Second in a five-part series.
Minority owned banks have admired Carver Bancorp (CARV) for a long time, even after the economic downturn took off some of the New York company's luster.
The $635 million-asset company the second-biggest bank serving the black community has since rebounded and is profitable again. It also continues to push innovative products, such as check-cashing services, for underbanked groups.
Carver also focuses on lending to churches and nonprofits. Efforts to reach those groups merit closer scrutiny next year. Carver, which remains under a February 2011 cease-and-desist order, also has capital from the Treasury Department's Troubled Asset Relief Program.
(For full Countdown 2014 coverage, click here.)
Carver can be a source of hope for minority owned banks in 2014, says Chairman and Chief Executive Deborah Wright. In a wide-ranging interview, she discusses how Carver used ties to Wall Street it received $55 million in 2011 from a group that included Goldman Sachs, Morgan Stanley and Citigroup to get back on track.
Here is an edited excerpt.
Carver rebounded from issues that existed during the recession. Does Carver's performance suggest that other struggling banks can get back on track?
DEBORAH WRIGHT: Institutions that can raise capital, versus those that were not able to, was a big dividing factor in our industry. We were able to raise capital from a small group of large institutions and it was really fundamental to us to being able to weather the storm and also have capital left over to grow the franchise.
The credit concerns we had could not have been resolved without a substantial addition to our capital. You also need a team that's mentally tough to get through this.
We made a big addition, hiring a chief operating officer, Michael Pugh, who brought some depth to our team and allowed a greater division of responsibilities that I had been carrying. He is really focused on revenue growth. I was carrying all of that and I think a lot of other community bank CEOs are doing the same thing.
It's very hard to [simultaneously] address regulatory orders, clean up your balance sheet and increase revenues.
What were the main drivers of Carver's turnaround?
The first thing was to complete the resolution of credit issues and the corollary was to get back to lending, which is where we are now, and rebuilding our loan book. You can't grow revenues as a bank without doing that. Our core retail franchise, which is growing the deposit base, has been very challenging, partly because of the complexion of the community, a significant portion of which is underbanked.
Minority banks are all very small. Given the regulatory response to the crisis and the expense curve moving out, and the additional people you need to run the franchise, $1 billion in assets may or may not be enough in terms of customer and shareholder requirements.
The essence of the challenge for minority banks is the size you need to produce the kinds of returns that a mainstream investor would look for. Every bank has to come to grips with that question. For us, it's a little harder because our natural customer . . . is in a core group that doesn't have the resources of more well-healed customers. We've always supplemented that with the institutions in our community, including churches and nonprofits. We need to be relevant to a larger group of customers than we have been historically.
Churches were hurt very badly, based on what happened to their parishioners. We had significant underperformance by our church borrowers for the first time in our history. We're a lot more careful now and we're shifting gears to make loans to nonprofits. They are struggling sometimes with the payment processing of their public funders.
Can you talk about your check-cashing program for the underbanked?
We see the underbanked as an important platform. We hope this population will evolve with our guidance . . . but the reality is that at least a third of the popultion is either unbanked or underbanked.
[Carver Community Cash] kiosks are now fully launched in all of our branches. We also go out to the employers and actually cash the check on site for large institutional customers. We hope to install them in more public housing authorities. It's like an ATM, but it has additional services like paying bills or wiring money.
What we are missing is a lending component. We're evaluating the good and the bad of the payday lending products. The reality is, all of us, as consumers and workers, need to borrow money from time to time, and we're going to evaluate our options to do that responsibly. It has to be done carefully because there are a lot of products that would not be right for our franchise.
What is your outlook for M&A and raising capital?
As it relates to M&A, we've got a full plate to execute on our business plan and grow our revenue. We still have to complete the steps to exit our regulatory orders.
M&A is not on the forefront this year, but I hope it will be going forward. In an era of what would sustain additional costs . . . I think inevitably there needs to be mergers of franchises like Carver.
We're not in the market to raise capital this year. Our ratios are strong and we're near the completion of the of issues from our prior lending. At the moment we don't see a business need to raise additional capital beyond what we need to generate through our organic business.