When Carver Bancorp Inc.'s $33 million deal for Independence Federal Savings Bank was announced in March, it was touted as a possible first step in creating a black-owned banking franchise stretching from New York to Washington.
But what would have been by far the largest merger between African-American-owned banks now appears to be in danger of collapsing.
Citing continued deterioration in Independence's finances, Carver, of New York, says the $21 a share it offered is now too much to pay for the struggling Washington thrift.
"The financial condition of Independence Federal has seriously declined since the announcement of our merger agreement ... and Independence Federal has failed to keep us informed of significant developments," Carver wrote in an e-mail to American Banker on Monday.
Independence is rejecting claims that it has failed to keep Carver informed, and it is calling on Carver to reaffirm the $33 million price within 30 days.
Deborah C. Wright, Carver's president and chief executive, first broached the subject of renegotiating the price in a letter last week to Independence's acting president, Thomas Batties. Carver said that it is still committed to the deal and that the letter was meant to initiate a "constructive dialogue."
Mr. Batties said in a press release issued late Friday that Ms. Wright had not specified any actions Independence had taken without notifying Carver.
An Independence spokesman said Mr. Batties was out of the office and unavailable for comment Monday.
Despite Independence's struggles in recent years, Carver, the largest black-owned bank in the United States, was drawn to the thrift largely because Washington is one of the nation's wealthiest African-American markets.
When the deal was announced Ms. Wright said there was "compelling logic" for the $553 million-asset Carver to expand into Washington. She said the deal could also pave the way for fill-in acquistions.
"It makes a lot of sense, since there is a straight line between New York and Washington and lots of prospective Carver customers in between," she said.
The $195 million-asset Independence has floundered since the death of its founder, William B. Fitzgerald, in 1998. It lost money in both 2002 and 2003, and its finances continued to decline after the sale announcement. It lost nearly $1.2 million in the second quarter and reported declines in its asset size, loan portfolio, and deposit base.
At the same time it reported a rise in nonperforming loans, to 1.79% of loans as of June 30. The average nonperforming loan percentage at thrifts with $100 million to $300 million of assets was 0.68%, according to the Federal Deposit Insurance Corp. Carver's was 0.5%.
Joseph Gladue, who covers Carver for Cohen Bros. & Co. in Philadelphia, said news of Ms. Wright's letter to Mr. Batties was the first indication that Carver was dissatisfied with the deal.
"When last I talked to Carver, they were very excited," Mr. Gladue said. "They said they had looked at a great percentage of the loans on the books and had a lot of ideas about how to improve profitability."
Independence's largest shareholder, Morton Bender, did not return a phone call Monday.
In a filing with the Securities and Exchange Commission on April 27, Mr. Bender, who owns 20.2% of Independence, said he intended to vote all his shares against the sale.
He has also called for the removal of board members who favor it.
A shareholder vote had been scheduled for Sept. 29, but it is likely that the vote will be delayed.
