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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
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
- --------------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(213) 931-1886
-------------------------
(Issuer's Telephone Number, Including Area Code)
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 $0.01 per share, were issued and oustanding as of August
9, 1996.
Transitional Small Business Disclosure Format
(Check one)
Yes [ ] No [x]
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INDEX
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Statement of
Condition as of June 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statement of
Operations (unaudited) for
the three months and six months
ended June 30, 1996 and 1995 4
Consolidated Statement of
Cash Flows (unaudited) for the
three months and six months
ended June 30, 1996 and 1995 5
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Operation 9
PART II-- OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote
of Security Holders 14
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Condensed, Consolidated Statement of Condition
(Dollars in thousands)
<TABLE>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Assets:
Cash and Federal funds sold.............................. $ 3,844 3,307
Restricted cash-stock subscriptions...................... - 14,454
Investment securities held to maturity................... 7,983 5,495
Mortgage backed securities............................... 3,590 -
Loans receivable, net.................................... 89,596 87,900
Loans receivable held for sale........................... 1,985 1,556
Accrued interest receivable.............................. 775 675
Real estate acquired through foreclosure................. 1,486 1,820
Federal Home Loan Bank Stock, at cost.................... 849 827
Office properties & equipment, net....................... 1,143 1,102
Income tax receivable.................................... - 91
Other assets............................................. 612 517
----------- -----------
Total Assets........................................ $ 111,863 117,744
=========== ===========
Liabilities and Retained Earnings:
Savings deposits ........................................ $ 96,249 110,504
Advance payments by borrowers for taxes and insurance.... 154 203
Deferred income taxes.................................... 639 639
Other liabilities........................................ 867 817
----------- -----------
Total Liabilities................................... 97,909 112,163
Preferred Stock.......................................... 1 -
Paid-in-Capital-Preferred Stock.......................... 910 -
Common Stock............................................. 9 -
Paid-in-Capital-Common Stock............................. 8,154 -
Retained Earnings........................................ 5,529 5,581
Unearned Employee Stock Ownership Plan................... (609) -
Unrealized gain(loss) on securities...................... (40) -
----------- -----------
Total capital....................................... 13,954 5,581
----------- -----------
Total liabilities and capital....................... $ 111,863 117,744
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Condensed, Consolidated Statement of Operations
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans receiveable.............. $ 1,930 1,747 3,837 3,406
Interest on investment securities.......... 161 143 374 302
Interest on mortgage backed securities..... 58 - 74 -
Other interest income...................... 12 20 23 20
-------- -------- -------- --------
Total interest income................... 2,161 1,910 4,308 3,728
Interest on savings deposits.................... 865 753 1,728 1,456
-------- -------- -------- --------
Net interest income before provision for
loan losses........................... 1,296 1,157 2,580 2,272
Provision for loan losses....................... 188 139 243 235
-------- -------- -------- --------
Net interest income after provision for
loan losses........................... 1,108 1,018 2,337 2,037
Noninterest income:
Service charges............................ 73 61 148 127
Real estate operations, net................ (112) (66) (152) (214)
Unrealized (loss) recovery on valuation of
loans held for sale...................... (40) 2 (56) 22
Other...................................... 23 35 41 104
-------- -------- -------- --------
Total noninterest income................ (56) 32 (19) 39
-------- -------- -------- --------
Noninterest expense:
Compensation and benefits.................. 500 446 988 916
Occupancy expense, net..................... 206 207 434 415
Advertising and promotional expense........ 31 42 96 74
Professional services...................... 30 21 41 31
Federal insurance premims.................. 68 60 132 120
Insurance bond premiums.................... 27 27 51 58
Other...................................... 257 120 465 234
-------- -------- -------- --------
Total noninterest expense............... 1,119 923 2,207 1,848
-------- -------- -------- --------
Earnings before income taxes............... (67) 127 111 228
Income taxes.................................... (13) 53 51 (9)
-------- -------- -------- --------
Net earnings (Loss)........................ $ (54) 74 60 237
======== ======== ======== ========
Per share information
Number of shares........................... 892,688 N/A 892,688 N/A
Earnings per share......................... $(.06) N/A .07 N/A
</TABLE>
See Notes to Consolidated Financial Statements
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
Six Months Ended
June 30
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $60 237
-------- --------
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation 86 89
Deferred income tax benefit - (250)
Amortization of net deferred loan origination
