-----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, HaGQodi6M/bH6sWRYy5yne5KedqCiA4emSCXM3CqXEuSkjkJ2iaB+l7uQyxGAGuu Zoa1sAXfKlQuuJwVWAX//Q== 0001193125-08-178083.txt : 20080814 0001193125-08-178083.hdr.sgml : 20080814 20080814142100 ACCESSION NUMBER: 0001193125-08-178083 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080814 DATE AS OF CHANGE: 20080814 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27464 FILM NUMBER: 081017717 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 10-Q 1 d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from                      to                     

Commission file number 000-27464

 

 

BROADWAY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   95-4547287
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

4800 Wilshire Boulevard, Los Angeles, California   90010
(Address of principal executive offices)   (Zip Code)

(323) 634-1700

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  ¨    Accelerated Filer  ¨    Non-Accelerated Filer  ¨    Smaller Reporting Company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 1,754,919 shares of the Company’s Common Stock, par value $0.01 per share, were outstanding as of July 31, 2008.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

               Page

PART I.

   FINANCIAL INFORMATION   
   Item 1.    Financial Statements   
      Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007    1
      Consolidated Statements of Operations and Comprehensive Earnings (unaudited) for the three and six months ended June 30, 2008 and 2007    2
      Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2008 and 2007    3
      Notes to Unaudited Consolidated Financial Statements    4
   Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    5
   Item 4.    Controls and Procedures    10

PART II.

   OTHER INFORMATION   
   Item 1.    Legal Proceedings    11
   Item 1A.    Risk Factors    11
   Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    11
   Item 3.    Defaults Upon Senior Securities    11
   Item 4.    Submission of Matters to a Vote of Security Holders    11
   Item 5.    Other Information    12
   Item 6.    Exhibits    12
   Signatures    13
   Ex 31.1    Section 302 Certification of CEO   
   Ex 31.2    Section 302 Certification of CFO   
   Ex 32    Section 906 Certification of CEO and CFO   


Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

 

     June 30,
2008
(Unaudited)
    December 31,
2007
 
     (Dollars in thousands, except per
share amounts)
 

Assets

    

Cash

   $ 6,310     $ 4,331  

Federal funds sold

     800       —    
                

Cash and cash equivalents

     7,110       4,331  

Securities available for sale, at fair value

     4,319       4,763  

Securities held to maturity (fair value of $25,560 at June 30, 2008 and $29,152 at December 31, 2007)

     25,458       29,184  

Loans receivable held for sale, at lower of cost or fair value

     12,300       3,554  

Loans receivable, net of allowance of $2,365 and $2,051

     325,129       300,024  

Accrued interest receivable

     2,081       1,867  

Federal Home Loan Bank (FHLB) stock, at cost

     5,428       4,536  

Office properties and equipment, net

     5,629       5,678  

Bank owned life insurance

     2,275       2,227  

Other assets

     828       643  
                

Total assets

   $ 390,557     $ 356,807  
                

Liabilities and stockholders’ equity

    

Deposits

   $ 254,106     $ 228,727  

Federal Home Loan Bank advances

     100,700       96,500  

Junior subordinated debentures

     6,000       6,000  

Other borrowings

     2,500       —    

Advance payments by borrowers for taxes and insurance

     443       512  

Deferred income taxes

     912       926  

Other liabilities

     2,845       2,093  
                

Total liabilities

     367,506       334,758  
                

Stockholders’ Equity:

    

Preferred non-cumulative and non-voting stock, $.01 par value, authorized 1,000,000 shares; issued and outstanding 55,199 shares of Series A, 100,000 shares of Series B and 76,950 shares of Series C at June 30, 2008 and December 31, 2007; liquidation preference of $552 for Series A, $1,000 for Series B and $1,000 for Series C at June 30, 2008 and December 31, 2007

     2       2  

Common stock, $.01 par value, authorized 3,000,000 shares; issued 2,013,942 shares at June 30, 2008 and December 31, 2007; outstanding 1,755,219 shares at June 30, 2008 and 1,761,778 shares at December 31, 2007

     20       20  

Additional paid-in capital

     12,221       12,212  

Accumulated other comprehensive income (loss), net of taxes of ($10) and $3

     (16 )     6  

Retained earnings-substantially restricted

     14,215       13,152  

Treasury stock-at cost, 258,723 shares at June 30, 2008 and 252,164 shares at December 31, 2007

     (3,391 )     (3,343 )
                

Total stockholders’ equity

     23,051       22,049  
                

Total liabilities and stockholders’ equity

   $ 390,557     $ 356,807  
                

See accompanying notes to unaudited consolidated financial statements.

