more rapidly than the cost of our interest-bearing liabilities as a result
      of
      the positive momentum achieved from our previously discussed balance sheet
      strategy.




We
      expect
      the operating environment to remain challenging throughout fiscal 2007 as rising
      interest rates, coupled with a flat to inverted yield curve, exert further
      pressure on our net interest margin. As a result, we expect to continue our
      strategy of using the proceeds from the reductions in the securities portfolio
      through normal cash flow and the growth in deposits to fund higher yielding
      real
      estate and commercial loans and repay borrowings which should continue to
      improve the quality of the balance sheet and the resulting earnings.
      Additionally, we understand that scale is relevant to our performance growth.
      As
      such, we will continue to identify prudent acquisitions and alliances that
      leverage organic growth and accelerate our expansion strategy.




**Proposed
      Acquisition of Community Capital Bank**




On
      April
      5, 2006, the Company entered into a definitive merger agreement to acquire
      Community Capital Bank (“CCB”), a Brooklyn-based community bank with
      approximately $162 million in assets, in a cash transaction valued at
      $11.1 million, or $40.00 per CCB share. The Boards of Directors of both
      companies and the stockholders of CCB have approved the agreement. The
      transaction is subject to regulatory approvals and is expected to close by
      September 30, 2006. Subsequent to the acquisition the combined entity will
      operate under Carver Federal’s thrift charter and will continue to be supervised
      by the Office of Thrift Supervision (“OTS”). In addition, Carver Federal has
      applied to the New York State Banking Department for a limited purpose
      commercial charter, with the intention of expanding our ability to compete
      for
      municipal and state agency deposits and provide other fee income based
      services.




**New
      Markets Tax Credit Allocation**




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





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




**Critical
      Accounting Policies**




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




***Securities
      Impairment***





Carver
      Federal’s available-for-sale securities portfolio is carried at estimated fair
      value, with any unrealized gains and losses, net of taxes, reported as
      accumulated other comprehensive loss/income in stockholders’ equity. Securities,
      which the Bank has the positive intent and ability to hold to maturity, are
      classified as held-to-maturity and are carried at amortized cost. The fair
      values of securities in portfolio, which are primarily adjustable rate
      mortgage-backed securities at June 30, 2006, 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 June 30, 2006, the Bank carried no permanently impaired
      securities.





***Allowance
      for loan losses***




Allowance
      for loan losses are maintained at a level considered adequate to provide for
      probable loan losses inherent in the portfolio as of June 30, 2006. 
Management is responsible for determining the adequacy of the allowance for
      loan
      losses and the periodic provisioning for estimated losses included in the
      consolidated financial statements. The evaluation process is undertaken on
      a
      quarterly basis, but may increase in frequency should conditions arise that
      would require management’s prompt attention, such as business combinations and
      opportunities to dispose of non-performing and marginally performing loans
      by
      bulk sale or any development which may indicate an adverse trend.




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




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




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




·
            An
                average loss factor, giving effect to historical loss experience
                over
                several years and linked to cyclical trends, is applied to all loans
                not
                subject to specific review. These loans include residential one-
                to
                four-family, multifamily, non-residential and construction loans
                and also
                include consumer and business loans.




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




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




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




Other
      evidence used to support the amount of the allowance and its components
      include:




·  Regulatory
      examinations




·  Amount
      and trend of criticized loans




·  Actual
      losses




·  Peer
      comparisons with other financial institutions




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




·  Opportunities
      to dispose of marginally performing loans for cash consideration




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




**Stock
      Repurchase Program**




In
      August
      2002, Carver’s Board of Directors authorized a stock repurchase program to
      acquire up to 231,635 shares of the Company’s outstanding common stock, or
      approximately 10 percent of the then outstanding shares. On October 25, 2005,
      the Board of Directors approved accelerating the repurchase of the remaining
      148,051 shares under the 2002 stock repurchase program, or up to a $2.5 million
      total investment, to take place over the following 18 months. The acceleration
      is intended to return capital to shareholders and capitalize on current trading
      values, and continue funding stock-based benefit and compensation plans. As
      of
      June 30, 2006 the Company has purchased a total of 96,574 shares at an average
      price of $16.90. Purchases for the stock repurchase program may be made from
      time to time on the open market and in privately negotiated transactions. The
      timing and actual number of shares repurchased under the plan depends on a
      variety of factors including price, corporate and regulatory requirements,
      and
      other market conditions.




