Carver Bancorp, Inc. Announces Fiscal Year 2006 Results

The Company reported net income available to common stockholders for the three-month period ended March 31, 2006 of $1.0 million and diluted earnings per share of $0.41 compared to the same period last year of $392,000 and $0.15, respectively. For fiscal 2006 net income available to common stockholders was $3.8 million and diluted earnings per share was $1.47 compared to the same period last year of $2.5 million and $1.03, respectively.

Deborah C. Wright, Chairman, President and CEO of Carver, stated: "We are pleased to close out the fourth quarter and fiscal year with a solid operating performance. First, our strategy to mitigate the impact of interest rate trends impacting the thrift industry, in particular, the flat yield curve, delivered modest increases to net interest income in the fourth quarter and fiscal year. This result was in large part due to a very successful, disciplined effort where we grew our loan portfolio by 17% and increased deposits by 11%, thereby allowing us to reduce our securities portfolio by 27% and relatively more expensive borrowings by 19%. Second, fee income was exceptional this quarter and for the fiscal year, as a number of loans with significant prepayment penalties attached were repaid. Additionally, fees also increased due to the strength of our customers' response to our investment products, debit card, new branches and ATM centers. As loan prepayment volume is volatile, we do not predict that these levels of fee income will continue in the near term," said Ms. Wright.

We also continued our strong, ongoing focus on cost management, which produced further reductions in the fourth quarter and a modest increase for the fiscal year, despite new delivery channel and product introductions" continued Ms. Wright. "All in all, this was, as we have previously noted, a challenging year. Yet, we are proud of how our team responded, and are excited about fiscal year 2007. In particular, we believe that the acquisition of Community Capital Bank and its award-winning small business lending platform will expand our ability to capitalize on the substantial growth in our markets with the hallmark of community based institutions: personal service. We are on track to close this transaction on or before September 30, 2006."

"Recognizing the solid momentum we have achieved this year as well as our strong future prospects, the Company's Board of Directors on May 9, 2006 declared a quarterly dividend of $0.08 per share for the fourth quarter, payable on June 6, 2006, to shareholders of record at the close of business on May 23, 2006," Ms. Wright concluded.

Income Statement Highlights

Fourth Quarter Results

Net income available to common stockholders for the quarter increased $649,000, or 165.6%, to $1.0 million compared to $392,000 for the same period last year. The rise in quarterly results was primarily due to an increase in non-interest income of $887,000 and a reduction in non-interest expense of $142,000, partially offset by an increase in income tax expense of $405,000.

Net interest income for the quarter increased $25,000, or 0.5%, to $4.9 million as a result of the Bank's strategy of reducing lower yielding investments and replacing them with higher yielding loans, while replacing higher cost borrowings with lower cost deposits. This result followed an increase in interest income of $1.1 million, or 14.2%, substantially offset by an increase in interest expense of $1.1 million, or 38.5%, compared to the same period last year. Interest income increased as a result of higher yields in both the loan and investment portfolios of 31 and 37 basis points, respectively, as well as increased real estate mortgage loan balances. Interest expense rose primarily as a result of an increase in the cost of certificates of deposit and money market accounts of 138 and 74 basis points, respectively, as well as an overall increase in deposit balances.

The Company did not provide for additional loan loss reserves as the Company considers the current overall allowance for loan losses to be adequate.

Non-interest income increased $887,000, or 98.4%, to $1.8 million compared to $901,000 for the same period last year. The rise in non-interest income was primarily the result of increases in mortgage prepayment penalty income, mortgage late charge fees and the gain on sale of mortgage loans of $396,000, $175,000 and $239,000, respectively. The increase in mortgage prepayment penalty income resulted from greater than anticipated mortgage refinance activity, late charge fees increased primarily as a result of a large delinquent loan refinancing and the increase in gain on the sale of mortgage loans was primarily related to a bulk sale of $10.7 million of residential one-to four family mortgage loans. The Company does not expect this level of non-interest income to continue in the near term.

Non-interest expense decreased $142,000, or 2.7%, to $5.0 million compared to $5.2 million for the same period last year. The decline in non-interest expense was primarily due to a reduction in employee compensation and benefits expenses of $573,000 as last year's results included $355,000 of severance and related costs in connection with realignment of management team responsibilities. Additionally, further reductions were achieved through staff attrition. Partially offsetting the decrease in non-interest expense was an increase in retail banking chargeoffs of $185,000 and increases in net occupancy and equipment expenses of $59,000 and $21,000, respectively.

