Broadway Financial Corporation (the “Company”) (NASDAQ Capital
Market: BYFC), parent company of Broadway Federal Bank, f.s.b. (the
“Bank”, and collectively, with the Company, “Broadway”), today
reported net income of $216 thousand, or $0.01 per diluted share,
for the second quarter of 2020, compared to a net loss of $135
thousand, or ($0.01) per diluted share, for the second quarter of
2019.
During the second quarter of 2020, net income increased $351
thousand compared to the second quarter of 2019, primarily due to
an income tax adjustment of $273 thousand recorded upon the
resolution of an outstanding audit issue with the California
Franchise Tax Board. In addition, during the second quarter of
2020, net interest income increased $569 thousand, and gain on sale
of loans increased $116 thousand. These increases were partially
offset by higher non-interest expense of $380 thousand, including
$152 thousand of expenses incurred to respond to actions by a
former stockholder. Also, during the second quarter of 2019, the
Bank recorded net loan loss provision recaptures of $158 thousand
and did not record any net loan loss provision recaptures during
the second quarter of 2020.
For the six months ended June 30, 2020, the Company reported net
income of $183 thousand, or $0.01 per diluted share, compared to
net income of $142 thousand, or $0.01 per diluted share for the six
months ended June 30, 2019. The increase in net income for the
first six months of 2020 was due to the income tax adjustment of
$273 thousand during the second quarter. During the first six
months of 2020 the Company generated higher net interest income of
$654 thousand, recorded gains on the sales of loans totaling $123
thousand, and earned higher miscellaneous loan income of $33
thousand compared to the first half of 2019. These increases were
more than offset by higher non-interest expenses of $469 thousand,
including $200 thousand of expenses incurred to respond to actions
by a former stockholder, the recording of a loan loss provision of
$29 thousand in the first half of 2020 but a loan loss recapture of
$348 thousand in the first half of 2019, and the absence of any
grant income in the first half of 2020. During the first quarter of
2019, the Bank received a grant of $233 thousand from the U.S.
Department of the Treasury’s Community Development Financial
Institution (“CDFI”) Fund.
Chief Executive Officer, Wayne Bradshaw, commented, “The second
quarter demonstrated the wisdom of our strategy of remaining
focused on lending to experienced owners of smaller multi-family
residential properties within low-to-moderate income communities.
Despite the tremendous dislocations to the economy from the
COVID-19 Pandemic, and the continuing challenges presented by the
interest rate environment, our portfolio of loans receivable
performed well. At the end of the second quarter Broadway did not
have any delinquencies and had received nominal requests for loan
deferrals. Total non-performing loans remained low at 0.17% of
total assets. Nonetheless, we are being cautious about originating
new loans and extra vigilant in monitoring our portfolio.”
“I am pleased to report that our continuing efforts to improve
profitability were bearing fruit as supported by growth in the
Bank’s net interest income in the second quarter of 2020 of over
23% compared to the comparable period in 2019 and 4.6% compared to
the results for the first quarter. Part of this growth was
attributable to the continuing adjustments that we made in the
Bank’s funding sources, which lowered the cost of deposits by 37
basis points and the cost of borrowings by 72 basis points during
the quarter, and helped increase the Bank’s net interest margin
during the second quarter over the margin achieved in the
comparable period in 2019. As I have mentioned earlier this year,
we are also implementing plans to reduce non-interest expenses to
improve our operating efficiency and profitability and expect to
see the benefits of those plans in the second half of next
year.”
“I wish to reiterate how proud I am of the positive spirit and
dedication of Broadway’s employees, who have demonstrated their
fortitude and resiliency in adapting to the new realities facing
the country. The team remains committed to Broadway’s mission of
serving the low-to-moderate income communities of Southern
California, many of which have been disproportionately impacted by
the COVID-19 Pandemic. Our hopes and prayers go out to everyone
that has been adversely affected by the Pandemic.”
