Broadway Financial Corporation Announces Results for First Quarter 2024

Rhea-AI Summary

Broadway Financial (NASDAQ: BYFC) reported a consolidated net loss of $164 thousand for Q1 2024, down from net earnings of $1.6 thousand in Q1 2023.

Net interest income decreased by $750 thousand (9.1%) due to higher interest expenses, while non-interest expenses rose by $1.6 million (25.8%) due to increased professional services and employee compensation costs.

Total interest income rose by $3.6 million (32.4%), with a yield increase on average interest-earning assets.

Gross loans receivable grew by $46.2 million (5.2%), and total deposits increased by $12.9 million.

Despite these positive aspects, the quarter's performance was impacted by rising costs and one-time expenses related to internal control investigations.

Positive

• Interest income increased by $3.6 million (32.4%) compared to Q1 2023.
• Gross loans receivable rose by $46.2 million (5.2%) to $934.8 million.
• Total deposits increased by $12.9 million to $695.5 million.
• Yield on average interest-earning assets increased by 46 basis points to 4.45%.
• Book value per share remains robust at $14.42.
• Low level of non-performing loans, totaling $401 thousand.
• Total loans have grown 43.7% since June 2022.

Negative

• Net loss of $164 thousand for Q1 2024, compared to net earnings of $1.6 thousand in Q1 2023.
• Net interest income decreased by $750 thousand (9.1%) due to higher interest expenses.
• Non-interest expense increased by $1.6 million (25.8%), driven by $905 thousand in professional services and $648 thousand in compensation and benefits.
• Non-recurring costs of almost $700 thousand related to internal control investigations.
• Net interest margin decreased from 2.96% to 2.27%.
• Total assets decreased by $4.9 million.
• Average cost of funds increased from 1.46% to 3.02%.

Insights

Financial Analyst

As a Financial Analyst, it's important to note that the first quarter of 2024 results for Broadway Financial Corporation present a mixed picture for investors. On the one hand, the company reported a consolidated net loss of $164 thousand for Q1 2024, a stark contrast to the modest net earnings of $1.6 thousand in Q1 2023. This decline is attributed primarily to a 9.1% decrease in net interest income and a 25.8% increase in non-interest expense, driven by higher costs related to professional services and compensation and benefits.

The increase in professional services expense was due to the company's efforts to address weaknesses in internal controls, a red flag for investors as it indicates potential operational inefficiencies. However, the $2.5 million increase in pre-tax income suggests that the loss was somewhat mitigated by a significant decrease in income tax expense.

Despite these challenges, there are positive takeaways. Total gross loans receivable increased by $46.2 million (5.2%) and total deposits grew by $12.9 million (1.9%) during the quarter. This growth indicates a steady demand for the company's loan products and deposit services, reflecting the bank's ability to attract and retain customers even in a higher interest rate environment.

Broadway's net interest margin decreased to 2.27% from 2.96% in Q1 2023, primarily due to increased costs of funds. However, the company's interest income increased by $3.6 million (32.4%) year-over-year, largely driven by a 46-basis point increase in the yield on average interest-earning assets. This indicates that the bank has been able to generate higher returns on its assets despite the challenging rate environment.

In summary, while the financial performance for Q1 2024 reflects some operational challenges and increased costs, the underlying growth in loans and deposits, as well as the ability to generate higher interest income, suggests that Broadway Financial Corporation is on a path to recovery. Investors should closely monitor the company's efforts to address internal control weaknesses and manage expenses effectively, as these will be critical to improving profitability in the future.

Market Research Analyst

From the perspective of a Market Research Analyst, Broadway Financial Corporation's first quarter of 2024 results offer some critical insights into its market positioning and potential growth trajectory. The continued increase in interest income for the twelfth consecutive quarter, bolstered by the merger with CFBanc Corporation, highlights the company's successful integration and expanded scale. This is a positive indicator of the company's strategic direction and ability to leverage its enhanced scale for revenue generation.

