A new lease on banking.

Under new and younger leadership, Carver Federal Savings Bank digs in its heels for the long term by opening a mortgage and small business lending center

FOR EIGHT YEARS, THE BROOKLYN, New York-based Bedford Stuyvesant Restoration Corp. had been trying to secure a loan to help renovate its 250,000-sq.-ft. commercial plaza, a hub of activity to more than 1.5 million visitors annually. The plaza is home to such tenants as Pathmark Supermarket, a Post Office mini-station and the Billie Holiday Theater.

Finally, this past February, the nation's oldest community development organization was able to get a much needed $3.15 million loan from Carver Federal Savings Bank, the nation's largest African American-managed bank. The bulk of the money was used to refinance--at below prime interest rate--an existing $2.7 million mortgage.

"The loan is an indication that Carver has a new strategic direction that is evident by its going public and its new president," says Restoration President Roderick B. Mitchell. "Carver is looking to do business in a new way and to be more active in making certain types of business loans."

Indeed, the commercial loan Restoration received from Carver represents the largest single loan in the bank's history. It's also just one example of Carver's new lease on banking and its commitment to servicing the needs of the community.

Carver has gone through major changes over last two years. In 1994, it went public, becoming the first and only black bank on NASDAQ and one of only 11 black publicly traded companies. Last year, Richard Greene, an octogenarian who led Carver for 25 years, was replaced as director, president and CEO by 52-year-old Thomas Clark, Jr. Changing its mission, the bank now places greater emphasis on lending by way of a new mortgage center, which includes a small business loan division.

Despite these changes, Carver has retained its stature as the largest black-owned financial institution in the nation with $363 million in assets, of which 70% is invested in mortgage loans. About 21%, or $80 million, is invested in direct loans, compared with 13% in the previous year. Moreover, Carver is one of the safest and best run black financial institutions in the country.

In addition to increasing commercial and mortgage lending, bank is looking to shore up its services by opening new branches and providing enhanced services. These new services include ATM machines at each branch, a secured credit card and various investment options, among other things. The execution of a successful presidential succession, commitment to customer satisfaction, community dedication and a consistent record of strong capitalization all support BE 's choice of Carver Federal Savings Bank as the financial company of the year.

BUILDING FROM HUMBLE BEGINNINGS 

Carver has come a long way from its days as a storefront with two employees and one cash register. Today, the Harlem bank is headquartered in a state-of-the-art, granite building, with nine teller service windows, 108 employees and all the amenities of a modern financial institution.

Carver has built a system of eight branches throughout the New York boroughs of Brooklyn, Queens, Manhattan and Long Island. In most cases, Carver bought the branches of white commercial banks fleeing from minority neighborhoods.

Named after African American scientist and educator, George Washington Carver, the bank was founded by a coalition of 13 black businesspersons, and civic and church leaders who were troubled by the difficulty African Americans were facing getting credit throughout the city. Originally chartered in 1948 as Carver Federal Savings & Loan Association, the financial institution changed its name to Carver Federal Savings Bank in 1986 as an attempt to lure more customers.

Greene, who was president at the time, felt the title of savings bank was more meaningful to the public. "It didn't change the nature of the operation," he says. (Carver is not a commercial bank but refers to itself as a community development bank.)

At the time, the only other financial institution servicing New York's African American community was Freedom National Bank, which was founded in 1964. Freedom's demise in 1990 signified the precarious position of minority-owned commercial banks, particularly since the reforms brought about by the S&L crisis of the late '80s.

Carver is a prime example that the strong survive. It was left unscathed by the S&L crisis, although a large proportion of S&Ls struggled and died in 1989, unable to meet the tough new capital requirements of the Financial Institutions Reform, Recovery and Enforcement Act. Not only did Carver withstand the changes brought about by the act, but it was touted as a model for the nation's thrifts because of its capital cushion of $238 million in assets.

Still, tragedy struck in 1992. The bank's original headquarters burned down due to an electrical fire, and it took four years before it reopened. Using insurance money and funds from their operating budget, Carver built a new $5 million, corporate, four-story office at its original location on 125th Street in Harlem.

