Carver Federal Savings Bank, the financial institution currently holding the top spot on the BE BANKS list, is fighting for its future. The nation’s largest black-owned bank must significantly boost capital reserves by month’s end or risk a potential shutdown, takeover or sale of the bank.
William Michael Cunningham, social investment adviser at Creative Investment Research Inc., a Washington D.C. firm specializing in minority banking, estimates that Carver Bancorp Inc., parent of the Harlem-based bank, must raise nearly $20 million in new capital by April 30, 2011, to meet orders by the Office of Thrift Supervision, the primary regulator of all federal and a number of state-chartered savings banks.
In response, Carver Bancorp spokesman Michael Herley says “we are working very hard to meet this requirement and are looking at a variety of options.” The bank, however, did not offer details to BlackEnterprise.com on its capital-raising plan.
The adversity faced by Carver comes at a time when federal
banking regulators have closed or forced the sale of nearly 350 banks nationwide — including five black-owned institutions in the past six months — since the financial crisis began in 2008. In fact, Seaway Bank and Trust Co. (No. 8 on the 2010 BE BANKS list with assets of $385 million ) recently assumed control of Legacy Bank (No. 13 on the 2010 BE BANKS list with assets of $231 million) when the institution went into receivership after being walloped by the Great Recession and hefty loan losses.Analysts say the stakes are high for 63-year-old Carver. Cunningham says its major challenge will be persuading investors to inject new equity into a bank that has lost money in recent years. Carver lost $1 million for fiscal year ending March 31, 2010 versus a loss of $7 million for the same period in 2009. Moreover, its stock has dropped to about 77 cents per share as of April 4, 2011 from roughly $6 around the same time two years ago.
Cunningham says he’s discovered the bank is working with Wall Street investment bank Keefe, Bruyette & Woods (KBW) to identify investors to replenish the institution’s capital. Carver officials say KBW has been a trusted partner for more than a decade but would not comment further. “The key for Carver is convincing investors that they have a credible plan to return to profitability soon,†Cunningham says.
Efforts to gain direct comments last week from Chairwoman, CEO and President Deborah Wright proved unsuccessful. Wright, however, alluded to some of Carver’s financial problems in an interview with BLACK ENTERPRISE in late February. As of Dec. 31. 2010, she said the institution sought to boost core capital–the minimum amount of reserves that a savings bank must have on hand in order to comply with federal regulators–from 6.36% of $743.8 million in assets, or $47.3 million, to 9%, or $66.9 million.
Cunningham says Carver’s current
capital level in the 6% range is higher than the 4% threshold required by OTS and questions its actions. OTS spokesman William Ruberry says he can’t comment on Carver or any other institution his agency regulates. But, in general, OTS sets capital requirements based on the level of risk in an institution’s loan portfolio and other operations.”The greater the risk, the greater the required capital,” Ruberry says.
Carver’s problems stem from a cease and desist order the OTS issued in February. Among other demands, it requires Carver to achieve and maintain minimum regulatory capital levels, places restrictions on future credit extensions and orders that various procedures be implemented to improve the bank’s asset quality.
Carver spokesman Herley says the losses the bank suffered in its most recent two fiscal years are consistent with challenges all institutions have had to grapple with: an unprecedented recession and declining value of real estate assets.
Adds Cunningham: “The bank is being hit by a decline in borrowers’ disposable income, hurting their ability to pay on mortgages and small business loans.”
Wright has said in a previous interview that regulators are concerned about risk to the bank’s balance sheet from real estate loans for multi-family buildings and mixed-used properties negatively impacted by reductions in valuations across the bank’s geographic markets.
Wright said a significant portion of the bank’s balance sheet includes affordable housing construction loans adversely impacted by the federal government’s decision to suspend activities of Fannie Mae and Freddie Mac. She asserts: “On lending, we’ve shifted our focus to business lending where we’ve developed a specialty in small loans to contractors working for city, state and federal government agencies. In addition we’re building our loans to small grocers in New York City. Given our concentration in real estate loans, I expect this new focus to remain for some time.â€