Broadway Financial (BYFC) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL STATEMENTS Consolidated Statements of Financial Condition The company's total assets grew to $1.17 billion, driven by securities and loans, while stockholders' equity increased significantly Financial Condition Summary | Metric | Sep 30, 2022 (in thousands) | Dec 31, 2021 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :--------- | | Total Assets | $1,169,634 | $1,093,505 | $76,129 | 6.96% | | Cash and cash equivalents | $52,217 | $231,520 | $(179,303) | -77.45% | | Securities available-for-sale | $332,745 | $156,396 | $176,349 | 112.76% | | Loans receivable held for investment, net | $722,685 | $648,513 | $74,172 | 11.44% | | Total Liabilities | $892,052 | $952,405 | $(60,353) | -6.34% | | Deposits | $768,511 | $788,052 | $(19,541) | -2.48% | | FHLB advances | $32,888 | $85,952 | $(53,064) | -61.74% | | Total Stockholders' Equity | $277,431 | $141,000 | $136,431 | 96.76% | | Non-Cumulative Redeemable Perpetual Preferred stock, Series C | $150,000 | $0 | $150,000 | N/A | - Total assets increased by $76.1 million, or 6.96%, from December 31, 2021, to September 30, 2022[10] Consolidated Statements of Operations and Comprehensive Income (Loss) Net income and net interest income rose for Q3 2022, though comprehensive income suffered from unrealized securities losses Operations for Three Months Ended September 30 | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change | % Change | | :------------------------------------ | :------------------------------ | :------------------------------ | :----- | :------- | | Total interest income | $9,228 | $6,909 | $2,319 | 33.57% | | Total interest expense | $620 | $918 | $(298) | -32.46% | | Net interest income | $8,608 | $5,991 | $2,617 | 43.68% | | Loan loss provision | $1,021 | $365 | $656 | 179.73% | | Net interest income after loan loss provision | $7,587 | $5,626 | $1,961 | 34.86% | | Total non-interest income | $365 | $609 | $(244) | -40.07% | | Total non-interest expense | $6,072 | $5,978 | $94 | 1.57% | | Income (loss) before income taxes | $1,880 | $257 | $1,623 | 631.52% | | Income tax expense (benefit) | $534 | $51 | $483 | 947.06% | | Net income (loss) attributable to Broadway Financial Corporation | $1,318 | $182 | $1,136 | 624.18% | | Other comprehensive income (loss), net of tax | $(8,567) | $(460) | $(8,107) | 1762.39% | | Comprehensive income (loss) | $(7,249) | $(278) | $(6,971) | 2507.55% | | Earnings (loss) per common share-basic | $0.02 | $0.00 | $0.02 | N/A | | Earnings (loss) per common share-diluted | $0.02 | $0.00 | $0.02 | N/A | Operations for Nine Months Ended September 30 | Metric (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :----- | :------- | | Total interest income | $25,608 | $17,570 | $8,038 | 45.75% | | Total interest expense | $1,790 | $2,913 | $(1,123) | -38.55% | | Net interest income | $23,818 | $14,657 | $9,161 | 62.50% | | Loan loss provision | $592 | $446 | $146 | 32.74% | | Net interest income after loan loss provision | $23,226 | $14,211 | $9,015 | 63.44% | | Total non-interest income | $907 | $2,924 | $(2,017) | -69.05% | | Total non-interest expense | $18,298 | $19,979 | $(1,681) | -8.41% | | Income (loss) before income taxes | $5,835 | $(2,844) | $8,679 | N/A | | Income tax expense (benefit) | $1,654 | $(297) | $1,951 | N/A | | Net income (loss) attributable to Broadway Financial Corporation | $4,130 | $(2,604) | $6,734 | N/A | | Other comprehensive income (loss), net of tax | $(17,917) | $161 | $(18,078) | N/A | | Comprehensive income (loss) | $(13,787) | $(2,443) | $(11,344) | 464.35% | | Earnings (loss) per common share-basic | $0.06 | $(0.05) | $0.11 | N/A | | Earnings (loss) per common share-diluted | $0.06 | $(0.05) | $0.11 | N/A | Consolidated Statements of Cash Flows The company saw positive operating cash flow but significant outflows from investing, offset by inflows from financing activities Cash Flow Summary for Nine Months Ended September 30 | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $5,328 | $3,969 | | Net cash (used in) provided by investing activities | $(275,522) | $31,141 | | Net cash provided by financing activities | $90,891 | $77,468 | | Net change in cash and cash equivalents | $(179,303) | $112,578 | | Cash and cash equivalents at end of the period | $52,217 | $208,687 | - Cash acquired in merger (April 1, 2021) was $84,745 thousand, significantly impacting 2021 investing