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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB/A
AMENDMENT 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For transition period from__________ to___________
Commission file number 0-27464
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BROADWAY FINANCIAL CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 95-4547287
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(State of incorporation) (IRS Employer Identification No.)
4835 West Venice Boulevard, Los Angeles, California 90019
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(Address of Principal Executive Offices) (Zip Code)
(213) 931-1886
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Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 892,688 shares of the Company's
Common Stock, par value $.01 per share, were issued and oustanding as of
May 10, 1996.
Transitional Small Business Disclosure Format
(Check one)
Yes [ ] No [x]
1
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INDEX
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements Page
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Consolidated Statement of
Condition (unaudited) as
of March 31, 1996 3
Consolidated Statement of
Operations (unaudited) for
the three months ended
March 31, 1996 and March 31, 1995 4
Consolidated Statement of
Cash Flows (unaudited) for
three months ended March 31,
1996 and March 31, 1995 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and
Analysis of Operation 8
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Change in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
2
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statement of Condition
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31,
1996
(UNAUDITED)
-----------
<S> <C>
ASSETS:
Cash and Federal funds sold.......................................... $ 10,703
Investment securities held to maturity............................... 7,488
Mortgage backed securities 2,787
Loans receivable, net................................................ 88,054
Loans receivable held for sale....................................... 1,313
Accrued interest receivable.......................................... 714
Real estate acquired through foreclosure............................. 2,012
Federal Home Loan Bank Stock, at cost................................ 838
Office properties & equipment, net................................... 1,093
Other assets......................................................... 220
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Total Assets.................................................... $ 115,222
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LIABILITIES AND RETAINED EARNINGS:
Savings deposits..................................................... $ 99,473
Advance payments by borrowers for taxes and insurance................ 82
Deferred income taxes................................................ 654
Other liabilities.................................................... 951
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Total Liabilities............................................... 101,160
Preferred Stock...................................................... 1
Paid-in-Capital--Preferred Stock..................................... 910
Common Stock......................................................... 9
Paid-in-Capital--Common Stock........................................ 8,144
Retained Earnings.................................................... 5,639
Unearned Employee Stock Ownership Plan............................... (625)
Unrealized gain(loss) on securities.................................. (16)
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Total capital................................................... 14,062
Total liabilities and capital................................... $ 115,222
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</TABLE>
See Notes to Consolidated Financial Statements
3
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statement of Operations
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
Interest Income:
Interest on loans receivable.................................... $ 1,907 1,659
Interest on investment securities............................... 213 159
Interest on mortgage backed securities.......................... 16 -
Other interest income........................................... 11 -
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Total interest income........................................ 2,147 1,818
Interest on savings deposits......................................... 863 703
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Net interest income before provision for loan losses......... 1,284 1,115
Provision for loan losses............................................ 55 96
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Net interest income after provision for loan losses.......... 1,229 1,019
Noninterest income:
Service charges................................................. 75 66
Real estate operations, net..................................... (40) (148)
Unrealized (loss) recovery on valuation of loans held for sale.. (16) 20
Other........................................................... 18 69
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37 7
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Noninterest expense:
Compensation and benefits....................................... 488 470
Occupancy expense, net......................................... 228 208
Advertising and promotional expense............................. 65 32
Professional services........................................... 11 10
Federal insurance premiums...................................... 64 60
Insurance bond premiums......................................... 24 31
Other........................................................... 208 114
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1,088 925
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Earnings before income taxes ................................... 178 101
Income taxes......................................................... 64 (62)
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Net earnings.................................................... $ 114 163
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-------- --------
Per share information
Number of shares................................................ 892,688 N/A
Earnings per share $.13 N/A
</TABLE>
See Notes to Consolidated Financial Statements
4
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995
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(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $114 $163
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Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation 43 45
Amortization of net deferred loan origination fees (9) 5
Amortization of discounts and premium on securities (4) (35)
Federal Home Loan Bank stock dividends (11) (11)
Gain on sale of real estate owned (14) -
Increase in writeoffs on Real Estate Owned 24 -
Unrealized loss on valuation of loans held for sale 16 11
Decrease in student loans - 9
(Increase) decrease in loans on savings (149) 294
