Broadway Financial Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited consolidated results include City First Bank and related subsidiaries. The CFBanc merger closed April 1, 2021, so comparisons—particularly year-to-date—are affected by the merger and differing periods of combined operations. Unless noted, amounts below are in millions of dollars.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net interest income | $8.61 | $5.99 | $23.82 | $14.66 |
| Provision for loan losses | $1.02 | $0.37 | $0.59 | $0.45 |
| Net income (loss) attributable to Broadway Financial | $1.32 | $0.18 | $4.13 | $(2.60) |
| Basic and diluted EPS | $0.02 | — | $0.06 | $(0.05) |
| Net interest margin | 3.02% | 2.43% | 2.93% | 2.26% |
Q3 net interest income increased 43.7%, reflecting higher average interest-earning assets and yields, including increased income from securities. Nine-month earnings improved from a loss, with 2021 results burdened by $5.6 million of merger-related costs. Non-interest income fell to $0.37 million in Q3 and $0.91 million year to date, partly because 2021 included non-recurring CDFI grant income ($0.22 million in Q3 and $2.04 million for nine months). Q3 non-interest expense was $6.07 million, up slightly year over year; nine-month expense was $18.30 million versus $19.98 million.
Financial position, liquidity and capital
- Total assets were $1.170 billion, up $76.1 million from December 31, 2021. Net loans were $722.7 million, up $74.2 million; available-for-sale securities were $332.7 million, up $176.3 million.
- Cash and cash equivalents declined to $52.2 million from $231.5 million. Deposits were $768.5 million, down $19.5 million. Total liabilities were $892.1 million, down $60.4 million.
- Borrowings comprised $32.9 million of FHLB advances, $65.4 million of repurchase agreements and a $14.0 million note payable. The Bank reported an additional $101.7 million of FHLB borrowing capacity, subject to collateral and stock requirements, and $11.0 million of other credit lines.
- Nine-month cash flows: operating +$5.3 million, investing −$275.5 million and financing +$90.9 million; cash declined $179.3 million. Investing outflows chiefly reflected securities purchases and loan growth; financing included $150 million of Series C preferred-stock proceeds.
- Stockholders’ equity was $277.4 million. The $150 million U.S. Treasury ECIP preferred investment is treated as Tier 1 capital; the Bank’s Community Bank Leverage Ratio was 14.70%, above the 9% threshold. Management said liquidity was sufficient to support growth over the next 12 months.
Material changes, risks and outlook
- Rising market rates reduced the fair value of fixed-rate securities: the portfolio had $25.9 million of gross unrealized losses at September 30, 2022, and nine-month other comprehensive loss, net of tax, was $17.9 million. Management attributed the decline to interest rates, not issuer credit deterioration.
- The allowance for loan losses rose to $4.0 million, or 0.55% of gross loans, from $3.4 million, or 0.52%, at year-end. Q3 provision increased amid loan growth and higher special-mention and substandard balances. There were no charge-offs in the periods presented.
- Loans more than 30 days past due totaled $10.2 million, all less than 90 days past due; non-accrual loans were $0.61 million. The filing reports no loans 90 days or more past due and accruing interest.
- Funding is concentrated: one customer represented about 17% of deposits and one customer 79% of repurchase-agreement balances. Repurchase agreements mature daily. Securities available for sale also expose equity to further rate-driven fair-value changes.
- The company planned to adopt CECL in Q1 2023; management was refining its model and had not yet determined the financial impact. No earnings guidance was provided. Management stated that actual results may differ from forward-looking expectations.
- The filing reports effective disclosure controls, no material control changes, and no legal proceedings. No risk-factor changes were reported.
Important facts for investors to verify
- Track deposit and repurchase-funding concentration, liquidity levels and the availability of collateral-dependent borrowing capacity.
- Assess the effect of interest-rate changes on securities fair values, accumulated other comprehensive loss and tangible book value.
- Monitor delinquency, risk-rating migration, allowance adequacy and the eventual CECL adoption impact.
- Review the terms and capital treatment of the $150 million ECIP preferred stock, including its dividend terms after the initial two years and redemption restrictions.
- Confirm comparative-period interpretation: the notes state the CFBanc merger closed April 1, 2021, while the MD&A overview contains an apparent 2022 date typo; the filing also contains apparent unit or wording errors in portions of the narrative.