Carver subsequently went public in October '94, becoming the first black-controlled financial institution to trade on NASDAQ. The initial offering, which was underwritten by Capital Resources of Washington, raised $22 million in capital. Stock was sold to depositors at $10 a ret For the first six months, Carver stock (NASDAQ: CARV) languished below $7. It's currently trading at $8.75 a share; the book value is $15 a share.

Greene, who now sits on the bank's board, notes it was his idea to take the company public in order to raise capital to expand Carver's operations and services and open new branches. "The other reason was to set an example that a blackowned bank could go public and trade on the stock exchange," he adds.

Most recently, the bank's seven-member board of directors voted to begin the process of reestablishing the bank as a wholly owned subsidiary of a savings association holding company, with a Delaware corporation organized as the holding company. If approved at the July shareholders meeting, the holding company structure will enable Carver to get involved in other types of businesses, including underwriting securities and selling insurance products, such as annuities.

Walter Bond, Carver's assistant vice-president and investment officer, adds that a holding company would also give the institution flexibility in other corporate transactions such as acquisitions and stock repurchase programs. "Buying back shares shows we believe in the company, it also increases shareholder value," he says. Each board member is required to own at least 100 shares, which means that both Clark and Greene own shares in the company.

MAKING A SMOOTH TRANSITION

Three months after the conversion to a publicly held company, Clark was appointed as the bank's new president. He had served as a deputy superintendent and secretary to the banking board at the New York State Banking Department for nearly 20 years prior to joining Carver in February of '95.

An industrious Clark put himself through Buffalo State College by working the night shift as a narcotics unit corrections officer. He received an M.B.A. from Canisius College in Buffalo, and worked as an assistant treasurer for the Buffalo Savings Bank before joining the Banking Department in 1976.

Greene says Clark was chosen as his successor partly because of his banking experience. "He also had a positive personality and an ability to relate to people--and that's important," Greene says.

Triggered by the hospitalization of Greene in 1991, a search committee was set up to find his successor. "We didn't want to be in a position where we didn't have a succession plan in case something happened," says David Jones, chairman of the board of directors. Several candidates were interviewed but Clark received a unanimous vote.

Jones adds that Clark's appointment was prompted, in part, by the decision to go public. "Older board members realized if the bank was going to take a new direction it needed new leadership. Still, we didn't want to lose the continuity of the bank, which flourished under conservative leadership."

Moreover, realizing that the bank was going to be under further scrutiny as a public entity, the board believed someone with experience as a bank regulator was a logical choice. "Clark, more than anyone else who applied, had a vision of Carver becoming a bigger institution and playing a bigger role in New York."

Traditionally, Carver has been a conservative lender, but that will change under Clark. "Before they went public, they didn't make a lot of loans and that's where banks make their money," says Joe Gladue, an equity analyst who covers Carver for the Chapman Co., a Baltimore investment bank. "Now they are aggressively seeking to make loans. They'll be a lot more profitable in the future."

William Michael Cunningham, president of Creative Investment Research, an investment management and research company, notes that "a lot of the minority banks are conservative with lending policies, mainly because they are small institutions and don't have a lot of room for error. One or a couple of bad loans could have a negative impact," says Cunningham.

Greene admits that he was overly conservative but explains it was in the interest of the bank's survival. "The idea was to run the bank [thriftily] and not assume a lot of risk. As a result of my style," he adds with a laugh, "the bank has grown immensely."

On a scale of one to five with one as the highest ranking, the. bank's current Community Reinvestment Act performance evaluation rating is two, or satisfactory. Clark says that's only because the bank didn't have enough direct loans on its books. He adds that the banks conservative past has something to do with this.

"We never had a functioning, viable mortgage department. What we did instead was buy pools of mortgages, putting them on the books to meet thrift criteria that way."

MORE LOANS ON THE HORIZON

Carver has already begun to remedy its conservative status. Loan production increased 49% to $4.1 million for the first three months of 1996 compared with $2 million the previous year.