activities[14] Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity rose substantially due to a $150 million preferred stock issuance, despite comprehensive losses Stockholders' Equity Changes (Q3 2022) | Metric (in thousands) | Balance at July 1, 2022 | Balance at Sep 30, 2022 | Change | | :------------------------------------ | :---------------------- | :---------------------- | :----- | | Preferred Stock NonVoting | $150,000 | $150,000 | $0 | | Common Stock Voting | $504 | $508 | $4 | | Common Stock NonVoting | $257 | $253 | $(4) | | Additional Paid-in Capital | $143,427 | $143,457 | $30 | | Accumulated Other Comprehensive Income (Loss) | $(9,901) | $(18,468) | $(8,567) | | Retained Earnings | $6,470 | $7,788 | $1,318 | | Total Stockholders' Equity | $284,757 | $277,582 | $(7,175) | - For the nine months ended September 30, 2022, the Company issued $150 million in preferred shares and converted $3 million of preferred shares to common shares, significantly impacting the equity structure[20] Notes to Unaudited Consolidated Financial Statements This section provides detailed disclosures on accounting policies, business combinations, securities, loans, and other financial statement items NOTE (1) – Basis of Financial Statement Presentation The company adheres to GAAP for interim reporting and plans to adopt the CECL model for credit losses in Q1 2023 - The Company qualifies as a Smaller Reporting Company (SRC) and plans to implement ASU 2016-13 (CECL model) in the first quarter of 2023[28] - Other ASUs (2019-04, 2019-05, 2022-02) related to credit losses and troubled debt restructurings are not expected to have a significant impact on the consolidated financial statements[29][30][31] NOTE (2) – Business Combination The merger with CFBanc Corporation on April 1, 2021, was accounted for as an acquisition, resulting in $26.0 million of goodwill - CFBanc Merger completed on April 1, 2021, with Broadway Financial Corporation as the surviving entity[32] CFBanc Merger Summary | Metric | CFBanc at Acquisition Date (April 1, 2021) | | :------------------------------------ | :----------------------------------------- | | Total Assets | $471.0 million | | Gross Loans | $227.7 million | | Total Deposits | $353.7 million | | Total Consideration Transferred | ~$66.3 million | | Goodwill Recognized | $26.0 million | NOTE (3) – Earnings Per Share of Common Stock The company computes earnings per share using the two-class method, showing positive EPS for Q3 and YTD 2022 Earnings Per Share (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) attributable to Broadway Financial Corporation | $1,318 | $182 | $4,130 | $(2,604) | | Basic earnings per share | $0.02 | $0.00 | $0.06 | $(0.05) | | Diluted earnings per share | $0.02 | $0.00 | $0.06 | $(0.05) | | Weighted average common shares outstanding for basic EPS | 72,555,282 | 71,222,869 | 72,386,900 | 56,403,545 | | Weighted average common shares outstanding for diluted EPS | 72,963,834 | 71,450,951 | 72,829,050 | 56,403,545 | - Stock options for 450,000 shares were anti-dilutive for the nine months ended September 30, 2021, due to a net loss and thus not included in diluted EPS calculation[43] NOTE (4) – Securities The available-for-sale securities portfolio grew significantly but incurred substantial unrealized losses due to rising interest rates Available-for-Sale Securities Summary | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----- | :------- | | Total available-for-sale securities (Fair Value) | $332,745 | $156,396 | $176,349 | 112.76% | | Gross Unrealized Gains | $62 | $475 | $(413) | -86.95% | | Gross Unrealized Losses | $(25,875) | $(1,008) | $(24,867) | 2466.96% | - As of September 30, 2022, investment securities with a market value of $70.0 million were pledged as collateral for securities sold under agreements to repurchase[44] Unrealized Loss Position by Duration | Unrealized Loss Position (Sep 30, 2022, in thousands) | Fair Value | Unrealized Losses | | :---------------------------------------------------- | :--------- | :---------------- | | Less than 12 Months | $272,368 | $(18,606) | | 12 Months or Longer | $51,549 | $(7,269) | | Total | $323,917 | $(25,875) | NOTE (5) – Loans Receivable Held for Investment Gross loans receivable grew to $727.9 million, driven by multi-family and construction loans, with an increased loan loss allowance Loan Portfolio Composition | Loan Type (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----- | :------- | | Single