Broadway Financial Corporation (BYFC) — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; the filing was signed May 20, 2024. This is an annual report, not a standalone fourth-quarter report. The company operates City First Bank, a community development bank serving Southern California and the Washington, D.C. area.
Financial performance and position
| Metric | FY2023 / Dec. 31, 2023 | Prior comparable period |
|---|---|---|
| Total assets | $1.375 billion | $1.184 billion at Dec. 31, 2022 |
| Net interest income | $29.5 million | $32.9 million in 2022 |
| Net income attributable to Broadway Financial | $4.5 million; diluted EPS $0.51 | $5.6 million; diluted EPS $0.62 |
| Net interest margin | 2.55% | 3.05% in 2022 |
| Net cash from operating activities | $7.6 million | $6.3 million in 2022 |
| Cash and cash equivalents | $105.2 million | $16.1 million at Dec. 31, 2022 |
| Net loans held for investment | $880.5 million | $768.0 million at Dec. 31, 2022 |
| Deposits | $682.6 million | $686.9 million at Dec. 31, 2022 |
| Stockholders’ equity | $281.9 million | $279.5 million at Dec. 31, 2022 |
Interest income rose, including from loan growth and higher yields, but higher deposit and borrowing costs reduced net interest income. Average cost of funds rose to 2.15% from 0.42%. Non-interest income increased to $5.4 million from $1.2 million, principally due to $4.2 million of grants, including a nonrecurring $3.7 million Treasury CDFI Fund grant. Non-interest expense rose to $27.4 million from $24.9 million. The provision for credit losses was $0.9 million; there were no loan charge-offs, and the year included $216,000 of recoveries.
Investing activities used $100.0 million of cash, primarily reflecting net loan growth; financing activities provided $181.5 million, mainly from FHLB advances and a new Federal Reserve Bank Term Funding Program borrowing. The Bank had $209.3 million of FHLB advances, $73.5 million of repurchase agreements, and $100.0 million of BTFP borrowing at year-end. The holding-company balance sheet also reported $14.0 million of notes payable; those notes were paid off in January 2024. The BTFP loan bears 4.84% and matures December 29, 2024; the program ended for new borrowing in March 2024.
Bank liquidity included $105.2 million of cash and $186.0 million of unpledged available-for-sale securities. The Bank reported capacity for up to $117.0 million of additional FHLB borrowing against available collateral and $10.0 million of other credit lines. Management said liquidity was sufficient for foreseeable growth and that the Company’s resources should meet liquidity and capital needs for at least 12 months. Regulatory capital was above the well-capitalized threshold: the Bank’s Community Bank Leverage Ratio was 14.97%, versus a 9% minimum.
Material changes and asset quality
- Assets grew $191.1 million, mainly from $112.4 million of net loan growth and $91.1 million more interest-bearing deposits at other banks. Liabilities rose $188.7 million, driven by BTFP and FHLB borrowings.
- Gross loans increased to $886.6 million. Multi-family loans were 63.33% of gross loans; construction loans increased to $89.9 million from $40.7 million.
- Uninsured deposits increased to $286.4 million, or 37% of deposits, from $212.9 million, or 31%. Five customer relationships represented about 28% of deposits; one customer represented 85% of repurchase-agreement funding.
- Nonperforming assets were zero at year-end, compared with $144,000 in 2022. However, criticized loans rose to $130.0 million from $82.3 million, and substandard loans to $21.7 million from $5.8 million. Management attributed much of the criticized-loan increase to its practice of initially rating new construction loans as Watch.
- The allowance for credit losses rose to $7.3 million, or 0.83% of gross loans, from $4.4 million, or 0.57%. Adoption of CECL on January 1, 2023 added $1.8 million to the allowance and reduced opening retained earnings by $1.3 million, net of tax.
- Available-for-sale securities had $19.0 million of gross unrealized losses at year-end, versus $24.6 million in 2022. Management attributed declines to rates and market conditions, not credit, and recorded no securities credit-loss allowance.
Outlook, risks and unusual items
The filing gives no specific earnings, revenue, or balance-sheet guidance. Management identifies rate movements, funding costs, loan demand, real-estate conditions, credit losses, regulation, competition, and the ability to retain deposits as important uncertainties. It also highlights real-estate and construction concentration, inflation and economic weakness, uninsured-deposit exposure, and the potential effects of banking-sector volatility. More than 82% of loans have adjustable-rate features, although initial fixed periods and rate floors can delay repricing.
A material weakness in internal control over financial reporting remained at December 31, 2023, and management concluded disclosure controls were ineffective. The weakness involved insufficient appropriately skilled accounting and control personnel, risk assessment, and controls over consolidation, reporting, close processes, and account reconciliations; stale or unidentified reconciliation items contributed to a late Form 10-K filing. The company hired additional personnel, engaged a third party to review reconciliations, and described enhanced review controls, but said remediation was not yet complete. The auditor gave an unqualified opinion on the financial statements but did not audit or opine on internal-control effectiveness.
Other notable events include the October 2023 one-for-eight reverse stock split and repurchase and retirement of 244,771 Class A shares from the FDIC for $1.8 million. The $150 million Treasury Series C preferred investment remains outstanding; its dividend rate was initially zero for two years, with a 0.50% floor and 2.00% ceiling thereafter, subject to the agreement’s terms. The company has not paid common-stock cash dividends since 2010.
Important facts for investors to verify
- Progress and independent testing of the material-weakness remediation, and whether future filings meet deadlines.
- Trends in criticized, substandard, and construction loans; collateral values; and whether the allowance remains adequate under CECL.
- Deposit concentration, uninsured balances, renewal behavior, and the stability and cost of wholesale and short-term funding.
- Repayment or refinancing of the $100 million BTFP borrowing due in December 2024 and the cost and availability of replacement funding.
- The recurring earnings contribution of grants versus the nonrecurring 2023 Treasury grant, alongside net interest margin and funding-cost trends.
- How the $150 million preferred stock’s dividend terms affect earnings available to common shareholders and future capital flexibility.