Income before taxes increased $1.1 million, or 181.1%, to $1.6 million compared to $582,000 for the same period last year. Income taxes increased $405,000, or 213.2%, resulting in a tax expense of $595,000 compared to $190,000 for the same period last year. The additional tax expense is attributable to higher pre-tax earnings.

Fiscal 2006 Results

Fiscal 2006 net income available to common stockholders increased $1.2 million, or 48.7%, to $3.8 million compared to $2.5 million for the same period last year. The twelve-month increase was the result of growth in non- interest income and net interest income of $1.3 million and $104,000, respectively, as well as a decline in income tax expense of $189,000 partially offset by an increase in non-interest expense of $438,000

Net interest income increased by $104,000, or 0.6%, to $18.9 million compared to $18.8 million for the same period last year. Interest income increased $3.8 million, or 13.5%, compared to the same period last year primarily as a result of increased real estate mortgage loan balances. The rise in interest income was substantially offset by additional interest expense of $3.7 million, or an increase of 38.3%, compared to the same period last year, primarily due to an overall increase of 66 basis points in the average cost of deposits.

Non-interest income increased $1.3 million, or 31.1%, to $5.3 million compared to $4.1 million for the same period last year. Contributing to the increase in non-interest income was growth in depository fees and charges of $246,000, primarily resulting from higher ATM usage, growth in debit card income and commissions earned from the sale of investments and life insurance. Loan fees and charges increased $363,000 as a result of increased mortgage prepayment penalties and late charge fees and an increase of $267,000 in the gain on sale of loans related to a bulk sale of mortgage loans, all of which are discussed in the quarterly analysis above. An increase of $77,000 in other income, primarily resulting from the Bank's investment in a Bank owned life insurance program, also contributed to non-interest income growth. Additionally, non-interest income also increased because the Company recognized an impairment charge deemed other than temporary in the second quarter of fiscal 2005 of $1.5 million, resulting from the decline in market price of 150,000 shares of Independence Federal Savings Bank ("IFSB") stock that the Company previously held. Partially offsetting that impairment charge was the receipt of a net $1.1 million grant from the Department of the Treasury and a $94,000 gain from the sale of securities.

Non-interest expense increased $438,000, or 2.3%, to $19.1 million compared to $18.7 million for the same period last year. The increase in non- interest expense was primarily due to increases in net occupancy and equipment expenses of $327,000 and $331,000, respectively, resulting from the full year effect in fiscal 2006 for the new branches and 24/7 ATM centers openings in fiscal 2005. Also contributing to the increase in non-interest expense were increases in retail banking chargeoffs, legal fees and insurance costs of $196,000, $160,000 and $112,000, respectively. Partially offsetting the increase in non-interest expense was a charge of $847,000 incurred during the same period last year, which resulted from expensing previously capitalized costs related to cessation of the merger with IFSB.

Income before taxes increased $932,000, or 22.4%, to $5.1 million compared to $4.2 million for the same period last year. Income taxes decreased $189,000, or 12.5%, to $1.3 million compared to $1.5 million for the same period last year primarily due to a $500,000 recovery of income tax expense in the third quarter ending December 31, 2005, attributable to the release of contingency reserves for closed tax examination years.

Financial Condition Highlights

At March 31, 2006 total assets increased $34.6 million, or 5.5%, to $661.0 million compared to $626.4 million at March 31, 2005. The asset growth primarily reflects increases in total loans receivable, net, and cash and cash equivalents of $71.4 million and $2.5 million, respectively. The increase in total loans receivable, net, is attributable to new mortgage loan originations and purchases exceeding mortgage loan repayments. The increase in cash and cash equivalents is primarily attributable to a larger overnight federal funds sold position resulting in higher short term liquidity. The increase in total assets was partially offset by a decline in total securities of $41.0 million as a result of the Bank's strategy to use maturities and repayments of securities and deposit growth to fund loan growth and repay borrowings from the Federal Home Loan Bank of New York ("FHLB-NY").

At March 31, 2006, total liabilities increased $31.7 million, or 5.5%, to $612.3 million from $580.6 million at March 31, 2005. The increase in liabilities was primarily the result of deposit growth of $48.8 million which was used primarily to fund loan growth and repay borrowings from the FHLB-NY. Contributing to the growth in deposits was a $25.0 million Banking Development District deposit for the Bank's newest branch at Bradhurst Court in Harlem. Partially offsetting the increase in total liabilities were decreases in advances from the FHLB-NY of $21.5 million. Other liabilities increased by $4.5 million primarily as a result of a $3.5 million increase in accounts payable checks written not yet presented and the receipt of a $641,000 grant from the Community Development Financial Institutions Fund ("CDFI") of the United States Department of the Treasury which will be used to promote affordable housing lending programs and services.