family | $30,781 | $45,372 | $(14,591) | -32.16% | | Multi-family | $459,234 | $393,704 | $65,530 | 16.65% | | Commercial real estate | $91,576 | $93,193 | $(1,617) | -1.73% | | Church | $16,683 | $22,503 | $(5,820) | -25.86% | | Construction | $57,845 | $32,072 | $25,773 | 80.35% | | Commercial – other | $66,516 | $46,539 | $19,977 | 42.92% | | SBA loans | $3,654 | $18,837 | $(15,183) | -80.60% | | Gross loans receivable | $727,862 | $653,746 | $74,116 | 11.34% | | Allowance for loan losses | $(3,983) | $(3,391) | $(592) | 17.46% | Allowance for Loan Losses Activity | Allowance for Loan Losses Activity (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Beginning balance | $3,391 | $3,215 | | Provision for loan losses | $592 | $446 | | Ending balance | $3,983 | $3,661 | Past Due Loans | Past Due Loans (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------ | :----------- | :----------- | | 30-59 Days Past Due | $4,357 | $0 | | 60-89 Days Past Due | $5,876 | $0 | | Greater than 90 Days Past Due | $0 | $2,423 | | Total Past Due | $10,233 | $2,423 | Non-Accrual Loans | Non-Accrual Loans (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------ | :----------- | :----------- | | Church | $608 | $684 | | Total Non-Accrual Loans | $608 | $684 | - Loans classified as Troubled Debt Restructurings (TDRs) totaled $2.0 million at September 30, 2022, with $155 thousand in non-accrual status and $1.9 million on accrual status[67] - As of September 30, 2022, total loans in risk categories (excluding "Pass") amounted to $56.2 million[68][72] NOTE (6) – Goodwill and Intangible Assets Goodwill of $26.0 million and a core deposit intangible were recognized from the CFBanc merger, with no impairment found Goodwill and Intangibles Summary | Metric (in thousands) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------ | :----------- | :----------- | | Goodwill | $25,858 | $25,996 | | Core Deposit Intangible, net | $2,610 | $2,936 | Estimated Future Amortization Expense | Estimated Amortization Expense for Core Deposit Intangible (in thousands) | | :---------------------------------------------------------------------- | | 2022 (remaining) | $110 | | 2023 | $390 | | 2024 | $336 | | 2025 | $315 | | 2026 | $304 | | Thereafter | $1,155 | | Total | $2,610 | NOTE (7) – Borrowings Total borrowings were reshaped by a significant decrease in FHLB advances and an increase in repurchase agreements Borrowings Summary | Borrowing Type (in thousands) | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :------------------------------------ | :----------- | :----------- | :----- | :------- | | Securities sold under agreements to repurchase | $65,407 | $51,960 | $13,447 | 25.88% | | FHLB advances | $32,888 | $85,952 | $(53,064) | -61.74% | | Notes payable (CFC 45) | $14,000 | $14,000 | $0 | 0.00% | - FHLB advances had a weighted average interest rate of 1.34% at September 30, 2022, down from 1.85% at December 31, 2021, with a weighted average contractual maturity of 29 months[77] - Securities sold under agreements to repurchase had an average rate of 0.24% at September 30, 2022, collateralized by $70.0 million in investment securities[76] NOTE (8) – Fair Value The company uses a fair value hierarchy for financial instruments, with most securities valued using Level 2 inputs Assets Measured at Fair Value on a Recurring Basis | Assets Measured at Fair Value on a Recurring Basis (Sep 30, 2022, in thousands) | Level 1 | Level 2 | Level 3 | Total | | :------------------------------------------------------------------------------ | :------ | :------ | :------ | :---- | | Securities available-for-sale | $0 | $332,745 | $0 | $332,745 | Fair Value of Financial Instruments Not Recorded at Fair Value | Financial Instruments Not Recorded at Fair Value on a Recurring Basis (Sep 30, 2022, in thousands) | Carrying Value | Fair Value (Level 1) | Fair Value (Level 2) | Fair Value (Level 3) | Total Fair Value | | :----------------------------------------------------------------------------------------------- | :------------- | :------------------- | :------------------- | :------------------- | :--------------- | | Loans receivable held for investment | $722,685 | $0 | $0 | $603,731 | $603,731 | | Deposits | $768,511 | $0 | $682,420 | $0 | $682,420 | | Federal Home Loan Bank advances | $32,888 | $0 | $31,581 | $0 | $31,581 | | Securities sold under agreements to repurchase | $65,407 | $0 | $62,716 | $0 | $62,716 | | Note payable | $14,000 | $0 | $0 | $14,000 | $14,000 | NOTE (9) – Stock-based Compensation The company issued restricted stock awards under its Long-Term Incentive Plan, resulting in stock-based compensation expense - Under the 2018 LTIP, 901,781 shares have been awarded, with 391,328 shares remaining available as of September 30, 2022[92] Stock-based Compensation Expense | Stock-based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :---------------------------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | :----------------------------- | | Director compensation expense-common stock | $0 | $84 | $0 | $46 | | Restricted stock awards (officers/employees) | $35 | $93 | $200 | $361 | | Stock options | $0 | $0 | $0 | $7 | Stock Option Activity | Stock Option Activity | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------- | :----------- | :----------- | | Outstanding at beginning of period | 450,000 | 450,000 | | Forfeited or expired during period | (200,000) | 0 | | Outstanding at end of period | 250,000 | 450,000 | | Exercisable at end of period | 250,000 | 450,000 | | Weighted Average Exercise Price | $1.62 | $1.62 | NOTE (10) – ESOP Plan The company maintains an Employee Stock Option Plan where shares are held in suspense and released upon loan payments ESOP Share Summary | ESOP Shares | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Allocated to participants | 1,102,583 | 1,065,275 | | Suspense shares | 491,425 | 562,391 | | Total ESOP shares | 1,594,008 | 1,637,902 | | Fair value of unearned shares (in thousands) | $555 | $1,040 | - ESOP compensation expense was $56 thousand for the nine months ended September 30, 2022, compared to $81 thousand for the same period in 2021[99] NOTE (11) – Stockholders' Equity and Regulatory Matters A $150 million preferred stock issuance under the ECIP boosted Tier 1 capital, keeping the Bank 'well capitalized' - On June 7, 2022, the Company issued 150,000 shares of Series C Preferred Stock for $150.0 million from the U.S. Treasury under the Emergency Capital Investment Program (ECIP), treated as Tier 1 Capital[101] - The Series C Preferred Stock has a zero percent dividend rate for the first two years, then a floor of 0.50% and a ceiling of 2.00%, based on qualified lending[104] Regulatory Capital Summary | Regulatory Capital (Sep 30, 2022, in thousands) | Actual Amount | Actual Ratio | Minimum Required Ratio | | :---------------------------------------------- | :------------ | :----------- | :--------------------- | | Community Bank Leverage Ratio (CBLR) | $169,909 | 14.70% | 9.00% | - The Bank was "well capitalized" as of September 30, 2022, meeting all capital adequacy requirements[109] NOTE (12) – Income Taxes A valuation allowance is maintained on deferred tax assets due to limitations on the use of net operating losses - At September 30, 2022, a $370 thousand valuation allowance was maintained on deferred tax assets due to Section 382 limitations on Net Operating Losses (NOLs) from private placements in 2021[112] NOTE (13) – Concentration of Credit Risk The Bank has significant credit risk concentrations in deposits and short-term borrowings with single customers - One customer accounted for approximately 17% of total deposits as of September 30, 2022[114] - One customer accounted for 79% of outstanding securities sold under agreements to repurchase as of September 30, 2022[114] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Estimates Key accounting policies involving significant judgment include Allowance for Loan Losses, Goodwill, and Fair Value Measurements - Key critical accounting policies identified by management include: * Allowance for Loan Losses (ALLL) * Business Combinations * Acquired Loans (PCI and non-PCI) * Goodwill and Intangible Assets * Income Taxes * Fair Value Measurements[117][118][119][120][123][124][125] Overview A $150.0 million preferred stock issuance under ECIP boosted total assets to $1.2 billion and reshaped the balance sheet - The Company completed a private placement of $150.0 million in Series C Preferred Stock under the Emergency Capital Investment Program (ECIP) in June 2022[129] Balance Sheet Overview | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | Change | | :------------------- | :----------- | :----------- | :----- | | Total Assets | $1,170 | $1,094 | $76 | | Total Liabilities | $892 | $952 | $(60) | - The increase in total assets was primarily due to growth