**Liquidity
      and Capital Resources**




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




The
      Bank
      monitors its liquidity utilizing guidelines that are contained in a policy
      developed by management of the Bank and approved by the Bank’s Board of
      Directors. The Bank’s several liquidity measurements are evaluated on a frequent
      basis. Management believes the Bank’s short-term assets have sufficient
      liquidity to cover loan demand, potential fluctuations in deposit accounts
      and
      to meet other anticipated cash requirements. Additionally, the Bank has other
      sources of liquidity including the ability to borrow from the Federal Home
      Loan
      Bank of New York (“FHLB-NY”) utilizing unpledged mortgage-backed securities and
      certain mortgage loans, the sale of available-for-sale securities and the sale
      of loans. At June 30, 2006, based on available collateral held at the FHLB-NY
      the Bank had the ability to borrow from the FHLB-NY an additional $34.6
      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 three months ended
      June 30, 2006, total cash and cash equivalents increased by $4.7 million
      reflecting cash provided by operating and investing activities offset by cash
      used in financing activities. Net cash provided by operating activities during
      this period was $1.1 million, primarily representing proceeds from the sale
      of
      loans originated for sale, cash provided from operations and satisfaction of
      receivables included in other assets offset in part by cash used in the
      satisfaction of other liabilities and cash due from accrued interest receivable
      on certain assets. Net cash provided by investing activities was $7.7 million,
      primarily representing cash received from principal collections on loans and
      repayment of principal on securities, partially offset by disbursements to
      fund
      mortgage loan originations and purchases of loans. Net cash used in financing
      activities was $4.1 million, primarily representing net repayments of advances
      from the FHLB-NY, the payment of common dividends and repurchases of the
      Company’s common stock, partially offset by a net increase in deposit balances.
      See “Comparison of Financial Condition at June 30, 2006 and March 31, 2006” for
      a discussion of the changes in securities, loans, deposits and FHLB-NY
      borrowings.




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




Over
      the
      past two years, the FOMC raised the federal funds rate seventeen consecutive
      times. Although short-term rates have increased, mortgage loans and
      mortgage-backed securities are typically tied to longer-term rates which have
      either not increased as dramatically or remained relatively flat. When mortgage
      interest rates increase, customers’ refinance activities tend to decelerate,
      causing the cash flow from both the mortgage loan portfolio and the
      mortgage-backed securities portfolio to decline.




The
      OTS
      requires that the Bank meet minimum capital requirements. Capital adequacy
      is
      one of the most important factors used to determine the safety and soundness
      of
      individual banks and the banking system. At June 30, 2006, 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 capital compliance at
      June 30, 2006.




**REGULATORY
                  CAPITAL****At
                  JUNE 30, 2006****(dollars
                  in thousands)**Amount
              
              %
                  of AssetsTotal
                  capital (to risk-weighted assets):Capital
                  level
              $
              67,542
              
              
              13.43
              %Less
                  requirement
              
              40,223
              
              
              8.00Excess
              $
              27,319
              
              
              5.43Tier
                  1 capital (to risk-weighted assets):Capital
                  level
              $
              63,518
              
              
              12.63
              %Less
                  requirement
              
              26,294
              
              
              4.00Excess
              $
              37,224
              
              
              8.63Tier
                  1 Leverage capital (to adjusted total assets):Capital
                  level
              $
              63,518
              
              
              9.66
              %Less
                  requirement
              
              26,294
              
              
              4.00Excess
              $
              37,224
              
              
              5.66
              %
  **Comparison
      of Financial Condition at June 30, 2006 and March 31, 2006**




***Assets***




Total
      assets decreased $6.4 million, or 1.0%, to $654.6 million at June 30, 2006
      compared to $661.0 million at March 31, 2006. The decrease in total assets
      was
      primarily the result of repayments
      in total securities of $12.1 million, partially offset by increases in cash
      and
      cash equivalents and total loans receivable, net, of $4.7 million and $2.0
      million, respectively.




Cash
      and
      cash equivalents for the three months ended June 30, 2006 increased $4.7 million
      or 20.7%, to $27.6 million, compared to $22.9 million at March 31, 2006. The
      increase was primarily a result of the Bank having a larger investment in
      overnight federal funds sold resulting in higher short-term
      liquidity.




