Broadway Financial (BYFC) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's consolidated financial statements and management's analysis of its financial condition and results of operations Consolidated Financial Statements (Unaudited) The unaudited consolidated financial statements for the period ended June 30, 2021, reflect the significant impact of the CFBanc merger, leading to substantial increases in assets, liabilities, and equity, a Q2 2021 net income of $701 thousand, and a six-month net loss of $2.8 million due to merger-related expenses Consolidated Statements of Financial Condition As of June 30, 2021, total assets more than doubled to $1.04 billion, primarily due to the CFBanc merger, which significantly increased loans, securities, and cash, and recognized $26.0 million in goodwill, while total liabilities grew to $897.5 million and stockholders' equity nearly tripled to $143.5 million Consolidated Balance Sheet Highlights (in thousands) | Financial Metric | June 30, 2021 | December 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,040,998 | $483,378 | +115.4% | | Cash and cash equivalents | $210,383 | $96,109 | +118.9% | | Loans receivable, net | $614,718 | $360,129 | +70.7% | | Goodwill | $25,996 | $0 | N/A | | Total Liabilities | $897,503 | $434,493 | +106.6% | | Deposits | $705,041 | $315,630 | +123.4% | | Total Stockholders' Equity | $143,463 | $48,885 | +193.4% | Consolidated Statements of Operations and Comprehensive Income (Loss) For Q2 2021, net income attributable to the corporation was $701 thousand, boosted by higher net interest income and a $1.8 million CDFI grant, but the first six months resulted in a net loss of $2.8 million, primarily due to substantial non-interest expenses including merger-related costs Key Operating Results (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $5,821 | $3,031 | $8,666 | $5,929 | | Non-interest Income | $2,192 | $242 | $2,315 | $439 | | Non-interest Expense | $5,374 | $3,402 | $14,001 | $6,551 | | Net Income (Loss) Attributable to BFC | $701 | $216 | ($2,786) | $183 | | EPS - Diluted | $0.01 | $0.01 | ($0.06) | $0.01 | - Non-interest income in Q2 2021 was significantly boosted by a $1.826 million grant from the Community Development Financial Institution (CDFI) Fund[11] Consolidated Statements of Cash Flows For the first six months of 2021, net cash from financing activities was a strong inflow of $58.5 million, driven by stock sales and deposit increases, while investing activities provided $58.4 million, primarily from cash acquired in the merger, and operating activities used $2.6 million, leading to an overall increase of $114.3 million in cash and cash equivalents Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | ($2,570) | ($49,154) | | Net Cash from Investing Activities | $58,362 | $23,392 | | Net Cash from Financing Activities | $58,482 | $50,044 | | Net Change in Cash | $114,274 | $24,282 | | Cash at End of Period | $210,383 | $39,848 | - Investing activities were dominated by $84.7 million in cash acquired from the merger[13] - Financing activities were primarily driven by $30.8 million in net proceeds from a stock sale and a $35.7 million net increase in deposits[13] Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased dramatically from $48.9 million to $143.5 million by June 30, 2021, primarily due to stock issuance for the CFBanc merger and a subsequent private placement, partially offset by a $2.8 million net loss - Total stockholders' equity grew from $48.9 million on January 1, 2021, to $143.5 million on June 30, 2021[19] - Key drivers of the equity increase were the issuance of $3.0 million in preferred stock and $63.3 million in common stock for the business combination, and an additional $30.8 million from a private placement[17][19] - The growth in equity was partially offset by a net loss of $2.8 million for the six-month period[19] Notes to Consolidated Financial Statements The notes detail significant accounting events, dominated by the CFBanc merger, including $26.0 million in goodwill, a $32.9 million capital raise, the expanded loan and securities portfolios, the bank's strong CBLR capital position, and a $370 thousand impairment on deferred tax assets due to an ownership change - The company completed its merger with CFBanc Corporation on April 1, 2021, acquiring $471.0 million in total assets, $227.7 million in gross loans, and $353.7 million in total deposits[42][43][46] - The transaction was valued at approximately $66.3 million and resulted in $26.0 million of goodwill[42][43][46] - On April 6, 2021, the company raised $32.9 million in gross proceeds ($30.8 million net) by selling 18.47 million shares of common stock in private placements at $1.78 per share[56] - Gross loans receivable increased to $618.0 million from $363.3 million at year-end 2020, primarily due to the merger[71] - The allowance for loan losses (ALLL) stood at $3.3 million, or 0.53% of gross loans[71][196] - The bank elected to adopt the Community Bank Leverage Ratio (CBLR) and reported a ratio of 10.10% at June 30, 2021, exceeding the 8.5% minimum to be considered 'well capitalized'[138][140] - A $370 thousand impairment was recorded on deferred tax assets due to limitations on the use of Net Operating Losses (NOLs) under Section 382 of the tax code, triggered by the ownership change from the private placements[143] Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion centers on the transformative CFBanc merger, which more than doubled assets to over $1 billion, highlighting a profitable Q2 driven by expanded net interest income and a CDFI grant, but