Decrease in consumer loans 7 27
Provision for loan losses 55 87
Provision for write-downs and losses on real estate - 142
Proceeds from sale of real estate owned 210 -
(Increase) decrease in accrued interest receivable (39) (15)
Increase in income tax payable 91 -
(Increase) Decrease in other assets 297 (52)
Increase in other liabilities 132 111
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Total adjustments 649 618
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Net cash provided by (used in) operating activities 763 781
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Cash flows provided by (used in) investing activities:
Loans originated, net of refinances (1,853) (2,363)
Loans purchased (8) (80)
Principal repayment on loans 1,092 1,400
Increase (Decrease) in loans in process 84 (39)
Increasae in mortgage-backed securities (2,787) -
Loan sales 221 -
Decrease in loan receivable held for sale 227 72
Gain (loss) on sale of mortgage loans (4) 4
Increase in Negotiable Order of Withdrawal Overdraft loans (1) (20)
Purchases of investment securities held to maturity (3,989) (932)
Proceeds from maturities of investment securities held to
maturity 2,000 3,489
Capital expenditures for office properties and equipment (34) (97)
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Net cash provided by (used in) investing activities (5,052) 1,434
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Cash flows provided by (used in) financing activities:
Net increase (decrease) in savings deposits (11,031) 1,960
Preferred stock subscribed 911 -
Common stock subscribed 8,153 -
Dividends declared (56) -
Unearned Employee Stock Ownership Plan (625) -
Increase (decrease) in advances by borrowers
for taxes and insurance (121) (109)
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Net cash provided by (used in) financing activities (2,769) 1,851
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Net increase (decrease) in cash and cash equivalents (7,058) 4,066
Cash and cash equivalents at beginning of period 17,761 2,273
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Cash and cash equivalents at end of period $10,703 $6,339
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</TABLE>
See Notes to Consolidated Financial Statements
5
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BROADWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. In the opinion of management of Broadway Financial Corporation (the
"Company"), the preceding unaudited consolidated financial statements
contain all material adjustments (consisting solely of recurring
accruals) necessary to present fairly the consolidated financial position
of the Company at March 31, 1996 and the results of its operations and
cash flows for the three months ended March 31, 1996 and March 31, 1995.
These consolidated financial statements do not include all disclosures
associated with the Company's annual report on Form 10-KSB for the year
ended December 31, 1995 and, accordingly, should be read in conjunction
with such audited statements.
2. The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
3. RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS - In March 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets" ("SFAS No. 121").
This statement is effective for financial statements issued for fiscal
years beginning after December 15, 1995. SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future
cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized. Otherwise,
an impairment loss is not recognized. Measurement of an impairment loss
for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset. An
impairment loss for assets to be held and used shall be reported as a
component of income from continuing operations before income taxes. SFAS
No. 121 will require the Company to disclose a description of the impaired
assets and the facts and circumstances leading to the impairment, the
amount of the impairment loss and how fair value was determined and a
caption in the income statement or reported parenthetically on the face of
the statement. The Company intends to implement SFAS No. 121 during fiscal
year 1996 and does not believe there will be a material adverse impact on
its financial condition or results of operations upon adoption.
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ACCOUNTING FOR MORTGAGE SERVICING RIGHTS - In May 1995, the FASB issued
SFAS No. 122, "Accounting for Mortgage Servicing Rights," which amends SFAS
No. 65, "Accounting for Certain Mortgage Banking Activities" ("SFAS
No. 122"). This statement is effective for financial statements issued for
fiscal years beginning after December 15, 1995 and is required to be
adopted prospectively. This statement amends certain provisions of SFAS
No. 65 to eliminate the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination
activities and those acquired through purchase transactions. This
statement requires that a mortgage banking enterprise measure mortgage
servicing rights at cost by allocating the cost of the mortgage loans
between the mortgage servicing rights and the mortgage loans based on their
relative fair values. SFAS No. 122 will require the Company to
disclose the fair value of the mortgage servicing rights and the methods
and significant assumptions used to estimate that fair value. The Company
intends to implement SFAS No. 122 during fiscal year 1996 and does not
believe there will be a material adverse impact on its financial
condition or results of operations upon adoption.
ACCOUNTING FOR STOCK-BASED COMPENSATION - In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
SFAS No. 123 provides a choice of accounting methods and requires
additional disclosures for stock-based employee compensation plans. SFAS
No. 123 defines a fair value-based method of accounting for an employee
stock option or similar equity instrument. However, it also allows for the
continued use of the intrinsic value-based method of accounting as
prescribed by Accounting Principles Board Opinion (APB) No. 25, "Accounting
for Stock Issued to Employees." Regardless of the method used to account
for stock-based compensation, SFAS No. 123 requires all financial
statements to include disclosures of the fair value of such compensation.
SFAS No. 123 must be adopted for financial statements for fiscal years
beginning after December 15, 1995. In connection with the conversion of
the Company's principal subsidiary from mutual to stock form, the Board of
Directors of the Company stated its intention to adopt certain stock-based
compensation plans and to submit such plans to the Company's shareholders
for their approval. If, as anticipated, such plans are adopted and
approved by the Company's shareholders, the Company will account for such
plans under APB Opinion 25 and make the appropriate disclosures required
under SFAS No. 123. The Company does not believe that such adoption and
accounting will have any adverse impact on its financial condition or
results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
GENERAL
Broadway Financial Corporation (the "Company") was incorporated under
Delaware law on September 25, 1995 for the purpose of acquiring and holding
all of the outstanding capital stock of Broadway Federal Bank, f.s.b.
