Broadway Financial Corporation — Q1 2016 Form 10-Q
Business and period: The Company and its bank subsidiary reported unaudited results for the three months ended March 31, 2016. The business is primarily banking and lending. Balance-sheet comparisons are with December 31, 2015; income and cash-flow comparisons are with Q1 2015. Amounts below are in millions unless stated otherwise.
Financial results and condition
| Metric | Q1 2016 / March 31, 2016 | Comparable period / prior year-end |
|---|---|---|
| Net interest income before loan-loss recapture | $2.671 | $2.959 in Q1 2015 |
| Loan-loss provision recapture | $0.300 | $0.750 in Q1 2015 |
| Net interest income after recapture | $2.971 | $3.709 in Q1 2015 |
| Net income; diluted EPS | $0.633; $0.02 | $1.298; $0.04 in Q1 2015 |
| Net interest margin; spread | 2.79%; 2.66% | 3.43%; 3.30% in Q1 2015 |
| Total assets | $387.3 | $402.9 at Dec. 31, 2015 |
| Net loans held for investment | $319.9 | $304.2 at Dec. 31, 2015 |
| Deposits | $257.4 | $272.6 at Dec. 31, 2015 |
| FHLB advances; subordinated debentures | $72.0; $5.1 | Unchanged from Dec. 31, 2015 |
| Stockholders’ equity | $46.9; book value $1.61 per share | $46.2; $1.59 per share at Dec. 31, 2015 |
| Cash and cash equivalents | $36.0 | $67.8 at Dec. 31, 2015 |
| Operating / investing / financing cash flow | $(0.6) / $(16.1) / $(15.2) | $(12.6) / $17.7 / $2.7 in Q1 2015 |
Changes and operating drivers
- Net income fell $0.665 million year over year. Management attributed the decline chiefly to lower net interest income before recapture ($0.288 million), a smaller loan-loss recapture ($0.450 million), and lower non-interest income ($0.086 million), partly offset by $0.159 million lower non-interest expense.
- Loan interest income declined $0.295 million as the average loan yield fell 60 basis points to 4.33%; higher average loan balances partly offset the yield decline. Deposit interest expense increased $0.102 million, while borrowing expense declined $0.104 million.
- Non-interest income was $0.543 million, including a $0.265 million CDFI grant. Q1 2015 included a $0.134 million loan-sale gain and a $0.355 million CDFI grant. Q1 2016 also included an $0.080 million early-withdrawal fee.
- Assets declined $15.6 million, primarily as cash was used to redeem $15.0 million of certificates of deposit and to fund loan and securities growth. Gross loans rose $15.4 million, including $24.3 million growth in multifamily loans, partly offset by declines in other major loan categories. Loan originations were $27.8 million.
- Cash and cash equivalents fell $31.8 million. Investing outflows mainly reflected loan growth and securities purchases; financing outflows reflected the deposit decline.
Credit, liquidity, capital, outlook and risks
- The allowance for loan losses was $4.534 million, or 1.40% of gross loans, versus $4.828 million, or 1.56%, at year-end. There were no loan charge-offs or transfers to REO in Q1 2016. Delinquencies were $1.119 million and non-performing loans were $4.102 million; management reported both measures at their lowest levels since 2009. The allowance was 110.53% of non-performing loans.
- Troubled debt restructurings totaled $14.4 million, including $3.6 million on non-accrual status. Management considers the allowance adequate but cautions actual losses could exceed estimates and regulators may require an increase.
- Liquid assets comprised $36.0 million cash and cash equivalents plus $14.5 million of unpledged available-for-sale securities. The Bank reported that it believed liquidity was sufficient to support foreseeable growth, and that it could borrow an additional $48.9 million from the FHLB subject to collateral and stock requirements.
- The Bank exceeded regulatory minimums and well-capitalized thresholds at quarter-end: Tier 1 leverage 12.02%, CET1 19.19%, Tier 1 19.19%, and total capital 20.45%. These are Bank regulatory ratios, not the Company’s consolidated equity ratio.
- One customer relationship accounted for approximately 13% of deposits; management expected to maintain the relationship. CDs represented 65% of deposits at quarter-end. These are material funding-concentration and deposit-retention considerations.
- No specific earnings guidance was provided. Management said the quarter’s results are not necessarily indicative of full-year results. Forward-looking statements are subject to risks and uncertainties; the filing’s Risk Factors item says “Not Applicable.” Legal proceedings were reported as none. Disclosure controls were concluded effective, with no significant quarterly change in internal control over financial reporting.
- Unusual or notable items include the CDFI grant, the loan-loss provision recapture, the early-withdrawal fee, and 450,000 stock options granted to senior executives in February 2016. The options vest over five years; Q1 stock-based compensation expense was $3,000.
Important facts for investors to verify
- Whether loan yields and net interest margin stabilize as the loan portfolio grows and reprices.
- Subsequent trends in delinquencies, non-performing loans, TDRs, collateral values, and the allowance for loan losses.
- Deposit stability, including the large customer relationship and the impact of CD maturities or withdrawals on liquidity.
- The sustainability of earnings excluding provision recaptures, CDFI grants, and other non-recurring or period-specific items.
- Regulatory capital and liquidity headroom, including any constraints on Bank dividends to the holding company.