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Underperformance draws hostile takeover bid for Black MDI


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Underperformance draws hostile takeover bid for Black MDI

Black and African American minority depository institutions underperformed their peers on metrics such as return on average assets, efficiency and deposit growth in the second quarter.

For one Black minority depository institution (MDI), that underperformance caught the attention of a shareholder, which has launched a hostile takeover bid — an uncommon occurrence in bankland. Carver Bancorp Inc. is facing a potential hostile takeover by Dream Chasers Capital Group LLC, a New York City-based minority-run investment fund. Dream Chasers has offered to buy 35% of Carver's shares at $3 apiece — a premium to the company's $2.17 closing price on Sept. 25.

The investment fund, which said it owns a 5.5% stake in Carver, went public with its offer on Aug. 31 after months of discussions with the bank about acquiring a significant interest, according to a press release.

With its offer, Dream Chasers said in the release that it wants to "take control of the bank" and replace current management.

"Poor execution and mismanagement have left the bank on shaky financial footing, losing deposits, overconcentrated in commercial real estate and unable to serve any of its constituents' well-shareholders, depositors, or the community," the firm said.

Carver carefully reviewed the Dream Chasers proposal in accordance with its fiduciary responsibility, a company spokesperson said in a statement.

"Given the implied valuation, pro forma dilution, and the significant reputational and regulatory risks involved in Dream Chasers Inc.'s proposal, the Carver board determined that rejecting it was in the best interests of shareholders, the company, and the communities the Bank serves," the spokesperson added.

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Dream Chasers hopes to build on the bank's history and brand recognition by bringing brokerage services, retirement planning and investment banking to the communities it serves, Dream Chasers CEO Gregory Lewis said in an interview.

"We've been in talks with them to be the JPMorgan for minorities," Lewis said. "There's so much money out there for MDIs to really build themselves up, but they don't have the necessary platform or capital to do it, so we're trying to change that."

In the second quarter, Carver posted a return of average assets (ROAA) of roughly negative 0.5%, compared to a median of 0.3% for all Black MDIs, 1.1% for all MDIs and 1.0% for the banking industry. The bank's efficiency ratio of 113.2% was one of the highest among its Black MDI peers, and was also well above the medians for all MDIs and all banks.

Its shares have also underperformed the industry and its peers. As of Sept. 7, Carver's year-to-date total return was negative 41.4% compared to negative 11% for the S&P US BMI Banks Index and negative 11.1% for Broadway Financial Corp., another Black MDI traded on a major exchange.

Black, African American MDI performance

Carver is not alone in its underperformance compared to peers, as Black MDIs lagged in most median performance metrics for all MDIs and the banking industry as a whole.

Columbus, Ohio-based Adelphi Bank, which was established in January, reported the lowest ROAA among Black and African American MDIs at negative 11.3%, while Hattiesburg, Miss.-based Grand Bank for Savings FSB reported the highest at roughly 5%.

Efficiency was another area of relative underperformance for Black and African American MDIs, with a median efficiency ratio of 88.6% compared to the median of 64.3% for all MDIs and 65.3% for all US banks. With an efficiency ratio of 263.7%, Adelphi was by far the least efficient Black and African American MDI, but six other institutions in the group reported efficiency ratios above 100%.

Median nonperforming assets as a proportion of assets were higher at Black and African American MDIs, at roughly 1% in the second quarter, compared to medians of 0.4% for all US MDIs and 0.2% for all US banks.

However, loan and deposit growth were stronger for Black and African American MDIs, with 1.1% median deposit growth year over year and 14.9% median loan growth year over year, the only category in which the group outperformed the medians for all MDIs and all US banks.

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