Broadway Financial Corporation Announces Results for 1st Quarter 2021

Broadway Financial Corporation (“Broadway”) (NASDAQ Capital Market: BYFC), reported a consolidated net loss of $3.5 million, or ($0.13) per share, for the first quarter of 2021, compared to a consolidated net loss of $33 thousand, or $0.00 per share, for the first quarter of 2020.

The results for the first quarter of 2021 and 2020 are results of Broadway Financial Corporation and its subsidiary, Broadway Federal Bank, f.s.b. ( “Broadway Bank” or the “Bank”) on a standalone basis, and do not include any results of CFBanc Corporation and its subsidiaries.

Broadway Financial Corporation completed its merger with CFBanc Corporation on April 1, 2021, with Broadway Financial Corporation continuing as the surviving entity. Immediately following this merger, Broadway Bank merged with and into City First Bank of D.C, National Association with City First Bank of D.C., National Association continuing as the surviving entity (which concurrently changed its name to City First Bank, National Association). Following the merger, Broadway completed the sale of 18,474,000 shares of common stock in private placements with institutional and accredited investors, raising $32.9 million in gross proceeds, with both the merger and completed private placement significantly increasing Broadway’s total equity capitalization and potential for growth and increased lending in low-to-moderate income communities.

The loss during the first quarter of 2021 was primarily due to merger-related expenses of $5.4 million, which included $3.4 million in severance and other compensation costs, $1.8 million in professional service expenses and $213 thousand for insurance.

Brenda Battey, Chief Financial Officer of Broadway and its former subsidiary Broadway Bank, commented, “The first quarter was an eventful quarter in the history of Broadway. While financial results were adversely affected by non-recurring expenses associated with the merger with CFBanc Corporation, Broadway finished the quarter without any delinquencies or requests from customers for loan modifications related to the enduring COVID-19 Pandemic. Excluding the merger-related expenses, Broadway had a nominal loss for the quarter, reflecting compression in net interest margins, which has been pervasive throughout the banking industry, and restrained loan growth, which we expect to be alleviated with the consummation of the merger.”

Chief Executive Officer, Brian Argrett added, “I am excited to be taking the reins of leadership for Broadway as it moves forward as the parent company of the combined CityFirstBroadway financial organization, the largest Black-led Minority Depository institution in the country. Our focus is to be a leading provider of financial products and services to economically underserved urban communities, supported by impact-focused investors and depositors who share CityFirstBroadway’s mission to help close the racial wealth gap and expand opportunity through the focused and efficient provision of capital. Through the merger, we intend to extend and expand the legacy of Broadway’s founders, who created an important and enduring institution that has proudly served black and other minority communities with distinction since 1946. The opportunities created by our merger of equals are firmly built upon the collective vision of each institution’s founders and the dedicated efforts of our collective employees, who worked tirelessly to continue to serve our customers and communities and successfully consummate the merger and subsequent capital raise.”

“Finally, on behalf of my fellow members of the Board of Directors, I wish to thank Wayne-Kent Bradshaw, former CEO of Broadway and our Chairman, for his skillful leadership of Broadway over the years and through the consummation of the merger. I would like to further express our deep appreciation to the former directors of Broadway and CFBanc Corporation whose service concluded with the closing of the merger for their steady and dedicated stewardship of each organization.”

COVID-19 Pandemic Impact

Broadway continues to monitor the impact of the lingering COVID-19 Pandemic on its operations. To date, Broadway has not implemented layoffs or furloughs of any employees because of the Pandemic.

Although Broadway Bank developed plans and policies for providing financial relief to borrowers that may experience difficulties in meeting the terms of their loans, as of March 31, 2021, none of its borrowers had requested loan modifications and Broadway Bank had not had any delinquencies related to COVID-19.

As of March 31, 2021, Broadway Bank had not participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) because Broadway Bank did not historically offer SBA loans. Instead, management focused on selective originations of multi-family residential loans and, to a lesser extent, other commercial real estate (“CRE”) loans, including construction loans.

Net Interest Income

For the first quarter of 2021, net interest income was $2.8 million, compared to $2.9 million for the first quarter of 2020. Average interest-earning assets increased by $5.1 million compared to the first quarter of the prior year, but the increase was more than offset by a decrease of 7 basis points in the net interest margin.

Interest and fees on loans receivable decreased by $715 thousand to $3.6 million for the first quarter of 2021, from $4.4 million for the first quarter of 2020. The decrease in interest and fees on loans receivable primarily resulted from a decrease of $64.8 million in the average balance of loans receivable, which decreased interest income by $654 thousand. In addition, the average yield on loans decreased by 6 basis points to 4.03% from 4.09%, which decreased interest income by $61 thousand.

Interest income on securities decreased by $14 thousand for the first quarter of 2021 compared to the first quarter of 2020. The decrease in interest income on securities primarily resulted from a decrease of $533 thousand in the average balance of securities and a decrease of 41 basis points in the average interest rate earned on securities.

Other interest income decreased by $65 thousand for the first quarter of 2021 compared to the first quarter of 2020. The decrease was primarily due to a decrease of 111 basis points in the average rate earned on interest-bearing deposits, which decreased interest income by $129 thousand, partially offset by the effects of an increase of $70.1 million in the average balance of interest-earning deposits, which increased interest income by $76 thousand. In addition, there was a decrease of $12 thousand in dividends earned on Federal Home Loan Bank (“FHLB”) stock during the first quarter of 2021, compared to the first quarter of 2020 due to a decrease of 200 basis points in the average rate earned on FHLB stock, which decreased interest income by $17 thousand, partially offset by an increase of $309 thousand in the average balance of FHLB stock, which increased interest income by $5 thousand.

Interest expense on deposits decreased to $383 thousand for the first quarter of 2021 from $1.1 million for the first quarter of 2020. The decrease of $672 thousand in interest expense on deposits was primarily due to a decrease of 87 basis points in the average cost of deposits, which offset growth of $4.2 million in total average deposits. The increase in average deposits was primarily due to growth in NOW accounts, savings accounts, and money market accounts.

Interest expense on borrowings decreased by $69 thousand for the first quarter of 2021 compared to the first quarter of 2020. The decrease in interest expense on borrowings reflected a decrease of 27 basis points in the overall cost of borrowings, which decreased interest expense by $74 thousand, offset by a net increase of $1.6 million in the average balance of borrowings, which increased interest expense by $5 thousand.

Loan Loss Provision/Recapture

As a small banking institution, Broadway is not required to adopt the Currently Expected Credit Losses, or CECL, accounting standard until 2023; consequently, Broadway Bank’s allowance for loan and lease losses (“ALLL”) is based on evidence available at the date of preparation of its financial statements, rather