fees 5 (67)
Amortization of discounts and premium on
securities (6) (62)
Federal Home Loan Bank stock dividends (22) (20)
Gain on sale of real estate owned (31) (8)
Unrealized loss (recovery) on valuation of loans
held for sale 56 (22)
Provision for loan losses 243 235
Provision for write-downs and losses on real
estate 97 68
Increase in accrued interest receivable (100) (16)
Increase in income tax payable 91 154
Increase in other assets (95) (17)
Increase in loans held for sale (485) (241)
Increase (Decrease) in other liabilities 50 (496)
Other 75 249
-------- --------
Total adjustments (36) (404)
-------- --------
Net cash provided by (used in)
operating activities 24 (167)
-------- --------
Cash flows provided by (used in) investing
activities:
Loans originated, net of refinances (5,531) (6,964)
Loans purchased (541) (159)
Principal repayment on loans 3,060 3,123
Increase in loans in process 105 121
Increase in mortgage backed securities (3,590) -
Proceeds from the sale of loans held for sale 221 437
Premium on loans (6) -
Unrealized loss on securities (40) -
Increase in Negotiable Order of Withdrawal
Overdraft loans (5) -
Purchases of investment securities held to
maturity (4,982) (932)
Proceeds from maturities of investment securities
held to maturity 2,500 3,489
Proceeds from sale of real estate acquired
through foreclosure 946 828
Capital expenditures for office properties and
equipment (127) (188)
-------- --------
Net cash provided by (used in)
investing activities (7,990) (245)
-------- --------
</TABLE>
(Continued)
5
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
Six Months Ended
June 30
1996 1995
-------- --------
<S> <C> <C>
Net increase (decrease) in savings deposits $(14,255) 3,663
Preferred stock subscribed 911 -
Common stock subscribed 8,163 -
Dividends declared (112) -
Unearned Employee Stock Ownership Plan (609) -
Increase (decrease) in advances by borrowers
for taxes and insurance (49) (51)
-------- --------
Net cash provided by (used in) financing
activities (5,951) 3,612
-------- --------
Net increase (decrease) in cash and cash
equivalents (13,917) 3,200
Cash and cash equivalents at beginning of period 17,761 2,273
-------- --------
Cash and cash equivalents at end of period $3,844 5,473
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $348 1,446
Cash paid for income taxes 284 140
======== ========
Supplemental disclosure of noncash investing
and financing activities:
Additions to real estate acquired through
foreclosure 678 185
Loans to facilitate the sale of real estate acquired
through foreclosure 729 660
</TABLE>
See Notes to Consolidated Financial Statements
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BROADWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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
and standard allowance for loan losses) necessary to present fairly the
consolidated financial position of the Company at June 30, 1996 and the
results of its operations for the three months and six months ended June
30, 1996 and 1995, and cash flows for the six months ended June 30, 1996
and 1995. These consolidated financial statements do not include all
disclosures associated with the Company's annual financial statements
included in its 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 and six months ended June
30, 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. 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
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not believe there will be a material adverse impact on its financial
condition or results of operations upon adoption.
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 has adopted certain stock-based compensation
plans. Stockholder approval of the plans was obtained at the Company's
Annual Meeting held on July 3, 1996. However, no transactions related to
the approved plans have transpired. 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 has 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
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.
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.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE
30, 1996 AND JUNE 30, 1995
GENERAL
The Company recorded a net loss of $(54,000) for the three months ended June
30, 1996, as compared to Bank net earnings of $74,000 for the three months
ended June 30, 1995. For the six months ended June 30, 1996 the Company
recorded net earnings of $60,000 as compared to Bank earnings of $237,000 for
the same period ended June 30, 1995. The second quarter loss and decrease in
year-to-date net earnings as of June 30, 1996 primarily resulted from the net
effect of several offsetting factors which included higher interest income,
higher interest on savings deposits, higher
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provision for loan losses, lower noninterest income, higher noninterest
expense and higher income taxes. The quarter ended June 30, 1996 was
significantly impacted by three events which included net loan write-offs
totalling $193,000, higher expenses and writedowns related to the operation
and sale of real estate acquired through foreclosure ("REO") and the
recognition of a $99,000 loss on an employee defalcation.
INTEREST INCOME
Interest income increased by $251,000 during the three months ended June 30,
1996 as compared to the same period a year ago. For the six months ended June
30, 1996, interest income increased by $580,000 as compared to the same period
in the prior year. This increase was primarily the result of an increase in
average assets of $11.4 million and $12.3 million for the three and six months
ended June 30, 1996, respectively, as compared to the same respective periods in
the prior year. The increase in assets during the six months ended June 30,
1996 was funded by proceeds from the Conversion. 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.