COVID-19 Pandemic Impact
Since early March, the effects from the spread of the COVID-19
virus have permeated virtually every aspect of society and required
management to quickly plan and implement multiple changes to
Broadway’s operations to protect the health and welfare of the
Bank’s employees and customers, while minimizing disruptions to the
Bank’s ability to provide essential services. These changes were
based on guidance from various governmental entities, including the
Center for Disease Control and Prevention. Among the changes that
the Bank implemented were the following: more intensive cleaning
and maintenance of the branches, distribution of personal
protection equipment to employees, creation of safe distancing
measures within the branches and all work areas, guidance to all
employees regarding other safe practices, amended benefit policies
to ease the burden on employees with children at home, or those
experiencing symptoms of disease, development of plans for certain
employees or departments to work from home, and the creation of
contingency plans for potential further changes to operations. To
date, Broadway has not implemented layoffs or furloughs of any of
our employees.
In addition, Broadway has developed plans and policies for
providing financial relief to borrowers that may experience
difficulties in meeting the terms of their loans, performed updated
stress tests of the Bank’s loan portfolio using new assumptions
reflecting potential significant impacts of the COVID-19 Pandemic
and related governmental stay-at-home orders, created contingency
plans to respond if various aspects of the credit markets cease to
operate in a normal manner, and implemented new lending guidelines
that are designed to moderate the Bank’s loan concentration and
enhance liquidity. Management has been in regular communication
with the Bank’s regulator regarding these new plans and
policies.
To date, the Bank has had no delinquencies related to COVID-19
and has received only two requests for loan modifications.
Broadway decided not to participate in the Small Business
Administration’s (“SBA”) Paycheck Protection Program (“PPP”)
because management believes that it is more important and
appropriate to maintain the Bank’s focus on existing clients,
markets, and loan products. In addition, the Bank has historically
not offered SBA loans and has not had a significant client base or
portfolio of commercial and industrial loans, for which the PPP
would have represented a product line extension. Instead,
management has been focused on selective originations of
multi-family residential and commercial real estate loans, and
sales of the Bank’s portfolio of loans receivable held for sale,
which will moderate the Bank’s loan concentration and enhance
liquidity. During the first half of 2020, the Bank sold $60.9
million of loans at a profit of $123 thousand.
Net Interest Income
Net interest income for the second quarter of 2020 totaled $3.0
million, compared to $2.5 million for the second quarter of 2019.
The increase primarily resulted from an increase in interest income
of $483 thousand due to higher interest income and fees on loans
receivable of $588 thousand, partially offset by lower interest
income on securities and other investments of $105 thousand. Also,
interest expense decreased by $86 thousand due to lower interest
expense on deposits of $130 thousand, partially offset by higher
interest expense on borrowings of $44 thousand. Average
interest-earning assets increased by $88.0 million during the
second quarter of 2020 compared to the second quarter of the prior
year, and the net interest margin increased by 3 basis points to
2.43% for the second quarter of 2020 compared to 2.40% for the
second quarter of 2019.
Interest income and fees on loans receivable increased by $588
thousand to $4.4 million for the second quarter of 2020, from $3.8
million for the second quarter of 2019 due to an increase of $66.6
million in the average balance of loans receivable (including loans
held for sale), which increased interest income by $665 thousand.
This was partially offset by a decrease of 8 basis points in the
average yield on loans, which decreased interest income by $77
thousand.
Interest income on securities decreased by $30 thousand for the
second quarter of 2020, compared to the second quarter of 2019. The
decrease in interest income on securities primarily resulted from a
decrease of $3.8 million in the average balance of securities,
which decreased interest income by $24 thousand and a decrease of
18 basis points in the average interest rate earned on securities,
which decreased interest income by $6 thousand.
Other interest income decreased by $75 thousand for the second
quarter of 2020, compared to the second quarter of 2019. The
decrease was primarily due to a decrease of 202 basis points in the
average rate earned on interest-bearing deposits in other banks,
which decreased interest income by $123 thousand, partially offset
by an increase of $24.6 million in the average balance of
interest-bearing deposits in other banks, which increased interest
income by $71 thousand. In addition, there was a decrease of $23
thousand in dividends earned on Federal Home Loan Bank (“FHLB”)
stock during the second quarter of 2020, compared to the second
quarter of 2019.
Interest expense on deposits decreased by $130 thousand for the
second quarter of 2020, compared to the second quarter of 2019. The
decrease was attributable to lower rates paid on all deposit types,
which caused interest expense on deposits to decrease by $173
thousand, partially offset by an increase in the average total
deposit balance of $45.7 million, which led to an increase in
interest expense of $43 thousand.
