Broadway Financial Corporation (NASDAQ:BYFC) is a bank holding company that operates through its wholly-owned subsidiary, City First Bank, National Association. The company provides a range of banking products and services to individuals, businesses, and nonprofit organizations primarily in the Los Angeles, California and Washington, D.C. metropolitan areas.
Business Overview
Broadway Financial Corporation has a long and storied history, tracing its roots back to 1946 when it was founded as a community-focused bank. Over the years, the company has evolved and expanded its reach, but has remained steadfast in its commitment to serving the diverse communities in which it operates. Today, the company operates a network of 12 full-service branches and 2 loan production offices, offering a comprehensive suite of banking products and services.The company's core business segments include commercial and industrial lending, commercial real estate lending, multi-family lending, and consumer banking. Broadway Financial Corporation has a strong presence in the multi-family housing market, with multi-family loans comprising the largest portion of its loan portfolio at 64.4% as of March 31, 2024. The company's commercial real estate and construction lending divisions also play a significant role, accounting for 13.4% and 9.7% of the loan portfolio, respectively.
Financial Performance
Broadway Financial Corporation has demonstrated resilience in the face of a challenging economic environment. For the fiscal year ended December 31, 2023, the company reported annual net income of $4.5 million, annual revenue of $52.6 million, annual operating cash flow of $7.6 million, and annual free cash flow of $7.4 million. These figures highlight the company's ability to generate consistent financial results and maintain a healthy balance sheet.In the first quarter of 2024, the company reported a net loss of $183 thousand, compared to net income of $1.6 million in the same period of the prior year. This decrease was primarily due to a $750 thousand, or 9.1%, decline in net interest income, which was driven by a 156 basis point increase in the average cost of funds. The company also experienced a $1.6 million, or 25.8%, increase in non-interest expense, largely attributable to higher professional services and compensation and benefits expenses.
Despite the challenges faced in the first quarter of 2024, Broadway Financial Corporation remains well-capitalized, with a Community Bank Leverage Ratio of 13.65% as of March 31, 2024, well above the regulatory minimum of 9%. This strong capital position provides the company with the flexibility to navigate the current economic environment and continue to support its customers and communities.
Loan Portfolio and Asset Quality
Broadway Financial Corporation's loan portfolio is well-diversified, with a focus on commercial and multi-family real estate lending. As of March 31, 2024, the company's loan portfolio totaled $934.8 million, with multi-family loans accounting for 64.4% of the portfolio, commercial real estate loans at 13.4%, and construction loans at 9.7%.The company's asset quality remains stable, with non-performing loans totaling $401 thousand, or 0.04% of total loans, as of March 31, 2024. The allowance for credit losses stood at $7.6 million, or 0.81% of gross loans, at the end of the first quarter of 2024. While the company did record a provision for credit losses of $260 thousand in the first quarter, this was primarily due to loan growth, as the company's historical loss rates have been decreasing.
Funding and Liquidity
Broadway Financial Corporation maintains a diversified funding base, with deposits totaling $695.5 million as of March 31, 2024. The company's deposit mix is weighted towards core deposits, which accounted for 73.5% of total deposits at the end of the first quarter. The company also utilizes borrowings from the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank's Bank Term Funding Program (BTFP) to supplement its funding needs.The company's liquidity position remains strong, with cash and cash equivalents of $67.1 million and unpledged securities of $107.5 million as of March 31, 2024. Additionally, the company has the ability to borrow up to $105.0 million from the FHLB, based on the collateral pledged and FHLB stock held as of the end of the first quarter.
Risks and Challenges
While Broadway Financial Corporation has demonstrated resilience, the company faces several risks and challenges that warrant consideration. The ongoing economic uncertainty and rising interest rate environment have put pressure on the company's net interest margin and profitability. Additionally, the company's significant concentration of deposits with two customers and short-term borrowings with one customer could expose it to concentration risk.Furthermore, the company's recent material weaknesses in internal controls over financial reporting, as disclosed in its first quarter 2024 report, highlight the need for continued improvement in its control environment and financial reporting processes. The company has initiated remediation efforts, but it will take time to fully address these issues and demonstrate the effectiveness of the new controls.
Outlook and Conclusion
Despite the challenges faced in the first quarter of 2024, Broadway Financial Corporation remains well-positioned to navigate the current economic landscape. The company's diversified loan portfolio, strong capital position, and ample liquidity provide a solid foundation for growth and resilience.As the company continues to address its internal control weaknesses and adapt to the evolving interest rate environment, investors will be closely monitoring its ability to maintain profitability and asset quality. With a focus on serving its local communities and a commitment to responsible banking practices, Broadway Financial Corporation is poised to weather the current storm and emerge as a stronger, more resilient institution.