 

1


Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Earnings

(Unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2008     2007     2008     2007  
     (Dollars in thousands, except per share amounts)  

Interest and fees on loans receivable

   $ 5,802     $ 4,570     $ 11,486     $ 8,975  

Interest on mortgage-backed securities

     353       416       722       817  

Interest on investment securities

     13       25       29       50  

Other interest income

     105       78       205       162  
                                

Total interest income

     6,273       5,089       12,442       10,004  
                                

Interest on deposits

     1,627       1,730       3,294       3,338  

Interest on borrowings

     1,114       647       2,277       1,237  
                                

Total interest expense

     2,741       2,377       5,571       4,575  
                                

Net interest income before provision for loan losses

     3,532       2,712       6,871       5,429  

Provision for loan losses

     159       164       317       184  
                                

Net interest income after provision for loan losses

     3,373       2,548       6,554       5,245  
                                

Non-interest income:

        

Service charges

     309       284       558       559  

Net gains on mortgage banking activities

     21       9       35       15  

Net loss on sale of securities

     —         (1 )     —         (1 )

Other

     36       31       69       67  
                                

Total non-interest income

     366       323       662       640  
                                

Non-interest expense:

        

Compensation and benefits

     1,511       1,391       2,958       2,819  

Occupancy expense, net

     343       276       676       536  

Information services

     176       173       348       334  

Professional services

     136       171       239       316  

Office services and supplies

     150       137       292       254  

Other

     292       352       593       542  
                                

Total non-interest expense

     2,608       2,500       5,106       4,801  
                                

Earnings before income taxes

     1,131       371       2,110       1,084  

Income taxes

     435       129       807       398  
                                

Net earnings

   $ 696     $ 242     $ 1,303     $ 686  
                                

Other comprehensive loss, net of tax:

        

Unrealized loss on securities available for sale

   $ (74 )   $ (108 )   $ (35 )   $ (115 )

Income tax effect

     29       43       13       46  
                                

Other comprehensive loss, net of tax

     (45 )     (65 )     (22 )     (69 )
                                

Comprehensive earnings

   $ 651     $ 177     $ 1,281     $ 617  
                                

Net earnings

   $ 696     $ 242     $ 1,303     $ 686  

Dividends paid on preferred stock

     (44 )     (32 )     (64 )     (64 )
                                

Earnings available to common shareholders

   $ 652     $ 210     $ 1,239     $ 622  
                                

Earnings per share-basic

   $ 0.37     $ 0.13     $ 0.70     $ 0.38  
                                

Earnings per share-diluted

   $ 0.36     $ 0.12     $ 0.69     $ 0.35  
                                

Dividends declared per share-common stock

   $ 0.05     $ 0.05     $ 0.10     $ 0.10  
                                

See accompanying notes to unaudited consolidated financial statements.

 

2


Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

     Six Months Ended June 30,  
     2008     2007  
     (Dollars in thousands)  

Cash flows from operating activities:

    

Net earnings

   $ 1,303     $ 686  

Adjustments to reconcile net earnings to net cash used in operating activities:

    

Depreciation

     201       155  

Net amortization of premiums and discounts on loans purchased

     (4 )     18  

Net amortization of deferred loan origination costs (fees)

     (42 )     42  

Net amortization of premiums on mortgage-backed securities

     17       34  

Stock-based compensation expense

     10       59  

Net gains on mortgage banking activities

     (35 )     (15 )

Net loss on sale of securities

     —         1  

Net increase in cash surrender value of bank owned life insurance

     (48 )     (49 )

FHLB stock dividends

     (120 )     (68 )

Provision for loan losses

     317       184  

Loans receivable originated for sale

     (16,872 )     (5,500 )

Proceeds from sale of loans receivable held for sale

     8,161       3,015  

Changes in operating assets and liabilities:

    

Accrued interest receivable

     (214 )     (130 )

Other assets

     (185 )     295  

Other liabilities

     752       (137 )
                

Net cash used in operating activities

     (6,759 )     (1,410 )
                

Cash flows from investing activities:

    

Net change in loans receivable

     (25,376 )     (14,055 )

Purchases of mortgage-backed securities available for sale

     —         (5,161 )

Proceeds from call/maturity of investment securities held-to-maturity

     1,000       —    

Proceeds from sale of mortgage-backed securities held-to-maturity

     —         344  

Principal repayments on mortgage-backed securities held-to-maturity

     2,708       3,445  

Principal repayments on mortgage-backed securities available for sale

     410       194  

Purchase of Federal Home Loan Bank stock

     (772 )     (215 )

Capital expenditures for office properties and equipment

     (152 )     (197 )
                