The growth in the loan portfolio, up by 43.7% since the U.S. Department of the Treasury's investment in June 2022, underscores Broadway's strong lending capabilities and demand within low-to-moderate income communities. This aligns with the company's mission and showcases its ability to deploy capital effectively to support community development.

However, the increase in professional services and compensation expenses highlights a potential risk area. While these costs are partly due to investments in internal controls and operational capabilities, they also reflect higher operational overheads that could impact profitability if not managed efficiently. Investors should consider the balance between necessary expenditures for growth and the impact on short-term earnings.

Market conditions, influenced by the Federal Reserve's interest rate hikes, have led to increased costs of deposits and borrowings. This macroeconomic factor will continue to play a significant role in Broadway's financial performance. The bank's efforts to reduce higher-cost borrowings and increase lower-cost deposits are prudent steps to mitigate these impacts.

Broadway's focus on serving underserved communities presents a unique competitive advantage and aligns with broader social and economic trends favoring inclusive growth. This strategic focus could attract socially responsible investors and enhance the company's reputation and market share in niche segments.

Overall, while there are some operational challenges and increased expenses, Broadway Financial Corporation's commitment to growth, community focus and strategic initiatives position it well for long-term success. Investors should weigh these factors when assessing the company's potential and market positioning.

LOS ANGELES--(BUSINESS WIRE)-- Broadway Financial Corporation (“Broadway”, “we”, or the “Company”) (NASDAQ: BYFC), parent company of City First Bank, National Association (the “Bank”, and collectively, with the Company, “Broadway” or “City First Broadway”), reported consolidated net loss of $164 thousand, or ($0.02) per diluted share, for the first quarter of 2024, compared to consolidated net earnings of $1.6 thousand, or $0.17 per diluted share, for the first quarter of 2023.

During the first quarter of 2024, net interest income decreased by $750 thousand, or 9.1%, to $7.5 million, compared to the first quarter of 2023. The decrease resulted from higher interest expense, primarily due to an increase in the cost of borrowings and deposits. During the first quarter of 2024, non-interest expense increased $1.6 million, or 25.8%, compared to the first quarter of 2023 due to increases of $905 thousand in professional services expense and $648 thousand in compensation and benefits expense. The increase in professional services expense was primarily related to the Company’s investigation of the weaknesses in internal controls that were identified during preparation of the financial statements for the third quarter of 2023. The increase in non-interest expense was partially offset by a decrease in income tax expense of $731 thousand due to a decrease in pre-tax income of $2.5 million between the two periods.

First Quarter 2024 Highlights:

• Total interest income increased for the twelfth consecutive quarter since the merger of CFBanc Corporation with the Company on April 1, 2021 (the “Merger”). During the first quarter of 2024, interest income increased by $3.6 million, or 32.4%, compared to the first quarter of 2023, and by $2.3 million, or 18.5%, compared to the fourth quarter of 2023.
• The yield on average interest-earning assets increased by 46 basis points to 4.45% for the first quarter of 2024, compared to 3.99% for the first quarter of 2023. This increase was driven largely by growth in the yield on average loan balances of 41 basis points during that period.
• Total gross loans receivable increased by $46.2 million, or 5.2%, to $934.8 million at March 31, 2024, compared to $887.6 million at December 31, 2023. Total loans have grown 43.7% since the United States Department of the Treasury invested $150 million in Broadway’s preferred stock pursuant to the Emergency Capital Investment Program (“ECIP”) in June 2022, and 57.9% since the Merger.
• The Bank had only one non-performing loan, totaling $401 thousand, at March 31, 2024 and total delinquencies remained at less than $800 thousand.
• Total deposits increased by $12.9 million during the first quarter of 2024 to $695.5 million, representing growth of $38 million, or 5.8%, since the first quarter of 2023.