Interest expense on borrowings increased by $44 thousand for the
second quarter of 2020, compared to the second quarter of 2019. The
higher interest expense on borrowings reflected a net increase of
$41.5 million in average borrowings, due to an increase of $42.6
million in the average balance of FHLB advances, partially offset
by a decrease of $1.1 million in the average balance of the
Company’s junior subordinated debentures. The higher average
borrowings increased interest expense by $178 thousand, which was
partially offset by a decrease of 72 basis points in the overall
cost of borrowings, which decreased interest expense by $134
thousand.
For the six months ended June 30, 2020, net interest income
increased by $654 thousand to $5.9 million. The increase in net
interest income primarily resulted from an increase in interest
income of $681 thousand due to higher interest income on loans
receivable of $832 thousand, partially offset by lower interest
income on securities and other investments of $151 thousand.
Interest expense increased by $27 thousand due to an increase in
borrowing costs of $129 thousand, which was partially offset by a
decrease in the cost of deposits, which lowered interest expense by
$102 thousand.
Interest income and fees on loans receivable increased by $832
thousand during the first six months of 2020 due to an increase of
$59.0 million in the average balance of loans receivable (including
loans held for sale), which increased interest income by $1.2
million, partially offset by a decrease of 19 basis points in loan
yield, which decreased interest income by $372 thousand. During the
first half of 2020, the Bank recorded an interest recovery of $162
thousand upon the payoff of one non-accrual church loan, compared
to interest recoveries of $351 thousand upon the payoff of two
non-accrual church loans during the first half of 2019.
Interest income on securities decreased by $58 thousand for the
first half of 2020, compared to the first half of 2019. The
decrease in interest income on securities primarily resulted from a
decrease of $3.7 million in the average balance of securities,
which decreased interest income by $48 thousand and a decrease of
15 basis points in the average interest rate earned on securities,
which decreased interest income by $10 thousand.
Other interest income decreased by $93 thousand for the first
half of 2020 compared to the first half of 2019. The decrease was
primarily due to a decrease of 176 basis points in the average rate
earned on interest-bearing deposits in other banks, which decreased
interest income by $205 thousand, partially offset by an increase
of $17.8 million in the average balance of interest-earning
deposits in other banks, which increased interest income by $130
thousand. In addition, there was a decrease of $18 thousand in
dividends earned on FHLB stock during the first half of 2020,
compared to the first half of 2019.
During the first half of 2020, interest expense on deposits
decreased by $102 thousand due to a decrease of 23 basis points
attributable to lower rates paid on all deposit types, which caused
interest expense on deposits to decrease by $201 thousand,
partially offset by an increase of $36.0 million in the average
balance of deposits, which caused interest expense to increase by
$99 thousand.
During the first half of 2020, interest expense on borrowings
increased by $129 thousand, compared to the first half of 2019. The
higher interest expense on borrowings reflected a net increase of
$36.4 million in average borrowings, due to an increase of $37.4
million in the average balance of FHLB advances, offset by a
decrease of $932 thousand in the average balance of the Company’s
junior subordinated debentures. The increase in average borrowings
increased interest expense by $348 thousand, which was partially
offset by a decrease of 59 basis points in the overall cost of
borrowings, which decreased interest expense by $219 thousand.
The net interest margin decreased by 12 basis points to 2.45%
for the six months ended June 30, 2020 from 2.57% for the same
period in 2019, primarily due to a lower average loan yield.
Loan Loss Provision
As a small banking institution, Broadway is not required to
adopt the CECL accounting standard until 2023; consequently, the
Bank’s allowance for loan and lease losses (“ALLL”) is based on
evidence available at the date of preparation of its financial
statements, rather than projections of future economic conditions
over the life of the loans. In determining the adequacy of the ALLL
within the context of the current uncertainties posed by the
COVID-19 Pandemic, management has considered the historical and
current performance of the Bank’s portfolio, as well as various
measures of the quality and safety of the portfolio, such as debt
servicing and loan-to-value ratios. Through the end of June 2020,
the Bank had experienced no delinquencies on any loans. Management
is continuing to monitor the loan portfolio and regularly
communicating with borrowers to determine the continuing adequacy
of the ALLL.
