Broadway Financial Corp.’s board has approved an extended series of loans aggregating as much as $5 million to City First Bank’s National Association Employee Stock Ownership Trust.
The trust was established by the bank’s National Association Employee Stock Ownership Plan for the purpose of purchasing shares of the company’s common stock in an open-market purchase or private sales. The first of the loans will be for $500,000.
According to a statement from Broadway issued last month, the loans’ primary benefit will be employee retention and recruitment through increasing ownership of the company in a non-dilutive manner. The Mid-Wilshire holding company has plans to use the $150 million of equity raised last June to accelerate growth, which will require the recruitment of more 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,” Chief Executive Brian Argrett said in a statement. Broadway management added that it believes long-term equity incentives such as the one approved by the board in December are consistent with the increasing alignment of employee interests with those of its stockholders.
The company’s move to enhance employee ownership comes after its merger with CFBanc Corporation last year, which resulted in a dilution in employee ownership that it intends to recoup with the recently announced loans.
The merger created the largest Black-led bank in the United States, with more than $1 billion in assets as of last year. Said assets accounted for nearly one-fifth of the $5 billion-plus held last year by domestic Black-owned financial institutions. The combined bank has since become known as CityFirstBroadway, with Broadway becoming the holding company in charge of running the bank.
Before the merger, Broadway rejected a hostile buyout offer from Steven Sugarman, the former chief executive of Banc of California. The takeover bid was eventually abandoned, with Sugarman selling off his 1.8 million shares in Broadway in 2021.
Having navigated buyout issues for the last few years, Broadway has now shifted its priorities to stock ownership.
As of last December, the City First Bank, National Association Employee Stock Ownership Plan holds approximately 2.2% of Broadway’s total outstanding common stock. Prior to the merger, the ownership plan owned almost 5.9% of the outstanding common stock, representing around 8.6% of Broadway’s outstanding voting shares.
The timing and amounts of each of the remaining loans will depend on market conditions, trading volumes, and company common stock prices. However, Broadway said in a statement it believes that its shares are currently undervalued as the Company’s common stock is currently trading below tangible and nominal book value. This, the company added, is despite its improving profitability, growth, and forward opportunities.
As of Jan. 4, the company’s stock traded at $1.02 per share, more than a dollar lower than on the same date last year.
“Earlier this quarter, we discussed our exciting plans for continued growth in our business,” Argrett said in a statement. “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.”
