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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 SEPTEMBER 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)
(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 $.01 per share, were issued and oustanding as of
November 5, 1996.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [x]
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INDEX
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
Consolidated Statement of
Condition as of September 30, 1996
(unaudited) and December 31, 1995 3
Consolidated Statement of
Operations (unaudited) for
the three months and nine months
ended September 30, 1996 and 1995 4
Consolidated Statement of
Cash Flows (unaudited) for the
three months and nine months
ended September 30, 1996 and 1995 5
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Operations 9
PART II-- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
CONDENSED, CONSOLIDATED STATEMENT OF CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and Federal funds sold . . . . . . . . . . . . . . . . . . . . .$ 5,079 $ 3,307
Restricted cash-stock subscriptions . . . . . . . . . . . . . . . . . -- 14,454
Investment securities, held to maturity . . . . . . . . . . . . . . . 7,977 5,495
Mortgage backed securities. . . . . . . . . . . . . . . . . . . . . . 3,475 -
Loans receivable, net . . . . . . . . . . . . . . . . . . . . . . . . 94,047 87,900
Loans receivable held for sale. . . . . . . . . . . . . . . . . . . . 1,541 1,556
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . 741 675
Real estate acquired through foreclosure. . . . . . . . . . . . . . . 1,087 1,820
Federal Home Loan Bank Stock, at cost . . . . . . . . . . . . . . . . 862 827
Office properties & equipment, net. . . . . . . . . . . . . . . . . . 1,509 1,102
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . -- 91
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 935 517
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Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 117,253 $ 117,744
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LIABILITIES AND RETAINED EARNINGS:
Savings deposits. . . . . . . . . . . . . . . . . . . . . . . . . . .$ 101,244 $ 110,504
Advance payments by borrowers for taxes and insurance . . . . . . . . 332 203
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 639 639
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 1,523 817
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Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 103,738 112,163
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 --
Paid-in-Capital-Preferred Stock . . . . . . . . . . . . . . . . . . . 910 --
Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 --
Paid-in-Capital-Common Stock. . . . . . . . . . . . . . . . . . . . . 8,154 --
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 5,095 5,581
Unearned Employee Stock Ownership Plan. . . . . . . . . . . . . . . . (609) --
Unrealized gain(loss) on securities . . . . . . . . . . . . . . . . . (45) --
------------- -------------
Total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,515 5,581
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Total liabilities and capital . . . . . . . . . . . . . . . . . . .$ 117,253 $ 117,744
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------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
3
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
CONDENSED, CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans receivable..................................... $ 2,018 1,831 5,855 5,237
Interest on investment securities................................ 140 133 514 435
Interest on mortgage backed securites............................ 53 - 127 -
Other interest income............................................ 14 9 37 29
------ ------ ------ ------
Total interest income....................................... 2,225 1,973 6,533 5,701
Interest on savings deposits......................................... 864 826 2,592 2,282
------ ------ ------ ------
Net interest income before provision for loan losses............. 1,361 1,147 3,941 3,419
Provision for loan losses............................................ 255 43 498 278
------ ------ ------ ------
Net interest income after provision for loan losses.............. 1,106 1,104 3,443 3,141
Noninterest income:
Service charges.................................................. 77 68 225 195
Real estate operations, net...................................... (114) 6 (266) (208)
Unrealized (loss) recovery on valuation of loans held for sale... 13 6 (43) 28
Other............................................................ 17 19 58 123
------ ------ ------ ------
(7) 99 (26) 138
------ ------ ------ ------
Noninterest expense:
Compensation and benefits........................................ 522 475 1,510 1391
Occupancy expense, net........................................... 203 231 637 646
Advertising and promotional expense.............................. 78 40 174 114
Professional services............................................ 6 16 47 47
Federal insurance premiums....................................... 679 61 811 181
Insurance bond premiums.......................................... 27 23 78 81
Other............................................................ 226 150 691 384
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1,741 998 3,948 2,844
------ ------ ------ ------
Earnings before income taxes...................................... (642) 207 (531) 435
Income taxes.......................................................... (264) 86 (213) 77
------ ------ ------ ------
Net earnings (loss)................................................ $ (378) 121 (318) 358
------ ------ ------ ------
------ ------ ------ ------
Per share information
Number of shares................................................. 892,688 N/A 892,688 N/A