Total
      securities decreased $12.1 million, or 11.2%, to $96.2 million at June 30,
      2006
      from $108.3 million at March 31, 2006 as the portfolio continues to decline
      from
      normal cash flows as a result of security repayments and maturities. The
      securities portfolio decline reflects $11.7 million in total principal
      repayments . There
      were no new purchases of securities during the quarter.  Also
      adding to the decrease in total securities was an increase in the net
      unrealized loss on securities of $268,000 resulting from the mark-to-market
      of
      the available for sale securities in portfolio.




Total
      loans receivable, net, increased $2.0 million, or 0.4%, to $495.5 million at
      June 30, 2006 from $493.4 million at March 31, 2006. The increase resulted
      primarily from $51.6 million in loan originations and purchases exceeding the
      $49.4 million in repayments and sales during the first three months of fiscal
      2007. Loan originations for the period totaled $30.5 million and were comprised
      of $14.1 million in construction, $11.7 million in non-residential, $2.6 million
      in multifamily, $2.0 million in one-to four -family and $160,000 in consumer
      loans. Management continues to evaluate yields and loan quality in the
      competitive New York metropolitan area market and in certain instances has
      decided to purchase loans to supplement internal originations. Total loan
      purchases for the same period amounted to $21.1 million of which $13.5 million
      were construction, $5.4 million were non-residential real estate and $2.2
      million were commercial business loans. The commercial business loan purchases
      were primarily comprised of New York City taxi medallion loans. Management
      also assesses yields and economic risk in determining the balance of
      interest-earning assets allocated to loan originations and purchases compared
      to
      additional purchases of mortgage-backed securities.




The
      Bank’s investment in FHLB-NY stock decreased by $300,000, or 6.5%, to $4.3
      million compared to $4.6 million at March 31, 2006. FHLB-NY requires Banks
      to
      own membership stock as well as borrowing activity-based stock. The repayment
      of
      FHLB-NY borrowings resulted in the net redemption of stock during the
      period.




Other
      assets decreased $1.0 million, or 14.2%, to $6.1 million at June 30, 2006 from
      $7.1 million at March 31, 2006. The decrease is primarily the result of a
      reduction in the Bank’s deferred tax asset.




**Liabilities
      and Stockholders’ Equity**




***Liabilities***




At
      June
      30, 2006, total liabilities decreased by $6.9 million, or 1.1%, to $605.4
      million compared to $612.3 million at March 31, 2006. The decrease in total
      liabilities was primarily
      the result of the repayment of borrowings from the FHLB-NY of $6.9 million
      and a
      reduction in other liabilities of $3.1 million resulting primarily from the
      payment of income taxes and the clearing of outstanding accounts payable checks.
      Partially offsetting the decline in total liabilities was an increase in total
      deposits of $3.2 million. The
      increase in deposit balances was largely the result of a balance increase in
      certificates of deposit accounts of $5.4 million, partially offset by decreases
      of $1.7 million in the balance of savings and escrow deposit accounts, $429,000
      in money market accounts and $160,000 in demand accounts. The increase in
      certificates of deposits is primarily the result of the Bank receiving an
      additional $6.5 million in brokered deposits.




At
      June
      30, 2006, the Bank managed eight branches, four 24/7 ATM centers and three
      24/7
      stand-alone ATM locations. Management believes that deposits will grow as the
      Bank continues to capitalize on its investment in franchise expansions, customer
      service and the offering of a wider array of financial products.




Advances
      from the FHLB-NY and other borrowed money decreased $6.9 million, or 7.4% to
      $86.9 million at June 30, 2006 compared to $93.8 million at March 31, 2006.
      This
      decrease is primarily the result of the repayment of two matured FHLB-NY
      advances: a $13.3 million advance with a cost of 4.94% and a $3.6 million
      advance with a cost of 2.54%, partially offset by a new short-term advance
      for
      $10.0 million at 5.28%. Management, with its commitment to manage the impact
      of
      margin compression, elected to repay these borrowings with available excess
      liquidity.




Other
      liabilities decreased $3.1 million, or 22.4%, to $10.8 million at June 30,
      2006
      from $13.9 million at March 31, 2006. The decrease was primarily attributable
      to
      a $1.7 million payment of income taxes and payments made on
      previously outstanding accounts payable checks.




