-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QINpcLil/YaHCoFZ3nigfXJToiw0eSHibaCOF+gHABjH7gIWyMCCBqckOrwFqA6x AjD1csXjr1vKoo6XsXwL/g== 0000912057-99-005873.txt : 19991117 0000912057-99-005873.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-005873 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROADWAY FINANCIAL CORP \DE\ CENTRAL INDEX KEY: 0001001171 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 954547287 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-27464 FILM NUMBER: 99753380 BUSINESS ADDRESS: STREET 1: 4800 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90010 BUSINESS PHONE: 2136341700 MAIL ADDRESS: STREET 1: 4800 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90010 10QSB 1 FORM 10QSB 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, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT For transition period from__________ to___________ Commission file number 0-27464 -------- BROADWAY FINANCIAL CORPORATION ------------------------------ (Exact Name of Small Business Issuer as Specified in its Charter) Delaware 95-4547287 ---------- ------------ (State of Incorporation) (IRS Employer Identification No.) 4800 WILSHIRE BOULEVARD, LOS ANGELES, CALIFORNIA 90010 ------------------------------------------------------------- (Address of Principal Executive Offices) (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: 932,494 shares of the Company's Common Stock, par value $.01 per share, were issued and outstanding as of October 29, 1999. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x] 1 INDEX
PART I--FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Page Consolidated Balance Sheets as of September 30, 1999 and December 31, 3 Consolidated Statements of Operations for the three months and nine months ended September 30, 1999 and September 30, 1998 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and September 30, 1998 5 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II--OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 18 2
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------- ASSETS: Cash ........................................................................................ $ 3,702 $ 4,605 Federal funds sold........................................................................... -- 2,600 Investment securities held to maturity....................................................... 10,622 8,622 Mortgage-backed securities held to maturity.................................................. 13,868 12,096 Loans receivable, net........................................................................ 120,128 107,055 Loans receivable held for sale, at lower of cost or fair value............................... 8,190 2,495 Accrued interest receivable.................................................................. 986 888 Real estate acquired through foreclosure, net................................................ 635 222 Investments in capital stock of Federal Home Loan Bank, at cost.............................. 1,215 987 Office properties and equipment, net......................................................... 6,432 5,360 Other assets................................................................................. 1,472 721 ------------- ------------- Total assets................................................................................. $167,250 $145,651 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits .................................................................................... $133,213 $125,998 Advance from Federal Home Loan Bank.......................................................... 18,000 4,500 Advance payments by borrowers for taxes and insurance........................................ 372 205 Other liabilities............................................................................ 1,852 1,395 ------------- ------------- Total liabilities............................................................................ 153,437 132,098 Stockholders' Equity: Preferred nonconvertible, non-cumulative, and non-voting stock, $.01 par value, authorized 1,000,000 shares; issued and outstanding 55,199 and 55,199 shares at September 30, 1999 and December 31, 1998, respectively............. 1 1 Common stock, $.01 par value, authorized 3,000,000 shares; issued and outstanding 932,494 and 932,494 shares at September 30, 1999 and December 31, 1998, respectively...................................................... 10 10 Additional paid-in capital................................................................ 9,665 9,633 Retained earnings-substantially restricted................................................ 4,846 4,664 Treasury stock-29,241 shares at cost...................................................... (318) (318) Unearned Employee Stock Ownership Plan shares............................................. (391) (437) ------------- ------------- Total stockholders' equity................................................................... 13,813 13,553 ------------- ------------- Total liabilities and stockholders' equity.................................................. $167,250 $145,651 ============= =============