Chief Executive Officer, Brian Argrett commented, “During the first quarter of 2024, we experienced an acceleration in the growth of our interest income, which has increased in each of the twelve quarters since the merger of Broadway and CFBanc Corporation, demonstrating the benefits of the Company’s enhanced scale and commitment to growth. The increase in interest income reflects an increase of almost 58% in our loan portfolio since the merger, and approximately 44% since receipt of the equity investment under the U.S. Treasury’s Emergency Capital Investment Program in June 2022. In addition, this growth in interest income reflects improving yields on our interest-earning assets, which have increased by 136 basis points, or 44%, since the end of March 2022 when the Federal Open Market Committee of the Federal Reserve began implementing interest rate hikes to curb inflation. I am pleased to report that we have been able to achieve these increases while maintaining the quality of the Bank’s loan portfolio, as our delinquencies remain modest.”

“Notwithstanding the growth in our balance sheet and interest income, our overall performance has continued to suffer from higher costs of deposits and borrowings, which are a direct result of the rate hikes implemented by the Federal Reserve.”

“In addition, our results for the first quarter of 2024 were adversely affected by substantial non-recurring costs of almost $700 thousand associated with our investigation of material weaknesses in internal controls that we had identified while preparing our financial statements for the third quarter of 2023 and initiating corrective actions to remediate those weaknesses. As a result of those costs, we reported a pretax loss of $240 thousand for the quarter. We are using the results of the investigation, however, to strengthen our controls and financial and accounting team, which will provide us with better financial information with which to properly manage our business and inform our stockholders, depositors, and other stakeholders.”

“Also, results for the first quarter of 2024 were impacted by the investments in people that we have been undertaking over the past twelve months to support our operational capabilities to professionally manage our business, improve our efficiency, and promote our continued growth.”

“We remain optimistic in our ability to continue growing and improving profitability and are focused on serving low-to-moderate income communities within our target markets. The Company has a strong base of equity capital to execute its plans, which is being complemented by the increase in the Bank’s deposits during each of the past three consecutive quarters. At the end of March 2024, the Bank’s deposits were $12.9 million higher than at the beginning of the year and almost $50.0 million higher than at the end of June last year. Also, during the first quarter of 2024, we reduced our higher cost borrowings as part of our efforts to lower our cost of funds.”

“Finally, I wish to thank our employees for their tremendous dedication to our mission and operating performance, and our stockholders and depositors for their continued support of our broader strategy and growth. Your efforts and financial support are fundamental to our ability to expand, serve, and support our communities, customers, and broader stakeholders.”

Net Interest Income

Net interest income before loan loss provision for the first quarter of 2024 totaled $7.5 million, representing a decrease of $750 thousand, or 9.1%, from net interest income before loan loss provision of $8.3 million for the first quarter of 2023. The decrease resulted from higher interest expense, primarily due to an increase in the cost of borrowings and deposits. The net interest margin decreased to 2.27% for the first quarter of 2024 from 2.96% for the first quarter of 2023, primarily due to an increase in the average cost of funds, which increased to 3.02% for the first quarter of 2024 from 1.46% for the first quarter of 2023, due to higher rates paid on deposits and borrowings after eleven rate increases by the Federal Open Market Committee of the Federal Reserve (the “FRB”) from March 2022 through December 2023. The decrease in net interest income before provision for credit losses was partially offset by growth of $209.3 million in average interest-earning assets during the first quarter of 2024, compared to the first quarter of 2023. In addition, the overall rate earned on interest-earning assets increased by 46 basis points as the Bank earned higher rates on interest-earning deposits, securities, and the loan portfolio.

The following table sets forth the average balances, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred loan fees, and discounts and premiums that are amortized or accreted to interest income or expense.