***Stockholders’
      Equity*** **




Total
      stockholders’ equity increased $446,000 or 1.0%, to $49.1 million at June 30,
      2006 compared to $48.7 million at March 31, 2006. The increase in total
      stockholders’ equity was primarily attributable to an increase of $601,000 in
      retained earnings principally resulting from net income for the quarter ended
      June 30, 2006. Partially offsetting the increase in stockholders’ equity was a
      decrease of $29,000 attributable to the re-purchase of common stock and an
      increase of $166,000 in accumulated other comprehensive loss related to the
      mark-to-market of the Bank’s available-for-sale securities, as required by SFAS
      No. 115 “ *Accounting
      for Certain Investments in Debt and Equity Securities”* .
      Securities accounted for as held-to-maturity are carried at cost while such
      securities designated as available-for-sale are carried at market with any
      adjustments made directly to stockholders’ equity, net of taxes, and does not
      impact the Consolidated Statements of Income.




During
      the quarter ended June 30, 2005, the Holding Company purchased an additional
      5,300 shares of its common stock under its stock repurchase program.




**Asset/Liability
      Management**




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




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




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




**Off-Balance
      Sheet Arrangements and Contractual Obligations**




The
      Bank
      is a party to financial instruments with off-balance sheet risk in the normal
      course of business in order to meet the financing needs of its customers and
      in
      connection with its overall investment strategy. These instruments involve,
      to
      varying degrees, elements of credit, interest rate and liquidity risk. In
      accordance with GAAP, these instruments are not recorded in the consolidated
      financial statements. Such instruments primarily include lending commitments.




Lending
      obligations include commitments to originate mortgage and consumer loans and
      to
      fund unused lines of credit. Additionally, the Bank has a contingent liability
      related to a standby letter of credit.




As
      of
      June 30, 2006, the Bank has outstanding loan commitments and a letter of credit
      as follows:


**Outstanding****Commitments****(In
                  thousands)**Commitments
                  to fund construction mortgage loans
              
              $
              55,011Commitments
                  to originate other mortgage loans
              
              
              22,185Commitments
                  to originate/fund consumer and business loans
              
              
              13,747Letter
                  of credit
              
              
              1,795Total
              
              $
              92,738




The
      Bank
      also has contractual obligations related to long-term debt obligations and
      operating leases. As of June 30, 2006, the Bank has contractual obligations
      as
      follows:


**Payments
                  due by period****Contractual**
              
              
              
              **Less
                  than**
              
              **1
                  - 3**
              
              **3
                  - 5**
              
              **More
                  than****Obligations**
              
              **Total**
              
              **1
                  year**
              
              **years**
              
              **years**
              
              **5
                  years****(In
                  thousands)**Long
                  term debt obligations:FHLB
                  advances
              
              $
              73,979
              
              $
              42,484
              
              $
              31,308
              
              $
              -
              
              $
              187Guaranteed
                  preferred beneficial interest injunior subordinated debentures
              
              
              12,871
              
              
              -
              
              
              -
              
              
              -
              
              
              12,871Total
                  long term debt obligations
              
              
              86,850
              
              
              42,484
              
              
              31,308
              
              
              -
              
              
              13,058Operating
                  lease obligations:Lease
                  obligations for rental properties
              
              
              4,292
              
              
              499
              
              
              1,339
              
              
              1,224
              
              
              1,230Total
                  contractual obligations
              
              $
              91,142
              
              $
              42,983
              
              $
              32,647
              
              $
              1,224
              
              $
              14,288




**Analysis
      of Earnings**




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




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


**CARVER
                    BANCORP, INC. AND SUBSIDIARIES****CONSOLIDATED
                    AVERAGE BALANCES****(Dollars
                    in thousands)****Three
                    months ended June 30,****2006**
                
                **2005****Average**
                
                
                
                **Average**
                
                **Average**
                
                
                
                **Average****Interest
                    Earning Assets:**
                **Balance**
                
                **Interest**
                
                **Yield/Cost**
                
                **Balance**
                
                **Interest**
                
                **Yield/Cost****(Dollars
                    in thousands)**Loans
                    (1)
                493,567
                
                7,891
                
                6.40%
                
                419,234
                
                6,206
                
                5.92%Total
                    securities (2)
                109,558
                
                1,113
                
                4.06%
                
                153,529
                
                1,400
                
                3.65%Fed
                    funds sold
                9,687
                
                116
                
                4.80%
                
                20,088
                
                146
                
                2.92%Total
                    interest earning assets
                612,812
                
                9,120
                
                5.95%
                
                592,851
                
                7,752
                
                5.23%Non-interest
                    earning assets
                37,421
                
                
                