INTEREST ON SAVINGS DEPOSITS
Interest on savings deposits increased by $112,000 during the three months ended
June 30, 1996 as compared to the same period a year ago. For the six months
ended June 30, 1996, interest on savings deposits increased by $272,000 as
compared to the same period in the prior year. The increase in interest on
savings deposits was the result of an increase in the average savings deposits
from $2.8 million and $4.9 million for the three and six month periods ended
June 30, 1996, respectively, as compared to the same respective periods in the
prior year. The increase in interest on savings deposits also reflects the
rising interest rate environment as the average cost of deposits increased 39-
basis points, from 3.10% for the six months ended June 30, 1995 to 3.49% for the
six months ended June 30, 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by $49,000, from $139,000 for the three
months ended June 30, 1995 to $188,000 for the three months ended June 30, 1996.
The higher provision primarily resulted from write-offs against the allowance
for loan losses of three loans during the quarter. All three loans were
secured by second trust deeds on single one- to-four family residential
properties. Two of the loans, totalling $13,000 and $15,000, were property
improvement loans that had been purchased from another institution, one of
which is outside of Broadway Federal's primary lending area. The third loan
totalling $189,000 was also secured by property located outside of Broadway
Federal's primary lending area. The write-offs were net of specific reserves
of $10,500, $0 and $13,800, respectively.
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For the six months ended June 30, 1996, the provision for loan losses increased
by $8,000, from $235,000 to $243,000. This year-to-date increase in the
provision for loan losses was due primarily to higher general and specific
reserves having been established for loans during the six months ended June 30,
1996 as compared to the same period during 1995.
Total non-performing assets, consisting of non-accrual loans and REO,
increased by $1.1 million, from $1.6 million at June 30, 1995 to $2.7 million
at June 30, 1996. The increase resulted from two factors: an increase in
non-accrual loans of $446,000 and an increase in REO's of $600,000. The
deterioration in the quality of the loan portfolio reflects the effects of
the economic condition of the southern California economy. Non-accrual loans
at June 30, 1996 totalled $1.2 million, and included four loans totalling
$920,000 that had balances ranging from $182,000 to $294,000. Subsequent to
June 30, 1996 two of these large balance loans had been reinstated, which
contributed to a decrease of non-accrual loans of $329,000 at July 31, 1996.
As a percentage of total assets, non-accrual loans were 1.07% at June 30,
1996, compared to 0.73% at June 30, 1995. The allowance for loan losses as a
percentage of non-accrual loans, was 75% at June 30, 1996. At July 31, 1996,
the allowance for loan losses, as a percentage of non-accrual loans was
approximately 106%, resulting from the decrease in non-accrual loans
previously discussed and a slight increase in the allowance for loan losses.
REO's are recorded at the fair value of the related assets at the date of
foreclosure, less estimated costs to sell. Thereafter, if there is a further
deterioration in value, the Bank either writes down the REO directly or
provides a valuation allowance and charges operations for the diminution in
value. At June 30, 1996 REO's totalled $1.5 million. Subsequent to June 30,
1996 one REO totalling $191,000 was sold for a small gain. In addition,
there are three pending REO sales, totalling $204,000, which are in escrow
and anticipated to close within the third quarter, resulting in a net gain.
NONINTEREST INCOME
Noninterest income decreased by $88,000, from $32,000 in income for the three
months ended June 30, 1995 to a $56,000 expense for the same period during 1996.
For the six months ended June 30, 1996, noninterest income decreased by $58,000,
from $39,000 in income during 1995 to a $19,000 expense for the same period in
1996. The decrease was due to a number of offsetting factors. Service fees on
savings accounts increased $12,000 and $21,000 during the three and six months
ended June 30, 1996, respectively, as compared to the same respective periods a
year ago. The increase resulted primarily from a greater number of checking
accounts at June 30, 1996 as compared to June 30, 1995, resulting in more fees
earned. In addition, write-downs, expenses and write-offs related to the
operation and sale of REO increased $46,000 for the three months ended June 30,
1996 as compared to the same period a year ago. This increase reflects the
increased level of REO at June 30, 1996 as compared to 1995 as well as
increased activity in operating and preparing these properties for sale. The
$62,000 decrease in REO operations for the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995 results from a direct write-off
during the first quarter of 1995 to reduce the carrying amount of an REO to an
acceptable level. The "Unrealized (Loss) Recovery on the Valuation of Loans
Held For Sale" increased from recoveries of $2,000 and $22,000, respectively,
for the three and six months ended June 30, 1995, to losses of $40,000 and
$56,000 for the same respective periods in 1996, as a result of a change in
market interest rates during the respective periods. Finally, other noninterest
income decreased from $35,000 and $104,000, respectively, for the three and six
months ended June 30, 1995 to $23,000 and $41,000 for the same respective
periods in 1996, primarily as a result of higher non-recurring income during
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the six months ended June 30, 1995, which included bad debt recoveries and the
1995 donation of a modular facility which was used as a branch office.