("Broadway Federal" or "Bank") as part of the Bank's conversion from a
federally chartered mutual savings association to a federally chartered stock
savings bank (the "Conversion"). The Conversion was completed, and the Bank
became a wholly-owned subsidiary of the Company, on January 8, 1996. In
connection with the Conversion, the Company issued and sold to the public
892,688 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), at a price of $10.00 per share and also issued 91,073 shares of its
Noncumulative Perpetual Preferred Stock, Series A, par value $.01 per share
(the "Preferred Stock"), at $10.00 per share. The proceeds, net of
approximately $774,000 in Conversion costs, received by the Company from the
Conversion (before deduction of $893,000 to fund employee stock plans)
amounted to $9.1 million. The Company used 50% ($4.1 million) of the net
Common Stock proceeds and 100% ($911,000) of the Preferred Stock proceeds to
purchase the capital stock of Broadway Federal. The remaining proceeds were
retained by the Company.
The Company's principal business is serving as the holding company for Broadway
Federal. Prior to the completion of the Conversion, the Company had no assets
or liabilities and did not conduct any business other than that of an
organizational nature. Historical information presented throughout this report
at and for periods ended prior to the Company's commencement of operations, on
January 8, 1996, is that of Broadway Federal.
The Company's and Broadway Federal's results of operations are dependent
primarily on net interest income, which is the difference between the interest
income earned on its interest-earning assets, such as loans and investments,
and the interest expense on interest-bearing liabilities, such as deposits and
borrowings. The Bank also generates recurring non-interest income such as
transactional fees on its loan and deposit portfolios. The Company's operating
results are also affected by the amount of the Bank's general and administrative
expenses, which consist principally of employee compensation and benefits,
occupancy expenses and federal deposit insurance premiums and by its periodic
provisions for loan losses. More generally, the results of operations of thrift
and banking institutions are also affected by prevailing economic conditions,
competition, and the monetary and fiscal policies of governmental agencies.
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COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
MARCH 31, 1995
GENERAL
The Company had $178,000 in earnings before income taxes for the three months
ended March 31, 1996. This compares to the Bank's pretax earnings of $101,000
for the three months ended March 31, 1995. Net earnings after taxes totalled
$114,000 for the three months ended March 31, 1996 as compared to $163,000 for
the same period in the prior year. The decrease in first quarter net earnings
resulted from a number of offsetting factors which included higher interest
income, higher interest on savings deposits, lower provision for loan losses,
higher noninterest income, higher noninterest expense and a higher effective
income tax rate.
INTEREST INCOME
Interest income increased by $329,000 during the three months ended March 31,
1996 as compared to the same period in the prior year. This increase was
primarily the result of an increase in average assets of $3.1 million, to $113.7
million for the three months ended March 31, 1996 from $100.6 million for the
same period in the prior year. The increase in average assets resulted from the
Company's focus on increasing its loan portfolio, as well as a planned increase
in the average balances of its investment securities and mortgage-backed
securities. The increase in assets during the three months ended March 31, 1996
was funded by proceeds from the Conversion.
INTEREST ON SAVINGS DEPOSITS
Interest on savings deposits increased by $160,000 during the three months ended
March 31, 1996 as compared to the same period a year ago. The increase in
interest on savings deposits was due to an increase in the average deposit
liability from $92.6 million over the three-month period in 1995 to $101.5
million over the three-month period in 1996. The increase in interest on
savings deposits also reflects the rising interest rate environment as the
average cost of deposits increased 42-basis points, from 3.02% for the three
months ended March 31, 1995 to 3.44% for the three months ended March 31, 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses decreased by $41,000 from $96,000 for the three
months ended March 31, 1995 to $55,000 for the three months ended March 31,
1996. The decrease in the provision for loan losses was due primarily to higher
specific reserves having been established for problem loans during the three
months ended March 31, 1995 as compared to the same period during 1996.
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In March 1995 specific reserves totalling $67,486 were established on two
loans. The property securing one of such loans has been foreclosed upon and
recorded as real estate acquired through foreclosure ("REO").
Total non-performing assets, consisting of non-accrual loans and REO,
increased by $405,000, from $2.3 million at March 31, 1995 to $2.7 million at
March 31, 1996. The $405,000 increase resulted from offsetting factors,
consisting of an increase in REO of $428,000 and a decrease in non-accrual
loans of $23,000. As a percentage of total assets, nonperforming assets were
2.40% at March 31, 1996, compared to 2.33% at March 31, 1995.
