Broadway Financial Corporation, announced that the Board of Directors of the Company has approved extending a series of loans from time to time aggregating up to $5 million to the City First Bank, National Association Employee Stock Ownership Trust, which was established by the City First Bank, National Association Employee Stock Ownership Plan (collectively, the “ESOP”), for the purpose of purchasing shares of the Company’s common stock from time to time in open market purchase or private sales, with the first of such loans to be in the amount of $0.5 million.
These loans will help increase the ownership of the Company by its employees in a non-dilutive manner and improve the Company’s ability to retain and recruit employees. As previously disclosed, Broadway has plans to use the $150 million of equity capital raised in June this year to further accelerate its growth, which will require recruiting more employees over time. Management believes that direct, long-term equity incentives are a valuable tool in retaining and recruiting employees and consistent with Broadway’s policy of increasing the alignment of the interests of its employees with those of its stockholders.
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In addition, these purchases are intended to recoup a substantial portion, if not all, of the dilution in employee ownership that occurred in connection with the merger of CFBanc Corporation with and into Broadway (the “Merger”) and subsequent private placements of common stock in April 2021, as previously disclosed. Currently, the ESOP holds approximately 2.2% of the Company’s total outstanding common stock, representing approximately 3.3% of its outstanding Class A voting shares. In contrast, the ESOP held almost 5.9% of Broadway’s total outstanding common stock, representing approximately 8.6% of Broadway’s outstanding voting shares, immediately prior to the Merger.
The first loan was funded by Broadway on Monday, December 19, 2022. The timing and amounts of each of the remaining loans will depend on market conditions, trading volumes, and Company common stock prices; however, the Board of Directors believes that the Company’s shares are currently undervalued as the Company’s common stock is currently trading below tangible and nominal book value, despite the Company’s improving profitability, growth, and forward opportunities, as discussed in the Company’s press release for the results of the three months and nine months ended September 30, 2022. The loans will require equal annual payments by the ESOP to Broadway, which will be funded from the annual ESOP contributions that Broadway will make in support of the ESOP and the employee participants pursuant to the terms of the City First Bank, National Association Employee Stock Ownership Plan. The initial loan matures on December 31, 2042, and accrues interest at 4.34%, the Long Term Annual Applicable Federal Rate published by the United States Department of the Treasury for December 2022.
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Chief Executive Officer, Brian Argrett commented, “Earlier this quarter, we discussed our exciting plans for continued growth in our business. I am pleased that the Board of Directors has approved this ESOP loan, which will facilitate that growth in a manner that recognizes the foundational importance of the contributions of our employees to our future success, the importance of long-term alignment of the interests of our employees and our stockholders, and the relationship between employee ownership and our ability to retain and attract qualified new employees. We are excited to see how increased employee ownership can help drive further value for all our stakeholders, particularly including our company, our investors, and our clients.”
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