a H1 net loss due to $5.6 million in merger costs, with a successful $30.8 million post-merger capital raise strengthening the bank's 'well capitalized' position Overview The company's financial landscape was fundamentally altered by the CFBanc merger, increasing total assets to $1.041 billion, resulting in a profitable Q2 2021 but a H1 net loss of $2.8 million due to $5.6 million in merger-related expenses, with a successful $30.8 million post-merger private placement bolstering capital - The merger with CFBanc Corporation on April 1, 2021, was the most significant event, increasing total assets from $483.4 million to $1.041 billion[154][156] - A net loss of $2.8 million for the first six months of 2021 was primarily due to $5.6 million in merger-related costs[160] - The company raised $32.9 million in gross proceeds ($30.8 million net) from private placements immediately following the merger[159] Results of Operations Net interest income for Q2 2021 nearly doubled to $5.8 million due to the merger, though net interest margin compressed to 2.33%, while non-interest income surged to $2.2 million from a CDFI grant, and H1 non-interest expenses rose to $14.0 million due to $5.6 million in merger costs, resulting in a high 71.3% effective tax rate in Q2 from deferred tax asset impairment Net Interest Income and Margin | Period | Net Interest Income | Net Interest Margin | | :--- | :--- | :--- | | Q2 2021 | $5.8 million | 2.33% | | Q2 2020 | $3.0 million | 2.43% | | H1 2021 | $8.7 million | 2.35% | | H1 2020 | $5.9 million | 2.45% | - Non-interest income for Q2 2021 was $2.2 million, primarily due to a $1.8 million grant from the CDFI Fund[185] - Non-interest expense for H1 2021 totaled $14.0 million, which included $5.6 million in merger-related expenses[188] - The company recorded a high effective tax rate of 71.3% in Q2 2021, reflecting a $370 thousand valuation allowance on deferred tax assets due to tax code limitations triggered by the recent capital raise[189] Financial Condition The company's financial condition strengthened significantly post-merger, with total assets reaching $1.041 billion, an ALLL of $3.3 million (0.53% of gross loans), low NPLs at $735 thousand, deposits growing to $705.0 million, and stockholders' equity increasing to $143.5 million, resulting in a tangible book value of $1.55 per share - The ALLL as a percentage of gross loans decreased to 0.53% at June 30, 2021, from 0.88% at December 31, 2020, because no ALLL is associated with the loans acquired in the merger[196] - Non-performing loans (NPLs) decreased to $735 thousand at June 30, 2021, from $787 thousand at year-end 2020[198] - Stockholders' equity increased to $143.5 million[218] - Tangible book value per share was $1.55 as of June 30, 2021, after adjusting for $26.0 million in goodwill and $3.2 million in net core deposit intangible[219] Liquidity and Capital Resources The company maintains a strong liquidity position with $210.4 million in cash and $24.6 million FHLB borrowing capacity, while capital resources are robust, with the Bank 'well capitalized' and reporting a CBLR of 10.10% at June 30, 2021, exceeding the minimum requirement - The Bank's liquid assets at June 30, 2021 consisted of $210.4 million in cash and cash equivalents and $68.4 million in unpledged securities available-for-sale[223] - The Bank is 'well capitalized' and has elected to adopt the Community Bank Leverage Ratio (CBLR), which was 10.10% at June 30, 2021, exceeding the 8.5% requirement[220][229] - The Bank has an additional borrowing capacity of $24.6 million from the FHLB and $11 million in lines of credit with other institutions[222] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable for the reporting period - The company has indicated that this section is not applicable[230] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, and is integrating CFBanc's internal controls, a process expected to be completed within one year of acquisition, with a potential exclusion from the 2021 year-end assessment as permitted by SEC guidance - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[230] - The company is currently integrating the internal controls of the recently acquired CFBanc, a process expected to be completed within one year of the acquisition[232] PART II. OTHER INFORMATION This section provides information on legal proceedings, risk factors, equity sales, and other corporate disclosures Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report[236] Risk Factors This item is not applicable for the reporting period - The company has indicated that this section is not applicable[236] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds for this specific item - There are no unregistered sales of equity securities or use of proceeds to report under this item[236] Other Information On August 12, 2020, the Board of Directors amended the company's bylaws to conform the deadlines for stockholder director nominations and new business proposals for annual meetings - The company amended its bylaws to standardize the submission deadlines for stockholder director nominations and new business proposals, requiring them to be submitted between 90 and 120 days before the anniversary of the previous year's annual meeting[236] Exhibits This section lists the exhibits filed with the report, including the Amended and Restated Certificate of Incorporation, Bylaws, employment agreements, and various certifications required by the Sarbanes-Oxley Act - A list of exhibits filed with the Form 10-Q is provided, including corporate governance documents and required certifications[237]