Earnings per shares.............................................. $(.42) N/A $(.36) 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>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings(loss) ($318) $358
--------- --------
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation 129 129
Deferred income tax benefit - (250)
Amortization of net deferred loan origination 30 34
Amortization of discounts and premium on securities 10 (85)
Federal Home Loan Bank stock dividends (35) (29)
Gain on sale of real estate owned (46) (8)
Unrealized loss (recovery) on valuation of loans held for sale 45 3
(Increase) Decrease in loans on savings (21) 296
Decrease in consumer loans 14 10
Decrease (Increase) in Negotiable Order of Withdrawal Rejected 53 (114)
Provision for loan losses 498 278
Provision for write-downs and losses on real estate 204 209
Increase in accrued interest receivable (66) (109)
Increase in income tax payable 91 294
Increase in other assets (418) (238)
Increase in loans held for sale (30) (635)
Increase (Decrease) in other liabilities 706 (323)
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Total adjustments 1,164 (538)
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Net cash provided by (used in) operating activities 846 (180)
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Cash flows provided by (used in) investing activities:
Loans originated, net of refinances (10,946) (9,177)
Loans purchased (2,510) (1,236)
Principal repayment on loans 4,673 3,803
Increase in loans in process 49 61
Increase in mortgage-backed securities (3,475) -
Proceeds from the sale of loans held for sale 1,186 437
Premium on loans 2 7
Unrealized loss on securities (45) -
Increase in Negotiable Order of Withdrawal Overdraft loans (10) (30)
Purchases of investment securities held to maturity (4,992) (932)
Proceeds from maturities of investment securities held to
maturity 2,500 3,489
Proceeds from sale of real estate acquired through foreclosure 1,410 828
Capital expenditures for office properties and equipment (536) (263)
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Net cash provided by (used in) investing activities (12,694) (3,013)
--------- --------
</TABLE>
(Continued)
5
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BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
--------- --------
<S> <C> <C>
Net increase (decrease) in savings deposits (9,260) 5,897
Preferred stock subscribed 911 --
Common stock subscribed 8,163 -
Dividends declared (168) -
Unearned Employee Stock Ownership Plan (609) -
Increase (decrease) in advances by borrowers
for taxes and insurance 129 114
--------- --------
Net cash provided by (used in) financing activities (834) 6,011
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Net increase (decrease) in cash and cash equivalents (12,682) 2,818
Cash and cash equivalents at beginning of period 17,761 2,273
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Cash and cash equivalents at end of period $5,079 $5,091
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--------- --------
Supplemental disclosure of cash flow information:
Cash paid for interest expense $2,550 $2,209
Cash paid for income taxes 371 140
--------- --------
--------- --------
Supplemental disclosure of noncash investing and financing
activities:Additions to real estate acquired through foreclosure 835 547
Loans to facilitate the sale of real estate acquired through
foreclosure 1,000 660
Additions to office properties and equipment transferred
from real estate acquired though foreclose - -
Write-off of office building and furniture, fixtures and
equipment due to casualty loss - -
--------- --------
</TABLE>
See Notes to Consolidated Financial Statements
6
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BROADWAY FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 of recurring accruals and the
accrual of a one-time SAIF recapitalization fee) necessary to present
fairly the consolidated financial position of the Company at September 30,
1996 and the results of its operations for the three months and nine months
ended September 30, 1996 and 1995 and its cash flows for the nine months
ended September 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 nine months ended
September 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. 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
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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. 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.
8
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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.
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 NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
GENERAL
The Company recorded a net loss of $(378,000) for the three months ended
September 30, 1996, as compared to Bank net earnings of $121,000 for the three
months ended September 30, 1995. For the nine months ended September 30, 1996
the Company recorded net loss of $(318,000) as compared to Bank net earnings of
$358,000 for the same period ended September 30, 1995. The quarter and
year-to-date results were significantly impacted by the accrual of a one-time
Savings Association Insurance Fund ("SAIF") recapitalization assessment fee of
$614,000
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described below. Excluding such assessment fee the Company would have recorded
a third quarter after tax loss of $16,000 and a year-to-date after tax profit of
$49,000. The third quarter and year-to-date results were also significantly
impacted by the net effect of other offsetting factors, which included higher
interest income, higher interest on savings deposits, higher provision for loan
losses, lower noninterest income, higher noninterest expense and lower income
taxes.
