Broadway Financial Corporation — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited filing covers the three and six months ended June 30, 2022. Broadway Financial is the parent of City First Bank, a community-focused bank. The company completed the CFBanc merger on April 1, 2021; consequently, year-over-year comparisons—especially for the six-month period—are not fully comparable.
Financial performance and position
Amounts below are in millions except per-share data, percentages, and where noted.
| Metric | Q2 2022 | Comparable period / balance date |
|---|---|---|
| Interest income | $8.50 | $6.88 in Q2 2021 |
| Net interest income, before loan-loss provision | $8.04 | $5.82 in Q2 2021; +38.1% |
| Net interest margin | 3.00% | 2.33% in Q2 2021 |
| Net income | $1.85; diluted EPS $0.03 | $0.73; diluted EPS $0.01 in Q2 2021 |
| Six-month net income (loss) | $2.84; diluted EPS $0.04 | $(2.75); diluted EPS $(0.06) in H1 2021 |
| Total assets | $1,224.2 at June 30 | $1,093.5 at December 31, 2021 |
| Loans receivable, net | $646.9 at June 30 | $648.5 at December 31, 2021 |
| Deposits | $816.2 at June 30 | $788.1 at December 31, 2021 |
| Cash and cash equivalents | $280.1 at June 30 | $231.5 at December 31, 2021 |
| Stockholders’ equity | $284.6 at June 30 | $141.0 at December 31, 2021 |
- Margins and earnings: H1 net interest income was $15.21 million versus $8.67 million, and net interest margin was 2.89% versus 2.35%. Management attributed improvement to higher average interest-earning assets and yields, alongside lower funding costs. Q2 non-interest expense rose to $6.27 million from $5.37 million.
- Credit costs: The company recorded a $577,000 loan-loss provision recapture in Q2 and a $429,000 recapture in H1, versus an $81,000 provision in each 2021 comparison period. The allowance for loan losses was $2.96 million, or 0.46% of gross loans, at June 30. No charge-offs were recorded in either first-half period.
- Cash flow: For H1, operating cash flow was negative $359,000, investing cash flow was negative $91.5 million, and financing cash flow was positive $140.4 million. Cash increased by $48.6 million to $280.1 million.
- Debt and liquidity: June 30 borrowings included $32.9 million of FHLB advances, $67.3 million of repurchase agreements, and $14.0 million of other notes. The bank reported $165.6 million of unpledged available-for-sale securities in addition to cash. It said it had sufficient liquidity; disclosed FHLB borrowing capacity was subject to qualifying collateral and stock requirements.
Material changes and unusual items
- The U.S. Treasury invested $150 million in Series C non-cumulative perpetual preferred stock through ECIP in June. The first two years’ dividend rate is zero; thereafter the stated floor and ceiling are 0.50% and 2.00%. The company contributed $75 million of proceeds to the bank. The bank’s Community Bank Leverage Ratio rose to 15.87% from 9.32% at year-end, above the 9% requirement.
- Available-for-sale securities increased to $238.3 million from $156.4 million. Rising market rates drove $14.1 million of gross unrealized losses at June 30 and a $9.35 million after-tax H1 other comprehensive loss; management said the valuation declines did not reflect issuer credit deterioration.
- Q2 2021 included a non-recurring $1.8 million CDFI grant, contributing to the year-over-year decline in non-interest income. H1 2021 also included $5.6 million of merger-related costs, which affected the comparison of reported earnings.
- Deposits rose $28.1 million from year-end; FHLB advances fell $53.0 million, while repurchase agreements rose $15.3 million. One customer represented approximately 16% of deposits, and one relationship accounted for 80% of repurchase-agreement borrowings.
- Common book value was $1.83 per share and tangible book value was $1.44 per share at June 30, compared with $1.92 and $1.52, respectively, at year-end. The filing attributes the decline principally to unrealized investment-security losses.
Outlook, risks, and contingencies
- The filing provides no quantified earnings or revenue guidance. Management said liquidity was sufficient to support foreseeable growth and that the bank met regulatory capital requirements and was well capitalized.
- Management considers the allowance adequate for probable incurred losses but cautions that COVID-19-related uncertainty and regulatory reviews could result in actual losses or a required allowance different from its estimate. CECL adoption is planned for Q1 2023; its estimated financial impact had not been determined.
- The bank’s loan portfolio is concentrated in multi-family real estate: $407.2 million of the $650.7 million gross loan portfolio at June 30. Construction loans had $27.0 million classified as Watch. The filing reported no loans past due at June 30, $627,000 of non-accrual loans, and $2.0 million of troubled debt restructurings.
- A $369,000 deferred-tax-asset valuation allowance reflects limits on use of certain tax attributes under Section 382. Goodwill was $25.9 million; no impairment was identified in the June 30 assessment, although the filing noted the stock traded at a steep discount to tangible book value.
- Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter. No legal proceedings or applicable risk-factor updates were reported in the supplied filing text.
Important facts for investors to verify
- How the ECIP preferred stock’s lending-based dividend formula and redemption terms may affect future capital costs and common shareholders.
- Whether interest-rate movements, security sales, or other factors could realize or extend the reported unrealized losses in the securities portfolio.
- Loan concentration, Watch-rated construction exposure, allowance adequacy, and the effects of the planned CECL adoption.
- The durability of deposit and repurchase-funding relationships, particularly given the disclosed customer concentrations and daily-maturing repurchase agreements.
- How much of earnings improvement reflects ongoing operating performance versus merger comparability, prior-year grant and merger costs, and the current-period allowance recapture.