The Bank did not record a loan loss provision or recapture
during the second quarter of 2020 but recorded a loan loss
provision of $29 thousand during the first six months of 2020.
During the first quarter of 2020 the Bank recorded additional
provisions to increase the ALLL for economic uncertainties related
to the COVID-19 Pandemic. During the second quarter of 2020, the
Bank maintained its ALLL at $3.2 million, after adjusting for a
loan loss recovery of $4 thousand, despite a net decrease of $6.9
million in the loans held for investment portfolio during the
second quarter of 2020. No loan charge-offs were recorded during
the second quarter or first half of 2020.
The Bank recorded loan loss provision recaptures of $158
thousand and $348 thousand, respectively, during the second quarter
and first six months of 2019. The Bank recorded cash recoveries of
$190 thousand during the first quarter and first half of 2019. No
loan charge-offs were recorded during the second quarter or first
half of 2019.
At June 30, 2020, the ALLL was $3.2 million, or 0.85% of our
gross loans held for investment compared to $3.2 million, or 0.79%
at December 31, 2019. The ALLL as a percentage of non-performing
loans was 379.6% at June 30, 2020 compared to 750.5% at December
31, 2019. The Bank’s total non-performing assets were $846 thousand
at June 30, 2020, consisting of two church loans and one
single-family loan, compared to $424 thousand at December 31, 2019,
consisting of one church loan and one single-family loan. The Bank
did not have any delinquencies at June 30, 2020 and has not had any
real estate owned from foreclosures (“REO”) since the sale of a
single REO property in April 2019.
Non-interest Income
Non-interest income for the second quarter of 2020 totaled $242
thousand compared to $139 thousand for the second quarter of 2019.
Non-interest income increased by $103 thousand primarily because
the Bank recorded a gain on sale of loans of $116 thousand during
the second quarter of 2020; the Bank did not have any loan sales
during the first half of 2019. This increase was partially offset
by a decrease in other components of non-interest income of $13
thousand during the second quarter of 2020 compared to the second
quarter of 2019.
For the six months ended June 30, 2020, non-interest income
totaled $439 thousand compared to $515 thousand for the same period
one year ago. The decrease of $76 thousand in non-interest income
was primarily due to a grant of $233 thousand from the CDFI Fund
received during the first quarter of 2019, offset by gain on sale
of loans of $123 thousand recorded during the first half of
2020.
Non-interest Expense
Non-interest expense for the second quarter of 2020 totaled $3.4
million, compared to $3.0 million for the second quarter of 2019.
The increase of $380 thousand in non-interest expense during the
second quarter of 2020 compared to the same quarter of 2019 was
primarily due to increases of $336 thousand in professional
services expense, $108 thousand in compensation and benefits
expense and $20 thousand in office services and supplies, offset by
decreases of $41 thousand in amortization of investment in
affordable housing limited partnership, $27 thousand in loan
related expenses, and $16 thousand in various other non-interest
expense items, primarily in lower provision for off-balance sheet
loan commitments. The increase of $336 thousand in professional
services expense was due to an increase of $248 thousand in legal
fees and an increase of $109 thousand in consulting services fees,
offset by a decrease of $21 thousand in audit fees. The increase in
legal and consulting fees during the second quarter included $152
thousand of expenses incurred to respond to activities conducted by
a former stockholder against the Company. The activity and related
litigation were subsequently withdrawn by the former stockholder
early in the third quarter.
For the six months ended June 30, 2020, non-interest expense
totaled $6.6 million, compared to $6.1 million for the same period
a year ago. The increase of $469 thousand in non-interest expense
was primarily due to increases of $281 thousand in compensation and
benefits expense, $261 thousand in professional services expenses,
$32 thousand in information services expense, $28 thousand in
office services and supplies and $15 thousand in occupancy expense,
offset by decreases of $45 thousand in amortization of investment
in affordable housing limited partnership, $37 thousand in loan
related expenses, and $66 thousand in various other non-interest
expense items, primarily in lower provision for off-balance sheet
loan commitments. The increase of $261 thousand in professional
services expense was due to an increase of $233 thousand in legal
fees and an increase of $142 thousand in consulting services fees,
offset by a decrease of $114 thousand in audit fees. The increase
in legal and consulting fees during the first half of 2020 included
$200 thousand of legal expenses incurred to respond to activities
conducted by a former stockholder against the Company.