SAIF ASSESSMENT FEE
On September 30, 1996 the President signed the omnibus appropriations package
which included, among other things, the "Deposit Insurance Funds Act of 1996"
(the "Act"). The Act requires a one-time recapitalization assessment fee on all
SAIF-insured deposits held as of March 31, 1995 of 65.7 basis points per $100 of
deposits and is payable on November 30, 1996. Broadway Federal's
recapitalization assessment fee totals $614,247 and was accrued as of September
30, 1996, as required by the Emerging Issues Task Force of the Financial
Accounting Standards Board (EITF D-47, November 1995).
The Act requires that the banking industry pay deposit insurance premiums equal
to one-fifth (1/5th) the rate paid by thrifts for the years 1997 through 1999.
Such premiums will be used to repay certain bonds ("FICO Bonds") issued for the
purpose of funding the resolution of failed thrift institutions. The FICO Bond
assessment on Bank Insurance Fund ("BIF")-insured deposits will be approximately
1.29 cents per $100 of deposits and 6.44 cents per $100 of deposits for SAIF
insured institutions. Beginning on January 1, 2000, the FICO Bond interest
payments will be paid pro-rata by banks and thrifts based on deposits
(approximately 2.43 cents per $100 in deposits). Other provisions of the new
legislation prohibit deposit shifting from SAIF to the BIF for a period of three
years. The BIF and the SAIF will be merged on January 1, 1999, if legislation
is passed by that date merging the bank and thrift charters.
Although the 65.7 basis point one-time recapitalization fee has adversely
impacted the Bank's operating expenses and results of operations, the Bank will
remain a "well-capitalized" institution immediately after payment of the fee.
On a going forward basis, the Act will result in a significant reduction in the
Bank's deposit insurance premiums. In addition, it is anticipated that this
reduction will diminish the competitive advantage that BIF-insured institutions
had prior to passage of the Act due to their lower deposit premium costs.
INTEREST INCOME
Interest income increased by $252,000 during the three months ended September
30, 1996 as compared to the same period a year ago. For the nine months ended
September 30, 1996, interest income increased by $832,000 as compared to the
same period in the prior year. This increase was primarily the result of an
increase in
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average assets of $11.3 million and $12.2 million for the three and nine month
periods ended September 30, 1996, respectively, as compared to the same
respective periods in the prior year. The increase in assets during the nine
months ended September 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 investment securities and
mortgage-backed securities.
INTEREST ON SAVINGS DEPOSITS
Interest on savings deposits increased by $38,000 during the three months ended
September 30, 1996 as compared to the same period a year ago. For the nine
months ended September 30, 1996, interest on savings deposits increased by
$310,000 as compared to the same period in the prior year. The increase in
interest on savings deposits was the result of an increase in average savings
deposits of $2.7 million and $4.4 million for the three and nine month periods
ended September 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 and more competitive interest rate environment as the
average cost of deposits increased 28-basis points, from 3.20% for the nine
months ended September 30, 1995 to 3.48% for the nine months ended September 30,
1996.
PROVISION FOR LOAN LOSSES
During the quarter ended September 30, 1996 Broadway Federal's provision for
loan losses totalled $255,000, an increase of $212,000, from $43,000 for the
three months ended September 30, 1995. For the nine months ended September
30, 1996, the provision for loan losses increased by $220,000, from $278,000
to $498,000. The higher provision results from management's analysis of
trends in the company's loan portfolio, which include higher levels of
multi-family lending and charge-offs of other loans. At September 30, 1996
multi-family loans represented 26.32% of the Bank's gross loan portfolio,
compared to 21.37% at September 30, 1995. This planned increase in
multi-family lending is part of the Bank's strategic focus on less
competitive, higher yielding loan products. The increase in multi-family
loans is supplemented with more stringent underwriting requirements, which
include lower loan-to-value ratios and increased debt service coverage
ratios. The higher provision also stems from current market conditions for
sales of real estate and the Bank's more aggressive disposition of real
estate loans through foreclosure. Since December 31, 1995 the level of REO's
has decreased from $1.8 million to $1.1 million at September 30, 1996.