	For the Three Months Ended
	March 31, 2024											March 31, 2023
	(Dollars in thousands)
	Average Balance				Interest				Average Yield			Average Balance				Interest				Average Yield
Assets
Interest-earning assets:
Interest-earning deposits	$	99,103			$	1,344			5.42	%		$	17,044			$	119			2.79	%
Securities		305,615				2,075			2.72	%			328,767				2,180			2.65	%
Loans receivable (1)		909,965				11,129			4.89	%			762,669				8,535			4.48	%
FRB and FHLB stock (2)		13,733				245			7.14	%			10,665				209			7.84	%
Total interest-earning assets		1,328,416			$	14,793			4.45	%			1,119,145			$	11,174			3.99	%
Non-interest-earning assets		52,561											67,947
Total assets	$	1,380,977										$	1,187,092
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	125,704			$	1,444			4.59	%		$	134,047			$	771			2.30	%
Savings deposits		59,056				102			0.69	%			61,317				13			0.08	%
Interest checking and other demand deposits		227,504				143			0.25	%			239,024				77			0.13	%
Certificate accounts		163,116				1,110			2.72	%			147,260				442			1.20	%
Total deposits		575,380				2,799			1.95	%			581,648				1,303			0.90	%
FHLB advances		209,299				2,598			4.97	%			145,201				1,454			4.01	%
Bank Term Funding Program borrowing		100,000				1,203			4.81	%			-				-			-	%
Other borrowings		77,601				669			3.45	%			69,618				143			0.82	%
Total borrowings		386,900				4,470			4.62	%			214,819				1,597			2.97	%
Total interest-bearing liabilities		962,280			$	7,269			3.02	%			796,467			$	2,900			1.46	%
Non-interest-bearing liabilities		137,035											109,955
Stockholders’ equity		281,662											280,670
Total liabilities and stockholders’ equity	$	1,380,977										$	1,187,092
Net interest rate spread (3)					$	7,524			1.43	%						$	8,274			2.54	%
Net interest rate margin (4)									2.27	%										2.96	%
Ratio of interest-earning assets to interest-bearing liabilities									138.05	%										140.51	%

(1)		Amount is net of deferred loan fees, loan discounts and loans in process, and includes deferred origination costs and loan premiums.
(2)		FHLB is Federal Home Loan Bank.
(3)		Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4)		Net interest rate margin represents net interest income as a percentage of average interest-earning assets.

Credit Loss Provision

For the three months ended March 31, 2024, the Company recorded a credit loss provision under the Current Expected Credit Loss methodology of $260 thousand, compared to a credit loss provision of $88 thousand for the three months ended March 31, 2023. No loan charge-offs were recorded during the quarters ended March 31, 2024 or 2023. The allowance for credit losses (“ACL”) increased to $7.6 million as of March 31, 2024, compared to $7.3 million as of December 31, 2023. The Bank had one non-accrual loan at March 31, 2024 with an unpaid principal balance of $401 thousand.

Non-interest Income

Non-interest income for the first quarter of 2024 totaled $306 thousand, compared to $289 thousand for the first quarter of 2023.

Non-interest Expense

Total non-interest expense was $7.8 million for the first quarter of 2024, compared to $6.2 million for the first quarter of 2023, representing an increase of $1.6 million, or 25.8%. The increase was due to an increase of $905 thousand in professional services expense and an increase of $648 thousand in compensation and benefits expense. The increase in professional services was primarily due to hiring a third-party firm to assist with reviewing certain general ledger account reconciliations, as well as other professionals, in connection with the Company’s investigation of the weaknesses in internal controls that were identified during preparation of the financial statements for the third quarter of 2023.

The increase in compensation and benefits expense was primarily attributable to the addition of full-time employees during 2023 in various production and administrative positions as part of the Bank’s efforts to expand it operational capabilities to grow its balance sheet and fulfill the intersecting lending objectives of the Company’s mission and the ECIP funding received in June 2022. A portion of the increase in compensation expenses during the first quarter of 2024 pertained to recruiting expenses.