NONINTEREST EXPENSE
Noninterest expense increased $196,000, from $923,000 for the three months
ended June 30, 1995 to approximately $1.1 million for the same period in
1996. For the six months ended June 30, 1996, noninterest expense increased
$359,000 from $1.8 million to $2.2 million. The increase in noninterest
expense was due primarily to increases in compensation and benefits and other
noninterest expenses. Compensation and benefits increased by $54,000 and
$72,000, respectively, for the three and six months ended June 30, 1996 as
compared to the same respective periods during 1995. The increases result
from general salary increases during the year and an increase in the number
of staff. Other noninterest expenses increased $137,000 and $231,000,
respectively, for the three and six months ended June 30, 1996 as compared to
the same periods a year ago. The increase results from several factors: 1)
the write-off of overdraft checking accounts totalling $39,000; 2) increases
in professional fees, advertising, stationary, telephone and postage
expenses, associated with becoming a public company; and 3) the recognition
of losses from two employee defalcations totalling $148,000. The Company is
working with local law enforcement in investigating the defalcations and
additional internal controls have been established. Management anticipates
that approximately $49,000 will be recouped from insurance proceeds. The
statement above is a forward looking statement within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The anticipated insurance proceeds is subject to the
filing of a claim and determination by the insurance carrier that a portion
of the loss is covered by the Bank's Financial Institution Bond. The $49,000
was determined based upon the fact that one of the defalcations totalled
$99,000, less the Bank's $50,000 deductible for fidelity losses.
INCOME TAXES
Income tax expense decreased from a $53,000 income tax expense for the three
months ended June 30, 1995 to a $13,000 income tax benefit for the same
period in 1996. For the six months ended June 30, 1996, income taxes
increased from a $9,000 income tax benefit in 1995 to a $51,000 income tax
expense in 1996. During the six months ended June 30, 1995 Broadway Federal
recognized a $105,000 reduction in income taxes as a result of tax credits
recognized from the Bank's business activities in areas designated as Los
Angeles Revitalization Zones and Enterprise Zones, which resulted in lower
income taxes during the first six months of 1995 as compared to 1996. Due to
the Company's second quarter loss before income taxes, a $13,000 tax benefit
was recorded for the three months ended June 30, 1996.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND DECEMBER 31, 1995
Total assets at June 30, 1996 were $111.9 million compared to $117.7 million
at December 31, 1995, a decrease of $5.8 million. The decrease primarily
resulted from a refund of approximately $5.5 million of excess stock offering
subscriptions received in connection with the Conversion. Total assets were
also impacted by a $2.5 million increase in investment securities held to
maturity, a $3.5 million
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increase in investments in mortgage backed securities and an increase in
loans receivable, net of $1.7 million, from $87.9 million at December 31,
1995 to $89.6 million at June 30, 1996. The increase in loans receivable,
net resulted from a $6.6 million increase in gross new loan originations, of
which approximately $2.3 million of the new loans is secured by one- to-four
unit properties. The new loans were funded by $3.1 million in principal
repayments on existing loans and $221,000 in proceeds from loan sales. REO
decreased from $1.8 million at December 31, 1995 to $1.5 million at June 30,
1996, the $335,000 decrease resulted from the sale of six properties,
totalling $1.0 million, offset by the foreclosure of four properties,
totalling $678,000 during the period.
Total liabilities at June 30, 1996 were $97.9 million compared to $112.1 million
at December 31, 1995, a decrease of $14.2 million. The decrease primarily
relates to the reclassification of stock offering subscription proceeds relating
to the Conversion into capital and the refund of excess stock offering
subscription proceeds as noted above.
Total capital at June 30, 1996 was $13.9 million compared to $5.6 million at
December 31, 1995, an increase of $8.3 million resulting from stock proceeds
from the Conversion and net earnings for the first six-month period.
