Broadway Financial Corporation Announces Results for Second Quarter 2023

Broadway Financial Corporation (“Broadway”, “we”, or the “Company”) (NASDAQ Capital Market: BYFC), parent company of City First Bank, National Association (the “Bank”, and collectively, with the Company, “City First Broadway”), reported consolidated net earnings of $243 thousand, or $0.00 per diluted share, for the second quarter of 2023, compared to consolidated net earnings of $1.9 million, or $0.03 per diluted share, for the second quarter of 2022.

The decrease in net earnings during the second quarter of 2023, compared to the second quarter of 2022, was primarily due to an increase in interest expense before provision for credit losses of $4 million, which more than offset growth in interest income of $3.3 million. The decrease in net earnings was also attributable to a provision for credit losses of $768 thousand during the second quarter of 2023, compared to a recapture of credit losses of $577 thousand during the second quarter of 2022, and an increase in non-interest expense of $238 thousand.

For the first six months of 2023, the Company reported consolidated net earnings of $1.8 million, or $0.03 per diluted share, compared to consolidated net earnings of $2.8 million, or $0.04 per diluted share for the first six months of 2022. The decrease primarily resulted from a provision for credit losses of $810 thousand during the first six months of 2023, compared to a loan loss provision recapture of $429 thousand during the first six months of 2022. In addition, non-interest expense increased by $484 thousand during the first six months of 2023, compared to the first six months of 2022. These amounts were partially offset by improvement in net interest income of $332 thousand during the first six months of 2023, compared to the first six months of 2022.

Second Quarter 2023 Highlights:

• Total interest income increased by $3.3 million, or 38.5% for the second quarter of 2023, compared to the second quarter of 2022.
• Total net loans receivable increased by $56.6 million, or 7.4%, to $824.6 million at June 30, 2023, compared to December 31, 2022.
• The Bank did not have any non-accrual loans or non-performing assets at June 30, 2023.
• Total assets increased by $47.0 million, or 4.0%, to $1.2 billion at June 30, 2023, compared to December 31, 2022.

Chief Executive Officer, Brian Argrett commented, “The second quarter continued to present significant economic headwinds affecting our operating performance and efforts to continue to expand at pace. Since receiving $150 million of preferred equity in early June 2022 pursuant to the United States Department of the Treasury’s Emergency Capital Investment Program (“ECIP”), we have endeavored to strategically grow our balance sheet and operational capabilities to fulfill the intersecting lending objectives of ECIP and our mission, and achieve the scale of operations afforded to us as a bank with over $275 million of equity. Those ambitious objectives require significant longer-term investments in infrastructure and personnel, but will in turn help us create a financial institution with substantially greater scale, profit potential, and ability to positively impact the low-to-moderate income communities that we serve.”

“Of course, these investments overlap a shifting banking and economic environment that is increasingly challenged as rising inflation has increased the cost of doing business, both in rising funding costs and higher non-interest expenses, including the cost of retaining and attracting quality personnel. Further, rising uncertainty from the eleven rate increases implemented by the Federal Open Market Committee of the Federal Reserve since March 2022 has made loan originations more challenging as we remain prudent in our underwriting standards and portfolio management amid any early signs of weakness in the broader economy.

“However, I am also pleased to report that we expanded our loan portfolio by over 6% during the second quarter of 2023, which has now grown over 40% since the merger of Broadway and CFBanc Corporation on April 1, 2021, and 28% since the receipt of the ECIP equity capital in June last year. This growth has enabled City First Broadway to increase total interest income in each of the nine quarters since the merger without sacrificing our commitment to credit quality or our mission. I am also pleased to report that the Bank did not have any non-accrual loans at the end of the second quarter.

“Going forward, our dedication to prudent continued growth, greater efficiency, and deeper service to our communities has not abated; we intend to continue growing wisely and improving our profitability. In that regard, we have been implementing new efforts to retain and gather deposits to fund that forward growth, and those efforts have dramatically slowed the deposit migration that primarily occurred in the last three quarters of 2022. Fortunately, the Company has the necessary equity capital and liquidity to execute its plans and continue serving the pressing needs of low-to-moderate income communities.

“As always, we are particularly thankful for the dedication of our employees and the continuing support of our investors and partners. That support remains pivotal to our ability to serve our communities, customers, and broader stakeholders.”

Net Interest Income

Second Quarter of 2023 Compared to Second Quarter of 2022

Net interest income before provision for credit losses for the second quarter of 2023 totaled $7.3 million, representing a decrease of $770 thousand, or 9.6%, from net interest income before loan loss provision of $8.0 million for the second quarter of 2022. The decrease resulted from additional interest expense due to an increase of $154.5 million in average borrowings during the second quarter of 2023, compared to the second quarter of 2022, at an average borrowing rate of 4.30% during the second quarter of 2023, compared to an average borrowing rate of 0.42% during the second quarter of 2022. The increase in borrowings was due to a decrease in average deposits of $187.3 million during the second quarter of 2023, compared to the second quarter of 2022, with all but $17.4 million of the decrease in average deposits occurring prior to the start of the second quarter of 2023. Net interest margin decreased to 2.52% for the second quarter of 2023, compared to 3.00% for the second quarter of 2022, primarily due to an increase of 190 basis points in the average cost of funds, which reflected higher rates paid on deposits and borrowings because of the ten interest rate increases implemented by the Federal Open Market Committee of the Federal Reserve (the “Federal Reserve” or “FRB”) since the middle of March of 2022 through June of 2023. The impact of the rising cost of funds was partially offset by an increase in the yield on interest-earnings assets of 86 basis points, primarily due to higher rates earned on securities, interest-earning deposits, and, to a lesser extent, the loan portfolio.

First Six Months of 2023 Compared to the First Six Months of 2022

Net interest income before provision for credit losses for the six months ended June 30, 2023 totaled $15.5 million, representing an increase of $332 thousand, or 2.2%, over net interest income before loan loss provision of $15.2 million for the six months ended June 30, 2022. The increase resulted from additional interest income, primarily generated from growth of $81.9 million in average interest-earning assets during the six months ended June 30, 2023, compared to the six months ended June 30, 2022. In addition, the overall rate earned on interest-earning assets increased by 88 basis points as the Bank earned higher rates on securities, interest-earning deposits, and, to a lesser extent, the loan portfolio. Net interest margin decreased, however, to 2.74% for the six months ended June 30, 2023, compared to 2.89% for the six months ended June 30, 2022, primarily due to an increase of 148 basis points in the average cost of funds, which grew to 1.76% for the six months ended June 30, 2023, from 0.27% for the six months ended June 30, 2022. The increase in the cost of funds reflected the higher rates that the Bank paid on deposits and borrowings because of the interest rate increases implemented by the FRB.

The following tables set forth the average balances, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred loan fees, and discounts and premiums that are amortized or accreted to interest income or expense.