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Business Combination | 6 Months Ended
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Jun. 30, 2021
Business Combination [Abstract] |
Business Combination | NOTE (2) – Business Combination The Company completed its merger with CFBanc Corporation (“CFBanc”) on April 1, 2021, with the Company continuing as the surviving entity (the “CFBanc Merger”). Immediately following this merger, Broadway Federal Bank, f.s.b., a subsidiary of Broadway Financial Corporation, 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). As of the acquisition date, CFBanc Corporation had $471.0 million in total assets, $227.7 million in gross loans, and $353.7 million of total deposits. On April 1, 2021, (1) each share of CFBanc Corporation’s Class A Common Stock, par value $0.50 per share, and Class B Common Stock, par value $0.50 per share, issued and outstanding immediately prior to the CFBanc Merger was converted into 13.626 validly issued, fully paid and nonassessable shares, respectively, of the voting common stock of the Company, par value $0.01 per share, which were renamed Class A Common Stock, and a new class of non-voting common stock of the Company, par value $0.01 per share, which was named Class B Common Stock, and (2) each share of Fixed Rate Cumulative Redeemable Perpetual Preferred Stock, Series B, par value $0.50 per share, of CFBanc Corporation (“CFBanc Corporation Preferred Stock”) issued and outstanding immediately prior to the effective time of the CFBanc Merger was converted into one validly issued, fully paid and non-assessable share of a new series of preferred stock of the Company, which was designated as the Company’s Fixed Rate Cumulative Redeemable Perpetual Preferred Stock, Series A, with such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, which taken as a whole, are not materially less favorable to the holders of CFBanc Corporation Preferred Stock than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof of CFBanc Corporation Preferred Stock. The total value of the consideration transferred to CFBanc Corporation shareholders was approximately $66.3 million, which was based on the closing price of the Company’s common stock on March 31, 2021, the last trading day prior to the consummation of the merger. The Company accounted for the CFBanc Merger under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. The Company determined the fair value of the acquired assets and assumed liabilities with the assistance of third-party valuation firms. G oodwill in the amount of $26.0 million was recognized in the CFBanc Merger. Goodwill represents the future economic benefits arising from net assets acquired that are not individually identified and separately recognized and is attributable to synergies expected to be derived from the combination of the two entities. Goodwill is not amortized for financial reporting purposes; rather, it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, by comparing its carrying value to the reporting unit’s fair value. Goodwill recognized in this transaction is not deductible for income tax purposes. The following table represents the assets acquired and liabilities assumed in the CFBanc Merger as of April 1, 2021, and the fair value adjustments and amounts recorded by the Company as of the same date under the acquisition method of accounting:
|  | CFBanc Book Value |  | Fair Value Adjustments |  | Fair Value |
Assets acquired | (In thousands) |
Cash and cash equivalents |  | $ | 84,745 |  |  | $ | - |  |  | $ | 84,745 |
Securities available-for-sale |  |  | 150,052 |  |  |  | (77 | ) |  |  | 149,975 |
Loans receivable held for investment: |  |  |  |  |  |  |  |  |  |  |  |
Gross loans receivable held for investment |  |  | 227,669 |  |  |  | (1,784 | ) |  |  | 225,885 |
Deferred fees and costs |  |  | (315 | ) |  |  | 315 |  |  |  | - |
Allowance for loan losses |  |  | (2,178 | ) |  |  | 2,178 |  |  |  | - |
|  |  | 225,176 |  |  |  | 709 |  |  |  | 225,885 |
Accrued interest receivable |  |  | 1,637 |  |  |  | - |  |  |  | 1,637 |
FHLB and FRB stock |  |  | 1,061 |  |  |  | - |  |  |  | 1,061 |