Net cash used in investing activities

     (22,182 )     (15,645 )
                

Cash flows from financing activities:

    

Net increase in deposits

     25,379       7,580  

Advances from the Federal Home Loan Bank

     35,200       17,600  

Principal repayments on advances from the Federal Home Loan Bank

     (31,000 )     (8,985 )

Net increase in other borrowings

     2,500       —    

Common and Preferred dividends paid

     (240 )     (230 )

Purchases of treasury stock

     (58 )     —    

Reissuance of treasury stock

     8       19  

Stock options exercised, net of tax benefits

     —         436  

Change in advance payments by borrowers for taxes and insurance

     (69 )     (97 )
                

Net cash provided by financing activities

     31,720       16,323  
                

Net increase (decrease) in cash and cash equivalents

     2,779       (732 )

Cash and cash equivalents at beginning of period

     4,331       5,310  
                

Cash and cash equivalents at end of period

   $ 7,110     $ 4,578  
                

Supplemental disclosures of cash flow information:

    

Cash paid for interest

   $ 5,449     $ 4,504  
                

Cash paid for income taxes

   $ 422     $ 798  
                

See accompanying notes to unaudited consolidated financial statements.

 

3


Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

June 30, 2008

NOTE (1) – Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its wholly owned subsidiary, Broadway Federal Bank, f.s.b. (the “Bank”). Also included in the unaudited consolidated financial statements is Broadway Service Corporation, a wholly owned subsidiary of the Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions for Form 10-Q. These unaudited 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, 2007 and, accordingly, should be read in conjunction with such audited consolidated financial statements. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

NOTE (2) – Recent Accounting Pronouncements

On March 19, 2008, the Financial Accounting Standards Board (“FASB”) issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement 133. Statement 161 enhances required disclosures regarding derivative and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative instruments; (b) derivative instruments and related hedged items are accounted for under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities; and (c) derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Statement No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Management does not anticipate this Statement to have a material impact on the Company’s consolidated financial condition or results of operations.

NOTE (3) – Earnings Per Share

Basic earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of shares of Common Stock outstanding for the period. Diluted earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of shares of Common Stock outstanding for the period, increased for the dilutive effect of Common Stock equivalents.

The following table shows how we computed basic and diluted earnings per share for the three and six months ended June 30, 2008 and 2007.

 

     For the three months ended
June 30,
    For the six months ended
June 30,
 
     2008     2007     2008     2007  
     (Dollars in thousands, except per share)  

Basic

        

Net earnings

   $ 696     $ 242     $ 1,303     $ 686  

Less: Preferred stock dividends

     (44 )     (32 )     (64 )     (64 )
                                

Earnings available to common shareholders

   $ 652     $ 210     $ 1,239     $ 622  
                                

Weighted average common shares outstanding

     1,757,523       1,654,028       1,758,789       1,645,779  
                                

Basic earnings per common share

   $ 0.37     $ 0.13     $ 0.70     $ 0.38  
                                

Diluted

        

Net earnings

   $ 696     $ 242     $ 1,303     $ 686  

Less: Preferred stock dividends

     (44 )     (32 )     (64 )     (64 )
                                

Earnings available to common shareholders

   $ 652     $ 210     $ 1,239     $ 622  
                                

Weighted average common shares outstanding

     1,757,523       1,654,028       1,758,789       1,645,779  

Add: dilutive effects of assumed exercises of stock options

     48,440       133,077       49,704       135,663  
                                

Average shares and dilutive potential common shares

     1,805,963       1,787,105       1,808,493       1,781,442  
                                

Diluted earnings per common share

   $ 0.36     $ 0.12     $ 0.69     $ 0.35  
                                

 

4


Table of Contents

BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements (continued)

June 30, 2008

NOTE (4) – Fair Value

Statement 157 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

  Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

  Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

  Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Assets measured at fair value on a recurring basis are summarized below:

 

          Fair Value Measurements
at June 30, 2008 Using
     June 30,
2008
   Quoted Prices in Active
Markets for Identical
Assets (Level 1)
   Significant Other
Observable Inputs
(Level 2)
     (Dollars in thousands)

Assets:

  

Securities available for sale

   $ 4,319    —      $ 4,319

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain matters discussed in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, expectations regarding the business environment in which the Company operates, projections of future performance, perceived opportunities in the market, and statements regarding strategic objectives. These forward-looking statements are based upon current management expectations, and involve risks and uncertainties. Actual results or performance may differ materially from those suggested, expressed, or implied

 

5


Table of Contents

by forward-looking statements due to a wide range of factors including, but not limited to, the general business environment, the real estate market, competitive conditions in the business and geographic areas in which the Company conducts its business, regulatory actions or changes and other risks detailed in the Company’s reports filed with the Securities and Exchange Commission, including the Company’s Annual Reports on Form 10-KSB and Quarterly Reports on Form 10-Q or Form 10-QSB.

