CARVER BANCORP INC — Proxy Solicitation & Information Statement 1996

Jun 7, 1996

1 REGISTRATION NO. _ ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __ FORM S-4 REGISTRATION STATEMENT under THE SECURITIES ACT OF 1933 ___ CARVER BANCORP, INC. (Exact name of registrant as specified in its charter)

c/o CARVER FEDERAL SAVINGS BANK 75 WEST 125TH STREET NEW YORK, NEW YORK 10027-4512 (212) 876-4747 (Address, including ZIP Code, and telephone number, including area code, of registrant's principal executive offices) __ THOMAS L. CLARK, JR. President and Chief Executive Officer c/o CARVER FEDERAL SAVINGS BANK 75 West 125th Street New York, New York 10027-4512 (212) 876-4747 (Name, address, including ZIP Code, and telephone number, including area code, of agent for service) __ WITH COPIES TO: ROBERT C. AZAROW, ESQ. KOFI APPENTENG, ESQ. THACHER PROFFITT & WOOD Two World Trade Center New York, New York 10048 (212) 912-7400 __ Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement. __ If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. /x/ CALCULATION OF REGISTRATION FEE

(1) Based on the number of shares of common stock of Carver Bancorp, Inc. to be issued in exchange for the same number of shares of common stock of Carver Federal Savings Bank in connection with the reorganization of Carver Federal Savings Bank as described in the Proxy Statement-Prospectus. (2) The proposed maximum offering price per share reflects the market price of the common stock of Carver Federal Savings Bank to be converted and exchanged in connection with the reorganization described in the Proxy Statement-Prospectus, computed in accordance with Rule 457(f)(1) under the Securities Act of 1933. It is based on the average of the high and low prices of the common stock on June 4, 1996, as reported on the Nasdaq National Market System. The proposed maximum aggregate offering price is estimated solely for the purpose of calculating the registration fee. 2 CARVER BANCORP, INC. Cross Reference Sheet Required by Item 501(b) of Regulation S-K

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4 [LETTERHEAD OF CARVER FEDERAL SAVINGS BANK] June , 1996 Dear Stockholder: You are invited to attend the 1996 annual meeting of stockholders of Carver Federal Savings Bank ("Carver" or the "Bank"), which will be held on July 29, 1996 at 9:00 a.m., New York time, at the Adam Clayton Powell State Office Building, 163 West 125th Street, Third Floor, New York, New York (the "Annual Meeting"). At the Annual Meeting, you will be asked to consider and vote upon: (1) the election of two directors to serve for a three-year term expiring in 1999 and one director to serve for a one-year term expiring in 1997; (2) the ratification of the appointment of Mitchell & Titus, LLP as independent auditors for the Bank for the year ending March 31, 1997; and (3) a proposal to form a holding company for the Bank by the adoption and approval of an Agreement and Plan of Reorganization dated as of May 21, 1996 among the Bank, Carver Bancorp, Inc., a newly-formed Delaware business corporation organized at the direction of the Bank to be a savings and loan holding company, and Carver Interim Federal Savings Bank, which is being organized as a wholly owned subsidiary of Carver Bancorp, Inc. to facilitate the reorganization of the Bank. In addition, management will report on the operations and activities of the Bank and there will be an opportunity for you to ask questions about the Bank's business. It is very important that your shares be represented at the Annual Meeting, regardless of whether or not you plan to attend in person. The adoption of the Agreement and Plan of Reorganization requires the approval of a majority of the outstanding shares of Carver Common Stock. Consequently, a failure to vote will have the same effect as a vote against these proposals. I urge you to execute, date and return the enclosed proxy card in the enclosed postage-paid envelope as soon as possible to ensure that your shares will be voted at the Annual Meeting. YOUR VOTE IS IMPORTANT WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. The Board of Directors of Carver has determined that the matters to be considered at the Annual Meeting are in the best interests of the Bank and its stockholders. For the reasons set forth in the Proxy Statement-Prospectus, the Board unanimously recommends a vote FOR each matter to be considered. On behalf of the Board of Directors, I urge you to vote FOR the persons nominated to serve as directors, FOR approval of the ratification of appointment of the independent auditors and FOR approval of the Agreement and Plan of Reorganization. Sincerely yours, Thomas L. Clark, Jr. President and Chief Executive Officer 5 CARVER FEDERAL SAVINGS BANK 75 WEST 125TH STREET NEW YORK, NEW YORK 10027-4512 __ NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 29, 1996 NOTICE IS HEREBY GIVEN that the 1996 annual meeting of stockholders of Carver Federal Savings Bank ("Carver" or the "Bank") will be held on July 29, 1996 at 9:00 a.m., New York time, at the Adam Clayton Powell State Office Building, 163 West 125th Street, Third Floor, New York, New York (the "Annual Meeting"). The Annual Meeting has been called for the following purposes: 1. To elect two directors to serve for a three-year term expiring at the 1999 annual meeting and until their respective successors have been duly elected and qualified and to elect one director to serve for a one-year term expiring at the 1997 annual meeting and until her respective successor has been duly elected and qualified; 2. To ratify the appointment of Mitchell & Titus, LLP as independent auditors for the Bank for the year ending March 31, 1997; 3. To consider and vote upon the formation of a savings and loan holding company for Carver by the adoption and approval of the Agreement and Plan of Reorganization dated as of May 21, 1996 (the "Plan of Reorganization" or "Plan") among the Bank, Carver Bancorp, Inc. ("Bancorp" or the "Company"), and Carver Interim Federal Savings Bank ("Interim"), pursuant to which Carver will become a wholly owned subsidiary of Bancorp and all of the outstanding shares of common stock of Carver (other than shares held by stockholders exercising dissenters' rights, if any) will be converted into and exchanged for, on a one-for-one basis, shares of common stock of Bancorp (a copy of the Plan is attached as Appendix A to the Proxy Statement-Prospectus accompanying this Notice); and 4. To transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. Pursuant to the Bylaws of Carver, the Board of Directors has fixed June 10, 1996 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and at any adjournment or postponement thereof. Only holders of Carver Common Stock as of the close of business on the record date will be entitled to vote at the Annual Meeting or any adjournment or postponement thereof. Each Carver stockholder has the right to demand from Carver payment for the fair value of such stockholder's shares; provided, that such stockholder (1) files with Carver, before the vote on the approval of the Plan, a writing which demands payment for the shares at fair value if the Plan is approved, and (2) does not vote such shares in favor of the Plan. Carver and any such stockholder shall in such case have the rights and duties and shall follow the procedures set forth in Section 552.14 of the Rules and Regulations of the Office of Thrift Supervision, a copy of which is attached as Appendix B to the Proxy Statement-Prospectus accompanying this Notice. THE CARVER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF CARVER COMMON STOCK VOTE FOR APPROVAL OF ALL OF THE PROPOSALS. 6 WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT-PROSPECTUS. ANY STOCKHOLDER PRESENT AT THE ANNUAL MEETING, INCLUDING ANY ADJOURNMENT OR POSTPONEMENT THEREOF, MAY REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL MEETING. By Order of the Board of Directors Margaret R. Lewis Corporate Secretary New York, New York June , 1996 -2- 7 PROXY STATEMENT CARVER FEDERAL SAVINGS BANK 75 WEST 125TH STREET NEW YORK, NEW YORK 10027-4512 (212) 876-4747 ANNUAL MEETING OF STOCKHOLDERS JULY 29, 1996 __ PROSPECTUS CARVER BANCORP, INC. Common Stock, par value $0.01 per share This document serves as a Proxy Statement for the 1996 annual meeting of stockholders of Carver Federal Savings Bank ("Carver" or the "Bank"), to be held on July 29, 1996 at 9:00 a.m., New York time, at the Adam Clayton Powell State Office Building, 163 West 125th Street, Third Floor, New York, New York, and at any adjournment or postponement thereof (the "Annual Meeting"), and is being used by the Board of Directors of the Bank to solicit the proxies of the Bank's stockholders in connection therewith. This Proxy Statement-Prospectus, with the accompanying proxy card, is first being sent or given to Carver's stockholders on or about June , 1996. As more fully described in this Proxy Statement-Prospectus, the purpose of the Annual Meeting is (1) to elect two directors to serve for a three-year term and one director to serve for a one-year term; (2) to ratify the appointment of Mitchell & Titus, LLP as independent auditors for the Bank for the fiscal year ending March 31, 1996; (3) to consider and vote upon the formation of a savings and loan holding company by the adoption and approval of the Agreement and Plan of Reorganization dated as of May 21, 1996 (the "Plan of Reorganization" or "Plan") among Carver, Carver Bancorp, Inc. ("Bancorp"), a newly-formed Delaware business corporation organized at the direction of the Bank, and Carver Interim Federal Savings Bank ("Interim"), which will be, upon formation, a wholly owned subsidiary of Bancorp, pursuant to which Interim will be merged with and into Carver and Bancorp will become the holding company for Carver (the "Reorganization"); and (4) to transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. This document also serves as a Prospectus in connection with the issuance by Bancorp of up to 2,314,375 shares of Bancorp common stock, par value $0.01 per share ("Bancorp Common Stock"). Upon the effective date of the Reorganization (the "Effective Date"), all outstanding shares of Carver common stock, par value $0.01 per share ("Carver Common Stock") (other than shares held by stockholders exercising dissenters' rights, if any), will be converted into and exchanged for an equal number of shares of Bancorp Common Stock, on a one-for-one basis. Under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations of the Securities and Exchange Commission (the "SEC"), the solicitation of stockholders of Carver to approve the proposed Plan of Reorganization constitutes an offering of Bancorp Common Stock. Bancorp has filed with the SEC a registration statement on Form S-4 under the Securities Act (the "Registration Statement") with respect to such offering, and this Proxy Statement-Prospectus constitutes the prospectus of Bancorp filed as part of the Registration Statement. This Proxy Statement-Prospectus does not contain all of the information set forth in the Registration Statement and the related exhibits, certain parts of which are omitted in accordance with the rules and regulations of the SEC. 8 This Proxy Statement-Prospectus shall not constitute a prospectus for a public reoffering of Bancorp Common Stock issuable pursuant to the Plan of Reorganization. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS, NOR ANY OFFER OR SOLICITATION MADE HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION SET FORTH OR INCORPORATED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. The date of this Proxy Statement-Prospectus is June , 1996. -2- 9 AVAILABLE INFORMATION Carver is subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files periodic reports and other information with the Office of Thrift Supervision (the "OTS"). Such reports and other information when filed by the Bank can be inspected and copied at the public reference facilities maintained by the OTS at 1776 G Street, N.W., Washington, D.C. 20552, or at the OTS Regional Office located at 10 Exchange Place, 18th Floor, Jersey City, New Jersey 07302. Bancorp is not currently subject to the information reporting requirements of the Exchange Act and, accordingly, has not filed reports, proxy statements or other information with the SEC. All of the Bancorp Common Stock is currently owned by Carver, and there is, therefore, no public trading market for Bancorp Common Stock. If the Reorganization is consummated, Bancorp Common Stock will be registered under the Exchange Act, and Bancorp will file periodic reports with the SEC. In addition, in accordance with the rules and regulations of the SEC in connection with annual meetings of the stockholders of Bancorp, proxy statements accompanied or preceded by annual reports to stockholders will be furnished to stockholders of Bancorp. Such reports will contain financial information that has been examined and reported upon, with an opinion expressed, by an independent public accounting firm. This Proxy Statement-Prospectus does not contain all of the information set forth in the Registration Statement and the related exhibits which Bancorp has filed with the SEC, and to which reference is hereby made. The Registration Statement, including exhibits, can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies can be obtained at prescribed rates from the SEC Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549. Bancorp will file a registration statement on Form H-(b)(10) under the Home Owners' Loan Act, as amended ("HOLA"), with the OTS. In addition, Carver has filed with the OTS an application on Form H-(e)1-S under HOLA. The non-confidential portions of the applications and, when filed, registration statement can be inspected at the OTS Regional Office located at 10 Exchange Place, 18th Floor, Jersey City, New Jersey 07302. A copy of the Bank's Annual Report for the fiscal year ended March 31, 1996 (the "Annual Report") accompanies this Proxy Statement-Prospectus. The Annual Report contains financial statements, prepared in conformity with generally accepted accounting principles, for the years ended March 31, 1995 and 1996 and certain other information and should be read in connection with this Proxy Statement-Prospectus. -3- 10 TABLE OF CONTENTS

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-5- 12 SUMMARY OF THE PROXY STATEMENT-PROSPECTUS This Summary is qualified in its entirety by the detailed information contained in this Proxy Statement-Prospectus, the Appendices hereto and the documents referred to herein. ANNUAL MEETING OF STOCKHOLDERS

-6- 13 FORMATION OF HOLDING COMPANY

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-9- 16 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK The selected consolidated financial and other data of the Bank set forth below is derived in part from and should be read in conjunction with the Consolidated Financial Statements of the Bank and Notes thereto presented elsewhere in this Proxy Statement-Prospectus.

(1) Historical net income per common shares from October 24, 1994 (date of Conversion) to March 31, 1995 was $0.17. -10- 17

(1) Net income divided by average total assets. (2) Net income divided by average total equity. (3) Combined weighted average interest rate earned less combined weighted average interest rate cost. (4) Net interest income divided by average interest-earning assets. (5) Non-interest expenses less loss on foreclosed real estate, divided by average total assets. (6) Total equity divided by assets at period end. (7) Net interest income divided by non-interest expenses less loss on foreclosed real estate. (8) Non-performing assets consist of non-accrual loans, accruing loans 90 days or more past due and property acquired in settlement of loans. -11- 18 GENERAL INFORMATION GENERAL This Proxy Statement-Prospectus is being furnished to stockholders of Carver, in connection with the solicitation of proxies by the Board of Directors of Carver to be used at the Annual Meeting to be held on July 29, 1996, at 9:00 a.m., at the Adam Clayton Powell State Office Building, 163 W. 125th Street, Third Floor, New York, New York, and at any adjournment or postponement thereof. HOLDERS OF CARVER COMMON STOCK ARE REQUESTED PROMPTLY TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD TO CARVER IN THE ENCLOSED POSTAGE-PAID, ADDRESSED ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE ANNUAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST PROPOSAL 3. RECORD DATE AND VOTING The Board of Directors of Carver has fixed the close of business on June 10, 1996 as the record date (the "Record Date") for the determination of the holders of Carver Common Stock entitled to receive notice of and to vote at the Annual Meeting. Only holders of record of Carver Common Stock at the close of business on that date will be entitled to vote at the Annual Meeting and at any adjournment or postponement thereof. At the close of business on the Record Date, there were 2,314,375 shares of Carver Common Stock outstanding. Each holder of shares of Carver Common Stock outstanding on the Record Date will be entitled to one vote for each share held of record upon each matter properly submitted at the Annual Meeting and at any adjournment or postponement thereof. The presence, in person or by proxy, of the holders of at least a majority of the total number of outstanding shares of Carver Common Stock entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. If a quorum is not obtained, or if fewer shares of Carver Common Stock are voted in favor of either Proposal 2 or 3 than the number required for approval, it is expected that the Annual Meeting will be postponed or adjourned for the purpose of allowing additional time for obtaining additional proxies or votes, and, at any subsequent reconvening of the Annual Meeting, all proxies will be voted in the same manner as such proxies would have been voted at the original convening of the Annual Meeting (except for any proxies which have theretofore effectively been revoked or withdrawn). If the enclosed proxy card is properly executed and received by Carver in time to be voted at the Annual Meeting, the shares represented thereby will be voted in accordance with the instructions marked thereon. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED THEREON WILL BE VOTED FOR EACH OF THE PROPOSALS SET FORTH IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING OF STOCKHOLDERS. Management is not aware of any matters other than those set forth in the Notice of Annual Meeting of Stockholders that may be brought before the Annual Meeting. If any other matters properly come before the Annual Meeting, including, among other things, a motion to adjourn or postpone the Annual Meeting to another time or place or both for the purpose of soliciting additional proxies or otherwise, the persons named in the accompanying proxy will vote the shares represented by all properly executed proxies on such matters in such manner as shall be determined by a majority of the Board of Directors of Carver. VOTES REQUIRED A plurality of the votes cast is sufficient to elect directors. A majority of the votes of the stockholders represented in person or by proxy and entitled to vote at the Annual Meeting is sufficient to ratify the appointment of Mitchell & Titus, LLP as independent auditors for the Bank. Approval of the Plan of Reorganization requires the approval of a majority of the outstanding shares of the Bank. -12- 19 SHARES AS TO WHICH THE "ABSTAIN" BOX HAS BEEN SELECTED ON THE PROXY CARD WITH RESPECT TO THE APPOINTMENT OF MITCHELL & TITUS, LLP AS INDEPENDENT AUDITORS FOR THE BANK (PROPOSAL 2), WILL BE COUNTED AS PRESENT AND ENTITLED TO VOTE AND WILL HAVE THE EFFECT OF A VOTE AGAINST THAT PROPOSAL. IN CONTRAST, SHARES UNDERLYING BROKER NON-VOTES WILL NOT BE COUNTED AS PRESENT AND ENTITLED TO VOTE AND WILL HAVE NO EFFECT ON THE VOTE WITH RESPECT TO PROPOSAL 2. THE REQUIRED VOTE OF CARVER STOCKHOLDERS ON THE PLAN OF REORGANIZATION (PROPOSAL 3) IS BASED UPON THE NUMBER OF OUTSTANDING SHARES OF CARVER COMMON STOCK, AND NOT THE NUMBER OF THOSE SHARES THAT ARE ACTUALLY VOTED. ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE ANNUAL MEETING OR THE ABSTENTION FROM VOTING BY A CARVER STOCKHOLDER WILL HAVE THE SAME EFFECT AS A "NO" VOTE WITH RESPECT TO THIS PROPOSAL. BROKER NON-VOTES WILL NOT BE COUNTED AS HAVING BEEN VOTED IN PERSON OR BY PROXY AT THE ANNUAL MEETING AND WILL HAVE THE SAME EFFECT AS A "NO" VOTE WITH RESPECT TO PROPOSAL 3. RIGHTS OF DISSENTING STOCKHOLDERS Any stockholder of Carver has the right to demand payment from Carver of the fair or appraised value of his shares of Carver Common Stock upon compliance with Section 552.14 of the OTS Regulations. (See Appendix A for the full text of the Plan of Reorganization and Appendix B for the full text of Section 552.14). Any stockholder intending to enforce this right may not vote in favor of the Plan of Reorganization and must file with Carver, before or at the Annual Meeting (but before the stockholders' vote), written demand of payment for his shares of Carver Common Stock if the Plan of Reorganization is approved. If the Plan of Reorganization is approved by Carver's stockholders at the Annual Meeting, each stockholder who has filed a written demand and has not voted in favor of the Plan of Reorganization will be notified of the approval by Carver within ten days of completion of the Reorganization. A stockholder may not dissent as to less than all of the shares of Carver Common Stock beneficially held of record by such stockholder. Upon filing such written demand, the stockholder will cease to have the rights of a stockholder to receive dividends or to vote, except for dividends or other distributions payable to, or a vote to be taken by stockholders of record at a date on or prior to the effective date of the Reorganization. Withdrawal of any written demand may be made at any time within 60 days after the effective date of the Reorganization. Upon withdrawal of such written demand, or if the Reorganization is not consummated, the stockholder will have no right to receive payment for his shares of Carver Common Stock but will instead be reinstated with all the rights of a stockholder. Within 60 days of the effective date of the Reorganization, a dissenting stockholder must submit the certificates representing his shares of Carver Common Stock to American Stock Transfer & Trust Co., the Bank's transfer agent, which shall place a legend on such certificates indicating that a written demand has been filed and shall thereafter return such certificates to the stockholder. Within ten days after the effective date of the Reorganization, the Bank shall give written notice of the effective date of the Reorganization and make a written offer to all dissenting stockholders to pay a specified amount, which it considers to be a fair amount, for the shares of Carver Common Stock. If within 60 days of the effective date of the Reorganization any dissenting stockholder and Carver agree on the price to be paid for the stockholder's Carver Common Stock, the agreed upon payment will be made within 90 days of the effective date of the Reorganization upon the surrender of the certificates representing the Carver Common Stock. If Carver and any dissenting stockholder fail to agree on the price to be paid within the specified period, then the dissenting stockholder may file a petition with the OTS demanding a determination of the fair value of the shares. If the required petition is not filed within the 60-day period, a dissenting stockholder shall lose all dissenters' rights. It is possible that the exercise by a stockholder of his or her rights under Section 552.14 may cause such person to incur some personal expense. In the event that stockholders, through the exercise of dissenters' rights, would cause the Bank's total risk-based capital ratio to fall below 8.0%, or would cause the Bank's tier 1 risk-based capital ratio to fall -13- 20 below 4.0% or would cause the Bank's core capital ratio to fall below 3.0%, the Bank will not complete the Reorganization without the further approval of the OTS. REVOCABILITY OF PROXIES The presence of a stockholder at the Annual Meeting will not automatically revoke such stockholder's proxy. However, a stockholder may revoke a proxy at any time prior to its exercise by (i) delivering to the Corporate Secretary of Carver a written notice of revocation prior to the Annual Meeting, (ii) delivering to the Corporate Secretary of Carver prior to the Annual Meeting a duly executed proxy bearing a later date or (iii) attending the Annual Meeting, filing a written notice of revocation with the secretary of the meeting, and voting in person. SOLICITATION OF PROXIES In addition to solicitation by mail, directors, officers and employees of Carver and its subsidiaries may solicit proxies for the Annual Meeting from Carver stockholders personally or by telephone or telegram without additional remuneration therefor. Carver will also provide persons, firms, banks and corporations holding shares in their names or in the names of nominees, which in either case are beneficially owned by others, proxy material for transmittal to such beneficial owners and will reimburse such record owners for their expenses in doing so. Carver has retained Morrow & Co., Inc., a proxy soliciting firm, to aid in the solicitation of proxies at a fee of $3,000 plus expenses. The cost of solicitation of proxies for the Carver Annual Meeting, including the fees of Morrow & Co., Inc., will be borne by Carver. A Carver stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to Morrow & Co., Inc., provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information (such as a prescribed identification code) from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. -14- 21 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth certain information as to those persons believed by management to be beneficial owners of more than 5% of the outstanding shares of Carver Common Stock on April 30, 1996, except as otherwise indicated. The beneficial owners of Carver Common Stock are not currently subject to the stock ownership reporting requirements of the Exchange Act. Accordingly, the most recent information available to the Bank regarding the beneficial ownership of Carver Common Stock is set forth in the table below. Other than those persons listed below, the Bank is not aware of any person or group that beneficially owns more than 5% of the outstanding shares of Carver Common Stock as of April 30, 1996.

(1) The total number of shares of Carver Common Stock outstanding on April 30, 1996 was 2,314,375 shares. (2) The Administrative Committee, established to administer the Carver Federal Savings Bank Employee Stock Ownership Plan (the "ESOP"), consists of the members of the Board of Directors. The ESOP's assets are held in the ESOP Trust, for which M. Moran Weston and David R. Jones serve as trustees (the "ESOP Trustees"). The Administrative Committee instructs the ESOP Trustees regarding the investment of funds contributed to the ESOP. Carver Common Stock purchased by the ESOP Trust is held in a suspense account and allocated to participants' accounts annually based on contributions made to the ESOP by the Bank. Shares released from the suspense account are allocated among participants in proportion to their compensation, as defined in the ESOP, for the year the contributions are made up to the limits permitted under the Internal Revenue Code of 1986 (the "Code"). The ESOP Trustees must vote all allocated shares held in the ESOP Trust in accordance with the instructions of participants. As of April 30, 1996, 22,765 shares had been allocated, but not distributed, to participants. Under the ESOP, unallocated shares or shares for which no voting instructions have been received will be voted by the ESOP Trustees in the same proportion as allocated shares with respect to which the ESOP Trustees receive instructions. In the absence of any voting instructions with respect to allocated shares, the Board of Directors, on behalf of the Bank, directs the voting of all shares of unallocated stock, or in the absence of such directions from the Board of Directors, the ESOP Trustees have sole discretion with respect to the voting of such shares. Except as described above, Dr. Weston and Mr. Jones, as the ESOP Trustees, have shared voting power and investment power over the shares held in the ESOP Trust. Each member of the Board of Directors and each of the ESOP Trustees disclaim beneficial ownership of the shares held in the ESOP. -15- 22 STOCK OWNERSHIP OF MANAGEMENT The following table sets forth information as of April 30, 1996 as to shares of Carver Common Stock beneficially owned by each director of the Bank, each Named Executive Officer of the Bank identified in the Summary Compensation Table appearing elsewhere herein and all directors and executive officers as a group. Ownership information is based upon information furnished by the respective individuals. For purposes of this table, an individual is considered to "beneficially own" any securities (a) over which such individual exercises sole or shared voting or investment power, or (b) of which such individual has the right to acquire beneficial ownership, including the right to acquire beneficial ownership by the exercise of stock options, within 60 days after April 30, 1996. As used herein, "voting power" includes the power to vote, or direct the voting of, such securities, and "investment power" includes the power to dispose of, or direct the disposition of, such securities. Except as otherwise indicated, each person and the group shown in the table has sole voting and investment power with respect to the shares indicated.

• Less than 1% of outstanding Carver Common Stock. (1) Percentages with respect to each person or group of persons have been calculated on the basis of 2,314,375 shares of Carver Common Stock, the number of shares of Carver Common Stock outstanding as of April 30, 1996. No officer or director has the right to acquire beneficial ownership of additional shares of Carver Common Stock within 60 days after April 30, 1996. (2) Includes 222 shares held by the trustee of the Carver Federal Savings Bank 401(k) Savings Plan in RSI Retirement Trust ("401(k) Plan") which are allocable to the account of Mr. Clark. (3) Includes 50 shares held jointly by spouse and son and 50 shares held individually by spouse over which Mr. Johnson has shared voting power and dispositive power. (Notes continued on next page) -16- 23 (4) Does not include 182,132 shares held by the ESOP Trust for which Mr. Jones and Dr. Weston serve as the ESOP Trustees. See Note 6. (5) Includes 1,174 shares held by the trustee of the 401(k) Plan which are allocable to the account of Mr. Mukherjee, and as to which he shares voting and dispositive power, and 1,313 shares allocated to Mr. Mukherjee under the ESOP as to which he has sole voting power, but no dispositive power, except in limited circumstances. (6) Includes 2,469 shares held by the ESOP Trust that have been allocated as of April 30, 1996 to the individual accounts of the executive officers under the ESOP and as to which such executive officers have sole voting power, but no dispositive power, except in limited circumstances. Also includes 20,296 shares held by the ESOP Trust and allocated to the individual accounts of the other Bank employees, as to which Dr. Weston and Mr. Jones, as the ESOP Trustees, have no voting and shared dispositive power, and 159,367 unallocated shares held by the ESOP Trust, as to which Dr. Weston and Mr. Jones, as the ESOP Trustees, and the Board of Directors on behalf of the Bank, share voting and dispositive power. Each member of the Board of Directors and each of the ESOP Trustees disclaim beneficial ownership of the shares held in the ESOP. (7) Includes 100 shares over which the directors and executive officers share voting and dispositive power, and 1,396 shares allocable to the individual accounts of the executive officers under the 401(k) Plan and as to which such executive officers have sole dispositive power and shared voting power with Mr. Mukherjee and Margaret R. Lewis, as members of the Committee established to administer the 401(k) Plan. PROPOSALS TO BE VOTED ON AT THE ANNUAL MEETING ____ PROPOSAL 1 ELECTION OF DIRECTORS ____ GENERAL The Charter of the Bank provides that the Board of Directors shall be divided into three classes, as nearly equal in number as possible. The directors of each class serve for a term of three years, with one class elected each year. In all cases, directors serve until their successors are elected and qualified. The Carver Board currently consists of seven members. The Board of Directors has nominated for election as directors David N. Dinkins and David R. Jones to serve for three years and until their successors are elected and qualified. On March 19, 1996, the Board of Directors of the Bank increased the size of the Board of Directors from six to seven members and appointed Ms. Dunham to fill the newly created vacancy. Ms. Dunham has been appointed to serve as a director in the class with a term expiring in 1997. The Bylaws of the Bank provide that if the Board of Directors expands its size by appointing an additional director, such director must be put up for election at the next annual meeting of stockholders. The Board of Directors appointed Ms. Dunham to serve in the class of directors whose term expires in 1997. Therefore, she has been nominated to serve for an initial one-year term as director, with a term expiring in 1997. Each nominee has consented to being named in the Proxy Statement-Prospectus and to serve if elected. However, if any nominee is unable to serve, the shares represented by all properly executed proxies which have not been revoked will be voted for the election of such substitute as the Board of Directors may recommend or the size of the Board of Directors may be reduced to eliminate the vacancy. At this time, the Board knows of no reason why any nominee might be unavailable to serve. Directors shall be elected by a plurality of the votes cast at the Annual Meeting. -17- 24 INFORMATION WITH RESPECT TO NOMINEES AND CONTINUING DIRECTORS The following table sets forth certain information with respect to each nominee for election as a director and each director whose term does not expire at the Annual Meeting ("Continuing Director"). There are no arrangements or understandings between the Bank and any director or nominee pursuant to which such person was elected or nominated to be a director of the Bank. For information with respect to security ownership of directors, see "General Information -- Stock Ownership of Management."

(1) As of April 30, 1996. The principal occupation and business experience of each nominee for election as director and each Continuing Director is set forth below. NOMINEES FOR ELECTION AS DIRECTORS DAVID N. DINKINS, the 106th Mayor of New York City, is Professor in the Practice of Public Affairs at the Columbia University School of International and Public Affairs and is a Senior Fellow at the Barnard-Columbia Center for Urban Policy. He is a member of the Advisory Board of the Taubman Center for State and Local Government at Harvard University's Kennedy School of Government and of the Visiting Committee of the Robert J. Milano Graduate School of Management and Urban Policy at the New School for Social Research. Mr. Dinkins is also the host of "Dialogue with Dinkins," a twice-weekly public affairs radio program on WLIB- AM. He serves on the boards of directors of the American Stock Exchange, AMREP, New World Communications Group Inc., Transderm Laboratories Corporation, Wertheim Schroder Investment Services and on the International Advisory Board of Independent Newspaper Holdings. He is also on the board of directors of the Aaron Diamond Foundation, the Andrew Goodman Foundation, the Association to Benefit Children, the Federation of Protestant Welfare Agencies, Friends of the Nelson Mandela Children's Fund, Goods for Guns, Hope for Infants, the Howard Samuels Foundation, International House, the Lenox -18- 25 Hill Neighborhood Association, the March of Dimes, the New York State International Partnership Program and the New York Junior Tennis League. He is a member of the Advisory Board of the Children's Health Fund, Citizens for Service, Shared Interest, the South African-American Organization, the Advisory Council of the Respect for Law Alliance, the Board of Advisors of the Aristide Foundation for Democracy and the Steering Committee of the Association for a Better New York. He is a member of the Honorary Board of Directors of the Rowell Foster Children's Positive Plan, an Honorary Life Trustee of the Community Service Society of New York and an Honorary Trustee of the Friends of Harlem Hospital. He is a founding member of the Black and Puerto Rican Legislative Caucus of New York State, the Council of Black Elected Democrats of New York State, 100 Black Men and the Black Americans in Support of Israel Committee. He is the first male member of the National Women's Political Caucus and was the former Vice President of the United States Conference of Mayors. LINDA H. DUNHAM is Vice President of TCB Management Corporation, a management company which oversees the McDonald's restaurants which she co-owns and operates. Prior to joining TCB Management Corporation, Ms. Dunham was employed by Chemical Bank for 16 years in various capacities. Ms. Dunham is also Secretary of the Board of Directors of The Children's Oncology Society of New York, the Vice Chair of the Board of Trustees of Community Service Society of New York, a member of the Board of Directors of Aaron Davis Hall and a member of the National Board of Directors of Ronald McDonald Children's Charities. DAVID R. JONES is President and Chief Executive Officer of the Community Service Society of New York ("CSS"). One of the nation's oldest and largest nonprofit social welfare organizations, the 150-year-old agency uses direct help, research, advocacy and litigation to alleviate the effects of poverty, focusing on the areas of education, health delivery, income security and affordable housing. Prior to joining CSS, Mr. Jones served for three years as Executive Director of the New York City Youth Bureau and as Special Advisor to Mayor Edward I. Koch. A member of the New York State and Federal Bars, he previously worked for four years as a litigator at the law firm of Cravath, Swaine & Moore. Earlier, he had been a clerk for federal Judge Constance Baker Motley and one of the last interns for U.S. Senator Robert R. Kennedy. Mr. Jones is currently on the boards of directors of the New York City Health and Hospital Corporation, which runs 21 public hospitals and clinics; the Puerto Rican Legal Defense and Education Fund; and the New York Foundation. A charter trustee of Wesleyan University, he also serves on the advisory boards of the John F. Kennedy School of Government and the Barnard-Columbia Center for Leadership on Urban Public Policy, and as a trustee of the New York Historical Society. He is the author of the "Urban Agenda" column which appears in the Amsterdam News and ethnic papers throughout the nation and host of the CUNY-TV show of the same name. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF ALL OF THE NOMINEES FOR ELECTION AS DIRECTORS. CONTINUING DIRECTORS THOMAS L. CLARK, Jr., is currently President and Chief Executive Officer, a position he assumed on February 1, 1995. Mr. Clark is also a member of the Bank's Board of Directors. Prior to assuming his current position, Mr. Clark was employed by the New York State Banking Department from 1976 until 1995 and, from 1987 until 1995, served as Deputy Superintendent of Banks for New York State and as secretary of the New York State Banking Board. From 1970 until 1976, Mr. Clark was employed by Buffalo Savings Bank in various capacities. Mr. Clark is the founder and president of African-American Men of Westchester, Inc. In addition, Mr. Clark was recently elected Vice Chairman of the American League of Financial Institutions, the national trade association representing minority savings institutions, serves as Vice Chairman of the Community Bankers Association of New York State's Community Reinvestment Committee and is a member of the Advisory Board of Small Business Development Centers of New York State. HERMAN JOHNSON is currently self-employed as a certified public accountant in Brooklyn, New York, and has been so employed in such profession since 1962. Mr. Johnson currently serves as Chairman of the -19- 26 Board of Trustees of Mt. Sinai Baptist Church in Brooklyn and has been a Trustee since 1966. He formerly served as a Trustee of the Interfaith Medical Center in Brooklyn from 1987 to 1991. RICHARD T. GREENE is the immediate past President and Chief Executive Officer of Carver, positions he had held since joining the Bank in 1960. Mr. Greene currently serves on the boards of directors for the Harlem Urban Development Corp., the New York City Housing Partnership and Thrift Association Service Corporation. He also is a member of various community organizations, including Harlem Business Alliance, President's Council, Museum of the City of New York and One Hundred Black Men, Inc. Mr. Greene also served two terms as a director of the Federal Home Loan Bank of New York from 1989 to 1990 and from 1991 to 1992. M. MORAN WESTON, PH.D., is a founding Director of Carver and has served continuously as a Director since 1948. He was President of Carver during 1968 and 1969, Chairman of the Board from 1980 to 1995 and has served as Vice Chairman of the Board since 1995. He is Rector Emeritus of the St. Philip's Episcopal Church and Canon-Emeritus of the Episcopal Cathedral of St. John the Divine, both in New York City. In addition, Dr. Weston has served as a Trustee of St. Augustine's College in Raleigh, North Carolina and of Mt. Sinai Medical Center and Hospital since 1971. He is Trustee Emeritus of Columbia University and Professor Emeritus of Social History of the State University of New York, and has been awarded honorary doctorate degrees by Fordham University, Columbia University and the Virginia Theological Seminary. He is also a member of various community organizations, including Weston United Community Renewal, the National Association of Affordable Housing, the NAACP Legal Defense Fund and six non- profit housing companies providing approximately 1,000 units of housing. He was Trustee of the Foreign Policy Association for nine years, a Director of the New York City Chapter of the American Red Cross for nine years, and a founding President of the Greater Harlem Nursing Home, the Greater Harlem Community Service Council, the Upper Manhattan Day Care Center and a residential service facility for mentally handicapped persons. BOARD AND COMMITTEE MEETINGS The Board of Directors of the Bank holds regular monthly meetings and holds special meetings as needed. During the year ended March 31, 1996, the Board met 17 times. No director attended fewer than 75% in the aggregate of the total number of Board meetings held while he was a member during the year ended March 31, 1996 and the total number of meetings held by committees on which he served during such fiscal year. The Board of Directors of the Bank has standing Audit, Executive and Compensation Committees and an Investment, Asset, Liability and Interest Rate Risk Committee, the nature and composition of which are described below. Audit Committee. The Audit Committee consists of Directors Herman Johnson (Chairman), David R. Jones and Richard T. Greene. This committee meets at least once annually to review and approve the independent audit report. This committee met 12 times during fiscal year 1996. Executive Committee. The Executive Committee is authorized to act as appropriate between meetings of the Board of Directors. Members of this committee are Directors Thomas L. Clark, Jr. (Chairman), Richard T. Greene, David R. Jones and Herman Johnson. This committee met 12 times during fiscal year 1996. Compensation Committee. The Compensation Committee consists of Directors M. Moran Weston (Chairman), David R. Jones and Richard T. Greene. This committee meets at least annually to evaluate the performance of the executive officers and to establish compensation for those individuals. This committee met 1 time during fiscal year 1996. Investment, Asset, Liability and Interest Rate Risk Committee. The Investment, Asset, Liability and Interest Rate Risk Committee consists of Directors Herman Johnson (Chairman), David R. Jones, Richard T. Greene, Thomas L. Clark, Jr. and M. Moran Weston. This committee meets at least quarterly to evaluate -20- 27 and approve asset classifications and reserves for losses. Classifications recommended by this committee are reviewed and ratified by the Board of Directors. This committee held 5 meetings during fiscal year 1996. The Board of Directors, acting as nominating committee, met in March, 1996 to select the nominees for election as directors at the Annual Meeting. In accordance with the Bylaws of the Bank, no nominations for election as directors, except those made by the Board acting as nominating committee, shall be voted upon at the Annual Meeting unless properly made by a stockholder. No nominations for directors have been received from stockholders for the elections to be held at the Annual Meeting as of the date of this Proxy Statement-Prospectus. To be timely, notice of a stockholder's nomination for an annual meeting must be delivered to the Secretary of the Bank no later than 5 days prior to the Annual Meeting. DIRECTORS' COMPENSATION Directors' Fees. Effective as of October 1995, the Bank's directors, other than Mr. Clark, receive fees ranging from $600 to $850 per Board meeting attended; the Chairman and Vice Chairman receive a fee of $850 per meeting. In addition, the Chairman and Vice Chairman of the Board each receive a quarterly retainer fee of $1,000. Fees for executive committee meetings are $700 per meeting and $475 for all other committee meetings. Mr. Clark does not receive fees for his attendance at meetings of the Board or its committees. During fiscal year 1996, the Bank's directors' fees totaled $115,025. Director Retirement Plan. In connection with the mutual to stock conversion of the Bank (the "Conversion"), the Bank's Board of Directors adopted the Carver Federal Savings Bank Retirement Plan for Nonemployee Directors (the "Directors' Plan"), for directors (i) who are members of the Bank's Board of Directors, and (ii) who are not employees. A participant in the Directors' Plan will receive, on each of the ten annual anniversary dates of his or her retirement, an amount equal to the product of his or her "Vested Percentage" and the fees he or she received for service on the Board during the calendar year preceding his or her retirement. A participant's "Vested Percentage" is based on his or her overall years of service on the Board of Directors of the Bank, and increases from 0% for less than six years of service and to 33% for between six and ten years of service, to 67% for between eleven and nineteen years of service, and to 100% for more than twenty years of service. However, in the event a participant terminates service on the Board due to "disability" (as such term is defined in the Directors' Plan), the participant's Vested Percentage becomes 100% regardless of his or her years of service. In the event of a director's death, the director's Vested Percentage becomes 100%, and a survivor benefit equal to 50% of the annual amount which would have been payable to the director had he or she survived will be paid to his or her surviving spouse. The Bank will pay such benefits from its general assets, and expects to establish a trust in order to hold assets with which to pay benefits. Trust assets will be subject to the claims of the Bank's general creditors. Option Plan. The Bank maintains the Carver Federal Savings Bank 1995 Stock Option Plan (the "Option Plan") for the benefit of its directors and certain key employees. Under the Option Plan, each outside director who was a director on the effective date of the Option Plan was granted options to purchase 6,943 shares of Carver Common Stock, except that Directors Richard T. Greene and M. Moran Weston each were granted non-statutory stock options to purchase 10,415 shares of Carver Common Stock. Such options were granted on September 12, 1995 at an exercise price of $10.38 per share. Any individual who becomes an outside director following the effective date of the Option Plan will be granted options to purchase 1,000 shares of Carver Common Stock with an exercise price equal to the fair market value of Carver Common Stock on the date of the grant. The Option Plan also provides for automatic option grants to certain employees as of the effective date of the Option Plan, including Mr. Clark and Mr. Mukherjee, who were granted 34,715 and 13,886 Shares of Carver Common Stock, respectively, on September 12, 1995 at an exercise price of $10.38 per share. In addition, the Option Plan provides for additional discretionary option grants to those employees selected by the committee established to administer the Option Plan with an exercise price equal to the fair market value of Carver Common Stock on the date of the grant. Options granted under the Option Plan vest in five equal annual installments commencing on the first anniversary of the effective date of the grant, provided the recipient is still a director or employee of the Bank on such date. Upon death or disability, all options previously granted automatically become exercisable. -21- 28 Management Recognition Plan. The Bank maintains the Carver Federal Savings Bank Management Recognition Plan (the "MRP") for the benefit of its directors and certain key employees. Under the MRP, each outside director who was a director on the effective date of the MRP received an automatic grant of 3,471 shares of restricted stock, except that Directors Richard T. Greene and M. Moran Weston each received 5,207 shares of restricted stock. Any individual who becomes an outside director following the effective date of the MRP will be granted 1,000 shares of restricted stock. The MRP also provides for automatic grants of restricted stock to certain employees as of the effective date of the MRP, including Mr. Clark and Mr. Mukherjee who received 17,357 and 10,415 shares of restricted stock, respectively. In addition, the MRP provides for additional discretionary grants of restricted stock to those employees selected by the committee established to administer the MRP. Awards vest in five equal annual installments commencing on the first anniversary date of the award, provided the recipient is still a director or employee of the Bank on such date. Awards will be 100% vested upon termination of service due to death or disability. When shares become vested and are distributed, the recipients will receive an amount equal to any accrued dividends with respect thereto. Supplemental Executive Retirement Agreement. In order to secure and reward the services of Richard T. Greene (the "SERA Participant"), the President and Chief Executive Officer of the Bank at the time, the Board of Directors of the Bank entered into a supplemental executive retirement agreement (the "SERA"), effective January 30, 1995. The Bank expects to establish an irrevocable grantor trust to hold assets to provide itself with a source of funds to assist the Bank in the meeting of its liabilities under the SERA. Pursuant to the terms of the SERA, upon the SERA Participant's termination of employment with the Bank effective February 1, 1995, he became entitled to receive annual payments from the Bank in an amount equal to (i) 50% of his "Average Annual Compensation," less (ii) his "Annual Offset Amount." Under the SERA, "Average Annual Compensation" means the average of the SERA Participant's highest annual compensation for three of the five calendar years preceding his termination of employment, and "Annual Offset Amount" means the sum of the SERA Participant's primary social security benefits and the benefits which the SERA Participant would receive in the form of an annuity under the Pension Plan or the 401(k) Savings Plan (but only to the extent attributable to Bank matching contributions) upon his termination of employment. Such annual payments shall be made for 10 years, except that in the event of the SERA Participant's death, a 50% death benefit will be payable to his surviving spouse, if any. Termination for just cause would result in his forfeiture of all retirement benefits under the SERA. Mr. Greene became eligible for payments under the SERA. Deferred Compensation Plan. The Bank's Board of Directors has established the Carver Federal Savings Bank Deferred Compensation Plan (the "Deferred Compensation Plan"), effective August 10, 1993, for the exclusive benefit of members of the Bank's Board of Directors, the Bank's President and Executive Vice President and other employees as the Bank's Board of Directors may select, in its discretion. Pursuant to the terms of the Deferred Compensation Plan, directors may elect to defer the receipt of all or part of their future fees, and eligible employees may elect to defer receipt of up to 25% of their future compensation. Deferred amounts will be credited to a bookkeeping account in the participant's name, which will also be credited quarterly with the investment return which would have resulted if such deferred amounts had been invested, based upon the participant's choice, between either Carver Common Stock or the Bank's highest annual rate of interest on certificates of deposit, regardless of their term. Changes in participant elections generally become effective only as of the following January 1st, except that elections designating a beneficiary or ceasing future contributions will be given immediate effect. A participant may elect to have the amounts deferred and any related accumulated earnings thereon distributed beginning during the first 15 days of January of either the calendar year immediately following termination of employment, a specific date following employment not later than the year in which the participant will attain 80 years of age or the year in which the participant attains 80 years of age. At the election of the participants, distributions will either be in a lump sum or monthly over a period of not more than 10 years. Participants may change elections as to the timing or form of distributions only with respect to subsequently deferred compensation. Effective as of July 1, 1995, the deferral of fees and compensation -22- 29 by directors and eligible employees under the Deferred Compensation Plan will be governed by the Carver Federal Savings Bank Incentive Compensation Plan (the "Incentive Compensation Plan"). Incentive Compensation Plan. Under the Incentive Compensation Plan, effective as of September 12, 1995, directors and eligible employees may elect to defer the receipt of all or part of their future fees and/or compensation. Pursuant to the terms of the Incentive Compensation Plan, any deferred amounts will be credited to a bookkeeping account in accordance with the terms of the deferred compensation agreement ("Deferred Compensation Agreement") entered into with the individual director or employee. Such accounts will be adjusted annually to reflect the investment return which would have resulted if such deferred amounts had been invested, based on the participant's choice, in one of the following: (i) Carver Common Stock; (ii) the Bank's highest annual rate of interest on 12-month certificates of deposit; or (iii) the "Multiplier," which generally is the sum of certain indicators with respect to the Bank's performance, times two percent. A participant will receive distributions of deferred amounts in accordance with the terms of their respective Deferred Compensation Agreements. A participant may change the investment selection applicable to his or her account or elections as to the timing and form of distributions from such account only with respect to subsequently deferred fees or compensation. In addition to providing for deferred compensation for directors and eligible employees, the Incentive Compensation Plan provides incentive compensation to certain eligible employees, including Mr. Clark and Mr. Mukherjee, in the form of bonuses, stock options and restricted stock. EXECUTIVE COMPENSATION COMPENSATION COMMITTEE REPORT The Compensation Committee of the Bank (the "Compensation Committee") is responsible for establishing the policies which govern employee annual compensation and stock ownership programs. The Compensation Committee annually reviews and makes recommendations to the Board of Directors regarding the compensation of the Bank's executive officers, including the compensation of Mr. Clark, the President and Chief Executive Officer ("CEO") of the Bank. The overall compensation structure of the Bank is aimed at establishing a total compensation package that both rewards strong individual and Bank performance and remains competitive with compensation levels at similar institutions. For the 1996 fiscal year, base salaries were set at levels determined, in the subjective judgment of the Compensation Committee, to be commensurate with the respective executive officers' customary duties and responsibilities. Benefit plans, consisting of a pension plan, 401(k) Plan, ESOP and group insurance coverages, are designed to provide for the health and welfare of all employees, including the executives, and their families, as well as for their long-term financial and retirement needs. When determining salary levels, the Compensation Committee also took into account the addition of the Option Plan, the MRP and the Incentive Compensation Plan that were adopted in connection with the Bank's initial public offering. The Compensation Committee concluded that, considering the then prevailing salary levels and the addition of longer-term performance incentives using options and restricted stock, the Bank's compensation program constituted a total compensation package that was competitive with that of comparable institutions. The Compensation Committee reviews and updates the Bank's compensation program on an ongoing basis in order to continue to offer a total compensation package that provides incentive for strong individual and Bank performance and is competitive with comparable banking institutions. Incentive Compensation. The Incentive Compensation Plan provides for incentive compensation in the form of cash bonuses, stock options and restricted stock based upon the annual performance of the Bank in comparison to its pre-established goals and, in the case of certain executive officers, the individual performance of the executive officer. Discretionary bonuses for fiscal 1996, when granted, will be determined in the subjective judgment of the committee established to administer the Incentive Compensation Plan, with the intention of rewarding effort, performance and results at levels above and beyond those assumed in -23- 30 establishing base salary rates. The Compensation Committee believes that incentive compensation should be an integral component of the Bank's total compensation package. Stock Ownership Programs. The Compensation Committee believes that providing executive officers with significant stock ownership and stock options aligns the interests of executive officers with the interests of stockholders. In this regard, the Bank adopted the ESOP, the Option Plan and the MRP in connection with its initial public offering in 1994. As of the end of fiscal 1996, no stock has been allocated under the ESOP. However, once stock is allocated, each of the other executive officers will have an individual account within the ESOP Trust which is invested primarily if not exclusively in employer securities, with the result that a portion of each executive officer's long-term retirement savings is tied to the performance of the Bank. Mr. Clark will not be eligible to participate in the ESOP until July 1, 1996. Following the adoption of the Option Plan, the Bank granted stock options to provide employees, including the executive officers, with an incentive for future performance through their equity interests in the Bank. The size of the grants was based in part on practices of other similar institutions and in part on the executive officer's performance and position in the organization. Since these grants, no further stock options have been granted to the Bank's executive officers under the Option Plan. The MRP is designed to encourage valued executive officers to remain with the Bank through the potential of having increased equity interests. Following the adoption of the MRP, the Company made awards under the MRP to certain employees including Messrs. Clark, Mukherjee, Dabney and Bruce and to Ms. Lewis. Since these awards, no further shares under the MRP have been awarded to the Bank's executive officers. Chief Executive Officer. The Compensation Committee reviewed the performance of Mr. Clark as CEO of the Bank over the past year. The Committee concluded that his performance was outstanding, in terms of achieving the Bank's goals and objectives as set forth in the Bank's strategic operating plan, building a solid and talented management team and managing the Bank's growth since the successful initial public offering of the Bank. Mr. Clark also actively participated in a variety of outside organizations and causes which served to benefit the Bank and the banking industry. These factors were used to determine Mr. Clark's salary, options and MRP awards. COMPENSATION COMMITTEE M. Moran Weston, Chairman David R. Jones Richard T. Greene COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION One of the responsibilities of the Compensation Committee is to determine the level of compensation for executive officers of the Bank. Mr. Greene, who served as President and Chief Executive Officer of the Bank until January 31, 1995, is a member of the Compensation Committee. There are no other interlocks, as defined under the SEC's rules, between the Compensation Committee and corporate affiliates of members of the Compensation Committee or otherwise. -24- 31 PERFORMANCE GRAPH In accordance with the regulations of the SEC, set forth below is a line graph comparing the cumulative total return of Carver Common Stock with that of the Nasdaq Stock Market and the SNL Thrift Index for the period from October 25, 1994, the date that the Bank became a public company, through March 29, 1996. The graph is based on an investment of $100.00 on October 25, 1994 at the initial public offering price of $10.00 and assumes the reinvestment of dividends in additional shares of the same class of equity securities as those below. CARVER FEDERAL SAVINGS BANK STOCK PRICE PERFORMANCE

