Broadway Financial Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited results cover Broadway Financial Corporation and its subsidiaries on a standalone basis; they exclude CFBanc’s results. Unless stated otherwise, dollar amounts below are in millions.
Business context and key financials
- Business: Community banking, with lending focused primarily on multifamily residential and, to a lesser extent, other commercial real estate.
- Revenue and net interest: Interest income was $3.78 million, down from $4.57 million. Net interest income was $2.85 million, versus $2.90 million. Net interest margin was 2.40%, compared with 2.47%.
- Profit: Net loss was $3.49 million, compared with a $33,000 loss. Loss per share was $0.13. The 2021 loss included substantial merger-related expense.
- Expenses and taxes: Non-interest expense rose to $8.63 million from $3.15 million, including $5.4 million of merger-related costs. The income tax benefit was $2.17 million.
- Cash flow: Operating cash outflow was $2.06 million; investing cash outflow was $1.88 million; financing cash outflow was $4.02 million. Cash and cash equivalents ended the quarter at $88.16 million, down from $96.11 million.
- Balance sheet and lending: Total assets were $479.59 million, down from $483.38 million at year-end. Net loans were $362.52 million, up $2.39 million; gross loans were $365.74 million. The allowance for loan losses was $3.22 million, or 0.88% of gross loans.
- Funding and liquidity: Deposits were $312.32 million, down $3.32 million. FHLB advances were $110.50 million; junior subordinated debentures were $3.06 million. The Bank reported $88.2 million in cash and $10.0 million in unpledged available-for-sale securities, plus $36.1 million of additional FHLB borrowing capacity and an $11.0 million line of credit.
- Capital: Stockholders’ equity was $45.08 million, or 9.40% of assets, versus $48.89 million, or 10.11%, at year-end. The Bank exceeded regulatory minimums and was above the stated “well capitalized” thresholds; its March 31 total capital ratio was 17.95%.
Material changes and management commentary
- Net interest income declined modestly as lower loan and investment yields offset lower deposit and borrowing costs. Average loans were $64.8 million lower year over year; average interest-earning assets increased $5.1 million.
- The $5.5 million year-over-year increase in non-interest expense was primarily merger-related: approximately $3.4 million in compensation and severance, $1.8 million in professional services, and $213,000 in insurance. The filing identifies $3.2 million of executive severance among the compensation costs.
- Loan originations were $23.9 million, primarily multifamily, versus repayments of $21.6 million. No loan loss provision or recapture and no charge-offs were recorded in Q1 2021.
- At March 31, no loans were past due, and non-accrual loans totaled $760,000, compared with $787,000 at December 31. Troubled debt restructurings totaled $4.1 million; no borrowers had requested COVID-related modifications, and the Bank reported no COVID-related delinquencies.
- Management said it believed liquidity was sufficient to support growth over the foreseeable future and considered the loan-loss allowance adequate, while cautioning that COVID-related uncertainty could result in actual losses exceeding estimates.
Merger, outlook, and risks
- Completed after quarter-end: On April 1, 2021, Broadway merged with CFBanc Corporation, and Broadway Federal Bank merged into City First Bank, National Association, which adopted the City First Bank name. Q1 reported results do not include CFBanc.
- Equity financing after quarter-end: On April 6, the Company sold 18.474 million shares at $1.78 per share for $32.9 million gross proceeds. Post-transaction shares outstanding were approximately 71.73 million across the reported classes, compared with 27.90 million at March 31.
- Tax asset impact: The Company expected to record an approximately $700,000 valuation allowance in Q2 2021 because the private placement triggered federal tax-code limits on use of deferred tax assets. The March 31 deferred tax asset was $7.09 million.
- Credit and concentration risks: Multifamily loans were $279.55 million of gross loans. Two customer relationships represented approximately 13% of deposits. The filing notes the possibility of higher-than-estimated credit losses and potential regulatory adjustments to the allowance.
- Guidance: No specific earnings or financial guidance was provided. Management’s outlook statements include sufficient liquidity for foreseeable growth; actual results remain subject to forward-looking risks.
- The filing reported no legal proceedings, no applicable risk-factor update, and effective disclosure controls as of March 31, 2021.
Most important facts for investors to verify
- Merger integration, combined-bank performance, and whether post-merger cost savings or revenue changes emerge; the filing’s pro forma figures are informational and not predictive.
- Actual Q2 tax valuation allowance and the resulting effect on earnings and future use of deferred tax assets.
- Use of the $32.9 million private-placement proceeds, post-transaction share count, and resulting shareholder dilution.
- Credit performance in the concentrated multifamily and church-loan portfolio, including non-accrual loans, TDRs, and the adequacy of the allowance.
- Deposit stability and the concentration represented by the two large deposit relationships, along with ongoing liquidity and funding needs.