Carver Bancorp Inc. is imperiled, but not doomed.

By the end of this month the Office of Thrift Supervision wants Carver, a minority-owned bank that serves underbanked communities in New York City, to increase capital ratios by at least $20 million. Analysts, however, believe Carver may need as much as $35 million to properly repair itself.

The $750 million-asset thrift company finds itself in a territory familiar to other minority-owned banks and community development banks. Collectively, that group is feeling the effects of the recession and slow recovery more acutely than other banks because they traditionally live on thinner profit margins. The recession was also particularly hard on their neighborhoods.

"What is occurring in the community development bank industry is a direct reflection of not only what is going on in the banking industry overall, but what is occurring in the communities that those banks serve," said Jeannine Jacokes, a senior policy adviser to the Community Development Bankers Association.

Since 2008 at least five of the 36 black-owned U.S. banks have failed. Three community development banks have also failed, including the $3 billion-asset ShoreBank in Chicago, which was closed in August 2008 after a herculean, but ultimately unsuccessful, bid by several of the financial industry's largest players.

For now Carver says it remains optimistic.

"We are working very hard to meet the OTS request to raise our Tier 1 ratio and our total risk-based capital ratio," Michael Herley, a Carver spokesman, said by email.

The company hopes "to be able to share more information on the status of the capital raise soon," Herley added. "We are exploring a variety of options to meet the OTS' request."

Herley said that Deborah Wright, the company's chief executive, would not comment.

Analysts said Carver has a difficult path ahead, but it still has a number of things working in its favor. For instance, its thrift was well capitalized by traditional standards at Dec. 31, with a leverage ratio of 6.36% and a total risk-based capital ratio of 10.82%.

Even if, as struggling banks and thrifts often do, the thrift misses its regulator's April 30 deadline to boost those ratios to 9% and 13%, Carver still has sufficient capital to buy time.

"So long as you are attempting to comply, they will give you some room to try," said Jeff Gerrish, a partner at Gerrish McCreary Smith. "There is no real risk of failure until its tangible capital falls below 2%."

While $20 million would lift the thrift to the prescribed capital levels based on Dec. 31 numbers, Michael Iannaccone, the president of MDI Investments Inc. in Chicago, pegged the company's capital needs at $35 million.

Iannaccone based his estimate on an expected loss in the March 31 quarter and a need to increase loan-loss reserves against the company's construction and development portfolio.

Iannaccone said Carver's capital structure is overwhelmingly trust-preferred securities and senior and subordinated debt. To further bolster common equity, he said Carver should ask the Treasury Department to convert its $19 million of preferred shares purchased through the Troubled Asset Relief Program into common stock as part of its recapitalization plan.

Such moves have become common in the recapitalization of companies with Tarp funds.

Herley, the Carver spokesman, would not say how much capital the company is trying to raise.

Iannaccone is working on a similar recapitalization for another thrift in an impoverished neighborhood. He said that raising capital for such companies is more difficult than for banks in more traditional markets.

Another advantage that Carver has, analysts said, is that it is a publicly traded company.

"It makes them more accessible and opens them to several different types of investors," said William Michael Cunningham, the founder of minority bank fund MBF LP in Washington. "As a public company, there is also more reporting so investors can get a better sense of their performance."

To a smaller extent than ShoreBank, Carver has prominent allies, Cunningham said. ShoreBank was often described as a darling of President Clinton. Eugene Ludwig, a former comptroller of the currency (and frequent contributor to American Banker), spearheaded an effort to raise nearly $140 million from the largest U.S. banks to recapitalize the bank. That money ended up going toward capitalizing Urban Partnership Bank, a bank created to resolve ShoreBank after its failure.

Carver, meanwhile, is working with its longtime investment banker KBW Inc. to recapitalize, the spokesman confirmed.

"While their cachet is not national or global like ShoreBank's, they are known within New York. They do have a ShoreBank-like following there," Cunningham said. Wright "could hop in a limo and head down to Wall Street."

As Carver seeks compliance, analysts said regulators are cognizant of the difficulties facing recapitalizing banks that serve underserved communities, often giving them as much time as legally possible to make it happen.

Though potential failure talks could be months away if immediate recapitalization plans fail, the Federal Deposit Insurance Corp. has a track record of trying to avoid closing community development banks.

Last year, FDIC Chairman Sheila Bair made calls on behalf of ShoreBank's recapitalization efforts because she was worried that its failure would be costly and tough to liquidate, according to a report issued in March by the FDIC's inspector general on the recapitalization efforts. The report indicated that Bair had made similar calls in the recapitalization efforts of "six to seven other financially distressed institutions, including calls on behalf of a small savings and loan association that had a mission similar to ShoreBank's."

The creation of Urban Partnership Bank saved the Deposit Insurance Fund $250 million to $334 million, as it was the only bid the FDIC received for ShoreBank.

"The regulators give community development banks a greater breadth to explore all possibilities, but only if there are real projects in process like letters of intent or money in escrow," Iannaccone said. "They are not eager to shut down banks, any banks for that matter, but particularly not in situations where that bank might be the only local bank serving that market."

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