However, at September 30, 1996, additional REO writedowns totalled $278,000,
as compared to zero at September 30, 1995. The bulk of the writedowns
(approximately $260,000) related to two multi-family REO's which were both
sold in June 1996, both of which had been acquired through foreclosure in
1991 and 1995.
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Total non-performing assets, consisting of non-accrual loans and REO,
increased by $347,000, from $2,274,000 at September 30, 1995 to $2,621,000 at
September 30, 1996. The increase resulted from two factors: an increase in
non-accrual loans of $502,000, offset by a $155,000 decrease in REO's. As a
percentage of total assets, nonperforming assets were 2.24% at September 30,
1996, compared to 2.16% at September 30, 1995. 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 September 30, 1996
totalled $1.5 million, and included ten loans totalling $1.1 million secured
by one-to four-unit properties, three loans totalling $412,000 secured by
multi-family properties and one fully reserved non-mortgage loan totalling
$24,000.
As of September 30, 1996, Broadway Federal's allowance for loan losses totalled
$1.1 million or 1.16% of total loans, as compared to $857,000 or 0.93% of total
loans at September 30, 1995. As noted above, the increase was due to increased
risk in the portfolio, an increase in nonperforming loans and the general
economic condition of the southern California economy.
NONINTEREST INCOME
Noninterest income decreased by $106,000, from $99,000 in income for the three
months ended September 30, 1995 to a $7,000 expense for the same period during
1996. For the nine months ended September 30, 1996, noninterest income
decreased by $164,000, from $138,000 in income during 1995 to a $26,000 expense
for the same period in 1996. The decrease was due to a number of offsetting
factors. Service fees on customer deposit accounts increased $9,000 and $30,000
during the three and nine months ended September 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 September 30, 1996 as
compared to September 30, 1995, resulting in more fees earned. In addition,
writedowns, expenses and write-offs related to the operation and sale of REO
properties increased $120,000 and $58,000 for the three and nine months ended
September 30, 1996, respectively, as compared to the same period a year ago.
The increase reflects the increased activity in operating and preparing these
properties for sale, and a direct writeoff during the third quarter of 1996 to
adjust the carrying amount of an REO to the fair market value. Unrealized (loss)
recovery on the valuation of loans held for sale increased from recoveries of
$6,000 and $28,000, respectively, for the three and nine months ended September
30, 1995, to recoveries of $13,000 and losses of $43,000 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 $19,000
and $123,000, respectively, for the three and nine months ended September 30,
1995 to $17,000 and $58,000 for the same respective periods in 1996, primarily
as a result
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of higher non-recurring income recognized during the nine months ended September
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 $745,000, from $996,000 for the three months ended
September 30, 1995 to $1.7 million for the same period in 1996. For the nine
months ended September 30, 1996, noninterest expense increased $1.1 million to
$3.9 million from $2.8 million for the same period in 1995. The increase in
noninterest expense was due primarily to increases in compensation and benefits,
federal deposit insurance premiums and other noninterest expenses. Compensation
and benefits increased by $47,000 and $119,000, respectively, for the three and
nine months ended September 30, 1996 as compared to the same respective periods
during 1995. The increases resulted from general salary increases during the
year and an increase in the number of staff. Federal deposit insurance premiums
increased $618,000 and $630,000, respectively, for the three and nine months
ended September 30, 1996 as compared to the same respective periods during 1995.