Income Taxes

Income taxes are computed by applying the statutory federal income tax rate of 21% and the combined California and Washington, D.C. income tax rate of 9.75% to taxable income. The Company recorded an income tax benefit of $57 thousand for the first quarter of 2024 and income tax expense of $674 thousand for the first quarter of 2023. The decrease in tax expense reflected a decrease of $2.5 million in pre-tax income between the two periods. The effective tax rate was 23.75% for the first quarter of 2024, compared to 29.70% for the first quarter of 2023.

Balance Sheet Summary

Total assets decreased by $4.9 million at March 31, 2024, compared to December 31, 2023, reflecting decreases in cash and cash equivalents of $38.1 million and securities available-for-sale of $23.7 million, partially offset by growth in net loans of $46.0 million and other assets of $9.9 million.

Loans held for investment, net of the ACL, increased by $46.0 million to $926.5 million at March 31, 2024, compared to $880.5 million at December 31, 2023. The increase was primarily due to loan originations of $71.5 million which consisted of $38.0 million in multi-family loans, $17.5 million in other commercial loans, $15.0 million in commercial real estate loans, and $0.9 million in construction loans, offset in part by loan payoffs and repayments of $25.5 million.

Deposits increased by $12.9 million to $695.5 million at March 31, 2024, from $682.6 million at December 31, 2023. The increase in deposits was attributable to increases of $15.0 million in liquid deposits (demand, interest checking, and money market accounts) and $12.4 million in Insured Cash Sweep (“ICS”) deposits (ICS deposits are the Bank’s money market deposit accounts in excess of FDIC insured limits whereby the Bank makes reciprocal arrangements for insurance with other banks), partially offset by decreases of $12.2 million in Certificate of Deposit Registry Service (“CDARS”) deposits (CDARS deposits are similar to ICS deposits, but involve certificates of deposit, instead of money market accounts), $1.7 million in savings deposits and $596 thousand in other certificates of deposit accounts. As of March 31, 2024, our uninsured deposits represented 38% of our total deposits, compared to 37% as of December 31, 2023. We leverage our long-standing partnership with IntraFi Deposit Solutions to offer deposit insurance for accounts exceeding the FDIC deposit insurance limit of $250,000.

Total borrowings decreased by $15.8 million to $380.9 million at March 31, 2024, from $396.8 million at December 31, 2023, primarily due to the payoff of two notes payable totaling $14.0 million during January 2024. The notes payable had a blended interest cost of approximately 3.75%.

Stockholders’ equity was $281.3 million, or 20.5% of the Company’s total assets, at March 31, 2024, compared to $281.9 million, or 20.5% of the Company’s total assets, at December 31, 2023. Stockholders’ equity decreased primarily due to an increase in accumulated other comprehensive loss, net of tax of $571 thousand. Book value per share was $14.42 at March 31, 2024, compared to $14.65 at December 31, 2023.

About Broadway Financial Corporation

Broadway Financial Corporation operates through its wholly-owned banking subsidiary, City First Bank, National Association, which is a leading mission-driven bank that serves low-to-moderate income communities within urban areas in Southern California and the Washington, D.C. market.

About the City First Branded Family

City First Bank offers a variety of commercial real estate loan products, services, and depository accounts that support investments in affordable housing, small businesses, and nonprofit community facilities located within low-to-moderate income neighborhoods. City First Bank is a Community Development Financial Institution, Minority Depository Institution, Certified B Corp, and a member of the Global Alliance of Banking on Values. The Bank and the City First network of nonprofits, City First Enterprises, Homes By CFE, and City First Foundation, represent the City First branded family of community development financial institutions, which offer a robust lending and deposit platform.

Stockholders, analysts, and others seeking information about the Company are invited to write to: Broadway Financial Corporation, Investor Relations, 4601 Wilshire Boulevard, Suite 150, Los Angeles, CA 90010 or contact Investor Relations at the phone number or email address below.