Notes: THERE CAN BE NO ASSURANCE THAT STOCK PERFORMANCE WILL CONTINUE INTO THE FUTURE WITH THE SAME OR SIMILAR TRENDS DEPICTED IN THE GRAPH ABOVE. -25- 32 SUMMARY COMPENSATION TABLE The following table sets forth cash and noncash compensation for the fiscal years ended March 31, 1996, 1995 and 1994 awarded to or earned by the Bank's Chief Executive Officer and by each other executive officer whose compensation exceeded $100,000 for services rendered in all capacities to the Bank during the fiscal year ended March 31, 1996 ("Named Executive Officers"). No other officers received total compensation in excess of $100,000 in fiscal 1996. SUMMARY COMPENSATION TABLE

_____ (1) As of April 30, 1996, the committee established to administer the Incentive Compensation Plan has not determined the amount, if any, of cash bonuses, stock options and restricted stock to be awarded to Mr. Clark and Mr. Mukherjee under such plan. (2) Does not include perquisites and other personal benefits the value of which did not exceed the lesser of $50,000 or 10% of salary and bonus. (3) The compensation earned by Mr. Clark for his service for fiscal year ended March 31, 1995 reflects his appointment to the position of President and Chief Executive Officer of the Bank on February 1, 1995. (4) Includes $95.00 in matching contributions allocated to Mr. Clark's account under the Bank's 401(k) Plan for the fiscal year ended March 31, 1996. (5) Includes $2,897, $4,784 and $4,620 in matching contributions allocated to Mr. Mukherjee's account under the Bank's 401(k) Plan for the fiscal years ended March 31, 1996, 1995 and 1994, respectively. CERTAIN EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS Employment Agreements. The Bank has entered into employment agreements (the "Employment Agreements") with Mr. Clark in his capacity as President and Chief Executive Officer and Mr. Mukherjee in his capacity as Executive Vice President and Chief Financial Officer (the "Executives"). The Employment Agreement with Mr. Clark became effective on January 3, 1995 and provides for a term of three years, with an annual base salary equal to $165,000. The Employment Agreement with Mr. Mukherjee became effective on April 14, 1995 and also provides for a term of three years, with an annual base salary of $100,000. On each anniversary date from the date of commencement of the Employment Agreements, the term of employment will be extended for an additional one-year period beyond the then effective expiration date so that the remaining term shall be three years, upon a determination by the Board of Directors that the performance of the Executive has met the required performance standards and that such Employment Agreement should be extended. The Employment Agreements provide the Executives with a -26- 33 salary review by the Board of Directors not less often than annually, as well as with inclusion in any discretionary bonus plans, retirement and medical plans, customary fringe benefits and vacation and sick leave. The Employment Agreements will terminate upon each Executive's death or disability (as defined in the Employment Agreements), and are terminable by the Bank in each case for "just cause" (as defined in the Employment Agreements). In the event of termination for just cause, no severance benefits are available. If the Bank terminates one of the Executives without just cause, the Executive will be entitled to severance benefits equal to his salary from the date of termination through the remaining term of the Employment Agreement (but in no event less than a 12 month period in the case of Mr. Mukherjee), and the cost to the Executive of obtaining all health, life, disability and other benefits which the Executive would have been eligible to participate in through the remaining term of the Employment Agreement, based upon benefit levels substantially equal to those that the Bank provided for the Executive at the date of termination of employment. If the Employment Agreements are terminated due to an Executive's disability, the Executive will be entitled to compensation and benefits for (i) any period during the term of the Employment Agreement and prior to the establishment of the Executive's disability during which the Executive is unable to work due to the physical or mental infirmity, or (ii) any period of disability which is prior to the Executive's termination of employment. In the event of an Executive's death during the term of his Employment Agreement, his estate will be entitled to receive his salary through the last day of the calendar month in which his death occurred. Severance benefits payable to the Executive or to his estate will be paid in a lump sum or in installments, as he (or his estate) elects. The Executives are able to voluntarily terminate their Employment Agreements by providing 60 days' written notice to the Board of Directors of the Bank, in which case the Executives are entitled to receive only their compensation, vested rights and benefits up to the date of termination. Each of the Employment Agreements contains provisions stating that in the event of the Executive's involuntary termination of employment in connection with, or within one year after, any "change in control" of the Bank (as defined in the Employment Agreements), other than for "just cause," the Executive will be paid within 10 days of such termination an amount equal to the difference between (i) 2.99 times his "base amount," as defined in Section 280G(b)(3) of the Code, and (ii) the sum of any other parachute payments, as defined under Section 280G(b)(2) of the Code, that the Executive receives on account of the change in control. An Executive's "base amount" is generally the average of the Executive's annual taxable compensation from the Bank for each of the most recent five taxable years ending before the date on which a change of control occurs. A "change in control" generally refers to the acquisition, by any person or entity, of the ownership of or power to vote more than 25% of the Bank's voting stock, the control of the election of a majority of the Bank's directors, or the exercise of a controlling influence over the management or policies of the Bank. In addition, under the Employment Agreements, a change in control occurs when, during any consecutive two-year period, directors of the Bank at the beginning of such period cease to constitute two-thirds of the Board of Directors of the Bank unless the election of replacement directors was approved by a two-thirds vote of the initial directors then in office. The Employment Agreements provide that within five business days of a change in control, the Bank shall fund, or cause to be funded, a trust in the amount of 2.99 times the Executive's base amount, that will be used to pay the Executive amounts owed to him upon termination other than for just cause within one year of the change in control. The amount to be paid to the Executive from this trust upon his termination is determined according to the procedures outlined in the Employment Agreement with the Bank, and any money not paid to the Executive is returned to the Bank. The Employment Agreements also provide for a similar lump sum payment to be made in the event of the Executive's voluntary termination of employment within one year following a change in control, upon the occurrence, or within 90 days thereafter, of certain specified events following the change in control which have not been consented to in writing by the Executive, including (i) the requirement that the Executive perform his principal executive functions more than 35 miles from the Bank's current primary office, (ii) a material reduction in the Executive's base compensation as then in effect, (iii) the failure of the Bank to continue to provide the Executive with compensation and benefits provided for under the Employment Agreement or with substantially similar benefits, (iv) the assignment to the Executive of duties and responsibilities that are materially different from those normally associated with his position with the Bank, (v) a material reduction in the Executive's authority and responsibility, and (vi), in the case of Mr. Clark, a failure to re-elect the Executive to the Bank's Board of Directors. In the event that the Executives prevail -27- 34 over the Bank in a legal dispute as to the Employment Agreements, they will be reimbursed for their legal and other expenses. Pension Plan. The Bank maintains a non-contributory, tax-qualified defined benefit plan (the "Pension Plan"). As required, the Bank annually contributes an amount to the Pension Plan necessary to satisfy the actuarially determined minimum funding requirements in accordance with the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Employees who are 18 years of age or older and who have completed one year of service with the Bank are eligible to participate in the Pension Plan. Participants become 100% vested after five years of service, death, or termination of the Pension Plan, regardless of the participant's years of service. The Pension Plan also provides for early retirement benefits, on an actuarially reduced basis, at the election of a participant who terminates employment after age 55. Under the Pension Plan, each participant is entitled to a retirement benefit equal to the greater of (a) the product of 50% of final earnings (as defined in the Pension Plan) reduced by 50% of the social security amount (as defined in the Pension Plan) times the ratio of number of years of credited service (as defined in the Pension Plan) up to a maximum of 15, over 15 if the participant's employment ceased after the normal retirement age (as defined in the Pension Plan) or multiplied by the ratio of the number of years of credited service divided by the greatest of (i) 15 and (ii) the number of years of credited service he or she would have had on his or her normal retirement date, if the participant's employment ceased prior to the normal retirement age (as defined in the Pension Plan), or (b) $25 multiplied by the number of the participants' months of credited service. The following table sets forth the estimated annual benefits that would be payable under the Pension Plan in the form of a single life annuity before reduction for the social security amount upon retirement at the normal retirement date. The amounts are expressed at various levels of compensation and years of service.

______ (1) Under Section 401(a)(17) of the Code, a participant's compensation in excess of $150,000 (as adjusted to reflect cost-of- living increases) is disregarded for purposes of determining final earnings. Final earnings equal the average of the participant's highest three consecutive calendar years of taxable compensation during the last 10 full calendar years of employment prior to termination, or the average of the Participant's annual compensation over his or her total service, if less. The following table sets forth the years of credited service and the final earnings determined as of March 31, 1996 for each of the individuals named in the Summary Compensation Table.

-28- 35 Option Plans. The following table discloses for the CEO and the Named Executive Officers, the gain or "spread" that would be realized if the stock options granted to such individuals were exercised when the Bank's stock price had appreciated by the percentage rates indicated from the closing market price on the date of the grant. OPTION/SAR GRANTS IN FISCAL YEAR 1993

The following table provides certain information with respect to the number of shares of Carver Common Stock acquired through the exercise of, or represented by, outstanding stock options held by the Named Executive Officers on April 30, 1996. Also reported is the value for any "in-the-money" options, which represent the positive spread between the exercise price of any such existing stock options and the fiscal year-end price of Carver Common Stock, which was $8.75 per share.

___ (1) Neither of the Named Executive Officers exercised options during the fiscal year ended March 31, 1996. (2) None of the outstanding stock options held by the Named Executive Officers are "in-the-money" options. TRANSACTIONS WITH CERTAIN RELATED PERSONS Under current law, Carver offers loans to its directors, officers and employees, which loans are made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectibility or present other unfavorable features. Furthermore, loans above the greater of $25,000 or 5% of the Bank's capital and surplus (up to $500,000) to the Bank's directors and executive officers must be approved in advance by a disinterested majority of the Bank's Board of Directors. Under prior law, however, Carver had a policy of offering loans to directors, officers, employees and their -29- 36 immediate family members residing at the same address on terms substantially equivalent to those offered to the public, except the interest rates on loans were reduced so long as the director, officer or employee remained at the Bank. The following table sets forth information at March 31, 1996 relating to loans made to directors and executive officers of the Bank whose terms included reduced interest rates or other preferential terms and whose total aggregate balances exceeded $60,000 at any time since April 1, 1995.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Under the federal securities laws, the Bank's directors, executive officers, and any person holding more than ten percent of the Bank's Common Stock are required to file initial reports of ownership of the Bank's Common Stock and reports of changes in that ownership to the OTS and the National Association of Securities Dealers, Inc. Specific due dates for these reports have been established and the Bank is required to disclose in this Proxy Statement any failure to file by these dates during the fiscal year ended March 31, 1996. All of these requirements were satisfied during the fiscal year ended March 31, 1996, except that Mr. Johnson did not disclose purchases of Carver Common Stock by members of his immediate family in his initial report following the public offering of Carver Common Stock. This situation was subsequently corrected. In making these disclosures, the Company has relied on written representations of its directors and executive officers and copies of the reports that they have filed with the OTS. ____ PROPOSAL 2 RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS ____ The Board of Directors has appointed the firm of Mitchell & Titus, LLP as independent auditors for the Bank for the fiscal year ending March 31, 1997, subject to ratification of such appointment by the stockholders. Representatives of Mitchell & Titus, LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so, and will be available to respond to questions. On November 21, 1995, the Board of Directors determined to replace Radics & Co., LLC (formerly Stephen P. Radics & Co.), the Bank's independent auditors for the 1995 fiscal year with the firm of Mitchell & Titus, LLP, who were engaged on November 21, 1995. The Bank's business relationship with Radics & Co., LLC had always been good, and none of the reports of Radics & Co., LLC on the financial statements of the Bank for either of the past two fiscal years contained an adverse opinion or a disclaimer of opinion or was qualified or modified as to uncertainty, audit scope or accounting principles. During the Bank's two most recent fiscal years, there was no disagreement with Radics & Co., LLC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Radics & Co., LLC, would have caused it to make reference to the subject matter of the disagreement in connection with its reports. -30- 37 During the Bank's two most recent fiscal years, neither the Bank nor anyone on its behalf consulted Mitchell & Titus, LLP regarding the application of accounting principles to a specific completed or contemplated transaction or the type of audit opinion that might be rendered on the Bank's financial statements, and no written or oral advice concerning the same was provided to the Bank that was an important factor considered by the Bank in reaching a decision as to any accounting, auditing or financial reporting issue. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF MITCHELL & TITUS, LLP AS INDEPENDENT AUDITORS FOR THE BANK. ____ PROPOSAL 3 FORMATION OF HOLDING COMPANY ____ GENERAL Bancorp, Carver and Interim entered into the Plan of Reorganization as of May 21, 1996, pursuant to which Interim will merge with and into Carver and Bancorp will thereby become a savings and loan holding company with Carver as its wholly owned subsidiary. In connection with the Reorganization, all of the outstanding shares of Carver Common Stock (other than shares held by stockholders exercising dissenters' rights, if any) will be converted into and exchanged for, on a one-for-one basis, shares of Bancorp Common Stock. A copy of the Plan of Reorganization is set forth as Appendix A to this Proxy Statement-Prospectus and is incorporated herein by reference. The discussion below is qualified in its entirety by such reference. Bancorp is a newly-formed Delaware business corporation that was organized by Carver for the purpose of effecting the Reorganization and, therefore, has no operating history. As part of the Reorganization, Interim is being organized as a wholly owned subsidiary of Bancorp. If the Reorganization is approved by the holders of Carver Common Stock, and subject to the satisfaction of all other conditions set forth in the Plan of Reorganization, including receipt of all required regulatory approvals, Interim will be merged with and into Carver on the Effective Date, with Carver as the surviving federal savings bank. After the Effective Date, Carver will continue its existing business and operations as a wholly owned subsidiary of Bancorp. The consolidated assets, liabilities, stockholders' equity and income of Bancorp immediately following the Effective Date will be the same as those of Carver immediately prior to the Effective Date. The Board of Directors of Bancorp is, and upon the Effective Date will continue to be, comprised of the members of the Board of Directors of Carver. The officers of Bancorp are, and upon the Effective Date will continue to be, certain officers of Carver. See "Management of Bancorp." Carver will continue to operate under the name "Carver Federal Savings Bank" and its deposit accounts will continue to be insured by the FDIC. The corporate existence of Carver will continue unaffected and unimpaired by the Reorganization, except that all of the outstanding shares of Carver Common Stock (other than shares held by stockholders exercising dissenters' rights, if any) will be owned by Bancorp. Carver's stockholders prior to the Effective Date will, in turn, own all of the outstanding shares of Bancorp Common Stock, having received that stock in exchange for their shares of Carver Common Stock as part of the Reorganization. -31- 38 THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE FORMATION OF A SAVINGS AND LOAN HOLDING COMPANY. PARTIES TO THE REORGANIZATION CARVER FEDERAL SAVINGS BANK Carver was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally chartered mutual savings and loan association, at 53 West 125th Street in New York City, at which time, the Bank obtained federal deposit insurance and became a member of the Federal Home Loan Bank ("FHLB") of New York. In 1961, Carver opened its first branch office in the Bedford-Stuyvesant section of Brooklyn, New York and over the next 20 years added three other branches in Brooklyn and Manhattan, New York. In 1982, the Bank acquired Allied Federal Savings and Loan Association in a supervisory transaction. The Bank opened its Roosevelt, Long Island office in 1984 and acquired two additional branches in 1989 and 1990. The Bank converted to a federal savings bank in 1986 and changed its name at that time to Carver Federal Savings Bank. On October 24, 1994, the Bank converted from mutual to stock form (the "Conversion") and issued 2,314,375 shares of its common stock, par value $0.01 per share. Carver was founded to provide an African-American operated institution where residents of underserved communities could invest their savings and obtain credit. The Bank's principal business consists of attracting passbook and other savings accounts through its branch offices and investing those funds in mortgage loans and other investments permitted to federal savings banks. Based on asset size as of March 31, 1996, Carver is the largest minority-run financial institution in the United States. CARVER BANCORP, INC. Bancorp was organized in May, 1996 at the direction of the Board of Directors of the Bank to become a savings and loan holding company with Carver as its wholly owned subsidiary. Bancorp, upon the approval of the OTS to become a savings and loan holding company, will be subject to regulation by the OTS. After completion of the Reorganization, Bancorp will conduct business initially as a unitary savings and loan holding company. See "Regulation and Supervision - -- Savings and Loan Holding Company Regulation." Upon consummation of the Reorganization, Bancorp will have no significant assets other than the shares of the Bank's capital stock acquired in the Reorganization, and will have no significant liabilities. The management of Bancorp is set forth under "Management of Bancorp." Initially, Bancorp will neither own nor lease any property, but will instead use the premises, equipment and furniture of the Bank. At the present time, Bancorp does not intend to employ any persons other than certain executive officers, but will utilize the support staff of the Bank from time to time. Additional employees will be hired as appropriate, to the extent Bancorp expands its business in the future. Bancorp's executive office is located at 75 West 125th Street, New York 10027-4512, and its telephone number is (212) 876-4747. CARVER INTERIM FEDERAL SAVINGS BANK Interim is a stock-form savings bank formed under the rules and regulations of the OTS. Interim is being organized as a wholly owned subsidiary of Bancorp for the purpose of being merged with and into Carver pursuant to the Plan of Reorganization. -32- 39 DESCRIPTION OF THE REORGANIZATION REASONS FOR THE REORGANIZATION The Board of Directors of Carver believes that a holding company structure will provide greater flexibility to meet the future competitive and financial needs of the Bank. As a savings and loan holding company, Bancorp will not be subject to the same regulatory restrictions as the Bank and will be able to engage in a broader range of business activities than are currently permissible for federal savings banks. See "Regulation and Supervision -- Savings and Loan Holding Company Regulation." The Reorganization will also allow Bancorp greater flexibility in the management of its corporate affairs than Carver currently has, including the right to repurchase its stock in response to hostile takeover attempts and in other circumstances as deemed appropriate by its Board of Directors. Any such repurchases would be subject to applicable law, and there are currently no agreements or understandings with respect to the repurchase of the capital stock of the Bank prior to the Effective Date or the capital stock of Bancorp after the Reorganization. The Board of Directors of Bancorp expects that, after completion of the Reorganization, it will consider the possibility of implementing a regular program of share repurchases. See "Certain Differences in Stockholder Rights" and "Certain Anti-Takeover Provisions" for a comparison of anti-takeover provisions and other stockholder rights contained in the charter documents of Carver and Bancorp. The Reorganization will also increase flexibility with respect to potential expansion through mergers and acquisitions. As a holding company, Bancorp will be able to acquire other banks through the issuance of its stock in exchange for the stock of such other banks, or by a merger of its bank subsidiary with such other bank. There are currently no agreements or understandings with respect to any such mergers or acquisitions. DESCRIPTION OF THE REORGANIZATION The Reorganization will be accomplished through the following steps: 1. Bancorp has been incorporated as a wholly owned subsidiary of Carver. The primary purpose of Bancorp is to become the holding company for Carver. 2. Interim is being organized as a wholly owned subsidiary of Bancorp. 3. Interim will be merged with and into Carver, with Carver as the surviving institution. 4. As part of the merger, the shares of Bancorp Common Stock held by Carver will be cancelled, and all of the shares of Carver Common Stock outstanding prior to the merger (other than shares held by stockholders exercising dissenters' rights, if any) will be converted into and exchanged for, on a one-for-one basis, shares of Bancorp Common Stock, with the result that the stockholders of Carver will become the sole stockholders of Bancorp. 5. The shares of common stock of Interim which are outstanding prior to the merger will be converted into shares of Carver Common Stock (and not further converted into shares of Bancorp Common Stock), with the result that, after the merger, all of the issued and outstanding shares of Carver Common Stock will be owned by Bancorp. 6. All shares acquired by Carver as a result of the exercise of dissenters' rights will be cancelled upon receipt. Bancorp will receive an initial cash infusion from Carver in the amount of $100,000. Shortly after consummation of the Reorganization, management of the Bank expects to make a capital distribution of $5.7 million to Bancorp, which may be used by Bancorp after the Reorganization to conduct the activities described in "Reasons for the Reorganization" as well as to fund any cash dividends that may be declared. See "Dividend Policy." -33- 40 EFFECTIVE DATE The Effective Date will be the later of the date of (a) the consummation of the Plan or (b) the date specified on the endorsement by the Secretary of the OTS of the articles of combination with respect to the Plan of Reorganization in accordance with the OTS Regulations. CONDITIONS TO THE REORGANIZATION The Plan of Reorganization provides that the obligations of Carver, Bancorp and Interim to consummate the Reorganization are subject to the satisfaction of the following conditions: (1) the approval of the Plan of Reorganization by an affirmative vote of the holders of a majority of the outstanding shares of Carver Common Stock; (2) the approval by the OTS of the Plan of Reorganization and the transactions contemplated therein, including the formation of Interim, the merger of Interim with and into Carver, and the acquisition by Bancorp of all of the issued and outstanding shares of Carver Common Stock (other than shares held by stockholders exercising dissenters' rights, if any); (3) the receipt of a favorable ruling from the Internal Revenue Service or a favorable opinion of counsel as to the federal income tax consequences of the Reorganization; (4) the registration with the SEC of Bancorp Common Stock under the Securities Act; (5) compliance with all applicable state securities or "blue sky" laws relating to the issuance and distribution of Bancorp Common Stock; and (6) the receipt of all other consents and approvals and the satisfaction of all other requirements necessary to the consummation of the Reorganization. AMENDMENT AND TERMINATION The Plan of Reorganization provides that it may be amended by the parties thereto in whole or in part at any time prior to the Effective Date, whether before or after approval by the stockholders, to the extent authorized by applicable law. However, after approval by the stockholders of the Bank, the Plan may not be amended in any way deemed by the Board of Directors to be materially adverse to the stockholders. The Plan of Reorganization further provides that it may be terminated at any time prior to the Effective Date (whether before or after approval by the stockholders of Carver): (1) at the option of the Board of Directors of Carver or Bancorp or the incorporator of Interim if any one or more of the conditions to the obligations of any of them under the Plan of Reorganization shall not have been satisfied and shall not have been waived at or prior to the Effective Date; (2) at the option of the Board of Directors of Carver for any reason; or (3) by the mutual agreement of the Boards of Directors of Carver and Bancorp and the incorporator of Interim. In addition, in the event that stockholders, through the exercise of dissenters' rights, would cause the Bank's total risk-based capital ratio to fall below 8.0%, or would cause the Bank's Tier 1 risk-based capital ratio to fall below 4.0% or would cause the Bank's core capital ratio to fall below 3.0%, the Bank will not complete the Reorganization without the further approval of the OTS. EXCHANGE OF STOCK CERTIFICATES In connection with the exchange of Carver Common Stock for Bancorp Common Stock, it will not be necessary for stockholders of Carver to exchange their certificates for certificates representing shares of Bancorp Common Stock. On the Effective Date, non- dissenting stockholders of Carver will automatically become stockholders of Bancorp and each outstanding certificate representing shares of Carver Common Stock will automatically represent, and will be deemed for all purposes to evidence ownership of, the same number of shares of Bancorp Common Stock. After the Effective Date, as currently outstanding certificates of Carver Common Stock are presented for transfer, or, upon the request of any holder of Carver Common Stock, the registrar and transfer agent for Carver Common Stock and Bancorp Common Stock (the "Transfer Agent") will issue new stock certificates representing the same number of shares of Bancorp Common Stock as the number of shares of Carver Common Stock surrendered therefor. Upon surrender, each certificate representing Carver Common Stock will be cancelled. After the Effective Date, there will be no further registration of transfers of shares of Carver Common Stock on the records of Carver. -34- 41 If any certificate representing shares of Bancorp Common Stock is to be issued in a name other than that in which the certificate of Carver Common Stock surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the certificate surrendered in exchange be properly endorsed and otherwise in proper form for transfer. The person requesting such transfer will be required to pay to the Transfer Agent any transfer or other tax required by reason of the issuance of a certificate for shares of Bancorp Common Stock in a name other than that of the registered holder of the certificate surrendered or establish to the satisfaction of the Transfer Agent that such tax has been paid or is not payable. EFFECT OF THE REORGANIZATION ON EMPLOYEE BENEFIT PLANS On the Effective Date, the ESOP, the Option Plan, the MRP and the Incentive Compensation Plan will be assumed by Bancorp. Stock options to purchase shares of Carver Common Stock granted under the Option Plan and Incentive Compensation Plan and outstanding prior to the Reorganization will automatically become options to purchase the same number of shares of Bancorp Common Stock upon identical terms and conditions and for an identical price. Similarly, stock appreciation rights with respect to shares of Carver Common Stock granted under the Option Plan, if any, will automatically become stock appreciation rights with respect to shares of Bancorp Common Stock, and grants of restricted shares of Carver Common Stock under the MRP and Incentive Compensation Plan will automatically become grants of restricted shares of Bancorp Common Stock. Bancorp will assume all of Carver's obligations with respect to such outstanding options, stock appreciation rights and restricted stock. Any shares of Carver Common Stock reserved for future issuance under the Option Plan, MRP or Incentive Compensation Plan will automatically be converted into an equal number of shares of Bancorp Common Stock and will be reserved for issuance under the respective plans. Shares of Carver Common Stock held by the ESOP will automatically become shares of Bancorp Common Stock. The Reorganization will not trigger any change in control provisions contained in any of the employment agreements with the Bank's officers. All other employee benefit plans of Carver will be unchanged by the Reorganization. See "Management of Carver -- Compensation and Employee Benefit Plans." DESCRIPTION OF BANCORP CAPITAL STOCK GENERAL The Certificate of Incorporation of Bancorp authorizes the issuance of capital stock consisting of 10,000,000 shares of common stock, par value $0.01 per share, and 2,000,000 shares of preferred stock, par value $0.01 per share (the "Bancorp Preferred Stock"). There are 100 shares of Bancorp Common Stock currently issued and outstanding, all of which are owned by Carver. On the Effective Date, such shares will be cancelled, and there will be, subject to the exercise of dissenters' rights, if any, 2,314,375 shares outstanding as a result of the exchange of shares of Bancorp Common Stock for shares of Carver Common Stock. Because all of the issued and outstanding shares of Bancorp Common Stock are owned by Carver, there is currently no established public trading market for Bancorp Common Stock. In the future, the authorized but unissued and unreserved shares of Bancorp Common Stock and the authorized and unissued shares of Bancorp Preferred Stock will be available for issuance for general corporate purposes, including, but not limited to, possible issuance as stock dividends or stock splits, future mergers or acquisitions, or future private placements or public offerings. Bancorp's Board of Directors may (i) divide, and cause the issuance of, one or more series of the authorized shares of Bancorp Preferred Stock, (ii) fix the number of shares constituting any such new series, and (iii) fix the dividend rate, terms, conditions, conversion and exchange rights, redemption rights (including sinking fund provisions), liquidation preferences and voting rights, if any, of any such new series. Such rights and preferences may be superior to those of Bancorp Common Stock. Except as otherwise may be required to approve a merger or other transaction in which the additional authorized shares of Bancorp Common Stock or authorized shares of Bancorp Preferred Stock would be issued, no stockholder approval will be required for the issuance of those shares. See "Certain -35- 42 Differences in Stockholder Rights" for a discussion of the rights of the holders of Bancorp Common Stock as compared to the holders of Carver Common Stock. In addition, the Company may be restricted in its ability to register additional shares of capital stock after completion of the Reorganization due to certain requirements of the SEC related to financial statement disclosures and related disclosures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." COMMON STOCK General. Each share of Bancorp Common Stock has the same relative rights as, and is identical in all respects to, each other share of Bancorp Common Stock. Until such time as voting Bancorp Preferred Stock is issued, if ever, the holders of shares of Bancorp Common Stock will possess all rights, including exclusive voting rights, pertaining to the capital stock of Bancorp. The relative rights of shares of Bancorp Common Stock do not materially differ from the relative rights of shares of Carver Common Stock. Dividend Rights. The holders of Bancorp Common Stock will be entitled to dividends when, as and if declared by Bancorp's Board of Directors out of funds legally available therefor. The payment of dividends by Bancorp will depend on Bancorp's net income, financial condition, regulatory requirements and other factors, including the results of Carver's operations. See "Dividend Policy" for restrictions on the payment of dividends on Bancorp Common Stock. Bancorp has no present intention to pay dividends, but may consider doing so in the future. Voting Rights. Each share of Bancorp Common Stock will entitle the holder thereof to one vote on all matters upon which stockholders have the right to vote. In addition, the Board of Directors of Bancorp is classified so that approximately one-third of the directors will be elected each year. Stockholders of Bancorp will not be entitled to cumulate their votes for the election of directors. See "Certain Anti-Takeover Provisions." Liquidation Rights. In the event of any liquidation, dissolution or winding up of Bancorp, the holders of shares of Bancorp Common Stock will be entitled to receive, after payment of all debts and liabilities of Bancorp and subject to the prior rights, if any, of holders of shares of Bancorp Preferred Stock, all remaining assets of Bancorp available for distribution in cash or in kind. In the event of any liquidation, dissolution or winding up of Carver, Bancorp, as the holder of all shares of Carver Common Stock, upon completion of the Reorganization, would be entitled to receive payment of all debt, and liabilities of Carver (including all deposits and accrued interest thereon) and all remaining assets of Carver available for distribution in cash or in kind. Preemptive Rights; Redemption. Holders of shares of Bancorp Common Stock will not be entitled to preemptive rights with respect to any shares that may be issued. Bancorp Common Stock is not subject to call or redemption. BANCORP PREFERRED STOCK No Bancorp Preferred Stock is being issued in connection with the Reorganization and the Board of Directors of Bancorp has no present plan or intention to issue any Bancorp Preferred Stock. The Board of Directors may, without action of the stockholders of Bancorp, issue shares of Bancorp Preferred Stock from time to time in one or more series with distinctive serial designations, preferences, limitations and other rights. The Board of Directors is authorized to determine, among other things, with respect to each series which may be issued: (i) the dividend rate, conditions of payment of dividends, dividend preferences, if any, and whether dividends would be cumulative and, if so, the date from which dividends on such series would accumulate; (ii) whether, and upon what terms, such series would be redeemable and, if so, the redemption price and terms and conditions of redemption; (iii) the preference, if any, to which such series would be entitled in the event of voluntary or involuntary liquidation, dissolution or winding up of Bancorp; (iv) whether or not a sinking fund would be provided for the redemption of such series and, if so, the terms and conditions thereof; (v) whether, and upon what terms, such series would be convertible into or exchangeable -36- 43 for shares of any other class of capital stock or other series of Bancorp Preferred Stock; and (vi) whether, and to what extent, the holders of such series would enjoy voting rights, if any, in addition to those prescribed by law. With regard to dividends, redemption and liquidation preference, any particular series of Bancorp Preferred Stock may rank junior to, on a parity with or senior to any other series of Bancorp Preferred Stock. It is not possible to state the actual effect of the authorization of Bancorp Preferred Stock upon the rights of holders of Bancorp Common Stock, until the Board of Directors determines the specific rights of the holders of a series of Bancorp Preferred Stock. However, such effects might include (a) restrictions on dividends on Bancorp Common Stock if dividends on Bancorp Preferred Stock have not been paid; (b) dilution of the voting power of Bancorp Common Stock to the extent that Bancorp Preferred Stock has voting rights; (c) dilution of the equity interest of Bancorp Common Stock to the extent that Bancorp Preferred Stock is converted into Bancorp Common Stock; or (d) Bancorp Common Stock not being entitled to share in Bancorp's assets upon liquidation until satisfaction of any liquidation preference granted the holders of Bancorp Preferred Stock. Issuance of Bancorp Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire a majority of the outstanding voting stock. Accordingly, the issuance of Bancorp Preferred Stock may be used as an "anti-takeover" device without further action on the part of the stockholders of Bancorp. ANTI-TAKEOVER PROVISIONS See "Certain Differences in Stockholder Rights -- Certain Anti-Takeover Provisions" for a description of certain provisions contained in the Certificate of Incorporation and Bylaws of Bancorp that might have the effect of delaying, deferring or preventing a change in control of Bancorp. DESCRIPTION OF CARVER CAPITAL STOCK GENERAL The Bank's Federal Stock Charter authorizes the issuance of up to 5,000,000 shares of common stock (the "Bank Common Stock") and 1,000,000 shares of serial preferred stock (the "Bank Preferred Stock"). The Bank Preferred Stock may be issued in classes and series having such rights, preferences, privileges and restrictions as the Board of Directors of the Bank may determine from time to time. The Bank Preferred Stock may be issued by the Bank in one or more series from time to time as determined by the Bank's board of directors by the adoption of a supplementary provision in the Bank's Federal Stock Charter. No Bank Preferred Stock has been authorized by the Board of Directors at this time. THE COMMON STOCK Under the Bank's Federal Stock Charter, each holder of shares of Bank Common Stock is entitled to one vote per share on all matters requiring stockholder action and to participate equally (subject to any preference which may hereafter be established in favor of the Bank Preferred Stock) with the other holders of Bank Common Stock in any dividends, when, as and if declared by the Board of Directors of the Bank from funds legally available therefor. See "Dividend Policy." Subject to any preferential rights established in favor of any outstanding Bank Preferred Stock, each share of Bank Common Stock is entitled to equal rights in the event of liquidation. Stockholders of Carver do not have the right to cumulate their votes for the election of directors. The holders of the Bank Common Stock have no preemptive or other rights to subscribe for additional shares of any class of capital stock of the Bank. Without preemptive rights, a stockholder's ownership position in the Bank is subject to dilution if additional shares of capital stock are issued by the Bank. The Bank Common Stock is not redeemable. -37- 44 BANK PREFERRED STOCK The Board of Directors may, without action of the stockholders of the Bank, issue shares of Bank Preferred Stock from time to time in one or more series with distinctive serial designations, preferences, limitations and other rights. The Board of Directors is authorized to determine the same features with respect to the Bank Preferred Stock as those of Bancorp Preferred Stock. No Bank Preferred Stock is being issued in connection with the Reorganization and there is currently no Bank Preferred Stock outstanding. The Board of Directors of the Bank has no present plan or intention to issue any Bank Preferred Stock. CERTAIN DIFFERENCES IN STOCKHOLDER RIGHTS GENERAL The rights of the holders of Carver Common Stock are currently governed by the OTS Regulations and by Carver's Federal Stock Charter and the Bylaws adopted thereunder. The rights of the holders of Bancorp Common Stock will be governed by Delaware General Corporation Law ("DGCL"), by Bancorp's Certificate of Incorporation and the Bylaws adopted thereunder and by the applicable regulations of the SEC. Certain differences in stockholder rights arise from this change of governing law. The following discussion summarizes the material differences as reflected in Bancorp's Certificate of Incorporation and Bylaws and is not intended to be a complete statement of all differences affecting the rights of stockholders. This discussion is qualified in its entirety by reference to Bancorp's Certificate of Incorporation, a copy of which is attached hereto as Appendix C. If the Reorganization is not consummated, any action affecting the rights of stockholders of Carver, including any change in control, will continue to be subject to the relevant provisions of Carver's Federal Stock Charter and Bylaws and the OTS Regulations. For a description of Bancorp Common Stock, see "Description of Bancorp Capital Stock -- Common Stock." For a description of provisions contained in the Certificate of Incorporation and Bylaws of Bancorp that may be deemed to have an anti-takeover effect, see "-- Certain Anti-Takeover Provisions." PAYMENT OF DIVIDENDS The ability of Carver to pay dividends on its common stock is restricted by OTS Regulations and by tax considerations related to federally chartered savings banks. See "Regulation and Supervision -- Restrictions on Dividends and Other Capital Distributions." Although Bancorp's ability to pay dividends will not be subject to these restrictions, such restrictions will indirectly affect the Company because dividends from the Bank will be a primary source of funds of the Company for the payment of dividends to stockholders of the Company. Bancorp will be limited by certain restrictions imposed generally on Delaware corporations. Subject to certain limitations and exceptions, dividends may be paid only out of a Delaware corporation's surplus (as defined by the DGCL) or its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. See "Dividend Policy" and "Regulation and Supervision -- Savings and Loan Holding Company Regulation." Bancorp has no present intention to pay dividends but may consider doing so in the future. RIGHTS OF ISSUER TO REPURCHASE STOCK Under the OTS Regulations, Carver may repurchase its stock under certain specific conditions, but only with the prior approval of the OTS. See "Regulation and Supervision -- Restrictions on Dividends and Other Capital Distributions." Under the DGCL, no prior approval is required and, therefore, Bancorp will be allowed to purchase its own stock in the open market subject to applicable law and the availability of funds therefor. See "Regulation and Supervision -- Savings and Loan Holding Company Regulation" for a description of the restrictions on the repurchase by Bancorp of its stock. Bancorp may consider repurchases of its stock in the future. -38- 45 LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES The Certificate of Incorporation of Bancorp contains provisions that limit the personal liability of directors to Bancorp or to its stockholders for monetary damages for breach of fiduciary duty, except to the extent such limitation is not permitted by the DGCL. Section 102(b)(7) of the DGCL provides that such a provision shall not eliminate or limit the personal liability of a director (1) for any breach of the director's duty of loyalty to the corporation or its stockholders; (2) for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law; (3) under Section 174 of the DGCL, which imposes liability for the unlawful payment of dividends or unlawful stock purchase or redemption; or (4) for any transaction from which the director received an improper personal benefit. The provisions in Bancorp's Certificate of Incorporation apply only to the liability of a director acting in his capacity as such and not to actions brought other than by a stockholder or Bancorp. Bancorp's Certificate of Incorporation contains provisions that require indemnification of the directors and officers and permits indemnification of employees of Bancorp and any of its direct or indirect subsidiaries. To be entitled to indemnification, it must be determined that, in general terms, the person acted in good faith and in a manner believed to be in, or not opposed to, the best interests of Bancorp and, with respect to a criminal action, had no reasonable cause to believe his or her conduct was unlawful. Under present OTS regulations, the Bank must indemnify its directors, officers and employees for any costs incurred in connection with any litigation involving any such person's activities as a director, officer or employee if such person obtains a final judgment on the merits in his or her favor. In addition, indemnification is permitted in the case of a settlement, a final judgment against such person or a final judgment in such person's favor, other than on the merits, if a majority of disinterested directors determine that such person was acting in good faith within the scope of his or her employment as he or she could reasonably have believed under the circumstances was in the best interest of the Bank or its stockholders. The Bank also is permitted to pay ongoing expenses incurred by a director, officer or employee if a majority of disinterested directors concludes that such person may ultimately be entitled to indemnification. Bancorp's Certificate of Incorporation defines in greater detail than the OTS Regulations the circumstances under which a person may be entitled to indemnification and the procedures for obtaining indemnification and for resolving disputes over indemnification. Indemnification by Carver may be paid only after prior notice to, and no objection by, the OTS, but Bancorp would not be subject to such procedure. Under the Federal Deposit Insurance Act, as amended ("FDIA"), both Carver and Bancorp would be prohibited from paying any indemnification with respect to any liability or legal expense incurred by a director, officer, or employee as result of an action or proceeding by a federal banking agency resulting in a civil money penalty or certain other remedies against such person. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Bancorp pursuant to the forgoing provisions, Bancorp has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. APPRAISAL RIGHTS Under the OTS Regulations, a stockholder of a federally chartered savings bank which engages in a merger, consolidation or sale of all or substantially all of its assets has the right to demand from such savings bank payment of the fair or appraised value of his or her stock in the savings bank, subject to specified procedural requirements. This regulation also provides, however, that the stockholders of a federally chartered savings bank with stock which is listed on a national securities exchange or quoted on the Nasdaq Stock Market are not entitled to appraisal rights if the stockholder is required to accept only "qualified consideration" for his or her stock, which is defined to include cash, shares of stock of any association or corporation which at the effective date of the merger will be listed on a national securities exchange or quoted on the Nasdaq Stock Market or any combination of such shares of stock and cash. The relevant OTS regulations governing a stockholder's appraisal rights are attached hereto as Appendix B. -39- 46 After the Reorganization, the rights of appraisal of dissenting stockholders will be governed by the DGCL. The DGCL provides that dissenting stockholders have appraisal rights in certain instances. However, the DGCL generally does not confer appraisal rights if a corporation's stock is held of record by more than 2,000 stockholders, or if it is listed on a national securities exchange or listed on the Nasdaq National Market System, provided that stockholders receive only certain forms of consideration in exchange for their shares of stock. SPECIAL MEETINGS OF STOCKHOLDERS The Bank's Bylaws provide that special meetings of the stockholders of the Bank may be called by the Chairman, President, a majority of the Board of Directors or the holders of not less than one-tenth of the outstanding capital stock of the Bank entitled to vote at the meeting. The Bylaws also provide that any action required to be taken at a meeting of the stockholders may be taken without a meeting if consent in writing is given by all of the stockholders entitled to vote on the subject matter. The Company's Certificate of Incorporation and Bylaws contain a provision pursuant to which special meetings of stockholders of the Company may only be called by the Chairman, the President and Chief Executive Officer, or by resolution of at least three-fourths of the Directors then in office. CERTAIN ANTI-TAKEOVER PROVISIONS General. The principal purpose of any anti-takeover provision is to protect the interests of a corporation and its stockholders in the event of a sudden takeover attempt. Such provisions are intended to require a hostile purchaser to deal fairly with stockholders and to give a corporation's board of directors a better opportunity to analyze prospective business combinations and tender offers, evaluate alternatives, and make careful recommendations to stockholders. Such provisions could have the effect of making more difficult, or discourage, a merger, tender offer, proxy contest, or assumption of control and change of incumbent management, even when a majority of stockholders considers such a course to be in its best interests. However, the Board of Directors of Bancorp believes that the disadvantages of discouraging such actions are outweighed by the best interests of the stockholders as a whole and by the benefits obtained by protecting the ability of the Board to negotiate with a proponent of an unfriendly or unsolicited proposal to take over or restructure Bancorp. The following discussion focuses on certain provisions of Bancorp's Certificate of Incorporation and Bylaws and, where applicable, the corresponding provisions of Carver's Federal Stock Charter and Bylaws that could be relevant to change in control situations and that may affect the rights of stockholders. Capital Stock. Carver's Charter authorizes the issuance of up to 5,000,000 shares of common stock and 1,000,000 shares of serial preferred stock and Bancorp's Certificate of Incorporation authorizes the issuance of up to 10,000,000 shares of common stock and 2,000,000 shares of preferred stock. Although neither Carver nor Bancorp has any arrangements, understandings or plans at the present time for the issuance or use of additional shares of common stock or any of the shares of authorized preferred stock, the availability of such shares will provide Carver or Bancorp with flexibility in structuring financings and acquisitions and meeting other corporate needs that may arise. As permitted by the DGCL, Bancorp's Board of Directors may, without stockholder approval, issue additional shares of Bancorp Common Stock or authorize the issuance of a series of preferred stock with rights and preferences that could impede the completion of a transaction to which management is opposed. Bancorp's ability to issue additional capital stock is subject to applicable law, including the duty of directors to exercise their business judgment in the best interests of Bancorp and its stockholders. Board of Directors. Carver's Charter provides that the authorized number of directors shall not be fewer than five nor more than fifteen, as fixed in Carver's Bylaws. Bancorp's Certificate of Incorporation and Bylaws provide that the authorized number of directors shall not be fewer than five nor more than fifteen, with the exact number to be fixed by resolution of Bancorp's Board of Directors. The Board of Bancorp will initially be composed of seven directors, the same number of directors currently on Carver's Board of -40- 47 Directors. See "Management of Bancorp." Carver's Bylaws and Bancorp's Certificate of Incorporation provide for a board of directors that is to be divided into three classes, which shall be as nearly equal in number as possible. The power to fill vacancies for each of Carver and Bancorp is vested in their respective Boards of Directors. The overall effect of such provisions may be to prevent a person or entity from immediately acquiring control of Carver or Bancorp through an increase in the number of directors and the election of such person or of such person's or entity's nominees to fill such newly created vacancies. The DGCL provides that a director serving on a classified board may be removed by the holders of a majority of the shares entitled to vote thereon, but only for cause, unless the certificate of incorporation provides otherwise. The Bylaws of Carver provide that any director may be removed only for cause, at a meeting of stockholders expressly called for that purpose by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. Bancorp's Certificate of Incorporation provides that any director may be removed only for cause by a vote of the holders of 80% of the shares then entitled to vote at an election of directors. The classified Board of Directors, the enhanced requirement for removal of directors of Bancorp and the related provisions discussed above could make it more difficult for stockholders to force an immediate change in the composition of a majority of the composition of a majority of the Board of Directors. Action Without a Stockholder Meeting. Carver's Bylaws provide that the stockholders may act without a meeting if consent in writing, describing the action to be taken, is given by all stockholders entitled to vote on the action. Bancorp's Certificate of Incorporation prohibits stockholder action by written consent in lieu of an annual or special meeting of stockholders. Although stockholders of Bancorp are not permitted to take action by written consent while stockholders of Carver are permitted to do so, taking significant corporate action through written consent is difficult to achieve due to the requirement that all Carver stockholders entitled to vote on the action provide written consent. Notice of Director Nominations and Stockholder Proposals. The Bank's Bylaws generally provide that stockholders may submit nominations for election of directors at an annual meeting of stockholders and any new business to be taken up at an annual meeting by filing a submission in writing with the Bank at least five days before the date of any such meeting. Bancorp's Bylaws provide that all nominations for election to the Board of Directors and proposals for any new business, other than those made by the Chairman of the Board, the President and Chief Executive Officer or by resolution of at least three- fourths of the directors then in office, shall be made by a stockholder who has complied with the written notice provisions in the Bylaws. These written notice provisions provide for a longer period of notice to the Company than the five days required by the Bank. The Bylaw procedures regarding stockholder proposals and nominations are intended to provide the Board of Directors of Bancorp with the information deemed necessary to evaluate a stockholder proposal or nomination and other relevant information, such as existing stockholder support, as well as the time necessary to consider and evaluate such information in advance of a meeting. The procedures will give incumbent directors advance notice of a business proposal or nomination. This may make it easier for incumbent directors to defeat a stockholder proposal or nomination, even when certain stockholders may view such proposal or nomination as in the best interests of the Company or its stockholders. Stockholder Vote Required to Approve Certain Business Combinations. Under the OTS Regulations, business combinations, such as mergers, consolidations, purchases and sales of substantially all of the assets of an institution, require the approval of the holders of two-thirds of the outstanding voting stock entitled to vote thereon. The Certificate of Incorporation requires the approval of the holders of at least 80% of the Company's outstanding shares of voting stock, together with the affirmative vote of the Company's outstanding shares not beneficially owned by an Interested Stockholder (as defined below) to approve certain "Business Combinations," as defined therein, and related transactions. Under Delaware law, absent this provision, Business Combinations, including mergers, consolidations and sales of all or substantially all of the assets of -41- 48 a corporation must, subject to certain exceptions, be approved by the vote of the holders of only a majority of the outstanding shares of Common Stock of the Company and any other affected class of stock. Under the Certificate of Incorporation, at least 80% approval of stockholders is required in connection with any transaction involving an Interested Stockholder except (i) in cases where the proposed transaction has been approved in advance by a majority of those members of the Company's Board of Directors who are unaffiliated with the Interested Stockholder and were directors prior to the time when the Interested Stockholder became an Interested Stockholder or (ii) if the proposed transaction meets certain conditions set forth therein which are designed to afford the stockholders a fair price in consideration for their shares in which case, if a stockholder vote is required, approval of only a majority of the outstanding shares of voting stock would be sufficient. The term "Interested Stockholder" is defined to include any individual, corporation, partnership or other entity (other than the Company or its subsidiary) which owns beneficially or controls, directly or indirectly, 10% or more of the outstanding shares of voting stock of the Company. This provision of the Certificate of Incorporation applies to any "Business Combination," which is defined to include (i) any merger or consolidation of the Company or any of its subsidiaries with or into any Interested Stockholder or Affiliate (as defined in the Certificate of Incorporation) of an Interested Stockholder; (ii) any sale, lease, exchange, mortgage, pledge, transfer, or other disposition to or with any Interested Stockholder or Affiliate of 5% or more of the assets of the Company or combined assets of the Company and its subsidiary; (iii) the issuance or transfer to any Interested Stockholder or its Affiliate by the Company (or any subsidiary) of any securities of the Company other than on a pro rata basis to all stockholders; (iv) the adoption of any plan for the liquidation or dissolution of the Company proposed by or on behalf of any Interested Stockholder or Affiliate thereof; and (v) any reclassification of securities, recapitalization, merger or consolidation of the Company which has the effect of increasing the proportionate share of Common Stock or any class of equity or convertible securities of the Company owned directly or indirectly by an Interested Stockholder or Affiliate thereof. Evaluation of Offers. The Certificate of Incorporation of the Company further provides that the Board of Directors of the Company, when evaluating any offer to the Company from another party to (i) make a tender or exchange offer for any equity security of the Company, (ii) merge or consolidate the Company with another corporation or entity or (iii) purchase or otherwise acquire all or substantially all of the properties and assets of the Company, may, in connection with the exercise of its judgment in determining what is in the best interest of the Company and the stockholders of the Company, give due consideration to the extent permitted by law to all relevant factors, including, without limitation, the financial and managerial resources and future prospects of the other party, the possible effects on the business of the Company and its subsidiaries and on the employees, customers, suppliers and creditors of the Company and its subsidiaries, the effects on the communities in which the Company's and its subsidiaries' facilities are located and the commitment and ability of the other party to remain faithful to the special mission of the Company and its subsidiaries in the communities in which the Company and its subsidiaries are located in the tradition begun by the Bank. By having these standards in the Certificate of Incorporation of the Company, the Board of Directors may be in a stronger position to oppose such a transaction if the Board concludes that the transaction would not be in the best interest of the Company, even if the price offered is significantly greater than the then market price of any equity security of the Company. Amendment of Certificate of Incorporation and Bylaws. Carver's Charter provides that amendments of the Charter must be proposed by the Board of Directors, approved by the OTS and thereafter approved by the holders of a majority of the total votes of stockholders entitled to vote thereon. Carver's Bylaws permit the amendment of the Bylaws by a vote of a majority of the Board of Directors or by holders of a majority of the total votes of stockholders present in person or by proxy at a meeting and entitled to vote thereon. Amendments of Carver's Bylaws may also require approval of the OTS. Bancorp's Certificate of Incorporation generally provides that, in addition to any affirmative vote required by applicable law and any voting rights granted to or held by holders of any series of Bancorp Preferred Stock, any alteration, amendment, repeal or rescission (collectively, any "Change") of any provision of the Certificate of Incorporation must be approved by a majority of the directors of Bancorp then in office and by the affirmative vote of the holders of a majority (or such greater proportion as may otherwise be -42- 49 required pursuant to any specific provision of the Certificate of Incorporation) of the total votes eligible to be cast by the holders of all outstanding shares of Bancorp Common Stock entitled to vote. In addition to the above requirement, a Change to certain provisions of the Certificate of Incorporation must also be approved either (i) by not less than a majority of the authorized number of directors and, if one or more Interested Stockholders exist, by not less than a majority of the Disinterested Directors or (ii) by the affirmative vote of the holders of not less than two-thirds of the total votes eligible to be cast by the holders of all outstanding shares of the capital stock of Bancorp entitled to vote thereon and, if the Change is proposed by or on behalf of an Interested Stockholder or a director who is an Affiliate or Associate of an Interested Stockholder, by the affirmative vote of the holders of not less than a majority of the total votes eligible to be cast by holders of all outstanding shares entitled to vote thereon not beneficially owned by an Interested Stockholder or an Affiliate or Associate thereof. Amendment of the provision relating to business combinations must also be approved by either (i) a majority of the Disinterested Directors, or (ii) the affirmative vote of not less than eighty percent (80%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock, voting together as a single class, together with the affirmative vote of not less than fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock not beneficially owned by any Interested Stockholder or Affiliate or Associate thereof, voting together as a single class. Capitalized terms are as defined in the Certificate of Incorporation. Furthermore, the Company's Certificate of Incorporation provides that provisions of the Certificate of Incorporation and Bylaws that contain supermajority voting requirements may not be altered, amended, repealed or rescinded without a vote of the Board or holders of capital stock entitled to vote thereon that is not less than the supermajority specified in such provision. Absent these provisions, the DGCL provides that a corporation's certificate of incorporation and bylaws may be amended by the holders of a majority of the corporation's outstanding capital stock. The Certificate of Incorporation also provides that the Board of Directors is authorized to make, alter, amend, rescind or repeal any of the Company's Bylaws in accordance with the terms thereof, regardless of whether the Bylaw was initially adopted by the stockholders. However, this authorization neither divests the stockholders of their right, nor limits their power to adopt, amend, rescind or repeal any Bylaw under the DGCL. These provisions could have the effect of discouraging a tender offer or other takeover attempt where the ability to make fundamental changes through Bylaw amendments is an important element of the takeover strategy of the acquiror. The provisions of Bancorp's Certificate of Incorporation limiting the liability of directors, as described above, may not be repealed or amended without the affirmative vote of the holders of 80 percent of the total votes eligible to be cast by the holders of all of the outstanding shares of the capital stock of Bancorp entitled to vote thereon. Section 203 of Delaware General Corporate Law. The State of Delaware has a statute designed to provide Delaware corporations with additional protection against hostile takeovers. The takeover statute, which is codified in Section 203 of the DGCL ("Section 203"), is intended to discourage certain takeover practices by impeding the ability of a hostile acquiror to engage in certain transactions with the target company. In general, Section 203 provides that a "Person" (as defined therein) who owns 15% or more of the outstanding voting stock of a Delaware corporation (an "Interested Stockholder") may not consummate a merger or other business combination transaction with such corporation at any time during the three-year period following the date such "Person" became an Interested Stockholder. The term "business combination" is defined broadly to cover a wide range of corporate transactions including mergers, sales of assets, issuances of stock, transactions with subsidiaries and the receipt of disproportionate financial benefits. The statute exempts the following transactions from the requirements of Section 203: (i) any business combination if, prior to the date a person became an Interested Stockholder, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder becoming an Interested Stockholder; (ii) any business combination involving a person who acquired at least 85% of the outstanding voting stock in the transaction in which he became an Interested Stockholder, with the number of shares outstanding calculated without regard to those shares owned by the corporation's directors who are also officers and by certain employee stock plans; (iii) any business combination with an Interested Stockholder -43- 50 that is approved by the Board of Directors and by a two-thirds vote of the outstanding voting stock not owned by the Interested Stockholder; and (iv) certain business combinations that are proposed after the corporation had received other acquisition proposals and which are approved or not opposed by a majority of certain continuing members of the Board of Directors. A corporation may exempt itself from the requirement of the statute by adopting an amendment to its Certificate of Incorporation or Bylaws electing not to be governed by Section 203. At the present time, the Board of Directors does not intend to propose any such amendment. Additional Change in Control Regulation. Prior approval of the OTS under the Change in Bank Control Act, as amended, is required for an acquisition of control of a federal savings bank, such as Carver, by a company or by individuals. Such prior approval would be required for a direct acquisition of control of Carver or for an indirect acquisition of control of Carver through an acquisition of control of Bancorp. For such purpose, an acquiror is deemed to have acquired control by acquiring more than 25% of any class of voting stock, and an acquisition of "control" is presumed if, among other things, a person acquires more than 10% of any class of voting securities if the acquiror also benefits from any of various "control factors" specified in the OTS Regulations. Among the "control factors" are the acquiror being a holder of one of the two largest holdings of the institution's voting stock; the acquiror, together with the acquiror's representatives and nominees, constituting more than one member of the institution's board of directors; or the acquiror having the power to dispose of, or the ability to vote other than through revocable proxies, more than 25% of the institution's voting stock. The Exchange Act requires that a purchaser of any class of a corporation's securities registered under the Exchange Act notify the SEC and such corporation within ten days after its purchases exceed 5% of the outstanding shares of that class of securities. This notice must disclose the background and identity of the purchaser, the source and amount of funds used for the purchase, the number of shares owned and, if the purpose of the transaction is to acquire control of the corporation, any plans to materially alter the corporation's business or corporate structure. In addition, any tender offer to acquire a corporation's securities is subject to the limitations and disclosure requirements of the Exchange Act. TAX CONSEQUENCES OF THE REORGANIZATION The consummation of the Reorganization is conditioned, in part, upon receipt by Carver of an opinion of counsel to Carver to the effect that, for federal income tax purposes: (1) no gain or loss will be recognized by stockholders of Carver on the transfer of their shares of Carver Common Stock to Bancorp solely in exchange for Bancorp Common Stock; (2) no gain or loss will be recognized by Bancorp upon its receipt of shares of Carver Common Stock in exchange for shares of Bancorp Common Stock; (3) the aggregate basis of the shares of Bancorp Common Stock to be received by Carver's stockholders will be the same as the aggregate basis of the shares of Carver Common Stock exchanged therefor; and (4) the holding period of Bancorp Common Stock to be received by Carver's stockholders will include the holding period of the shares of Carver Common Stock exchanged therefor, provided that each such stockholder held such shares of Carver Common Stock as a capital asset on the Effective Date. Thacher Proffitt & Wood, the Bank's special counsel for the Reorganization, has opined, subject to the limitations and qualifications in its opinion, that the Reorganization will not be a taxable transaction to Bancorp, Carver or Carver's stockholders who do not elect to exercise dissenters' rights for New York State or New York City income and corporate franchise tax purposes. Though the matter is not free from doubt, it is likely that the Reorganization will not cause the Bank to incur any New York State real estate transfer tax or real property gains tax or any New York City real property transfer tax. Thacher Proffitt & Wood, the Bank's special counsel for the Reorganization, will not express an opinion as to whether or to what extent payments to stockholders who exercise dissenters rights or payments by Carver to Bancorp of an amount that exceeds the current and accumulated earnings and profits of Carver will cause Carver to have income. In addition, Thacher Proffitt & Wood will not express an opinion as to the tax consequences to stockholders of exercising their dissenters rights with respect to any shares of Carver -44- 51 Common Stock. Any stockholder of Carver considering exercising such dissenter's rights should consult his tax advisor for specific advice with respect to the federal income tax consequences thereof. Each stockholder is urged to consult his own tax advisor as to the specific consequences of the Reorganization to the stockholder under federal, state and any other applicable laws. ACCOUNTING TREATMENT OF THE REORGANIZATION The Reorganization is expected to be characterized as, and treated similarly to, a "pooling of interests" (rather than a "purchase") for financial reporting and related purposes, with the result that the accounts of Carver and Bancorp will be combined. MARKET FOR THE COMMON STOCK Although there is an established market for the Bank's common stock which is currently quoted on the Nasdaq Stock Market under the Bank's current symbol, "CARV," as a newly formed company, the Company has never issued capital stock and consequently there is no established market for its Common Stock. It is expected that Bancorp Common Stock will be at least as liquid as the Bank's Common Stock since the number of outstanding shares of Company Common Stock following the Reorganization will match the number of Shares of Bank Common Stock prior to the Reorganization. However, there can be no assurance that an active and liquid trading market for the Company Common Stock will develop, or if developed, will be maintained. The Company's Common Stock will be quoted on the Nasdaq Stock Market under the symbol "CARV." The Company expects to retain the Bank's market makers for the Common Stock, but there can be no assurance that the Company will be able to retain these market-makers. Making a market involves maintaining bid and ask quotations and being able, as principal, to effect transactions in reasonable quantities at those quoted prices, subject to various securities laws and other regulatory requirements. Additionally, the development of a liquid public market depends on the existence of willing buyers and sellers, the presence of which is not within the control of the Company, the Bank or any market maker. Since there can be no assurance that an active and liquid trading market for Bancorp Common Stock will develop or that, if developed, it will continue, investors in Bancorp Common Stock could have difficulty disposing of their shares and should not view Bancorp Common Stock as a short-term investment. The absence of an active and liquid trading market for Bancorp Common Stock could affect the price and liquidity of Bancorp Common Stock. At June 10, 1996, there were 2,314,375 shares of Bank Common Stock outstanding which were held of record by [1,253] stockholders. Since October 24, 1994, the Bank Common Stock has traded on the Nasdaq Stock Market under the symbol "CARV." The following table shows the high and low per share sales price of the Bank Common Stock as reported on the Nasdaq Stock Market. No dividends were declared during the periods indicated. -45- 52

