Behind the deal to form the biggest Black-run bank

Two buyout offers rejected. A hostile takeover thwarted. Two old colleagues reunited.

That’s the short version of how a recent merger of equals deal to create the country’s largest Black-run bank came to be.

Broadway Financial in Los Angeles and CFBanc in Washington, the parent of City First Bank of D.C., announced a $38.1 million agreement on Aug. 26 to form a nearly $1 billion-asset company.

But the $499 million-asset Broadway had other plans in early 2019, according to a recent securities filing tied to the agreement. Its board decided to find a buyer to address “longer-term strategic issues” that included a small asset base and challenges bringing in low-cost deposits.

Broadway also had to sell its multifamily originations to avoid exceeding regulatory limits on the amount of risk-based capital that can be committed to commercial real estate loans. Moreover, its board was having discussions about finding a successor for Wayne-Kent Bradshaw, who was contemplating retirement.

The board hired an investment bank in April 2019 to identify potential acquirers. Of the 14 potential suitors that were contacted, eight took a serious look and two submitted indications of interest.

A $5 billion-asset banking company that was interested in entering Southern California sent a proposal on July 19, 2019, valued at about $32.7 million, based on Broadway’s shares outstanding and midpoint of the pricing range provided in the filing.

While Broadway’s board thought the price range was too low, the potential buyer said its offer reflected “concerns with Broadway’s management succession … and relatively small base of core consumer deposits.” The unnamed suitor walked away on Aug. 7, 2019, after it began discussions “regarding another, higher-priority acquisition opportunity,” the filing said.

The other proposal, submitted on Aug. 5, 2019, came from a private-equity group that pitched a cash offer that would have been valued at about $35.4 million. The group, which had discussed a deal with Broadway a year earlier, planned for a holding company to raise capital and complete the acquisition.

Broadway countered by seeking at least $38.2 million, which met resistance from the private-equity group. Those discussions ended in early October 2019.

Talks between Broadway and CFBanc began in early September 2019, spurred by a phone call between Bradshaw and Brian Argrett, his counterpart at CFBanc. Bradshaw and Argrett had know each other for years, going back to the late 1990s when Bradshaw led Family Savings Bank in Los Angeles and Argrett was on its board.

Bradshaw had once suggested Argrett as his possible successor at Broadway, the filing disclosed.

The executives discussed more aspects of a potential merger during meetings in Los Angeles in late November 2019, including corporate governance, board composition and committee structure, capital raising, regulatory approval and the frequency and location of board meetings.

The companies signed a mutual nondisclosure agreement on Jan. 22, 2020. A meeting between Bradshaw and Argrett later than month focused on ways to cut expenses and enhance revenue as well as on decisions about leadership of the combined bank and timing of the transaction, the filing said.

Broadway was thrown a curveball last February when a group led by former Banc of California CEO Steven Sugarman sent the board a letter pushing directors to sell the company. Sugarman’s group had acquired a roughly 9.6% stake in Broadway from the Treasury Department as part of an unwinding of the Troubled Asset Relief Program.

Sugarman’s group expressed an interest in buying Broadway for $48.8 million before attempting to have an individual added to the company’s board. Broadway determined that the group was ineligible to mount a challenge.

Broadway’s board was “concerned that Sugarman’s business plans for Broadway, which Broadway understood to include obtaining very large-balance deposits from concentrated sources, rather than long-term core deposit relationships, and using such deposits to make low documentation loans, would not be acceptable to … federal bank regulators,” the recent filing said.

Broadway and CFBanc, however, entered into an exclusivity agreement on April 20. They also reached tentative agreements on top management positions and board composition.

Sugarman’s group, after a short-lived legal challenge, decided to liquidate its holdings in Broadway in June at nearly double what it paid the Treasury.

With the outside challenge gone, Broadway and CFBanc ramped up discussions that included regular conversations between Bradshaw and Argrett. The CEOs, along with each company’s legal adviser, held conference calls with the Office of the Comptroller of the Currency and the Federal Reserve Bank of San Francisco in late August to present the proposed merger.

The boards for Broadway and CFBanc unanimously approved the merger at separate meetings on Aug. 25. The merger was announced the next day.

Broadway will keep its name and its shareholders will own 52.5% of the company. The bank will maintain its status as a community development financial institution, requiring it to make at least 60% of its loans in low- and moderate-income communities.

Argrett would become vice chairman and CEO of Broadway, while Bradshaw would be the company’s chairman. Argrett would succeed Bradshaw as chairman two years after the deal’s closing date. The board would have five directors from City First and four from Broadway.

Broadway’s corporate headquarters is slated to be Los Angeles; the bank subsidiary will be based in Washington.

“Given the compounding factors of a global pandemic, unprecedented unemployment and social unrest resulting from centuries of inequities, the work of CDFIs has never been more urgent and necessary,” Argrett said in a press release announcing the deal.


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