Company Overview and History

Broadway Financial Corporation (BYFC) is a holding company that operates City First Bank, National Association, a leading community-oriented bank serving low-to-moderate income and minority communities in Southern California and the Washington, D.C. metropolitan area. With a focus on diverse communities, Broadway Financial has navigated a challenging operating environment in recent years, weathering the COVID-19 pandemic and investing in its infrastructure to position the bank for continued growth.

Broadway Financial Corporation has a rich history dating back to 1951 when it was founded as a savings and loan association. In 1996, the company underwent a significant transformation as Broadway Federal Savings and Loan Association converted from a federally chartered mutual savings and loan association to a federally chartered stock savings bank, changing its name to Broadway Federal Bank, f.s.b. A major milestone occurred in 2010 when Broadway Federal Bank merged with CFBanc Corporation, the holding company for City First Bank, N.A., a community development financial institution headquartered in Washington, D.C. This merger created a combined entity with over $1 billion in assets, establishing it as one of the largest African-American-led banks in the United States. The merged company was renamed Broadway Financial Corporation, and its subsidiary became City First Bank, N.A., a nationally chartered bank. In 2013, the company expanded its footprint by opening a full-service branch in the Leimert Park area of Los Angeles, California, allowing it to better serve minority and low-to-moderate income communities in Southern California. Throughout its history, Broadway Financial Corporation has faced various challenges, including the 2008 financial crisis, which impacted its loan portfolio and profitability. The company worked diligently to manage its asset quality and operations during this difficult period.

Financials

As of September 30, 2024, Broadway Financial reported total assets of $1.37 billion, a slight decrease from $1.38 billion at the end of 2023. This decline was primarily driven by a $78.5 million decrease in the bank's securities available-for-sale portfolio, partially offset by an $86.3 million increase in its loan portfolio. Loans held for investment, net of the allowance for credit losses, grew to $966.8 million, up from $880.5 million at the end of 2023.

Broadway Financial's deposit base decreased 1.5% to $672.2 million as of September 30, 2024, down from $682.6 million at the end of 2023. The bank saw a decrease in liquid deposits, including demand, interest checking, and money market accounts, which was partially offset by an increase in Insured Cash Sweep (ICS) deposits. Uninsured deposits, including deposits from affiliates, represented 34% of total deposits as of September 30, 2024, down from 37% at the end of 2023.

On the liability side, total borrowings increased slightly to $398.4 million as of September 30, 2024, compared to $396.8 million at the end of 2023. This was primarily due to a $16.3 million increase in securities sold under agreements to repurchase, partially offset by the payoff of $14 million in notes payable.

Broadway Financial's net interest income before provision for credit losses increased 23% to $8.3 million in the third quarter of 2024, up from $6.8 million in the same period of 2023. This improvement was driven by higher interest income, which rose $4.2 million year-over-year, partially offset by a $2.7 million increase in interest expense. Net interest margin expanded to 2.49% in the third quarter of 2024, up from 2.33% in the prior-year period.

The bank recorded a provision for credit losses of $399,000 in the third quarter of 2024, compared to a recovery of $2,000 in the same quarter of 2023. For the first nine months of 2024, the provision for credit losses increased to $1.2 million, up from $808,000 in the prior-year period, primarily due to growth in the loan portfolio.

Non-interest income totaled $416,000 in the third quarter of 2024, up from $331,000 in the same period of 2023. For the first nine months of 2024, non-interest income increased to $995,000, compared to $880,000 in the prior-year period. The increase was driven by higher service charges and other non-interest income.

Non-interest expense rose 8.8% to $7.6 million in the third quarter of 2024, up from $7.0 million in the same quarter of 2023. This increase was primarily due to higher professional and accounting fees related to the company's remediation efforts to address weaknesses in internal controls identified during the preparation of the third quarter 2023 financial statements. For the first nine months of 2024, non-interest expense increased 15.4% to $22.7 million, up from $19.7 million in the prior-year period, reflecting higher compensation and benefits, as well as professional services expenses.

Broadway Financial reported net income attributable to the company of $522,000 in the third quarter of 2024, compared to $91,000 in the same period of 2023. However, after deducting preferred dividends of $750,000, the company reported a net loss attributable to common stockholders of $228,000 in the third quarter of 2024, compared to net income of $91,000 in the prior-year quarter. For the first nine months of 2024, the company reported net income attributable to Broadway of $627,000, down from $1.9 million in the same period of 2023.

The Loans Receivable Held for Investment segment is Broadway Financial's primary business. As of September 30, 2024, this segment had $973.86 million in gross loans receivable before deferred loan costs and premiums. The loan portfolio is predominantly composed of multi-family loans ($625.66 million or 64.25% of total loans), commercial real estate loans ($163.26 million or 16.54% of total loans), and construction loans ($79.40 million or 8.15% of total loans).

The allowance for credit losses (ACL) for the loan portfolio was $8.53 million as of September 30, 2024, or 0.87% of gross loans held for investment. This ACL increased from $7.35 million, or 0.83% of gross loans, at December 31, 2023, primarily due to growth in the loan portfolio. The Bank had one non-accrual loan of $291,000 as of September 30, 2024.

The Securities Available-for-Sale segment totaled $238.49 million as of September 30, 2024, down from $316.95 million at December 31, 2023, due to maturities and principal paydowns. The securities portfolio is composed primarily of federal agency mortgage-backed securities ($57.21 million), federal agency collateralized mortgage obligations ($21.31 million), federal agency debt ($44.16 million), and U.S. Treasuries ($101.74 million).

For the most recent quarter (Q3 2024), Broadway Financial reported revenue of $16,582,000, net income of $522,000, operating cash flow of $6,116,000, and free cash flow of $6,087,000. This represents year-over-year growth compared to Q3 2023. The increases in revenue, net income, operating cash flow, and free cash flow were primarily due to growth in the loan portfolio.

Liquidity and Capital

In terms of capital, Broadway Financial remained well-capitalized as of September 30, 2024, with a Community Bank Leverage Ratio of 13.84%, well above the 9% regulatory minimum required to be considered well-capitalized. The company's tangible book value per common share was $11.93 as of September 30, 2024, up from $11.55 at the end of 2023.

As of September 30, 2024, the company had $97.08 million in cash and cash equivalents. Broadway Financial also had an additional $10 million in unsecured lines of credit with other financial institutions, which were undrawn as of September 30, 2024.

Future Outlook and Strategy

Looking ahead, Broadway Financial is focused on continuing to invest in its infrastructure and talent to support the bank's growth and improve its internal controls. In 2024, the company hired several experienced senior officers, including a new Chief Financial Officer, General Counsel and Chief Risk Officer, Chief Accounting Officer, and Treasurer, to strengthen its management team and address the material weaknesses identified in its internal controls.

Despite the challenges faced in recent years, Broadway Financial remains committed to its mission of serving diverse, low-to-moderate income communities. The company's community-focused approach and investments in its operations position it well to navigate the evolving banking landscape and capitalize on opportunities to expand its footprint and enhance shareholder value over the long term.

Broadway Financial Corporation operates primarily in the United States and does not appear to have significant operations in other geographic markets. The company has not reported any major scandals, short seller reports, or CEO departures.