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 is a community-oriented savings institution dedicated to serving the African-American, Hispanic and other communities of Mid-City and South Los Angeles, California. 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 and non-residential real estate located primarily in Southern California. At June 30, 2008, Broadway Federal operated five retail-banking offices in Mid-City and South Los Angeles and two loan production offices in Irvine and Torrance. 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 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 affected by the amount of provisions for loan losses and the Bank’s non-interest expenses, which consist principally of employee compensation and benefits, occupancy expenses, and technology and communication costs. 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.

Results of Operations

Net Earnings

Net earnings for the second quarter of 2008 were $696,000, or $0.36 per diluted share, up $454,000, or 187.60%, when compared with net earnings of $242,000, or $0.12 per diluted share, in the second quarter of 2007. The increase in net earnings was primarily due to increased interest-earning assets and a higher net interest margin.

For the six months ended June 30, 2008, net earnings totaled $1.3 million, or $0.69 per diluted share, up $0.6 million, or 89.94%, when compared with net earnings of $0.7 million, or $0.35 per diluted share, for the same period in 2007.

Net Interest Income

Net interest income before provision for loan losses of $3.5 million in the second quarter of 2008 was up $820,000, or 30.24%, from the second quarter a year ago. The increase was attributable to continued growth in our interest-earning assets and improvement in our net interest rate margin. Interest-earning assets averaged $371.4 million in the current quarter, up $73.7 million, or 24.74%, from the same period a year ago. Our net interest margin improved 16 basis points to 3.80% in the current quarter from 3.64% for the same period a year ago. Our net interest rate spread improved 19 basis points to 3.68% in the current quarter from 3.49% for the same period a year ago. The 19 basis point improvement in our net interest rate spread was attributable to the larger decline in the annualized cost of our average interest-bearing liabilities, compared to the decline in the annualized yield on our average interest-earning assets.

The annualized yield on our average interest-earning assets decreased 8 basis points to 6.76% in the current quarter from 6.84% for the same period a year ago. The decrease was the result of lower annualized yield on our average loans which decreased 18 basis points to 7.03% for the second quarter of 2008 from 7.21% for the same period in 2007.

 

6


Table of Contents

The annualized cost of our average interest-bearing liabilities decreased 27 basis points to 3.08% in the current quarter from 3.35% for the same period a year ago. The annualized weighted average cost of deposits decreased 41 basis points to 2.66% in the second quarter of 2008 from 3.07% for the same period in 2007. The annualized weighted average cost of FHLB borrowings decreased 11 basis points to 3.92% in the second quarter of 2008 from 4.03% for the same period in 2007. The decrease in the cost of our average interest-bearing liabilities was the result of lower short-term interest rates and maturities of higher costing time deposits and FHLB borrowings.

For the six months ended June 30, 2008, net interest income before provision for loan losses totaled $6.9 million, up $1.4 million, or 26.56%, from a year ago, as a result of increased average interest-earning assets and higher net interest margin.

Provision for Loan Losses

The provision for loan losses was reduced slightly to $159,000 for second quarter 2008 compared to $164,000 for second quarter 2007.

For the six months ended June 30, 2008, the provision for loan losses totaled $317,000 compared to $184,000 of provision in the year-ago period. The increase in loan loss provision was primarily due to higher loan originations.

Non-interest Income

Non-interest income totaled $366,000 in the second quarter of 2008, up $43,000, or 13.31%, from the second quarter a year ago, primarily due to higher loan related fees and higher net gains on mortgage banking activities. The growth in loan related fees primarily resulted from increased payments of late charges.

For the six months ended June 30, 2008, non-interest income totaled $662,000, up $22,000, or 3.44%, from a year ago. The increase primarily reflected higher net gains on mortgage banking activities.

Non-interest Expense

Non-interest expense totaled $2.6 million in the second quarter of 2008, up $108,000, or 4.32%, from the second quarter a year ago. The increase in non-interest expense was primarily due to higher compensation and benefits expense and occupancy expense. Compensation and benefits expense increased $120,000, or 8.63%, primarily due to higher bonus expense. Bonus expense for the second quarter of 2008 increased $95,000 as a result of improved profitability in 2008. Also contributing to the increase in compensation and benefits expense for the second quarter of 2008 was higher temporary personnel expense and increased health insurance costs. Occupancy expense increased $67,000, or 24.28%, primarily due to the addition of a new branch. Partially offsetting the increases in compensation and benefits expense and occupancy expense was a $60,000, or 17.05%, decrease in other expense, as the year-ago quarter included a $125,000 expense to settle a personnel matter. Professional services expense also decreased $35,000, or 20.47%, primarily due to lower consulting fees related to Sarbanes Oxley compliance and lower legal expenses.

