Broadway Financial Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Broadway Financial Corporation is the parent of City First Bank, National Association. Amounts below are in U.S. dollars; financial statement figures are generally presented in millions.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Interest income | $11.64 million | $8.50 million | $22.68 million | $16.38 million |
| Net interest income | $7.27 million | $8.04 million | $15.54 million | $15.21 million |
| Provision for credit losses | $0.77 million | $(0.58) million recapture | $0.81 million | $(0.43) million recapture |
| Non-interest income | $0.26 million | $0.26 million | $0.55 million | $0.54 million |
| Non-interest expense | $6.42 million | $6.27 million | $12.67 million | $12.23 million |
| Net income | $0.25 million | $1.85 million | $1.84 million | $2.84 million |
| Net interest margin | 2.52% | 3.00% | 2.74% | 2.89% |
- Q2 basic and diluted earnings per common share were reported as $0.00; six-month EPS was $0.03, versus $0.04 in 2022.
- Q2 comprehensive loss was $2.15 million, including $2.39 million of after-tax unrealized losses on available-for-sale securities. Six-month comprehensive income was $1.87 million.
- For the six months, operating cash flow was $2.14 million; investing cash outflow was $53.69 million and financing cash inflow was $46.19 million. Cash and cash equivalents ended at $10.74 million.
Financial condition and material changes
- Total assets rose $47.1 million from year-end 2022 to $1.23 billion. Net loans grew $56.6 million to $824.6 million, primarily reflecting $98.2 million of originations, partly offset by $41.6 million of payoffs and repayments.
- Deposits fell $40.9 million to $646.1 million as customers moved funds to institutions offering higher rates. Uninsured deposits, including affiliate deposits, increased to 38% of deposits from 31% at year-end.
- Total borrowings increased $89.8 million to $295.6 million: FHLB advances were $210.3 million and repurchase-agreement borrowings were $71.4 million. FHLB advances carried a 4.74% weighted rate and three-month weighted average contractual maturity. Repurchase agreements reset daily and averaged 3.01%.
- Stockholders’ equity was $277.3 million, 22.5% of assets, compared with $279.5 million, or 23.6%, at year-end. Book value per share declined to $1.71 from $1.76; tangible book value per share was $1.34.
- Available-for-sale securities totaled $322.5 million, with $24.5 million of gross unrealized losses. Management attributed the declines to interest rates and market conditions, not credit; no securities ACL was recorded. AOCI loss was $17.4 million, net of tax.
Credit, liquidity, outlook and risks
- The loan ACL was $7.0 million at June 30, compared with $4.4 million at year-end; the increase reflects CECL adoption and portfolio growth. CECL adoption on January 1, 2023 reduced opening retained earnings by $1.3 million and increased the loan ACL by $1.8 million.
- No loans were past due or on nonaccrual at June 30, and there were no charge-offs in the periods presented. However, internal risk ratings included $74.0 million of construction loans rated watch and $14.9 million of multifamily loans rated substandard. Collateral-dependent loans totaled $6.8 million, with $119,000 of associated ACL.
- Management said available liquidity was sufficient to support growth over the next 12 months and longer term. At June 30, liquid assets included $10.7 million cash and $241.4 million of unpledged securities; additional stated borrowing capacity included $120.8 million at the FHLB and $10.0 million of other credit lines.
- The Bank’s Community Bank Leverage Ratio was 15.35%, above the 9% well-capitalized threshold; management reported the Bank met applicable capital requirements. Management noted additional capital may be needed to support growth and maintain well-capitalized status.
- Funding concentration is notable: one depositor represented about 9% of deposits, and one customer accounted for 76% of repurchase-agreement borrowings. Management expects to maintain both relationships.
- No quantified earnings or margin guidance was provided. Management cited higher deposit and borrowing costs, competition for deposits, loan growth, and expected credit losses as relevant factors. It also cautioned that ACL estimates depend on forecasts and judgment and may be revised.
- The filing reports no legal proceedings, defaults upon senior securities, or changes in internal controls that materially affected financial reporting. Management concluded disclosure controls were effective as of June 30, 2023.
Most important facts for investors to verify
- Whether deposit outflows and the rising cost of deposits and borrowings continue to pressure net interest margin and earnings.
- Current deposit composition, uninsured-deposit levels, and the stability of the large depositor and repurchase-funding relationships.
- Performance and collateral support of watch-rated construction loans and substandard multifamily loans, alongside changes in delinquencies, nonaccruals, and ACL assumptions.
- Unrealized securities losses, liquidity available without selling securities, and the amount and terms of short-term secured funding.
- The effect of the expanded stock incentive plan and ESOP share purchases on future share counts, compensation expense, and per-share results.