Even at a bargain-basement price, Abigail Adams National Bancorp's stock deal for Consolidated Bank and Trust Co. in Richmond, Va., could be viewed as a gamble.
The purchase price, $2.5 million, is $1.1 million less than the amount of equity capital the $70 million-asset Consolidated had on its books at the end of the third quarter.
But the privately held Consolidated is hardly a top performer. Since 1999 it has lost more than $5.5 million - primarily to bad loans. Its percentage of nonperformers to total loans is roughly four times the industry average, according to Federal Deposit Insurance Corp. statistics.
In a worst-case scenario (if Consolidated's loan losses grew), Abigail Adams could be stuck with millions in clean-up costs.
But Adams' president and chief executive, Kathleen Walsh Carr, said she is confident that Consolidated's troubles are largely behind it.
Ms. Carr said her counterpart at Consolidated, Kim D. Saunders, has done a good job of overhauling it. Last year its operating loss narrowed to $334,000, from $1.4 million in 2003.
The deal, which was announced late Thursday and is expected to close in the second quarter, would bring the $252 million-asset Adams, which is based in Washington, into the fast-growing Richmond market.
It would also be historic - the first purchase of an African-American-owned bank by one owned by women.
Founded in 1903, Consolidated is the nation's oldest continuously operating black-owned bank. Adams, which was founded as Womens' National Bank in 1974, is classified as a minority institution. Its focus is women- and minority-owned small businesses, Ms. Carr said, but most of the owners and managers are white.
Ms. Carr downplayed the historical significance and chose instead to emphasize why the deal makes sense.
"Richmond is very attractive," she said. "It's got a very good corporate foundation with a number of Fortune 500 companies headquartered there, a strong government presence with the Federal Reserve Bank of Richmond, and a large minority population."
The population of the Richmond-Petersburg statistical area grew by 16% between 1990 and 2000, to 1.1 million, and the median household income rose 47%, to $49,000, according to the Census Bureau.
Arnold Danielson, the founder of Danielson Associates Inc. in Rockville, Md., said he finds the combination "very appealing." He noted that Richmond is only about 90 miles from Washington.
Consolidated's loan problems are not too big for Adams to fix, Mr. Danielson said.
On Sept. 30, the date of its most recent call report, Consolidated reported $1.4 million of nonperforming loans, or 3.32% of its portfolio.
Ms. Saunders, a longtime lender in the Washington area, joined Consolidated in December 2003.
After 14 months of working out bad loans and cutting costs, Consolidated is ready to turn to growth opportunities - and for that it needed the resources of a larger bank, she said.
"We've been working on strengthening asset quality, cutting overhead, and becoming much more efficient," Ms. Saunders said Friday. "Now we need to upgrade our technology and add new products like debit cards and Internet banking."
Adams plans to maintain Consolidated's separate charter and to keep Ms. Saunders and her management team.
William Michael Cunningham, the CEO of Creative Investment Research Inc., a Minneapolis company that specializes in black-owned banking companies, said sales to white-run companies have caused problems in the past, primarily among activists who feared the sales would reduce minorities' access to capital.
But retaining Consolidated's identity and executives should help allay those concerns, Mr. Cunningham said.
