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Previous: CARING PRODUCTS INTERNATIONAL INC, 10QSB, EX-27.1, 2000-11-13 |
Next: ESTEE LAUDER COMPANIES INC, 4, 2000-11-13 |
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 SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2000
| [ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For transition period from__________ to___________
0-27464
(Commission file number)
BROADWAY FINANCIAL CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
| Delaware (State of Incorporation) |
95-4547287 (IRS Employer Identification No.) |
| 4800 Wilshire Boulevard, Los Angeles, California (Address of Principal Executive Offices) |
90010 (Zip Code) |
(323) 634-1700
(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: 901,333 shares of the Company’s Common Stock, par value $0.01 per share, were issued and outstanding as of October 20, 2000.
Transitional Small Business Disclosure Format (Check one): Yes [x] No [ ]
BROADWAY FINANCIAL CORPORATION
TABLE OF CONTENTS
| Page | |||
| PART I | FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements: | ||
| Consolidated Balance Sheets (unaudited) as of September 30, 2000 and December 31, 1999 |
3 | ||
| Consolidated Statements of Operations (unaudited) for the three months and nine months ended September 30, 2000 and September 30, 1999 |
4 | ||
| Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2000 and September 30, 1999 |
5 | ||
| Notes to Unaudited Consolidated Financial Statements | 7 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
7 | |
| PART II | OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 12 | |
| Item 2. | Changes in Securities | 12 | |
| Item 3. | Defaults upon Senior Securities | 12 | |
| Item 4. | Submission of Matter to a Vote of Security Holders | 12 | |
| Item 5. | Other Information | 12 | |
| Item 6. | Exhibits and Report Data Schedule | 12 |
| SIGNATURE | 13 |
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
| September 30, 2000 |
December 31, 1999 |
||||||
| ASSETS | |||||||
| Cash | $ | 4,940 | $ | 3,135 | |||
| Investment securities held to maturity | 10,623 | 10,623 | |||||
| Mortgage-backed securities held to maturity | 11,255 | 13,210 | |||||
| Loans receivable, net | 124,820 | 126,871 | |||||
| Loans receivable held for sale, at lower of cost or fair value | — | 2,458 | |||||
| Accrued interest receivable | 1,053 | 1,013 | |||||
| Real estate acquired through foreclosure, net | 93 | 515 | |||||
| Investments in capital stock of Federal Home Loan Bank, at cost | 1,294 | 1,229 | |||||
| Office properties and equipment, net | 6,313 | 6,533 | |||||
| Other assets | 717 | 717 | |||||
| Total assets | $ | 161,108 | $ | 166,304 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Deposits | $ | 133,547 | $ | 133,984 | |||
| Advances from Federal Home Loan Bank | 11,250 | 16,900 | |||||
| Advance payments by borrowers for taxes and insurance | 330 | 192 | |||||
| Other liabilities | 1,823 | 1,427 | |||||
| Total liabilities | 146,950 | 152,503 | |||||
| Stockholders' Equity: | |||||||
| Preferred nonconvertible, non-cumulative, and non-voting stock, $.01 par value, authorized 1,000,000 shares; issued and outstanding 55,199 shares at September 30, 2000 and December 31, 1999 |
1 | 1 | |||||
| Common stock, $.01 par value, authorized 3,000,000 shares; issued and outstanding 901,333 shares at September 30, 2000 and 932,494 shares at December 31, 1999 |
10 | 10 | |||||
| Additional paid-in capital | 9,692 | 9,674 | |||||
| Retained earnings-substantially restricted | 5,328 | 4,809 | |||||
| Treasury stock, at cost-60,402 shares at September 30, 2000 and 29,241 shares at December 31, 1999 |
(554 | ) | (318 | ) | |||
| Unearned Employee Stock Ownership Plan shares | (319 | ) | (375 | ) | |||
| Total stockholders' equity | 14,158 | 13,801 | |||||
| Total liabilities and stockholders' equity | $ | 161,108 | $ | 166,304 | |||
See Notes to Consolidated Financial Statements
BROADWAY FINANCIAL CORPORATION
STATEMENT OF OPERATIONS
(Dollars in thousands)
(Unaudited)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
| 2000 | 1999 | 2000 | 1999 | ||||||||||
| Interest on loans receivable | 2,661 | $ | 2,569 | $ | 8,029 | $ | 7,173 | ||||||
| Interest on investment securities held-to-maturity | 157 | 170 | 480 | 487 | |||||||||
| Interest on mortgage-backed securities held-to-maturity | 183 | 222 | 572 | 660 | |||||||||
| Other interest income | 25 | 13 | 66 | 42 | |||||||||
| Total interest income | 3,026 | 2,974 | 9,147 | 8,362 | |||||||||