                
                
                36,309Total
                    assets
                650,233
                
                
                
                
                
                629,160**Interest
                    Bearing Liabilities:**Deposits:Now
                    demand
                26,697
                
                23
                
                0.35%
                
                25,697
                
                19
                
                0.30%Savings
                    and clubs
                139,464
                
                223
                
                0.64%
                
                139,161
                
                222
                
                0.64%Money
                    market
                39,742
                
                242
                
                2.44%
                
                36,697
                
                126
                
                1.38%Certificates
                    of deposit
                262,088
                
                2,499
                
                3.82%
                
                228,075
                
                1,495
                
                2.63%Mortgagors
                    deposits
                2,169
                
                8
                
                1.48%
                
                2,600
                
                9
                
                1.39%Total
                    deposits
                470,160
                
                2,995
                
                2.56%
                
                432,230
                
                1,871
                
                1.74%Borrowed
                    money
                89,878
                
                1,090
                
                4.86%
                
                114,344
                
                1,181
                
                4.14%Total
                    interest bearing liabilities
                560,038
                
                4,085
                
                2.93%
                
                546,574
                
                3,052
                
                2.24%Non-interest-bearing
                    liabilities:Demand
                31,142
                
                
                
                
                
                27,425Other
                    liabilities
                11,036
                
                
                
                
                
                8,575Total
                    liabilities
                602,216
                
                
                
                
                
                582,574Stockholders'
                    equity
                48,017
                
                
                
                
                
                46,586Total
                    liabilities and stockholders' equity
                650,233
                
                
                
                
                
                629,160Net
                    interest income
                
                
                5,035
                
                
                
                
                
                4,700Average
                    interest rate spread
                
                
                
                
                3.03%
                
                
                
                
                
                2.99%Net
                    interest margin
                
                
                
                
                3.29%
                
                
                
                
                
                3.17%(1)
                    Includes non-accrual loans(2)
                    Includes FHLB-NY stock




**Comparison
      of Operating Results for the Three Months Ended June 30, 2006 and
      2005**




**Overview.** The
      Company reported consolidated net income for the three-month period ended June
      30, 2006 of $802,000, a decrease of $38,000 compared to $840,000 for the prior
      year period. These results primarily reflect a decrease in non-interest income
      of $454,000, partially offset by an increase in net interest income of $335,000
      and a reduction in non-interest expense and income tax expense of $62,000 and
      $19,000, respectively. This year over year decrease in net income contributed
      to
      decreases in the return on average equity and the return on average assets
      for
      the corresponding periods.




Selected
      operating ratios for the three months ended June 30, 2006 and 2005 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****Selected
                    Operating Ratios:**
                
                **June
                    30,****2006**
                
                **2005**Return
                    on average assets (1)
                
                
                0.49
                %
                
                0.53
                %Return
                    on average equity (2)
                
                
                6.68
                
                
                7.21Interest
                    rate spread (3)
                
                
                3.03
                
                
                2.99Net
                    interest margin (4)
                
                
                3.29
                
                
                3.17Operating
                    expenses to average assets (5)
                
                
                2.91
                
                
                3.05Equity-to-assets
                    (6)
                
                
                7.51
                
                
                7.60Efficiency
                    ratio (7)
                
                
                79.15
                
                
                78.62Average
                    interest-earning assets tointerest-bearing liabilities
                
                
                1.09
                x
                
                1.08
                x
  (1)
                  Net income divided by average total assets, annualized.(2)
                  Net income divided by average total equity, annualized.(3)
                  Combined weighted average interest rate earned less combined weighted
                  average interest rate cost.(4)
                  Net interest income divided by average interest-earning assets,
                  annualized.(5)
                  Non-interest expenses less loss on real estate owned divided by
                  average
                  total assets, annualized.(6)
                  Total equity divided by assets at period end.(7)
                  Operating expenses divided by sum of net interest income plus non-interest
                  income.


