It has been a cruel summer for Carver Bancorp in New York.
The $754 million-asset company has suffered a series of setbacks since announcing in late May that it had been hit with a regulatory order tied to Bank Secrecy Act violations and concentrations of commercial real estate loans.
Carver, the nation's biggest publicly traded black-operated bank, determined on July 12 that it would need to restate its fiscal-year 2015 results to a loss after concluding that expenses tied to its core systems provider were recorded in the wrong year. The adjustment means that Carver has now lost money in six — not five — of its last seven fiscal years.
Three days later, the Nasdaq notified Carver that it was at risk of being delisted because it has yet to file its annual report. (Its fiscal year ended March 31.) The same day, James Raborn resigned as general counsel and manager of loan workout and loss mitigation, though Carver noted that no dispute led to his departure.
Those hits surfaced just months after Carver appeared to be turning a corner following years of struggles. Most notably, the company was released from a longstanding cease-and-desist order from the Federal Reserve Board in October after management was able to boost the Tier 1 capital ratio from 6.43% when the order took hold in February 2011 to 10.41% by mid-2015.
Through a spokeswoman, Carver executives, including Chief Executive Michael Pugh, declined to comment for this story. Pugh succeeded longtime CEO Deborah Wright in January 2015.
For some industry observers, the issues highlight the challenges for banks with narrowly constrained business models. The bank, formed in 1948, predominantly focuses on the black community in and around Harlem.
"The company is overconcentrated in one business segment," said Jeffrey Marsico, an executive vice president at the Kafafian Group in Parsippany, N.J. "The business model should be called into question because it isn't making money."
If the model is flawed, what can be done to fix it? That question has industry observers divided.
Marsico applauds the bank's effort to serve Harlem and is not suggesting that Carver exit the neighborhood. But he believes its profits would improve if it also served other, more affluent neighborhoods.
"Focusing on great neighborhoods, rather than providing services solely to people who live in difficult neighborhoods might be a different business strategy," Marsico said, suggesting that Carver consider accepting online deposits to avoid having to build more branches. "They still have $55 million of capital, so that approach seems doable."
William Michael Cunningham, a social investing adviser at Creative Investment Research, disagreed, suggesting that Carver should embrace its history by continuing to tap into a recent nationwide effort that is urging African-Americans to open accounts at black-owned or black-operated banks and credit unions as a way to support the black community. Carver should then use those low-cost deposits to move away from commercial real estate, possibly by making more small-dollar or student loans.
"There's still room for innovation, particularly reaching underserved communities," said Cunningham, who advises minority-focused institutions and owns a small amount of Carver stock. "From Carver's perspective you want to brand yourself as the black bank, which takes vision and leadership."
Carver, for its part, seems intent to follow that path.
The company has collected about $2.4 million in new deposits since the deposit-gathering movement began earlier this year. The company also unveiled a program in April where it will provide businesses with loans and lines of credit of up to $15,000 at "competitive rates." The Cash Access Loans program also offers small businesses secured loans up to $5,000 and overdraft lines of credit up to $1,500.
Carver executives also touted several other initiatives during a recent appearance on a New York radio program, including an education series for entrepreneurs and an ongoing program with New York's Metropolitan Transportation Authority to provide more capital to minority- and women-owned contractors.
The goal is "to help people make their businesses more bankable," Blondel Pinnock, Carver's chief lending officer, said during the May 15 broadcast of In Focus. "The biggest barrier for small businesses, particularly contractors, is access to capital."
Carver also needs to look at ways to attract millennials, Pinnock said during the radio broadcast.
"I know a lot of the millennial population is interested in starting businesses and we certainly want to make our bank accessible," Pinnock said. "There are definitely banking trends that are shifting ... and a lot of our younger banking clients are using our mobile platform."
Carver also partnered with the New York Mayor's Office of Immigrant Affairs this summer to help people obtain city-issued identification cards. Carver allowed the city to set up an enrollment center at one of its branches. (Community advocates have expressed hope that the IDNYC cards will help undocumented immigrants and other unbanked individuals open bank accounts.)
Then again, Carver could be constrained by the recent formal agreement with the Office of the Comptroller of the Currency.
"It isn't doing anybody any good if their meetings are dominated by satisfying regulatory concerns rather than building up neighborhoods," Marsico said.
The order requires the company to adopt a written program of internal control policies and procedures tied to the BSA, conduct an independent review of customer account and transaction activity and form a compliance committee. Management must also prepare a written plan to address CRE concentrations. At March 31, 63% of its loans were in commercial or multifamily real estate, according to Federal Deposit Insurance Corp. data.
There is room for optimism, Cunningham said, noting that Carver has been a survivor and it remains "a marquee name" among minority-focused institutions. "They have hung in there," he said.
"Carver has a better profile, footprint and relative financial performance" compared to other black-owned and black-operated banks, Cunningham added. "They just have not taken advantage of the opportunities presented to them, which is tough to do."