Banking On A Comeback

With new initiatives and new leadership, Carver Federal pursues growth strategy

Late last year, it seemed as if Carver Bancorp Inc. (NASDAQ: CARV) stock, company that appears in the BE Stock Index, had finally figured out how to defy gravity. Earnings dropped from 1995′s 40 cents a share to 35 cents for the fiscal year ending March 31, 1996. Yet, after a temporary setback, the Harlem bank’s share price, after slipping from $9.25 to $7.38 at one point, was actually rallying in December, first above $8 and soon toward $10 a share, its 1994 initial public offering price.

No, Carver hasn’t completed the turnaround President and CEO Thomas L. Clark Jr. promised when he took over; it’s only just begun. Still, investors’ renewed interest might be a vote of approval for the blueprints of the overhaul to come, plans the new chief hopes will increase the bank’s assets to $500 million from a current $372 million.

Carver’s main problem is its past conservative culture which kept the bank’s lending rates and profits suppressed, says analyst Joe Gladue of the Baltimore-based The Chapman Co. In the past, the bank chose to invest deposits primarily in mortgage-backed securities instead of lending money out, a cautious path that nonetheless stifled Carver’s results.

Clark, however, makes no apologies for a Carver he says has been far too stodgy and slow-footed in growth markets such as mortgage lending. So in Clark’s words, to “restructure the bank from the bottom up,” things are in for a shake-up, including an immediate boost in money lent out and interest earned. When he came to Carver two years ago, Clark found the banking company had 13% of its deposits or $45 million in loans, a figure he’s pushed nearly 30% to $103 million. Still, that’s far short of the 70%-90% level analyst Gladue says most banks maintain. Moreover, says the analyst, Carver pumped that number up by purchasing loans from larger banks, “which is not as profitable as generating your own.”

To prod loan revenues, Clark has enlisted the aid of the Federal National Mortgage Association (Fannie Mae), one of the largest purchasers of home mortgages around. Fannie Mae’s participation has gone beyond the stake it has taken in Carver. The federal agency has deposited $250,000 to boot, lent Carver one of its risk managers to help steer the turnaround, and even coupled the bank with Chase Manhattan Corp. in a mentor program that should perk up loan production.

That’s a recipe that Gladue sees boosting earnings to 55 cents a share for the fiscal year ending March 31, 1997, and 70 cents in fiscal 1998-welcome news for Carver investors who’ve seen the company come public in 1994 at $ 10 a share but stoop as low as $6.70 when Clark came on in 1995. But Clark has his sights on even higher points, namely the $ 15 a share in book value he says his company is worth, adding, “It’s our goal to make it as large as possible to enhance shareholder value.”

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