SUBSEQUENT EVENTS
Subsequent to the end of the quarter, on July 18, 1996, the Bank acquired a
new branch office facility. The new facility contains approximately 9,300
square feet and is located at 170 N. Market Street, Inglewood, California.
The lease on the Bank's existing Inglewood branch expires on September 30,
1996, and shortly thereafter, the existing Inglewood branch will be relocated to
the new facility. In addition, the Bank's loan origination and servicing
functions, as well as the personnel and branch administration departments
will also be relocated to this facility. The new facility has better access
and parking for Bank customers as compared to the existing facility.
Rehabilitation work is currently being planned and will be completed prior to
relocation to the new offices. Management anticipates that the Bank's
existing loan center will be leased or sold after the relocations have been
completed.
Both houses of Congress have recently passed legislation, which, if signed by
the President, will repeal the tax rules formerly applicable to bad debt
reserves of thrift institutions for taxable years beginning after December
31, 1995. The Bank will thereupon be required to change its tax method of
accounting for bad debts from the reserve method formerly permitted under
section 593 of the Internal Revenue Code (the "Code") to either the reserve
method provided under section 585 of the Code or the specific charge-off
method provided under section 166 of the Code. Under the section 585
reserve method, tax deductions may be taken for additions to an institution's
bad debt reserves under a method that reflects the institution's historic
loss experience. Under the specific charge-off method, tax deductions may be
taken for bad debts only as and to the extent that the loans become wholly or
partially worthless. If the pending legislation becomes law, the Bank intends
to utilize the section 585 reserve method in future years. The pending
legislation would generally require thrift institutions, such as the Bank,
which have previously utilized the section 593 reserve method, to recapture
(i.e., include in taxable income) over a six-year period a portion of their
existing bad debt reserves. The amount of the Bank's existing bad debt
reserves that will be subject to such recapture is approximately $264,000. In
addition, if the pending legislation becomes law, the remainder of the Bank's
bad debt reserve balance as of December 31, 1995 (approximately $3,013,000)
will, in future years, be subject to recapture, in whole or in part, upon the
occurrence of certain events such as a distribution to shareholders in excess
of the Bank's current and accumulated earnings and profits, a redemption of
shares, or upon a partial or complete liquidation of the Bank. Contrary to
the current law, the amount that would be subject to recapture under such
circumstances would be computed without regard to the portion of such
reserves that would have been allowed under the experience method. The Bank
does not intend to make distrubitions to its shareholders that would result
in recapture of any portion of its bad debt reserves.
13
<PAGE>
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
The Annual Meeting of the Company was held on July 3, 1996
for the following purposes:
(a) To elect two directors to serve until the Annual
Meeting to be held in 1999 or until their successors
are elected and have been qualified.
The stockholders reelected Mr. Lyle A. Marshall and Mr.
A. Odell Maddox to serve as directors for terms of
three years each. The number of votes FOR and those
WITHHELD for each of the directors is detailed below:
Lyle A. Marshall
----------------
For 441,434
Withheld 1,555
A. Odell Maddox
---------------
For 441,734
Withheld 1,255
14
<PAGE>
(b) To ratify the appointment of Ernst & Young LLP as the
Company's independent auditing firm for 1996 and 1997.
The Board of Directors selected Ernst & Young LLP
("Ernst & Young") to replace KPMG Peat Marwick LLP
("KPMG") as its independent auditors on April 18, 1996
based upon the recommendation of the Company's Audit
Committee. KPMG's audit report on the consolidated
financial statements of the Bank as of and for the
years ended December 31, 1995 and 1994 did not contain
any adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit
scope or accounting principles. In connection with
audits of the two fiscal years ended December 31, 1995,
and the subsequent interim period through April 18,
1996, the date Ernst & Young was selected as
independent auditor, there were no disagreements with
KPMG on any matter of accounting principles or
practices, financial statement disclosure, or auditing
scope or procedures.
The stockholders ratified the appointment of
independent auditors based upon total votes FOR of
441,709 and total votes AGAINST of 300, with
ABSTENTIONS totalling 980.
(c) To approve Broadway Federal's 1996 Recognition and
Retention Plan for Outside Directors.
The Bank's 1996 Recognition and Retention Plan for
Outside Directors ("RRP") is designed to recognize
outside directors of experience and ability by
providing such persons with a proprietary interest in
the Company as compensation for their contributions to
the Company and its affiliates and as an incentive to
make such contributions. An aggregate of up to 8,034
shares of Common Stock will be acquired for award
pursuant to the Bank's RRP.