in investment securities available-for-sale ($176.3 million) and net loans ($74.2 million), partially offset by a decrease in cash and cash equivalents ($179.3 million)[131] Results of Operations Net Interest Income Net interest income and margin grew significantly due to higher asset yields, despite an increased loan loss provision Net Interest Income for Three Months Ended September 30 | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change | % Change | | :------------------------------------ | :------------------------------ | :------------------------------ | :----- | :------- | | Net interest income | $8,608 | $5,991 | $2,617 | 43.68% | | Net interest margin | 3.02% | 2.43% | 0.59% | 24.28% | | Interest income and fees on loans receivable | $6,520 | $6,296 | $224 | 3.56% | | Interest income on available-for-sale securities | $2,069 | $457 | $1,612 | 352.73% | | Other interest income | $639 | $156 | $483 | 309.62% | | Interest expense on deposits | $474 | $446 | $28 | 6.28% | | Interest expense on borrowings | $146 | $472 | $(326) | -69.07% | Net Interest Income for Nine Months Ended September 30 | Metric (in thousands) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change | % Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :----- | :------- | | Net interest income | $23,818 | $14,657 | $9,161 | 62.50% | | Net interest margin | 2.93% | 2.26% | 0.67% | 29.65% | | Interest income and fees on loans receivable | $20,603 | $16,240 | $4,363 | 26.87% | | Interest income on available-for-sale securities | $3,416 | $953 | $2,463 | 258.45% | | Other interest income | $1,589 | $377 | $1,212 | 321.49% | | Interest expense on deposits | $1,173 | $1,306 | $(133) | -10.18% | | Interest expense on borrowings | $617 | $1,607 | $(990) | -61.61% | Loan loss provision The loan loss provision increased due to portfolio growth and a rise in special mention and substandard loans Loan Loss Provision Summary | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Loan loss provision | $1,021 | $365 | $592 | $446 | - The ALLL increased to $4.0 million as of September 30, 2022, from $3.4 million as of December 31, 2021[157] - No loan charge-offs were recorded during the three- and nine-month periods ended September 30, 2022 and 2021[157] Non-interest Income Non-interest income decreased significantly due to a non-recurring CDFI Fund grant received in the prior year Non-interest Income Summary | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total non-interest income | $365 | $609 | $907 | $2,924 | - The decrease in non-interest income was mainly due to lower grant income from the U.S. Treasury's CDFI Fund, which included a non-recurring benefit of $2.0 million in the nine months ended September 30, 2021[158][159] Non-interest Expense Non-interest expense decreased for the nine-month period due to lower merger-related costs compared to 2021 Non-interest Expense Summary | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total non-interest expense | $6,072 | $5,978 | $18,298 | $19,979 | - For the three months ended September 30, 2022, non-interest expenses increased due to higher compensation and benefits ($106 thousand) and professional services ($245 thousand)[160] - For the nine months ended September 30, 2022, non-interest expenses decreased by $1.7 million, primarily due to lower compensation and benefits ($1.2 million) and professional services ($885 thousand) compared to 2021, which included merger-related costs[161] Income Taxes The company recorded income tax expense in 2022, a reversal from the tax benefit recorded in the prior year Income Tax Summary | Metric (in thousands) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Income tax expense (benefit) | $534 | $51 | $1,654 | $(297) | | Effective tax rate | 28.40% | 19.84% | 28.3% | N/A (loss) | - The effective tax rate for Q3 2022 (28.40%) reflects changes in assumptions for estimating annual income tax expense[162] - Income tax expense for Q3 2021 included a $370 thousand increase in the valuation allowance on deferred tax assets due to Section 382 limitations on NOLs[162] Financial Condition Total Assets Total assets grew to $1.2 billion, driven by investments in securities and loans, funded by ECIP proceeds and cash Total Assets Summary | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | Change (in millions) | % Change | | :----------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total Assets | $1,169.6 | $1,093.5 | $76.1 | 6.96% | - The increase in total assets was primarily due to growth in investment securities available-for-sale ($176.3 million) and net loans ($74.2 million), partially offset by a decrease of $179.3 million in cash and cash equivalents[165] Securities Available-For-Sale The securities portfolio expanded to $332.7 million, primarily funded by ECIP proceeds, but fair value declined Securities Available-For-Sale Summary | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | Change (in millions) | % Change | | :-------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Securities available-for-sale | $332.7 | $156.4 | $176.3 | 112.76% | - The increase was driven by deploying $15.0 million of ECIP funds and investing liquidity into higher-yielding short-term securities[166] - The increase was partially offset by a $9.4 million increase in accumulated other comprehensive loss due to a decline in fair value from rising market interest rates[166] Loans Receivable Loans receivable grew by $74.2 million, led by strong originations in multi-family and commercial real estate loans Loans Receivable Summary | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | Change (in millions) | % Change | | :----------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Loans receivable | $727.9 | $653.7 | $74.2 | 11.35% | - Loan originations totaled $141.1 million for multi-family loans and $62.3 million for commercial real estate and commercial loans during the first nine months of 2022[167] - Loan payoffs and repayments totaled $132.4 million during the first nine months of 2022[167] Allowance for Loan Losses The ALLL increased to $4.0 million, reflecting loan growth, while the ratio of ALLL to non-performing loans improved ALLL and Asset Quality Summary | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | | :------------------------------------ | :------------------------- | :------------------------- | | ALLL | $4.0 | $3.4 | | ALLL as % of gross loans held for investment | 0.55% | 0.52% | | ALLL to NPLs ratio | 655.1% | 495.8% | | Impaired loans | $2.4 | $2.3 | | Delinquent loans (>30 days) | $10.2 | $2.4 | | Non-performing loans (NPLs) | $0.608 | $0.684 | - No recoveries or charge-offs were recorded during the three- or nine-month periods ending September 30, 2022 or 2021[173] Goodwill and Intangible Assets Goodwill and intangible assets from the CFBanc merger remained stable with no impairment identified Goodwill and Intangibles Summary | Metric (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Goodwill | $25.9 | $26.0 | | Core deposit intangible | $2.6 | $2.9 | - An assessment of goodwill impairment was performed as of June 30, 2022, and no impairment was determined[181] - Amortization expense for the core deposit intangible was $109 thousand for the three months and $326 thousand for the nine months ended September 30, 2022[180] Total Liabilities Total liabilities decreased by $60.4 million, primarily due to reductions in FHLB borrowings and deposits Total Liabilities Summary | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | Change (in millions) | % Change | | :---------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total Liabilities | $892.1 | $952.4 | $(60.3) | -6.33% | - The decrease was largely due to a decrease in FHLB borrowings and deposits, partially offset by an increase in securities sold under agreements to repurchase[182] Deposits Deposits decreased by $19.6 million due to shifts in deposit types, with a notable concentration from one customer Deposits Summary | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | Change (in millions) | % Change | | :----------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Deposits | $768.5 | $788.1 | $(19.6) | -2.49% | - Decreases included $29.3 million in CDARS deposits, $69.1 million in liquid deposits, and $9.8 million in other certificates of deposit accounts, partially offset by an $88.6 million increase in ICS deposits[183] - One customer relationship accounted for approximately 17% of deposits at September 30, 2022[183] Borrowings Borrowings shifted from higher-rate FHLB advances to repurchase agreements, lowering the overall cost of funds Borrowings Summary | Borrowing Type (in millions) | Sep 30, 2022 | Dec 31, 2021 | Change (in millions) | % Change | | :------------------------------------ | :----------- | :----------- | :------------------- | :--------- | | FHLB advances | $32.9 | $86.0 | $(53.1) | -61.74% | | Securities