As described above, the increase is primarily the result of the one-time SAIF
assessment fee of $614,000. Other noninterest expenses increased $76,000 and
$307,000, respectively, for the three and nine months ended September 30, 1996
as compared to the same periods a year ago. The year-to-date increase results
from several factors: 1) the write-off of overdraft checking accounts totalling
$39,000; 2) increases in advertising, stationary, telephone and postage
expenses, associated with various business activities, including becoming a
public company; and 3) the recognition of losses from two employee defalcations
totalling $148,000 during the first and second quarters. The Company is working
with local law enforcement agencies in investigating the defalcations and in
response thereto has enhanced its internal audit function and has established
additional internal controls. 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 expenses decreased from $86,000 for the three months ended September
30, 1995 to a $264,000 income tax benefit for the same period in 1996. For the
nine months ended September 30, 1996, income tax expenses decreased from $77,000
13
<PAGE>
in income taxes payable in 1995 to a $213,000 income tax benefit in 1996. During
the nine months ended September 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 nine
months of 1995 as compared to 1996. Due to the Company's third quarter loss
before income taxes, a $264,000 tax benefit was recorded for the three months
ended September 30, 1996.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
Total assets at September 30, 1996 were $117.2 million compared to $117.7
million at December 31, 1995, a decrease of $491,000. The decrease primarily
resulted from various year-to-date losses incurred which included the
increase in loan loss provisions of $220,000. Total assets were also
impacted by a $3.5 million increase in investments in mortgage-backed
securities and other securities consisting primarily of treasury bonds of
$2.5 million. In addition, there was an increase in net loans receivable of
$6.1 million, from $87.9 million at December 31, 1995 to $94.0 million at
September 30, 1996. The increase in loans receivable, net resulted from a
$10.9 million increase in new loan originations and $2.5 million in loans
purchased, of which approximately $6.4 million of new loans is secured by
one-to four-unit properties. The new loans were primarily funded by $4.7
million in principal repayments on existing loans, $1.2 million in proceeds
from loan sales and from an increase in savings deposits during the period.
REO's decreased from $1.8 million at December 31, 1995 to $1.1 million at
September 30, 1996. The $733,000 decrease resulted from the sale of ten
properties, totalling $1.6 million, offset by the foreclosure of five
properties, totalling $835,000 during the period.
Total liabilities at September 30, 1996 were $103.7 million compared to $112.1
million at December 31, 1995, a decrease of $8.4 million. The decrease
primarily relates to the reclassification of stock offering subscription
proceeds relating to the Conversion into capital and the $5.5 million refund of
excess stock offering subscription proceeds, offset by an increase in savings
deposits of approximately $5.6 million.
Total capital at September 30, 1996 was $13.5 million compared to $5.6 million
at December 31, 1995, an increase of $7.9 million resulting from stock proceeds
from the Conversion, primarily offset by the year-to-date net loss, dividends
paid during the year and a loan to the employee stock option plan.
SUBSEQUENT EVENTS
Subsequent to the end of the second quarter, on July 18, 1996, the Bank acquired
a new branch office facility. The new facility contains approximately 9,300
square feet
14
<PAGE>
and is located at 170 N. Market Street, Inglewood, California. The lease on the
Bank's existing Inglewood branch expired on September 30, 1996 and the Bank now
leases such space on a month-to-month basis. It is anticipated that the
Inglewood branch will relocate to the new facility in January 1997. In
addition, the Bank's loan origination and servicing functions, as well as the
personnel and branch administration departments will also relocate 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 has not yet determined whether the Bank's existing loan center will
be utilized or sold after the relocations have been completed.
15
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<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: November 14, 1996 By:
----------------------------------
Paul C. Hudson
President and Chief Executive Officer
By:
----------------------------------
Bob Adkins
Secretary and Chief Financial Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRCTED FROM THE
PRECEDING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,278
<INT-BEARING-DEPOSITS> 301
<FED-FUNDS-SOLD> 500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,475
<INVESTMENTS-CARRYING> 7,977
<INVESTMENTS-MARKET> 7,926
<LOANS> 94,047
<ALLOWANCE> 0
<TOTAL-ASSETS> 117,253
<DEPOSITS> 101,244
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,494
<LONG-TERM> 0
0
911
<COMMON> 8,163
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 117,253
<INTEREST-LOAN> 5,855
<INTEREST-INVEST> 642
<INTEREST-OTHER> 35
<INTEREST-TOTAL> 6,532
<INTEREST-DEPOSIT> 2,591
<INTEREST-EXPENSE> 2,591
<INTEREST-INCOME-NET> 3,941
<LOAN-LOSSES> 498
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 0
<INCOME-PRETAX> (531)
<INCOME-PRE-EXTRAORDINARY> (531)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (318)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 1,534
<LOANS-PAST> 0
<LOANS-TROUBLED> 24
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 896
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,133
<ALLOWANCE-DOMESTIC> 1,133
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