15
<PAGE>
The stockholders approved the RRP based upon
total votes FOR of 404,247 and total votes AGAINST of
37,207, with ABSTENTIONS totalling 1,535.
(d) To approve the Bank's Performance Equity Program
for Officers and Employees.
The Bank's Performance Equity Program for Officers and
Employees ("PEP") is designed to retain officers and
employees of experience and ability by providing such
persons with a proprietary interest in the Company as
an additional incentive to perform in a superior
manner. An aggregate of up to 18,747 shares of Common
Stock will be acquired for award pursuant to the Bank's
PEP.
The stockholders approved the PEP based upon
total votes FOR of 412,679 and total votes AGAINST of
28,000, with ABSTENTIONS totalling 2,310.
(e) To approve the Company's Long Term Incentive Plan.
The Long Term Incentive Plan ("LTIP") is designed to
attract and retain qualified personnel in key
positions, to provide officers and key employees with a
proprietary interest in the Company as an incentive to
contribute to the success of the Company and to reward
key employees for outstanding performance. All
employees of the Company and its subsidiaries are
eligible to participate in the LTIP. The LTIP will be
administered by the Compensation/Benefits Committee of
the Company's Board of Directors. Options granted
under the LTIP will entitle the recipients to purchase
specified numbers of shares of the Company's Common
Stock at a fixed price, may be made exercisable for up
to 10 years from the date of grant and will not be
transferable, except by will or the laws of decent and
distribution.
The stockholders approved the LTIP based upon total
votes FOR of 392,984 and total votes AGAINST of 47,975,
with ABSTENTIONS totalling 2,030.
16
<PAGE>
(f) To approve the Company's 1996 Stock Option Plan for
Outside Directors.
The 1996 Stock Option Plan for Outside Directors
("Stock Option Plan") is designed to promote the growth
and profitability of the Company and the Bank by
providing outside directors with an incentive to
achieve long-term objectives of the Company. This Plan
is also intended to assist in retaining and attracting
non-employee directors of outstanding competence by
providing such outside directors with an opportunity to
acquire an equity interest in the Company. The terms
of all options to be granted under the Stock Option
Plan, including the time at which such options are to
be granted and may be exercised and the numbers of
shares to be covered thereby, are set forth in the
Plan. Neither the Board of Directors nor any committee
thereof shall have any discretion with respect to such
matters.
Under the Stock Option Plan, each member of the Board
of Directors of the Company or any of its affiliates,
who are not serving as full-time employees of the
Company or any of its affiliates, and who was serving
in such capacity on the date of the Conversion will be
granted a nonqualified stock option to purchase shares
of the Company's Common Stock. Currently, there are
eight outside directors. The shares granted by the
nonqualified stock option are based on the number of
years of service on a non-cumulative basis.
The stockholders approved the Stock Option Plan
based upon total votes FOR of 402,977 and total
votes AGAINST of 37,282, with ABSTENTIONS
totalling 2,730.
Item 5. OTHER INFORMATION
None
17
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K as amended filed re: change in accountants
dated April 18, 1996
18
<PAGE>
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: ------------------------ By: /s/ PAUL C. HUDSON
-------------------------------------
Paul C. Hudson
President and Chief Executive Officer
By: /s/ BOB ADKINS
-------------------------------------
Bob Adkins
Secretary and Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
preceding consolidated unaudited financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,287
<INT-BEARING-DEPOSITS> 307
<FED-FUNDS-SOLD> 2,250
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,590
<INVESTMENTS-CARRYING> 7,983
<INVESTMENTS-MARKET> 7,897
<LOANS> 89,596
<ALLOWANCE> 0
<TOTAL-ASSETS> 111,863
<DEPOSITS> 96,249
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,660
<LONG-TERM> 0
0
911
<COMMON> 8,163
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 111,863
<INTEREST-LOAN> 3,837
<INTEREST-INVEST> 448
<INTEREST-OTHER> 23
<INTEREST-TOTAL> 4,308
<INTEREST-DEPOSIT> 1,728
<INTEREST-EXPENSE> 1,728
<INTEREST-INCOME-NET> 2,580
<LOAN-LOSSES> 243
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 0
<INCOME-PRETAX> 111
<INCOME-PRE-EXTRAORDINARY> 111
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60
<EPS-PRIMARY> .07
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,198
<LOANS-PAST> 0
<LOANS-TROUBLED> 24
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 896
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 900
<ALLOWANCE-DOMESTIC> 900
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>