Broadway Financial Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; balance-sheet comparisons are to December 31, 2014. Unaudited consolidated results include the Company and its subsidiaries.
Financial results and condition
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Total assets | $354.0 million | $350.9 million at Dec. 31, 2014 |
| Net income | $1.298 million; $0.04 per basic and diluted share | $989,000; $0.05 per share in Q1 2014 |
| Net interest income before loan-loss recapture | $2.959 million | $2.798 million in Q1 2014 |
| Net interest margin | 3.43% | 3.46% in Q1 2014 |
| Loan-loss recapture | $750,000 | $1.082 million in Q1 2014 |
| Non-interest income / expense | $637,000 / $3.046 million | $329,000 / $3.217 million in Q1 2014 |
| Cash and cash equivalents | $28.5 million | $20.8 million at Dec. 31, 2014 |
| Deposits / borrowings | $222.1 million / $89.6 million | Deposits $217.9 million; borrowings $91.1 million at Dec. 31, 2014 |
| Stockholders’ equity | $38.6 million; 10.91% of assets | $37.3 million; 10.62% at Dec. 31, 2014 |
Net income rose $309,000 year over year, supported by higher pre-recapture net interest income, increased non-interest income and lower non-interest expense. The smaller loan-loss recapture partly offset those gains. Average loan balances grew, but average loan yield fell 67 basis points to 4.93%; net interest margin declined 3 basis points. Weighted-average shares increased to 29.1 million from 20.2 million, contributing to lower reported EPS despite higher net income.
Cash flow from operations was negative $12.6 million, mainly reflecting $12.6 million of originations of loans held for sale. Investing activities provided $17.7 million and financing activities provided $2.7 million; cash increased by $7.8 million overall. The Bank reported $28.5 million of cash and $15.3 million of unpledged available-for-sale securities. Management said liquidity was sufficient to support foreseeable growth; available additional FHLB borrowing capacity was $20.8 million, subject to collateral and stock requirements.
Material changes and credit quality
- Gross loans held for investment declined $4.9 million to $280.2 million; net loans were $272.5 million. Multi-family balances grew, while single-family, commercial real estate and church loans declined.
- Allowance for loan losses fell to $7.7 million, or 2.74% of gross held-for-investment loans, from $8.5 million, or 2.97%, at year-end. Management attributed the recapture to improved asset quality, lower charge-offs and lower historical loss factors.
- Total delinquencies fell to $279,000 from $2.5 million. Non-performing loans declined to $7.7 million from $8.9 million; 96% were current on payments. Troubled debt restructurings totaled $18.4 million, down from $20.2 million.
- REO increased to $2.5 million after two church properties were transferred from foreclosed loans; one REO property was sold during the quarter.
- Deposits increased $4.2 million, led by certificates of deposit; FHLB advances declined $1.5 million. The Company’s $5.1 million junior subordinated debentures remain outstanding, with interest-only payments required for five years under modified terms and principal amortization beginning in June 2019.
Outlook, risks and notable items
- The filing provides no specific earnings or financial guidance. Management stated that Bank liquidity was sufficient for foreseeable growth, while cautioning that actual loan losses could exceed estimates and regulators may require a higher allowance.
- The Bank remains subject to an OCC Consent Order requiring Tier 1 leverage of at least 9% and total capital of at least 13%. At March 31, its ratios were 11.73% and 18.47%, respectively, and it was reported in compliance. Basel III requirements began applying in 2015; the capital conservation buffer phases in beginning in 2016.
- A separate holding-company order restricts dividends without prior Federal Reserve approval and limits certain debt and capital actions without prior notice and non-objection. The Bank has been unable to provide funds to the parent since 2010 without regulatory approval.
- Q1 non-interest income included a $355,000 CDFI grant and a $134,000 gain on loan sales. The Company also reported a $750,000 loan-loss recapture. These items affected reported results.
- Management concluded disclosure controls were effective; no significant quarterly change in internal control over financial reporting was reported. Legal proceedings and new risk factors were reported as none/not applicable.
Key facts for investors to verify
- Whether loan quality improvements and lower delinquencies are sustained, and whether the $7.7 million allowance remains adequate given impaired loans and collateral-dependent valuations.
- The sustainability of earnings excluding the loan-loss recapture, CDFI grant and loan-sale gain; also assess the impact of lower loan yields and increased compensation costs.
- Deposit mix and pricing, reliance on certificates of deposit and wholesale FHLB funding, and availability of borrowing capacity under collateral constraints.
- Continued compliance with the Consent Order and phased-in Basel III rules, including any restrictions on dividends, debt or capital actions.