Broadway Financial Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Broadway Financial is the parent of City First Bank, N.A. The April 1, 2021 CFBanc merger materially affects comparisons: Q1 2022 includes the combined operations, while Q1 2021 largely reflects the pre-merger company.
Financial performance and condition
- Earnings: Net interest income was $7.17 million, up from $2.85 million; provision for loan losses was $148,000. Net income attributable to Broadway Financial was $958,000 versus a $3.49 million loss; diluted EPS was $0.01 versus $(0.13).
- Margin and expenses: Net interest margin rose to 2.76% from 2.40%. Non-interest income was $281,000 versus $123,000; non-interest expense fell to $5.96 million from $8.63 million.
- Balance sheet: Assets totaled $1.131 billion, up $37.6 million from year-end 2021. Net loans were $653.4 million; available-for-sale securities were $170.3 million. Deposits rose to $839.7 million from $788.1 million.
- Debt and capital: FHLB advances were $73.0 million, notes payable $14.0 million, and repurchase-agreement liabilities were reported as $56.0 million in the financial statements. The Bank’s Community Bank Leverage Ratio was 9.45%, above the 9.00% threshold; the filing says the Bank met applicable capital requirements and was well capitalized.
- Liquidity and cash flow: Cash and cash equivalents were $246.1 million. The Bank reported $82.5 million of unpledged available-for-sale securities and believed liquidity was sufficient for foreseeable growth. Consolidated operating cash flow was negative $1.8 million, investing cash flow negative $26.3 million, and financing cash flow positive $42.7 million; cash increased $14.6 million.
- Equity and securities: Broadway Financial stockholders’ equity was $136.2 million. A $5.85 million after-tax unrealized securities loss contributed to comprehensive loss of $4.89 million and reduced book value per share to $1.85 from $1.92.
Material changes and management commentary
- Management attributed higher net interest income principally to the acquired interest-earning assets and growth in average earning assets; lower funding costs also supported results.
- Lower year-over-year expenses mainly reflected non-recurring merger-related costs in Q1 2021, partly offset by higher information-services costs in 2022.
- The $3 million Series A preferred stock, plus accrued dividends, was exchanged in January for 1,193,317 Class A common shares at $2.51 per share.
- Management reported no COVID-related delinquencies and no formally submitted modification applications as of the filing date; no modifications had been granted. The allowance for loan losses was $3.54 million, or 0.54% of gross loans. There were no charge-offs during the quarter.
Outlook, risks, and unusual items
- No quantified earnings or financial guidance was provided. Management said it believed liquidity would support foreseeable growth, while noting the Bank may need additional capital to support growth and maintain well-capitalized status.
- Interest-rate movements reduced the fair value of available-for-sale securities: unrealized losses were $8.81 million at quarter-end, compared with $1.01 million at year-end. Management attributed the losses to market-rate changes and reported no deterioration in securities credit quality.
- Funding concentration is notable: one customer represented about 16% of deposits and one relationship 74% of repurchase-agreement balances. Five customer relationships represented approximately 26% of deposits.
- Credit exposure includes $2.94 million of past-due loans, none more than 90 days past due, and $653,000 of non-accrual loans. The loan portfolio is concentrated in multifamily real estate; reported multifamily balances were approximately $402.9 million.
- The company expected to adopt CECL in Q1 2023; its financial impact had not yet been determined. The filing also notes that NOL utilization may be limited under Section 382.
- Disclosure controls were assessed as effective at March 31, 2022. The filing reported no material control changes, legal proceedings, or applicable additional risk-factor disclosure.
Important facts for investors to verify
- Reconcile the repurchase-agreement balance: the balance sheet reports $56.0 million, while MD&A elsewhere cites $59.0 million at March 31, 2022.
- Assess the effect of rising rates and potential further securities valuation changes on accumulated other comprehensive loss, equity, and book value.
- Monitor deposit and repurchase funding concentrations, liquidity access, and the Bank’s capital buffer above the 9% leverage-ratio threshold.
- Review loan risk ratings, delinquencies, non-accruals, and management’s allowance assumptions; CECL adoption is expected in 2023 and its impact remains undetermined.
- Interpret year-over-year earnings and expense improvements in light of the merger-driven change in reporting scope and Q1 2021 merger costs.