| Interest on deposits | 1,254 | 1,134 | 3,580 | 3,292 | |||||||||
| Interest on borrowings | 193 | 205 | 634 | 384 | |||||||||
| Total interest expense | 1,447 | 1,339 | 4,214 | 3,676 | |||||||||
| Net interest income before provision for loan losses | 1,579 | 1,635 | 4,933 | 4,686 | |||||||||
| Provision for loan losses | 90 | 75 | 270 | 225 | |||||||||
| Net interest income after provision for loan losses | 1,489 | 1,560 | 4,663 | 4,461 | |||||||||
| Noninterest income: | |||||||||||||
| Service charges | 184 | 89 | 445 | 355 | |||||||||
| Loss on loans receivable held for sale | — | (62 | ) | (116 | ) | (178 | ) | ||||||
| Gain on insurance reimbursements | 178 | 680 | 178 | 680 | |||||||||
| Other | 15 | 27 | 68 | 54 | |||||||||
| Total noninterest income | 377 | 734 | 575 | 911 | |||||||||
| Noninterest expense: | |||||||||||||
| Compensation and benefits | 761 | 841 | 2,176 | 2,267 | |||||||||
| Occupancy expense, net | 305 | 262 | 910 | 859 | |||||||||
| Advertising and promotional expense | 41 | 60 | 125 | 161 | |||||||||
| Professional services | 56 | 142 | 214 | 370 | |||||||||
| Real estate operations, net | (36 | ) | 4 | (78 | ) | 28 | |||||||
| Contracted security services | 44 | 41 | 121 | 119 | |||||||||
| Telephone and postage | 40 | 53 | 125 | 128 | |||||||||
| Stationary, printing and supplies | 40 | 29 | 106 | 93 | |||||||||
| Other | 95 | 320 | 355 | 770 | |||||||||
| Total noninterest expense | 1,346 | 1,752 | 4,054 | 4,795 | |||||||||
| Earnings before income taxes | 520 | 542 | 1,184 | 577 | |||||||||
| Income taxes | 238 | 222 | 507 | 235 | |||||||||
| Net earnings | 282 | $ | 320 | $ | 677 | $ | 342 | ||||||
| Earnings applicable to common shareholders: | |||||||||||||
| Net earnings | 282 | 320 | 677 | 342 | |||||||||
| Dividends paid on preferred stock | (7 | ) | (7 | ) | (21 | ) | (21 | ) | |||||
| 275 | 313 | $ | 656 | $ | 321 | ||||||||
| Earnings per share-basic | $ | 0.32 | $ | 0.34 | $ | 0.74 | $ | 0.34 | |||||
| Earnings per share-diluted | $ | 0.32 | $ | 0.34 | $ | 0.74 | $ | 0.34 | |||||
| Dividend declared per share-common stock | $ | 0.05 | $ | 0.05 | $ | 0.15 | $ | 0.15 | |||||
See Notes to Consolidated Financial Statements
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||
| 2000 | 1999 | ||||||
| Cash flows from operating activities | |||||||
| Net earnings | $ | 677 | $ | 342 | |||
| Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: |
|||||||
| Depreciation | 268 | 286 | |||||
| Amortization of premium on loans purchased | 3 | 78 | |||||
| Amortization of net deferred loan origination fees | (36 | ) | 34 | ||||
| Amortization of discounts and premium on securities | 94 | 88 | |||||
| Amortization of deferred compensation | 73 | 78 | |||||
| Gain on sale of real estate acquired through foreclosure | (100 | ) | (8 | ) | |||
| Loss on sale of loans receivable held for sale | 116 | 178 | |||||
| Gain on sale of office properties and equipment | — | (2 | ) | ||||
| Provision for loan losses | 270 | 225 | |||||
| Provision for write-downs and losses on real estate acquired through foreclosure | — | 10 | |||||
| Loans originated for sale, net of refinances | (3,055 | ) | (13,855 | ) | |||
| Proceeds from sale of loans receivable held for sale | 5,397 | 7,982 | |||||
| Changes in operating assets and liabilities: | |||||||
| Accrued interest receivable | (40 | ) | (98 | ) | |||
| Other assets | — | (751 | ) | ||||
| Other liabilities | 380 | 443 | |||||
| Total adjustments | 3,370 | (5,312 | ) | ||||
| Net cash provided by (used in) operating activities | 4,047 | (4,970 | ) | ||||
| Cash flows from investing activities | |||||||
| Loans originated, net of refinances | (8,541 | ) | (30,201 | ) | |||
| Principal repayment on loans | 10,040 | 16,304 | |||||
| Proceeds from sale of office properties and equipment | — | 3 | |||||
| Purchases of investment securities held-to-maturity | — | (4,500 | ) | ||||
| Purchases of mortgage-backed securities held-to-maturity | — | (4,595 | ) | ||||
| Proceeds from maturities of investment securities held-to-maturity | — | 2,500 | |||||
| Proceeds from maturities of mortgage-backed securities held-to-maturity | 1,861 | 2,735 | |||||
| Purchase of Federal Home Loan stock | (65 | ) | (228 | ) | |||
| Capital expenditures for office properties and equipment | (48 | ) | (1,359 | ) | |||
| Proceeds from sale of real estate acquired through foreclosure | 854 | 86 | |||||
| Net cash provided by (used in) investing activities | 4,101 | (19,255 | ) | ||||
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||
