Carver Bancorp, Inc. (NASDAQ:CARV) is a unique financial institution with a rich history and a mission-driven focus on serving underserved communities in New York City. As one of the largest African-American-operated banks in the United States, Carver Bancorp has played a vital role in expanding access to financial services and empowering minority-owned businesses and individuals for over 75 years.
Business Overview and History Carver Bancorp, Inc. was incorporated in May 1996 as a holding company structure, with Carver Federal Savings Bank becoming its wholly-owned subsidiary. The bank's roots trace back to 1948 when it was chartered as Carver Federal Savings and Loan Association, a federally-chartered mutual savings and loan association, beginning operations in 1949. In 1986, the institution converted to a federal savings bank.
A significant milestone occurred in October 1994 when the Bank converted from a mutual holding company structure to stock form, issuing 2.31 million shares of its common stock. This paved the way for the reorganization into a holding company structure in October 1996, establishing Carver Bancorp, Inc. as the parent company.
Carver Federal's core business revolves around attracting deposit accounts through its seven branches located throughout New York City and investing those funds in mortgage loans and other investments permitted by federal savings banks. The bank's branches primarily serve the communities in which they operate, maintaining a strong local focus.
In 2003, the Company expanded its financial structure by forming Carver Statutory Trust I. This entity was created for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of floating rate junior subordinated debentures of the Company. These trust preferred debt securities have a mandatory redemption date of September 17, 2033, providing long-term financing for the bank's operations.
Throughout its history, Carver has faced various challenges while remaining committed to its mission. One notable hurdle came in May 2016 when the Bank entered into a Formal Agreement with the Office of the Comptroller of the Currency (OCC) to address compliance-related and other actions. This agreement required the Bank to obtain OCC approval for changes in directors or senior executive officers, dividend payments, and golden parachute arrangements. While the Agreement was terminated in January 2023, an Individual Minimum Capital Ratio requirement remains in effect, underlining the ongoing regulatory oversight of the bank's operations.
Financial Performance and Ratios Carver Bancorp's financial performance has been mixed in recent years, reflecting the challenges faced by the bank as it works to transform its business model and adapt to the changing industry landscape.
For the fiscal year ended March 31, 2024, Carver reported annual revenue of $29.28 million and a net loss of $2.98 million, a slight improvement from the $4.40 million net loss recorded in the prior fiscal year. The bank's net interest income remained relatively stable at $22.56 million in fiscal 2024, compared to $22.79 million in fiscal 2023, as the impact of interest rate changes and loan portfolio dynamics were largely offset.
In the most recent quarter ended December 31, 2024, Carver reported quarterly revenue of $3.79 million and a net loss of $5.65 million. The decrease in quarterly net income compared to the prior year quarter was primarily due to increases in interest expense, non-interest expense and provision for credit losses, as well as decreases in interest and non-interest income.
The bank's net interest income decreased 45.5% to $3.0 million for the three months ended December 31, 2024, compared to $5.5 million for the same quarter in the prior year. This was primarily due to lower interest income on loans, which decreased $1.5 million, as well as higher interest expense on deposits, which increased $1.0 million. For the nine months ended December 31, 2024, net interest income decreased 11.6% to $14.5 million, compared to $16.4 million in the prior year period.
Liquidity The bank's liquidity position remains adequate, with cash and cash equivalents totaling $50.00 million as of December 31, 2024. Carver's capital ratios have been a point of focus, with the bank maintaining a Tier 1 leverage ratio of 9.03% and a total risk-based capital ratio of 12.14% as of December 31, 2024, both of which exceed the minimum regulatory requirements.
Carver's asset quality has shown signs of deterioration, with nonperforming assets (NPAs) increasing to $22.9 million, or 3.1% of total assets, at December 31, 2024, compared to $11.8 million, or 1.6% of total assets, at March 31, 2024. The bank's provision for credit losses was $96,000 for the three months ended December 31, 2024, compared to a $97,000 recovery in the prior year quarter. For the nine months ended December 31, 2024, the provision for credit losses was $817,000, compared to $77,000 in the prior year period.