See Notes to Consolidated Financial Statements 3 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ --------------------------- 1999 1998 1999 1998 ------- -------- -------- -------- Interest on loans receivable................................. 2,569 $1,965 $7,173 $6,388 Interest on investment securities held-to-maturity........... 170 192 487 470 Interest on mortgage-backed securities held-to-maturity...... 222 81 660 188 Other interest income........................................ 13 14 42 44 ------- -------- -------- -------- Total interest income........................................ 2,974 2,252 8,362 7,090 Interest on deposits......................................... 1,134 1,010 3,292 3,135 Interest on borrowings....................................... 205 78 384 91 ------- -------- -------- -------- Total interest expense....................................... 1,339 1,088 3,676 3,226 ------- -------- -------- -------- Net interest income before provision for loan losses......... 1,635 1,164 4,686 3,864 Provision for loan losses.................................... 75 225 225 375 ------- -------- -------- -------- Net interest income after provision for loan losses.......... 1,560 939 4,461 3,489 Noninterest income: Service charges......................................... 89 111 355 308 Gain (loss) on sale of loans receivable held for sale .. (49) -- (55) 14 Gain on casualty insurance reimbursement................ 680 -- 680 -- Other ................................................. 27 17 54 214 ------- -------- -------- -------- Total noninterest income..................................... 747 128 1,034 536 ------- -------- -------- -------- Noninterest expense: Compensation and benefits............................... 841 596 2,267 1,937 Occupancy expense, net.................................. 262 309 859 891 Unrealized loss on loans receivable held for sale....... 60 -- 170 - Advertising and promotional expense..................... 60 69 161 148 Consulting service...................................... 29 7 79 41 Federal insurance premiums.............................. 28 27 83 77 Insurance bond premiums................................. 21 28 77 78 Real estate operations, net............................. 4 34 28 39 Contracted security services............................ 41 39 119 116 Litigation reserves..................................... 70 -- 232 -- Telephone and postage................................... 53 30 128 77 Stationary, printing and supplies....................... 29 23 93 78 Other .................................................. 267 133 622 378 ------- -------- -------- -------- Total noninterest expense.................................... 1,765 1,295 4,918 3,860 ------- -------- -------- -------- Earnings (loss) before income taxes.......................... 542 (228) 577 165 Income taxes (tax benefit)................................... 222 (94) 235 70 ------- -------- -------- -------- Net earnings (loss) ......................................... 320 $ (134) $ 342 $ 95 ======= ======== ======== ======== Earnings (loss) per share-basic.............................. $ .34 $ (.16) $.34 $.08 Earnings (loss) per share-diluted............................ .33 (.16) .33 .08 Dividend declared per share-common stock.................... .05 .05 .15 .15
See Notes to Consolidated Financial Statements 4 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
Nine Months Ended September 30, 1999 1998 --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 342 $ 95 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation 286 149 Amortization of premium on loans purchased 78 66 Amortization of net deferred loan origination fees 34 (41) Amortization of discounts and premium on securities 88 9 Amortization of deferred compensation 78 47 Gain on sale of real estate acquired through foreclosure (8) (26) Loss (gain) on sale of loans receivable held for sale 55 (14) Gain on sale of office properties and equipment (2) (6) Provision for loan losses 225 375 Provision for write-downs and losses on real estate acquired through foreclosure 10 40 Lower of cost or fair value on loans receivable held for sale 123 - Loans originated for sale, net of refinances (13,855) (1,807) Proceeds from sale of loans receivable held for sale 7,982 2,043 Changes in operating assets and liabilities: Accrued interest receivable (98) (57) Other assets (751) (236) Deferred income taxes - (55) Other liabilities 443 (257) --------- ----------- Total adjustments (5,312) (230) --------- ----------- Net cash provided by (used in) operating activities (4,970) 325 --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Loans originated, net of refinances (30,201) (7,882) Loans purchased -- (15,257) Principal repayment on loans 16,304 20,108 Proceeds from sale of office properties and equipment 3 132 Purchases of investment securities held-to-maturity (4,500) (11,119) Purchases of mortgage-backed securities held-to-maturity (4,595) (5,339) Proceeds from maturities of investment securities held-to- maturity 2,500 9,005 Proceeds from maturities of mortgage-backed securities held- to-maturity 2,735 -- Purchase of Federal Home Loan stock (228) (42) Capital expenditures for office properties and equipment (1,359) (1,327) Proceeds from sale of real estate acquired through foreclosure 86 1,019 --------- ----------- Net cash used in investing activities (19,255) (10,702) --------- -----------