DIVIDEND POLICY The Board of Directors of Bancorp will have the authority to declare dividends on the Common Stock, subject to statutory and regulatory requirements. The Board of Directors may consider a policy of paying cash dividends on the Common Stock in the future; however, no decision has been made as to the amount or timing of such dividends. Declarations of dividends by the Board of Directors, if any, will depend upon a number of factors, including investment opportunities available to Bancorp or Carver, capital requirements, regulatory limitations, Bancorp's and Carver's results of operations, financial and tax considerations and general economic conditions. Bancorp will receive an initial cash infusion from Carver in the amount of $100,000. Shortly after consummation of the Reorganization, management of the Bank expects to make a capital distribution of $5.7 million to Bancorp, which may be used by Bancorp after the Reorganization to, among other things, fund the payment of cash dividends, if any are declared. No assurances can be given that dividends, if commenced, will continue to be paid. Carver has not paid cash or stock dividends since the date of the Conversion. There are significant regulatory limitations on the Bank's ability to pay dividends depending on its capital structure and the overall health of the institution. An insured depository institution may not make a capital distribution if, following such distribution, the institution will be "undercapitalized" as that term is defined for purposes of the prompt corrective action provisions of the FDICIA. In addition, the OTS Regulations limit the ability of savings associations to pay dividends and make other capital distributions according to the institution's level of capital and income, with the greatest flexibility afforded to institutions that meet or exceed their fully phased-in capital requirements. Capital distributions include cash dividends, payments to repurchase, redeem, retire or otherwise acquire an institution's shares, payments to stockholders of another institution in a cash-out merger, other distributions charged against capital and any other transaction that the OTS determines to entail a payout of capital. The OTS also may prohibit a proposed capital distribution that would otherwise be permitted by regulation if the OTS determines that the distribution would constitute an unsafe or unsound practice. Although the Bank is currently in compliance with all capital ratios, there can be no assurance that this will continue or that the OTS will not otherwise prevent the Bank from paying dividends or otherwise making capital distributions. Unlike the Bank, Bancorp is not subject to OTS regulatory restrictions on the payment of dividends to its stockholders, although the source of such dividends could be, in part, dependent upon dividends from the Bank in addition to the net proceeds retained by Bancorp and earnings thereon. Bancorp is subject to the requirements of Delaware law, which generally limit dividends to an amount equal to the excess of the net -46- 53 assets of Bancorp (the amount by which total assets exceed total liabilities) over its statutory capital, or if there is no such excess, to its net profits for the current and/or immediately preceding fiscal year. PRO FORMA CONSOLIDATED CAPITALIZATION The following table presents the capitalization of Carver as of March 31, 1996 and the pro forma consolidated capitalization of Bancorp and its subsidiary, Carver, as of March 31, 1996, as adjusted to give effect to the Reorganization as described in this Proxy Statement-Prospectus.

BUSINESS OF BANCORP GENERAL Bancorp is a business corporation organized under the laws of the State of Delaware on May 9, 1996. The only office of Bancorp, and its principal place of business, is located at the administrative offices of Carver at 75 West 121st Street, New York 10027-4589. Bancorp's telephone number is (212) 876-4747. Bancorp was organized for the purpose of becoming the holding company of Carver. On the Effective Date, Carver will become a wholly owned subsidiary of Bancorp, which will thereby become a savings and loan company, and each stockholder of Carver will, subject to the exercise of dissenters' rights, become a stockholder of Bancorp without any change in the number of shares owned or in respective ownership percentages. Bancorp has not yet undertaken any operating business activities and does not currently propose to do so. In the future, Bancorp may become an operating company or acquire other thrift institutions, commercial banks or bank holding companies, or engage in or acquire such other activities or businesses as may be permitted by applicable law, although there are no present plans or intentions to do so. Subject to regulatory approval and/or consent, it is expected that Bancorp will receive an initial cash infusion from Carver in the amount of $100,000 and shortly after consummation of the Reorganization, Carver will transfer to Bancorp cash and/or investment securities having a value of $5.7 million to be used for working capital and other purposes. Additional financial resources may be available to Bancorp in the future through borrowings, debt or equity financings, or dividends from acquired entities or new businesses. Some or all of the foregoing will be subject to compliance with certain regulatory and tax restrictions. In particular, -47- 54 dividends from Carver to Bancorp will be subject to regulatory limitations and will result in taxable income to Carver to the extent that they are deemed not to be made out of Carver's net profits or surplus. See "Market for the Common Stock" and "Dividend Policy." Because Bancorp is a newly formed corporation with no operating history, historical information with respect to legal proceedings, dividends, management's discussion of operations, financial data or accountants is not available. There is currently no established public trading market on which Bancorp Common Stock is traded and Bancorp does not have any record of paying dividends. See "Description of Bancorp Capital Stock," "Market for the Common Stock" and "Dividend Policy." PROPERTY Initially, Bancorp will neither own nor lease any real or personal property but will utilize the premises, and property of Carver without the payment of any rental fees to Carver. COMPETITION It is expected that for the near future the primary business of Bancorp will be the ongoing business of Carver. Therefore, the competitive conditions to be faced by Bancorp will be the same as those faced by Carver. In addition, many banks and financial institutions have formed, or are in the process of forming, holding companies. It is likely that these holding companies will attempt to acquire commercial banks, thrift institutions or companies engaged in bank-related activities. Thus, Bancorp will face competition in undertaking any such acquisitions and in operating subsequent to any such acquisitions. Bancorp has no present plans or intentions to undertake any such acquisitions. See "Business of the Bank -- Competition." EMPLOYEES At the present time, Bancorp does not intend to have any employees other than its management. See "Management of Bancorp." It will utilize the support staff of Carver from time to time without the payment of any fees. If Bancorp acquires other financial institutions or pursues other lines of business, it may at such time hire additional employees. BUSINESS OF THE BANK GENERAL Carver was chartered in 1948 and began operations in 1949 as Carver Federal Savings and Loan Association, a federally chartered mutual savings and loan association, at 53 West 125th Street in New York City, at which time, the Bank obtained federal deposit insurance and became a member of the Federal Home Loan Bank ("FHLB") of New York. In 1961, Carver opened its first branch office in the Bedford-Stuyvesant section of Brooklyn, New York and over the next 20 years added three other branches in Brooklyn and Manhattan, New York. In 1982, the Bank acquired Allied Federal Savings and Loan Association in a supervisory transaction. The Bank opened its Roosevelt, Long Island office in 1984 and acquired two additional branches in 1989 and 1990. The Bank converted to a federal savings bank in 1986 and changed its name at that time to Carver Federal Savings Bank. On October 24, 1994, the Bank converted from mutual to stock form and issued 2,314,375 shares of its common stock, par value $0.01 per share. Carver was founded to provide an African-American operated institution where residents of underserved communities could invest their savings and obtain credit. The Bank's principal business consists of attracting passbook and other savings accounts through it branch offices and investing those funds in mortgage loans and other investments permitted to federal savings banks. The Bank has undertaken a restructuring of its balance sheet and is now placing primary emphasis on its whole loan portfolio through direct lending, as well as the purchase of whole loans. As a result of this effort, the loan portfolio is expected to substantially increase as a percentage of total assets. Therefore, future earnings for the Bank will be -48- 55 derived more from direct lending and purchase activities than from investing in securities. The Bank is also continuing its strategy of growth by leveraging its strong capital position through increased average borrowings to fund increases in average interest-earning assets. Based on asset size as of March 31, 1996, Carver is the largest minority-run financial institution in the United States. LENDING ACTIVITIES General. The principal lending activity of the Bank is the origination of conventional mortgage loans for the purpose of purchasing or refinancing owner-occupied, one- to four-family residential properties in its primary market area. At March 31, 1996, one- to four-family mortgage loans comprised $58.5 million, or 69.23%, of the Bank's gross loan portfolio. The Bank also originates or participates in loans for the construction or renovation of commercial property and residential housing developments and occasionally originates permanent financing upon completion. In addition, the Bank originates consumer loans secured by deposits, second mortgages on residential property, or automobiles, as well as unsecured personal loans and occasionally originates loans secured by commercial and nonresidential real estate. Prior to the 1980s, the Bank's residential lending activities consisted primarily of originating fixed-rate mortgage loans with maturities of up to 30 years for retention in the loan portfolio. Fundamental changes in the regulation of savings institutions in the early 1980s and prevailing economic conditions at the time combined to increase significantly both the level and volatility of the Bank's cost of funds. Since the early 1980s, the Bank has sought to build a more rate-sensitive loan portfolio by originating adjustable-rate mortgages and purchasing adjustable-rate loans. Carver has continued to originate fixed-rate mortgage loans, primarily for sale in the secondary market, and maintains a portfolio of such loans originated in the early 1980s. The types of adjustable-rate mortgages offered have one- and three-year adjustment periods with interest rate adjustments based upon the one- and three-year U.S. Treasury bills, respectively. At March 31, 1996, the Bank's one- to four-family mortgage loan portfolio had $42.5 million of adjustable-rate loans (comprising 71.13% of such portfolio) and $17.3 million (or 28.87% of such portfolio) of fixed-rate loans. The Bank has continued to originate fixed-rate, one- to four-family mortgage loans in response to consumer demand generated by the recent decline in market interest rates. In an environment of declining interest rates, borrowers tend to prefer long-term, fixed-rate mortgage loans rather than adjustable-rate mortgage loans with short-term interest rate changes. In the recent period of rising interest rates, however, borrowers tended to prefer adjustable-rate loans because of their initially lower interest rates. Because the Bank's adjustable-rate loans are originated for retention in its own portfolio rather than for sale in the secondary market, such originations depend upon the level of interest rate risk that the Bank is willing to accept given its capital, profitability and other factors. In turn, its origination of fixed-rate loans depends upon the Bank's ability to dispose of such loans in the secondary market and thus depends in large part upon satisfaction of loan underwriting guidelines established by potential loan purchasers. The Bank intends to continue monitoring the interest rate environment, prepayment activity, interest rate risk and other factors in developing its strategy with respect to the volume and pricing of its fixed-rate loans and in its lending activities generally. -49- 56 Loan Portfolio Composition. The following table sets forth selected data relating to the composition of Carver's loan portfolio by type of loan at the dates indicated.

(1) Other loans include second mortgage, home equity, personal, auto and commercial business loans. -50- 57 Loan Maturity Schedule. The following table sets forth information at March 31, 1996 regarding the dollar amount of loans maturing in Carver's portfolio, including scheduled repayments of principal, based on contractual terms to maturity. Demand loans, loans having no schedule of repayments and no stated maturity and overdrafts are reported as due in one year or less. The table below does not include any estimate of prepayments, which significantly shorten the average life of all mortgage loans and may cause the Bank's actual repayment experience to differ from that shown below.

The following table sets forth, at March 31, 1996, the dollar amount of loans maturing subsequent to the year ending March 31, 1997 which have predetermined interest rates and floating or adjustable interest rates.

-51- 58 Scheduled contractual principal repayments of loans do not necessarily reflect the actual life of such assets. The average life of long-term loans is substantially less than their contractual terms due to prepayments. In addition, due-on-sale clauses in mortgage loans generally give Carver the right to declare a conventional loan due and payable in the event, among other things, that a borrower sells the real property subject to the mortgage and the loan is not repaid. The average life of mortgage loans tends to increase when current mortgage loan market rates are substantially higher than rates on existing mortgage loans and tends to decrease when current mortgage loan market rates are substantially lower than rates on existing mortgage loans. One- to Four-Family Residential Lending. Carver's principal lending activity has been the origination of loans secured by first mortgages on existing one- to four-family residences in the Bank's market area. The mortgage loan amounts range between $28,000 and $499,000. At March 31, 1996, $59.8 million, or 70.66%, of the Bank's total loans were secured by one- to four-family residences, a substantial majority of which were existing, owner-occupied, single-family residences in the Bank's market area. The Bank's current policy is to sell its fixed-rate loan originations to the Federal National Mortgage Association ("FNMA") or the State of New York Mortgage Agency ("SONYMA") and to retain its adjustable-rate loan originations in its portfolio. At March 31, 1996, $42.50 million, or 71.13%, of the Bank's one- to four-family residential loans had adjustable interest rates, and $17.3 million, or 28.87%, had fixed rates. During the year ended March 31, 1996, the Bank originated $11.2 million of adjustable-rate loans, which represents 83.63% of total loan originations for the year. Carver's one- to four-family residential mortgage loans generally are for terms of 25 to 30 years, amortized on a monthly basis, with principal and interest due each month. Residential real estate loans often remain outstanding for significantly shorter periods than their contractual terms. Borrowers may refinance or prepay loans at their option without penalty. These loans customarily contain "due-on-sale" clauses which permit the Bank to accelerate repayment of a loan upon transfer of ownership of the mortgaged property. The Bank's lending policies generally limit the maximum loan-to-value ratio on one- to four-family residential mortgage loans secured by owner-occupied properties to 95% of the lesser of the appraised value or purchase price, with private mortgage insurance required on loans with loan-to-value ratios in excess of 80%. The maximum loan-to-value ratio on mortgage loans secured by non-owner-occupied properties is limited to 80%. Under a special loan program the loan-to-value ratio may go to 100%. This special loan program consists of loans originated and sold to SONYMA secured by detached single family homes purchased by first time home buyers under SONYMA. Carver's fixed-rate, one- to four-family residential mortgage loans are underwritten in accordance with applicable guidelines and requirements for sale to FNMA or SONYMA in the secondary market. The Bank has emphasized the origination of fixed-rate loans for immediate or prompt sale to FNMA since 1993 and to SONYMA since 1984. The Bank also originates, to a limited extent, loans underwritten according to Federal Home Loan Mortgage Corporation ("FHLMC") standards. Loans are sold without recourse, and servicing of loans sold to FNMA is retained by the Bank while servicing for loans sold to SONYMA transfers with the loans. All loans, whether held in portfolio or serviced after sale, are serviced by an outside sub-servicer. At March 31, 1996, the Bank, through its sub-servicer, was servicing approximately $4.3 million of loans for others. Carver offers one-year, three-year, five/one and five/three year adjustable-rate, one- to four-family residential mortgage loans. These loans are indexed to the weekly average rate on the one-year and three-year U.S. Treasury securities, respectively, adjusted to a constant maturity (usually, one year), plus a margin of 275 basis points. The rates at which interest accrues on these loans are adjustable every one or three years, generally with limitations on adjustments of two percentage points per adjustment period and six percentage points over the life of the one-year adjustable-rate mortgage and five percentage points over the life of a three-year adjustable-rate mortgage. -52- 59 The retention of adjustable-rate loans in the Bank's portfolio helps reduce the Bank's exposure to increases in prevailing market interest rates. However, there are unquantifiable credit risks resulting from potential increases in costs to borrowers in the event of upward repricing of adjustable-rate loans. It is possible that during periods of rising interest rates, the risk of default on adjustable-rate loans may increase due to increases in interest costs to borrowers. Further, adjustable-rate loans which provide for initial rates of interest below the fully indexed rates may be subject to increased risk of delinquency or default as the higher, fully indexed rate of interest subsequently replaces the lower, initial rate. In order to mitigate such risk, the Bank qualifies borrowers at a rate equal to two percentage points above any discounted introductory rate on one year ARM's, one percentage point above any discounted introductory rate on three year ARM's and at the discounted introductory rate on five/three ARM's.. In addition, although adjustable-rate loans allow the Bank to increase the sensitivity of its interest-earning assets to changes in interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate adjustment limitations and the ability of borrowers to convert the loans to fixed-rates. Accordingly, there can be no assurance that yields on the Bank's adjustable-rate loans will fully adjust to compensate for increases in the Bank's cost of funds. Finally, adjustable-rate loans increase the Bank's exposure to decreases in prevailing market interest rates, although decreases in the Bank's cost of funds would tend to offset this effect. Construction Lending. Carver also offers construction loans to qualified developers for construction of one- to four-family residences in the Bank's market area. Typically, the Bank has emphasized lending to individuals to refurnish or rehabilitate multi-family dwellings or church buildings and construction of planned residential developments. The Bank does not lend to private developers for speculative single-family housing construction. These loans generally have adjustable interest rates and are underwritten in accordance with the same standards as the Bank's mortgages on existing properties, except the loans generally provide for disbursement in stages during a construction period from 12 to 24 months, during which period the borrower is required to make monthly payments of accrued interest on the outstanding loan balance. Construction loans generally have a maximum loan-to-value ratio of 70%. Borrowers must satisfy all credit requirements which would apply to the Bank's permanent mortgage loan financing for the subject property. While the Bank's construction loans generally require repayment in full upon the completion of construction, the Bank occasionally makes construction loans with the intent to convert to permanent loans following construction. The Bank currently originates such loans primarily for the construction of churches, multi-family buildings, planned residential developments and affordable housing programs. At March 31, 1996, the Bank had $6.9 million in construction loans outstanding, comprising 8.24% of the Bank's gross loan portfolio. The largest construction loan outstanding at March 31, 1996 was a $1.7 million participation in a $2.9 million loan to fund construction of 22 two-family homes in the Bedford-Stuyvesant section of Brooklyn, New York. These loans are currently performing according to the terms and conditions of their respective notes. Subsequent to completion of the dwelling units, Carver expects to offer permanent financing to the individual purchasers, subject to their respective satisfaction of underwriting standards. Construction financing generally is considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, the Bank may be confronted, at or prior to the maturity of the loan, with a project having a value which is insufficient to assure full repayment. The ability of a developer to sell developed lots or completed dwelling units will depend on, among other things, demand, pricing, availability of comparable properties and economic conditions. The Bank has sought to minimize this risk by limiting construction lending to qualified borrowers in the Bank's market area limiting the aggregate amount of outstanding construction loans and imposing a stricter loan-to-value ratio requirement than required for one- to four-family mortgage loans. -53- 60 Nonresidential Lending. The Bank occasionally originates nonresidential loans to churches as permanent financing following completion of construction. At March 31, 1996, nonresidential mortgage loans totaled $11.1 million, or 13.18% of the gross loan portfolio. These loans generally have 5, 7 or 10 year terms with 15, 20 or 25 year amortization periods and a balloon payment due at the end of the term, and generally have no greater than a 60% loan-to-value ratio. The Bank determines the appropriate amount and type of security for such loans based upon the structure of the particular religious organization. As a general matter, the Bank will obtain a first mortgage on the underlying real property and personal guarantees of key members of the congregation and will also require the church to obtain key person life insurance on specific members of the church's leadership. In addition, the Bank performs a cash flow analysis of the church to determine its ability to service the proposed loan. Under the Bank's current loan policy, the maximum loan amount for such lending is $1.0 million. Loans to churches generally average approximately $300,000. At March 31, 1996, non-residential church loans totaled $4.8 million, or approximately 5.70% of the Bank's gross loan portfolio. Management believes that Carver has originated the most church loans in its market area. The largest of such loans outstanding was a $925,000 construction loan to a church located in the New York City borough of Bronx. This loan was performing according to the terms of the loan at March 31, 1996. Loans secured by nonresidential real estate generally are larger and involve greater risks than one- to four-family residential mortgage loans. Because payments on loans secured by such properties are often dependent on voluntary contributions by members of the church's congregation, repayment of such loans may be subject to a greater extent to adverse conditions in the economy. The Bank seeks to minimize these risks in a variety of ways, including reviewing the church's financial condition, requiring personal guarantees of church leaders or key person life insurance on the pastor of the congregation, limiting the size of such loans and establishing the quality of the collateral securing the loan. Under the loans-to-one-borrower limits of the OTS, with certain limited exceptions, loans and extensions of credit to a person outstanding at one time generally shall not exceed 15% of the unimpaired capital and surplus of the savings banks. Loans and extensions of credit fully secured by readily marketable collateral may comprise an additional 10% of unimpaired capital and surplus. At March 31, 1996, the Bank had no lending relationships in excess of the OTS loans-to-one-borrower limits. Multi-Family and Commercial Real Estate Lending. The Bank engages in the origination of multi-family and commercial real estate loans in order to benefit from the higher origination fees and interest rates, as well as shorter terms to maturity and repricing, than could be obtained from one- to four-family mortgage loans. Multi-family and commercial property lending, however, entails significant additional risks compared with one- to four-family residential lending. For example, such loans typically involve large loan balances to single borrowers or groups of related borrowers, the payment experience on such loans typically is dependent on the successful operation of the real estate project, and these risks can be significantly impacted by supply and demand conditions in the market for multi-family residential units. The Bank's multi-family residential loans are primarily secured by apartment buildings and mixed-use structures typically with more than 15 units within the Bank's delineated area although loans may be extended for structures with less than 15 units if owner-occupied. The maximum loan amounts for such loans are $750,000 and may not exceed 70% of the lesser of cost or appraised value or purchase price whichever is less. Such loans generally amortize on the basis of a 10, 15, 20 and 25 year period but require a balloon payment after five years. The Bank has recently started issuing fifteen year fixed rate loans based on match funding from the Federal Home Loan Bank under the Community Investment Program. At March 31, 1996, multi-family loans totaled $2.5 million and comprised 2.94% of the Bank's gross loan portfolio. Because of regulatory limitations on amount that the Bank may lend to a single borrower or group of related borrowers, and to minimize its overall risk in such lending, Carver generally originates and sells participiation interests in larger multi-family loans or acquires participation interests in such loans. In particular, the Bank has participated through the Thrift Associations Service Corporation ("TASCO"), a lending consortium formed by smaller New York thrift institutions to facilitate their participation in larger real estate development -54- 61 projects, in loans secured by low-income housing projects located in New York City. The Bank has also participated in other loans originated by this consortium for multi-family housing and for other purposes. At March 31, 1996, all such loans were performing in accordance with their original or restructured terms. At March 31, 1996, the Bank held approximately $934,000 (net of reserves) in participations in TASCO loans and did not have any real estate owned attributable to TASCO participations. The Bank has been required to establish reserves in connection with the restructuring of various TASCO participations. The stockholders in TASCO have recently approved a proposal to liquidate the entity which will involve the sale or other disposition of the remaining TASCO loans. At March 31, 1996, such disposition was still in process. See "Asset Quality -- Nonperforming Assets." Consumer Lending. Carver has given new emphasis to consumer lending. The Bank's consumer loans primarily consist of loans secured by deposit accounts at the Bank, government-guaranteed loans to finance higher education (some of which are sold in the secondary market), automobile loans, personal loans, home equity loans or second mortgages on single-family residences in the Bank's market area. At March 31, 1996, the Bank had approximately $3.0 million in consumer loans, or 3.61% of the Bank's gross loan portfolio. Carver makes loans secured by deposits for up to 90% of the amount of the deposit. The interest rate on these loans generally is at 10.00%, and interest is billed on a monthly basis. These loans are payable on demand, and the deposit account must be pledged as collateral to secure the loan. Carver has participated in the Federal Family Education Loan Program since 1964. The Bank's student loans are guaranteed by the New York Higher Education Service Corporation, an independent agency of the State of New York. At March 31, 1996, the student loan portfolio totaled approximately $1.2 million, or 1.37% of the Bank's loan portfolio. The Bank also originates second mortgage loans secured by the borrower's residence. These loans, combined with the first mortgage loan, are limited to 75% of the appraised value of the residence. On September 19, 1995, the Board of Directors pursuant to the Office of Thrift Supervision regulation 12 C.F.R. Section 516.2 and 545.82, passed a resolution approving the formation of an operating subsidiary named C.F.S.B. Credit Corp. to undertake the operations regarding the issuance of credit cards. The resolution also includes a capital investment of $75,000 along with a revolving line of credit of $2,500,000. On March 1, 1996, the Bank started its credit card operations, issuing both secured, unsecured and business Visa and MasterCards. The interest rate on these credit cards is generally 4.50% above The Wall Street Journal Published Prime Lending Rate. As of March 31, 1996 the Bank had 47 cards issued with $240,000 line of credit and outstanding balance of $9,000. Consumer loans generally involve more risk than first mortgage loans. Repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance as a result of damage, loss or depreciation, and the remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Further, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered. These loans may also give rise to claims and defenses by a borrower against Carver, and a borrower may be able to assert against the Bank claims and defenses which it has against the seller of the underlying collateral. In underwriting consumer loans, the Bank considers the borrower's credit history, an analysis of the borrower's income, expenses and ability to repay the loan and the value of the collateral. The Bank's risks associated with consumer loans are further minimized by the modest amount of consumer loans made by the Bank that are not secured by certificates of deposit or otherwise guaranteed as to repayment. At March 31, 1996 the Bank had $877,000 in unsecured personal loans or 1.04% of the Bank's gross loan portfolio. -55- 62 Other Commercial Loans. The Bank also makes a limited number of commercial loans, secured by passbook accounts and for terms of up to two years with interest-only payments until maturity, with the interest rate negotiated on a loan-by-loan basis. At March 31, 1996, the Bank had $1.1 million in commercial loans outstanding, of which the largest such loan was to a church for $600,000 secured by a $600,000 certificate of deposit and for a five-year term with an interest rate at two percentage points above the certificate rate. Loan Processing and Approval. Carver's loan originations are derived from a number of sources, including referrals by realtors, builders, depositors, borrowers and mortgage brokers, as well as walk-in customers. Loans are originated by the Bank's personnel who receive either a salary, salary plus commissions or commissions. Loan application forms are available at each of the Bank's offices and are submitted to the loan origination office located in the Bank's loan center located next to the Bank's Chelsea Office for processing. Applications for all fixed-rate one- to four-family real estate loans are underwritten in accordance with FNMA and SONYMA guidelines, and all of the loan applications for other types of loans are underwritten in accordance with the Bank's own comparable guidelines, as stated in the Bank's lending policy, which are comparable to those of FNMA and SONYMA. Upon receipt of a completed loan application from a prospective borrower, a credit report and verifications are ordered to verify specific information relating to the loan applicant's employment, income and credit standing. It is the Bank's policy to obtain an appraisal of the real estate intended to secure a proposed mortgage loan from a fee appraiser approved by the Bank. It is Carver's policy to record a lien on the real estate securing the loan and to obtain a title insurance policy which insures that the property is free of prior encumbrances. Borrowers must also obtain hazard insurance policies prior to closing and, when the property is in a flood plain as designated by the Department of Housing and Urban Development, paid flood insurance policies. Most borrowers are also required to advance funds on a monthly basis together with each payment of principal and interest to a mortgage escrow account from which the Bank makes disbursements for items such as real estate taxes and hazard insurance. The Board of Directors has the overall responsibility and authority for general supervision of Carver's loan policies. The Board has established written lending policies for the Bank. The Bank's chief lending officer has authority to approve all consumer loans below $50,000, the President has authority to approve such loans below $100,000, and the executive committee of the Board of Directors must approve loans at or above $100,000. The credit card manager has authority to approve credit limits up to $50,000. All mortgage loans that conform to FNMA standards and limits can be approved by the Chief Lending Officer. The Officers' Loan Committee composed of the President, the Chief Lending Officer, and another member appointed by the Board, approves non-conforming loans up to $450,000. Loans above $450,000 must be approved by the executive committee of the Board of Directors, and loans above $750,000 must be approved by the full Board of Directors. Loan applicants are promptly notified of the decision of the Bank. It has been management's experience that substantially all approved loans are funded. Originations, Purchases and Sales of Loans. Originations of one- to four-family real estate loans are generally within the Bank's market area, although the Bank does occasionally extend loans to other boroughs of New York City in which it does not presently have branches. All such loans, however, satisfy the Bank's underwriting criteria regardless of location, and the Bank seeks to further reduce its lending risk by limiting its lending to the New York City Metropolitan area. In fiscal year 1996, the Bank increased its emphasis on lending by hiring new employees to pursue originations of one- to four-family loans throughout the Bank's market area and establishing a Loan Center in the Chelsea area. The Bank also continues to offer fixed-rate mortgage loans in response to consumer demand but requires that such loans satisfy guidelines of either FNMA or SONYMA to ensure subsequent sale in the secondary market. Management believes the increase in fiscal year 1996 in originations of one- to four-family loans was due both to the new employees hired solely -56- 63 to originate loans as well as the Bank's continued emphasis on FNMA loans to satisfy consumer demand for 30-year loans with fixed interest rates while managing the Bank's interest rate risk exposure. The Bank purchases adjustable and fixed rate one- to four-family residential real estate loans for its portfolio to manage its interest rate risk and to satisfy its regulatory requirement of investment in housing-related loans. Loans purchased by the Bank entail certain risks not necessarily associated with loans the Bank originates. In an effort to reduce these risks, with its existing personnel and through the use of an independent consultant, the Bank has sought to ensure that purchased loans satisfy the Bank's underwriting standards and do not otherwise have a higher risk of collection or loss than loans originated by the Bank, although specific rates and terms may differ from those offered by the Bank. The Bank further seeks to reduce its risk by requiring in each buy/sale agreement a series of warrants and representations as to the underwriting standards and the enforceability of the legal documents. The warrants and representations remain in effect for the life of the loan. Anything found to be misrepresented must be cured within ninety (90) days of discovery or trigger certain repurchase provisions in the buy/sale agreement. For the fiscal year ended, loans purchased from a New York based commercial bank consisting of single family residential mortgages total $26.3 million, which represents 7.15% of total assets at March 31, 1996. The loans consist of $9.4 million or 36.0% of fixed rate mortgages and $16.9 million or 64.0% of adjustable rate mortgage loans. The following table sets forth certain information with respect to Carver's loan originations, purchases and sales during the periods indicated.