| 2000 | 1999 | ||||||
| Cash flows from financing activities | |||||||
| Net increase (decrease) in deposits | (437 | ) | 7,215 | ||||
| Increase (decrease) in advances from Federal Home Loan Bank | (5,650 | ) | 13,500 | ||||
| Dividends paid | (158 | ) | (160 | ) | |||
| Stock repurchases | (236 | ) | — | ||||
| Increase in advances by borrowers for taxes and insurance | 138 | 167 | |||||
| Net cash provided by (used in) financing activities | (6,343 | ) | 20,722 | ||||
| Net increase (decrease) in cash and cash equivalents | 1,805 | (3,503 | ) | ||||
| Cash and cash equivalents at beginning of period | 3,135 | 7,205 | |||||
| Cash and cash equivalents at end of period | $ | 4,940 | $ | 3,702 | |||
| Supplemental disclosures of cash flow information | |||||||
| Cash paid for interest | $ | 4,143 | $ | 3,592 | |||
| Cash paid for income taxes | 255 | 315 | |||||
| Supplemental disclosure of noncash investing and financing activities | |||||||
| Transfers of real estate acquired through foreclosure from loans receivable | 315 | 500 | |||||
See Notes to Consolidated Financial Statements
BROADWAY FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
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 normal recurring accruals necessary to present fairly the consolidated financial position of the Company at September 30, 2000 and the results of its operations for the three months and nine months ended September 30, 2000 and 1999, and its cash flows for the nine months ended September 30, 2000 and 1999. These consolidated financial statements do not include all disclosures associated with the Company’s consolidated annual financial statements included in its annual report on Form 10-KSB for the year ended December 31, 1999 and, accordingly, should be read in conjunction with such audited statements. The results of operations for the three months and nine months ended September 30, 2000 are not necessarily indicative of the r esults to be expected for the full year.
2. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. In June 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133”, which extended the effective date of the fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, which also amends SFAS No. 133. Management does not believe that the implementation of these new standards will have a material impact on t he Company’s financial condition or results of operations.
In March 2000, the FASB issued Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation”. This Interpretation clarifies issues relating to APB Opinion No. 25, “Accounting for Stock Issues to Employees”. FASB Interpretation No. 44 contains information relating to (a) the definition of employee for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences of various fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FASB Interpretation No. 44 was effective July 1, 2000. The effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. Management does not believe that the implementation of Interpretation No . 44 will have a material impact on the Company.
In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” as a replacement of SFAS No. 125 effective for disclosures in financial statements issued subsequent to December 15, 2000, and for transactions entered after March 31, 2001. Accordingly, the Company does not expect adoption of the statement will have a material impact on the financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Broadway Financial Corporation (the “Company”) is primarily engaged in the savings and loan business through its wholly owned subsidiary, Broadway Federal Bank, f.s.b. (“Broadway Federal” or “the Bank”). Broadway Federal’s business is that of a financial intermediary and consists primarily of attracting deposits from the general public and using such deposits, together with borrowings and other funds, to make mortgage loans secured by residential real estate located in Southern California. At September 30, 2000, Broadway Federal operated five retail banking offices, including a loan processing center, in Southern California. Broadway Federal is subject to significant competition from other financial institutions, and is also subject to regulation by federal agencies and undergoes periodic examinations by those regulatory agencies.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Broadway Federal and BankSmart, Inc.(“Banksmart”). All significant inter-company balances and transactions have been eliminated in consolidation.
