With a break expected from the Treasury Department, Carver Bancorp Inc. in New York soon will have more equity available to address a growing pool of problem assets.
The $800 million-asset company announced late Friday that it has received preliminary approval from the Treasury to participate in the Community Development Capital Initiative, an earmarked account of the Troubled Asset Relief Program set up for banks that serve low- to moderate-income communities.
Carver will not receive additional capital. Instead, the dividend payment it makes on its $18.9 million in Tarp funding will decline from 5% to 2%. The company anticipates this will save it $560,000 a year.
"The dividends impact equity, and in this environment, we want to have equity growing," Deborah C. Wright, Carver's chairman and chief executive, said in an interview Monday. "This program is an incredible boost."
Along with letting companies convert Tarp to an instrument with better terms, the CDCI program is available for new investments. ShoreBank, the ailing, $2.2 billion-asset lender in Chicago, is seeking a $75 million infusion from the program but has yet to get a decision on its application.
Jeannine Jacokes, the chief executive and policy adviser for the Community Development Bankers Association, said nearly all of the two dozen community development banks that got Tarp funds are seeking such a rate conversion. The Treasury would not say how many applications it has received or approved.
For Carver, the decision could not have come at a better time. As of June 30, the end of its fiscal 2011 first quarter, nonperforming assets had grown 83% from March 31, to $86.3 million. It had a $2.5 million quarterly loss, compared with a $700,000 profit a year earlier.
Its problems have been concentrated in the affordable-housing construction portfolio. Wright said the company is looking for exit strategies where it can but that it might make more sense to wait out the loans in this portfolio.
"Our customers, mostly small developers with high-quality projects, were stalled by dislocations in the secondary market, preventing homebuyers from obtaining the mortgages needed to buy homes," she said in a press release.
Completing those projects and then selling or renting them could take several quarters. "However, we believe patience will yield the best outcome," she said.
As for ShoreBank, it missed a Monday deadline set by potential big-bank investors — who have pledged as much as $140 million — to find the capital it needs. It is reportedly seeking open-bank assistance from the Federal Deposit Insurance Corp. A ShoreBank spokesman said only that it is "pursuing a lot of alternatives so that we can continue to service our communities."