_______ (1) Comprised solely of one- to four-family loans, with loans purchased with servicing. Interest Rates and Loan Fees. Interest rates charged by Carver on mortgage loans are primarily determined by competitive loan rates offered in its market area and minimum yield requirements for loans purchased by the FNMA and SONYMA. Mortgage loan rates reflect factors such as prevailing market interest rate levels, the supply of money available to the savings industry and the demand for such loans. These factors are in turn affected by general economic conditions, the monetary policies of the federal government, including the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), the general supply of money in the economy, tax policies and governmental budget matters. Carver charges fees in connection with loan commitments and originations, rate lock-ins, loan modifications, late payments and changes of property ownership and for miscellaneous services related to its -57- 64 loans. Loan origination fees are calculated as a percentage of the loan principal. The Bank typically receives fees of between zero and three points (one point being equivalent to 1% of the principal amount of the loan) in connection with the origination of fixed-rate and adjustable-rate residential mortgage loans. The loan origination fee, net of certain direct loan origination expenses, is deferred and accrete into income over the contractual life of the loan using the interest method. If a loan is prepaid, refinanced or sold, all remaining deferred fees with respect to such loan are taken into income at such time. In addition to the foregoing fees, Carver receives fees for servicing loans for others. Servicing activities include the collection and processing of mortgage payments, accounting for loan funds and paying real estate taxes, hazard insurance and other loan-related expenses out of escrowed funds. Loan servicing fees usually are charged as a percentage (usually, between 1/4% and 3/8%) of the balance of the loans being serviced. Income from these activities varies from period to period with the volume and type of loans originated, sold and purchased, which in turn is dependent on prevailing market interest rates and their effect on the demand for loans in the Bank's market area. ASSET QUALITY Nonperforming Assets. When a borrower fails to make a payment on a loan, immediate steps are taken by Carver's sub-servicer to have the delinquency cured and the loan restored to current status. Once the payment grace period has expired (in most instances 15 days after the due date), a late notice is mailed to the borrower within two business days, and a late charge of four to five percent of the payment is imposed, if applicable. If payment is not promptly received, the borrower is contacted by telephone, and efforts are made to formulate an affirmative plan to cure the delinquency. If a loan becomes 30 days in default, a letter is mailed to the borrower requesting payment by a specified date. If a loan becomes 60 days past due, the Bank seeks to make personal contact with the borrower and also has the collateral property inspected. If a mortgage becomes 90 days past due, a letter is sent to the borrower demanding payment by a certain date and indicating that a foreclosure suit will be filed if the deadline is not met. If payment is still not made, management may pursue foreclosure or other appropriate action. The following table sets forth information with respect to Carver's nonperforming assets at the dates indicated. Loans generally are placed on non-accrual status when they become 90 days past due. The table does not reflect approximately $1.9 million in federal funds and certificates of deposits at March 31, 1996, which Carver had invested in Nationar Trust Company and which are no longer earning interest. For further information, see " -- Investment Activities" and "-- Legal Proceedings." -58- 65

___ (1) Non-accrual status denotes any loan where the delinquency exceeds 90 days past due and in the opinion of management the collection of additional interest is doubtful. After a careful review of individual loan history and related collateral by management, the loan may continue to accrue interest. If, however, in the opinion of management, the collection of additional interest is doubtful, the loan will remain in non-accrual status. Payments received on a non-accrual loan are either applied to the outstanding principal balance or recorded as interest income, depending on assessment of the collectibility of the loan. During the year ended March 31, 1996, gross interest income of $138,000 would have been recorded on loans accounted for on a non-accrual basis at the end of the year if the loans had been current throughout the year. Instead, interest on such loans included in income during the period amounted to $26,000. (2) Other nonperforming assets represents property acquired by the Bank in settlement of loans (i.e., through foreclosure or repossession or as an in-substance foreclosure). These assets are recorded at the lower of their fair value or the unpaid principal balance plus unpaid accrued interest of the related loans. (3) Troubled debt restructurings, as defined under Statement of Financial Accounting Standards ("SFAS") No. 15, are loans where the creditor has, for economic or legal reasons, granted concessions to the debtor that the creditor would not otherwise consider. During the year ended March 31, 1996, the Bank had no restructured loans. During the year ended March 31, 1995, the Bank would have recorded interest income of $137,000 on restructured loans had such loans been performing in accordance with the original terms. The Bank received interest income of $47,000 in accordance with the restructured terms. -59- 66 A significant portion of the Bank's nonperforming assets are attributable to loan participations purchased from TASCO (i.e., the Thrift Associations Service Corporation), a service corporation formed by approximately 50 savings institutions in New York State to originate and invest in loans on multi-family and commercial properties in New York State and to sell participations in such loans to member institutions. The Bank's TASCO loan participations include a $988,000 participation in a $71.2 million loan by TASCO and other financial institutions to a partnership secured by a 20-story hotel located in Manhattan. The lead lender on this project was placed in conservatorship with the FDIC, which continues to control the project. The FDIC has agreed to certain modifications to the loan and has given the borrower an option to purchase the loan for approximately 50% of its face amount. Through March 31, 1996, the Bank provided an allowance for loan losses in the amount of $553,000 in connection with this participation. As of March 31, 1996, the modified loan was performing in accordance with its terms and has been taken off non-accrual status. Through TASCO, the Bank also acquired a $770,000 participation in a $23.4 million loan to a partnership secured by a 734-unit co-operative housing project located in Kew Gardens Hills, New York. As a result of various restructurings of this loan, the carrying value of Carver's participation has been reduced to $478,000 at March 31, 1996. At March 31, 1996 the loan was not performing in accordance with its restructured terms and was placed on non-accrual status. Through March 31, 1996, the Bank provided an allowance for loan losses in the amount of $240,000 in connection with this participation. This loan was sold during May 1996 at an additional loss of $86,000. The Bank's only other TASCO participation is a 10.5% participation in $3.8 million loan secured by a two-story office building in Long Island City, New York. The borrower and sole tenant of this building is also the developer originally involved in the Kew Gardens Hills project described above. This loan for the building in Long Island City, however, has performed in accordance with its original terms. At March 31, 1996, the carrying value of this asset was $370,000. The stockholders in TASCO have approved a liquidation of the company which is expected to be completed when purchasers can be found for its remaining assets. The Bank does not anticipate that it will incur any additional losses on its investment in TASCO which has previously been written down to $0. In addition to the TASCO participations, the Bank had an $893,000 participation, since written down to $413,000, in a $2.4 million loan to finance the first construction phase of a project to renovate a historic theater into office space. The writedown was based upon a reduced appraisal value obtained by the lead lender. Although this phase of the renovation has been completed and leased out, the borrower is currently in bankruptcy and rents are being paid into the bankruptcy court. The lead lender on this project is also in receivership with the FDIC. At March 31, 1996, the Bank's participation remained $413,000 and the entire amount of the loan was classified as non-accrual because it was not performing according to its terms. Asset Classification and Allowances for Losses. Federal regulations require savings institutions to classify their assets on the basis of quality on a regular basis. An asset is classified as "substandard" if it is determined to be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. An asset is classified as "doubtful" if full collection is highly questionable or improbable. An asset is classified as "loss" if it is considered uncollectible, even if a partial recovery could be expected in the future. The regulations also provide for a "special mention" designation, described as assets which do not currently expose a savings institution to a sufficient degree of risk to warrant classification but do possess credit deficiencies or potential weaknesses deserving management's close attention. Assets classified as substandard or doubtful require a savings institution to establish general allowances for loan losses. If an asset or portion thereof is classified loss, a savings institution must either establish specific allowances for loan losses in the amount of the portion of the asset classified loss, or charge off such amount. Federal examiners may disagree with a savings institution's classifications. If a savings institution does not agree with an examiner's classification of an asset, it may appeal this determination to the OTS Regional -60- 67 Director. At March 31, 1996, Carver had $1.7 million of assets classified as substandard (including $314 of real estate acquired in settlement of loans), $1.8 million of assets classified as doubtful, and $752,000 of assets classified as loss. The aggregate of the aforementioned classifications and designations totaled $4.3 million, which represented 1.17% of the Bank's total assets and 12.5% of the Bank's tangible regulatory capital, at March 31, 1996. Carver reviews monthly its assets to determine whether any assets require classification or re-classification. The Bank does not maintain a specific "watch list" of loans with potential problems. However, it does prepare a monthly list of those loans originated by the Bank with outstanding balances in excess of $100,000 and those loans purchased by the Bank with outstanding balances in excess of $100,000 which are delinquent 30 days or more, and this list is reviewed at the regular monthly meetings of the Board of Directors. Additionally, the Bank has a centralized loan processing structure that relies upon an outside servicer, which generates a monthly report of nonperforming loans. The Bank uses the Internal Auditor for its loan review, and his report is submitted quarterly to the Board of Directors for review and approval prior to implementation of any classifications. In originating loans, Carver recognizes that credit losses will occur and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the security for the loan. It is management's policy to maintain a general allowance for loan losses based on, among other things, regular reviews of delinquencies and loan portfolio quality, character and size, the Bank's and the industry's historical and projected loss experience and current and forecasted economic conditions. The Bank increases its allowance for loan losses by charging provisions for possible losses against the Bank's income. Federal examiners may disagree with the savings institution as to the appropriate level of the institution's allowance for loan losses. The OTS, along with the other federal banking regulators, adopted a joint policy statement on the adequacy of general valuation allowances applicable to all federally insured depository institutions. The policy statement provides that the primary responsibility for judging the adequacy of general valuation allowances lies with management. Examiners will evaluate the methodology and process used by management to establish such allowances. In addition, examiners will judge the adequacy of the allowance by calculating whether the allowance is at least equal to the following percentages of assets: (i) the amount of estimated credit losses estimated to result over the next twelve months from unclassified and Special Mention assets based on annual net charge-offs experienced during the previous two or three years; (ii) 15% of Substandard assets; and (iii) 50% of Doubtful assets. Management actively monitors Carver's asset quality and charges off loans and properties acquired in settlement of loans against the allowances for losses on loans and such properties when appropriate and provides specific loss reserves when necessary. Although management believes it uses the best information available to make determinations with respect to the allowances for losses, future adjustments may be necessary if economic conditions differ substantially from the economic conditions in the assumptions used in making the initial determinations. Carver's methodology for establishing the allowance for loan losses takes into consideration probable losses that have been identified in connection with specific loans as well as losses that have not been identified but can be expected to occur. Management conducts regular reviews of the Bank's loans and evaluates the need to establish general and specific allowances on the basis of this review. General allowances are established by the Board of Directors on at least a quarterly basis based on an assessment of risk in the Bank's loans taking into consideration the composition and quality of the portfolio, delinquency trends, current charge-off and loss experience, the state of the real estate market and economic conditions generally. Specific allowances are provided for individual loans, or portions of loans, when ultimate collection is considered improbable by management based on the current payment status of the loan and the fair value or net realizable value of the security for the loan. At the date of foreclosure or other repossession or at the date the Bank -61- 68 determines a property is an impaired property, the Bank transfers the property to real estate acquired in settlement of loans at the lower of cost or fair value, less estimated selling costs. Fair value is defined as the amount in cash or cash-equivalent value of other consideration that a real estate parcel would yield in a current sale between a willing buyer and a willing seller. At March 31, 1996, the Bank held $314,000, net of loss allowance, in real estate acquired in settlement of loans. Any amount of cost in excess of fair value is charged-off against the allowance for loan losses. The Bank records an allowance for estimated selling costs of the property immediately after foreclosure. Subsequent to acquisition, the property is periodically evaluated by management and an allowance is established if the estimated fair value of the property, less estimated costs to sell, declines. If, upon ultimate disposition of the property, net sales proceeds exceed the net carrying value of the property, a gain on sale of real estate is recorded. See Note 1 of Notes to Consolidated Financial Statements. The following table sets forth an analysis of Carver's allowance for loan losses for the periods indicated.

(1) Loans are charged-off when management determines that they are uncollectible. -62- 69 The following table allocates the allowance for loan losses by asset category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

-63- 70 Numerous financial institutions throughout the United States have incurred losses in recent years due to significant increases in loss provisions and charge-offs resulting largely from higher levels of loan delinquencies and foreclosures. Depressed real estate market conditions have adversely affected the economies of various regions and have had a severe impact on the financial condition and businesses of many of the financial institutions doing business in these areas. Considerable uncertainty exists as to the future improvement or deterioration of the real estate markets in these regions, or of its ultimate impact on these financial institutions. As a result of declines in real estate market values and significant losses experienced by many financial institutions, there has been a greater level of scrutiny by regulatory authorities of the loan portfolios of financial institutions undertaken as part of examinations of such institutions by the FDIC, OTS or other regulators. Results of recent examinations indicate that these regulators may be applying more conservative criteria in evaluating real estate market values, requiring significantly increased provisions for losses on loans and real estate acquired in settlement of such loans. While management believes Carver has established its existing loss allowances in accordance with generally accepted accounting principles, there can be no assurance that regulators, in reviewing the Bank's assets, will not make the Bank increase its loss allowance, thereby negatively affecting the Bank's reported financial condition and results of operations. MORTGAGE-BACKED AND RELATED SECURITIES Carver maintains a significant portfolio of mortgage-backed securities in the form of Government National Mortgage Association ("GNMA") pass-through certificates, FNMA and FHLMC participation certificates and collateralized mortgage obligations ("CMOs"). GNMA pass-through certificates are guaranteed as to the payment of principal and interest by the full faith and credit of the U.S. Government, while FNMA and FHLMC certificates are each guaranteed by their respective agencies as to principal and interest. Mortgage-backed securities generally entitle the Bank to receive a pro rata portion of the cash flows from an identified pool of mortgages. CMOs are securities issued by special purpose entities generally collateralized by pools of mortgage-backed securities. The cash flows from such pools are segmented and paid in accordance with a predetermined priority to various classes of securities issued by the entity. The Bank's CMOs are primarily adjustable-rate CMOs issued by the Resolution Trust Corporation ("RTC"). The Bank also invests in pools of loans guaranteed as to principal and interest by the Small Business Administration ("SBA"). The Bank has also invested $70.5 million in mutual funds which invest primarily in adjustable-rate mortgage-backed securities. See "--Investment Activities." Although mortgage-backed securities generally yield from 60 to 100 basis points less than whole loans, they present substantially lower credit risk and are more liquid than individual mortgage loans and may be used to collateralize obligations of the Bank. Because the Bank receives regular payments of principal and interest from its mortgage-backed securities, these investments provide more consistent cash-flows than investments in other debt securities which generally only pay principal at maturity. Mortgage-backed securities also help the Bank meet certain definitional tests for favorable treatment under federal banking and tax laws. See "Regulation -- Qualified Thrift Lender Test" and "Taxation." Mortgage-backed securities, however, expose the Bank to certain unique risks. In a declining rate environment, accelerated prepayments of loans underlying these securities expose the Bank to the risk that it will be unable to obtain comparable yields upon reinvestment of the proceeds. In the event the mortgage-backed security has been funded with an interest-bearing liability with a maturity comparable to the original estimated life of the mortgage-backed security, the Bank's interest rate spread could be adversely affected. Conversely, in a rising interest rate environment, the Bank may experience a lower than estimated rate of repayment on the underlying mortgages, effectively extending the estimated life of the mortgage-backed security and exposing the Bank to the risk that it may be required to fund the asset with a liability bearing a higher rate of interest. The Bank seeks to avoid interest rate risk by investing in adjustable-rate mortgage-backed securities, which constitute 59.61% of the mortgage-backed securities portfolio. The mortgage-backed securities in the Bank's available-for-sale portfolio adjust in accordance with a treasury index -64- 71 which generally lags changes in general market rates. In order to protect the value of this security in a rising rate environment, the Bank has entered into a four-year interest rate cap agreement with a money center bank. Whenever the three-month London Inter-Bank Offered Rate ("LIBOR") exceeds the 5.5% strike rate, Carver will receive the difference multiplied by the $20.0 million "notional" amount of the agreement. The $410,000 cost of the cap agreement is being amortized over the four-year life of the contract using the straight-line method. Any contractual payments earned on the interest rate protection agreement are treated as yield adjustments on the hedged securities. The OTS has adopted a statement of policy with respect to investments in mortgage derivative products which are defined to include CMOs, real estate mortgage investment conduits ("REMICs"), CMO and REMIC residuals and stripped mortgage-backed securities ("SMBSs"). The policy distinguishes between high-risk and non high-risk mortgage securities. Mortgage derivative products with an average life or price volatility in excess of a benchmark 30-year mortgage-backed pass-through security are considered high-risk mortgage securities. Under the policy, savings associations may generally only invest in high-risk mortgage securities in order to reduce interest rate risk. In addition, all high-risk mortgage securities acquired after February 9, 1992 must be carried in the institution's trading account or as assets held for sale. At March 31, 1996, the Bank had no mortgage derivative products which met the definition of high-risk mortgage securities. The following table sets forth information regarding Carver's mortgage-backed securities at the dates indicated.

-65- 72 The following table sets forth information regarding the scheduled maturities, carrying value, market value and weighted average yields for Carver's mortgage-backed securities (including mortgage-backed securities available-for-sale) at March 31, 1996. Expected maturities will differ from contractual maturities due to scheduled repayments and because borrowers may have the right to call or prepay obligations with or without prepayment penalties. The following table does not take into consideration the effects of scheduled repayments or the effects of possible prepayments.

(1) Includes $13.3 million in securities available-for-sale. (2) Includes $46.2 million in securities available-for-sale. (3) Includes $55.4 million in securities available-for-sale. -66- 73 INVESTMENT ACTIVITIES Carver is permitted under federal law to make certain investments, including investments in securities issued by various federal agencies and state and municipal governments, deposits at the FHLB of New York, certificates of deposits in federally insured institutions, certain bankers' acceptances and federal funds. The Bank may also invest, subject to certain limitations, in commercial paper having one of the two highest investment ratings of a nationally recognized credit rating agency, and certain other types of corporate debt securities and mutual funds. Federal regulations require the Bank to maintain an investment in FHLB of New York stock and a minimum amount of liquid assets which may be invested in cash and specified securities. From time to time, the OTS adjusts the percentage of liquid assets which savings banks are required to maintain. For additional information, see "Regulation -- Liquidity Requirements." Carver invests in investment securities in order to diversify its assets, manage cash flow, obtain yield and maintain the minimum levels of liquid assets required by regulatory authorities. Such investments generally include sales of federal funds, and purchases of federal government and agency securities and qualified deposits in other financial institutions. The Bank has also invested in mutual funds which invest solely in adjustable-rate mortgage-backed securities. Although these funds yield less than the underlying securities, these funds generally are more sensitive to changes in interest rates and are less volatile than mortgage-backed securities. Unlike investments in mortgage-backed securities held to maturity, however, investments in mutual funds expose the Bank to the risk of principal loss as a result of market declines. The funds in which the Bank is currently invested are open-end, no load funds. Investment decisions generally are made by the Internal Investment Committee in accordance with investment strategies approved by the Investment Committee of the Board of Directors. Effective March 31, 1994, the Bank adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" which generally requires that debt and equity securities that have readily determinable fair values be carried at fair value unless they are classified as held to maturity. In connection with the adoption of SFAS No. 115, the Bank designated $54.5 million of investment securities, including those previously classified as held- to-maturity, and $17.7 million of adjustable-rate mortgage-backed securities as available-for-sale. Unrealized holding gains or losses for securities available-for-sale are reported net of deferred income taxes as a separate component of retained earnings. On December 30, 1995 the Bank reclassified $25.9 million of investment securities from held to maturity to available-for-sale, as permitted under a one time opportunity permitted by the Financial Accounting Standards Board and regulatory agencies. The following table sets forth the carrying value of Carver's investments at the dates indicated.

(1) Equity securities were classified as available-for-sale at March 31, 1996, 1995 and 1994. -67- 74 The following table sets forth the scheduled maturities, carrying values, market values and average yields for Carver's investments at March 31, 1996.

On February 6, 1995, the New York State Banking Department (the "Department") took possession of Nationar Trust Company ("Nationar"), a trust company owned by sixty-seven New York savings banks. The Department will manage the business of Nationar until a suitable buyer is found. As of February 6, 1995, Carver had invested $1,366,000 in federal funds and $600,000 in certificate of deposits, or a total of $1,966,000, with Nationar. This $1,966,000 investment has been reclassified, net of a $256,000 allowance for estimated losses, to other assets on Carver's statement of financial condition. At a hearing on April 10, 1996, pursuant to the recommendation of the Superintendent of Banks of the State of New York Banking Department (the "Superintendent"), the judge in the instant case entered an order directing the return of the $600,000 in certificates of deposit that had been deposited with Nationar. The Bank received these funds, plus interest, in early June 1996. As a result, the Bank will recover the valuation allowance of 13.0% on the $600,000 amount. DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS General. Deposits are the primary source of Carver's funds for lending and other investment purposes. In addition to deposits, the Bank derives funds from loan principal repayments, interest payments and maturing investments. Loan repayments and interest payments are a relatively stable source of funds, while deposit inflows and outflows are significantly influenced by prevailing market interest rates and money market conditions. Borrowings may be used to supplement the Bank's available funds, and from time to time the Bank has borrowed funds from the FHLB of New York and through reverse repurchase agreements. Deposits. The Bank attracts deposits principally from within its market area by offering a variety of deposit instruments, including passbook and statement accounts and certificates of deposit which range in term from 91 days to seven years. Deposit terms vary, principally on the basis of the minimum balance required, the length of time the funds must remain on deposit and the interest rate. The Bank also offers Individual Retirement Accounts ("IRAs"). Carver's policies are designed primarily to attract deposits from local residents through the Bank's branch network rather than from outside the Bank's market area. The Bank also holds deposits from various municipal and other governmental agencies. The Bank does not accept deposits from brokers due to their rate sensitivity. The Bank's interest rates, maturities, service fees and withdrawal penalties on deposits are established by management on a periodic basis. Management determines deposit interest rates and maturities based on the Bank's funds acquisition and liquidity requirements, the rates paid by the Bank's competitors, the Bank's growth goals and applicable regulatory restrictions and requirements. -68- 75 Deposits in Carver as of March 31, 1996 were represented by the various programs described below.

-69- 76 The following table sets forth the change in dollar amount of deposits in the various types of accounts offered by Carver between the dates indicated.

-70- 77 The following table sets forth the average balances and interest rates based on month-end balances for certificates of deposit and non-certificate accounts as of the dates indicated.

The following table sets forth time deposits in specified weighted average interest rate categories as of the dates indicated.

The following table sets forth the amount and maturities of time deposits in specified weighted average interest rate categories at March 31, 1996.

The following table indicates the amount of Carver's certificates of deposit of $100,000 or more by time remaining until maturity as of March 31, 1996. -71- 78

The following table sets forth Carver's deposit reconciliation for the periods indicated.

The increase in deposits of $8.5 million, or 3.42%, to $257.0 million at March 31, 1996 from $248.5 million at March 31, 1995 was offset in part by a decrease in FHLB borrowings. The Bank attributes the increase in deposits to interest credited to depositors. Borrowings. Savings deposits historically have been the primary source of funds for Carver's lending, investment and general operating activities. The Bank is authorized, however, to use advances and securities sold under agreement to repurchase (Repos) from the FHLB of New York to supplement its supply of lendable funds and to meet deposit withdrawal requirements. The FHLB of New York functions as a central reserve bank providing credit for savings institutions and certain other member financial institutions. As a member of the FHLB system, the Bank is required to own stock in the FHLB of New York and is authorized to apply for advances. Advances are made pursuant to several different programs, each of which has its own interest rate and range of maturities. Advances from the FHLB of New York are secured by the Bank's stock in the FHLB and a blanket pledge of the Bank's mortgage loan and mortgage-backed securities portfolios. At March 31, 1996, the Bank had $25.4 million in advances and $22.0 million in securities sold under agreements to repurchase outstanding from the FHLB of New York. -72- 79 The following table sets forth certain information regarding the Bank's short-term borrowings at the dates and for the periods indicated:

• ----------------- (1) The approximate weighted average rate paid during the period was computed by dividing the average amounts outstanding into the related interest expense for the period. SUBSIDIARY ACTIVITIES As a federally chartered savings institution, Carver is permitted to invest up to 2% of its assets in subsidiary service corporations plus an additional 1% in subsidiaries engaged in specified community purposes. Other than a recently established subsidiary of the Bank, as further discussed below, Carver's only investment in service corporations is its interest in a captive insurance corporation for financial institutions. At March 31, 1996, the net book value of the Bank's service corporation investments was $399,000. Carver is also authorized to make investments of any amount in operating subsidiaries that engage solely in activities that federal savings institutions may conduct directly. On March 8, 1995, the Bank formed C.F.S.B. Realty Corp. as a wholly-owned subsidiary which will hold real estate acquired through foreclosure pending eventual disposition. At March 31, 1996, this subsidiary had $335,000 in total capital and net operation expense of $70,000. On September 19, 1995, the Bank formed C.F.S.B. Credit Corp. as a wholly-owned subsidiary which will undertake the operations regarding the issuance of credit cards. At March 31, 1996, this subsidiary had $63,000 in total capital and net operation expense of $12,000. MARKET AREA AND COMPETITION The Bank's primary market area for deposits consists of the areas served by its eight branches and the Bank considers its lending market to include Bronx, Kings, New York, Queens and Richmond counties, together comprising New York City, and Lower Westchester and Nassau Counties, New York. The Bank's branches are primarily located in economically disadvantaged areas of New York City which have traditionally been characterized by high unemployment, low income and low levels of home ownership. The majority of the Bank's branches are located in areas where the number of persons below the poverty line is greater than -73- 80 27% of the population and constitutes as much as 41% of the population in some areas according to 1990 census figures. The number of persons on some form of public assistance exceeds 30% of the population in these areas according to the same census. Although the New York metropolitan area enjoys a fairly diversified economy, the manufacturing base which has traditionally provided jobs to residents of the communities served by the Bank has been steadily shrinking and the other sectors of the economy have failed to provide comparable employment opportunities. The New York metropolitan area has also recently experienced an economic downturn which raised general unemployment rates throughout the region and which particularly affected the communities served by the Bank. Although the New York metropolitan area is generally believed to have begun recovering from the downturn, the communities served by the Bank have historically lagged in such recoveries. Although the Bank's branches are located in areas that have been historically undeserved by other financial institutions, the Bank is facing increasing competition for deposits and residential mortgage lending in its immediate market areas. Management believes that this competition has become more intense as a result of an increased examination emphasis by federal banking regulators on financial institutions' fulfillment of their responsibilities under the Community Reinvestment Act. Many of the Bank's competitors have substantially greater resources than the Bank and offer a wider array of financial services and products than the Bank. The Bank believes that it can compete with these institutions by offering a competitive range of services as well as through the personalized attention and community commitment which has always been the Bank's hallmark. EMPLOYEES As of March 31, 1996, Carver had 96 full-time and 14 part-time employees, none of whom was represented by a collective bargaining agreement. Management believes its relations with its employees are good. -74- 81 PROPERTIES The following table sets forth certain information regarding Carver Federal's offices and other material properties at March 31, 1996.

The net book value of Carver Federal's investment in premises and equipment totaled approximately $9.9 million at March 31, 1996. -75- 82 LEGAL PROCEEDINGS From time to time, Carver Federal is a party to various legal proceedings incident to its business. At March 31, 1996, except as set forth below, there were no legal proceedings to which the Bank or its subsidiary was a party, or to which any of their property was subject, which were expected by management to result in a material loss. On January 2, 1996, the United States District Court for the Southern District of New York dismissed the class action encaptioned Dougherty v. Carver Federal Savings Bank for lack of subject matter jurisdiction. The class action complaint contained allegations of material misrepresentations and omissions of material facts in the Bank's prospectus for its initial public offering and the failure to have the appraisal of the Bank's shares prepared by an independent appraiser. By separate order on the same date, the court made its ruling applicable to Gomberg v. Carver Federal Savings Bank and Uminer v. Carver Federal Savings Bank, two other class actions filed in the Southern District of New York which asserted claims essentially identical to those asserted in Dougherty v. Carver Federal Savings Bank. The plaintiffs in Dougherty v. Carver Federal Savings Bank have filed notice in the United States Court of Appeals for the second circuit of their intention to appeal. The case(s) are now pending appeal in the United States Court of Appeals for the Second Circuit. On September 19, 1995, Carver Federal Savings Bank filed an action for declaratory judgment, for damages for breach of contract, and for breach of a contractual trust, against Nationar and the Superintendent, in the Supreme Court of New York State, County of New York. When the Superintendent sold Carver Federal Savings Bank's ESOP loan to a third party purchaser, it did not transfer Carver's $1,966,000 in collateral along with the loan. The $1,966,000 in collateral consisted of two separate sums in the amounts of $1,366,000 and $600,000. The purpose of the lawsuit was to secure the return of the entire $1,966,000 in collateral rather than a portion of it. The Bank believes that it has adequate reserves at 13.0% of the claims, against possible loss on these claims. By order entered April 10, 1996, on the recommendation of the Superintendent, the Court directed the return of $600,000 in collateral. The Bank received these funds, plus interest, in early June 1996. As a result, the Bank will recover the valuation allowance of 13.0% on the $600,000 amount. Since the Bank expects that it will receive 90% of the $1,366,000 amount as a general creditor, the lawsuit has been discontinued. FEDERAL AND STATE TAXATION FEDERAL TAXATION General. The following discussion of tax matters is intended only as a summary and does not purport to be a comprehensive description of the tax rules applicable to the Bank or Bancorp. The Bank has not been subject to a tax audit within the past five fiscal years. For federal income tax purposes, after the Reorganization, Bancorp and the Bank will file consolidated income tax returns and report their income on a calendar year basis using the accrual method of accounting and will be subject to federal income taxation in the same manner as other corporations with some exceptions, including particularly the Bank's tax reserve for bad debts, discussed below. Tax Bad Debt Reserves. Savings institutions such as the Bank which meet certain definitional tests primarily relating to their assets and the nature of their business ("qualifying thrifts") are permitted to establish a tax reserve for bad debts and to make annual additions thereto, which additions may, within specified formula limits, be deducted in arriving at their taxable income. The Bank's deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, may be computed using an amount based on the Bank's actual loss experience (the "Experience Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI Method"), computed without regard to this deduction and with additional modifications and reduced by the amount of any permitted addition to the non-qualifying reserve. -76- 83 Use of the PTI Method has the effect of reducing the marginal rate of federal tax on the Bank's income to 31.3%, exclusive of any minimum or environmental tax, as compared to the generally applicable maximum corporate federal income tax rate of 34%. (The marginal rate of tax would be 32.2% if the Bank's taxable income exceeds $10,000,000 and is therefore subject to a maximum tax rate of 35%). The Bank's deduction with respect to non-qualifying loans must be computed under the Experience Method which is based on the Bank's actual charge-offs. Each year the Bank reviews the most favorable way to calculate the deduction attributable to an addition to the tax bad debt reserve. The Bank presently satisfies the qualifying thrift definitional tests. If the Bank failed to satisfy such tests in any taxable year, it would be unable to use the PTI Method in computing additions to its tax bad debt reserve and may be required to recapture (i.e., take into income) a portion of its bad debt reserves over a multi-year period. Such bad debt reserve recapture could cause the Bank to incur substantial tax liability. (If the Bank were a "large bank," which it now is not, at the time it failed to satisfy such tests, it would be unable to make additions to its tax bad debt reserve. Instead, the Bank would be permitted to deduct bad debts only as they occur and would be required to recapture its cumulative bad debt reserves over a multi-year period.) Among other things, the qualifying thrift definitional tests require the Bank to hold at least 60% of its assets as "qualifying assets." Qualifying assets generally include cash, obligations of the United States or any agency or instrumentality thereof, certain obligations of a state or political subdivision thereof, loans secured by interests in improved residential real property or by savings accounts, student loans and property used by the Bank in the conduct of its banking business. The Bank's ratio of qualifying assets to total assets exceeded 60% through the close of its last taxable year. Although there can be no assurance that the Bank will satisfy the 60% test in the future, management believes that this level of qualifying assets can be maintained by the Bank. The amount of the addition to the reserve for losses on qualifying real property loans under the PTI Method cannot exceed the amount necessary to increase the balance of the reserve for losses on qualifying real property loans at the close of the taxable year to 6% of the balance of the qualifying real property loans outstanding at the end of the taxable year. As of the close of its last taxable year, the Bank's tax reserve for bad debts on qualifying real property loans was less than 6% of its qualifying real property loans outstanding. Also, if the Bank uses the PTI Method, its aggregate addition to its reserve for losses on qualifying real property loans cannot, when added to the addition to the reserve for losses on non-qualifying loans, exceed the amount by which: (i) 12% of the amount that the total deposits or withdrawable accounts of depositors of the Bank at the close of the taxable year exceeds (ii) the sum of the Bank's surplus, undivided profits and reserves at the beginning of such year. As of the close of its last taxable year, 12% of the Bank's deposits and withdrawable accounts, less its surplus, undivided profits and reserves, exceeded the balance of its reserve for losses on qualifying real property loans. Pending Legislation Regarding Bad Debt Reserves. Under pending legislative proposals, the PTI Method would be repealed and the Bank would be permitted to use only the Experience Method of computing additions to its bad debt reserve. In addition, the Bank would be required to recapture (i.e., take into income) over a six year period beginning April 1, 1996 the excess of the balance of its bad debt reserves as of March 31, 1996 over the greater of (a) the balance of such reserves as of March 31, 1988 or (b) an amount that would have been the balance of such reserves as of March 31, 1996 had the Bank always computed the additions to its reserves using the Experience Method. (If the Bank were a "large bank," which it now is not, it would be unable to make additions to its tax bad debt reserve, would be permitted to deduct bad debts only as they occur and would additionally be required to recapture over a six year period the excess of the balance of its bad debt reserves as of March 31, 1996 over the balance of such reserves as of March 31, 1988). However, under the proposed legislation, such recapture requirements would be suspended for each of two successive taxable years beginning April 1, 1996 in which the Bank originates a minimum amount of certain residential loans based upon the average of the principal amounts of such loans made by the Bank during its six taxable years preceding 1996. Distributions. To the extent that: (i) the Bank's tax bad debt reserve for losses on qualifying real property loans exceeds the amount that would have been allowed under the Experience Method (the "Excess -77- 84 Bad Debt Reserve"); and (ii) the Bank makes "non-dividend distributions" to Bancorp that are considered to have been made from the Excess Bad Debt Reserve or the supplemental reserve for losses on loans ("Excess Distributions"), then an amount based on the amount distributed will be included in the Bank's taxable income. Non-dividend distributions include distributions in excess of the Bank's current and accumulated earnings and profits, as calculated for federal income tax purposes, distributions in redemption of stock, and distributions in partial or complete liquidation. However, dividends paid out of the Bank's current or accumulated earnings and profits will not be considered to result in a distribution from the Bank's bad debt reserves. The amount of additional taxable income created from an Excess Distribution is an amount that, when reduced by the tax attributable to the income, is equal to the amount of the Excess Distribution. Thus, if, after the Reorganization, the Bank makes a "non-dividend distribution" that is an Excess Distribution, approximately one and one-half times the amount so used would be includable in gross income for federal income tax purposes, assuming a 34% federal corporate income tax rate. See "Regulation and Supervision" and "Dividend Policy" for limits on the payment of dividends by the Bank. The Bank does not intend to pay dividends that would result in a recapture of any portion of its tax bad debt reserves. Under pending legislative proposals, if the Bank makes a non-dividend distribution, as defined above, an amount, as computed above, will be included in the Bank's taxable income, but the maximum amount of reserves subject to such inclusion will be the balance of the Bank's bad debt reserves as of March 31, 1988, or a lesser amount if the Bank's loan portfolio has decreased since March 31, 1988. Corporate Alternative Minimum Tax. The Code imposes a tax ("AMT") on alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased by certain preference items, including the excess of the tax bad debt reserve deduction using the PTI Method over the deduction that would have been allowable under the Experience Method. Only 90% of AMTI can be offset by net operating loss carryovers of which the Bank currently has none. AMTI is also adjusted by determining the tax treatment of certain items in a manner that negates the deferral of income resulting from the regular tax treatment of those items. Thus, the Bank's AMTI is increased by an amount equal to 75% of the amount by which the Bank's adjusted current earnings exceeds its AMTI (determined without regard to this adjustment and prior to reduction for net operating losses). In addition, for taxable years beginning after December 31, 1986 and before January 1, 1996, an environmental tax of 0.12% of the excess of AMTI (with certain modifications) over $2 million is imposed on corporations, including the Bank, whether or not an AMT is paid. The Bank does not expect to be subject to the AMT, but may be subject to the environmental tax liability. Under pending legislative proposals, the environmental tax would be extended to taxable years beginning before January 1, 2007. Elimination of Dividends; Dividends Received Deduction. Bancorp may exclude from its income 100% of dividends received from the Bank as a member of the same affiliated group of corporations. A 70% dividends received deduction generally applies with respect to dividends received from corporations that are not members of such affiliated group, except that an 80% dividends received deduction applies if Bancorp and the Bank own more than 20% of the stock of a corporation paying a dividend. Under pending legislative proposals, the 70% dividends received deduction would be reduced to 50% with respect to dividends paid after enactment of the legislation. STATE AND LOCAL TAXATION State of New York. The Bank and Bancorp are subject to New York State franchise tax on net income or one of several alternative bases, whichever results in the highest tax. "Net income" means federal taxable income with adjustments. The Bank and Bancorp will file combined returns. The New York State tax rate for fiscal years 1996 and 1997 is 11.0925% and 10.6425%, respectively (including temporary surcharges for fiscal years ending 6.25% and 1.25%, respectively and a 17% commuter transportation surcharge) of net income. In general, Bancorp will not be required to pay New York State tax on dividends and interest received from the Bank or on gains realized on the sale of Bank stock. -78- 85 New York City. The Bank and Bancorp are also subject to a similarly calculated New York City banking corporation tax of 9% on income allocated to New York City. Delaware Taxation. As a Delaware holding company not earning income in Delaware, Bancorp is exempted from Delaware corporate income tax but is required to file an annual report with and pay an annual franchise tax to the State of Delaware. REGULATION AND SUPERVISION GENERAL The Bank is subject to extensive regulation, examination, and supervision by the OTS, as its chartering agency, and the FDIC, as its deposit insurer. The Bank's deposit accounts are insured up to applicable limits by the SAIF administered by the FDIC, and it is a member of the FHLB of New York. The Bank must file reports with the OTS and the FDIC concerning its activities and financial condition, and it must obtain regulatory approvals prior to entering into certain transactions, such as mergers with, or acquisitions of, other depository institutions. The OTS and the FDIC conduct periodic examinations to assess the Bank's compliance with various regulatory requirements. This regulation and supervision establishes a comprehensive framework of activities in which a savings association can engage and is intended primarily for the protection of the insurance fund and depositors. Assuming that the holding company form of organization is utilized, the Company, as a savings association holding company, will also be required to file certain reports with, and otherwise comply with, the rules and regulations of the OTS and of the Securities and Exchange Commission (the "SEC") under the federal securities laws. The OTS and the FDIC have significant discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes. Any change in such policies, whether by the OTS, the FDIC, or the Congress, could have a material adverse impact on the Company, the Bank, and the operations of both. The following discussion is intended to be a summary of the material statutes and regulations applicable to savings associations, and it does not purport to be a comprehensive description of all such statutes and regulations. REGULATION OF FEDERAL SAVINGS ASSOCIATIONS Business Activities. The Bank derives its lending and investment powers from the Home Owner's Loan Act, as amended ("HOLA"), and the regulations of the OTS thereunder. Under these laws and regulations, the Bank may invest in mortgage loans secured by residential and commercial real estate, commercial and consumer loans, certain types of debt securities, and certain other assets. The Bank may also establish service corporations that may engage in activities not otherwise permissible for the Bank, including certain real estate equity investments and securities and insurance brokerage. These investment powers are subject to various limitations, including (a) a prohibition against the acquisition of any corporate debt security that is not rated in one of the four highest rating categories; (b) a limit of 400% of an association's capital on the aggregate amount of loans secured by non-residential real estate property; (c) a limit of 10% of an association's assets on commercial loans; (d) a limit of 35% of an association's assets on the aggregate amount of consumer loans and acquisitions of certain debt securities; (e) a limit of 5% of assets on non-conforming loans (loans in excess of the specific limitations of HOLA); and (f) a limit of the greater of 5% of assets or an association's capital on certain construction loans made for the purpose of financing what is or is expected to become residential property. Loans to One Borrower. Under HOLA, savings associations are generally subject to the same limits on loans to one borrower as are imposed on national banks. Generally, under these limits, a savings association -79- 86 may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of the association's unimpaired capital and surplus. Additional amounts may be lent, not in excess of 10% of unimpaired capital and surplus, if such loans or extensions of credit are fully secured by readily-marketable collateral. Such collateral is defined to include certain debt and equity securities and bullion, but generally does not include real estate. At March 31, 1996, the Bank's limit on loans to one borrower was $5.2 million. At March 31, 1996, the Bank's largest aggregate amount of loans to one borrower was $1.3 million and the second largest borrower had an aggregate balance of $925,000. QTL Test. HOLA requires a savings association to meet a QTL test. Under the QTL test, a savings association is required to maintain at least 65% of its "portfolio assets" in certain "qualified thrift investments" in at least nine months of the most recent twelve-month period. "Portfolio assets" means, in general, an association's total assets less the sum of (a) specified liquid assets up to 20% of total assets, (b) certain intangibles, including goodwill and credit card and purchased mortgage servicing rights, and (c) the value of property used to conduct the association's business. "Qualified thrift investments" includes various types of loans made for residential and housing purposes, investments related to such purposes, including certain mortgage-backed and related securities, and consumer loans up to 10% of the association's portfolio assets. At March 31, 1996, the Bank maintained approximately 75.4% of its portfolio assets in qualified thrift investments. The Bank had also met the QTL test in each of the prior 12 months and was, therefore, a qualified thrift lender. A savings association that fails the QTL test must either operate under certain restrictions on its activities or convert to a bank charter. The initial restrictions include prohibitions against (a) engaging in any new activity not permissible for a national bank, (b) paying dividends not permissible under national bank regulations, (c) obtaining new advances from any FHLB, and (d) establishing any new branch office in a location not permissible for a national bank in the association's home state. In addition, within one year of the date a savings association ceases to meet the QTL test, any company controlling the association would have to register under, and become subject to the requirements of, the Bank Holding Company Act of 1956, as amended. If the savings association does not requalify under the QTL test within the three-year period after it failed the QTL test, it would be required to terminate any activity and to dispose of any investment not permissible for a national bank and would have to repay as promptly as possible any outstanding advances from an FHLB. A savings association that has failed the QTL test may requalify under the QTL test and be free of such limitations, but it may do so only once. Capital Requirements. The OTS regulations require savings associations to meet three minimum capital standards: a tangible capital ratio requirement of 1.5% of total assets as adjusted under the OTS regulations, a leverage ratio requirement of 3% of core capital to such adjusted total assets, and a risk-based capital ratio requirement of 8% of core and supplementary capital to total risk-based assets. In determining the amount of risk-weighted assets for purposes of the risk-based capital requirement, a savings association must compute its risk-based assets by multiplying its assets and certain off-balance sheet items by risk-weights, which range from 0% for cash and obligations issued by the United States Government or its agencies to 100% for consumer and commercial loans, as assigned by the OTS capital regulation based on the risks OTS believes are inherent in the type of asset. Tangible capital is defined, generally, as common stockholder's equity (including retained earnings), certain noncumulative perpetual preferred stock and related earnings, minority interests in equity accounts of fully consolidated subsidiaries, less intangibles other than certain purchased mortgage servicing rights and investments in and loans to subsidiaries engaged in activities not permissible for a national bank. Core capital is defined similarly to tangible capital, but core capital also includes certain qualifying supervisory goodwill and certain purchased credit card relationships. Supplementary capital currently includes cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock, and the allowance for loan and lease losses. The allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets, and the -80- 87 amount of supplementary capital that may be included as total capital cannot exceed the amount of core capital. When determining its compliance with the risk-based capital requirement, a savings association with "above normal" interest rate risk is required to deduct a portion of such capital from its total capital to account for the "above normal" interest rate risk. A savings association's interest rate risk is measured by the decline in the net portfolio value of its assets (i.e., the difference between incoming and outgoing discounted cash flows from assets, liabilities and off-balance sheet contracts) resulting from a hypothetical 2% increase or decrease in market rates of interest, divided by the estimated economic value of the association's assets, as calculated in accordance with guidelines set forth by the OTS. At the times when the 3-month Treasury bond equivalent yield falls below 4%, an association may compute its interest rate risk on the basis of a decrease equal to one-half of that Treasury rate rather than on the basis of 2%. A savings association whose measured interest rate risk exposure exceeds 2% would be considered to have "above normal" risk. The interest rate risk component is an amount equal to one-half of the difference between the association's measured interest rate risk and 2%, multiplied by the estimated economic value of the association's assets. That dollar amount is deducted from an association's total capital in calculating compliance with its risk-based capital requirement. Any required deduction for interest rate risk becomes effective on the last day of the third quarter following the reporting date of the association's financial data on which the interest rate risk was computed. At March 31, 1996, the Bank met each of its capital requirements. The table below presents the Bank's regulatory capital as compared to the OTS regulatory capital requirements at March 31, 1996:

