A merger announced Wednesday will create the nation’s largest Black-controlled bank and the first with assets of more than $1 billion.
Broadway Federal Bank, a Los Angeles-based commercial lender founded in 1946, will combine with City First Bank in Washington, which opened in 1998.
Brian E. Argrett, chief executive of City First, will be chief executive of the combined company, which will use City First as its banking brand but keep the publicly traded Broadway Financial Corp. as its bank holding company. Wayne-Kent A. Bradshaw, Broadway’s chief executive, will be the chairman of the combined company.
The newly enlarged bank will specialize in three areas of financing: multifamily affordable housing, small businesses and nonprofit development, Argrett said in an interview.
“We need to scale up our impact,” he said. “Having a larger capital base is important so we can direct more resources into underserved communities.”
Broadway and City First are community development financial institutions, which are lenders that focus on low- and moderate-income areas and typically serve minority borrowers and entrepreneurs who lack the assets to get traditional loans. The new company will preserve Broadway’s designation as a minority depository institution, a federally insured institution that is mostly owned by minority shareholders or led by a minority-controlled board.
There are 143 minority depository institutions in the United States, according to the government’s latest data, but just 20 are Black-led. A recent study by the Federal Deposit Insurance Corp. found that such minority-led institutions outperform traditional banks in originating mortgages and federally backed small-business loans to borrowers in low- and moderate-income census tracts.
The two banks’ desire to grow and create an organization with a larger capital base inspired the merger, Argrett said. The company plans to maintain headquarters in Southern California and Washington.
Broadway Financial recently fended off a hostile takeover attempt by The Capital Corps, another minority-focused lender. Had it succeeded, that deal would have ended the bank’s seven decades of Black ownership.
Community lenders have been especially prominent lately in dealing with the economic shocks of the coronavirus crisis and the protests that roiled many cities this summer. They were a vital link in getting government relief funds and other resources to businesses and entrepreneurs in areas neglected by larger banks.
“In the midst of a global pandemic, unprecedented unemployment and the very important social unrest going on in our country, CDFIs are the answer,” Argrett said. “By building a bicoastal and national platform, we have the opportunity to become a very attractive platform for impact investors looking to join this space.”
The transaction, which is expected to close early next year, will leave Broadway stockholders with 52.5% ownership of the new company and City First shareholders with 47.5% ownership.