5 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) (DOLLARS IN THOUSANDS)
Nine Months Ended September 30, 1999 1998 ---------------- ---------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in deposits 7,215 9,964 Increase in advance from Federal Home Loan Bank 13,500 4,500 Dividends paid (160) (121) Increase in advances by borrowers for taxes and insurance 167 150 ---------------- ---------------- Net cash provided by financing activities 20,722 14,493 ---------------- ---------------- Net increase (decrease) in cash and cash equivalents (3,503) 4,116 Cash and cash equivalents at beginning of period 7,205 4,831 ---------------- ---------------- Cash and cash equivalents at end of period $ 3,702 $ 8,947 ================ ================ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 3,592 $ 3,254 Cash paid for income taxes 315 312 ================ ================ SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Additions to real estate acquired through foreclosure 500 561
See Notes to Consolidated Financial Statements 6 BROADWAY FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (UNAUDITED) 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 adjustments necessary to present fairly the consolidated financial position of the Company at September 30, 1999 and the results of its operations for the three months and nine months ended September 30, 1999 and 1998, and its cash flows for the nine months ended September 30, 1999 and 1998. 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, 1998 and, accordingly, should be read in conjunction with such audited statements. The results of operations for the three and nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. 2. RECENT ACCOUNTING PRONOUNCEMENTS DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." As amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133.", SFAS No. 133 established accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 required recognition of all derivative instruments in the statement of financial position as either assets or liabilities and the measurement of derivative instruments at fair value. As amended by SFAS No. 137, SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Company's consolidated results of operations or financial condition. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Broadway Financial Corporation (the "Company") is primarily engaged in providing financial services 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, 1999, Broadway Federal operated five retail banking offices in Southern California. The Company's management considers its operations to be segregated into two reportable segments - i)banking, through Broadway Federal and ii) retail services, through its newly established subsidiary, Banksmart, Inc. ("Banksmart"). Through Banksmart, the Company is providing one stop, full service, convenience to its customers. Banksmart includes a postal center, copy center and in early 2000 ,a check cashing facility will be added. Banksmart customers can rent mail boxes, order printing, perform desktop publishing, purchase office supplies, wire money, send packages, etc. In early August, Banksmart opened its first center inside Broadway Federal's Exposition Park branch. As of September 30, 1999 the operations of Banksmart are insignificant. 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 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 general and administrative expenses, which consist principally of employee compensation and benefits, occupancy expense, and federal deposit insurance premiums, and by its periodic provisions for loan losses. 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. The improvement in earnings for the third quarter and nine months ended September 30, 1999 compared to the prior year results from a number of offsetting factors including: i) a higher net interest margin, ii) the recognition of a $680,000 non-recurring pretax gain resulting from a casualty insurance reimbursement and iii) a lower provision for loan losses, offset by higher noninterest expenses. 8 In August, the Company initiated a staff reduction and realignment plan, which resulted in the termination of 5.0 full time equivalent employees ("FTEs") and the resignation of 3.5 FTEs, which resulted in a net decrease of 8.5 FTEs. The staff reduction represents 13.8% of the total staff employed by the Company at June 30, 1999. Also in August, the Company completed construction of a new branch office facility at 4001 South Figueroa Street in Los Angeles, replacing the Bank's temporary office at 4429 Broadway in Los Angeles. The new location houses a Bank savings branch, a newly established copy/postal center, and a check cashing facility that is projected to open in the first quarter of 2000. COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998 GENERAL The Company recorded net earnings of $320,000, or $0.33 per diluted share, for the three months ended September 30, 1999, as compared to a net loss of $134,000, or $0.16 per diluted share, for the three months ended September 30, 1998. For the nine