A reconciliation between regulatory capital and GAAP capital at March 31, 1996 in the accompanying financial statements is presented below:

-81- 88 Limitation on Capital Distributions. OTS regulations currently impose limitations upon capital distributions by savings associations, such as cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger, and other distributions charged against capital. At least 30-days written notice must be given to the OTS of a proposed capital distribution by a savings association, and capital distributions in excess of specified earnings or by certain institutions are subject to approval by the OTS. An association that has capital in excess of all fully phased-in regulatory capital requirements before and after a proposed capital distribution and that is not otherwise restricted in making capital distributions, could, after prior notice but without the approval of the OTS, make capital distributions during a calendar year equal to the greater of (a) 100% of its net earnings to date during the calendar year plus the amount that would reduce by one-half its "surplus capital ratio" (the excess capital over its fully phased-in capital requirements) at the beginning of the calendar year, or (b) 75% of its net earnings for the previous four quarters. Any additional capital distributions would require prior OTS approval. In addition, the OTS can prohibit a proposed capital distribution, otherwise permissible under the regulation, if the OTS has determined that the association is in need of more than normal supervision or if it determines that a proposed distribution by an association would constitute an unsafe or unsound practice. Furthermore, under the OTS prompt corrective action regulations, the Bank would be prohibited from making any capital distribution if, after the distribution, the Bank failed to meet its minimum capital requirements, as described above. See "--Prompt Corrective Regulatory Action." The OTS has proposed regulations that would simplify the existing procedures governing capital distributions by savings associations. Under the proposed regulations, the approval of the OTS would be required only for an association that is deemed to be in troubled condition or that is undercapitalized or would be undercapitalized after the capital distribution. A savings association would be able to make a capital distribution without notice to or approval of the OTS if it is not held by a savings association holding company, is not deemed to be in troubled condition, has received either of the two highest composite supervisory ratings, and would continue to be adequately capitalized after such distribution. Notice would have to be given to the OTS by any association that is held by a savings association holding company or that had received a composite supervisory rating below the highest two composite supervisory ratings. An association's capital rating would be determined under the prompt corrective action regulations. See "--Prompt Corrective Regulatory Action." Liquidity. The Bank is required to maintain an average daily balance of liquid assets (cash, certain time deposits, bankers' acceptances, specified United States Government, state or federal agency obligations, shares of certain mutual funds and certain corporate debt securities and commercial paper) equal to a monthly average of not less than a specified percentage of its net withdrawable deposit accounts plus short-term borrowings. This liquidity requirement may be changed from time to time by the OTS to any amount within the range of 4% to 10% depending upon economic conditions and the savings flows of member institutions, and is currently 5%. OTS regulations also require each savings association to maintain an average daily balance of short-term liquid assets at a specified percentage (currently 1%) of the total of its net withdrawable deposit accounts and borrowings payable in one year or less. Monetary penalties may be imposed for failure to meet these liquidity requirements. The Bank's average liquidity ratio for the month ended March 31, 1996 was 27.5%, which exceeded the applicable requirements. The Bank has never been subject to monetary penalties for failure to meet its liquidity requirements. Assessments. Savings associations are required by OTS regulation to pay assessments to the OTS to fund the operations of the OTS. The general assessment, paid on a semi-annual basis, is computed upon the savings association's total assets, including consolidated subsidiaries, as reported in the association's latest quarterly Thrift Financial Report. During January 1996, the Bank paid an assessment of $88,600. Branching. Subject to certain limitations, HOLA and the OTS regulations permit federally chartered savings associations to establish branches in any state of the United States. The authority to establish such a branch is available (a) in states that expressly authorize branches of savings associations located in another -82- 89 state and (b) to an association that qualifies as a "domestic building and loan association" under the Internal Revenue Code of 1986, which imposes qualification requirements similar to those for a "qualified thrift lender" under HOLA. See "--QTL Test." The authority for a federal savings association to establish an interstate branch network would facilitate a geographic diversification of the association's activities. This authority under HOLA and the OTS regulations preempts any state law purporting to regulate branching by federal savings associations. Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as implemented by OTS regulations, a savings association has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with its examination of a savings association, to assess the association's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such association. The CRA also requires all institutions to make public disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA rating in its most recent examination. In April 1995, the OTS and the other federal banking agencies adopted amendments revising their CRA regulations. Among other things, the amended CRA regulations substitute for the prior process-based assessment factors a new evaluation system that would rate an institution based on its actual performance in meeting community needs. In particular, the proposed system would focus on three tests: (a) a lending test, to evaluate the institution's record of making loans in its assessment areas; (b) an investment test, to evaluate the institution's record of investing in community development projects, affordable housing, and programs benefiting low or moderate income individuals and businesses; and (c) a service test, to evaluate the institution's delivery of services through its branches, ATMs, and other offices. The amended CRA regulations also clarify how an institution's CRA performance would be considered in the application process. Transactions with Related Parties. The Bank's authority to engage in transactions with its "affiliates" is limited by the OTS regulations and by Sections 23A and 23B of the Federal Reserve Act ("FRA"). In general, an affiliate of the Bank is any company that controls the Bank or any other company that is controlled by a company that controls the Bank, excluding the Bank's subsidiaries other than those that are insured depository institutions. The OTS regulations prohibit a savings association (a) from lending to any of its affiliates that is engaged in activities that are not permissible for bank holding companies under Section 4(c) of the Bank Holding Company Act ("BHC Act") and (b) from purchasing the securities of any affiliate other than a subsidiary. Section 23A limits the aggregate amount of transactions with any individual affiliate to 10% of the capital and surplus of the savings association and also limits the aggregate amount of transactions with all affiliates to 20% of the savings association's capital and surplus. Extensions of credit to affiliates are required to be secured by collateral in an amount and of a type described in Section 23A, and the purchase of low quality assets from affiliates is generally prohibited. Section 23B provides that certain transactions with affiliates, including loans and asset purchases, must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the association as those prevailing at the time for comparable transactions with nonaffiliated companies. In the absence of comparable transactions, such transactions may only occur under terms and circumstances, including credit standards, that in good faith would be offered to or would apply to nonaffiliated companies. The Bank's authority to extend credit to its directors, executive officers, and 10% shareholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the FRA and Regulation O of the Federal Reserve Board ("FRB") thereunder. Among other things, these provisions require that extensions of credit to insiders (a) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (b) not exceed certain limitations on the amount of credit -83- 90 extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the association's capital. In addition, extensions of credit in excess of certain limits must be approved by the association's board of directors. Enforcement. Under the Federal Deposit Insurance Act ("FDI Act"), the OTS has primary enforcement responsibility over savings associations and has the authority to bring enforcement action against all "institution-affiliated parties," including any controlling stockholder or any shareholder, attorney, appraiser and accountant who knowingly or recklessly participates in any violation of applicable law or regulation or breach of fiduciary duty or certain other wrongful actions that causes or is likely to cause a more than a minimal loss or other significant adverse effect on an insured savings association. Civil penalties cover a wide range of violations and actions and range from $5,000 for each day during which violations of law, regulations, orders, and certain written agreements and conditions continue, up to $1 million per day for such violations if the person obtained a substantial pecuniary gain as a result of such violation or knowingly or recklessly caused a substantial loss to the institution. Criminal penalties for certain financial institution crimes include fines of up to $1 million and imprisonment for up to 30 years. In addition, regulators have substantial discretion to take enforcement action against an institution that fails to comply with its regulatory requirements, particularly with respect to its capital requirements. Possible enforcement actions range from the imposition of a capital plan and capital directive to receivership, conservatorship, or the termination of deposit insurance. Under the FDI Act, the FDIC has the authority to recommend to the Director of OTS that enforcement action be taken with respect to a particular savings association. If action is not taken by the Director of the OTS, the FDIC has authority to take such action under certain circumstances. Standards for Safety and Soundness. The FDI Act, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994 ("Community Development Act"), requires the OTS, together with the other federal bank regulatory agencies, to prescribe standards, by regulations or guidelines, relating to internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, stock valuation, and compensation, fees and benefits and such other operational and managerial standards as the agencies deem appropriate. The OTS and the federal bank regulatory agencies have adopted, effective August 9, 1995, a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. The OTS and the other agencies determined that stock valuation standards were not appropriate. In addition, the OTS adopted regulations pursuant that authorize, but do not require, the OTS to order an institution that has been given notice by the OTS that it is not satisfying any of such safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an accepted compliance plan, the OTS must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized association is subject under the "prompt corrective action" provisions of FDICIA. If an institution fails to comply with such an order, the OTS may seek to enforce such order in judicial proceedings and to impose civil money penalties. The OTS and the federal bank regulatory agencies also proposed guidelines for asset quality and earnings standards. Real Estate Lending Standards. The OTS and the other federal banking agencies adopted regulations to prescribe standards for extensions of credit that (a) are secured by real estate or (b) are made for the purpose of financing the construction of improvements on real estate. The OTS regulations require each savings association to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the association and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying OTS guidelines, -84- 91 which include loan-to-value ratios for the different types of real estate loans. Banks are also permitted to make a limited amount of loans that do not conform to the proposed loan-to-value limitations so long as such exceptions are reviewed and justified appropriately. The guidelines also list a number of lending situations in which exceptions to the loan-to-value standards are justified. Prompt Corrective Regulatory Action. Under the OTS prompt corrective action regulations, the OTS is required to take certain, and is authorized to take other, supervisory actions against undercapitalized savings associations. For this purpose, a savings association would be placed in one of five categories based on the association's capital. Generally, a savings association is treated as "well capitalized" if its ratio of total capital to risk-weighted assets is at least 10.0%, its ratio of core capital to risk-weighted assets is at least 6.0%, its ratio of core capital to total assets is at least 5.0%, and it is not subject to any order or directive by the OTS to meet a specific capital level. A savings association will be treated as "adequately capitalized" if its ratio of total capital to risk-weighted assets is at least 8.0%, its ratio of core capital to risk-weighted assets is at least 4.0%, and its ratio of core capital to total assets is at least 4.0% (3.0% if the association receives the highest rating on the CAMEL financial institutions rating system). A savings association that has a total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0% (3.0% leverage ratio if the association receives the highest rating on the CAMEL financial institutions rating system) is considered to be "undercapitalized." A savings association that has a total risk-based capital of less than 6.0% or a Tier 1 risk-based capital ratio or a leverage ratio of less than 3.0% is considered to be "significantly undercapitalized." A savings association that has a tangible capital to assets ratio equal to or less than 2% is deemed to be "critically undercapitalized." The elements of an association's capital for purposes of the prompt corrective action regulations are defined generally as they are under the regulations for minimum capital requirements. See "--Capital Requirements." The severity of the action authorized or required to be taken under the prompt corrective action regulations increases as an association's capital deteriorates within the three undercapitalized categories. All associations are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the association would be undercapitalized. An undercapitalized association is required to file a capital restoration plan within 45 days of the date the association receives notice that it is within any of the three undercapitalized categories. The OTS is required to monitor closely the condition of an undercapitalized association and to restrict the asset growth, acquisitions, branching, and new lines of business of such an association. Significantly undercapitalized associations are subject to restrictions on compensation of senior executive officers; such an association may not, without OTS consent, pay any bonus or provide compensation to any senior executive officer at a rate exceeding the officer's average rate of compensation (excluding bonuses, stock options and profit-sharing) during the 12 months preceding the month when the association became undercapitalized. A significantly undercapitalized association may also be subject, among other things, to forced changes in the composition of its board of directors or senior management, additional restrictions on transactions with affiliates, restrictions on acceptance of deposits from correspondent associations, further restrictions on asset growth, restrictions on rates paid on deposits, forced termination or reduction of activities deemed risky, and any further operational restrictions deemed necessary by the OTS. If one or more grounds exist for appointing a conservator or receiver for an association, the OTS may require the association to issue additional debt or stock, sell assets, be acquired by a depository association holding company or combine with another depository association. The OTS and the FDIC have a broad range of grounds under which they may appoint a receiver or conservator for an insured depositary association. Under FDICIA, the OTS is required to appoint a receiver (or with the concurrence of the FDIC, a conservator) for a critically undercapitalized association within 90 days after the association becomes critically undercapitalized or, with the concurrence of the FDIC, to take such other action that would better achieve the purposes of the prompt corrective action provisions. Such alternative action can be renewed for successive 90-day periods. However, if the association continues to be critically undercapitalized on average during the quarter that begins 270 days after it first became critically undercapitalized, a receiver must be appointed, unless the OTS makes certain findings with which the FDIC concurs and the Director of the OTS and the -85- 92 Chairman of the FDIC certify that the association is viable. In addition, an association that is critically undercapitalized is subject to more severe restrictions on its activities, and is prohibited, without prior approval of the FDIC from, among other things, entering into certain material transactions or paying interest on new or renewed liabilities at a rate that would significantly increase the association's weighted average cost of funds. When appropriate, the OTS can require corrective action by a savings association holding company under the "prompt corrective action" provisions of FDICIA. Insurance of Deposit Accounts. The Bank is a member of the SAIF of the FDIC, and the Bank pays its deposit insurance assessments to the SAIF of the FDIC. The FDIC also maintains another insurance fund, the Bank Insurance Fund ("BIF"), which primarily insures the deposits of banks and state chartered savings banks. Pursuant to FDICIA, the FDIC established a new risk-based assessment system for determining the deposit insurance assessments to be paid by insured depositary institutions. Under the new assessment system, which began in 1993, the FDIC assigns an institution to one of three capital categories based on the institution's financial information as of the reporting period ending seven months before the assessment period. The three capital categories consist of (a) well capitalized, (b) adequately capitalized, or (c) undercapitalized. The FDIC also assigns an institution to one of three supervisory subcategories within each capital group. The supervisory subgroup to which an institution is assigned is based on a supervisory evaluation provided to the FDIC by the institution's primary federal regulator and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. An institution's assessment rate depends on the capital category and supervisory category to which it is assigned. Under the regulation, there are nine assessment risk classifications (i.e., combinations of capital groups and supervisory subgroups) to which different assessment rates are applied. Beginning in 1993, the assessment rates for both the BIF and the SAIF had ranged from 0.23% of deposits for an institution in the highest category (i.e., well-capitalized and financially sound, with no more than a few minor weaknesses) to 0.31% of deposits for an institution in the lowest category (i.e., undercapitalized and substantial supervisory concern). The FDI Act requires that the BIF and the SAIF funds each be recapitalized until reserves are at least 1.25% of the deposits insured by that fund. After a fund reached the 1.25% reserve ratio, the assessment rates for that fund could be reduced. The FDIC has reported that the BIF reached the required reserve ratio during May 1995. As a result of the recapitalization of the BIF, the FDIC reduced BIF-assessment rates. The FDIC initially reduced the BIF assessment rates, effective June 1, 1995, to a range of 0.04% to 0.27% of deposits. Having subsequently determined that the BIF had sufficient reserves in excess of the required 1.25% ratio, the FDIC reduced the BIF- assessment rate for "well capitalized" institutions without any significant supervisory concerns to the statutory minimum of $2,000 annually beginning with the first half of 1996, and the rates for other BIF-insured institutions will range from 0.03% to 0.27% of deposits. The FDIC has reported that, under current law and reasonably optimistic financial projections, the SAIF is not expected to be recapitalized until 2001. SAIF reserves have not grown as quickly as the BIF reserves due to a number of factors, including the fact that a significant portion of SAIF assessments have been and are currently being used to make payments on bonds ("FICO bonds") issued in the late 1980s by the Financing Corporation to recapitalize the now defunct Federal Savings and Loan Insurance Corporation. Accordingly, the FDIC has determined that SAIF-insured institutions should continue to pay assessments at the current SAIF assessment rates, which range from 0.23% of deposits to 0.31% of deposits. The Bank's assessment rate for the first half of 1996 is 0.23% of deposits. The resulting disparity in deposit insurance assessments rates between the SAIF members and the BIF members is likely to provide institutions paying only the BIF assessments with certain competitive advantages in the pricing of loans and deposits, and in lowered operating costs, pending any legislative action to remedy the disparity. Congress has considered proposed legislation to address these issues. -86- 93 The proposed Balanced Budget Act of 1995 ("Budget Act"), which was approved by the Congress but vetoed by the President, included provisions that focused on a recapitalization of the SAIF. Under the provisions of the Budget Act, all SAIF-member institutions would have paid a special assessment to recapitalize the SAIF, and the assessment base for the payments on the FICO bonds would have been expanded to include the deposits of both BIF- and SAIF-insured institutions. The amount of the special assessment required to recapitalize the SAIF was then estimated to be approximately 80 basis points of the SAIF-assessable deposits. This estimate of the special assessment was less than the special assessment of 85 to 90 basis points that had been previously estimated. The special assessment would have been imposed as of the first business day of January 1996 or on such other date prescribed by the FDIC not later than 60 days after enactment of the Budget Act, based on the amount of SAIF deposits on March 31, 1995. The Budget Act also provided for the merger of the BIF and SAIF on January 1, 1998, with such merger being conditioned upon the prior elimination of the thrift charter. Congressional leaders had also agreed that Congress should consider and act upon separate legislation to eliminate the thrift charter as early as possible in 1996. If adopted, such legislation would require that the Bank, as a federal savings bank, convert to a bank charter. The veto of the Budget Act by the President was not based on the above described provisions of the Budget Act, and the federal banking regulators continue to seek a legislative solution for the recapitalization of the SAIF. In February 1996, representatives of the FDIC, the OTS and the Treasury Department stated to Congress that, unless Congress adopts legislation to strengthen the SAIF, SAIF's current problems could result in an erosion of the SAIF deposit base, could cause a default on the FICO bonds, and could leave the SAIF unable to meet its obligations to insured depositors. If enacted by Congress, legislation to recapitalize the SAIF as proposed in the Budget Act would have the effect of reducing the capital of SAIF member institutions by the after-tax cost of the special SAIF assessment, plus any related additional tax liabilities. The legislation would also have the effect of reducing any differential that may otherwise be required in the assessment rates for the BIF and SAIF. Management cannot predict whether the above legislation or any other legislative proposal will be enacted as described above or, if enacted, the amount of any special SAIF assessment, whether ongoing SAIF premiums will be reduced to a level equal to that of BIF premiums or whether, if thrifts are required to convert to a bank charter, there will be any relief from the additional tax liabilities that would be incurred upon the recapture of their bad debt reserves. It also cannot be predicted whether some other legislative action will be taken to address the BIF/SAIF disparity and what consequences such action could have for SAIF members. A significant increase in SAIF insurance premiums, either absolutely or relative to BIF premiums or a significant one-time fee to recapitalize the SAIF could have an adverse effect on the operating expenses and results of operations of the Bank. Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance. Federal Home Loan Bank System. The Bank is a member of the FHLB of New York, which is one of the regional FHLBs composing the FHLB System. Each FHLB provides a central credit facility primarily for its member institutions. The Bank, as a member of the FHLB of New York, is required to acquire and hold shares of capital stock in the FHLB of New York in an amount at least equal to the greater of 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year or 1/20 of its advances (borrowings) from the FHLB of New York. The Bank was in compliance with this requirement with an investment in the capital stock of the FHLB of New York at December 31, -87- 94 1995, of $3.1 million. Any advances from a FHLB must be secured by specified types of collateral, and all long-term advances may be obtained only for the purpose of providing funds for residential housing finance. The FHLBs are required to provide funds for the resolution of insolvent thrifts and to contribute funds for affordable housing programs. These requirements could reduce the amount of earnings that the FHLBs can pay as dividends to their members and could also result in the FHLBs imposing a higher rate of interest on advances to their members. The FHLB of New York paid dividends on the capital stock of $115,600 and $74,000 for the six months ended December 31, 1995 and 1994 and $200,000, $204,000 and $281,000 during the years ended June 30, 1995, 1994 and 1993, respectively. If dividends were reduced, or interest on future FHLB advances increased, the Bank's net interest income would likely also be reduced. Further, there can be no assurance that the impact of FDICIA and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") on the FHLBs will not also cause a decrease in the value of the FHLB stock held by the Bank. Federal Reserve System. The Bank is subject to provisions of the FRA and the FRB's regulations pursuant to which depositary institutions may be required to maintain non-interest-earning reserves against their deposit accounts and certain other liabilities. Currently, reserves must be maintained against transaction accounts (primarily NOW and regular checking accounts). The FRB regulations generally require that reserves be maintained in the amount of 3% of the aggregate of transaction accounts up to $52.0 million. The amount of aggregate transaction accounts in excess of $52.0 million are currently subject to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 12%. The FRB regulations currently exempt $4.3 million of otherwise reservable balances from the reserve requirements, which exemption is adjusted by the FRB at the end of each year. The Bank is in compliance with the foregoing reserve requirements. Because required reserves must be maintained in the form of either vault cash, a non-interest-bearing account at a Federal Reserve Bank, or a pass-through account as defined by the FRB, the effect of this reserve requirement is to reduce the Bank's interest-earning assets. The balances maintained to meet the reserve requirements imposed by the FRB may be used to satisfy liquidity requirements imposed by the OTS. FHLB System members are also authorized to borrow from the Federal Reserve "discount window," but FRB regulations require such institutions to exhaust all FHLB sources before borrowing from a Federal Reserve Bank. REGULATION OF HOLDING COMPANY The Company, if utilized, will be a non-diversified unitary savings association holding company within the meaning of HOLA, as amended. As such, the Company will be required to register with the OTS and will be subject to OTS regulations, examinations, supervision and reporting requirements. In addition, the OTS has enforcement authority over the Company and its non-savings association subsidiaries, if any. Among other things, this authority permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the financial safety, soundness, or stability of a subsidiary savings association. HOLA prohibits a savings association holding company, directly or indirectly, or through one or more subsidiaries, from acquiring another savings association or holding company thereof, without prior written approval of the OTS; acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings association, a non-subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by HOLA; or acquiring or retaining control of a depository institution that is not insured by the FDIC. In evaluating an application by a holding company to acquire a savings association, the OTS must consider the financial and managerial resources and future prospects of the company and savings association involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community, and competitive factors. As a unitary savings association holding company, the Company generally will not be restricted under existing laws as to the types of business activities in which it may engage, provided that the Bank continues to satisfy the QTL test. See "--Regulation of Federal Savings Associations--QTL Test" for a discussion of the QTL requirements. Upon any non-supervisory acquisition by the Company of another savings association -88- 95 or savings bank that meets the QTL test and is deemed to be a savings association by the OTS and that will be held as a separate subsidiary, the Company would become a multiple savings association holding company and would be subject to limitations on the types of business activities in which it could engage. HOLA limits the activities of a multiple savings association holding company and its non-insured association subsidiaries primarily to activities permissible for bank holding companies under Section 4(c)(8) of the BHC Act, subject to the prior approval of the OTS, and to other activities authorized by OTS regulation. The OTS is prohibited from approving any acquisition that would result in a multiple savings association holding company controlling savings associations in more than one state, subject to two exceptions: an acquisition of a savings association in another state (a) in a supervisory transaction, and (b) pursuant to authority under the laws of the state of the association to be acquired that specifically permit such acquisitions. The conditions imposed upon interstate acquisitions by those states that have enacted authorizing legislation vary. Some states impose conditions of reciprocity, which have the effect of requiring that the laws of both the state in which the acquiring holding company is located (as determined by the location of its subsidiary savings association) and the state in which the association to be acquired is located, have each enacted legislation allowing its savings associations to be acquired by out-of-state holding companies on the condition that the laws of the other state authorize such transactions on terms no more restrictive than those imposed on the acquiror by the state of the target association. Some of these states also impose regional limitations, which restrict such acquisitions to states within a defined geographic region. Other states allow full nationwide banking without any condition of reciprocity. Some states do not authorize interstate acquisitions of savings associations. Transactions between the Bank and the Company and its other subsidiaries would be subject to various conditions and limitations. See "--Regulation of Federal Savings Associations--Transactions with Related Parties." The Bank would have to give 30-days written notice to the OTS prior to any declaration of the payment of any dividends or other capital distributions to the Company. See "--Regulation of Federal Savings Associations--Limitation on Capital Distributions." FEDERAL SECURITIES LAWS The Company has filed with the SEC a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), for the registration of the Common Stock to be issued pursuant to the Conversion. Upon completion of the Conversion, the Company's Common Stock will be registered with the SEC under the Exchange Act. The Company will then be subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act. The registration under the Securities Act of shares of the Common Stock to be issued in the Conversion does not cover the resale of such shares. Shares of the Common Stock purchased by persons who are not affiliates of the Company may be resold without registration. Shares purchased by an affiliate of the Company will be subject to the resale restrictions of Rule 144 under the Securities Act. If the Company meets the current public information requirements of Rule 144 under the Securities Act, each affiliate of the Company who complies with the other conditions of Rule 144 (including those that require the affiliate's sale to be aggregated with those of certain other persons) would be able to sell in the public market, without registration, a number of shares not to exceed, in any three-month period, the greater of (a) 1% of the outstanding shares of the Company or (b) the average weekly volume of trading in such shares during the preceding four calendar weeks. Provision may be made in the future by the Company to permit affiliates to have their shares registered for sale under the Securities Act under certain circumstances. In the event that the holding company form of organization is not utilized, the shares of the Bank's common stock to be issued and sold in the Conversion are exempt from registration under Section 3(a)(5) of the Securities Act. Prior to the sale of all shares of its common stock, the Bank will register its capital stock under Section 12(g) of the Exchange Act. Upon such registration, the proxy rules, tender offer rules, insider trading restrictions, annual and periodic reporting and other requirements of the Exchange Act will also be -89- 96 applicable to the Bank but under the jurisdiction of the OTS. The Bank is required by the OTS to maintain said registration for a period of at least three years following Conversion. The Bank will, however, register with and report to the OTS and not to the SEC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Bank's net income is dependent primarily on its net interest income, which is the difference between interest income earned on its loan and investment and mortgage-backed securities portfolios and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. The Bank has undertaken a restructuring of its balance sheet and is now placing primary emphasis on its whole loan portfolio through direct lending, as well as the purchase of whole loans. As a result of this effort, the loan portfolio is expected to substantially increase as a percentage of total assets. Therefore, future earnings for the Bank will be derived more from direct lending and loan purchase activities than from investing in securities. The Bank's net income is also affected by the generation of non-interest income, such as loan fees and service charges, as well as gains on sales of securities held for sale. In addition, net income is affected by the level of the provision for loan losses, as well as operating expenses. The Bank is also continuing its strategy of growth by leveraging its strong capital position through increased average borrowings to fund increases in average interest-earning assets. The operations of the Bank and the entire thrift industry are significantly affected by prevailing economic conditions, competition and the monetary and fiscal policies of governmental agencies. Lending activities are influenced by the demand for and supply of housing, competition among lenders, the level of interest rates and the availability of funds. Deposit flow and costs of funds are influenced by prevailing market rates of interest, primarily on competing investments, account maturities, and the levels of personal income and savings nationwide. ASSET/LIABILITY MANAGEMENT Net interest income, the primary component of Carver's net income, is determined by the difference or "spread" between the yield earned on the Bank's interest-earning assets and the rates paid on its interest-bearing liabilities and the relative amounts of such assets and liabilities. Because Carver's interest-bearing liabilities consist primarily of shorter term deposit accounts, the Bank's interest rate spread can be adversely affected by changes in general interest rates if its interest-earning assets are not sufficiently sensitive to changes in interest rates. Management has sought to reduce the Bank's exposure to changes in interest rates by more closely matching the effective maturities and repricing periods of its interest-earning assets and interest-bearing liabilities through a variety of strategies, including the origination and purchase of adjustable-rate loans for its portfolio, investment in adjustable-rate and shorter-term mortgage-backed securities, and the sale of substantially all long-term fixed-rate loans originated into the secondary market. Carver has also managed interest rate risk through the origination and purchase of loans, primarily with adjustable interest rates, and management of its investment and mortgage-backed securities portfolios. During fiscal year 1995, the Bank substantially increased its portfolio of adjustable-rate and short duration mortgage-backed securities. Funding for these purchases came from the proceeds from the Bank's initial public offering of its common stock and from additional borrowings in the form of reverse repurchase agreements and short-term advances from the Federal Home Loan Bank ("FHLB") of New York. During fiscal year 1996, the Bank's loan portfolio increased by $34.1 million, or 70.47%. The growth in the mortgage portfolio was funded by internal deposit growth and funding from FHLB advances. Under SFAS 115, in connection with a one time opportunity permitted by the Financial Accounting Standards Board and regulatory agencies, the Bank reclassified $25.2 million of mortgage-backed securities from held-to-maturity -90- 97 to available-for-sale in December 1995 in order to increase the flexibility of the Bank's balance sheet to meet increased need for future loan originations and purchases. INTEREST RATE SENSITIVITY ANALYSIS The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate sensitive" and by monitoring an institution's interest rate sensitivity "gap." An asset or liability is said to be interest rate-sensitive within a specific period if it will mature or reprice within that period. The interest rate sensitivity gap is defined as the difference between the amount of interest-earning assets maturing or repricing within a specific period of time and the amount of interest-bearing liabilities repricing within that same time period. A gap is considered positive when the amount of rate-sensitive assets exceeds the amount of rate-sensitive liabilities and is considered negative when the amount of interest rate sensitive liabilities exceed the amount of rate-sensitive assets. Generally, during a period of falling interest rates a negative gap could result in an increase in net interest income, while a positive gap could adversely affect net interest income, and during a period of rising interest rates a negative gap could adversely affect net interest income, while a positive gap could result in an increase in net interest income. As illustrated below, Carver had a positive one-year gap equal to 28.41% of total rate-sensitive assets at March 31, 1996, as a result of which its net interest income could be adversely affected by falling interest rates, and positively affected by rising interest rates. The following table sets forth information regarding the projected maturities, prepayments and repricing of the major rate-sensitive asset and liability categories of Carver as of March 31, 1996. Maturity and repricing dates have been projected by applying the assumptions set forth below to contractual maturity and repricing dates. The information presented in the following table is derived from data incorporated in "Schedule CMR: Consolidated Maturity and Rate," which is part of the Bank's quarterly reports filed with the Office of Thrift Supervision ("OTS"). The repricing and other assumptions are not necessarily representative of the Bank's actual results. Classifications of items in the table below are different from those presented in other tables and the financial statements and accompanying notes included herein and do not reflect non-performing Loans.

• ------------ (1) Includes securities available-for-sale. The preceding table was prepared utilizing certain assumptions regarding prepayment and decay rates as determined by the OTS for savings associations nationwide as of March 31, 1995. While management does -91- 98 not believe that these assumptions will be materially different from Carver's actual experience, the actual interest rate sensitivity of the Bank's assets and liabilities could vary significantly from the information set forth in the table due to market and other factors. The following assumptions were used: (i) adjustable-rate first mortgage loans will prepay at the rate of 6% per year and (ii) fixed-rate first mortgage will prepay annually as follows:

In addition, it is assumed that fixed maturity deposits are not withdrawn prior to maturity, transaction accounts will decay at a rate of 37% in the first year and passbook accounts will decay at a rate of 17% in the first year, and money market accounts will reflect a 79% decay rate in year one. Certain shortcomings are inherent in the method of analysis presented in the table above. Although certain assets and liabilities may have similar maturity or periods of repricing, they may react in different degrees to changes in the market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate mortgages, generally have features which restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayments and early withdrawal levels would likely deviate significantly from those assumed in calculating the table. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. Virtually all of the adjustable-rate loans in the Bank's portfolio contain conditions which restrict the periodic change in interest rate. The ratio of cumulative gap to total rate sensitive assets for the first year increased from positive 25.76% at March 31, 1995 to positive 28.41% at the end of March 31, 1996. The adjustable-rate assets accounts for 67% of the Bank's total interest-sensitive assets as at March 31, 1996. AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES The following table sets forth certain information relating to the Bank's average interest-earning assets and average interest-bearing liabilities and reflects the average yield on assets and the average cost of liabilities for the years indicated. Such yields and costs are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods shown. Average balances are derived from average month-end balances, except for federal funds which are derived from daily balances. Management does not believe that the use of average monthly balances instead of average daily balances on all other accounts has caused any material difference in the information presented. The table also presents information for the years indicated with respect to the difference between the weighted average yield earned on interest-earning assets and the weighted average rate paid on interest-bearing liabilities, or "interest rate spread," which savings institutions have traditionally used as an indicator of profitability. Another indicator of an institution's net interest income is its "net interest margin," which is its net interest income divided by the average balance of interest-earning assets. Net interest income is affected by the interest rate spread and by the relative amounts of interest-earning assets and interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. -92- 99

• ---------------- (1) Includes non-accrual loans (2) Includes FHLB stock and fair value of investments available-for-sale of $72.6 million at March 31, 1996. (3) Includes fair value of mortgage-backed securities available-for-sale of $41.7 million at March 31, 1996. (4) Demand deposit accounts (DDA) are non-interest bearing liabilities. -93- 100 RATE/VOLUME ANALYSIS The following table sets forth information regarding the extent to which changes in interest rates and changes in volume of interest related assets and liabilities have affected Carver's interest income and expense during the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided for changes attributable to (i) changes in volume (changes in volume multiplied by new rate), (ii) changes in rates (change in rate multiplied by new volume), and (iii) total change. Changes in rate/volume (changes in rate multiplied by the changes in volume) are allocated proportionately between changes in rate and changes in volume.