NONINTEREST INCOME
Noninterest income increased by $30,000, from $7,000 for the three months
ended March 31, 1995 to $37,000 for the same period during 1996. The
increase was due to a number of offsetting factors. Service fees on savings
accounts increased $9,000, from $66,000 during the three months ended March
31, 1995 to $75,000 for the same period of 1996. The increase resulted
primarily from higher fees earned from returned checks on customers checking
accounts. In addition, writedowns, expenses and writeoffs related to the
operation and sale of REO were $148,000 during the first three months of 1995
as compared to $40,000 during the same period in 1996. The higher 1995 loss
is a result of a direct writeoff to reduce the carrying amount of an REO to
an acceptable level. The "Unrealized (Loss) Recovery on the Valuation of
Loans Held For Sale" decreased from a recovery of $20,000 for the three
months ended March 31, 1995 to a loss of $16,000 for the same period in 1996
as a result of a change in market interest rates during the respective
periods. Finally, other noninterest income decreased from $69,000 for the
three months ended March 31, 1995 to $18,000 for the same period in 1996,
primarily as a result of bad debt recoveries and the donation of a modular
facility which was used as a branch office during 1995.
NONINTEREST EXPENSE
Noninterest expense increased $164,000, from $925,000 for the three months ended
March 31, 1995 to approximately $1.1 million for the same period in 1996. The
increase in noninterest expense was due primarily to increases in compensation
and benefits, occupancy expense, advertising and promotional expense and other
noninterest expense. Compensation and benefits increased by $18,000, from
$470,000 during the three months ended March 31, 1995 to $488,000 for the same
period during 1996, due to general salary increases during the year and an
increase in the number of staff. Occupancy expense, including depreciation and
repair and maintenance costs on fixed assets, increased $20,000, from $208,000
during the three months ended March 31, 1995 to $228,000 for the same period
during 1996. Advertising and promotional expense increased $33,000, from
$32,000 for the three months ended March 31, 1995 to $65,000 for the same period
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during 1996 as a result of increased promotional activities during the
current period. Other noninterest expense increased $94,000, from $114,000
during the three months ended March 31, 1995 to $208,000 during the same
period in 1996 resulting from: 1) the writeoff of overdraft savings accounts
totalling $21,000; 2) the recognition of a loss from an employee defalcation
totalling $49,000; and 3) the increase of $24,000 in professional fees,
stationary, telephone and postage expenses, associated with various business
activities, including becoming a public company.
INCOME TAXES
Income taxes increased from $62,000 in income tax benefit for the three
months ended March 31, 1995 to a $64,000 income tax expense for the same
period in 1996. The increase in income taxes was the result in part of the
increase in earnings before income taxes during the three months ended
March 31, 1996 compared to the same period ended March 31, 1995. In addition,
during the three months ended March 31, 1995 Broadway Federal recognized a
$105,000 reduction in income taxes as a result of tax credits recognized
from the Company's business activities in areas designated as Los Angeles
Revitalization Zones and Enterprise Zones.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1996 AND DECEMBER 31, 1995
Total assets at March 31, 1996 were $115.2 million compared to $117.7 million
at December 31, 1995, a decrease of $2.5 million. The decrease primarily
resulted from: 1) a refund of approximately $5.5 million of excess stock
offering subscriptions received in connection with the Conversion; 2) a $2.8
million increase in investments in mortgage backed securities; and 3) loans
receivable, net, increased from $87.9 million at December 31, 1995 to $88.0
million at March 31, 1996 as a result of $1.7 million in new loan
originations. Of the $1.7 million in loan originations, approximately $1.1
million is secured by one- to four-unit properties. The new loans were
funded by $1.1 million in principal repayments on existing loans and $221,000
in proceeds from loan sales. The $192,000 increase in REO resulted from the
sale of a 6-unit property for $210,000, offset by the foreclosure of two
4-unit properties totalling $413,000.
Total liabilities at March 31, 1996 were $101.1 million compared to $112.1
million at December 31, 1995, a decrease of $11.0 million. The decrease
primarily relates to the reclassification of stock offering subscription
proceeds from the Conversion into capital and the refund of excess stock
offering subscription proceeds as noted above.
Total capital at March 31, 1996 was $14.0 million compared to $5.6 million at
December 31, 1995, an increase of $8.4 million resulting from stock proceeds
from the Conversion and net earnings for the quarter.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO VOTE OF SECURITY
HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K.
None
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROADWAY FINANCIAL CORPORATION
Date: May 20, 1996 By: /s/ PAUL C. HUDSON
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Paul C. Hudson
President and Chief Executive Officer
By: /s/ BOB ADKINS
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Bob Adkins
Secretary and Chief Financial Officer
13