months ended September 30, 1999 the Company recorded net earnings of $342,000, or $0.33 per diluted share, as compared to net earnings of $95,000, or $0.08 per diluted share, for the same period ended September 30, 1998. INTEREST INCOME Interest income increased by $722,000 during the three months ended September 30, 1999 as compared to the same period in 1998. For the nine months ended September 30, 1999 interest income increased by $1.3 million as compared to the same period in 1998. These increases were primarily the result of increases in average assets of $28.7 million and $23.9 million for the three months and nine months ended September 30, 1999, respectively, as compared to the same periods in 1998. The increase in assets during the three months and nine months ended September 30, 1999 was funded by an increase in savings deposits and advances from the Federal Home Loan Bank. The increase in average assets primarily resulted from the Company's continued focus on increasing its loan portfolio and its investment in mortgage-backed securities. The average interest rate on earning assets decreased 29-basis points, from 7.91% for the nine months ended September 30, 1998 to 7.62% for the nine months ended September 30, 1999. INTEREST EXPENSE Interest expense increased by $251,000 during the three months ended September 9 30, 1999 as compared to the same period in 1998. For the nine months ended September 30, 1999 interest expense increased by $450,000 as compared to the same period in 1998. The increases were largely in interest on borrowings as average borrowings increased by $13.5 million and $9.4 million for the three months and nine months ended September 30, 1999 as compared to the same periods in 1998. The average cost of deposits decreased 27-basis points, from 3.70% for the nine months ended September 30, 1998 to 3.43% for the nine months ended September 30, 1999. PROVISION FOR LOAN LOSSES AND NON-PERFORMING ASSETS The provision for loan losses decreased by $150,000 for the three months and nine months ended September 30, 1999 as compared to the same periods in 1998. The decrease was related to a significant decline in third quarter charge-offs in 1999 as compared to charge-offs during the same period in 1998. Total non-performing assets, consisting of non-accrual loans and real estate acquired through foreclosure ("REO"), increased by $702,000, from $1.3 million at December 31, 1998 to $2.0 million at September 30, 1999. The increase resulted from an increase in non-accrual loans of $289,000 and an increase in REO of $413,000. As a percentage of total assets, non-performing assets were 1.20% at September 30, 1999, compared to 0.90% at December 31, 1998. Non-accrual loans increased by $289,000 during the first nine months to $1.4 million, and REO increased by $413,000, to $635,000. Non-accrual loans at September 30, 1999 included six loans totaling $511,000 secured by one- to four-unit properties, four loans totaling $848,000 secured by multi-family properties and one unsecured loan for $20,000. REO at September 30, 1999 included three single family properties with book values totaling $423,000, one commercial property with a book value of $93,000 and one parcel of land with a book value of $265,000, offset by a $146,000 allowance for REO. As of September 30, 1999 the Company's allowance for loan losses totaled $1.4 million, representing a $213,000 increase from the balance at December 31, 1998. The allowance for loan losses represents 1.04% of total loans at September 30, 1999 compared to 1.03% at December 31, 1998. The allowance for loan losses was 98.92% of non-accrual loans at September 30, 1999 compared to 105.60% at December 31, 1998. For the nine months ended September 30, 1999 loan charge-offs totaled $12,000, as compared to $353,000 during the same period a year ago. The charge-offs during the nine months ended September 30, 1998 primarily consisted of two loans made to one borrower aggregating $229,000. Management believes that the allowance for loan losses is adequate to cover inherent losses in its loan portfolio as of September 30, 1999, but there can be no assurance that such losses will not exceed the estimated amounts. In addition, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation as an integral part of 10 their examination process, periodically review the Company's allowance for loan losses. These agencies may require the Company to increase the allowance in loan losses based on their judgements of the information available at the time of the examination. NON-INTEREST INCOME Non-interest income increased by $619,000 for the three-month period ended September 30, 1999 as compared to the same period during 1998. For the nine-month period ended September 30, 1999 non-interest income increased by $498,000. The increase in non-interest income for both the three-month and nine-month periods ended September 30, 1999 compared to the corresponding 1998 periods are due primarily to a $680,000 gain recognized on the reimbursement of a casualty insurance claim during the third quarter of 1999. This reimbursement related to the 1992 destruction of Broadway Federal's corporate headquarters office. At September 30, 1999, the Company has no further