Is capital haul too much of a good thing for Black-run banks? By John Reosti, American Banker Newspaper, June 24, 2020
An effort encouraging investors to buy stock in Black-run banks could create new challenges for
the leaders of those companies.
The Buying Black movement, which took root last week, led to sharp increases in the shares of
companies such as Broadway Financial in Los Angeles, Carver Bancorp in New York and M&F
Bancorp in Durham, N.C.
An influx of new investors could increase pressure to improve shareholder returns, while any
strategic effort designed to generate higher profits could also draw a backlash. At the same time,
markets are fickle — most shares in Black-run banks have fallen significantly in recent days as
some existing shareholders cashed out.
Indeed, Broadway's biggest investor — who had been pushing for the company's sale —
abruptly sold all of its stock after the value of its holdings soared.
Leaders of Black-run banks contend that what they need more than capital is more partnerships
with bigger banks to extend their reach to underserved customers.
Broadway has faced all of those challenges since Capital Corps bought a nearly 10% stake from
the Treasury Department in May 2019.
Capital Corps, a mortgage lender founded by former Banc of California CEO Steven Sugarman,
briefly mounted a proxy challenge after offering to buy Broadway. Sugarman claimed that the
$504 million-asset company had strayed from its mission of lending to minority communities.
After facing stiff resistance from Broadway’s management and board, Sugarman opted to sell
the shares. Capital Corps liquidated its stock at roughly $2.62 a share, or nearly double what it
paid the Treasury.
The saga at Broadway serves to illustrate why minority-run banks are often reluctant to court
new investors.
Black-run banks “like the status quo,” said William Michael Cunningham, CEO of Creative
Investment Research in Washington and a longtime proponent of Black-owned banks.
“They don’t necessarily want a lot of attention, and they’re super-conservative, in part because
they don’t have a sufficient asset base" to grow aggressively, Cunningham added. "They really
have to guard every penny.” (As the links below show, we forecast the decline in Black Banks.)
See: Crisis - The Current State of Black Banking. By: Creative Investment Research, Inc. June 14, 2011.
The Current State of Black Banking. Aug. 12, 2016
William Michael Cunningham announces support for USBC/Liberty Bank #BankBlack Credit Card. Jan. 23, 2017
See our Black Bank Survey. https://www.surveymonkey.com/r/YQZXZY7
For a list of Black banks, see: https://www.minoritybank.com/research/blackbanks.html.
Instead, Black-run banks are eager to strike partnerships to access more customers, said Kenneth Kelly, CEO of First Independence Bank, a $265 million-asset Black-owned bank in Detroit. The bank's $102 million portfolio is split between commercial real estate and one- to four-family mortgages.
Establishing partnerships between African American banks and larger institutions has been a
priority for the Treasury Department. It established a mentor-protégé program that has helped
several Black-owned banks, including First Independence and the $108 million-asset Unity
National Bank in Houston, gain a share of fee income tied to processing financial transactions.
“We’re open to partnerships with larger banks that could allow us to deliver” more retail products,
Kelly said. “But that’s not where our business model is right now.”
Broadway, like First Independence, is limited by its lack of scale.
Balance sheet constraints, exacerbated by rising home prices around Los Angeles, have
influenced Broadway's business model. The company focuses more on lending to multifamily
developers than residential mortgages, said CEO Wayne-Kent Bradshaw.
More than three-fourths of Broadway’s $430 million loan portfolio was concentrated in
multifamily lending at March 31, according to the Federal Deposit Insurance Corp. Mortgages
made up less than 15% of total loans.
“Working poor people don’t have the opportunity to buy houses,” Bradshaw said in response to
Sugarman’s criticism.
Funding five- to 25-unit apartment buildings in minority communities “is damn near God’s work,”
Bradshaw added. “We’re very committed to the low- and middle-income community.”
Previous efforts designed to help Black-owned banks have delivered fleeting benefits.
The 2016 Black Money Matters movement, led by the rapper Michael Render, led to an initial
uptick in deposits. The lift was short-lived; deposits at Black-owned banks have fallen steadily in
recent years, according to FDIC data.
Total assets held by Black-owned banks have fallen by nearly 30% since peaking at $6.8 billion in
2008.
Capital Corps said in a letter included with Tuesday’s regulatory filing that it had offered to
provide Broadway with “at least $1 million in pro bono services and technical assistance” to help
the bank make more mortgage, consumer and small-business loans.
While he did not address Sugarman's offer, Bradshaw said he "was very glad" Capital Corps
cashed out. “They bought at a discount and sold for quite a premium.”
Shares of Black-owned banks are typically thinly traded and subject to wild fluctuations. While
they can shoot up quickly with an influx of investors, they can also plummet if shareholders like
Capital Corps decide to sell.
Carver’s stock, which rose sixfold last week to reach $12.20 a share on Friday, is down 28% this
week, ending Tuesday at $8.78 a share. While M&F’s shares increased by 57% last week, ending
Friday at $5.10, they closed at $3.50 on Tuesday.
Broadway’s stock got as high as $7.23 a share on Friday. It ended Tuesday at $2.56.
To be sure, some stocks have continued to rise, including IBW Financial, the parent of Industrial
Bank in Washington, which is up 9.3% this week after rising by 35% a week earlier. Shares of
Harbor Bankshares in Baltimore have quadrupled since June 12, closing at $2 a share on Tuesday.
Lenders need reliable long-term investment, said Kelly, who chairs the National Bankers
Association, the trade group representing African American banks.
“We really don’t need episodic support as much as we need systemic support,” Kelly said.