The bank's debt-to-equity ratio stood at 0.37 as of March 31, 2024, indicating a relatively low level of leverage. Carver's current ratio and quick ratio were both 1.13 as of December 31, 2024, suggesting adequate short-term liquidity. The bank has the ability to borrow an additional $12.70 million on a secured basis from the FHLB-NY, utilizing mortgage-related loans and securities as collateral. Additionally, the company has $13.40 million in subordinated debt securities and $5.00 million in low interest loans outstanding as of December 31, 2024.
Operational and Strategic Initiatives In response to the bank's financial challenges, Carver has undertaken a series of strategic initiatives aimed at improving its operational efficiency, diversifying its revenue streams, and enhancing its community impact.
One key focus has been on growing the bank's commercial and multifamily lending portfolios. As of December 31, 2024, Carver Federal had approximately $727.5 million in assets and 111 employees. The bank's total loans receivable portfolio was $610.9 million, with the largest segments being multifamily loans at $169.6 million (27.8% of total loans), commercial real estate loans at $181.5 million (29.7% of total loans), and business loans at $163.6 million (26.8% of total loans).
The bank has also sought to expand its digital capabilities, investing in technology to improve the customer experience and streamline internal processes. Carver Federal offers a suite of products and services for unbanked and underbanked consumers, branded as Carver Community Cash. This includes check cashing, wire transfers, bill payment, reloadable prepaid cards and money orders.
In 2024, Carver announced a partnership with NY Green Bank to establish a $25 million revolving loan facility to support building decarbonization projects in New York City. This initiative aligns with the bank's commitment to sustainability and its desire to play a role in addressing the pressing issue of climate change.
Additionally, Carver has strengthened its focus on community engagement and partnerships, leveraging its status as a certified Community Development Financial Institution (CDFI) and Minority Depository Institution (MDI) to deepen its impact in the neighborhoods it serves. The bank's recent "Outstanding" CRA rating is a testament to these efforts.
Challenges and Risks Despite Carver's long history and mission-driven focus, the bank faces a number of challenges that have contributed to its recent financial performance.
One notable challenge has been the highly competitive banking environment in New York City, particularly for deposits and mortgage lending. Carver's smaller scale and brand recognition relative to larger regional and national banks have made it difficult to maintain market share and profitability. The bank's total deposits were $636.9 million as of December 31, 2024, with the largest deposit categories being certificates of deposit at $236.2 million (37.1% of total deposits), money market accounts at $151.8 million (23.8% of total deposits), and savings accounts at $107.1 million (16.8% of total deposits).
The bank has also grappled with the ongoing effects of the COVID-19 pandemic, which has impacted its customer base and led to increased credit risk in certain segments of its loan portfolio. Carver's concentration in commercial real estate and multifamily lending has also exposed the bank to heightened market volatility and potential risks.
Additionally, Carver has faced heightened regulatory scrutiny and oversight, including the Formal Agreement with the OCC in 2016. While the bank has made progress in addressing these compliance-related issues, the costs and operational disruptions associated with regulatory matters have weighed on its financial performance.
In October 2023, the previous CEO, Michael Pugh, left the company to pursue other professional and philanthropic interests. Craig C. MacKay has served as interim CEO since then, adding an element of leadership transition to the bank's challenges.
Outlook and Conclusion Carver Bancorp's journey has been marked by both challenges and opportunities. As one of the few remaining African-American-operated banks in the United States, the company plays a vital role in promoting financial inclusion and community development in the neighborhoods it serves.
While the bank's recent financial performance has been mixed, Carver's management team has demonstrated a commitment to transforming the business and positioning the company for long-term success. The bank's strategic initiatives, including its focus on commercial and multifamily lending, digital transformation, and community partnerships, hold promise in driving improved profitability and sustainability.
However, Carver will need to navigate a complex and highly competitive banking landscape, address ongoing regulatory concerns, and manage the lingering effects of the COVID-19 pandemic. Successful execution of its strategic plan and the ability to adapt to the evolving industry dynamics will be critical factors in determining the bank's future trajectory.
As Carver Bancorp continues to write its story, investors and stakeholders will be closely watching the bank's progress in balancing its mission-driven approach with the need to deliver sustainable financial performance. The road ahead may be challenging, but Carver's deep roots in the community and its unwavering commitment to its purpose provide a solid foundation for the bank to forge a new path forward.