**Interest
      Income.** Interest
      income increased by $1.4 million, or 17.6%, to $9.1 million for the three months
      ended June 30, 2006, compared to $7.8 million in the prior year period. Interest
      income increased primarily as a result of higher average loan balances and
      yields this fiscal period compared to the prior year period. The increase in
      interest income was partially offset by a decline in interest income on total
      securities. While the average balance of the securities portfolio declined,
      the
      yield earned on the portfolio increased as a result of the current rate
      environment. Overall, the increase in interest income resulted from an increase
      of 72 basis points in the annualized average yield on total interest-earning
      assets to 5.95% for the three months ended June 30, 2006 compared to 5.23%
      for
      the prior year period, reflecting increases in yields on federal funds, loans
      and total securities of 188 basis points, 48 basis points and 41 basis points,
      respectively. Additionally, the average balance of total interest earning assets
      increased $20.0 million.




Interest
      income on loans increased by $1.7 million, or 27.2%, to $7.9 million for the
      three months ended June 30, 2006 compared to $6.2 million for the prior year
      period. The change was primarily due to an increase in average mortgage loan
      balances of $74.3 million to $493.6 million compared to $419.2 million for
      the
      prior year period. The increase was amplified by a 48 basis points increase
      in
      the annualized average yield on loans for the three months ended June 30, 2006
      to 6.40% compared to 5.92% for the prior year period. The year over year growth
      in loan balance is reflective of management’s commitment to grow assets
      primarily through originations and purchases of high quality mortgage and
      construction loans for its portfolio at a level that exceeds loan repayments.
      The increase in loan yields is reflective of the current mix of our loan
      portfolio. For the three months ended June 30, 2006, the average balances of
      commercial real estate and construction loans were higher compared to the prior
      year period when one to-four and multifamily residential loans were
      predominant.




Interest
      income on total securities decreased by $287,000, or 20.5%, to $1.1 million
      for
      the three month period ended June 30, 2006 compared to $1.4 million for the
      prior year period. The decrease was primarily the effect of a reduction in
      the
      average balance of total securities of $44.0 million to $109.6 million compared
      to $153.5 million in the prior year period as matured and repaid securities
      are
      only being replaced to the extent additional deposit collateral is needed.
      In
      most cases deposit collateral needs are being met by using municipal letters
      of
      credit provided by the FHLB-NY. The effect of the decrease in the balance of
      securities was partially offset by a 41 basis points rise in the annualized
      average yield on securities to 4.06% from 3.65% in the prior year period since
      adjustable securities in portfolio are repricing at a higher rate of return.




Interest
      income on federal funds sold decreased by $30,000 to $116,000 for the three
      months ended June 30, 2006 compared to $146,000 for the prior year period.
      The
      decline was primarily attributable to a decrease in the average balance of
      federal funds of $10.4 million to $9.7 million at June 30, 2006 from $20.1
      million at June 30, 2005, partially offset by an increase of 188 basis points
      in
      the annualized yield on federal funds sold. The reduction in the average balance
      of federal funds sold is a result of using excess liquidity to fund loan growth
      and repay borrowings. Yields on federal funds increased as the FOMC again raised
      the federal funds rate twice in the quarter for a total of 50 basis points
      to
      5.25%.




**Interest
      Expense.** Total
      interest expense increased by $1.0 million, or 33.8%, to $4.1 million for the
      three months ended June 30, 2006, compared to $3.1 million for the prior year
      period. The rise resulted primarily from a higher annualized average cost of
      interest-bearing liabilities of 69 basis points to 2.93% for the first quarter
      of fiscal 2007 from 2.24% for the prior year period. Additionally, the average
      balance of interest-bearing liabilities increased $13.5 million, or 2.5%, to
      $560.0 million from $546.6 million during the prior year period.




Interest
      expense on deposits increased $1.1 million or 60.1%, to $3.0 million for the
      three months ended June 30, 2006, compared to $1.9 million for the prior year
      period. The increase in interest expense on deposits was due primarily to a
      $37.9 million, or 8.8%, increase in the average balance of interest-bearing
      deposits to $470.2 million for the three months ended June 30, 2006 from $432.2
      million for the prior year period. Additionally, an 82 basis point rise in
      the
      rate paid on deposits to 2.56% compared to 1.74% for the prior year period
      added
      to the increase. Customer deposits have historically provided Carver with a
      relatively low cost funding source from which its net interest income and net
      interest margin have benefited. The Bank has grown core deposits including
      new
      deposits from branch expansion, however, rates on deposits are increasing in
      cost as short-term rates rise, thus impacting the Bank’s net interest
      margin.