Office properties and equipment |  |  | 5,152 |  |  |  | 1,801 |  |  |  | 6,953 |
Deferred tax assets, net |  |  | 890 |  |  |  | (1,608 | ) |  |  | (718 | )
Core deposit intangible |  |  | - |  |  |  | 3,329 |  |  |  | 3,329 |
Other assets |  |  | 2,290 |  |  |  | - |  |  |  | 2,290 |
Total assets |  | $ | 471,003 |  |  | $ | 4,154 |  |  | $ | 475,157 |
Liabilities assumed |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 353,671 |  |  | $ | 51 |  |  | $ | 353,722 |
Securities sold under agreements to repurchase |  |  | 59,945 |  |  |  | - |  |  |  | 59,945 |
FHLB advances |  |  | 3,057 |  |  |  | 109 |  |  |  | 3,166 |
Notes payable |  |  | 14,000 |  |  |  | - |  |  |  | 14,000 |
Accrued expenses and other liabilities |  |  | 4,063 |  |  |  | - |  |  |  | 4,063 |
Total liabilities |  | $ | 434,736 |  |  | $ | 160 |  |  | $ | 434,896 |
Excess of assets acquired over liabilities assumed |  | $ | 36,267 |  |  | $ | 3,994 |  |  | $ | 40,261 |
Consideration paid |  |  |  |  |  |  |  |  |  | $ | 66,257 |
Goodwill recognized |  |  |  |  |  |  |  |  |  | $ | 25,996 |
The fair values are preliminary estimates and are subject to adjustment for up to one year after the merger date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. These changes could differ materially from what is presented above. The contractual amounts due, expected cash flows to be collected, the interest component, and the fair value of loans acquired from CFBanc as of the acquisition date were as follows:
|  | Acquired Loans |
|  | (In thousands) |
Contractual amounts due |  | $ | 231,432 |
Cash flows not expected to be collected |  |  | (3,666 | )
Expected cash flows |  |  | 227,766 |
Interest component of expected cash flows |  |  | (1,881 | )
Fair value of acquired loans |  | $ | 225,885 |
A component of total loans acquired from CFBanc were loans that were considered to be purchased credit impaired loans (PCI loans). Refer to Note 6 for additional information regarding PCI loans. The following table presents the amounts that comprise the fair value of PCI loans (in thousands):
Contractual amounts due |  | $ | 1,825 |
Nonaccretable difference (cash flows not expected to be collected) |  |  | (634 | )
Expected cash flows |  |  | 1,191 |
Accretable yield |  |  | (346 | )
Fair value of acquired loans |  | $ | 845 |
In accordance with generally accepted accounting principles, there was no carryover of the allowance for loan losses that had been previously recorded on loans by CFBanc. The operating results of CFBanc for the three and six months ended June 30, 2021 are included in the operating results of the Company since the merger date. The following table presents the amounts related to CFBanc’s operations included in the Company’s consolidated statement of operations from April 1 through June 30, 2021:
|  | (In thousands) |
Net interest income |  | $ | 2,896 |
Net income |  | $ | 966 |
The following table presents the net interest income, net income, and earnings per share as if the CFBanc Merger was effective as of January 1, 2020. The unaudited pro forma financial information included in the table below is based on various estimates and is presented for informational purposes only and does not indicate the financial condition or results of operations of the combined Company that would have been achieved for the periods presented had the transactions been completed as of the date indicated or that may be achieved in the future.
| Three Months Ended |  |  | Six Months Ended |
| June 30, 2021 |  | June 30, 2020 |  |  | June 30, 2021 |  | June 30, 2020 |
| (Dollars in thousands except per share amounts) |
Net interest income |  | $ | 5,821 |  |  | $ | 5,173 |  |  | $ | 11,011 |  |  | $ | 10,331 |
Net income (loss) |  |  | 723 |  |  |  | 476 |  |  |  | (3,539 | ) |  |  | 189 |
Basic earnings per share |  | $ | 0.01 |  |  | $ | 0.01 |  |  | $ | (0.06 | ) |  | $ | 0.00 |
Diluted earnings per share |  | $ | 0.01 |  |  | $ | 0.01 |  |  | $ | (0.06 | ) |  | $ | 0.00 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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