The Company’s principal business is serving as a holding company for Broadway Federal. The Company’s results of operations are dependent primarily on Broadway Federal’s 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 paid on its interest-bearing liabilities, such as deposits and borrowings. Broadway Federal 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 non-interest expenses, which consist principally of employee compensation and benefits, occupancy expense, 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 a lso affected by prevailing economic conditions, competition, and the monetary and fiscal policies of governmental agencies.
The Company’s management considers its operations to be segregated into two operating segments—(i) banking, through Broadway Federal and (ii) retail services, through its newly established subsidiary, BankSmart. BankSmart currently includes a postal and copy center. In August 1999, BankSmart opened its first center inside Broadway Federal’s Exposition Park branch. During the second quarter of 2000, BankSmart opened a post office inside Broadway Federal’s Midtown branch. As of September 30, 2000, the operations of BankSmart are insignificant to the operations of the Company and, as such, do not constitute a separately reportable segment, under applicable accounting standards.
Comparison of Operating Results for the Three Months and Nine Months Ended September 30, 2000 and September 30, 1999
General
The Company recorded net earnings of $282,000, or $0.32 per diluted share, and $677,000, or $0.74 per diluted share, respectively, for the three months and nine months ended September 30, 2000, as compared to net earnings of $320,000, or $0.34 per diluted share, and $342,000, or $0.34 per diluted share, respectively, for the three months and nine months ended September 30, 1999. The decrease in net earnings for three months ended September 30, 2000 compared to the same period in the prior year resulted primarily from lower net interest income, lower non-interest income and lower non-interest expense. The increase in net earnings for the nine months ended September 30, 2000 compared to the same period in the prior year resulted primarily from higher net interest income, lower non-interest income and lower non-interest expense.
Interest Income
Interest income increased by $52,000 and $785,000, respectively, during the three months and nine months ended September 30, 2000 as compared to the same periods in 1999. The increases were primarily the result of an increase in average assets of $7.8 million, to $164.4 million for the nine months ended September 30, 2000, as compared to the same period in 1999. The increase in average assets was funded by an increase in average savings deposits and advances from the Federal Home Loan Bank. Average assets for the three months ended September 30, 2000 decreased $4.9 million to $161.7 million, as compared to the same period in 1999. Funds generated from the decrease in average assets during the three months ended September 30, 2000 were primarily used to repay outstanding borrowings.
Interest Expense
Interest expense increased by $108,000 and $538,000, respectively, during the three months and nine months ended September 30, 2000 as compared to the same periods in 1999. The increase in interest expense is due to an increase in interest on deposits and on borrowings. The increases in interest on deposits were due to increases in average deposits of $105,000 and $4.1 million to $132.8 million and $134.1 million, respectively, for the three months and nine months ended September 30, 2000, as compared to $132.7 million and $130.0 million, respectively, during the same periods in 1999. The increase in interest on deposits also reflects the current interest rate environment as the average cost of deposits increased 33-basis points and 12-basis points, respectively, from 3.39% and 3.43% for the three months and nine months ended September 30, 1999 to 3.72% and 3.55%, r espectively, for the same periods in 2000. Average borrowings also increased by $3.2 million for the nine months ended September 30, 2000 as compared to the same period in 1999. Average borrowings decreased $5.4 million during the three months ended September 30, 2000 compared to the same period in 1999. The decrease was funded by a decrease in average assets during the period.
Provision for Loan Losses
The provision for loan losses increased $15,000 and $45,000, from $75,000 and $225,000, respectively, for three months and nine months ended September 30, 1999 to $90,000 and $270,000, respectively, for the same periods in 2000.