Caner's newly opened mortgage loan origination center will house a small business division. The bank recently became a Small Business Administration-certified lender. "We think it's a natural for us to be granting SBA guaranteed loans," says Clark. "It especially makes sense for the largest African American financial institution to be in the small business loan business."

Carver also plans to work with the New York State Business Development Corp. and the New York State Small Business Development Centers in assisting local entrepreneurs to become stronger candidates for a loan. "As new businesses come to us, we will send them to the small business development center, [which in turn] will help them develop a business plan and marketing study," Clark says. "If the [development center] signs off in terms of their understanding that this is a business that makes sense and is viable, chances are Carver will make that loan."

Moreover, if a person is denied a mortgage loan because of bad credit, Caner will refer them to the New York-based Budget and Credit Counseling Service (BUCCS), which helps customers repair their credit. If the applicant successfully goes through their program, Caner will make the loan.

In addition, loan representatives work with mortgage brokers and community development organizations to close loans.

But Clark doesn't deny that the bank is selective in granting loans to people. "This money is depositors' money and we have to be profitable," he says.

Clark insists that Caner isn't blowing hot air about granting more loans in the future. The bank recently bought $26.3 million worth of one-to-four family mortgages from Chemical Bank. "When I first came, we had about 11% of our assets in direct loans," says Clark. "We've gone to 21% and the goal by the end of this year is to be at 30%. Our mortgage portfolio of direct loans has gone from $45 million to $80 million.

Chemical and Chase Manhattan Bank recently became partners with Caner. They have been selling loans and loan participations to help the bank increase its loan portfolio and further ongoing efforts to restructure its balance sheet.

When it was announced that 80 black business owners in the New York City area would be withdrawing their money--totaling $3 million--from Chemical and Chase to deposit it at Carver, Clark insisted that he was not soliciting nor did he encourage African American customers to pull their money out of these white-owned institutions.

Although some businesspeople alleged that Clark didn't want to bite the hand that feeds him, Jones, in his own defense, explains, "We want people to come to us because they feel Caner can better serve their needs, not as a blanket appeal. That's not to say we aren't aggressively marketing our bank to that constituent market. But we don't want to advocate that black-owned banks should only service black people and white-owned banks should only cater to white customers."

BANKING TURF WARS

Caner is keeping up with the changing times in the banking industry, offering many of the services of a commercial bank, including ATM cards, interest-bearing checking accounts and a secured credit card. The bank has also expanded banking hours on Saturdays to further serve the needs of its depositors.

Caner also intends to provide an annuity product and mutual funds by yearend. "We will not be offering such products directly. We will engage a company [brokerage firm] that will rent space from us and we'll get a fee for doing that." Clark says, adding that the bank's computer system is being totally upgraded to handle such accounts.

By expanding its services Caner will be able to better compete with other minority banks as well as with other savings and loans and commercial banks looking to do a better job in urban areas, says Dina Nichelson, executive director of the American League of Financial Institutions, a lobbying concern for minority-owned financial institutions. "Doing creative marketing and community outreach are some ways to learn what their customers need and want, and to stay ahead of the curve," she adds.

Nichelson says Caner's asset size puts it in the mid-size financial institution category. Banks with assets under $150 million are considered small, those between $150 million and $750 million are medium and those over $750 million are large. Beyond $1 billion, you're talking about megabanks. Clark says Caner's long-term plan is to grow its assets to $500 million, and to become a billion-dollar institution by the year 2000. Expansion plans for the institution include opening a branch in Mt. Vernon, N. Y., this year and three others over the next four years.

Clark, however, doesn't want the bank to grow too fast. "Managing our growth is going to be one of the biggest challenges that we're going to have," he says, adding that he hopes to select a chief operating officer over the next year. The post is open because it's a new position created by Clark. "We're offering products that our people really need with the understanding that there's a lot of value in urban communities."

Clark says the bank wants to attract individuals, white and black, who have an urban mentality and understand urban development. And that they want to cater to their niche: "the little guy," which is still a lucrative, untapped market. "We want them to embrace Carver as their bank. And that's happening."