insurance claims outstanding relative to this casualty loss. These increases were offset by losses on sales of loans recognized during the periods in question. Additionally, other income for the nine months ended September 30, 1999 is comparatively lower relative to that recognized in 1998 due to the reversal of a $170,000 accrual in 1998 for possible penalties on funds escheated to the State of California. The accrual was reversed after management determined the Company was no longer subject to the penalties. NON-INTEREST EXPENSE Non-interest expense increased by $470,000 and $1.1 million, respectively, during the three-month and nine-month periods ended September 30, 1999 as compared to the same periods in 1998. The increases were due primarily to increases in i) compensation and benefits, ii) unrealized loss on loans receivable held for sale, iii) litigation reserves, and iv) other expenses. Compensation and Benefits Compensation and benefits increased by $245,000 and $330,000, respectively, during the three-month and nine-month periods ended September 30, 1999 relative to the same periods in 1998. The increase resulted primarily from the accrual of vested stock awards, the payment of severance benefits related to the aforementioned staff reduction, and accrued bonuses. Unrealized Losses on Loans Receivable Held for Sale The increases in this category relate directly to changes in secondary market factors for the periods reported. Unrealized losses are recognized to the extent that the fair 11 value of loans receivable held for sale is less than the historical cost of such loans. The majority of loans receivable held for sale at September 30, 1999 are currently at fixed rates. Recent increases in interest rates have led to a diminution in the fair value of such loans. During 1998, market conditions and prices on loans were such that no unrealized losses were recognized. Litigation Reserves Litigation reserves increased by $70,000 and $232,000, respectively, during the three-month and nine-month periods ended September 30, 1999 relative to the same periods in 1998. The increase in reserves relates to two unrelated proceedings pending against Broadway Federal that arose out of alleged fraudulent endorsements by Broadway Federal's customers. One proceeding involves a complaint for fraud, conversion, declaratory relief and injunctive relief. The second proceeding involves a complaint for breach of transfer and presentment warranties. The Company has accrued a total of $205,000 at September 30, 1999 for the litigation risk relative to these cases. Other Expenses Other expenses increased by $134,000 and $244,000, respectively, for the three-month and nine-month ended September 30, 1999 relative to the same periods in 1998. The increases were primarily a result of increases in branch operating losses and legal fees during the periods noted. INCOME TAXES Income tax expense increased by $316,000 and $165,000, respectively, for the three-month and nine-month periods ended September 30, 1999 as compared to the same periods in 1998. The increases in income taxes were the result of higher earnings before income taxes. Broadway Federal computed income taxes by applying the statutory federal income tax rate of 34% and a California income tax rate of 10.84% to earnings before income taxes. FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 Total assets at September 30, 1999 were $167.3 million compared to $145.7 million at December 31, 1998, representing an increase of $21.6 million. Net loans receivable increased from $107.0 million at December 31, 1998 to $120.1 million at September 30, 1999 as a result of $44.0 million in new loan originations, offset by $16.3 million in principal repayments, $500,000 in loans transferred to foreclosure, $13.9 million in loans originated and classified as held for sale, and $225,000 provision for loan losses. Loans held for sale at September 30, 1999 totaled $8.2 12 million as compared to $2.5 million at December 31, 1998. The increase resulted from an increase in multi-family loans designated as held for sale. During the nine months ended September 30, 1999, loans sold totaled $8.0 million. Office properties and equipment increased from $5.4 million at December 31, 1998 to $6.4 million at September 30, 1999, primarily as a result of construction costs incurred for the Bank's branch office located at Figueroa and Martin Luther King in the City of Los Angeles. Total liabilities at September 30, 1999 were $153.4 million compared to $132.1 million at December 31, 1998. The $21.3 million increase is primarily attributable to the increase in deposits, Federal Home Loan Bank advances, advance payments by borrowers and other liabilities. As compared to total capital at December 31, 1998, total capital at September 30, 1999 increased $260,000, to $13.8 million. LIQUIDITY AND CAPITAL RESOURCES 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 customer deposits, principal and interest payments on loans and other sources of liquidity include investment securities maturing within one year, to a lesser extent, proceeds from the sale of loans and advances from the Federal Home Loan Bank " FHLB". While maturities and scheduled amortization of Bank loans are relatively 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 19.11% and 13.80% for the period ended September 30, 1999 and 1998, respectively. Management is currently attempting to reduce the liquidity ratio to a range of 10% to 12% as part of the Company's strategy to invest excess liquidity in loans or other higher yielding interest-earning assets. At September 30, 1999 and 1998 FHLB advances totaled $18.0 million and $4.5 million, respectively. Broadway Federal increased its borrowings from the FHLB in the period after June 30, 1998 to meet its short-term loan funding needs. Other sources of liquidity include investment securities maturing within one year. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Company's market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. The composition of the Company's financial instruments that subject it to market risk has not changed significantly since December 13 31, 1998. REGULATORY CAPITAL The OTS capital regulations include three separate minimum capital requirements for savings institutions 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 qualifying supervisory goodwill) 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 risk-based capital provisions of 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, 1999, 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:
FIRREA FDICIA Actual Regulatory Capital Ratios Minimum "Well-capitalized" At September 30, for Broadway Federal Requirement Requirement 1999 - ------------------------------ ------------------ ---------------------- ------------------ Tangible capital 1.50% 5.00 7.01% Core capital 4.00% 6.00% 7.01% Risk-based capital 8.00% 10.00% 12.55% Tier 1 Risk-based capital N/A 6.00% 11.64%
YEAR 2000 COMPLIANCE Many existing computer programs use only two digits to identify a year in the date field with the assumption that the first two digits are always 19. Beginning with the year 2000, systems that calculate, compare or sort data in this manner may cause erroneous results, ranging from system malfunctions to incorrect or incomplete processing. If not remedied, potential risks include: business disruption or temporary 14 shutdown and financial loss. The Company principally utilizes third-party computer service providers and third-party software for its information technology needs. As a result, the Year 2000 compliance of the Company's information technology assets ("IT assets"), such as computer hardware, software and systems, is primarily dependent upon the Year 2000 compliance efforts and results of its third-party vendors. The Year 2000 compliance of the Company's non-IT assets, which include automated teller machines ("ATMs"), copiers, fax machines, coin/currency counters, and emergency communications radios, is also primarily dependent upon the Year 2000 compliance efforts and results of third parties. State of Readiness In June 1998, the Company developed a plan to address Year 2000 issues and appointed a Year 2000 Committee comprised of representatives from all divisions of the Company. The Year 2000 Committee has developed and implemented a comprehensive initiative to make the Company's IT assets and non-IT assets Year 2000 compliant. A Year 2000 compliance review and test of the computer hardware and software used by the Company was conducted in the first quarter of 1998. As a result, the Company replaced approximately 95% of its existing personal computers and monitors, as well as its data processing service bureau. The Company's non-IT assets were also assessed for Year 2000 compliance. Manufacturers, installers, and/or servicers of each have been contacted for certification of Year 2000 readiness. The Year 2000 Committee's initiative to make the Company's IT assets and non-IT assets Year 2000 compliant is comprised of the following phases: 1. Awareness-Educational initiative on Year 2000 issues and concerns. This phase has been completed. 2. Assessment-Inventory of IT assets and non-IT assets, as well as identification of third-party vendors and service providers with which the Company has material relationships. This phase has been completed. 3. Renovation-Review of vendor and service providers' responses to the Company's Year 2000 inquiries and development of a follow-up plan and timeline. This phase has been completed. 4. Validation-This phase consists of testing of IT assets and non-IT assets, as well as testing of third-party vendors and service providers with respect to Year 2000 issues. The testing of IT assets and non-IT assets as well as third-party vendors and service providers is complete. Testing of all mission-critical 15 systems has been completed. 