At March 31, 2006, total stockholders' equity increased $2.9 million, or 6.3%, to $48.7 million compared to $45.8 million at March 31, 2005. The increase in total stockholders' equity was primarily attributable to increased retained earnings of $3.0 million from net income derived during fiscal 2006. Additionally, an increase of $349,000 was attributable to the re-issuance of common stock the Company previously repurchased to fund its compensation and benefit programs. Partially offsetting the increase in stockholders' equity was a decline of $439,000 in accumulated other comprehensive income related to the mark-to-market of the Bank's available-for-sale securities and an after tax charge to equity for an employee pension plan obligation of $158,000 and $281,000, respectively.

Pending Acquisition

On April 6, 2006, the Company entered into a definitive merger agreement to acquire Community Capital Bank, a small Brooklyn-based community bank with approximately $162 million in assets, in a cash transaction valued at $11.1 million, or $40.00 per Community Capital share. The agreement has been approved by the Boards of Directors of both companies and will be submitted to stockholders of Community Capital for approval. The transaction is subject to regulatory approval and is expected to close by September 30, 2006.

Stock Repurchase Program

In August 2002, Carver's Board of Directors authorized a stock repurchase program to acquire up to 231,635 shares of the Company's outstanding common stock, or approximately 10 percent of the then outstanding shares. The Company did not purchase any shares during the fourth quarter of fiscal 2006 as a result of the proposed acquisition of Community Capital Bank. As of March 31, 2006 the Company purchased a total of 90,974 shares at an average price of $16.91. Purchases for the stock repurchase program may be made from time to time on the open market and in privately negotiated transactions. The timing and actual number of shares repurchased under the plan depends on a variety of factors including price, corporate and regulatory requirements, and other market conditions.

Asset Quality

At March 31, 2006, non-performing assets totaled $2.8 million, or 0.55% of total loans receivable, compared to $998,000, or 0.23% of total loans receivable, at March 31, 2005. While non-performing assets have increased, the level of non-performing assets to total loans remains within the range the Bank has experienced over the trailing ten quarters. At March 31, 2006, the allowance for loan losses of $4.0 million remained relatively unchanged from $4.1 million at March 31, 2005. At March 31, 2006, the ratio of the allowance for loan losses to non-performing loans was 147.1% compared to 410.7% at March 31, 2005. At March 31, 2006, the ratio of the allowance for loan losses to total loans receivable was 0.81% compared to 0.96% at March 31, 2005.

About Carver Bancorp, Inc.

Carver Bancorp, Inc. is the holding company for Carver Federal Savings Bank, a federally chartered stock savings bank. Carver Federal Savings Bank, the largest African- and Caribbean-American run bank in the United States, operates eight full-service branches and five stand-alone ATM centers in the New York City boroughs of Brooklyn, Queens and Manhattan. For further information, please visit the Company's website at www.carverbank.com.

Statements contained in this news release, which are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements may be identified by the use of such words as "believe," "expect," "anticipate," "intend," "should," "will," "would," "could," "may," "planned," "estimated," "potential," "outlook," "predict," "project" and similar terms and phrases, including references to assumptions. Forward-looking statements are based on various assumptions and analyses made by the Company in light of management's experience and its perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond the Company's control, that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Factors which could result in material variations include, without limitation, the Company's success in implementing its initiatives, including expanding its product line, adding new branches and ATM centers, successfully re-branding its image and achieving greater operating efficiencies; increases in competitive pressure among financial institutions or non-financial institutions; legislative or regulatory changes which may adversely affect the Company's business or increase the cost of doing business; technological changes which may be more difficult or expensive than we anticipate; changes in interest rates which may reduce net interest margins and net interest income; changes in deposit flows, loan demand or real estate values which may adversely affect the Company's business; changes in accounting principles, policies or guidelines which may cause the Company's condition to be perceived differently; litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, which may delay the occurrence or non-occurrence of events longer than anticipated; the ability of the Company to originate and purchase loans with attractive terms and acceptable credit quality; and general economic conditions, either nationally or locally in some or all areas in which the Company does business, or conditions in the securities markets or the banking industry which could affect liquidity in the capital markets, the volume of loan origination, deposit flows, real estate values, the levels of non-interest income and the amount of loan losses. The forward-looking statements contained within herein are made as of the date of this report, and the Company assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements. You should consider these risks and uncertainties in evaluating forward- looking statements and you should not place undue reliance on these statements.