Income Tax Expense or Benefit
Income tax expense or benefit is computed by applying the
statutory federal income tax rate of 21% and the California income
tax rate of 10.84% to taxable income or loss. The Company recorded
income tax benefits of $345 thousand and $395 thousand for the
three and six months ended June 30, 2020, respectively, compared to
income tax benefits of $128 thousand and $86 thousand for the three
and six months ended June 30, 2019, respectively. The increase in
income tax benefit during the second quarter and first six months
of 2020 was primarily due to a tax adjustment of $273 thousand upon
the resolution of an outstanding audit issue with the California
Franchise Tax Board for tax years 2009 to 2013. In addition, the
Company recorded low-income housing tax credits of $29 thousand and
$58 thousand during the second quarter and six months ended June
30, 2020 compared to $50 thousand and $99 thousand during the
second quarter and six months ended June 30, 2019. The Company had
no valuation allowance on its deferred tax assets, which totaled
$5.4 million at June 30, 2020 and $5.2 million at December 31,
2019.
Balance Sheet Summary
Total assets increased by $50.9 million to $491.3 million at
June 30, 2020 from $440.4 million at December 31, 2019. The
increase in total assets was comprised of an increase of $49.7
million in loans receivable held for sale, an increase of $24.3
million in cash and cash equivalents and an increase of $670
thousand in FHLB stock. These increases were offset by a decrease
of $23.4 million in loans held for investment and a decrease of
$814 thousand in securities available-for-sale.
Loans receivable held for sale totaled $49.7 million at June 30,
2020. There were no loans held for sale as of December 31, 2019.
During the first half of 2020, the Bank originated $110.9 million
of multi-family loans for sale and sold $60.9 million of loans held
for sale for a gain of $123 thousand. Repayments of loans
receivable held for sale totaled $315 thousand during the first
half of 2020.
Loans receivable held for investment, net of the allowance for
loan losses, totaled $374.4 million at June 30, 2020, compared to
$397.8 million at December 31, 2019. During the first half of 2020,
the Bank originated $4.1 million in commercial real estate loans
and $728 thousand in construction loans for the loans
held-for-investment portfolio. Loan repayments during the first
half of 2020 totaled $28.2 million.
Deposits increased to $315.8 million at June 30, 2020 from
$297.7 million at December 31, 2019, which consisted primarily of
an increase of $54.9 million in liquid deposits (NOW, demand, money
market and passbook accounts) and an increase of $8.3 million in
certificates of deposit, offset by a net decrease of $36.2 million
in two-way CDARS and a decrease of $8.9 million in deposits
gathered from a deposit listing service. One customer transferred
$21.8 million in deposits from two-way CDARS to money market
accounts during the first half of 2020.
FHLB advances increased to $116.5 million at June 30, 2020 from
$84.0 million at December 31, 2019 as the Bank took on additional
advances to fund new loans. During the second quarter of 2020, the
Bank borrowed $10.0 million from the FHLB of San Francisco by
utilizing its zero rate “Recovery Advance” program. The weighted
average rate on FHLB advances was 1.84% at June 30, 2020 compared
to 2.32% at December 31, 2019.
Stockholders' equity was $49.5 million, or 10.08% of the
Company’s total assets, at June 30, 2020, compared to $48.8
million, or 11.09% of the Company’s total assets at December 31,
2019. The Company’s book value was $1.77 per share as of June 30,
2020, compared to $1.75 per share as of December 31, 2019.
At June 30, 2020, the Bank’s Total Capital ratio was 17.15% and
its Leverage ratio (Tier 1 Capital to adjusted total assets) was
9.71%, compared to a Total Capital ratio of 18.29% and a Leverage
ratio of 11.56% at December 31, 2019.