• -------------- (1) Includes securities available-for-sale. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1996 AND 1995 The Bank's total assets decreased by $305,000, or .09% from $367.9 million at March 31, 1995 to $367.6 million at March 31, 1996. The decrease in assets was not significant. The Bank's portfolio of mortgage-backed securities available-for-sale increased $22.0 million, or 111.1%, to $41.7 million at March 31, 1996 from $19.7 million at March 31, 1994 and its portfolio of mortgage-backed securities held-to-maturity decreased $50.0 million, or 27.6%, to $131.1 million at March 31, 1996 from $181.1 million at March 31, 1995. The reason for change in those two portfolios was mainly due to a transfer of $25.2 million of mortgage-backed securities from the held-to-maturity portfolio to the available-for-sale portfolio as allowed by FASB 115. See "-- Asset Liability Management." Investment securities held-to-maturity decreased $9.1 million, or 50.45%, to $8.9 million at March 31, 1996 from $18.0 million at March 31, 1995. This decrease in investment was due to call back of bonds of $9 million. The Bank's securities available-for-sale and held-to-maturity consisted primarily of U.S. Government and agency securities and mutual funds invested in similar securities. The Bank's mortgage-backed securities consisted entirely of securities which meet the regulatory definition of non-high risk mortgage securities. The Bank's loans receivable increased to $82.6 million at March 31, 1996 as compared to $48.5 million at March 31, 1995. In fiscal year 1996 Carver purchased $25.9 million of single family loans. -94- 101 The Bank's total liabilities decreased by $268,000, or .08%, from $333.2 million at March 31, 1995 to $332.8 million at March 31, 1996 as the result of decreased borrowings partially offset by increased deposits. At March 31, 1996, the Bank's FHLB of New York advances were $25.4 million, a decrease of $37.0 million, or 59.29%, as compared to advances of $62.4 million at March 31, 1995. Securities sold under agreements to repurchase increased $28.8 million, or 158.41%, to $47.0 million at March 31, 1996 from $18.2 million at March 31, 1995. The Bank used the principal payments of securities to decrease the borrowing in order to reduce the cost of fund. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1995 AND 1994 The Bank's total assets increased by $59.5 million, or 19.3%, from $308.5 million at March 31, 1994 to $368.0 million at March 31, 1995. The increase in assets was principally due to significant increases in the Bank's portfolios of securities available-for-sale and mortgage-backed and investment securities held-to-maturity. The Bank's portfolio of securities available-for-sale increased $21.8 million, or 30.4%, to $93.3 million at March 31, 1995 from $71.6 million at March 31, 1994 and its portfolio of mortgage-backed securities held-to-maturity increased $27.3 million, or 17.7%, to $181.1 million at March 31, 1995 from $153.8 million at March 31, 1994. Investment securities held-to-maturity increased $6.0 million, or 50.1%, to $18.0 million at March 31, 1995 from $12.0 million at March 31, 1994. The Bank's loans receivable decreased to $48.5 million at March 31, 1995 as compared to $51.0 million at March 31, 1994. The Bank increased its portfolios of securities and mortgage-backed securities in order to expand its earning asset base and increase net interest income. The increase in earning assets was funded with the proceeds from the sale of 2,314,375 shares of Common Stock in the Conversion and from the proceeds from additional borrowings. The increase in the securities available-for-sale and held-to-maturity consisted primarily of U.S. Government and agency securities and mutual funds invested in similar securities. The additional mortgage-backed securities consisted entirely of securities which meet the regulatory definition of non high-risk mortgage securities. With the capital received from the Conversion, the Bank has the capacity for additional asset growth funded with borrowings. The Bank's total liabilities increased by $38.8 million, or 13.2%, from $294.3 million at March 31, 1994 to $333.2 million at March 31, 1995 as the result of increased borrowings in the form of advances from the FHLB of New York and repurchase agreements. At March 31, 1995, the Bank's FHLB of New York advances were $62.4 million, an increase of $32.0 million, or 105.3%, as compared to advances of $30.4 million at March 31, 1994. Securities sold under agreements to repurchase increased $8.7 million, or 90.9%, to $18.2 million at March 31, 1995 from $9.5 million at March 31, 1994. The Bank used these increases in FHLB advances and repurchase agreements to fund its increase in investment and mortgage-backed securities held-to-maturity and securities available-for-sale. The increase in borrowings offset a decline in deposits of $4.0 million, or 1.6%, to $248.5 million at March 31, 1995 from $252.5 million at March 31, 1994. The Bank attributes the decline in deposits to competition from other investment alternatives during a period of generally rising rates and the purchase of Common Stock by depositors in the Conversion. COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1996 AND 1995 NET INCOME Net income for the year ended March 31, 1996, decreased by $92,000, or 10.88%, to $743,000 from $845,000 for the year ended March 31, 1995. The decline in net income resulted primarily from an increase in non-interest expense. During fiscal year 1996, Carver invested substantially in improving the Bank's infrastructure. These investments encompassed upgrading technology, increasing lending department staff, expanding marketing efforts, and re-opening the Bank's headquarters which had been destroyed by fire. The Bank also incurred increased legal cost in defending the class action suit brought by the shareholders which was dismissed for lack of subject matter jurisdiction, as well as higher legal costs associated with operating as a public company. See "Business of the Bank - -- Legal Proceedings." -95- 102 NET INTEREST INCOME Net interest income before provision for loan losses for the year ended March 31, 1996 increased $716,000, or 7.77%, to $9.9 million as compared to $9.2 million for the year ended March 31, 1995. The Bank's interest rate spread narrowed from 2.74% in fiscal year 1995 to 2.57% in fiscal year and its interest margin decreased from 2.91% in fiscal year 1995 to 2.85% in fiscal year 1996. This decrease in interest rate spread and interest margin resulted from increased cost of deposits and borrowed money which was partially offset by an increase in average yield on interest earning assets. The ratio of the Bank's average interest-earning assets to interest-bearing liabilities improved to 1.07x in fiscal year 1996 from 1.05x in fiscal year 1995. The improvement in this ratio primarily reflects an increase in stockholders' equity and non-interest-bearing liabilities. INTEREST INCOME The Bank's interest income for the fiscal year ended March 31, 1996 increased $3.8 million, or 19.13%, to $23.5 million as compared to $19.8 million for the fiscal year ended March 31, 1995. The increase in interest income resulted primarily from a 50 basis point increase in the average yield on interest-bearing assets, from 6.23% during fiscal year 1995 to 6.73% during fiscal year 1996. The increase in average yield reflects the higher interest rate environment experienced during fiscal year 1996 and, to a lesser extent, the increased percentage of interest-earning assets represented by higher yielding loans during the year. The increase in interest income resulted in part from a $2.1 million, or 20.26%, increase in income from mortgage-backed securities due to increases in the Bank's portfolio of securities held-to-maturity and securities available-for-sale during fiscal year 1996. This increase was primarily due to an increase of $8.2 million, or 4.54%, in the average balance of mortgage-backed securities during fiscal year 1996 as compared to fiscal year 1995. The increase in income from these assets was enhanced by an increase of 84 basis points in yields to 6.49% during fiscal year 1996 from 5.65% during fiscal year 1995. The higher average balance and higher yield in mortgage-backed securities portfolio during fiscal year 1996 reflect the investment of funds from deposit growth. Interest income from loans increased $708,000, or 17.30%, to $4.8 million during fiscal year 1996 as compared to $4.1 million during fiscal year 1995. The increase in income from loans was primarily due to an increase in average balance of $8.5 million, or 17.19%, during fiscal year 1996 as compared to fiscal year 1995 reflecting the implementation of the Bank's strategy of increasing loan originations and purchases. Interest income from investment securities increased $577,000, or 11.03%, to $5.8 million during fiscal year 1996 as compared to $5.2 million for the year ended March 31, 1995. This increase in interest income is due to an increase in the average balance of investment securities of $10.2 million during fiscal year 1996 as compared to fiscal year 1995. The average yield on investment securities decreased by 8 basis points during fiscal year 1996 to 6.34% as compared to 6.42% during fiscal year 1995. Interest income from federal funds sold increased $436,000, or 162.08%, to $705,000 during fiscal year 1996 as compared to $269,000 during fiscal year 1995. This increase in interest income reflects an increase in the average balance of federal funds sold of $6.2 million, or 108.24%, to $11.9 million during fiscal year 1996 as compared to $5.7 million during fiscal year 1995. The increase in interest income from federal funds sold is in part due to 121 basis points in average yield during fiscal year 1996 as compared to fiscal year 1995. INTEREST EXPENSE Total interest expense increased $3.1 million, or 29.07%, to $13.6 million for fiscal year 1996 as compared to $10.5 million for fiscal year 1995. The increase was attributable to an increase in average interest-bearing liabilities due to an increase in deposits and borrowings. The interest expense on deposits for the year ended March 31, 1996, increased $917,000, or 12.27%, from $7.5 million for the year ended March 31, 1995 to $8.4 million for the year ended March 31, 1996. The increase resulted from a $5.5 million, or 2.23%, increase in the average balance of deposits and a 29 basis point increase in the average cost of deposits, from 3.02% for the year ended March 31, 1995 to 3.31% for fiscal year 1996. The increase in deposit costs is due principally to an increase in higher rate certificate accounts. Interest expense on borrowings for the year ended March 31, 1996, increased $2.1 million, or 70.12%, from $3.1 million for the -96- 103 year ended March 31, 1995 to $5.2 million for the year ended March 31, 1996. The increase resulted from a $19.0 million, or 35.09%, increase in the average balance of borrowings, reflecting the Bank's leveraging strategy, and a 146 basis point increase in the average cost of borrowings, from 5.64% for fiscal year 1995 to 7.10% for fiscal year 1996, due to the impact of the higher interest rate environment experienced during the fiscal year. PROVISION FOR LOAN LOSSES The provision for loan losses decreased by $203,000 from $334,000 for the year ended March 31, 1995, to $131,000 for the year ended March 31, 1996. There were no charge-offs during fiscal year 1996. Recovery of charge-offs amounted to $19,000 during the same period. The charge-offs net of recoveries during fiscal year 1995 amounted to $527,000. The net effect of the provision for loan losses and the net recovery during fiscal year 1996 was an increase of the Bank's total allowance for loan losses from $1.1 million at March 31, 1995 to $1.2 million at March 31, 1996. At March 31, 1996, the allowance for loan losses represented 1.42% of the gross loan portfolio compared to 2.1% at March 31, 1995. In determining its provision for loan losses, management establishes loss allowances on identified problem loans and the remainder of the loan portfolio. See "Business of the Bank -- Asset Quality." NON-INTEREST INCOME Non-interest income for fiscal year 1996 increased $32,000, or 5.62%, to $608,000, from $576,000 for fiscal year 1995, due primarily to an increase in loan fees income. NON-INTEREST EXPENSE Non-interest expense increased $1.1 million, or 14.00%, to $9.1 million for fiscal year 1996 as compared to $7.9 million for fiscal year 1995. During fiscal year 1996 the Bank invested substantially in improving its infrastructure. These investments encompassed upgrading technology, increasing management and lending department staff, expanding marketing efforts, and re-opening the Bank's headquarters which had been destroyed by fire. These investments increased operating expenses for fiscal year 1996. Salaries and employee benefits for fiscal year 1996 increased $408,000, or 13.26%, to $3.5 million from $3.1 million for fiscal year 1995. This increase was due to increases in management and lending department staff, incentive compensation and ESOP expense. Net occupancy expense for fiscal year 1996 increased $123,000, or 14.39%, to $978,000 from $853,000 in fiscal year 1995. Increases in rent, cleaning expense and depreciation of leasehold expenses account for the increase in occupancy expense. Advertising expense for fiscal year 1996 increased $105,000, or 164.56%, to $168,000 from $64,000 in fiscal year 1995. Carver retained during fiscal year 1996 the services of a marketing company to expand marketing efforts in order to increase origination of loans and deposits for the branches. FDIC insurance premium expense decreased $113,000, or 15.45%, to $618,000 during fiscal year 1996 as compared to $731,000 during fiscal year 1995 due to lower premium rates. Legal expenses during fiscal year 1996 increased $227,000, or 183.35%, to $351,000 from $124,000 during fiscal year 1995. The increase in legal expenses was due mainly to defending the class action law suit brought by certain shareholders as well as higher legal costs associated with operating as a public company. See "Business of the Bank -- Legal Proceedings." Other non-interest expense (not including legal expenses) increased $488,000, or 34.01%, due to increases on a variety of miscellaneous expense categories. INCOME TAX EXPENSE Income tax expense for fiscal year 1996 decreased to $606,000, compared to $674,000 for fiscal year 1995, because of lower earnings before extraordinary income and the cumulative effect of changes in accounting principles. The Bank's effective tax rate remains the same as for fiscal year 1995. -97- 104 COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED MARCH 31, 1995 AND 1994 NET INCOME Net income for the year ended March 31, 1995, decreased by $238,000, or 21.9%, to $845,000 from $1.1 million for the year ended March 31, 1994. The decline in net income, however, resulted primarily from certain non-recurring income during the year ended March 31, 1994. Net income for fiscal year 1994 included $323,000 in income related to an insurance settlement in connection with the involuntary conversion of the Bank's main office building as the result of an electrical fire and $252,000 in income attributable to the cumulative effect of a change in accounting principle related to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Income before extraordinary income and cumulative effect of change in accounting principle for the year ended March 31, 1995 increased $337,000, or 66.3%, to $845,000 as compared to $508,000 for the year ended March 31, 1994. This increase was attributable to an increase in net interest income which more than offset a decline in non-interest income and increases in non-interest expense and income taxes. NET INTEREST INCOME Net interest income before provision for loan losses for the year ended March 31, 1995 increased $1.9 million, or 26.3%, to $9.2 million as compared to $7.3 million for the year ended March 31, 1994. The Bank's interest rate spread widened from 2.38% in fiscal year 1994 to 2.74% in fiscal year 1995 and its net interest margin increased from 2.43% in fiscal year 1994 to 2.91% in fiscal year 1995. This increase in the interest rate spread and net interest margin resulted from deposits repricing upward at a slower rate than interest rates on interest-earning assets. The Bank's net interest income was aided by an improvement in the ratio of the Bank's average interest-earning assets to interest-bearing liabilities to 1.05x in fiscal year 1995 from 1.02x in fiscal year 1994. The improvement in this ratio primarily reflects an increase in stockholders' equity and non-interest-bearing liabilities. Although the Bank's ratio of interest-earning assets to interest-bearing liabilities may be adversely impacted by its planned construction of a new office building which will increase its level of non-earning assets, it is anticipated that this effect will be substantially mitigated by the continued deployment of Conversion proceeds into interest-earning assets. INTEREST INCOME The Bank's interest income for the fiscal year ended March 31, 1995 increased $2.3 million, or 13.1%, to $19.8 million as compared to $17.5 million for the fiscal year ended March 31, 1994. The increase in interest income resulted primarily from a 40 basis point increase in the average yield on interest-bearing assets, from 5.83% during fiscal year 1994 to 6.23% during fiscal year 1995. The increase in average yield reflects the higher interest rate environment during fiscal year 1995. The Bank also experienced a $17.0 million, or 5.7%, increase in the average balance of interest-earning assets, principally as a result of the Bank's investment of the proceeds from the Conversion and additional borrowings The increase in interest income resulted in part from a $3.0 million, or 130.2%, increase in income from investments and other interest-earning assets due to substantial increases in the Bank's portfolio of securities held-to-maturity and securities available-for-sale during fiscal year 1995. This increase was primarily due to an increase of $36.8 million, or 82.3%, in the average balance of investment securities during fiscal year 1995 as compared to fiscal year 1994. The increase in income from these assets was enhanced by an increase of 133 basis points in yields to 6.42% during fiscal year 1995 from 5.09% during fiscal year 1994. The higher average balance and higher yield in the investment securities portfolio during fiscal year 1995 reflect investment of the net proceeds from the Conversion and additional borrowings and the upward adjustment of adjustable-rate securities. Interest income from federal funds sold increased $87,000, or 47.8%, to $269,000 for fiscal year 1995 from $182,000 for fiscal year 1994. This increase resulted from a 181 basis point increase in the average rate earned which offset a $576,000, or 9.1%, decrease in the average balance of federal funds sold during fiscal year 1995. The increases in interest income from these assets offset declines in interest income from loans receivable and mortgage-backed securities. Interest earned on loans declined -98- 105 $466,000, or 10.2%, to $4.0 million for fiscal year 1995 compared to $4.6 million for fiscal year 1994 due to the repayment of higher yielding adjustable-rate loans including certain loans which had been purchased at a premium and the downward repricing of adjustable-rate loans in portfolio whose rate adjustments tend to lag the market. The declines are reflected in a decrease of $4.1 million, or 7.7%, in the average balance of loans outstanding and a 23 basis point decrease in the average yield on loans from 8.48% for fiscal year 1994 to 8.25% for fiscal year 1995. Interest income from mortgage-backed securities declined $293,000, or 2.8%, to $10.2 million for fiscal year 1995 compared to $10.5 million for fiscal year 1994, primarily due to a $15.1 million, or 7.7%, decrease in the average balance of mortgage-backed securities in fiscal year 1995 as a result of the Bank's sale of certain securities in the latter part of fiscal year 1994 as part of a portfolio restructuring. The decline in average mortgage-backed securities offset an increase of 29 basis points in the average yield of such securities from 5.36% in 1994 to 5.65% in 1995. INTEREST EXPENSE The increase was attributable to an increase in average interest-bearing liabilities primarily due to an increase in borrowings. Interest expense on deposits for the year ended March 31, 1995, decreased $450,000, or 5.7%, from $7.9 million for the year ended March 31, 1994 to $7.5 million for the year ended March 31, 1995. The decrease resulted from a $2.5 million, or 1.0%, decrease in the average balance of interest-bearing deposits and a 14 basis point reduction in the average cost of deposits, from 3.16% for the year ended March 31, 1994 to 3.02% for fiscal year 1995. The reduction in deposit costs is due principally to a decline in higher rate certificate and money market deposit accounts. Interest expense on borrowings for the year ended March 31, 1995 increased $815,000, or 36.3%, from $2.2 million for the year ended March 31, 1994 to $3.0 million for the year ended March 31, 1995. The increase resulted from a $9.6 million, or 21.4%, increase in the average balance of borrowings and a 62 basis point increase in the average cost of borrowings, from 5.02% for fiscal year 1994 to 5.64% for fiscal year 1995. The provision for loan losses increased by $315,000 from $19,000 for the year ended March 31, 1994, to $334,000 for the year ended March 31, 1995. Charge-offs net of recoveries during fiscal year 1995 totaled $527,000 as compared to $348,000 during fiscal year 1994. Charge-offs during fiscal year 1995 related to the write-down of one commercial real estate loan in which the Bank has a participation interest. The Bank's total allowance for loan losses decreased to $1.1 million at March 31, 1995 from $1.3 million at March 31, 1994 and equaled 2.1% of the gross loan portfolio compared to 2.4% at March 31, 1994. In determining its provision for loan losses, management establishes loss allowances on identified problem loans and the remainder of the loan portfolio. NON-INTEREST INCOME Non-interest income for fiscal year 1995 decreased $1.1 million, or 66.0%, to $576,000, from $1.7 million for fiscal year 1994. The decrease was due to the $1.1 million in gains on sales of investments which the Bank recognized during fiscal year 1994 compared to no such gains during fiscal year 1995. The Bank realized a $1.1 million gain from the sale of $126.9 million in mortgage-backed and investment securities during fiscal year 1994 to restructure the Bank's portfolio. The sale also helped to reduce interest rate risk by reducing the duration of the investment and mortgage-backed securities portfolios. Non-interest income was further reduced by a $37,000 write-down of investment securities compared to a $5,000 write-down in fiscal year 1994. These write-downs are related to the Bank's investment in a service corporation which is in liquidation. The absence of gains on sale of investments during fiscal year 1995 offset an increase of $58,000, or 13.5%, in other non-interest income due to higher deposit service charges as a result of a change in the Bank's fee structure. NON-INTEREST EXPENSE Non-interest expense increased by $92,000, or 1.2%, to $7.9 million for fiscal year 1995 as compared to $7.8 million for fiscal year 1994. The increase was primarily due to a provision for loss on other assets which offset declines in expenses relating to the amortization of intangibles, occupancy and equipment -99- 106 expenses and losses on foreclosed real estate. The provision for loss on other assets related to the Bank's funds held by Nationar which the New York Banking Department placed in receivership in February 1995. Amortization expense declined $293,000, or 54.8%, due to the amortization during fiscal year 1994 of the goodwill remaining from its 1982 acquisition of another financial institution. Net occupancy and equipment expenses declined $107,000, or 6.4%. Such expenses were higher during fiscal year 1994 due to certain relocation and maintenance costs. The Bank's loss on foreclosed real estate declined $125,000, or 78.6%, due to reduced foreclosure activity. Federal deposit insurance premium expense increased $66,000, or 9.9%, due to a credit given during fiscal year 1994 for the Bank's payments into the FSLIC secondary reserve. Other non-interest expense increased $330,000, or 26.9%, due to increases on a variety of miscellaneous expense categories. INCOME TAX EXPENSE Income taxes for fiscal year 1995 increased to $674,000 compared to $613,000 for fiscal year 1994 because of higher earnings before extraordinary income and the cumulative effect of change in accounting principle. The Bank's effective tax rate, however, declined to 44.4% from 54.7% for the prior year period primarily as the result of decline in nondeductible intangible expenses. EXTRAORDINARY INCOME During fiscal year 1994, the Bank recognized $322,000 in extraordinary income, net of income taxes of $284,000. The extraordinary income related to an insurance settlement in connection with an electrical fire at its main office that destroyed the building. The Bank received $909,000 of a $1,028,000 settlement which resulted in a gross gain on involuntary disposition of $606,000. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES During fiscal year 1994, the Bank adopted SFAS No. 109 "Accounting for Income Taxes" which requires the use of the asset and liability method in accounting for income taxes rather than the deferred method used previously. Accordingly, the Bank established deferred tax assets and liabilities for the temporary differences between the financial reporting basis of the Bank's assets and liabilities at enacted tax rates expected to be in effect when such amounts are settled or realized. The cumulative effect of this accounting change resulted in the recognition of $252,000 in additional income during fiscal year 1994. LIQUIDITY AND CAPITAL RESOURCES The Bank's primary sources of funds are deposits, FHLB advances, and proceeds from principal and interest payments on loans and mortgage-backed securities and investment securities. While maturities and scheduled amortization of loans and investments are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by changes in general interest rates, economic conditions and competition. The Bank is required to maintain an average daily balance of liquid assets and short term liquid assets as a percentage of net withdrawable deposit accounts plus short-term borrowings as defined by OTS regulations. The minimum required liquidity and short-term liquidity ratios are currently 5% and 1%, respectively. The Bank's liquidity ratios were 33.00% and 38.93% at March 31, 1996 and 1995, respectively. The Bank's most liquid assets are cash and short-term investments including mutual funds. The levels of these assets are dependent on the Bank's operating, financing, lending and investing activities during any given period. At March 31, 1996 and 1995, assets qualifying for short-term liquidity, including cash and short-term investments, totaled $85.8 million and $87.5 million, respectively. The primary investment activity of the Bank is the origination and purchase of loans and, to a lesser extent, purchase of investment and mortgage-backed securities. During fiscal year 1996 the Bank purchased $26.3 million of whole loan mortgages and originated $13.4 million in mortgage and other loans. During fiscal year 1996 no securities were purchased. During fiscal year 1995 the Bank purchased $50.4 million in -100- 107 mortgage-backed securities and originated $11.3 million in loans. During fiscal years 1996 and 1995, the Bank received $27.5 million and $22.2 million, respectively, in principal payments. During fiscal year 1996 there was a cash flow of $9 million due to call back of government agency bonds. At March 31, 1996, the Bank had outstanding loan commitments of $4.9 million. The Bank financed the construction of its new main building, which was destroyed by fire, for $5.4 million with its own funds. Certificates of deposits which are scheduled to mature in one year or less from March 31, 1996 totaled $46.6 million. Management believes that a significant percentage of such deposits will remain with the Bank. REGULATORY CAPITAL POSITION The Bank must satisfy three capital standards as set by the OTS. These standards include a ratio of core capital to adjusted total assets of 3.0%, a tangible capital standard expressed as 1.5% of total adjusted assets, and a combination of core and "supplementary" capital equal to 8.0% of risk-weighted assets. The risk-based capital standard currently addresses only the credit risk inherent in the assets in a thrift's portfolio; it does not address other risks that thrifts face, such operating, liquidity and interest-rate risks. The OTS recently finalized regulations that add an interest rate risk component to capital requirements under certain circumstances. The Bank does not expect that this regulation will require it to reduce its capital for purposes of determining compliance with its risk-based capital requirement. In addition, the OTS has recently adopted regulations that impose certain restrictions on savings associations that have a total risk-based capital ratio that is less than 8.0%, a ratio of Tier 1 capital (or core capital) to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less than 4.0% (or 3.0% if the institution receives the highest rating under the OTS examination rating system). See "Regulation and Supervision -- Regulation of Federal Savings Associations -- Capital Requirements." The Bank presently exceeds all capital requirements as currently promulgated. At March 31, 1996, the Bank had tangible, core, Tier 1 to risk-weighted assets, and risk-based capital ratios of 9.13%, 9.46%, 27.82% and 28.06%, respectively. The following table reconciles the Bank's stockholders' equity at March 31, 1996, under generally accepted accounting principles to regulatory capital requirements:

IMPACT OF INFLATION AND CHANGING PRICES The financial statements and accompanying notes appearing elsewhere herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position -101- 108 and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Bank's operations. Unlike most industrial companies, nearly all the assets and liabilities of the Bank are monetary in nature. As a result, interest rates have a greater impact on the Bank's performance than do the effects of the general level of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services. IMPACT OF NEW ACCOUNTING STANDARDS In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a Loan." SFAS 114 generally would require all creditors to account for impaired loans, except those loans that are accounted for at fair value or at the lower of cost or fair value, at the present value of the expected future cash flows discounted at the loan"s effective interest rate. SFAS 114 also provides that impaired loans should not be included in real estate owned for financial reporting purposes, but rather should be included in the loan portfolio. SFAS 114 is effective for fiscal years beginning after December 15, 1994. In October 1994, the FASB amended certain provisions of SFAS 114 via the issuance of Statement of Financial Accounting Standards No. 118 ("SFAS 118"), "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS 118 amends SFAS 114 by eliminating provisions describing how a creditor should report income on an impaired loan and increasing disclosure requirements as to information on recorded investments in certain impaired loans and how a creditor recognizes related interest income. The effective date of SFAS 118 is the same as for SFAS 114. SFAS 114, as amended by SFAS 118, when adopted on April 1, 1995, did not have a material adverse effect on the Bank's financial condition or results of operation. POSSIBLE IMPACT OF PROPOSED LEGISLATION Insurance of Deposit Accounts. The FDI Act requires that the BIF and the SAIF funds each be recapitalized until reserves are at least 1.25% of the deposits insured by that fund. After a fund reached the 1.25% reserve ratio, the assessment rates for that fund could be reduced. The FDIC has reported that the BIF reached the required reserve ratio during May 1995. As a result of the recapitalization of the BIF, the FDIC reduced BIF-assessment rates. The FDIC initially reduced the BIF assessment rates, effective June 1, 1995, to a range of 0.04% to 0.27% of deposits. Having subsequently determined that the BIF had sufficient reserves in excess of the required 1.25% ratio, the FDIC reduced the BIF- assessment rate for "well capitalized" institutions without any significant supervisory concerns to the statutory minimum of $2,000 annually beginning with the first half of 1996, and the rates for other BIF-insured institutions will range from 0.03% to 0.27% of deposits. The FDIC has reported that, under current law and reasonably optimistic financial projections, the SAIF is not expected to be recapitalized until 2001. SAIF reserves have not grown as quickly as the BIF reserves due to a number of factors, including the fact that a significant portion of SAIF assessments have been and are currently being used to make payments on FICO bonds. Accordingly, the FDIC has determined that SAIF-insured institutions should continue to pay assessments at the current SAIF assessment rates, which range from 0.23% of deposits to 0.31% of deposits. The Bank's assessment rate for the first half of 1996 is 0.23% of deposits. The resulting disparity in deposit insurance assessments rates between the SAIF members and the BIF members is likely to provide institutions paying only the BIF assessments with certain competitive advantages in the pricing of loans and deposits, and in lowered operating costs, pending any legislative action to remedy the disparity. Congress has considered proposed legislation to address these issues. The proposed Budget Act, which was approved by the Congress but vetoed by the President, included provisions that focused on a recapitalization of the SAIF. Under the provisions of the Budget Act, all SAIF-member institutions would have paid a special assessment to recapitalize the SAIF, and the assessment base for the payments on the FICO bonds would have been expanded to include the deposits of both BIF- and -102- 109 SAIF-insured institutions. The amount of the special assessment required to recapitalize the SAIF was then estimated to be approximately 80 basis points of the SAIF-assessable deposits. This estimate of the special assessment was less than the special assessment of 85 to 90 basis points that had been previously estimated. The special assessment would have been imposed as of the first business day of January 1996 or on such other date prescribed by the FDIC not later than 60 days after enactment of the Budget Act, based on the amount of SAIF deposits on March 31, 1995. The Budget Act also provided for the merger of the BIF and SAIF on January 1, 1998, with such merger being conditioned upon the prior elimination of the thrift charter. Congressional leaders had also agreed that Congress should consider and act upon separate legislation to eliminate the thrift charter as early as possible in 1996. If adopted, such legislation would require that the Bank, as a federal savings bank, convert to a bank charter. The veto of the Budget Act by the President was not based on the above described provisions of the Budget Act, and the federal banking regulators continue to seek a legislative solution for the recapitalization of the SAIF. In February 1996, representatives of the FDIC, the OTS and the Treasury Department stated to Congress that, unless Congress adopts legislation to strengthen the SAIF, SAIF's current problems could result in an erosion of the SAIF deposit base, could cause a default on the FICO bonds, and could leave the SAIF unable to meet its obligations to insured depositors. If enacted by Congress, legislation to recapitalize the SAIF as proposed in the Budget Act would have the effect of reducing the capital of SAIF member institutions by the after-tax cost of the special SAIF assessment, plus any related additional tax liabilities. The legislation would also have the effect of reducing any differential that may otherwise be required in the assessment rates for the BIF and SAIF. Management cannot predict whether the above legislation or any other legislative proposal will be enacted as described above or, if enacted, the amount of any special SAIF assessment, whether ongoing SAIF premiums will be reduced to a level equal to that of BIF premiums or whether, if thrifts are required to convert to a bank charter, there will be any relief from the additional tax liabilities that would be incurred upon the recapture of their bad debt reserves. It also cannot be predicted whether some other legislative action will be taken to address the BIF/SAIF disparity and what consequences such action could have for SAIF members. A significant increase in SAIF insurance premiums, either absolutely or relative to BIF premiums or a significant one-time fee to recapitalize the SAIF could have an adverse effect on the operating expenses and results of operations of the Bank. Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or the OTS. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance. Bad Debt Reserves. Under section 593 of the Code, thrift institutions such as the Bank, which meet certain definitional tests, primarily relating to their assets and the nature of their business, are permitted to establish a tax reserve for bad debts and to make annual additions thereto, which additions may, within specified limitations, be deducted in arriving at their taxable income. The Bank's deduction with respect to "qualifying loans," which are generally loans secured by certain interests in real property, may currently be computed using an amount based on the Bank's actual loss experience (the "Experience Method"), or a percentage equal to 8.0% of the Bank's taxable income (the "PTI Method"), computed without regard to this deduction and with additional modifications and reduced by the amount of any permitted addition to the non-qualifying reserve. Similar deductions for additions to the Bank's bad debt reserve are permitted under the New York State Bank Franchise Tax and the New York City Banking Corporation Tax; however, for purposes of these taxes, the effective allowable percentage under the PTI method is 32% rather than 8%. -103- 110 Under pending legislative proposals, section 593 of the Code would be amended and the Bank would be unable to make additions to its tax bad debt reserve, would be permitted to deduct bad debts only as they occur and would additionally be required to recapture (that is, take into income) over a six-year period, beginning with the Bank's taxable year beginning on April 1, 1996, the excess of the balance of its bad debt reserves (other than the supplemental reserve) as of March 31, 1996 over the balance of such reserves as of March 31, 1988, or over a lesser amount if the Bank's loan portfolio has decreased since March 31, 1988. However, such recapture requirements would be suspended for each of two successive taxable years beginning April 1, 1996 in which the Bank originates a minimum amount of certain residential loans based upon the average of the principal amounts of such loans made by the Bank during its six taxable years preceding April 1, 1996. In addition, if section 593 of the Code is so amended, the Bank may be required for New York State and New York City tax purposes to include in its entire net income the excess of its New York State and New York City reserves for losses on qualifying real property loans over its reserve for losses on such loans maintained for federal income tax purposes (the "Excess Reserves"). Accordingly, if the pending legislative proposals are enacted in their present form, unless further legislation is adopted in New York, the Bank may be required to take its Excess Reserves into income in computing its New York State and City taxes for its taxable year beginning April 1, 1996. Any such federal and New York State and City tax liability resulting from the Bank's recapture of its bad debt reserves, however, should not adversely affect the Bank's results of operations. Generally Accepted Accounting Principles have not required that the difference resulting from the 1987 New York State and New York City bad debt deduction in excess of the federal bad debt deduction be reflected on the financial statements. MANAGEMENT OF BANCORP DIRECTORS The Board of Directors of Bancorp currently consists of the four Continuing Directors of Carver and the three directors who are nominated for re-election at the Annual Meeting. The directors of Bancorp are divided into three classes, with one class to be elected each year at the annual meeting of stockholders of Bancorp. Directors elected at each annual meeting will serve for a term of three years and until their successors are duly elected and qualified. Approval of the Plan of Reorganization by the holders of Carver Common Stock at the Annual Meeting will be deemed to be approval of such persons as the directors of Bancorp without further action and without changes in classes or terms. The names of the directors of Bancorp and their terms are set forth below. There are no arrangements or understandings between Bancorp and any person pursuant to which such person was elected as a director.

-104- 111 EXECUTIVE OFFICERS The executive officers of Bancorp are: Thomas L. Clark, Jr., President and Chief Executive Officer; Biswarup Mukherjee, Executive Vice President and Chief Financial Officer; Howard R. Dabney, Vice President and Chief Lending Officer; Raymond L. Bruce, Vice President and Corporate Counsel; and Margaret R. Lewis, Corporate Secretary and Personnel Officer. COMPENSATION It is expected that until such time as the officers and directors of Carver devote significant time to the separate management of Bancorp's affairs, which is not expected to occur until Bancorp becomes actively involved in additional businesses, no separate compensation will be paid for their services to Bancorp. However, Bancorp may determine that such compensation is appropriate in the future and may at such time enter into employment contracts with certain key executive officers. See "Management of Carver -- Compensation and Employee Benefit Plans." EMPLOYEE BENEFIT PLANS As the directors, officers and employees of Bancorp will not initially be compensated by Bancorp but will continue to serve and be compensated by Carver, no separate benefit plans for directors, officers and employees of Bancorp are anticipated at this time. Carver will continue to maintain its other benefit programs. See "Proposal 1 -- Election of Directors -- Certain Employee Benefit Plans and Employment Agreements." MANAGEMENT OF CARVER DIRECTORS For information with respect to nominees for election as directors of the Bank at the Annual Meeting and the other directors of the Bank, including their age, business experience, compensation paid by the Bank, stock ownership, and service on committees of the Board of Directors, see "Proposal 1 -- Election of Directors." EXECUTIVE OFFICERS The Reorganization will not result in any change of the officers of Carver. The age at April 30, 1996 and position held with the Bank of each person currently serving as an executive officer of Carver is set forth below. In addition, a brief biography of each individual is provided.

-105- 112 THOMAS L. CLARK, Jr., is currently President and Chief Executive Officer, a position he assumed on February 1, 1995. Mr. Clark is also a member of the Bank's Board of Directors. Prior to assuming his current position, Mr. Clark was employed by the New York State Banking Department from 1976 until 1995 and, from 1987 until 1995, served as Deputy Superintendent of Banks for New York State and as secretary of the New York State Banking Board. From 1970 until 1976, Mr. Clark was employed by Buffalo Savings Bank in various capacities. Mr. Clark is the founder and president of African-American Men of Westchester, Inc. In addition, Mr. Clark was recently elected Vice Chairman of the American League of Financial Institutions, the national trade association representing minority savings institutions, serves as Vice Chairman of the Community Bankers Association of New York State's Community Reinvestment Committee and is a member of the Advisory Board of Small Business Development Centers of New York State. BISWARUP MUKHERJEE is the Executive Vice President and Chief Financial Officer. Presently, he also performs the function of Chief Operating Officer. Mr. Mukherjee joined the Bank in March 1987 as Vice President and Chief Financial officer and was promoted to Executive Vice President in September 1992. Mr. Mukherjee worked for other savings and loan associations as vice president and Controller. He has 24 years experience in the thrift industry. He holds masters degrees in Accounting and Finance. He is also an Associate Member of the Chartered Institute of Management Accountants in England. HOWARD R. DABNEY is Vice President and Chief Lending Officer of the Bank, positions he has held since joining the Bank in 1982. Mr. Dabney currently serves on the board of directors of the Jamaica Service Program for Older Adults, on the advisory board of Bridge Street Community Development Center and on the board of directors of the Counseling Center for Human Development. He also serves on committees for the Brooklyn Navy Yard Development Corporation and the Consortium for Community Development. MARGARET R. LEWIS joined the Bank in 1960 and is presently Corporate Secretary and Personnel Officer. She formerly served on the board of directors of the Institute of Financial Education and the Women's Association of Savings Institutions, formerly the Women's Association of Savings and Loan Institutions. Ms. Lewis currently serves as a member of the Job Services Employment Committee of the New York State Department of Labor for the Harlem Area, and on the Committee on Human Resources Management of the Community Bankers Association of New York State. RAYMOND L. BRUCE, ESQ. is Vice President and General Counsel and oversees the bank's litigation, contracts, compliance and other legal concerns. Prior to joining Carver in April of 1995, Mr. Bruce was an Assistant Counsel at the New York State Banking Department (from 1992 to 1993), which is responsible for regulating New York State-chartered banking organizations. From 1988 to 1992, Mr. Bruce served as Counsel both to Assemblyman Herman D. Farrell, Jr. (then Chairman to the Assembly Banks Committee) and to the New York State Assembly Banks Committee. There, he was responsible for the planning, development and management of New York State legislation which addressed an assortment of critical issues in the banking industry. COMPENSATION AND EMPLOYEE BENEFIT PLANS For a discussion of the compensation paid to certain executive officers of Carver, employment agreements entered into with certain of Carver's officers and a description of the material benefit plans and programs with respect to Carver's executive officers, see "Proposal 1 -- Election of Directors -- Compensation Committee Report on Executive Compensation," "-- Summary Compensation Table," "-- Certain Employee Benefit Plans and Employment Agreements." -106- 113 OTHER MATTERS As of the date of this Proxy-Statement Prospectus, the Board of Directors knows of no business which will be presented for consideration at the Annual Meeting other than as stated in the Notice of Annual Meeting of Stockholders. If, however, other matters are properly brought before the Annual Meeting, it is the intention of the Board of Directors to direct the vote of the shares represented by proxy on such matters in accordance with their best judgment. PROPOSALS FOR 1997 ANNUAL MEETING Any stockholder wishing to have a proposal considered for inclusion in Bancorp's proxy statement and form of proxy relating to the 1997 Annual Meeting of stockholders must, in addition to other applicable requirements, set forth such proposal in writing and file it with the Corporate Secretary of Bancorp on or before March 31, 1997. In the event the Reorganization is not consummated, any such proposal must be set forth in writing and filed with the Corporate Secretary of Carver on or before March 31, 1997. FINANCIAL STATEMENTS A copy of the Annual Report containing financial statements at March 31, 1996 and March 31, 1995, prepared in conformity with generally accepted accounting principles, accompanies this Proxy Statement-Prospectus. The consolidated financial statements have been audited by Mitchell & Titus, LLP Co. whose report thereon appears in the Annual Report. An additional copy of the Annual Report will be furnished without charge to stockholders upon request. The Bank is required to file an annual report on Form 10-K for its fiscal year ended March 31, 1996 with the OTS. Stockholders may obtain, free of charge, a copy of such annual report (excluding exhibits) by writing to Raymond L. Bruce, Carver Federal Savings Bank, 75 West 125th Street, New York, New York 10027-4512. TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. By Order of the Board of Directors Margaret R. Lewis Corporate Secretary New York, New York June ___, 1996 -107- 114 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

F-1 115 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

--------------------------------------------- (1) Net income divided by average total assets. (2) Net income divided by average total equity. (3) Combined weighted average interest rate earned less combined weighted average interest rate cost. (4) Net interest income divided by average interest-earning assets. (5) Non-interest expenses less loss on foreclosed real estate, divided by average total assets. (6) Total equity divided by assets at period end. (7) Net interest income divided by non-interest expenses less loss on foreclosed real estate. (8) Non-performing assets consist of non-accrual loans, accruing loans 90 days or more past due and property acquired in settlement of loans. F-35 116 MITCHELL & TITUS, LLP INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders Carver Federal Savings Bank We have audited the accompanying consolidated statements of financial condition of Carver Federal Savings Bank (the "Bank") and subsidiaries as of March 31, 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year ended March 31, 1996. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Carver Federal Savings Bank and Subsidiaries as of March 31, 1996, and the results of their operations and cash flows for the year ended March 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 1 to consolidated financial statements, the Bank's method of accounting for income taxes, as of March 31, 1994, conform with Statement of Financial Accounting Standards No. 109 and its method of accounting for certain debt and equity investments, as of March 31, 1994, conform with Statement of Financial Accounting Standards No. 115. May 31, 1996 New York, New York. F-2 117 To The Board of Directors and Stockholders Carver Federal Savings Bank We have audited the accompanying consolidated statement of financial condition of Carver Federal Savings Bank (the "Bank") and subsidiary as of March 31, 1995 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the two-year period ended March 31, 1995. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to in the second preceding paragraph present fairly, in all material respects, the financial position of Carver Federal Savings Bank and Subsidiary as of March 31, 1995 and the results of their operations and cash flows for each of the years in the two-year period ended March 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 1 to consolidated financial statements, the Bank changed its method of accounting for income taxes, as of April 1, 1993, to conform with Statement of Financial Accounting Standards No. 109 and its method of accounting for certain debt and equity investments, at March 31, 1994, to conform to Statement of Financial Accounting Standards No. 115. /s/ Radics & Co., LLC --------------------------------------- Radics & Co., LLC (formerly Stephen P. Radics & Co.) May 12, 1995 F-3 118 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

-------------------------------------------- See notes to consolidated financial statements. F-4 119 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

----------------------- (1) Carver Federal Savings Bank converted to stock form on October 24, 1994. (2) Historical net income per common share from October 24, 1994 (date of conversion) to March 31, 1995 was $0.17. See notes to consolidated financial statements. F-5 120

See notes to consolidated financial statements. F-6 121 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements. F-7 122 CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

See notes to consolidated financial statements. F-8 123 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION The consolidated financial statements include the accounts of the Bank and its wholly owned subsidiaries, C.F.S.B. Realty Corp. and C.F.S.B. Credit Corp. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the period then ended. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near-term relate to prepayment assumptions on mortgage-backed securities, the determination of the allowance for loan losses and the valuation of real estate owned. Management believes that prepayment assumptions on mortgage-backed securities are appropriate, the allowance for loan losses is adequate and real estate owned is properly valued. While management uses available information to recognize losses on loans and real estate owned, future additions to the allowance for loan losses or future write downs of real estate owned may be necessary based on changes in economic conditions in the Bank's market area. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses and real estate owned valuations. Such agencies may require the Bank to recognize additions to the allowance for loan losses or additional write downs of real estate owned based on their judgments about information available to them at the time of their examination. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and amounts due from depository institutions and federal funds sold. Generally, federal funds sold are sold for one-day periods. INVESTMENT AND MORTGAGE-BACKED SECURITIES In May 1993, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity Securities." SFAS 115 generally requires that debt and equity securities that have readily determinable fair values be carried at fair value unless they are classified as held to maturity. Securities can be classified as held to maturity and carried at amortized cost only if the reporting entity has a positive intent and ability to hold those securities to maturity. If not classified as held to maturity, such securities must be classified as trading securities or securities available for sale. Unrealized holding gains or losses for securities available for sale are to be excluded from earnings and reported net of deferred income taxes as a separate component of retained earnings. Unrealized holding gains and losses for trading securities are to be included in earnings. The Bank, as permitted, adopted SFAS 115 as of March 31, 1994. Upon adoption, the Bank reclassified $52,419,000 of securities held for sale, $2,071,000 of investment securities and $17,712,000 of mortgage-backed securities as available for sale and, accordingly, recorded an unrealized gain, net of deferred income taxes, of $330,765 as a separate component of retained earnings. At December 30, 1995, the Bank reclassified $25,892,000 of investment securities held to maturity, to securities available for sale , as permitted under a one time relaxation of SFAS No. 115. On February 17, 1994, the Bank entered into a four year interest rate protection agreement for a notional amount of $20,000,000 as a hedge against possible losses in the securities available for sale portfolio. The interest rate protection agreement, which is in effect until January 10, 1998, is indexed to the three-month London Inter-Bank Offered Rate ("LIBOR") with a strike rate of 5.5%. The $410,000 paid for the contract is treated as a premium and is included in the investment securities available for sale portfolio. The premium is amortized over the term of the contract on the straight-line basis. Contractual payments earned, which totalled $102,500 for the year ended March 31, 1996, are treated as yield adjustments on the hedged securities. At March 31, 1996, the three-month LIBOR stood at 5.4727%. Investment and mortgage-backed securities held to maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts using the level-yield method over the remaining period until maturity. Gains or losses on sales of securities of all classifications are recognized on the specific identification method. F-9 124 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LOANS RECEIVABLE Loans receivable are carried at unpaid principal balances plus unamortized premiums, less the allowance for loan losses and deferred loan fees and discounts. The Bank defers loan origination fees and certain direct loan origination costs and accretes such amounts as an adjustment of yield over the contractual lives of the related loans by use of the interest method. Premiums and discounts on loans purchased are amortized and accreted, respectively, as an adjustment of yield over the contractual lives of the related loans by use of the interest method. Loans are placed on non-accrual status when they are past due three months or more as to contractual obligations. When a loan is placed on non-accrual status, any interest accrued but not received is reversed against interest income. A non-accrual loan is restored to accrual status when principal and interest payments become less than three months past due. ALLOWANCE FOR LOAN LOSSES An allowance for loan losses is maintained at a level considered adequate to absorb future loan losses. Management of the Bank, in determining the allowance for loan losses, considers the risks inherent in its loan portfolio and changes in the nature and volume of its loan activities, along with the general economic and real estate market conditions. The Bank maintains a loan review system which allows for a periodic review of its loan portfolio and the early identification of potential problem loans. Such system takes into consideration, among other things, delinquency status, size of loans, type of collateral and financial condition of the borrowers. Loan loss allowances are established for problem loans based on a review of such information and/or appraisals of the underlying collateral. On the remainder of its loan portfolio, loan loss allowances are based upon a combination of factors including, but not limited to, actual loan loss experience, composition of loan portfolio, current economic conditions and management's judgment. Although management believes that adequate loan loss allowances have been established, actual losses are dependent upon future events and, as such, further additions to the level of the loan loss allowance may be necessary in the future. CONCENTRATION OF RISK The Bank's real estate and lending activities are concentrated in real estate and loans secured by real estate located in the State of New York. PREMISES AND EQUIPMENT Premises and equipment are comprised of land and construction in progress, at cost, and buildings, building improvements, furnishings and equipment and leasehold improvements, at cost, less accumulated depreciation and amortization. Depreciation and amortization charges are computed using the straight-line method over the following estimated useful lives:

Significant renewals and betterments are charged to the property and equipment account. Maintenance and repairs are charged to expense in the year incurred. REAL ESTATE OWNED Real estate acquired by foreclosure or deed in lieu of foreclosure is recorded at the lower of cost or fair value at the date of acquisition and thereafter carried at the lower of cost or fair value less estimated selling costs. The amounts ultimately recoverable from real estate owned could differ from the net carrying value of these properties because of economic conditions and the current softness in the local real estate market. Costs incurred to improve properties or get them ready for sale are capitalized. Revenues and expenses related to the holding and operating of properties are recognized in operations as earned or incurred. Gain or loss on sale of properties is recognized as incurred. EXCESS OF COST OVER NET ASSETS ACQUIRED In connection with the acquisition of two branches, core deposit premiums paid and other capitalized acquisition costs are being amortized to expense over periods from five to fifteen years using the straight-line method. F-10 125 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS INTEREST-RATE RISK The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with borrowings and other funds, to originate loans secured by real estate and purchase investment and mortgage-backed securities. The potential for interest-rate risk exists as a result of the shorter duration of the Bank's interest-sensitive liabilities compared to the generally longer duration of interest-sensitive assets. In a rising rate environment, liabilities will reprice faster than assets, thereby reducing the market value of long-term assets and net interest income. For this reason, management regularly monitors the maturity structure of the Bank's assets and liabilities in order to measure its level of interest-rate risk and plan for future volatility. INCOME TAXES Federal, state and city income taxes have been provided on the basis of reported income. The amounts reflected on the tax returns differ from these provisions due principally to temporary differences in the treatment of certain items of income and expense for financial statement and income tax reporting purposes. The FASB issued Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", which required that the Bank compute income tax expense and deferred income taxes differently beginning on April 1, 1993. Specifically, SFAS 109 specifies the "liability method" of accounting for income taxes and thus requires that deferred income taxes in the consolidated statement of condition be adjusted each year to reflect the cumulative taxable and deductible temporary differences and net operating loss and tax credit carryforwards at the then existing income tax rates. The new rules also provide that qualified thrift lenders recognize the future tax consequences related to the allowance for loan losses recorded for book purposes and any increase in the bad debt reserve for income tax reporting purposes above that existing at December 31, 1987. The effect of the adoption of SFAS 109, effective April 1, 1993, was to increase retained earnings, net income, and deferred income tax assets by $252,082. The effect on net income is presented separately in the consolidated statement of income as a change in accounting principle. NET INCOME PER COMMON SHARE Net income per common share for the year ended March 31, 1996 is based on net income for the entire year. However, the pro forma net income per common share for the year ended March 31, 1995 is based on net income for the entire year, as if the Bank had converted to stock form (see Note 2) on the first day of the fiscal year, and the weighted average number of common shares outstanding during the period. For the purpose of these calculations, unreleased ESOP shares are not considered to be outstanding. Historical net income per share is calculated based on prorated earnings from October 24, 1994 (the date of conversion) to March 31, 1995. Net income per common share for the year ended March 31, 1994 is not presented as the Bank was a mutual savings Bank and no common stock was outstanding. IMPACT OF NEW ACCOUNTING STANDARDS In May 1993, the FASB issued Statement of Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by Creditors for Impairment of a Loan." SFAS 114 generally would require all creditors to account for impaired loans, except those loans that are accounted for at fair value or at the lower of cost or fair value, at the present value of the expected future cash flows discounted at the loan's effective interest rate. SFAS 114 also provides that in-substance foreclosed loans should not be included in real estate owned for financial reporting purposes, but rather should be included in the loan portfolio. SFAS 114 is effective for fiscal years beginning after December 15, 1994. In October 1994, the FASB amended certain provisions of SFAS 114 via the issuance of Statement of Financial Accounting Standards No. 118 ("SFAS 118"), "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS 118 amends SFAS 114 by eliminating provisions describing how a creditor should report income on an impaired loan and increasing disclosure requirements as to information on recorded investments in certain impaired loans and how a creditor recognizes related interest income. The effective date of SFAS 118 is the same as for SFAS 114. SFAS 114, as amended by SFAS 118, when adopted on April 1, 1995, did not have a material adverse effect on the Bank's consolidated financial condition or results of operations. RECLASSIFICATION Certain amounts for the years ended March 31, 1994 have been reclassified to conform to the current period's presentation. F-11 126 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2. CONVERSION TO STOCK FORM OF OWNERSHIP On October 24, 1994, the Bank issued an initial offering of 2,314,375 shares of common stock (par value $0.01) at a price of $10 per share resulting in net proceeds of $21,519,000. As part of the initial public offering and in order to grant priority to eligible depositors, the Bank established a liquidation account at the time of conversion, in an amount equal to the surplus and reserves of the Bank at September 30, 1994. In the unlikely event of a complete liquidation of the Bank (and only in such event), eligible depositors who continue to maintain accounts shall be entitled to receive a distribution from the liquidation account. The total amount of the liquidation account may be decreased if the balances of eligible deposits decreased as measured on the annual determination dates. The balance of the liquidation account was approximately $6,800,000 and $7,769,000 at March 31, 1996 and 1995, respectively. The Bank may not declare or pay a cash dividend on, or repurchase any of its conversion stock, if the effect thereof would be to cause its net worth to be reduced below either: (i) the amount required for the liquidation account; or (ii) the amount of applicable regulatory capital requirements. F-12 127 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 3. SECURITIES AVAILABLE FOR SALE