Interest expense
      on advances and other borrowed money decreased $91,000, or 7.7%, to $1.1 million
      for the three months ended June 30, 2006 compared to $1.2 million for the prior
      year period. The decline was primarily the result of a decrease in the average
      balance of outstanding borrowings to $89.9 million from $114.3 million from
      the
      prior year period. Partially offsetting the decrease in interest expense was
      a
      72 basis point increase in the cost of borrowed money to 4.86% from 4.14% for
      the prior year period. The increase in yield is mainly related to the cost
      of
      debt service of the $13 million in floating rate junior subordinated notes
      raised by the Company through an issuance of trust preferred securities by
      Carver Statutory Trust I in September 2003 which has increased to a rate of
      8.44% and is expected to continue to rise as rates increase. As opportunities
      arise and liquidity permits, management intends to replace matured FHLB-NY
      advances with lower costing deposits.




**Net
      Interest Income Before Provision for Loan Losses.** Net
      interest income before the provision for loan losses increased by $335,000,
      or
      7.1%, to $5.0 million for the three months ended June 30, 2006, compared to
      $4.7
      million for the prior year period. The Company’s annualized average interest
      rate spread for the three months ended June 30, 2006 increased by 4 basis points
      to 3.03% compared to 2.99% in the prior year period. Net interest margin,
      represented by annualized net interest income divided by average total
      interest-earning assets, increased 12 basis points to 3.29% for the three months
      ended June 30, 2006 from 3.17% in the prior year period.




**Provision
      for Loan Losses and Asset Quality.** The
      Company did not provide for additional loan loss reserves for the three-month
      periods ended June 30, 2006 or 2005 as the Company considers the overall
      allowance for loan losses to be adequate. During the first quarter of fiscal
      2007, the Company recorded net charge-offs of $1,000 compared to net recoveries
      of $11,000 for the prior year period. At June 30, 2006, the Bank’s allowance for
      loan losses was $4.0 million, substantially unchanged from March 31, 2006.
      The
      ratio of the allowance for loan losses to non-performing loans was 166.5% at
      June 30, 2006 compared to 147.1% at March 31, 2006. The ratio of the allowance
      for loan losses to total loans was 0.81% at June 30, 2006, relatively unchanged
      compared to March 31, 2006.




At June 30,
      2006, non-performing assets totaled $2.9 million, or 0.59% of total loans
      receivable compared to $2.8 million, or 0.55% of total loans receivable, at
      March 31, 2006. Non-performing assets include loans 90 days past due,
      non-accrual loans and other real estate owned. Non-accrual loans as of June
      30,
      2006 were $2.4 million compared to $2.7 million at March 31, 2006. The increase
      in total non-performing assets was primarily attributable to the acquisition
      of
      a new foreclosed property at a cost of $504,000. As of the end of June 30,
      2006,
      the Bank held two real estate owned properties totaling $532,000. The level
      of
      non-performing assets to total loans remains within the range the Bank has
      experienced over the trailing eleven quarters. Future levels of non-performing
      assets will be influenced by economic conditions, including the impact of those
      conditions on our customers, interest rates and other internal and external
      factors existing at the time.




**Non-Interest
      Income.** Total
      non-interest income for the quarter ended June 30, 2006 decreased $454,000,
      or
      32.5%, to $945,000 million, compared to $1.4 million for the prior year period.
      The decrease in non-interest income resulted mainly from a decline in loan
      fees
      and service charges of $412,000, primarily reflecting a reduction in prepayment
      penalty income as fewer loans subject to contractual prepayment penalties were
      repaid. In addition, loan origination fees declined as less upfront origination
      points were collected.




Management
      anticipates continued momentum in depository fees and services charges as the
      Bank moves toward recognizing the full potential of its franchise expansions
      and
      offering more financial products. Although it is not expected that mortgage
      prepayments will revert to previous high levels, the Company’s strategy is to
      boost future loan fee income through the sale of sub-prime and fixed-rate jumbo
      mortgage products. These products will be originated and subsequently sold
      to a
      pre-established secondary market purchaser, thereby generating additional
      non-interest income while mitigating the Bank’s exposure to additional credit
      risk.