About Broadway Financial Corporation
Broadway Financial Corporation conducts its operations through
its wholly-owned subsidiary, Broadway Federal Bank, f.s.b., which
is the leading community-oriented savings bank in Southern
California serving low-to-moderate income communities. We offer a
variety of residential and commercial real estate loan products for
consumers, businesses, and non-profit organizations, other loan
products, and a variety of deposit products, including checking,
savings and money market accounts, certificates of deposit and
retirement accounts. The Bank operates three full-service branches,
two in the city of Los Angeles, and one located in the nearby city
of Inglewood, California.
Shareholders, analysts and others seeking information about the
Company are invited to write to: Broadway Financial Corporation,
Investor Relations, 5055 Wilshire Blvd., Suite 500, Los Angeles, CA
90036, or visit our website at www.broadwayfederalbank.com.
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based upon our
management’s current expectations and involve risks and
uncertainties. Actual results or performance may differ materially
from those suggested, expressed, or implied by the forward-looking
statements due to a wide range of factors including, but not
limited to, the general business environment, the COVID-19
Pandemic, the real estate market, competitive conditions in the
business and geographic areas in which the Company conducts its
operations, regulatory actions or changes, and other risks detailed
in the Company’s reports filed with the Securities and Exchange
Commission, including the Company’s Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q. The Company undertakes no
obligation to revise any forward-looking statement to reflect any
future events or circumstances, except to the extent required by
law.
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Selected Financial Data and
Ratios (Unaudited)
(Dollars in thousands, except
per share data)
June 30, 2020
December 31, 2019
Selected Financial Condition Data and Ratios: Cash and cash
equivalents
$
39,848
$
15,566
Securities available-for-sale, at fair value
10,192
11,006
Loans receivable held for sale
49,719
-
Loans receivable held for investment
377,628
401,029
Allowance for loan losses
(3,211)
(3,182)
Loans receivable held for investment, net of allowance
374,417
397,847
Total assets
491,304
440,369
Deposits
315,778
297,724
FHLB advances
116,500
84,000
Junior subordinated debentures
3,825
4,335
Total stockholders' equity
49,520
48,848
Book value per share
$
1.77
$
1.75
Equity to total assets
10.08%
11.09%
Asset Quality Ratios:
Non-accrual loans to total loans
0.20%
0.11%
Non-performing assets to total assets
0.17%
0.10%
Allowance for loan losses to total gross loans
0.85%
0.79%
Allowance for loan losses to non-performing loans
379.55%
750.47%
Non-Performing Assets: Non-accrual loans
$
846
$
424
Loans delinquent 90 days or more and still accruing
-
-
Real estate acquired through foreclosure
-
-
Total non-performing assets
$
846
$
424
Delinquent loans (including less than 30 days delinquent)
$
-
$
18
Three Months Ended June
30,
Six Months Ended June
30,
Selected Operating Data and Ratios:
2020
2019
2020
2019
Interest income
$
4,568
$
4,085
$
9,139
$
8,458
Interest expense
1,537
1,623
3,210
3,183
Net interest income
3,031
2,462
5,929
5,275
Loan loss provision (recapture)
-
(158)
29
(348)
Net interest income after loan loss provision (recapture)
3,031
2,620
5,900
5,623
Non-interest income
242
139
439
515
Non-interest expense
(3,402)
(3,022)
(6,551)
(6,082)
(Loss) income before income taxes
(129)
(263)
(212)
56
Income tax benefit
(345)
(128)
(395)
(86)
Net income (loss)
$
216
$
(135)
$
183
$
142
Earnings per common share-diluted
$
0.01
$
(0.01)
$
0.01
$
-
Loan originations (1)
$
49,601
$
17,793
$
115,540
$
37,265
Net recoveries to average loans
(0.00)%
(2)
(0.00)%
(2)
(0.00)%
(2)
(0.10)%
(2)
Return on average assets
0.17%
(2)
-0.13%
(2)
0.07%
(2)
0.07%
(2)
Return on average equity
1.76%
(2)
-1.10%
(2)
0.75%
(2)
0.58%
(2)
Net interest margin
2.43%
(2)
2.40%
(2)
2.45%
(2)
2.57%
(2)
(1)
Does not include net deferred origination costs.
(2)
Annualized
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200804005388/en/
Brenda J. Battey, Chief
Financial Officer, (323) 556-3264; or
investor.relations@broadwayfederalbank.com
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