Securities in the available for sale portfolio were transferred thereto as of March 31,1994 and 1996 upon the initial adoption of and subsequent relaxation of SFAS 115. There have been no sales from the available for sale portfolio. 4. INVESTMENT SECURITIES HELD TO MATURITY, NET

There were no sales of securities held to maturity during the years ended March 31,1996,1995 and 1994. Proceeds from calls of investment securities held to maturity during the years ended March 31, 1996 and 1995 were $9,000,000 and $2,971,000, respectively. No gains or losses were realized on these calls. There were no sales of investment securities held for sale during the year ended March 31, 1996 and 1995. 128 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY, NET

A summary of gross unrealized gains and losses and estimated fair value follows:

The following is a schedule of final maturities as of March 31,1996:

There were no sales of mortgage-backed securities held to maturity during the years ended March 31,1996,1995 and 1994. 129 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 6. LOANS RECEIVABLE, NET

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

Non-accrual loans consist of loans for which the accrual of interest has been discounted as a result of such loans becoming three months or more delinquent as to principal and/or interest payments. Interest income on non-accrual loans is recorded as received. Restructured loans consist of loans where borrowers have been granted concessions in regards to the terms of their loans due to financial or other difficulties which rendered them unable to service their loans under the original contractual terms. Such loans are performing in accordance with their restructured terms. The balances of non-accrual and restructured loans and their impact in interest income are as follows:

130 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS

The following is a summary of loans to the Bank's directors and officers (and to any associates of such persons), exclusive of loans to any such person which in aggregate did not exceed $60,000:

1. LOANS SERVICING The mortgage loan portfolios serviced for the Federal Home Loan Mortgage Corporation and Federal National Mortgage Association are not included in the accompanying financial statements. The unpaid principal balances of these loans aggregated $4,317,000, $3,911,000 and $1,295,000 at March 31, 1996, 1995 and 1994, respectively. Custodial escrow balances, maintained un connection with the foregoing loan servicing, were approximately $89,000, $136,000 and $138,000 at March 31, 1996, 1995 and 1994, respectively. 8. PREMISES AND EQUIPMENT, NET

In March 1995, the Bank's main office building under construction, was completed and officially opened for business. At this time, construction in progress cost was reclassified to respective line item under premises and equipment. There were no sales held to maturity during the years ended March 31, 1995, 1994 and 1993. Proceeds from calss of investment securities held to maturity during the years ended March 31, 1995 and 1993 were $2,971,000 and $3,142,000, respectively. No gains or losses were realized on these calls. Proceeds from sales of investment securities held for sale during the year ended March 31, 1994 were $34,527,000, resulting in gross gain of $31,000 and gross losses of $83,000. 131 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 9. ACCRUED INTEREST RECEIVABLE, NET

1. EXCESS OF COST OVER ASSETS ACQUIRED, NET

132 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 11. DEPOSITS

The scheduled maturities of certificates of deposits are as follows:

The aggregate amount of certificates of deposit with minimum denominations of $100,000 or more was approximately $9,163,000 and $10,318,000 at March 31, 1996 and 1995, respectively. Interest expense on deposit consists of the following:

133 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 12. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Information concerning borrowings collateralized by securities sold under agreements to repurchase are summarized as follows:

1. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK

At March 31,1996 and 1995, the advances were secured by pledges of the Bank's investment in the capital stock of the Federal Home Loan Bank of New York totalling $3,120,000 and a blanket assignment of the Bank's unpledged qualifying mortgage, motgage-backed securities and investment portifolios. 134 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 14. INCOME TAXES The Bank qualifies as a thrift institution under the provisions of the Internal Revenue Code and is therefore permitted to deduct from taxable income an allowance for bad debts based on the greater of: (1) actual loan losses (the "experience method"); or (2) eight percent of taxable income before such bad debt deduction less certain adjustments (the "percentage of taxable income method"). For the tax years ended December 31,1995 and 1994, the deduction for bad debts was computed using the experience method. For the year ended March 31, 1996, the deductions for bad debt was computed using the percentage method. retained earnings at March 31, 1996, includes approximately $ 4,183,000 of such bad debts, for which federal income taxes have not been provided. If such amount is used for purpose other than bad debts losses, includings distributions in liquidation, it will be subject to federal income tax at the current rate. The components of income taxes are summarized as follows:

The following table presents a reconciliation between the reported income taxes and the federal income taxes which would be computed by applying the normal federal income tax rate of 34% to income before income taxes:

At March 31, 1996, income taxes payable of $379,076 are included in other liabilities. At March 31, 1995, income taxes payable of $79,038 are included in other liabilities. The tax effects of existing temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:

135 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 15. REGULATORY CAPITAL The operations and profitability of the Bank are significantly affected by legislation and the policies of the various regulatory agencies. The Financial Institution Reform, Recovery and Enforcement Act 1989 ("FIRREA"), among other things, increase the capital requirements of all savings institutions and their affilliates and generally expanded the regulatory oversight of savings institutions Deposit Insurance Corpation Improvement Act of 1991 ("FDICIA") imposes increased requirements on the operations of financial institutions that fall below certain capital standards. As required by the FIRREA, the OTS promulgated capital requirements for financial institutions consisting of minimum tangible and core capital ratios of 1.50% and 3.00%, respectively, of the institution's adjusted total assets and a minimum risk-based capital ratio of 8.00% of the institution's risk weighted assets. Although the minimum core capital ratio is 3.00%, the FDICIA stipulates that an institution with less than 4.00% core capital is deemed undercapitalized. At March 31,1996 and 1995, the Bank exceeded all the current capital requirements. The following table sets out the Bank's various regulatory capital catagorized at March 31, 1996 and 1995:

The following table reconciles the Bank's stockholders' equity at March 31, 1996, under generally accepted accounting principles to regulatory capital requirements:

136 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 16. BENEFIT PLANS PENSION PLAN The Bank has a non-contributory defined benefit pension plan covering all eligible employees. The benefits are based on each employee's term of service. The Bank's policy is to fund the plan with contributions which equal the maximum amount deductible for federal income tax purposes. The following table sets forth the plan's funded status:

Net periodic pension cost included the following components:

Significant actuarial assumptions used in determining plan benefits are:

Savings incentive plan The Bank has a savings incentive plan, pursuant to Section 401(k) of Internal Revenue Code, for all eligible employees of the Bank. Employees may elect to save up to 15% of their compensation and may receive a percentage matching contribution from the Bank with respect to 50% of the eliglble employee's contributions up to the maximum allowed by law. Total incentive plan expenses for the years ended March 31, 1996, 1995 and 1994 were $52,700, $51,900, and $62,600, respectively. F-25 137 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 16. BENEFIT PLANS CONTD. DIRECTORS' RETIREMENT PLAN Concurrent with the conversion to the stock form of ownership, the Bank adopted a retirement plan for non-employee directors. The benefits are payable based on the term of service as a director.

The actuarial assumptions used in determining plan benefits include annual fee at 2.80% for both years,and a discount rate of 7.50%, and 8.00%, for the years ended March 31, 1996 and 1995 respectively. The additional minimum liability included as an intangible asset in other assets are $302,320 and $304,314 for the years ended March 31, 1996 and 1995, respectively. F-26 138 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS 17. EMPLOYEE STOCK OWNERSHIP PLAN Effective upon conversion, an ESOP was established for all eligible employees. The ESOP used $1,821,320 in proceeds from a term loan obtained from a third-party institution to purchase 182,132 shares of Bank common stock in the initial public offering. The term loan principal is payable over forty equal quarterly installments through September 2004. Interest on the term loan is payable quarterly, at a rate of 3.00% over the average federal funds rate. Each year, the Bank intends to make discretionary contribtions to the ESOP which will be equal to principal and interest payments required on the term loan less any dividends received by the ESOP on unallocated shares. Shares purchased with the loan proceeds were initially pledged as collateral for the term loan and are held in a suspense account for future allocation among the participants on the basis of compensation, as described by the Plan, in the year of allocation. The activities of the ESOP is accounted for in accordance with Statement of Position 93-6, "Accounting for Employee Stock Ownership Plan", which was issued by the American Institute of Certified Public Accountants in November 1993. Accordingly, the ESOP shares pledged as collateral are reported as unearned ESOP shares in the consolidated statements of financial condition. As shares are committed to be released from collateral, the Bank reports compensation expense equal to the current market price of the shares, and the share become outstanding for net income per common share computations. ESOP compsation expense was $153,295 and 60,291 for the years ended March 31, 1996 and 1995, respectively. The ESOP shares at March 31,1996 were as follows:

F-27 139 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANICAL STATEMENTS 18. COMMITMENTS AND CONTINGENCIES The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing need of its customers. These financial instruments primarily include commitments to exend credit and to sell loans. Those instruments involve, to varying degrees, elements of credit and interest rate in excess of the amount recognized in the statement of financial condition. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies making commitments as it does for on-balance-sheet instruments. The Bank has outstanding various loan commitments as follows:

At March 31,1996, of the $4,905,000 in outstanding commitments to originate mortgage loans, $1,252,000 are at fixed rates within a range of 5.00% to 8.75%, $2,830,000 are for balloon loans, ranging from 5-7 years, whose rates will be set at 1.50%-2.00% above the prime rate at the date of closing and $823,000 are adjustable rate with initial rates ranging from 5.25% to 7.50%. At March 31,1996, undisbursed from approved commerical lines of credit totalled $2,600,000. All such lines are secured, including $2,000,000 in warehouse lines of credit secured by the underlying warehoused mortgages, expired within one year, and carry interest rates that float at from 1.50% to 2.00% above the prime rate. At March 31, 1996, undisbursed funds from approved lines of credit under a homeowners' equity lending program with an interest rate of 1.25% over the prime rate adjusted on a monthly basis amounted to approximately $48,000. Unless they are specifically cancelled by notice from the Bank, these funds represent firm commitments available to the respective borrowers on demand. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition estalbished in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management's credit evaluation of the counterparty. Collateral held consists primarily of residential real estate, but may include income-producing commercial properties. Rentals, including real estate taxes, under long-term operating leases for certain branch offices aggregated approximately $302,000, $269,000 and $299,000 for the years ended March 31, 1996, 1995, and 1994, respectively. As of March 31, 1996, minimum rental commitments under all noncancellable leases with initial or remaining terms of more than one year and expiring through 2011 are as follows:

The Bank also has, in the normal course of business, commitments for services and supplies. Management does not anticipate losses on any of these transactions. F-28 140 18. COMMITMENTS AND CONTINGENCIES CONTD. CARVER FEDERAL SAVINGS BANK AND SUBSIDIARY NOTES TO CONSOLIDATED FINANICAL STATEMENTS On February 6, 1995, the New York State Banking Department (the "Department") took possession of Nationar Trust Company ("Nationar"), a trust company owned by sixty-seven New York savings banks. The Department will manage the business of Nationar untill a suitable buyer is found. As of February 6, 1995, the Bank had invested $1,366,000 in federal funds and $600,000 in certificates of deposit with Nationar. The $1,966,000 of investments with Nationar have been reclassified, net of a $255,580 allowance for estimated losses, to other assets, pending the final resolution of this matter. In addition to such investments, Nationar has made a loan to the ESOP in the amount of $1,821,320, which has been paid down to $1,548,122 at March 31, 1996, and holds as collateral $182,132 shares owned by the ESOP. On September 19, 1995, Carver Federal Savings Bank filed an action for declaratory judgment, for damages for breach of contract, and for breach of contractural trust, against Nationar and Neil Levin, the Superitendent of Banks, in the Supreme Court of New York State, County of New York. When the Superintendent sold Carver Federal Savings Bank's ESOP loan to a third party purchaser, it did not transfer the $1,966,000 in collateral along with the loan. When Nationar failed, the New York State Banking Department did not return $600,000 which was another sum of collateral that Carver placed on deposit with Nationar. The purpose of the lawsuit was to secure the entire return of both $1,366,000 in collateral, and $600,000 deposited with Nationar rather than a portion of it. The Bank believes that it has adequate reserve at 13.0% of the claims, against possible loss of these claims. At a hearing on April 10, 1996, pursuant to the recommendation of the superintendent, the judge in the instant case entered an order directing the return of the $600,000 that had been deposited with Nationar. Since it is expected that the sum of $1,366,000, which is a general creditor claim, will be discounted at 10.0 %, the Board resolved to discontinue the lawsuit. On April 5, 1995, a class action suit was filed against the Bank in federal court alleging that the Offering Circular used in the Bank's conversion to stock form was materially false and misleading. The suit seeks rescission, restitution or unspecified money damages. Bank management believes that the lawsuit is without merit and intends to vigorously defend against the suit. On January 2, 1996, the United States District Court for the Southern District of New York dimsissed the class action encaptioned Dougherty vs. Carver Federal Savings Bank for lack of subject matter jurisdiction. By seperate order on the same date, the court made its ruling applicable to Gomberg vs. Carver Federal Savings Bank and Uminer vs. Carver Federal Savings Bank, two other class actions filed in the Southern District of New York which asserted claims essentially indential to those asserted in the Dougherty suit. The plaintiffs in Dougerty have filed notice in the United States Court of Appeals for the second circuit of their intent to appeal. The case(s) are now pending appeal in the United States Court of Appeal for the Second circuit. In the conduct of the Bank's business, it is also involved in normal litigation matters. In the opinion of management, the ultimate dispoistion of such litigation should not have a material adverse effect on the financial position or results of operations of the Bank. F-29 141 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANICAL STATEMENTS 19. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of a financial instrument is defined as the amount at which the instrument could be exchange in a current transaction between willing parties, other than a forced or liquidation sale. Significant estimations were used by the Bank for the purpose of this disclosure. Estimated fair values have been determined by the Bank using the best available data and estimation methodology suitable for each category of financial instrument. For those loans and deposits with floating interest rates, it is presumed that estimated fair values generally approximate their recorded book balances. The estimation methodologies used and the estimated fair values and carrying values of the Bank's financial instruments are set forth below: Cash and cash equivalents and accrued interest receivable. The carrying amounts for cash and cash equivalents and accrued receivable approximate fair value because they mature in three months or less. Securities The fair values for securities available for sale, mortgage-backed securities held to maturity and investment securities held to maturity are based on quoted market or dealer prices, if available. If quoted market or dealer prices are not available, fair value is estimated using quoted market or dealer prices for similar securities. Loans receivable The fair value of loans receivable is estimated by discounting future cash flows, using current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities of such loans. Deposits The fair value of demand, savings and club accounts is equal to the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated using rates currently offered for deposits of similar remaining maturties. The fair value estimates do not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market. Advances from Federal Home Loan Bank of New York, Securities sold under agreement to repurchase and Other borrowed money The fair values of advances from Federal Home Loan Bank of New York, securities sold under agreement to repurchase and other borrowed money are estimated using the rates currently available to the Bank for debt with similar terms and remaining maturities. F-30 142 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANICAL STATEMENTS 19. FAIR VALUE OF FINANCIAL INSTRUMENTS CONTD. Commitments The fair value of commitments to originate loans is equal to amount of commitment. The carrying amounts and estimated fair values of the Bank's financial instruments at March 31, 1996 and 1995 are as follows:

Limitations The fair value estimates are made at a discrete point in time based on relevant market information about the financial instruments. These estimates do not reflect any premium or discout that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no quoted market value exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, the fair value estimates are based on exisiting on-an-off balance sheet financial istruments without attempting to value anticipatd future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates. Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation metodologies introduces a greater degree of subjectively to these estimated fair values. F-31 143 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. QUARTERLY FINANCIAL DATA (UNAUDITED)

Net income per common share for the quarter ended December 31, 1994 was calculated using the net income for the full quarter. F-32 144 CARVER FEDERAL SAVINGS BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21. SUBSEQUENT EVENT On March 19, 1996, the Board of Directors of Carver Federal Savings Bank ("Bank") resolved to reorganize the Bank into a savings association holding company structure (the "Reorganization") pursuant to an Agreement and Plan of Reorganization ("Plan of Reorganization"). On May 9, 1996, Carver Bancorp, Inc. was incorporated under the General Corporation Law of the State of Delware for the purpose of becoming the holding company for the Bank. The Reorganization will provide greater flexibility to meet the future competitive and financial needs of the Bank. It will also increase flexibility with respect to potential expansion through mergers and acquisitions, which may be funded by the additional equity offerings. A holding company structure will also allow the Board of Directors of Bancorp to repurchase shares of Bancorp common stock and declare dividends in the future. Pursuant to the Plan of Reorganization, as Carver Interim Federal Savings Bank ("Interim"), will be formed in order to facilitate the Reorganization. Interim will be a stock-form savings bank formed under the Rules and Regulations of the Office of Thrift Supervision ("OTS"). Under the Plan of Reorganization, Interim will merge with the Bank, with the Bank as the surviving institution, and all of the outstanding common stock of the Bank (other than shares held by stockholders exercising dissenters' rights, if any) will be converted on a one-to-one basis, for Bancorp's common stock. Thereafter, Interim will cease to exist as a separate entity and the Bank will become a wholly owned subsidiary of Bancorp and will continue its current business and operations as a federally chartered stock savings bank using its current name. The Plan of Reorganization is subject to the approval of the OTS and the Bank's stockholders at the July 29, 1996 Annual Stockholders Meeting. F-33 145 ================================================================================ AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG CARVER FEDERAL SAVINGS BANK, CARVER BANCORP, INC. AND CARVER INTERIM FEDERAL SAVINGS BANK DATED AS OF MAY 21, 1996 ================================================================================ 146 AGREEMENT AND PLAN OF REORGANIZATION This AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), dated as of May 21, 1996, is made by and among CARVER FEDERAL SAVINGS BANK, a stock savings bank organized and existing under the laws of the United States of America and having an office at 75 West 125th Street, New York, New York 10027 ("Carver"), CARVER BANCORP, INC., a corporation organized and existing under the laws of the State of Delaware and having an office at 75 West 125th Street, New York, New York 10027 ("Bancorp") and the incorporator of CARVER INTERIM FEDERAL SAVINGS BANK, Raymond L. Bruce, Esq., having an office at 75 West 125th Street, New York, New York 10027 ("Interim"). W I T N E S S E T H: WHEREAS, as of the date of this Agreement, the authorized capital stock of Carver consists of 6,000,000 shares, of which (i) 5,000,000 shares are common stock of par value of $0.01 per share, of which 2,314,375 shares are issued and outstanding and (ii) 1,000,000 shares are serial preferred stock, of par value $0.01 per share, issuable in classes and series, none of which shares are issued and outstanding. WHEREAS, Bancorp is a business corporation, having been incorporated on May 9, 1996 pursuant to a Certificate of Incorporation filed with the Secretary of State of the State of Delaware and recorded in the Office of the Recorder of Deeds in the County of New Castle on that date. The registered office of Bancorp is located at 1209 Orange Street in the City of Wilmington, County of New Castle. The name of the registered agent at such office is The Corporation Trust Company. As of the date of this Agreement, the authorized capital stock of Bancorp consists of 12,000,000 shares, as follows: (a) 10,000,000 shares are common stock, par value $0.01 per share, of which 100 shares are issued and outstanding to Carver; and (b) 2,000,000 shares are preferred stock, par value $0.01 per share, issuable in classes and series, none of which shares are issued and outstanding. WHEREAS, Interim is a stock savings bank in formation under the Rules and Regulations of the Office of Thrift Supervision, and, upon formation, the authorized capital stock of Interim will consist of 1,000 shares of common stock, par value $0.01 per share, all of which shall be issued to and owned by Bancorp; WHEREAS, the parties are entering into this Agreement in order to set forth the terms and conditions pursuant to which Interim will merge with and into Carver (the "Merger") and, simultaneously therewith, Bancorp will exchange one share of Bancorp common stock for each outstanding share of Carver common stock, and thereby become the holding company for 147 Carver (the "Exchange"). Hereinafter, the Merger and Exchange may be referred to as the "Reorganization;" and WHEREAS, the Reorganization is to be accomplished through the following steps: (a) the formation of Bancorp, incorporated at the direction of Carver for the primary purpose of becoming the sole stockholder of Interim and subsequently becoming the sole stockholder of Carver; (b) the formation of Interim, which shall be wholly owned by Bancorp; (c) the merger of Interim with and into Carver with Carver as the surviving institution; and (d) pursuant to the Merger, (i) all of the issued and outstanding shares of Bancorp Common Stock held by Carver shall be contributed to Bancorp and canceled, (ii) all of the issued and outstanding shares of Carver common stock, subject to the exercise of dissenters' rights as set forth in Section 1.10 below, shall be converted, by operation of law, on a one-for-one basis, into an equal number of issued and outstanding shares of Bancorp common stock; and (iii) all of the issued and outstanding shares of Interim common stock shall be converted, by operation of law, on a one-for-one basis, into an equal number of issued and outstanding shares of Carver common stock (and shall not be further converted into shares of Bancorp common stock), which shall be all of the issued and outstanding shares of Carver common stock, and shall be owned by Bancorp. Subsequent to the Reorganization, all of the issued and outstanding shares of Carver common stock shall be owned by Bancorp, and all of the issued and outstanding shares of Bancorp common stock shall be owned by those non-dissenting stockholders who, prior to the Reorganization, owned shares of Carver common stock. NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, representations and warranties herein contained, the parties hereto do hereby agree as follows: ARTICLE I TERMS 1.1 MERGER. (a) Interim shall be merged with and into Carver under this Agreement, and the separate existence of Interim shall cease. The name of Carver shall be retained by the surviving bank, and the Federal Stock Charter of Carver, as amended, shall be the charter of the surviving bank, except that immediately after the Merger, Carver and Bancorp shall cause the first paragraph of Section 5 of Carver's Federal Stock Charter to be amended in its entirety to read as follows: Section 5. Capital stock. The total number of shares of all classes of the capital stock which the savings bank has authority to issue is 1,000, all of which shall be common stock, par value $0.01 per share. The shares may be issued from time to time as authorized by the board of directors without the approval of its stockholders except as otherwise provided in this Section 5 or to the extent that such approval is required by governing law, rule, or regulation. The consideration for the issuance 2 148 of the shares shall be paid in full before their issuance and shall not be less than the par value. Neither promissory notes nor future services shall constitute payment or part payment for the issuance of shares of the savings bank. The consideration for the shares shall be cash, tangible or intangible property (to the extent direct investment in such property would be permitted), labor or services actually performed for the savings bank, or any combination of the foregoing. In the absence of actual fraud in the transaction, the value of such property, labor, or services, as determined by the board of directors of the savings bank, shall be conclusive. Upon payment of such consideration, such shares shall be deemed to be fully paid and nonassessable. In the case of a stock dividend, that part of the surplus of the savings bank which is transferred to stated capital upon the issuance of shares as a share dividend shall be deemed to be the consideration for their issuance. (b) On the Effective Date (as defined in Article II below), the corporate existence of Carver shall continue and all of the rights, privileges, powers and franchises of Carver and Interim shall be possessed by Carver. All property and assets belonging to each prior to the Merger shall be vested in Carver and shall be thereafter as effectually the property of Carver as they were of the separate and respective Carver and Interim; provided that if at any time any further assignments, assurances in law, instruments of assumption, or any other actions are necessary or desirable to vest or to perfect or confirm of record in Carver the title to and possession of any property, rights, privileges, powers, immunities, franchises and interests of either Carver or Interim, or otherwise to carry out the provisions of this Agreement, the proper officers and directors of the respective Carver and Interim as of the Effective Date shall execute and deliver the same. (c) On the Effective Date, except as otherwise provided by this Agreement or effected by the Merger contemplated hereby, all corporate acts, plans, policies, approvals, and authorizations of Carver, its stockholders, Board of Directors, committees elected or appointed by the Board of Directors, officers and agents, that were valid and effective immediately before the Effective Date, shall be deemed for all purposes to be the acts, plans, policies, approvals and authorizations of the surviving Carver and shall be effective and binding on the surviving Carver as the same were with respect to Carver prior to the Merger. (d) On the Effective Date, the assets, liabilities, reserves and accounts of Carver and Interim shall be taken up on the books of the surviving Carver at the amounts at which they, respectively, shall be carried on the books of said corporations, subject to such adjustments or eliminations of intercompany items as may be applicable in giving effect to the Merger. (f) On the Effective Date, each depositor having a savings account with Carver shall thereafter have a savings account of an equal amount with the surviving Carver. 1.2 CONVERSION OF CARVER COMMON STOCK. Simultaneously with the Merger, all of the issued and outstanding shares of Carver common stock, subject to the exercise of dissenters' rights as set forth in Section 1.10 below, shall be converted, by operation of law, on 3 149 a one-for-one basis, into an equal number of issued and outstanding shares of Bancorp common stock, in accordance with the terms of this Agreement. On the Effective Date, certificates representing shares of Carver common stock shall be deemed to be certificates representing shares of Bancorp common stock, and the holders thereof shall have no further rights in Carver, except in the case of dissenting stockholders, whose certificates of shares of Carver common stock shall represent only the right to receive payment for their shares in cash as set forth in Section 1.10 below. 1.3 MANNER OF EXCHANGING STOCK CERTIFICATES. In connection with the exchange of the issued and outstanding shares of Carver common stock for shares of Bancorp common stock, it shall not be necessary for non-dissenting holders of Carver common stock to exchange their existing certificates of Carver common stock for certificates of Bancorp common stock. On the Effective Date, non-dissenting holders of Carver common stock shall automatically become holders of Bancorp common stock, and their stock certificates shall automatically represent the same number and type of shares of Bancorp common stock. After the Effective Date, as outstanding certificates of Carver common stock are presented for transfer or, upon the request of any holder of certificates of Carver common stock, new certificates of Bancorp shall be issued by the registrar and transfer agent for Carver common stock. Any stock certificate presented for transfer to a name other than that in which the surrendered certificate is registered must be properly endorsed and otherwise in proper form for transfer and accompanied by evidence of payment of any applicable stock transfer or other taxes. 1.4 CONVERSION OF INTERIM COMMON STOCK. On the Effective Date, each share of Interim common stock issued and outstanding immediately prior to the Effective Date shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into, and shall become, one share of Carver common stock so that, from and after the Effective Date, all of the issued and outstanding shares of Carver common stock shall be held by Bancorp. Shares of Carver common stock that were originally Interim common stock shall not be further converted into or exchanged for Bancorp common stock. 1.5 BOARD OF DIRECTORS. Each person serving as a director of Carver on the Effective Date shall continue to serve as such following the Effective Date and until the completion of his term, subject to and in accordance with the provisions of the Bylaws of Carver as in effect on the Effective Date or as thereafter amended. Thereafter, Bancorp, as sole stockholder of Carver, shall elect Carver's Board of Directors. Each person serving as a director of Bancorp on the Effective Date shall continue to serve as such following the Effective Date and until completion of his or her term. Thereafter, the members of Bancorp's Board of Directors shall be elected in accordance with the Bylaws and Certificate of Incorporation of Bancorp. The names, residential addresses and the terms of the seven (7) directors of Carver and of Bancorp are: CLASS I, EXPIRING IN 1996 David R. Jones 297 Prospect Place Brooklyn, New York 11238 4 150 David N. Dinkins 215 East 68th Street - #13D New York, New York 10021 CLASS II, EXPIRING IN 1997 Linda Dunham(1) 117 Kensington Drive Fort Lee, New Jersey 07024 Richard T. Greene 175-40 Murdock Avenue St. Albans, New York 11434 M. Moran Weston, Ph. D. 228 Promenade Circle Heathrow, Florida 32746 CLASS III, EXPIRING IN 1998 Thomas L. Clark, Jr. 65 Kent Road White Plains, New York 10603-3105 Herman Johnson, CPA 33 Westbrook Lane Roosevelt, New York 11575 1.6 OFFICERS AND EMPLOYEES. On the Effective Date, the persons serving as officers and employees of Carver shall, subject to and in accordance with the provisions of the Bylaws of Carver as in effect on the Effective Date or as thereafter amended, continue to hold the same offices and positions in Carver, and the persons serving as officers and employees of Bancorp on the Effective Date shall, subject to and in accordance with the provisions of the Bylaws of Bancorp as in effect on the Effective Date or as thereafter amended, continue to hold the same offices and positions in Bancorp. 1.7 CHARTERS AND BYLAWS. On the Effective Date, and until thereafter amended pursuant to Section l.l(a) above or otherwise, Bancorp shall operate under its Certificate of Incorporation and Bylaws then in effect and Carver shall operate under its Federal Stock Charter and Bylaws then in effect. ________ (1) Pursuant to the Bylaws of Carver Federal Savings Bank (the "Bank"), if the Board of Directors expands its size by appointing an additional director, such director must be put up for election at the next annual meeting of stockholders. To remain consistent with the Bylaws of the Bank, Ms. Dunham will serve as a director until the 1996 Annual Meeting of Stockholders of Bancorp, at which point she will be nominated to serve for a one-year term as a director, expiring in 1997. 5 151 1.8 OFFICES. On the Effective Date, the principal office of Bancorp shall be the same as the principal office of Carver. All of the existing offices of Carver shall initially be continued as offices of the surviving Carver, but may later be eliminated or expanded as the Board of Directors of Carver shall determine. The principal and branch offices of Carver, all located in New York, are: MANHATTAN: 75 West 125th Street (main office) 261 8th Avenue BROOKLYN: 2815 Atlantic Avenue 1281 Fulton Street 1009-1015 Nostrand Avenue QUEENS: 117-02 Guy Brewer Boulevard, Jamaica 115-02 Merrick Boulevard, Jamaica LONG ISLAND: 302 Nassau Road, Roosevelt 1.9 STOCKHOLDER APPROVAL. Carver shall submit this Agreement to its stockholders for approval, in accordance with section 552.13(h) of the Rules and Regulations of the Office of Thrift Supervision (the "OTS"); provided, however, that if necessary or desirable in the judgment of the parties hereto, this Agreement may be substantively amended or terminated by the parties hereto, as a result of comments from regulatory authorities or otherwise, at any time in accordance with the provisions of Section 4.1 of this Agreement. 1.10 DISSENTERS' RIGHTS. Any stockholder of Carver entitled to vote on this Agreement who does not vote in favor of it shall have the right to receive payment from Carver of the fair value of his or her shares of Carver common stock as defined in, and upon compliance with, the conditions set forth herein and in Section 552.14 of the Rules and Regulations of the OTS. Carver shall, not less than 20 days prior to the meeting of Carver stockholders at which this Agreement shall be submitted for approval, give notice to each stockholder of Carver of the right to demand payment of the appraised value of the stockholder's shares. A stockholder intending to enforce such right shall file with Carver, before or at the meeting of Carver stockholders at which this Agreement shall be submitted for approval (but before the stockholders vote on such approval), a writing identifying himself or herself and stating his or her intention to demand appraisal of and payment for his or her shares. Upon 6 152 filing such a notice of a demand of appraisal rights, the stockholder shall thereafter neither be entitled to vote such stock for any purpose nor be entitled to the payment of dividends or other distributions on the stock (except dividends or other distributions payable to, or a vote to be taken by, stockholders of record at a date that is on or prior to the Effective Date), except the right to be paid the fair value of the stockholder's shares. If this Agreement is approved by Carver's stockholders, Carver shall, within 10 days of the Effective Date, give a notice to each stockholder who has filed such a writing. The notice shall (a) state the Effective Date, (b) make a written offer to each such stockholder to pay for the stockholder's shares at a specified price that Carver deems to be the fair value of the shares and (c) inform each such stockholder (i) that, if the stockholder disagrees with the fair value of the shares, the stockholder must petition the OTS within 60 days of the Effective Date and demand that the OTS determine the fair market value of the stockholder's shares, (ii) inform each such stockholder that he or she must submit, within 60 days of the Effective Date, his or her shares of Carver common stock to the transfer agent for Carver for notation thereon that an appraisal and payment has been demanded with respect to such shares and that appraisal proceedings are pending, and (iii) inform each such stockholder that if the stockholder does not, within 60 days of the Effective Date, file such a petition or does not submit his or her stock certificates for such notation, the stockholder will be deemed to have accepted the terms offered under the Reorganization and shall no longer be entitled to appraisal rights. A stockholder may not dissent as to less than all of the shares of Carver common stock, held by the stockholder of record, that the stockholder beneficially owns. All shares acquired by Carver pursuant to this Section 1.10 shall be canceled upon receipt. 1.11 STOCK BASED COMPENSATION PLANS. On the Effective Date, Bancorp shall adopt and assume sponsorship of the Carver Federal Savings Bank Employee Stock Ownership Plan ("ESOP"), the Carver Federal Savings Bank 1996 Stock Option Plan ("Option Plan"), the Carver Federal Savings Bank Management Recognition Plan ("MRP") and the Carver Federal Savings Bank Incentive Compensation Plan ("Incentive Plan"), including all of Carver's obligations with respect to any outstanding options, stock appreciation rights or restricted stock granted pursuant to such plans. All outstanding options to purchase Carver common stock granted pursuant to the Option Plan or the Incentive Plan prior to the Reorganization will become options to purchase the same number of shares of Bancorp common stock with the same terms, conditions and exercise price as the original options granted, all stock appreciation rights with respect to shares of Carver common stock granted pursuant to the Option Plan prior to the Reorganization will become stock appreciation rights with respect to the same number of shares of Bancorp common stock, and all grants of restricted shares of Carver common stock granted pursuant to the MRP or the Incentive Plan prior to the Reorganization will become grants of restricted shares of Bancorp common stock. In addition, all shares of Carver common stock held by the trust established for the ESOP shall be exchanged on a one-for-one basis for Bancorp common stock in accordance with the terms of section 1.2 of this Agreement. ARTICLE II EFFECTIVE DATE The effective date of the Reorganization ("Effective Date") shall be the later of the date of (a) the consummation of the Reorganization or (b) the date specified on the 7 153 endorsement by the Secretary of the OTS of the articles of reorganization with respect to the Reorganization in accordance with section 552.13(j) of the Rules and Regulations of the OTS. ARTICLE III CONDITIONS The obligations of Carver, Interim and Bancorp to consummate the transactions contemplated by this Agreement are expressly subject to the satisfaction of each of the following conditions: (a) The due authorization and delivery of this Agreement by the respective Boards of Directors of Carver and Bancorp, and by the incorporator of Interim at or prior to the Effective Date, which authorizations shall not have been revoked or modified as of the Effective Date; (b) The approval of this Agreement and the transactions contemplated hereby by the OTS in accordance with the OTS Regulations; (c) The approval of the Merger by the OTS in accordance with applicable laws and regulations; (d) The receipt of either: (i) a ruling from the Internal Revenue Service acceptable in form and substance to Carver and its counsel, or (ii) an opinion of Carver's counsel, in either case to the effect that, for federal income tax purposes: (A) No gain or loss will be recognized by stockholders of Carver upon the transfer of their shares of Carver common stock to Bancorp solely in exchange for shares of Bancorp common stock; (B) No gain or loss will be recognized by Bancorp upon its receipt of shares of Carver common stock in exchange for shares of Bancorp common stock; (C) The aggregate basis of the shares of Bancorp common stock to be received by each stockholder of Carver will be the same as the aggregate basis of the shares of Carver common stock exchanged therefor; (D) The holding period of the shares of Bancorp common stock to be received by each stockholder of Carver in the transaction will include the holding period of the shares of Carver common stock exchanged therefor; provided, that 8 154 each such stockholder held such shares of Carver common stock as a capital asset on the Effective Date; and (e) The approval of this Agreement by the holders of at least 50% plus one share of the outstanding shares of Carver common stock entitled to vote thereon; and (f) The procurement of all other consents and approvals and the satisfaction of all other requirements necessary for the consummation of the Reorganization. ARTICLE IV TERMINATION; EXPENSES; AMENDMENT 4.1 AMENDMENT AND TERMINATION. Any term or condition of this Agreement may be amended in whole or in part at any time prior to the Effective Date, whether before or after approval by the stockholders of Carver, to the extent authorized by applicable law, rules and regulations, by an agreement in writing among the parties hereto, executed in the same manner as this Agreement except that, after approval by the stockholders of Carver, this Agreement may not be amended in any respect deemed by the Board of Directors of Carver to be materially adverse to the stockholders of Carver without the approval of such stockholders. This Agreement may be terminated at any time prior to the Effective Date, whether before or after approval by the stockholders of Carver, (a) at the option of the Board of Directors of Carver or Bancorp or the incorporator of Interim if any one or more of the conditions to the obligations of any of them under this Agreement shall not have been satisfied and shall not have been waived at or prior to the Effective Date, (b) at the option of the Board of Directors of Carver for any reason, or (c) by the mutual consent of each of the parties hereto. 4.2 WAIVER. Any of the terms or conditions of this Agreement may be waived at any time by any party that is, or the stockholders of which are, entitled to the benefit of such terms or conditions, except that after approval of this Agreement by the stockholders of Carver, no term or condition shall be waived without the approval of the stockholders of Carver if the Board of Directors of Carver determines that such a waiver would be materially adverse to the stockholders of Carver. 4.3 LIABILITY. In the event of the termination of this Agreement pursuant to this Article IV, this Agreement shall be void and of no further force or effect, and there shall be no liability or obligation of any nature on the part of any of the parties hereto or their respective directors, incorporators, officers, employees or stockholders by reason of this Agreement. 4.4 COSTS AND EXPENSES. Each party shall pay all costs and expenses incurred by it in connection with this Agreement and the transactions contemplated hereby. 9 155 ARTICLE V MISCELLANEOUS 5.1 NOTICES. Any notice, direction, request, demand, waiver or other communication required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or by telecopy, telex or similar mode of transmission or, if mailed, by certified mail, return receipt requested with first class postage prepaid, to the parties at the addresses listed below, or to such other address as any party may, by written notice, specify to the other parties: If to Carver: Carver Federal Savings Bank 75 West 125th Street New York, New York 10027 Attention: Raymond L. Bruce, Vice President and Corporate Counsel If to Bancorp: Carver Bancorp, Inc. c/o Carver Federal Savings Bank 75 West 125th Street New York, New York 10027 Attention: Raymond L. Bruce, Vice President and Corporate Counsel If to Interim: Carver Interim Federal Savings Bank c/o Carver Federal Savings Bank 75 West 125th Street New York, New York 10027 Attention: Raymond L. Bruce, Vice President and Corporate Counsel With a copy to: Kofi Appenteng, Esq. Thacher Proffitt & Wood Two World Trade Center New York, New York 10048 10 156 5.2 GOVERNING LAW. This Agreement shall be construed under and governed by the laws of the State of New York without giving effect to the principles of conflict of laws thereof. 5.3 NO THIRD PARTY BENEFICIARIES. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective stockholders, or any of them, any rights, remedies, obligations or licenses under or by reason of this Agreement or the Reorganization contemplated thereby. 5.4 HEADINGS. The headings of articles and sections contained herein are included solely for convenience of reference. If there is any conflict between such headings and the text of the Agreement, the text shall control. 5.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which when duly executed shall be deemed an original, and such counterparts shall together constitute one and the same instrument. 5.6 SEVERABILITY. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 5.7 GENERAL INTERPRETIVE PRINCIPLES. For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the words of any gender shall include each other gender where appropriate; (b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; (c) references herein to an "Article" or "Section" or other subdivision without reference to a document are to designated an Article, Section or other subdivision of this Agreement; (d) the words "herein," "hereof," "hereto" and other words of similar import refer to this Agreement as a whole and not to any particular provision; and (f) the term "include" or "including" shall mean without limitation by reason of enumeration. 5.8 ENTIRE AGREEMENT AND PARTIES IN INTEREST. This Agreement, including the documents and other writings referred to herein or delivered pursuant hereto, contains the entire agreement and understanding of the parties with respect to their subject matter. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. 11 157 IN WITNESS WHEREOF, Carver, Bancorp and Interim have each caused this Agreement to be executed on their behalf. Attest: CARVER FEDERAL SAVINGS BANK By /s/ Margaret R. Lewis By /s/ Thomas L. Clark, Jr. ------------------------------ ------------------------------------- Margaret R. Lewis Thomas L. Clark, Jr. Corporate Secretary President and Chief Executive Officer Attest: CARVER BANCORP, INC. By /s/ Margaret R. Lewis By /s/ Thomas L. Clark, Jr. ------------------------------ ------------------------------------- Margaret R. Lewis Thomas L. Clark, Jr. Corporate Secretary President and Chief Executive Officer Attest: CARVER INTERIM FEDERAL SAVINGS BANK (stock-form savings bank in formation) By /s/ Margaret R. Lewis By /s/ Raymond L. Bruce, Esq. ------------------------------ ------------------------------------- Margaret R. Lewis Raymond L. Bruce, Esq. Corporate Secretary Vice President and Corporate Counsel 158 APPENDIX B Section 552.14 DISSENTER AND APPRAISAL RIGHTS. (a) Right to demand payment of fair or appraised value. Except as provided in paragraph (b) of this section, any stockholder of a Federal stock association combining in accordance with Section 552.13 of this part shall have the right to demand payment of the fair or appraised value of his stock: Provided, That such stockholder has not voted in favor of the combination and complies with the provisions of paragraph (c) of this section. (b) Exceptions. No stockholder required to accept only qualified consideration for his or stock shall have the right under this section to demand payment of the stock's fair or appraised value, is such stock was listed on a national securities exchange or quoted on the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the meeting at which the combination was acted upon or stockholder action is not required for a combination made pursuant to Section 552.13(h)(2) of this part. "Qualified consideration" means cash, shares of stock of any association or corporation which at the effective date of the combination will be listed on a national securities exchange or quoted on NASDAQ, or any combination of such shares of stock and cash. (c) Procedure (1) Notice. Each constituent Federal stock association shall notify all stockholders entitled to rights under this section, not less than twenty days prior to the meeting at which the combination agreement is to be submitted for stockholder approval, of the right to demand payment of appraised value of shares, and shall include in such notice a copy of this section. Such written notice shall be mailed to stockholders of record and may be part of management's proxy solicitation for such meeting. (2) Demand for appraisal and payment. Each stockholder electing to make a demand under this section shall deliver to the Federal stock association, before voting on the combination, a writing identifying himself or herself and stating his or her intention thereby to demand appraisal of and payment for his or her shares. Such demand must be in addition to and separate from any proxy or vote against the combination by the stockholder. (3) Notification of effective date and written offer. Within ten days after the effective date of the combination, the resulting association shall: (i) Give written notice by mail to stockholders of constituent Federal stock associations who have complied with the provisions of paragraph (c)(2) of this section and have not voted in favor of the combination, of the effective date of the combination; (ii) Make a written offer to each stockholder to pay for dissenting shares at a specified price deemed by the resulting association to be the fair value thereof; and (iii) Inform them that, within sixty days of such date, the respective requirements of paragraphs (c)(5) and (c)(6) of this section (set out in the notice) must be satisfied. The notice and offer shall be accompanied by a balance sheet and statement of income of the association the shares of which the dissenting stockholder holds, for a fiscal year ending not more than sixteen months before the date of notice and offer, together with the latest available interim financial statements. 159 (4) Acceptance of offer. If within sixty days of the effective date of the combination the fair value is agreed upon between the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section, payment therefor shall be made within ninety days of the effective date of the combination. (5) Petition to be filed if offer not accepted. If within sixty days of the effective date of the combination the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section do not agree as to the fair value, then any such stockholder may file a petition with the Office, with a copy by registered or certified mail to the resulting association, demanding a determination of the fair market value of the stock of all such stockholders. A stockholder entitled to file a petition under this section who fails to file such petition within sixty days of the effective date of the combination shall be deemed to have accepted the terms offered under the combination. (6) Stock certificates to be noted. Within sixty days of the effective date of the combination, each stockholder demanding appraisal and payment under this section shall submit to the transfer agent his certificates of stock for notation thereon that an appraisal and payment have been demanded with respect to such stock and that appraisal proceedings are pending. Any stockholder who fails to submit his or her stock certificates for such notation shall no longer be entitled to appraisal rights under this section and shall be deemed to have accepted the terms offered under the combination. (7) Withdrawal of demand. Notwithstanding the foregoing, at any time within sixty days after the effective date of the combination, any stockholder shall have the right to withdraw his or her demand for appraisal and to accept the terms offered upon the combination. (8) Valuation and payment. The Director shall, as he or she may elect, either appoint one or more independent persons or direct appropriate staff of the Office to appraise the shares to determine their fair market value, as of the effective date of the combination, exclusive of any element of value arising from the accomplishment or expectation of the combination. Appropriate staff of the Office shall review and provide an opinion on appraisals prepared by independent persons as to the suitability of the appraisal methodology and the adequacy of the analysis and supportive data. The Director after consideration of the appraisal report and the advice of the appropriate staff (9) Costs and expenses. The costs and expenses of any proceeding under this section may be apportioned and assessed by the Director as he or she may deem equitable against all or some of the parties. In making this determination the Director shall consider whether any party has acted arbitrarily, vexatiously, or not in good faith in respect to the rights provided by this section. (10) Voting and distribution. Any stockholder who has demanded appraisal rights as provided in paragraph c(2) of this section shall thereafter neither be entitled to vote such stock for any purpose nor be entitled to the payment of dividends or other distributions on the stock (except dividends or other distribution payable to, or a vote to be taken by stockholders of record at a date which is on or prior to, the effective date of the combination): Provided, That if any stockholder becomes unentitled to appraisal and payment of appraised value with respect to such stock and accepts or is deemed to have accepted the terms offered upon the combination, such stockholder shall thereupon be entitled to vote and receive the distributions described above. (11) Status. Shares of the resulting association into which shares of the stockholders demanding appraisal rights would have been converted or exchanged, had they assented to the combination, shall have the status of authorized and unissued shares of the resulting association. 160 CERTIFICATE OF INCORPORATION OF CARVER BANCORP, INC. UNDER SECTION 102 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE 161 TABLE OF CONTENTS