Total non-performing assets, consisting of non-accrual loans and real estate acquired through foreclosure (“REO”), decreased by $1.8 million, from $2.0 million at September 30, 1999 to $258,000 at September 30, 2000. The decrease resulted from a decrease in non-accrual loans of $1.2 million and a decrease in REO of $542,000. As a percentage of total assets, non-performing assets were 0.16% at September 30, 2000, compared to 1.20% and 1.15% at September 30, 1999 and December 31, 1999, respectively. Since December 1999, non-accrual loans decreased by $1.2 million, to $165,000, and REO decreased by $422,000, to $93,000. Non-accrual loans at September 30, 2000 included two loans totaling $157,000 secured by one- to four-unit properties and one unsecured loan for $8,000. REO at September 30, 2000 included one single-family property for $93,000. T his REO was sold subsequent to September 30, 2000 at a gain. The Company’s improved asset quality is the result of improved loan underwriting, aggressive collection efforts and a strong local economy.
As of September 30, 2000 the Company’s allowance for loan losses totaled $1.3 million, representing a $108,000 decrease from the balance at December 31, 1999. The allowance for loan losses represents 1.05% of gross loans at September 30, 2000 compared to 1.09% at December 31, 1999. The allowance for loan losses was 806.67% of non-accrual loans at September 30, 2000, compared to 103.15% at December 31, 1999. Loan charge-offs for the nine months ended September 30, 2000 totaled $377,000, consisting of a $117,000 charge off on three single-family loans, a $243,000 charge-off on two multi-family loans a $17,000 charge-off on an REO.
The provision for loan losses for the quarter and nine months ended September 30, 2000 results from management’s ongoing assessment of the Company’s level of credit risk inherent in the portfolio and changes within the loan categories resulting from various factors, including new loan originations, loan repayments, prepayments and changes in asset classifications. Management will continue to monitor the allowance for loan losses and adjust the Company’s provision for loan losses based on the risks inherent in the loan portfolio.
Management believes that the allowance for loan losses is adequate to cover inherent losses in its loan portfolio as of September 30, 2000, but there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation periodically review the Company’s allowance for loan losses as an integral part of their examination process. These agencies may require the Company to increase the allowance for loan losses based on their judgements of the information available to them at the time of the examination.
Non-Interest Income
Non-interest income decreased $357,000 and $336,000, respectively, for the three months and nine months ended September 30, 2000 as compared to the same periods in 1999. The decreases are due to a number of offsetting factors. Gain on insurance reimbursements decreased from $680,000 in 1999 to $178,000 in 2000. Insurance proceeds received in 2000 consisted of $171,000 relating to recovery of savings losses that occurred in 1999 and $7,000 in property damage reimbursements that occurred in 2000. Insurance proceeds received in 1999 related to casualty insurance reimbursements from the 1992 destruction of the Company’s headquarters. Service charges increased $95,000 and $90,000, respectively, for the three months and nine months ended September 30, 2000 compared to the same periods in the prior year. The increases primarily resulted from higher fees earned from customers on deposits accounts, including returned check fees on checking accounts.
Non-Interest Expense
Non-interest expense decreased by $406,000 and $741,000, respectively, during the three-month and nine-month periods ended September 30, 2000 as compared to the same periods in 1999. The decreases in non-interest expense were due primarily to decreases in professional services, real estate operations and other non-interest expense. Professional services decreased by $86,000 and $156,000, respectively, during the three months and nine months ended September 30, 2000, as compared to the same periods in 1999. The decreases were principally attributable to a reduction in legal expenses. Real estate operations, net decreased by $40,000 and $106,000, respectively, for the three months and nine months ended September 30, 2000, as compared to the same periods in 1999. The decreases in real estate operations, net were primarily due to gains on sales of real estate
acquired through foreclosure during the second and third quarter of the current year. Other non-interest expense decreased by $225,000 and $415,000, respectively, for the three-month and nine-month periods ended September 30, 2000, as compared to the same periods during 1999. The decreases were primarily caused by a reduction in costs associated with litigation settlements and branch losses.
Income Taxes
The Company’s effective tax rate was approximately 45.8% and 42.8% for the three months and nine months ended September 30, 2000, compared to approximately 41.0% for the same respective periods in the prior year. Broadway Federal computed income taxes by applying the statutory federal income tax rate of 34% and California income tax rate of 10.84% to earnings before income taxes. The increase in the Company’s effective tax rate resulted from the expiration of certain credits allowable in prior years.
Comparison of Financial Condition at September 30, 2000 and December 31, 1999
Total assets at September 30, 2000 were $161.1 million compared to $166.3 million at December 31, 1999, representing a decrease of $5.2 million. Net loans receivable (excluding loans held for sale) decreased from $126.9 million at December 31, 1999 to $124.8 million at September 30, 2000 as a result of $8.5 million in new loan originations, offset by $10.0 million in principal repayments, $315,000 in loans transferred to foreclosure and $270,000 of provision for loan losses. Loans held for sale at September 30, 2000 was zero as compared to $2.5 million at December 31, 1999. During the period, loans originated that were classified as held-for-sale totaled $3.0 million and loans sold totaled $5.5 million.
