Broadway Financial Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results. Broadway Financial completed its merger with CFBanc on April 1, 2021; accordingly, comparisons with 2020 are not fully comparable because the acquired bank’s operations are included after the merger.
Business context and key financial metrics
Amounts below are in millions of dollars unless noted. The company is a bank holding company operating through City First Bank, N.A.
| Metric | Q3 2021 / September 30, 2021 | Comparison |
|---|---|---|
| Total assets | $1,063.6 | $483.4 at December 31, 2020 |
| Loans, net | $642.2 | $360.1 at December 31, 2020 |
| Deposits | $749.6 | $315.6 at December 31, 2020 |
| Cash and cash equivalents | $208.7 | $96.1 at December 31, 2020 |
| Available-for-sale securities | $157.6 | $10.7 at December 31, 2020 |
| Total liabilities | $920.2 | $434.5 at December 31, 2020 |
| Stockholders’ equity | $143.3 | $48.9 at December 31, 2020 |
- Q3 income: Interest income was $6.9 million, net interest income was $6.0 million, and non-interest income was $609,000. Net income was $206,000, including $24,000 attributable to non-controlling interests; net income attributable to Broadway Financial was $182,000. Basic and diluted earnings per share were reported as $0.00.
- Nine-month results: Net interest income was $14.7 million, non-interest income was $2.9 million, and non-interest expense was $20.0 million. Consolidated net loss was $2.5 million; the loss attributable to Broadway Financial was $2.6 million, or $0.05 per share.
- Margins: Net interest margin was 2.43% in Q3, compared with 2.82% in Q3 2020; for the nine-month period it was 2.26%, versus 2.57% in 2020.
- Credit costs and asset quality: Q3 loan-loss provision was $365,000; the nine-month provision was $446,000. The allowance for loan losses was $3.7 million, or 0.57% of gross loans. There were no charge-offs in the nine-month period. Loans past due 30–89 days totaled $249,000, none 90 days past due; non-accrual loans were $709,000.
- Cash flow, nine months: Operating activities provided $3.9 million, investing activities provided $31.2 million, and financing activities provided $77.5 million. Cash and cash equivalents increased $112.6 million to $208.7 million.
- Borrowings and liquidity: At quarter-end, FHLB advances were $91.1 million, repurchase-agreement borrowings were $52.9 million, and a $14.0 million note payable remained. The company redeemed its $3.3 million junior subordinated debentures in September. It reported $49.7 million of unpledged available-for-sale securities, $16.9 million of additional FHLB borrowing capacity based on pledged collateral, and $11.0 million of other credit lines.
Material changes versus prior periods
- The merger added approximately $501 million of assets, including $225.9 million of loans and $353.7 million of deposits, and resulted in $26.0 million of goodwill and a $3.3 million core deposit intangible. Assets and liabilities expanded substantially as a result.
- Q3 net income improved by $426,000 from Q3 2020. Management attributed the improvement primarily to a $2.2 million increase in net interest income after provision and $496,000 more grant and fee income, partly offset by $2.2 million in additional operating expenses.
- For the first nine months, the loss widened from $61,000 in 2020 to $2.5 million in 2021. Management cited $5.6 million of merger-related expenses (approximately $4.2 million net of tax), $359,000 of data-processing conversion costs, and expenses from the acquired operations.
- Net interest income rose with the larger acquired loan and securities portfolios, while lower yields on interest-earning assets contributed to margin compression. Deposit costs declined, helping reduce interest expense.
- The company issued common and preferred stock in connection with the merger and raised a further $30.8 million net in April private placements. The share issuance triggered a $370,000 deferred-tax-asset valuation allowance because of restrictions on certain tax attributes under Section 382.
Outlook, commentary, risks, and unusual items
- Management said liquidity was sufficient to support growth over the foreseeable future and the Bank met regulatory capital requirements. The Bank’s Community Bank Leverage Ratio was 9.41%, above the 8.5% 2021 threshold described in the filing. Management noted that additional capital may be needed over time to support growth and maintain well-capitalized status.
- No numerical earnings or other forward guidance was provided. Management cautioned that interim operating results are not necessarily indicative of full-year results and that actual results may differ from forward-looking statements.
- Management said the Bank continued to monitor COVID-19 effects and believed the allowance was adequate, while warning actual credit losses could exceed estimates and regulators could require a higher allowance. The filing describes two borrowers requesting modification applications in MD&A, but says no applications were formally submitted and no modifications granted; a note elsewhere says no borrowers had requested modifications. This disclosure is inconsistent and merits verification.
- Credit exposure is concentrated in real estate lending, particularly multifamily loans. One customer accounted for approximately 9% of deposits; one customer represented 66% of repurchase-agreement borrowings. Repurchase agreements totaled $52.9 million and were secured by $71.4 million of securities.
- Merger accounting values were preliminary and subject to adjustment for up to one year after the acquisition. Goodwill was subject to impairment testing; no impairment was recorded through September 30, 2021.
- The company was integrating CFBanc’s operations and internal controls. Management concluded disclosure controls were effective as of September 30, 2021; the filing said the acquired business could be excluded from the year-end internal-control assessment to the extent it was not yet integrated.
- The filing lists no legal proceedings and states that risk factors were not applicable in this 10-Q.
Important facts for investors to verify
- How much of the reported loss reflects merger and integration costs, and what recurring expense base will remain after integration?
- Whether margin pressure persists as acquired cash and securities are deployed and interest rates change.
- Credit quality and allowance adequacy, including the large multifamily exposure, non-accrual and restructured loans, and acquired loans without a carried-over allowance.
- The status and terms of concentrated deposit and repurchase-agreement relationships, and available liquidity if either relationship changes.
- The final purchase-accounting adjustments, goodwill and core-deposit-intangible balances, and the effect of Section 382 limits on tax attributes.
- Reconcile the filing’s differing descriptions of COVID-related modification requests and confirm the Bank’s capital and liquidity measures after merger integration.