Broadway Financial Corporation — Q1 2020 Form 10-Q
Business context and reporting period
Unaudited consolidated results for the three months ended March 31, 2020, compared with Q1 2019; balance-sheet comparisons are with December 31, 2019. The company is a bank holding company whose principal subsidiary is Broadway Federal Bank.
Key financial metrics
| Metric | Q1 2020 / March 31, 2020 | Comparison |
|---|---|---|
| Total assets | $506.0 million | $440.4 million at December 31, 2019 |
| Total deposits | $333.1 million | $297.7 million at December 31, 2019 |
| Net interest income | $2.898 million | $2.813 million in Q1 2019 |
| Net interest margin | 2.47% | 2.75% in Q1 2019 |
| Net income (loss) | $(33,000) | $277,000 income in Q1 2019 |
| Net interest income after loan-loss provision | $2.869 million | $3.003 million in Q1 2019 |
| Cash and cash equivalents | $51.7 million | $15.6 million at December 31, 2019 |
| Loans held for investment, net | $381.3 million | $397.8 million at December 31, 2019 |
| Loans held for sale | $45.5 million | None at December 31, 2019 |
| FHLB advances | $115.0 million | $84.0 million at December 31, 2019 |
| Total stockholders’ equity | $49.1 million | $48.8 million at December 31, 2019 |
Interest income was $4.571 million and interest expense was $1.673 million. Non-interest income was $197,000 and non-interest expense was $3.149 million. Basic and diluted loss per share were each reported as $(0.00). Comprehensive income was $90,000, including $123,000 of after-tax other comprehensive income.
Operating cash flow was a net outflow of $46.2 million, primarily reflecting $66.0 million of multi-family loan originations for sale, partly offset by $20.5 million of sales and repayments. Investing activities provided $16.2 million; financing activities provided $66.2 million, including deposit growth and net FHLB advances. Cash increased by $36.2 million during the quarter.
Material changes versus comparable periods
- Net income shifted to a $33,000 loss from $277,000 income. Net interest income rose $85,000, but the loan-loss provision moved to $29,000 expense from a $190,000 recapture; Q1 2019 also included a $233,000 CDFI grant that was not received in Q1 2020.
- Net interest margin declined 28 basis points to 2.47%. Average interest-earning assets increased $59.0 million, while average loan yield fell 30 basis points to 4.09% and the overall earning-asset yield declined.
- Assets rose $65.6 million, mainly from higher cash and loans held for sale. Deposits increased $35.4 million and FHLB advances rose $31.0 million; loans held for investment fell $16.5 million.
- Non-performing loans declined to $280,000 from $424,000 at year-end. The allowance for loan losses was $3.211 million, or 0.84% of gross loans held for investment, versus $3.182 million, or 0.79%, at year-end. No charge-offs were recorded in the quarter.
Outlook, commentary, and risks
- Management described operational changes and contingency planning in response to COVID-19, including employee and customer safety measures, borrower-relief planning, updated portfolio stress tests, and revised lending guidelines intended to moderate concentration and enhance liquidity. The bank reported no employee layoffs or furloughs.
- The bank did not participate as a lender in the SBA Paycheck Protection Program, citing its focus on existing clients, markets, and loan products.
- At the filing date, two borrowers had requested COVID-related loan modifications and were completing applications; both were current when the program began. Management warned that pandemic-related uncertainty could cause actual credit losses to exceed estimates and could require a future valuation allowance against deferred tax assets.
- Management considered the allowance adequate at March 31, 2020 but said it would continue monitoring borrowers and portfolio performance. Through the end of April, the bank reported two delinquencies totaling $612,000 and relief requests on two other loans totaling $851,000.
- Management stated that liquidity was sufficient to support foreseeable growth. Available liquidity included $51.7 million of cash and $10.7 million of unpledged securities; the bank also had potential FHLB borrowing capacity of $41.6 million and an $11.0 million line of credit.
- The bank exceeded regulatory capital requirements and was above “well capitalized” thresholds at quarter-end. It reported a 10.20% Tier 1 leverage ratio, 15.86% CET1 ratio, and 16.94% total capital ratio.
- Deposits had concentration risk: two customer relationships represented approximately 13% of deposits at March 31, 2020. The filing reported no legal proceedings and no applicable new risk-factor disclosure.
Important facts for investors to verify
- Whether COVID-19-related borrower relief, delinquencies, credit deterioration, or collateral values require larger loan-loss provisions or charge-offs in subsequent quarters.
- Whether the $45.5 million multi-family loan pipeline held for sale is sold as expected and what gains, funding needs, or credit exposure result.
- Whether deposit growth and FHLB borrowing remain available and sustainable, including the effect of deposit concentration and funding costs.
- Whether the decline in net interest margin and the Q1 loss persist, and how the absence of the prior-year CDFI grant affects comparisons.
- Potential future deferred-tax-asset valuation allowance and the estimated impact of adopting CECL, which the company planned for Q1 2023 and had not yet quantified.