Total liabilities at September 30, 2000 were $146.9 million compared to $152.5 million at December 31, 1999. The $5.6 million decrease was primarily attributable to the decrease in deposits and advances from Federal Home Loan Bank, offset by increases in other liabilities and advance payments by borrowers for taxes and insurance.
Total capital at September 30, 2000 was $14.2 million compared to $13.8 million at December 31, 1999. The $357,000 increase was primarily due to net earnings for the period and allocation of ESOP shares, offset by common stock repurchased and cash dividends declared. Common stock repurchased totaled $236,000 since December 31, 1999.
Liquidity, Capital Resources and Market Risk
Sources of liquidity and capital for the Company on a stand-alone basis include distributions from the Bank and borrowings such as securities sold under agreements to repurchase. Dividends and other capital distributions from the Bank are subject to regulatory restrictions.
The Bank’s primary sources of funds are Bank deposits, principal and interest payments on loans and, to a lesser extent, proceeds from the sale of loans and advances from the FHLB. While maturities and scheduled amortization of Bank loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. Broadway Federal’s average liquidity ratios were 11.78% and 11.66%, respectively, for the three-month and nine-month periods ended September 30, 2000 as compared to 14.68% and 18.98% for the same periods during 1999. The decreases are due to the fact that at September 30, 2000 liquid assets, which are a component of the liquidity calculation, excluded $10.1 million in assets pledged to secure deposits and borrowings. At September 30, 1999 there were no excluded pledged assets. Manage ment currently maintains its liquidity ratio in a range of 10% to 12% as part of its investment strategy. The Bank’s liquidity ratio included qualifying unpledged marketable securities being held to maturity.
The Bank has other sources of liquidity in the event that a need for additional funds arises, including FHLB advances to the Bank. At September 30, 2000 and 1999 FHLB advances totaled $11.2 million and $18.0 million, respectively. Broadway Federal had borrowed from the FHLB to meet its short-term loan funding needs. Other sources of liquidity include principal repayments on mortgage-backed securities.
Since December 31, 1999 there has been no material change in the Company’s interest rate sensitivity as of September 30, 2000. Information concerning the Company’s interest rate sensitivity is contained in conjunction with the financial statements and notes thereto contained in the Company’s annual report for the year ended December 31, 1999.
Regulatory Capital
The OTS capital regulations include three separate minimum capital requirements for savings institutions that are subject to OTS supervision. First, the tangible capital requirement mandates that the Bank’s stockholder’s equity, less intangible assets, be at least 1.50% of adjusted total assets as defined in the capital regulations. Second, the core capital requirement currently mandates core capital (tangible capital plus certain qualifying intangible assets) be at least 4.00% of adjusted total assets as defined in the capital regulations. Third, the risk-based capital requirement presently mandates that core capital plus supplemental capital (as defined by the OTS) be at least 8.00% of risk-weighted assets as prescribed in the capital regulations. The capital regulations assign specific risk weightings to all assets and off-balance sheet items.
Broadway Federal was in compliance with all capital requirements in effect at September 30, 2000, and meets all standards necessary to be considered “well-capitalized” under the prompt corrective action regulations adopted by the OTS pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). The following table reflects the required and actual regulatory capital ratios of Broadway Federal at the date indicated:
| Regulatory Capital Ratios for Broadway Federal | FIRREA Minimum Requirement | FDICIA “Well-capitalized” Requirement |
Actual At September 30, 2000 |
||||||||
| Tangible capital | 1.50 | % | N/A | 7.70 | % | ||||||
| Core capital | 4.00 | % | 5.00 | % | 7.70 | % | |||||
| Risk-based capital | 8.00 | % | 10.00 | % | 13.30 | % | |||||
| Tier 1 Risk-based capital | N/A | 6.00 | % | 12.33 | % | ||||||
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 Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports Data Schedule
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
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 10, 2000 | By: | /s/ Paul C. Hudson | |
| Paul C. Hudson President and Chief Executive Officer |
| By: | /s/ Bob Adkins | ||
| Bob Adkins Chief Financial Officer |
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