5. Implementation-As mentioned above, the Company replaced 95% of its computer hardware and software, and converted to a data processing service bureau that is considered to be Year 2000 compliant. The Company has conducted sufficient testing to satisfy itself of such compliance. The Company has also tested its new hardware and software and ascertained their compliance. The Company is awaiting certification from a small number of vendors in order to complete vendor testing and verification. Costs to Address the Year 2000 Issue The total cost of carrying out the Company's plan to address the Year 2000 issue is currently estimated to be approximately $500,000, including estimates of personnel costs, and is comprised primarily of costs for equipment and software that was acquired and is being depreciated over its useful life in accordance with Company policy. Any personnel and additional costs have been and will continue to be expensed as incurred. These Year 2000 compliance costs were funded primarily through operating cash flow and did not have a material adverse effect on the Company's business, financial condition or results of operations. To date, the costs incurred related to Year 2000, excluding estimates of personnel costs, are approximately $483,000, of which $51,000 was expensed. The major part of the costs incurred to date relate to the replacement of hardware and software which have been capitalized in accordance with Company policies. Risks Presented by the year 2000 Issue Because the Company is substantially dependent upon the proper functioning of its computer systems and the computer systems and services of third parties, a failure of those computer systems and services to be Year 2000 compliant could have a material adverse effect on the Company's business, financial condition or results of operations. The Company relies heavily on third-party vendors and service providers for its information technology needs. The Company's primary third-party computer service provider is a computer service bureau that provides data processing for virtually all of the Company's savings and checking accounts, real estate lending and real estate loan servicing, general ledger, fixed assets and accounts payable. This third-party's data processing services are mission-critical services for the Company and a failure of this provider's services to be Year 2000 compliant could cause substantial disruption of the Company's business and could have a material adverse financial impact on the Company. Testing of this third-party data processing service bureau has been performed with satisfactory results. If the Company's principal third-party providers with which the Company has material 16 relationships are not Year 2000 compliant, the following problems could result: (i) in the case of vendors, important services upon which the Company depends, such as telecommunications and electrical power, could be interrupted, (ii) in the case of third-party service providers, the Company could receive inaccurate or outdated information, which could impair the Company's ability to perform critical data functions, such as the processing of deposit accounts, loan servicing and internal accounting, and (iii) in the case of governmental agencies, such as the FHLB, and correspondent banks, such agencies and financial institutions could fail to provide funds to the Company, which could materially impair the Company's liquidity and affect the Company's ability to fund loans and deposit withdrawals. In addition, whether or not the Company is Year 2000 compliant, the Company may experience an outflow of deposits if customers are concerned about the integrity of financial institutions' records regarding customers' accounts. Contingency Plans The Company has developed contingency plans to minimize disruption of operations due to Year 2000 issues. These included plans to recover critical business operations and alternatives to mitigate potential effects of critical third-party vendors and service providers whose own failure to properly address Year 2000 issues may adversely impact the ability to perform certain functions. Alternative strategies and contingency plans for liquidity and cash are also included. The contingency plans were completed in June of 1999, and tested in October, 1999 with satisfactory results. There can be no assurance that the Company's Year 2000 initiative will effectively address the Year 2000 issues, that the Company's estimates of the timing and costs of completing the initiative will ultimately be accurate or that the impact of any failure of the Company or its third-party vendors and service providers to be Year 2000 compliant will not have a material adverse effect on the Company's business, financial condition or results of operations. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology, including "may," "will," "should," "expect," "anticipate," "estimate" or "continue" or the negatives thereof or other comparable terminology. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of various factors, including those set forth in the documents filed by the Company with the Securities and Exchange Commission. 17 PART II- OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27.1--Financial Data Schedule (b) Reports on Form 8-K None 18 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 12, 1999 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 EX-27 2 EXHIBIT 27
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PRECEDING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 3,635 67 0 0 0 24,490 23,946 129,682 (1,364) 167,250 133,213 18,000 2,224 0 0 552 9,123 (709) 167,250 7,173 1,147 42 8,362 3,292 3,676 4,686 225 0 0 577 577 0 0 342 0.34 0.33 0.073 1,379 0 0 0 (1,151) 12 0 (1,364) (1,364) 0 321
-----END PRIVACY-ENHANCED MESSAGE-----