Cautionary Statement Regarding Forward-Looking Information

This press release includes “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this press release, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations and capital allocation and structure, are forward-looking statements. Forward‑looking statements typically include the words “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “believes,” “predicts,” “potential,” “continue,” “poised,” “optimistic,” “prospects,” “ability,” “looking,” “forward,” “invest,” “grow,” “improve,” “deliver” and similar expressions, but the absence of such words or expressions does not mean a statement is not forward-looking. These forward‑looking statements are subject to risks and uncertainties, including those identified below, which could cause actual future results to differ materially from historical results or from those anticipated or implied by such statements. The following factors, among others, could cause future results to differ materially from historical results or from those indicated by forward‑looking statements included in this press release: (1) the level of demand for mortgage and commercial loans, which is affected by such external factors as general economic conditions, market interest rate levels, tax laws, and the demographics of our lending markets; (2) the direction and magnitude of changes in interest rates and the relationship between market interest rates and the yield on our interest‑earning assets and the cost of our interest‑bearing liabilities; (3) the rate and amount of loan losses incurred and projected to be incurred by us, increases in the amounts of our nonperforming assets, the level of our loss reserves and management’s judgments regarding the collectability of loans; (4) changes in the regulation of lending and deposit operations or other regulatory actions, whether industry-wide or focused on our operations, including increases in capital requirements or directives to increase allowances for credit losses or make other changes in our business operations; (5) legislative or regulatory changes, including those that may be implemented by the current administration in Washington, D.C. and the Federal Reserve; (6) possible adverse rulings, judgments, settlements and other outcomes of litigation; (7) actions undertaken by both current and potential new competitors; (8) the possibility of adverse trends in property values or economic trends in the residential and commercial real estate markets in which we compete; (9) the effect of changes in economic conditions; (10) the effect of geopolitical uncertainties; (11) the impact of health crises on our future financial condition and operations; (12) the impact of any volatility in the banking sector due to the failure of certain banks due to high levels of exposure to liquidity risk, interest rate risk, uninsured deposits and cryptocurrency risk; and (13) other risks and uncertainties. All such factors are difficult to predict and are beyond our control. Additional factors that could cause results to differ materially from those described above can be found in our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K or other filings made with the SEC and are available on our website at http://www.cityfirstbank.com and on the SEC’s website at http://www.sec.gov.

Forward-looking statements in this press release speak only as of the date they are made, and we undertake no obligation, and do not intend, to update these forward-looking statements to reflect events or circumstances occurring after the date of this press release, except to the extent required by law. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240610469309/en/

Investor Relations

Zack Ibrahim, Chief Financial Officer, (202) 243-7100

Investor.relations@cityfirstbroadway.com

Source: Broadway Financial Corporation

FAQ

What was Broadway Financial 's net income for Q1 2024?

Broadway Financial reported a consolidated net loss of $164 thousand for Q1 2024.

How much did Broadway Financial 's net interest income decrease in Q1 2024?

Net interest income decreased by $750 thousand (9.1%) in Q1 2024.

What was the increase in total interest income for Broadway Financial in Q1 2024?

Total interest income increased by $3.6 million (32.4%) in Q1 2024.

How did non-interest expense change for Broadway Financial in Q1 2024?

Non-interest expense increased by $1.6 million (25.8%) in Q1 2024.

Did Broadway Financial 's deposits increase in Q1 2024?

Yes, total deposits increased by $12.9 million to $695.5 million in Q1 2024.

How much did gross loans receivable grow for Broadway Financial in Q1 2024?

Gross loans receivable grew by $46.2 million (5.2%) in Q1 2024.

What was the change in average cost of funds for Broadway Financial in Q1 2024?

The average cost of funds increased from 1.46% to 3.02% in Q1 2024.

What was Broadway Financial 's book value per share at the end of Q1 2024?

The book value per share was $14.42 at the end of Q1 2024.

How many non-performing loans did Broadway Financial have at the end of Q1 2024?

Broadway Financial had one non-performing loan totaling $401 thousand at the end of Q1 2024.