Independence Federal may get injection of capital

By Danielle Douglas
Monday, March 7, 2011

Beleaguered community bank Independence Federal Savings Bank in the District may soon get a fresh injection of capital from an unnamed group of investors, according to the bank's attorney, Dale Cooter of Cooter, Mangold, Deckelbaum & Karas.

This funding could satisfy the Office of Thrift Supervision, which recently slapped the bank with a cease-and-desist order for operating with insufficient capital, inadequate earnings to fund growth and excessive troubled loans. This marks the third such order in the past five years.

Cooter, who would not disclose any details of the investment deal, said the parties have been hammering away at a contract for the past month, though nothing is certain at this point. Independence, which has three branches in the Washington area, is continuing to look for investors to hedge its bets.

"It is everyone's intention, via some mechanism, to recapitalize Independence," Cooter said. "It's possible some investor might want to take control of Independence. That is something that certainly Independence is listening to."

Independence has recorded annual losses every year since 2003, finally reversing that trend last year with a profit of $145,000, according to SNL Financial. Assets fell 29 percent year over year to $111 million in 2010, while deposits slipped 32 percent to $95 million. Nonperforming loans compose about 12 percent of the bank's total assets, while its capital is just under 4 percent of assets.

"A buyer could find Independence attractive, if they could satisfy themselves that the loan quality issues could be handled," said David G. Danielson, president of Danielson Associates, a banking consultant firm in Bethesda. However, "if you're an acquirer, what can you pay for something that may have a negative net worth?"

Regulators are leaning on the bank to address its shaky balance sheet. Cooter said the bank submitted a recapitalization plan to the OTS last month.

Once a premier African American owned financial institution, Independence was taken over by its largest shareholder, Morton A. Bender, in 2007, following a string of lawsuits and shareholder fights. Independence racked up hefty legal bills, adding to its operating losses, during the bitter courtroom battles.

In early 2009, Bender, who could not be reached for comment, tried to merge the bank with Rockville-based Colombo Bank, in which he also holds a majority interest. Regulators effectively killed the deal with a cease-and-desist order.

About eight local banks have been hit with enforcement orders from regulators since the onslaught of the recession. Six of them have since been taken over by the FDIC, including Greater Atlantic Bank of Reston and Germantown's Waterfield Bank.

© 2011 The Washington Post Company