“I hope what we’re seeing in the high level of interest is something that is sustainable and is
systemic moving forward," he added. "We do serve a unique population, and it should be part of
the American Dream.”
John Reosti, Reporter, American Banker Newspaper.
the leaders of those companies.
The Buying Black movement, which took root last week, led to sharp increases in the shares of
companies such as Broadway Financial in Los Angeles, Carver Bancorp in New York and M&F
Bancorp in Durham, N.C.
An influx of new investors could increase pressure to improve shareholder returns, while any
strategic effort designed to generate higher profits could also draw a backlash. At the same time,
markets are fickle — most shares in Black-run banks have fallen significantly in recent days as
some existing shareholders cashed out.
Indeed, Broadway's biggest investor — who had been pushing for the company's sale —
abruptly sold all of its stock after the value of its holdings soared.
Leaders of Black-run banks contend that what they need more than capital is more partnerships
with bigger banks to extend their reach to underserved customers.
Broadway has faced all of those challenges since Capital Corps bought a nearly 10% stake from
the Treasury Department in May 2019.
Capital Corps, a mortgage lender founded by former Banc of California CEO Steven Sugarman,
briefly mounted a proxy challenge after offering to buy Broadway. Sugarman claimed that the
$504 million-asset company had strayed from its mission of lending to minority communities.
After facing stiff resistance from Broadway’s management and board, Sugarman opted to sell
the shares. Capital Corps liquidated its stock at roughly $2.62 a share, or nearly double what it
paid the Treasury.
The saga at Broadway serves to illustrate why minority-run banks are often reluctant to court
new investors.
Black-run banks “like the status quo,” said William Michael Cunningham, CEO of Creative
Investment Research in Washington and a longtime proponent of Black-owned banks.
“They don’t necessarily want a lot of attention, and they’re super-conservative, in part because
they don’t have a sufficient asset base" to grow aggressively, Cunningham added. "They really
have to guard every penny.” (As the links below show, we forecast the decline in Black Banks.)
The Current State of Black Banking. Aug. 12, 2016
William Michael Cunningham announces support for USBC/Liberty Bank #BankBlack Credit Card. Jan. 23, 2017
See our Black Bank Survey. https://www.surveymonkey.com/r/YQZXZY7
For a list of Black banks, see: https://www.minoritybank.com/research/blackbanks.html.
Instead, Black-run banks are eager to strike partnerships to access more customers, said Kenneth Kelly, CEO of First Independence Bank, a $265 million-asset Black-owned bank in Detroit. The bank's $102 million portfolio is split between commercial real estate and one- to four-family mortgages.
Establishing partnerships between African American banks and larger institutions has been a
priority for the Treasury Department. It established a mentor-protégé program that has helped
several Black-owned banks, including First Independence and the $108 million-asset Unity
National Bank in Houston, gain a share of fee income tied to processing financial transactions.
“We’re open to partnerships with larger banks that could allow us to deliver” more retail products,
Kelly said. “But that’s not where our business model is right now.”
Broadway, like First Independence, is limited by its lack of scale.
Balance sheet constraints, exacerbated by rising home prices around Los Angeles, have
influenced Broadway's business model. The company focuses more on lending to multifamily
developers than residential mortgages, said CEO Wayne-Kent Bradshaw.
More than three-fourths of Broadway’s $430 million loan portfolio was concentrated in
multifamily lending at March 31, according to the Federal Deposit Insurance Corp. Mortgages
made up less than 15% of total loans.
“Working poor people don’t have the opportunity to buy houses,” Bradshaw said in response to
Sugarman’s criticism.
Funding five- to 25-unit apartment buildings in minority communities “is damn near God’s work,”
Bradshaw added. “We’re very committed to the low- and middle-income community.”
Previous efforts designed to help Black-owned banks have delivered fleeting benefits.
The 2016 Black Money Matters movement, led by the rapper Michael Render, led to an initial
uptick in deposits. The lift was short-lived; deposits at Black-owned banks have fallen steadily in
recent years, according to FDIC data.
Total assets held by Black-owned banks have fallen by nearly 30% since peaking at $6.8 billion in
2008.
Capital Corps said in a letter included with Tuesday’s regulatory filing that it had offered to
provide Broadway with “at least $1 million in pro bono services and technical assistance” to help
the bank make more mortgage, consumer and small-business loans.
While he did not address Sugarman's offer, Bradshaw said he "was very glad" Capital Corps
cashed out. “They bought at a discount and sold for quite a premium.”
Shares of Black-owned banks are typically thinly traded and subject to wild fluctuations. While
they can shoot up quickly with an influx of investors, they can also plummet if shareholders like
Capital Corps decide to sell.
Carver’s stock, which rose sixfold last week to reach $12.20 a share on Friday, is down 28% this
week, ending Tuesday at $8.78 a share. While M&F’s shares increased by 57% last week, ending
Friday at $5.10, they closed at $3.50 on Tuesday.
Broadway’s stock got as high as $7.23 a share on Friday. It ended Tuesday at $2.56.
To be sure, some stocks have continued to rise, including IBW Financial, the parent of Industrial
Bank in Washington, which is up 9.3% this week after rising by 35% a week earlier. Shares of
Harbor Bankshares in Baltimore have quadrupled since June 12, closing at $2 a share on Tuesday.
Lenders need reliable long-term investment, said Kelly, who chairs the National Bankers
Association, the trade group representing African American banks.
“We really don’t need episodic support as much as we need systemic support,” Kelly said.
“I hope what we’re seeing in the high level of interest is something that is sustainable and is
systemic moving forward," he added. "We do serve a unique population, and it should be part of
the American Dream.”
John Reosti, Reporter, American Banker Newspaper.