sold under agreements to repurchase | $65.4 | $52.0 | $13.4 | 25.77% | | Notes payable | $14.0 | $14.0 | $0.0 | 0.00% | - FHLB advances decreased due to the early payoff of $40.0 million in higher-rate advances, reducing the weighted average rate to 1.34% from 1.85%[185] - One customer relationship accounted for 79% of the outstanding balance of securities sold under agreements to repurchase as of September 30, 2022[188] Stockholders' Equity Stockholders' equity significantly increased to $277.4 million, driven by the $150.0 million preferred stock issuance Stockholders' Equity Summary | Metric | Sep 30, 2022 (in millions) | Dec 31, 2021 (in millions) | Change (in millions) | % Change | | :------------------------------------ | :------------------------- | :------------------------- | :------------------- | :--------- | | Stockholders' Equity | $277.4 | $141.0 | $136.4 | 96.74% | - The increase was primarily due to the $150.0 million private placement of Series C Preferred Stock, partially offset by a $17.9 million decrease in accumulated other comprehensive income (AOCI) from unrealized losses on available-for-sale securities[190] Per Share Metrics | Per Share Metric | Sep 30, 2022 | Dec 31, 2021 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Book value per share | $1.74 | $1.92 | $(0.18) | | Tangible book value per share | $1.35 | N/A | N/A | - The Bank's Community Bank Leverage Ratio (CBLR) was 14.70% at September 30, 2022[191] Liquidity The company maintains adequate liquidity through cash, unpledged securities, and significant FHLB borrowing capacity Liquid Assets Summary | Liquid Assets (in millions) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $52.2 | $231.5 | | Securities available-for-sale (unpledged) | $153.6 | $52.4 | - The Bank has an additional $101.7 million in borrowing capacity from the FHLB of Atlanta and $11.0 million in lines of credit with other financial institutions as of September 30, 2022[197] Cash Flow Summary | Cash Flow Activities (in millions) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash from operating activities | $5.3 | $4.0 | | Net cash from investing activities | $(275.4) | $31.1 | | Net cash from financing activities | $90.9 | $77.5 | Capital Resources and Regulatory Capital The Bank exceeded all minimum capital requirements and is considered 'well capitalized' under regulatory standards - As of September 30, 2022, the Bank exceeded all capital adequacy requirements and was considered "well capitalized" under the regulatory framework[205] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section is marked as "Not Applicable" as there are no material changes to market risk disclosures ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the end of the reporting period - The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022[207] Changes in Internal Control Over Financial Reporting No material changes to internal control over financial reporting occurred during the most recent fiscal quarter - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2022[208] Inherent Limitations on Effectiveness of Controls Management acknowledges that all control systems have inherent limitations and provide reasonable, not absolute, assurance - Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that its objectives will be met[209] PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The company reports no material pending legal proceedings Item 1A. RISK FACTORS This section is marked as "Not Applicable" as there are no material changes from the previous annual report Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The company reports no unregistered sales of equity securities during the period Item 3. DEFAULTS UPON SENIOR SECURITIES The company reports no defaults upon its senior securities Item 4. MINE SAFETY DISCLOSURES This section is marked as "Not Applicable" to the company's operations Item 5. OTHER INFORMATION The company reports no other material information for the period Item 6. EXHIBITS This section lists all exhibits filed with the report, including certifications and corporate governance documents - Key exhibits include Amended and Restated Certificate of Incorporation, Bylaws, Certificate of Designations of Series C Preferred Stock, and CEO/CFO certifications (Sarbanes-Oxley Act Sections 302 and 906)[211] SIGNATURES The report is duly signed and certified by the Chief Executive Officer and Chief Financial Officer