Broadway Financial Corporation — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited consolidated results include Broadway Financial Corporation and its banking subsidiaries. Amounts below are in millions unless stated otherwise.
Financial performance and condition
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net interest income before loan-loss recapture | $2.80 | $2.92 | $8.90 | $8.63 |
| Loan-loss provision recapture | $0.20 | $0.95 | $1.70 | $2.53 |
| Non-interest income | $0.99 | $0.17 | $2.13 | $0.56 |
| Non-interest expense | $3.00 | $3.27 | $9.28 | $9.91 |
| Net income | $0.98 | $0.77 | $3.43 | $1.81 |
| Diluted earnings per share | $0.03 | $0.04 | $0.12 | $0.09 |
- Q3 net interest margin was 3.09%, down from 3.56%; the nine-month margin was 3.36%, down from 3.55%. Q3 loan yield declined to 4.91% from 5.28%.
- Higher reported earnings reflected loan-sale gains and lower expenses, partly offset by smaller loan-loss recaptures. Nine-month results also included a $0.36 million CDFI grant. Loan-sale gains were $0.74 million in Q3 and $1.25 million for nine months.
- Assets at September 30 were $403.9 million, up $53.0 million from year-end 2014. Cash and equivalents were $150.5 million versus $20.8 million; deposits were $274.9 million versus $217.9 million.
- Loans held for investment, net, were $198.1 million versus $276.6 million; loans held for sale were $27.9 million versus $19.5 million. The allowance for loan losses was $6.7 million, or 3.28% of gross held-for-investment loans.
- Total borrowings were $82.6 million: $77.5 million of FHLB advances and $5.1 million of junior subordinated debentures. Stockholders’ equity was $40.6 million, up from $37.3 million.
- For the first nine months, operating cash flow was negative $9.1 million, investing cash flow was positive $90.2 million, and financing cash flow was positive $48.6 million. Ending cash and equivalents increased by $129.7 million to $150.5 million.
Material changes and asset quality
- The Bank sold $140.2 million of multifamily loans and transferred $91.6 million from held-for-investment to held-for-sale as part of its loan concentration risk program. Management said the multifamily concentration was below the OCC-prescribed limit at quarter-end.
- Nonperforming loans declined to $5.7 million from $8.9 million at year-end; total delinquencies declined to $1.3 million from $2.5 million. The allowance-to-NPL ratio rose to 117.13% from 95.52%. Charge-offs for nine months were $0.05 million, versus $0.48 million in 2014.
- Troubled debt restructurings totaled $17.0 million, including $4.0 million on nonaccrual status. Management considered the allowance adequate, while cautioning actual losses could exceed estimates.
- REO declined to $0.56 million from $2.08 million; the remaining church property was sold early in Q4.
Liquidity, outlook, and risks
- Management said the Bank had sufficient liquidity to support growth. It had $150.5 million in cash and equivalents and $14.1 million of unpledged securities at quarter-end; stated additional FHLB borrowing capacity was $30.2 million, subject to qualifying collateral and stock requirements.
- After quarter-end, the Bank committed to purchase $110 million of prime single-family residential loans early in Q4, subject to due diligence and documentation, funded from cash. Management expects the transaction to support core earnings and diversify the loan portfolio.
- A single long-time customer accounted for approximately 19% of deposits at quarter-end. Management reported a $12.5 million Q3 addition to the customer’s money-market and NOW accounts and a $40 million two-year certificate of deposit.
- The Bank remained subject to an OCC Consent Order requiring minimum Tier 1 leverage and total capital ratios of 9% and 13%, respectively. At September 30, actual ratios were 11.83% and 21.35%; the Bank reported compliance. The Company’s separate order restricts dividends and certain debt or capital actions without Federal Reserve approval.
- The $5.1 million debentures bear interest at three-month LIBOR plus 2.54%, with interest-only payments for five years under modified terms; quarterly principal payments are scheduled to begin in June 2019, subject to required regulatory approval or non-objection.
- No formal earnings guidance was provided. Management identified lower loan yields, credit-loss estimation, loan concentration and the planned loan purchase as factors to monitor. The filing reported no legal proceedings or new risk factors.
Important facts for investors to verify
- Whether the $110 million loan purchase closed as planned, at what price and yield, and with what impact on liquidity and portfolio concentration.
- Whether the significant depositor relationship remains stable and how much of the deposit base is concentrated or rate-sensitive.
- Loan-sale activity, multifamily exposure, loan yields, and whether net interest margin stabilizes.
- Credit trends and assumptions behind the allowance, including nonaccrual loans, TDRs, collateral valuations, and future provision recaptures or charges.
- Continued compliance with the OCC Consent Order and any required regulatory approvals affecting capital, dividends, or debenture payments.