**Non-Interest
      Expense.** For
      the
      quarter ended June 30, 2006, total non-interest expense decreased $62,000,
      or
      1.3%, to $4.7 million compared to $4.8 million for the same period last year.
      The decrease in non-interest expense was primarily due to a reduction in
      employee compensation and benefits expense of $239,000, primarily reflecting
      the
      timing of replacing staff due to attrition, the reduced cost of employee benefit
      plans resulting from the Bank’s outsourcing efforts and a decline in employee
      search firm fees. The decrease in employee compensation and benefits expense
      was
      partially offset by an additional charge of $57,000 related to implementation
      of
      Statement of Financial Accounting Standards 123R which requires the prospective
      recognition of expense for unvested stock options. Partially offsetting the
      decrease in non-interest expense was increased net occupancy and equipment
      expenses of $83,000 and $34,000, respectively, primarily a result of higher
      utility costs, real estate taxes and investments in computer and banking
      equipment. Also offsetting the decrease in non-interest expense was an
      additional $63,000 in other expenses mainly resulting from outsourcing costs
      related to internal auditing and increased telecommunication costs.




Management
      believes that while the Company’s efficiency ratio exceeds its peers, it is
      reflective of the dramatic steps that have been taken to grow the franchise
      as
      part of a broader objective of accelerating the pace along the path to higher
      earnings. In addition, management continues to conduct reviews of costs to
      improve the Company’s efficiency ratio.




**Income
      Tax Expense.** For the
      three-month period ended June 30, 2006, income taxes decreased $19,000, or
      4.1%,
      resulting in tax expense of $445,000 compared to $464,000 for the prior year
      period. The modest reduction in tax expense is attributable to lower pre-tax
      earnings as of June 30, 2006 as compared to the prior year period. The
      Company will be required to adopt FIN48 as
      of
      April 1, 2007 and has not determined as of yet the effect on the consolidated
      financial condition or results of operations. For additional disclosure
      regarding FIN48 see Notes to Consolidated Financial Statements, Note 6, "Recent
      Accounting Pronouncements."




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




Quantitative
      and qualitative disclosure about market risk is presented at March 31, 2006
      in
      Item 7A of the Company’s 2006 10-K and is incorporated herein by reference. The
      Company believes that there has been no material changes in the Company’s market
      risk at June 30, 2006 compared to March 31, 2006.




**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 June 30,
      2006 , the
      Company carried out an evaluation, under the supervision and with the
      participation of the Company’s management, including the Company’s Chief
      Executive Officer and Chief Financial Officer (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 our management as appropriate to allow timely decisions
      regarding required disclosure.




There
      were no changes in our internal control over financial reporting that occurred
      during the period covered by this report that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.




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




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




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




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




For
      a
      summary of risk factors relevant to our operations, see Part I, Item 1A, “Risk
      Factors,” in our 2006 10-K. There has been no material change in risk factors
      relevant to our operations since March 31, 2006.




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




During
      the quarter ended June 30, 2006, the Holding Company purchased an additional
      5,300 shares of its common stock under its stock repurchase program. To date,
      Carver has purchased a total of 96,574 shares of the total 231,635 approved
      under the program which leaves the number of shares yet to be repurchased at
      135,061. Based on the closing price of Carver’s common stock on June 30, 2006 of
      $17.30, the approximate value of the 135,061 shares was $2,337,000.




**ISSUER
                  PURCHASES OF EQUITY SECURITIES**Period
              
              Total
                  number of
                shares
                  purchased
              
              Average
                  price
                paid
                  per share
              
              Total
                  number of
                shares
                  as part of publicly
                announced
                  plan
              
              Maximum
                  number
                of
                  shares that may
                yet
                  be purchased
                under
                  the planApril
                  1, 2006 to April 30, 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              140,361May
                  1, 2006 to May 31, 2006
              
              
              2,600
              
              
              16.91
              
              
              2,600
              
              
              137,761June
                  1, 2006 to June 30, 2006
              
              
              2,700
              
              
              16.73
              
              
              2,700
              
              
              135,061




**ITEM
      3.**  **Defaults
      Upon Senior Securities**




Not
      applicable.




**ITEM
      4.**  **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 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(*)
              Written
                Statement of Chief Executive Officer furnished pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.Exhibit
                32.2(*)
              Written
                Statement of Chief Financial Officer furnished pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
                1350.


*
      Pursuant to SEC rules, this exhibit will not be deemed filed for purposes of
      Section 18 of the Exchange Act or be otherwise subject to the liability of
      that
      section.










**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: August
              14, 2006
            
            /s/
              Deborah C. WrightDeborah
              C. WrightChairman
                and Chief Executive Officer




Date: August
                14, 2006
              
              /s/
                William C. GrayWilliam
                C. GraySenior
                  Vice President and Chief Financial
                  Officer