Carver's in for a fight.

Shareholders tell Harlem bank they're not buying its plans

You might say Carver Bancorp (Amex: CNY) has a plate full of worries. During the past year the New York savings and loan has had to grapple with a stalled turnaround, lagging profits, unruly costs and a flagging stock price. Now, add one more item to the list: angry shareholders.

For the second year in a row, a proposal that the company be sold was floated at Carver's annual meeting in August. And while the proposition didn't get the majority vote it needed to pass, President and CEO Thomas Clark had to be worried that it captured 28% of the voting shares, compared with 24% in 1997.

It's easy to see why shareholders have a beef. After hitting a high of $17.50 a share on December 19, 1997, the stock dove to $8.50 early the following October. Yes, Carver may have given investors a onetime dividend of 5 cents a share in June, but the company hastened to tell investors that it wasn't yet ready to declare a regular payout.

Clark says Carver's reorganization, one that is bigger than a mere housecleaning, continues three years after he joined the company. "In the next two years, this will be a strong institution," he says.

Until then, Wall Street still has a list of questions for Carver to answer. "Does management have the ability to stop or slow the growth in expenses as it continues to increase revenues?" asks analyst Joe Gladue of the Baltimore-based Chapman Co. While Carver has increased its lending portfolio, he adds, costs rose and profits have been at a standstill.

Carver has taken several steps to fatten its bottom line, says Clark. For one, it has boosted mortgage lending. In 1995 the business made up 11% of Carver's assets or $45 million; it now amounts to 62% or $250 million. It's also looking to increase fee income from mortgages, checking accounts and ATMs, while trying to weed out underperforming assets. And the company is restructuring its credit card business. It has also tried to sell one of its branches, although the deal has stalled.

Is Carver worth a bet? On a price to-book value basis, it looks inexpensive. The stock trades at a little under 60% of its bookvalue, compared with other thrifts that fetch book (the actual amount they are worth). Examine its price-to-earning multiple, however, and the stock looks a little out of line. Carver is trading at about 19.3 times its trailing 12-month earnings, vs. the 12 times earnings for most thrifts. "They have to be more profitable to get in line with the price," says Gladue.

That could turn out to be quite a challenge in the year ahead. With interest rates sinking to 30-year lows, most banks are increasing their lending and home buyers and businesses are rushing to borrow money. Carver, however, is worried that homeowners might start a rush to refinance existing loans.

Don't count Carver out, says Clark, pointing to the company's 50-year anniversary on January 5. "For most banks, that's a halfway milestone," he says. "But for an African American company, it's a tremendous feat."

B.E. Black Stock Index

                                                    52-Week
Company                      Exchange: Symbol    High      Low

American Shared Hospital
 Services                    Amex: AMS           $2.00     $0.56
Ault Inc.                    Nasdaq: AULT         6.50      6.00
Broadway Financial Corp.     Nasdaq: BYFC        12.73      6.75
Caraco Pharmaceutical Labs   OTC BB: CARA         0.70        66
Carson Inc.                  NYSE: CIC           10.75      1.50
Carver Bancorp               Amex: CNY           17.50      8.50
Chapman Holdings             Nasdaq: CMAN        11.00      9.00
Envirotest Systems           Amex: ENR           22.00      4.50
Granite Broadcasting         Nasdaq: GBTVK       13.63      3.50
OAO Technology               Nasdaq: OAOT        11.88      2.13
United American Healthcare   NYSE: UAH            3.94      0.75

                                     Current
Company                               Price(*)  P/E     EPS(**)

American Shared Hospital
 Services                              $1.13      4.9     $0.2
Ault Inc.                               6.31     15.8      0.3
Broadway Financial Corp.                8.50     12.7      0.7
Caraco Pharmaceutical Labs              0.69        0        0
Carson Inc.                             3.06      3.3        0
Carver Bancorp                          9.13     19.0        3
Chapman Holdings                        9.06        0        0
Envirotest Systems                     15.88     23.0      0.7
Granite Broadcasting                    5.50        0        0
OAO Technology                          3.88        0        0
United American Healthcare              1.13        0     -3.5

(*) As of 11/4/98

(**) Earnings per share exclude extraordinary charges.

Sources: DBC Financial (www.dbc.com) and Yahoo Quotes (quote.yahoo.com)