Broadway Financial (BYFC) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL STATEMENTS Item 1. Consolidated Financial Statements Unaudited consolidated financial statements show asset growth, reduced net income from higher credit loss provisions and interest expense, and CECL adoption impact Consolidated Statements of Financial Condition Total assets increased to $1.23 billion by June 30, 2023, driven by loan growth, funded by increased borrowings despite deposit decreases, with slight equity reduction Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $10,742 | $16,105 | | Securities available-for-sale | $322,516 | $328,749 | | Loans receivable, net | $824,621 | $768,046 | | Goodwill | $25,858 | $25,858 | | Total assets | $1,231,372 | $1,184,293 | | Liabilities & Equity | | | | Deposits | $646,063 | $686,916 | | FHLB advances | $210,268 | $128,344 | | Total liabilities | $953,888 | $904,641 | | Total stockholders' equity | $277,289 | $279,482 | Consolidated Statements of Operations and Comprehensive Income (Loss) Net income for the six months ended June 30, 2023, decreased to $1.84 million, primarily due to higher credit loss provisions and increased interest expense outpacing income growth Key Performance Indicators (in thousands, except EPS) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Interest Income | $11,640 | $8,501 | $22,683 | $16,380 | | Total Interest Expense | $4,372 | $463 | $7,141 | $1,170 | | Net Interest Income | $7,268 | $8,038 | $15,542 | $15,210 | | Provision for (recapture of) credit losses | $768 | ($577) | $810 | ($429) | | Total Non-interest Expense | $6,421 | $6,266 | $12,673 | $12,226 | | Net Income | $246 | $1,853 | $1,841 | $2,835 | | EPS - diluted | $0.00 | $0.03 | $0.03 | $0.04 | Consolidated Statements of Cash Flows Cash and cash equivalents decreased by $5.4 million for the six months ended June 30, 2023, with operating inflows offset by significant investing outflows for loans, partially funded by financing activities Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Category | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,135 | ($359) | | Net cash used in investing activities | ($53,685) | ($91,466) | | Net cash provided by financing activities | $46,187 | $140,442 | | Net change in cash and cash equivalents | ($5,363) | $48,617 | | Cash and cash equivalents at end of period | $10,742 | $280,137 | Notes to Consolidated Financial Statements Notes detail accounting policies, including CECL adoption impacting retained earnings, loan portfolio growth, unrealized securities losses, and the bank's 'well capitalized' status - Effective January 1, 2023, the Company adopted ASU 2016-13 (CECL), which replaces the incurred loss model with a lifetime expected credit loss model. This resulted in a $1.3 million net decrease to the beginning balance of retained earnings[58][79] Impact of CECL Adoption on Jan 1, 2023 (in thousands) | Account | Pre-CECL Adoption | Impact of CECL Adoption | As Reported Under CECL | | :--- | :--- | :--- | :--- | | Allowance for credit losses on loans | $4,388 | $1,809 | $6,197 | | Deferred tax assets | $11,872 | $508 | $12,380 | | Retained earnings | $9,294 | ($1,256) | $8,038 | - The gross loan portfolio grew to $832.5 million at June 30, 2023, from $773.4 million at year-end 2022, with multi-family loans representing the largest portion at $529.2 million[51] - The allowance for credit losses (ACL) on loans increased to $7.0 million at June 30, 2023, from $4.4 million at December 31, 2022, primarily due to the CECL adoption and loan portfolio growth[51][43] - The company's available-for-sale securities portfolio had a fair value of $322.5 million with gross unrealized losses of $24.5 million as of June 30, 2023, which management attributes to changes in interest rates and not credit-related issues[77][33] - The Bank was deemed "well capitalized" under the Community Bank Leverage Ratio (CBLR) framework, with a ratio of 15.35% as of June 30, 2023, well above the 9.00% minimum requirement[194][276] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses decreased net income due to higher credit loss provisions and net interest margin compression, alongside asset growth driven by loans funded by increased borrowings despite deposit declines - Net income for the first six months of 2023 decreased to $1.8 million from $2.8 million in the prior-year period. The decline was primarily due to an $810 thousand provision for credit losses (compared to a $429 thousand recapture in 2022) and a $447 thousand increase in non-interest expense[209] - Net interest margin for the six months ended June 30, 2023, compressed to 2.74% from 2.89% in the prior year period. This was caused by the average cost of funds increasing by 149 basis points, outpacing the 88 basis point increase in the yield on interest-earning assets[236] - Total assets grew by $47.1 million to $1.2 billion, driven by a $56.6 million increase in net loans. This growth was funded by an $89.8 million increase in total borrowings, as deposits decreased by $40.9 million[207][208][234] - The Allowance for Credit Losses (ACL) stood at $7.0 million, or 0.85% of gross loans, at June 30, 2023, up from $4.4 million, or 0.57%, at December 31, 2022. The increase is mainly attributed to the adoption of the CECL methodology[140][262] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is marked 'Not Applicable' for the period, indicating no new or materially changed market risk disclosures since the last annual report - The company has indicated that this item is not applicable for this quarterly report[277] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2023, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[283] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company's internal controls[284] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no material legal proceedings during the period - There are no legal proceedings to report[285] Item 1A. Risk Factors This section is marked 'Not Applicable', indicating no material changes from previously disclosed risk factors in the Annual Report on Form 10-K - This item is not applicable for this quarterly report[285] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities to report[275] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report lists several exhibits, including Sarbanes-Oxley Act certifications (31.1, 31.2, 32.1, 32.2) and various XBRL filings[285]