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164 CERTIFICATE OF INCORPORATION OF CARVER BANCORP, INC. THE UNDERSIGNED, for the purpose of forming a corporation pursuant to Section 102 of the General Corporation Law of the State of Delaware, does hereby certify that this Certificate of Incorporation of Carver Bancorp, Inc. was duly adopted in accordance with the provisions of Section 102 of the General Corporation Law of the State of Delaware, and further certifies as follows: ARTICLE I NAME The name of the corporation is Carver Bancorp, Inc. (the "Corporation"). ARTICLE II REGISTERED OFFICE AND AGENT The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV CAPITAL STOCK SECTION 1. SHARES, CLASSES AND SERIES AUTHORIZED. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is twelve million (12,000,000) shares, of which two million (2,000,000) shares shall be preferred stock, 165 -2- par value one cent ($.01) per share (the "Preferred Stock"), and ten million (10,000,000) shares shall be common stock, par value one cent ($.01) per share (the "Common Stock"). The Preferred Stock and Common Stock are sometimes hereinafter collectively referred to as the "Capital Stock." SECTION 2. DESIGNATIONS, POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS RELATING TO THE CAPITAL STOCK. The following is a statement of the designations, powers, preferences and rights in respect of the classes of the Capital Stock, and the qualifications, limitations or restrictions thereof, and of the authority with respect thereto expressly vested in the Board of Directors of the Corporation (the "Board of Directors"): (a) Preferred Stock. The Preferred Stock may be issued from time to time in one or more series, the number of shares and any designation of each series and the powers, preferences and rights of the shares of each series, and the qualifications, limitations or restrictions thereof, to be as stated and expressed in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors, subject to the limitations prescribed by law. The Board of Directors in any such resolution or resolutions is expressly authorized to state for each such series: (i) the voting powers, if any, of the holders of stock of such series in addition to any voting rights affirmatively required by law; (ii) the rights of stockholders in respect of dividends, including, without limitation, the rate or rates per annum and the time or times at which (or the formula or other method pursuant to which such rate or rates and such time or times may be determined) and conditions upon which the holders of stock of such series shall be entitled to receive dividends and other distributions, and whether any such dividends shall be cumulative or non-cumulative and, if cumulative, the terms upon which such dividends shall be cumulative; (iii) whether the stock of each such series shall be redeemable by the Corporation at the option of the Corporation or the holder thereof, and, if redeemable, the terms and conditions upon which the stock of such series may be redeemed; (iv) the amount payable and the rights or preferences to which the holders of the stock of such series shall be entitled upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (v) the terms, if any, upon which shares of stock of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or of any other series of the same or any other class or classes, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and 166 -3- (vi) any other designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, so far as they are not inconsistent with the provisions of this Certificate of Incorporation and to the full extent now or hereafter permitted by the laws of the State of Delaware. All shares of the Preferred Stock of any one series shall be identical to each other in all respects, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon, if cumulative, shall be cumulative. Subject to any limitations or restrictions stated in the resolution or resolutions of the Board of Directors originally fixing the number of shares constituting a series, the Board of Directors may by resolution or resolutions likewise adopted increase (but not above the total number of authorized shares of Preferred Stock) or decrease (but not below the number of shares of the series then outstanding) the number of shares of the series subsequent to the issue of shares of that series; and in case the number of shares of any series shall be so decreased, the shares constituting the decrease shall resume that status that they had prior to the adoption of the resolution originally fixing the number of shares constituting such series. (b) Common Stock. All shares of Common Stock shall be identical to each other in every respect. The shares of Common Stock shall entitle the holders thereof to one vote for each share on all matters on which stockholders have the right to vote. The holders of Common Stock shall not be permitted to cumulate their votes for the election of directors. Subject to the preferences, privileges and powers with respect to each class or series of Preferred Stock having any priority over the Common Stock, and the qualifications, limitations or restrictions thereof, the holders of the Common Stock shall have and possess all rights pertaining to the Capital Stock. ARTICLE V LIMITATION ON BENEFICIAL OWNERSHIP OF STOCK SECTION 1. APPLICABILITY OF ARTICLE. The provisions of this Article V shall become effective upon the consummation of the reorganization whereby Carver Bancorp, Inc. will become the holding company for Carver Federal Savings Bank, a savings bank organized under the laws of the United States (the "Bank"). All terms used in this Article V and not otherwise defined herein shall have the meanings ascribed to such terms in Section 3 of Article VIII, below. 167 -4- SECTION 2. PROHIBITIONS RELATING TO BENEFICIAL OWNERSHIP OF VOTING STOCK. No Person (other than the Corporation, any Subsidiary, or any pension, profit-sharing, stock bonus or other compensation plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the Corporation is a member for the benefit of the employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan) shall directly or indirectly acquire or hold the beneficial ownership of more than ten percent (10%) of the issued and outstanding Voting Stock of the Corporation. Any Person so prohibited who directly or indirectly acquires or holds the beneficial ownership of more than ten percent (10%) of the issued and outstanding Voting Stock in violation of this Section 2 shall be subject to the provisions of Sections 3 and 4 of this Article V, below. The Corporation is authorized to refuse to recognize a transfer or attempted transfer of any Voting Stock to any Person who beneficially owns, or who the Corporation believes would become by virtue of such transfer the beneficial owner of, more than ten percent (10%) of the Voting Stock. SECTION 3. EXCESS SHARES. If, notwithstanding the foregoing prohibition, a Person shall, voluntarily or involuntarily, become or attempt to become the purported beneficial owner (the "Purported Owner") of shares of Voting Stock in excess of ten percent (10%) of the issued and outstanding shares of Voting Stock, the number of shares in excess of ten percent (10%) shall be deemed to be "Excess Shares," and the holder thereof shall be entitled to cast one hundredth (1/100) of one vote per share for each Excess Share. The restrictions set forth in this Article V shall be noted conspicuously on all certificates evidencing ownership of Voting Stock. SECTION 4. POWERS OF THE BOARD OF DIRECTORS. (a) The Board of Directors may, to the extent permitted by law, from time to time establish, modify, amend or rescind, by Bylaw or otherwise, regulations and procedures not inconsistent with the express provisions of this Article V for the orderly application, administration and implementation of the provisions of this Article V. Such procedures and regulations shall be kept on file with the Secretary of the Corporation and with the Transfer Agent, shall be made available for inspection by the public and, upon request, shall be mailed to any holder of Voting Stock of the Corporation. (b) When it appears that a particular Person has become a Purported Owner of Excess Shares in violation of Section 2 of this Article V, or of the rules and regulations of the Board of Directors with respect to this Article V, and that the provisions of this Article V require application, interpretation, or construction, then a majority of the directors of the Corporation shall have the power and duty to interpret all of the terms and provisions of this Article V, and to determine on the basis of information known to them after reasonable inquiry all facts necessary to ascertain compliance with this Article V, including, without limitation, (i) the number of shares of Voting Stock beneficially owned by any Person or Purported Owner, (ii) whether a Person or Purported Owner is an Affiliate or Associate of, or is acting in concert 168 -5- with, any other Person or Purported Owner, (iii) whether a Person or Purported Owner has an agreement, arrangement or understanding with any other Person or Purported Owner as to the voting or disposition of any shares of the Voting Stock, (iv) the application of any other definition or operative provision of this Article V to the given facts, or (v) any other matter relating to the applicability or effect of this Article V. The Board of Directors shall have the right to demand that any Person who is reasonably believed to be a Purported Owner of Excess Shares (or who holds of record Voting Stock beneficially owned by any Person reasonably believed to be a Purported Owner in excess of such limit) supply the Corporation with complete information as to (i) the record owner(s) of all shares of Voting Stock beneficially owned by such Person or Purported Owner and (ii) any other factual matter relating to the applicability or effect of this Article V as may reasonably be requested of such Person or Purported Owner. Any applications, interpretations, constructions or any other determinations made by the Board of Directors pursuant to this Article V, in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders and neither the Corporation nor any of its stockholders shall have the right to challenge any such construction, application or determination. SECTION 5. SEVERABILITY. In the event any provision (or portion thereof) of this Article V shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions (or portions thereof) of this Article V shall remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of this Corporation and its stockholders that each such remaining provision (or portion thereof) of this Article V remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, including Purported Owners, if any, notwithstanding any such finding. SECTION 6. EXCLUSIONS. This Article V shall not apply to (a) any offer or sale with a view towards public resale made exclusively by the Corporation to any underwriter or underwriters acting on behalf of the Corporation, or to the selling group acting on such underwriter's or underwriters' behalf, in connection with a public offering of the Common Stock; or (b) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction or reorganization that does not have the effect, directly or indirectly, of changing the beneficial ownership interests of the Corporation's stockholders, other than pursuant to the exercise of any dissenters' appraisal rights, except as a result of immaterial changes due to fractional share adjustments, which changes do not exceed, in the aggregate, one percent (1%) of the issued and outstanding shares of such class of equity or convertible securities. 169 -6- ARTICLE VI BOARD OF DIRECTORS SECTION 1. NUMBER OF DIRECTORS. The number of directors of the Corporation shall be as determined only by resolution of the Board of Directors, but shall not be less than five (5) nor more than fifteen (15). SECTION 2. CLASSIFICATION OF BOARD. Subject to the rights of any holders of any series of Preferred Stock that may be issued by the Corporation pursuant to a resolution or resolutions of the Board of Directors providing for such issuance and subject to the provisions hereof, the directors of the Corporation shall be divided into three classes with respect to term of office, each class to contain, as near as may be possible, one-third of the entire number of the Board, with the terms of office of one class expiring each successive year. One class of directors shall be initially elected for a term expiring at the annual meeting of stockholders to be held in 1996, another class shall be initially elected for a term expiring at the annual meeting of stockholders to be held in 1997, and another class shall be initially elected for a term expiring at the annual meeting of stockholders to be held in 1998. At each annual meeting of stockholders, the successors to the class of directors (other than directors elected by holders of shares of one or more series of Preferred Stock) whose term expires at that time shall be elected by the stockholders to serve until the annual meeting of stockholders held three years next following and until their successors shall be elected and qualified. In the event of any intervening changes in the authorized number of directors (other than directors elected by holders of shares of one or more series of Preferred Stock), only the Board of Directors shall designate the class or classes to which the increases or decreases in directorships shall be apportioned in order more nearly to achieve equality of number of directors among the classes; provided, however, that no such apportionment or redesignation shall shorten the term of any incumbent director. Unless and to the extent that the Bylaws so provide, elections of directors need not be by written ballot. SECTION 3. VACANCIES. Subject to the limitations prescribed by law and this Certificate of Incorporation, all vacancies in the office of director, including vacancies created by newly created directorships resulting from an increase in the number of directors (subject to the provisions of Article VI, Section 5 hereof relating to directors elected by holders of one or more series of Preferred Stock), shall be filled only by a vote of a majority of the directors then holding office, whether or not a quorum, and any director so elected shall serve for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until his successor shall be elected and qualified. SECTION 4. REMOVAL OF DIRECTORS. Any or all of the directors (subject to the provisions of Article VI, Section 5 hereof relating to directors elected by holders of shares of 170 -7- one or more series of Preferred Stock) may be removed at any time, but only for cause, and any such removal shall require the vote, in addition to any vote required by law, of not less than eighty percent (80%) of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote generally in the election of directors at a meeting of stockholders expressly called for that purpose. For purposes of this Section 4, conduct worthy of removal for "cause" shall include (a) conduct as a director of the Corporation or any subsidiary of the Corporation, which conduct involves willful material misconduct, breach of fiduciary duty involving personal pecuniary gain or gross negligence in the performance of duties, (b) conduct, whether or not as a director of the Corporation or a subsidiary of the Corporation, which conduct involves dishonesty or breach of fiduciary duty and is punishable by imprisonment for a term exceeding one year under state or federal law or (c) removal of such person from the Board of Directors of the Bank, if such person is so serving, in accordance with the Federal Stock Charter and Bylaws of the Bank. SECTION 5. DIRECTORS ELECTED BY PREFERRED STOCKHOLDERS. Notwithstanding anything set forth in the Bylaws to the contrary, the qualifications, term of office and provisions governing vacancies, removal and other matters pertaining to directors elected by holders of one or more series of Preferred Stock shall be as set forth in a resolution or resolutions adopted by the Board of Directors setting forth the designations, preferences and rights relating to any such series of Preferred Stock pursuant to Article IV, Section 2 hereof. SECTION 6. EVALUATION OF ACQUISITION PROPOSALS. The Board of Directors of the Corporation, when evaluating any offer to the Corporation or to the stockholders of the Corporation from another party to (a) purchase for cash, or exchange any securities or property for, any outstanding equity securities of the Corporation, (b) merge or consolidate the Corporation with another corporation or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Corporation, shall, in connection with the exercise of its judgment in determining what is in the best interest of the Corporation and its stockholders, give due consideration to the extent permitted by law not only to the price or other consideration being offered, but also to all other relevant factors including, without limitation, the financial and managerial resources and future prospects of the other party, the possible effects on the business of the Corporation and its subsidiaries and on the employees, customers, suppliers and creditors of the Corporation and its subsidiaries, the effects on the communities in which the Corporation's and its subsidiaries' facilities are located and the commitment and ability of the other party to remain faithful to the special mission of the Corporation and its subsidiaries in the communities in which the Corporation and its subsidiaries are located in the tradition begun by Carver Federal Savings Bank. SECTION 7. POWER TO CALL SPECIAL MEETING OF STOCKHOLDERS. Special meetings of stockholders, for any purpose, may be called at any time only by resolution of at least three-fourths of the Directors of the Corporation then in office, by the Chairman of the Board or by the President and Chief Executive Officer. At a special meeting, no business shall be transacted and no corporate action shall be taken other than that stated in the notice of meeting prescribed by the Bylaws of the Corporation. 171 -8- ARTICLE VII ACTION BY STOCKHOLDERS WITHOUT A MEETING Except as otherwise provided for or fixed pursuant to the provisions of Article IV of this Certificate of Incorporation relating to the rights of holders of any series of Preferred Stock, no action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders. ARTICLE VIII CERTAIN BUSINESS COMBINATIONS SECTION 1. HIGHER VOTE REQUIRED FOR CERTAIN BUSINESS COMBINATIONS. In addition to any affirmative vote required by law, by this Certificate of Incorporation, or by the provisions of any series of Preferred Stock that may at the time be outstanding, and except as otherwise expressly provided for in Section 2 of this Article VIII, any Business Combination, as hereinafter defined, shall require the affirmative vote of not less than eighty percent (80%) (to the extent permitted by law, but in no event less than two-thirds) of the total number of votes eligible to be cast by the holders of all outstanding shares of Voting Stock, voting together as a single class (it being understood that for purposes of this Article VIII each share of the Voting Stock shall have the number of votes granted to it pursuant to Article IV and Article V of this Certificate of Incorporation or in any resolution or resolutions of the Board of Directors for issuance of shares of Preferred Stock), together (to the extent permitted by law) with the affirmative vote of at least fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock not beneficially owned by the Interested Stockholder involved or any Affiliate or Associate thereof, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. SECTION 2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of Section 1 of this Article VIII shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law or any other provision of this Certificate of Incorporation, if the Business Combination shall have been approved by a majority of the Disinterested Directors then in office or if all of the conditions specified in the following subsections (a) through (g) are met: (a) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of consideration other than cash to be received per share by holders of 172 -9- Common Stock in such Business Combination shall be at least equal to the higher of the following: (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, soliciting dealers' fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys' fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it (A) within the two year period immediately prior to the Announcement Date, or (B) in the transaction in which it became an Interested Stockholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Citibank, N.A. (or other major bank headquartered in New York City selected by a majority of the Disinterested Directors then in office) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid and the Fair Market Value of any dividends paid, other than in cash, per share of Common Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of Common Stock; or (ii) the Fair Market Value per share of Common Stock on the Announcement Date or on the Determination Date, whichever is higher. (b) The aggregate amount of the cash and the Fair Market Value as of the Consummation Date of consideration other than cash to be received per share by holders of shares of any class or series of outstanding Voting Stock, other than Common Stock, in such Business Combination shall be at least equal to the highest of the following (such requirement being applicable to each such class or series of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of such class or series of Voting Stock): (i) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes, soliciting dealers' fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys' fees) paid by the Interested Stockholder for any shares of such class or series of Voting Stock acquired by it (A) within the two year period immediately prior to the Announcement Date, or (B) in the transaction in which it became an Interested Stockholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of Citibank, N.A. (or other major bank headquartered in New York City selected by a majority of the Disinterested Directors then in office) from time to time in effect in New York City, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid other than in cash, per share of such class or series of Voting Stock from the Determination Date through the Consummation Date in an amount up to but not exceeding the amount of such interest payable per share of such class or series of Voting Stock; 173 -10- (ii) (if applicable) the highest preferential amount per share to which the holders of shares of such class or series of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; or (iii) the Fair Market Value per share of such class or series of Voting Stock on the Announcement Date or on the Determination Date, whichever is higher. (c) The consideration to be received by holders of any particular class or series of outstanding Voting Stock (including Common Stock) in such Business Combination shall be in cash or in the same form as the Interested Stockholder has previously paid for shares of such class or series of Voting Stock. If the Interested Stockholder has paid for shares of any class or series of Voting Stock with varying forms of consideration, the form of consideration for such class or series of Voting Stock in such Business Combination shall be either cash or the form used to acquire the largest number of shares of such class or series of Voting Stock previously acquired by it. (d) The holders of all outstanding shares of Voting Stock not beneficially owned by the Interested Stockholder immediately prior to the Consummation Date shall be entitled to receive in such Business Combination cash or other consideration for their shares in compliance with subsections (a), (b) and (c) of this Section 2. (e) After the Determination Date and prior to the Consummation Date: (i) except as approved by a majority of the Disinterested Directors then in office, there shall have been no failure to declare and pay, or set aside for payment, at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; (ii) there shall have been (A) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Disinterested Directors then in office, and (B) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction that has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Disinterested Directors then in office; and (iii) such Interested Stockholder shall not have become the beneficial owner of any additional shares of Voting Stock except (a) as part of the transaction that results in such Interested Stockholder becoming an Interested Stockholder, (b) as the result of a stock dividend paid by the Corporation or (c) upon the exercise or conversion of securities of the Corporation issued pro rata to all holders of Common Stock which are exercisable for or convertible into shares of Voting Stock. 174 -11- (f) After the Determination Date, the Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately as a stockholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by or through the Corporation or an Affiliate of the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (g) A proxy or information statement describing the proposed Business Combination in accordance with the requirements of the Securities Exchange Act of 1934, as amended, whether or not the Corporation is then subject to such requirements, and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to stockholders of the Corporation at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). The first page of such proxy or information statement shall prominently display the recommendation, if any, that a majority of the Disinterested Directors then in office may choose to make to the holders of Voting Stock regarding the proposed Business Combination. Such proxy or information statement shall also contain, if a majority of the Disinterested Directors then in office so requests, an opinion of a reputable investment banking firm (which firm shall be engaged solely on behalf of the stockholders of the Corporation other than the Interested Stockholder and shall be selected by a majority of the Disinterested Directors then in office, furnished with all information it reasonably requests, and paid a reasonable fee for its services by the Corporation upon the Corporation's receipt of such opinion) as to the fairness (or lack of fairness) of the terms of the proposed Business Combination from the point of view of the holders of Voting Stock other than the Interested Stockholder. SECTION 3. DEFINITIONS. For purposes of this Article VIII, the following terms shall have the following meanings: (a) "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, as in effect on the date of filing by the Secretary of State of the State of Delaware of this Certificate of Incorporation, whether or not the Corporation was then subject to such rule. (b) "Announcement Date" shall mean the date of the first public announcement of the proposal of the Business Combination. (c) A Person shall be deemed the "beneficial owner," or to have "beneficial ownership," of any shares of Voting Stock that: (i) such Person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or 175 -12- (ii) such Person or any or its Affiliates or Associates, directly or indirectly, has (A) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (but a Person shall not be deemed to be the beneficial owner of any Voting Stock solely by reason of an agreement, arrangement or understanding with the Corporation to effect a Business Combination) or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (B) the right to vote, or to direct the vote of, pursuant to any agreement, arrangement or understanding; or (iii) is beneficially owned, directly or indirectly, by any other Person with which such first mentioned Person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock; provided, however, that no director or officer of the Corporation (nor any Affiliate or Associate of any such director or officer) (y) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any Voting Stock of the Corporation beneficially owned by any other such director or officer (or any Affiliate or Associate thereof) or (z) shall be deemed to beneficially own any Voting Stock of the Corporation owned by any pension, profit-sharing, stock bonus or other compensation plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the corporation is a member for the benefit of employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan, not specifically allocated to such Person's personal account. (d) The term "Business Combination" shall mean any transaction that is referred to in any one or more of the following paragraphs (i) through (vi): (i) any merger or consolidation of the Corporation or any Subsidiary (other than a merger pursuant to Section 253 of the General Corporation Law of the State of Delaware) with (A) any Interested Stockholder, or (B) any other entity (whether or not such other entity is itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of any Interested Stockholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value equal to five percent (5%) or more of the total assets of the Corporation or the Subsidiary in question, as of the end of its most recent fiscal year ending prior to the time the determination is being made; or 176 -13- (iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder other than (A) on a pro rata basis to all holders of Voting Stock, (B) in connection with the exercise or conversion of securities issued pro rata that are exercisable for, or convertible into, securities of the Corporation or any Subsidiary of the Corporation or (C) the issuance or transfer of such securities having an aggregate Fair Market Value equal to less than one percent (1%) of the aggregate Fair Market Value of all of the outstanding Capital Stock; or (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class or series of equity or convertible securities of the Corporation or any Subsidiary that is directly or indirectly owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder, except as a result of immaterial changes due to fractional share adjustments, which changes do not exceed, in the aggregate, 1% of the issued and outstanding shares of such class or series of equity or convertible securities; or (vi) the acquisition by the Corporation or a Subsidiary of any securities of an Interested Stockholder or its Affiliates or Associates. (e) "Consummation Date" shall mean the date of the consummation of the Business Combination. (f) "Determination Date" shall mean the date on which the Interested Stockholder became an Interested Stockholder. (g) "Disinterested Director" shall mean any member of the Board of Directors of the Corporation who is not an Affiliate or Associate of, or otherwise affiliated with, the Interested Stockholder and who either was a member of the Board of Directors prior to the Determination Date, or was recommended for election by a majority of the Disinterested Directors in office at the time such director was nominated for election. If there is no Interested Stockholder, each member of the Board of Directors shall be a Disinterested Director. (h) "Fair Market Value" shall mean (i) in the case of stock, the highest closing price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange listed stocks, or, if such stock is 177 -14- not quoted on the Composite Tape, the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended, on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the Nasdaq Stock Market or any system then in use, or if no such quotation is available, the fair market value on the date in question of a share of such stock as determined in good faith by a majority of the Disinterested Directors then in office, in each case with respect to any class of stock, appropriately adjusted for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Disinterested Directors then in office. (i) References to "highest per share price" shall in each case with respect to any class of stock reflect an appropriate adjustment for any dividend or distribution in shares of such stock or any stock split or reclassification of outstanding shares of such stock into a greater number of shares of such stock or any combination or reclassification of outstanding shares of such stock into a smaller number of shares of such stock. (j) "Interested Stockholder" shall mean any Person (other than the Corporation, any Subsidiary, or any pension, profit-sharing, stock bonus or other compensation or employee benefit plan maintained by the Corporation or by a member of a controlled group of corporations or trades or businesses of which the corporation is a member for the benefit of employees of the Corporation and/or any Subsidiary, or any trust or custodial arrangement established in connection with any such plan) who or which: (i) is the beneficial owner of ten percent (10%) or more of the Voting Stock; or (ii) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of ten percent (10%) or more of the then outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock that were at any time within the two-year period immediately prior to the date in question beneficially owned by any other Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933, as amended, and not executed on any exchange or in the over-the-counter market through a registered broker or dealer. In determining whether a Person is an Interested Stockholder pursuant to this subsection (j), the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned 178 -15- through application of subsection (c) of this Section 3 but shall not include any other shares of Voting Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (k) "Person" shall mean any corporation, partnership, trust, unincorporated organization or association, syndicate, any other entity or a natural person, together with any Affiliate or Associate of such person or any other person acting in concert with such person. (l) "Subsidiary" shall mean any corporation or entity of which a majority of any class or series of equity securities is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in subsection (j) of this Section 3, the term "Subsidiary" shall mean only a corporation or entity of which a majority of each class or series of outstanding voting securities is owned, directly or indirectly, by the Corporation. (m) "Voting Stock" shall mean all of the outstanding shares of Capital Stock entitled to vote generally in the election of directors. SECTION 4. POWERS OF THE DISINTERESTED DIRECTORS. When it appears that a particular Person may be an Interested Stockholder and that the provisions of this Article VIII need to be applied or interpreted, then a majority of the directors of the Corporation who would qualify as Disinterested Directors shall have the power and duty to interpret all of the terms and provisions of this Article VIII, and to determine on the basis of information known to them after reasonable inquiry of all facts necessary to ascertain compliance with this Article VIII, including, without limitation, (a) whether a Person is an Interested Stockholder, (b) the number of shares of Voting Stock beneficially owned by any Person, (c) whether a Person is an Affiliate or Associate of another, (d) the Fair Market Value of (i) the assets that are the subject of any Business Combination, (ii) the securities to be issued or transferred by the Corporation or any Subsidiary in any Business Combination, (iii) the consideration other than cash to be received by holders of shares of any class or series of Common Stock or Voting Stock other than Common Stock in any Business Combination, (iv) the outstanding Capital Stock, or (v) any other item the Fair Market Value of which requires determination pursuant to this Article VIII, and (e) whether all of the applicable conditions set forth in Section 2 of this Article VIII have been met with respect to any Business Combination. Any constructions, applications, or determinations made by the Board of Directors or the Disinterested Directors pursuant to this Article VIII, in good faith and on the basis of such information and assistance as was then reasonably available for such purpose, shall be conclusive and binding upon the Corporation and its stockholders, and neither the Corporation nor any of its stockholders shall have the right to challenge any such construction, application or determination. 179 -16- SECTION 5. EFFECT ON FIDUCIARY OBLIGATIONS OF INTERESTED STOCKHOLDERS. Nothing contained in this Article VIII shall be construed to relieve any Interested Stockholder from any fiduciary obligations imposed by law. SECTION 6. AMENDMENT, REPEAL, ETC. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws (and notwithstanding the fact that a lesser percentage may be specified by law, this Certificate of Incorporation or the Bylaws of the Corporation), in addition to any affirmative vote required by applicable law and any voting rights granted to or held by holders of Preferred Stock, any amendment, alteration, repeal or rescission of any provision of this Article VIII must also be approved by either (i) a majority of the Disinterested Directors, or (ii) the affirmative vote of not less than eighty percent (80%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock, voting together as a single class, together with the affirmative vote of not less than fifty percent (50%) of the total number of votes eligible to be cast by the holders of all outstanding shares of the Voting Stock not beneficially owned by any Interested Stockholder or Affiliate or Associate thereof, voting together as a single class. ARTICLE IX LIMITATION OF DIRECTOR LIABILITY A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is expressly prohibited by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, termination or repeal of this Article IX or any provisions hereof shall not adversely affect or diminish in any way any right or protection of a director of the Corporation existing with respect to any act or omission occurring prior to the time of the final adoption of such amendment, termination or repeal. In addition to any requirements of law or of any other provisions of this Certificate of Incorporation, the affirmative vote of the holders of not less than eighty percent (80%) of the total number of votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon shall be required to amend, alter, rescind or repeal any provision of this Article IX. 180 -17- ARTICLE X INDEMNIFICATION SECTION 1. ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. To the fullest extent permitted by the General Corporation Law of the State of Delaware, the Corporation shall indemnify any person who is or was or has agreed to become a director or officer of the Corporation who was or is made a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or by reason of any action alleged to have been taken or omitted in such capacity, and the Corporation may indemnify any other person who is or was or has agreed to become an employee or agent of the Corporation who was or is made a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful. Notwithstanding anything contained in this Article X, but subject to Section 7 hereof, the Corporation shall not be obligated to indemnify any director or officer in connection with an action, suit or proceeding, or part thereof, initiated by such person against the Corporation unless such action, suit or proceeding, or part thereof, was authorized or consented to by the Board of Directors. SECTION 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. To the fullest extent permitted by the General Corporation Law of the State of Delaware, the Corporation shall indemnify any person who is or was or has agreed to become a director or officer of the Corporation who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was or has agreed to become a director or officer of the Corporation, or by reason of any action alleged to have been taken or omitted in such capacity, and the Corporation may indemnify any other person who is or was or has agreed to become an employee or agent of the Corporation who was or is made a party or is threatened 181 -18- to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was or has agreed to become an employee or agent of the Corporation, or by reason of any action alleged to have been taken or omitted in such capacity, against costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by him or her or on his or her behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation, except no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such other court shall deem proper. Notwithstanding anything contained in this Article X, but subject to Section 7 hereof, the Corporation shall not be obligated to indemnify any director or officer in connection with an action or suit, or part thereof, initiated by such person against the Corporation unless such action or suit, or part thereof, was authorized or consented to by the Board of Directors. SECTION 3. INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF A SUCCESSFUL PARTY. To the extent that a director, officer, employee or agent of the Corporation has been successful, on the merits or otherwise (including, without limitation, the dismissal of an action without prejudice), in defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article X, or in defense of any claim, issue or matter therein, such person shall be indemnified against all costs, charges and expenses (including attorneys' fees) actually and reasonably incurred by such person or on such person's behalf in connection therewith. SECTION 4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. To the extent that any person who is or was or has agreed to become a director or officer of the Corporation is made a witness to any action, suit or proceeding to which he or she is not a party by reason of the fact that he or she was, is or has agreed to become a director or officer of the Corporation, or is or was serving or has agreed to serve as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the written request of the Corporation, such person shall be indemnified against all costs, charges and expenses actually and reasonably incurred by such person or on such person's behalf in connection therewith. To the extent that any person who is or was or has agreed to become an employee or agent of the Corporation is made a witness to any action, suit or proceeding to which he or she is not a party by reason of the fact that he or she was, is or has agreed to become an employee or agent of the Corporation, or is or was serving or has agreed to serve as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, at the written request of the Corporation, such person may be indemnified against all costs, charges and expenses actually and reasonably incurred by such person or on such person's behalf in connection therewith. 182 -19- SECTION 5. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any indemnification under Section 1 or 2 of this Article X (unless ordered by a court) shall be made, if at all, by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper under the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 or 2 of this Article X. Any indemnification under Section 4 of this Article X (unless ordered by a court) shall be made, if at all, by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper under the circumstances. Such determinations shall be made by (a) a majority vote of directors who were not parties to such action, suit or proceeding even though less than a quorum of the Board of Directors, or (b) if there are no such directors, or if such directors so direct, by independent counsel in a written opinion or (c) by the stockholders of the Corporation. To obtain indemnification under this Article X, any person referred to in Section 1, 2, 3 or 4 of this Article X shall submit to the Corporation a written request, including therewith such documents as are reasonably available to such person and are reasonably necessary to determine whether and to what extent such person is entitled to indemnification. SECTION 6. ADVANCEMENT OF COSTS, CHARGES AND EXPENSES. Costs, charges and expenses (including attorneys' fees) incurred by or on behalf of a director or officer in defending a civil or criminal action, suit or proceeding referred to in Section 1 or 2 of this Article X shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that the payment of such costs, charges and expenses incurred by or on behalf of a director or officer in advance of the final disposition of such action, suit or proceeding shall be made only upon receipt of a written undertaking by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Corporation as authorized in this Article X or by law. No security shall be required for such undertaking and such undertaking shall be accepted without reference to the recipient's financial ability to make repayment. The majority of the directors who were not parties to such action, suit or proceeding may, upon approval of such director or officer of the Corporation, authorize the Corporation's counsel to represent such person, in any action, suit or proceeding, whether or not the Corporation is a party to such action, suit or proceeding. SECTION 7. PROCEDURE FOR INDEMNIFICATION. Any indemnification under Section 1, 2, 3 or 4 of this Article X or advancement of costs, charges and expenses under Section 6 of this Article X shall be made promptly, and in any event within sixty (60) days (except indemnification to be determined by stockholders which will be determined at the next annual meeting of stockholders), upon the written request of the director or officer. The right to indemnification or advancement of expenses as granted by this Article X shall be enforceable by the director, officer, employee or agent in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition of such request is made within sixty (60) days of the request. Such person's costs, charges and expenses incurred in connection with successfully establishing his or her right to indemnification or advancement, to the extent successful, in any such action shall also be indemnified by the Corporation. It shall 183 -20- be a defense to any such action (other than an action brought to enforce a claim for the advancement of costs, charges and expenses under Section 6 of this Article X where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in Section 1 or 2 of this Article X, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Section 1 or 2 of this Article X, nor the fact that there has been an actual determination by the Corporation (including its directors, its independent legal counsel and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. SECTION 8. SETTLEMENT. The Corporation shall not be obligated to reimburse the costs, charges and expenses of any settlement to which it has not agreed. If in any action, suit or proceeding (including any appeal) within the scope of Section 1 or 2 of this Article X, the person to be indemnified shall have unreasonably failed to enter into a settlement thereof offered or assented to by the opposing party or parties in such action, suit or proceeding, then, notwithstanding any other provision of this Article X, the indemnification obligation of the Corporation to such person in connection with such action, suit or proceeding shall not exceed the total of the amount at which settlement could have been made and the expenses incurred by or on behalf of such person prior to the time such settlement could reasonably have been effected. For purposes of this Section 8, whether a person shall have "unreasonably failed to enter into a settlement" shall be as determined by the Board. SECTION 9. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION; INDIVIDUAL CONTRACTS. The indemnification and advancement of costs, charges and expenses provided by or granted pursuant to this Article X shall not be deemed exclusive of any other rights to which those persons seeking indemnification or advancement of costs, charges and expenses may be entitled under law (common or statutory) or any Bylaw, agreement, policy of indemnification insurance or vote of stockholders or directors or otherwise, both as to action in his or her official capacity and as to action in any other capacity while holding office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the legatees, heirs, distributees, executors and administrators of such person. Nothing contained in this Article X shall be deemed to prohibit the Corporation from entering into, and the Corporation is specifically authorized to enter into, agreements with directors, officers, employees and agents providing indemnification rights and procedures different from those set forth herein. All rights to indemnification under this Article X shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity at any time while this Article X is in effect. SECTION 10. SAVINGS CLAUSE. If this Article X or any portion shall be invalidated on any ground by any court of competent jurisdiction, the Corporation shall nevertheless indemnify each director or officer, and may indemnify each employee or agent, of the Corpo- 184 -21- ration as to any costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement with respect to any action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation), to the full extent permitted by any applicable portion of this Article X that shall not have been invalidated and to the full extent permitted by applicable law. SECTION 11. INSURANCE. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the Corporation against any costs, charges or expenses, liability or loss incurred by such person in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such costs, charges or expenses, liability or loss under the Certificate of Incorporation or applicable law; provided, however, that such insurance is available on acceptable terms as determined by the Board. To the extent that any director, officer, employee or agent is reimbursed by an insurance company under an indemnification insurance policy for any costs, charges, expenses (including attorneys' fees), judgments, fines and amounts paid in settlement to the fullest extent permitted by any applicable portion of this Article X, the Bylaws, any agreement, the policy of indemnification insurance or otherwise, the Corporation shall not be obligated to reimburse the person to be indemnified in connection with such proceeding. SECTION 12. DEFINITIONS. For purposes of this Article X, the following terms shall have the following meanings: (a) "The Corporation" shall include, in addition to the resulting corporation, any constituent corporation or entity (including any constituent of a constituent) absorbed by way of an acquisition, consolidation, merger or otherwise, which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employee or agent so that any person who is or was a director, officer, employee or agent of such constituent corporation or entity, or is or was serving at the written request of such constituent corporation or entity as a director or officer of another corporation, entity, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article X with respect to the resulting or surviving corporation or entity as he would have with respect to such constituent corporation or entity if its separate existence had continued; (b) "Other enterprises" shall include employee benefit plans, including, but not limited to, any employee benefit plan of the Corporation; (c) "Director or officer" of the Corporation shall include any director, officer, partner or trustee who is or was or has agreed to serve at the request of the Corporation as a director, officer, partner or trustee of another corporation, partnership, joint venture, trust or other enterprise; (d) "Serving at the request of the Corporation" shall include any service that imposes duties on, or involves services by a director, officer, employee or agent of the 185 -22- Corporation with respect to an employee benefit plan, its participants or beneficiaries, including acting as a fiduciary thereof; (e) "Fines" shall include any penalties and any excise or similar taxes assessed on a person with respect to an employee benefit plan; (f) To the fullest extent permitted by law, a person shall be deemed to have acted in "good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful," if his or her action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him or her by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise; and (g) A person shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation," as referred to in Sections 1 and 2 of this Article X if such person acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan. SECTION 13. SUBSEQUENT AMENDMENT AND SUBSEQUENT LEGISLATION. Neither the amendment, termination or repeal of this Article X or of relevant provisions of the General Corporation Law of the State of Delaware or any other applicable laws, nor the adoption of any provision of this Certificate of Incorporation or the Bylaws of the Corporation or of any statute inconsistent with this Article X shall eliminate, affect or diminish in any way the rights of any director, officer, employee or agent of the Corporation to indemnification under the provisions of this Article X with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. If the General Corporation Law of the State of Delaware is amended to expand further the indemnification permitted to directors and officers of the Corporation, then the Corporation shall indemnify such persons to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. 186 -23- ARTICLE XI AMENDMENTS SECTION 1. AMENDMENTS OF CERTIFICATE OF INCORPORATION. In addition to any affirmative vote required by applicable law and any voting rights granted to or held by holders of any Series of Preferred Stock, any alteration, amendment, repeal or rescission (collectively, any "Change") of any provision of this Certificate of Incorporation must be approved by a majority of the directors of the Corporation then in office and by the affirmative vote of the holders of a majority (or such greater proportion as may otherwise be required pursuant to any specific provision of this Certificate of Incorporation) of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon; provided, however, that if any such Change relates to Section 13 of Article X or Articles V, VI, VII or XI of this Certificate of Incorporation, such Change must also be approved either (i) by not less than a majority of the authorized number of directors and, if one or more Interested Stockholders (as defined in Article VIII hereof) exist, by not less than a majority of the Disinterested Directors (as defined in Article VIII hereof), or (ii) by the affirmative vote of the holders of not less than two-thirds of the total votes eligible to be cast by the holders of all outstanding shares of Capital Stock entitled to vote thereon and, if the Change is proposed by or on behalf of an Interested Stockholder or a director who is an Affiliate or Associate (as such terms are defined in Article VIII hereof) of an Interested Stockholder, by the affirmative vote of the holders of not less than a majority of the total votes eligible to be cast by holders of all outstanding shares of Capital Stock entitled to vote thereon not beneficially owned by an Interested Stockholder or an Affiliate or Associate thereof. Notwithstanding the foregoing, any provision of the Certificate of Incorporation that contains a supermajority voting requirement shall only be altered, amended, rescinded, or repealed by a vote of the Board or holders of shares of Capital Stock entitled to vote thereon that is not less than the supermajority specified in such provision.Subject to the foregoing, the Corporation reserves the right to amend this Certificate of Incorporation from time to time in any and as many respects as may be desired and as may be lawfully contained in an original certificate of incorporation filed at the time of making such amendment. Except as may otherwise be provided in this Certificate of Incorporation, the Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and to add or insert herein any other provisions authorized by the laws of the State of Delaware at the time in force, in the manner now or hereafter prescribed by law, and all rights, preferences and privileges of any nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Section 1. SECTION 2. AMENDMENTS OF BYLAWS. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, alter, amend, rescind or repeal from time to time any of the Bylaws of the Corporation in accordance with the terms thereof; provided, however, that any Bylaw made by the Board 187 -24- may be altered, amended, rescinded, or repealed in accordance with the terms thereof by the holders of shares of Capital Stock entitled to vote thereon at any annual meeting or at any special meeting called for that purpose. Notwithstanding the foregoing, any provision of the Bylaws that contains a supermajority voting requirement shall only be altered, amended, rescinded, or repealed by a vote of the Board or holders of shares of Capital Stock entitled to vote thereon that is not less than the supermajority specified in such provision. 188 -25- ARTICLE XII NOTICES The name and mailing address of the incorporator of this Corporation is: Carver Federal Savings Bank 75 West 125th Street New York, New York 10027 Carver Federal Savings Bank caused this Certificate of Incorporation to be signed by Thomas L. Clark, Jr., President and Chief Executive Officer, and attested to by Margaret R. Lewis, Secretary of Carver Federal Savings Bank, this 8th day of May, 1996. CARVER FEDERAL SAVINGS BANK By: /s/ Thomas L. Clark, Jr. ---------------------------------- Thomas L. Clark, Jr. President and Chief Executive Officer Attest: /s/ Margaret R. Lewis - ------------------------------------ Margaret R. Lewis Secretary 189 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 145 of the Delaware General Corporation Law ("DGCL") inter alia, empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Similar indemnity is authorized for such person against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of any such threatened, pending or completed action or suit if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and provided further that (unless a court of competent jurisdiction otherwise provides) such person shall not have been adjudged liable to the corporation. Any such indemnification may be made only as authorized in each specific case upon a determination by the shareholders or disinterested directors or by independent legal counsel in a written opinion that indemnification is proper because the indemnitee has met the applicable standard of conduct. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him, and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145. Article IX of the Company's Certificate of Incorporation provides that a director shall not be personally liable to the Company or its stockholders for damages for breach of his fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is expressly prohibited by the DGCL. Article X of the Company's Certificate of Incorporation requires the Company, among other things, to indemnify to the fullest extent permitted by the DGCL, any person who is or was or has agreed to become a director or officer of the Company, who was or is made a party to, or is threatened to be made a party to, or has become a witness in, any threatened, pending or completed action, suit or proceeding, including actions or suits by or in the right of the Company, by reason of such agreement or service or the fact that such person is, was or has agreed to serve as a director, officer, employee or agent of another corporation or organization at the written request of the Company. Article X also empowers the Company to purchase and maintain insurance to protect itself and its directors and officers, and those who were or have agreed to become directors or officers, against any liability, regardless of whether or not the Company would have the power to indemnify those persons against such liability under the law or the provisions set forth in the Certificate of Incorporation. The Company is also authorized by its Certificate of Incorporation to enter into individual indemnification contracts with directors and officers. The Bank currently maintains and the Company expects to purchase directors' and officers' liability insurance consistent with the provisions of the Certificate of Incorporation as soon as practicable. II-1 190 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The exhibits and financial statement schedules filed as a part of this Registration Statement are as follows: (A) LIST OF EXHIBITS. (Filed herewith unless otherwise noted.)

II-2 191

(B) FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted as not applicable or not required under the rules of Regulation S-X. ITEM 22. UNDERTAKINGS. The undersigned Registrant hereby undertakes as follows: (1) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) That every prospectus (i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. II-3 192 (4) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-4 193 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on June 7, 1996. CARVER BANCORP, INC. By: /s/ Thomas L. Clark, Jr. ------------------------------------- Thomas L. Clark, Jr. President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Thomas L. Clark, Jr. and Kofi Appenteng as the true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities to sign the Form S-4 Registration Statement and any and all amendments thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, and any rules and regulations promulgated thereunder, this Registration Statement, or amendment thereto, has been signed by the following persons in the capacities and on the dates indicated.

194 EXHIBIT INDEX (Filed herewith unless otherwise noted.)

195