For the six months ended June 30, 2008, non-interest expense totaled $5.1 million, up $0.3 million, or 6.35%, from a year ago, primarily reflecting higher compensation and benefits expense, occupancy expense and other expense which was partially offset by lower professional services expense. Compensation and benefits expense increased primarily due to higher bonus expense. Occupancy expense primarily increased due to the addition of a new branch. Other expense increased primarily due to increases in donations, sponsorships, promotion and FDIC insurance premiums. Professional services expense decreased primarily due to lower consulting fees related to Sarbanes Oxley compliance and lower legal expenses.

Income Taxes

The Company’s effective income tax rate was 38.46% for second quarter 2008 compared to 34.77% for second quarter 2007. The effective tax rate for the six months ended June 30, 2008 was 38.25% compared to 36.72% for the same period in the prior year. Income taxes are computed by applying the statutory federal income tax rate of 34.00% and the California income tax rate of 10.84% to earnings before income taxes.

 

7


Table of Contents

Financial Condition

Assets, Loan Originations, Deposits and Borrowings

At June 30, 2008, assets totaled $390.6 million, up $33.8 million, or 9.46%, from year-end 2007. During the first half of 2008, net loans, including loans held for sale, increased $33.9 million, cash and cash equivalents increased $2.8 million and FHLB stock increased $0.9 million, while securities held to maturity decreased $3.7 million.

Loan originations, including purchases, for the six months ended June 30, 2008 totaled $68.4 million, up $14.9 million, or 27.85%, from $53.5 million a year ago. Loan repayments, including loan sales, amounted to $34.8 million for the six months ended June 30, 2008, down $2.0 million, or 5.43%, from $36.8 million for the same period a year ago.

Deposits totaled $254.1 million at June 30, 2008, up $25.4 million, or 11.10%, from year-end 2007. During the first half of 2008, our core deposits (NOW, demand, money market and passbook accounts) increased $10.1 million and our certificates of deposit increased $15.3 million. The growth in our deposits was the result of new product offerings such as our Online Anniversary account, Flex Money Market account and Flex CD account. Additionally, a substantial portion of the increase in certificates of deposit was from brokered deposits. At June 30, 2008, core deposits represented 40.50% of total deposits compared to 40.61% at December 31, 2007, and brokered deposits represented 19.92% of total deposits compared to 15.32% at December 31, 2007.

Since the end of 2007, FHLB borrowings increased $4.2 million, or 4.35%, to $100.7 million at June 30, 2008 from $96.5 million at December 31, 2007. The Company continued to utilize FHLB advances to fund loans as an additional alternative to retail deposits. During the second quarter of 2008, the Company borrowed $2.5 million from its line of credit with First Federal Bank, which the Company invested into the Bank.

Allowance for Loan Losses

At June 30, 2008, the allowance for loan losses was $2.4 million, or 0.72% of total gross loans receivable, excluding loans held for sale, compared to $2.1 million, or 0.68% of total gross loans receivable, excluding loans held for sale, at year-end 2007.

Management believes that the allowance for loan losses is adequate to cover probable incurred losses in the loan portfolio as of June 30, 2008, but there can be no assurance that actual losses will not exceed the estimated amounts. The Bank is experiencing increased delinquencies which may necessitate the provision of additional loan loss reserves. In addition, the Office of Thrift Supervision (“OTS”) and the Federal Deposit Insurance Corporation periodically review the allowance for loan losses as an integral part of their examination process. These agencies may require an increase to the allowance for loan losses based on their judgments of the information available to them at the time of their examination.

Non-Performing Assets

Non-performing assets, consisting of non-accrual and delinquent loans 90 or more days past due, at June 30, 2008 were $1.5 million, or 0.38% of total assets, compared to $34,000, or 0.01% of total assets, at December 31, 2007. During the first half of 2008, three loans totaling $1.5 million were placed on non-accrual status. The new non-accrual loans included a $1.3 million loan secured by a church property located in Rancho Cucamonga, California and two unsecured lines of credit totaling $110,000. No significant losses are anticipated on these new non-accrual loans. At June 30, 2008 and December 31, 2007, the Bank had no loans in foreclosure or REO (real estate owned) properties.

Performance Ratios

The annualized return on average equity for second quarter 2008 was 12.18%, compared to 8.66% for fourth quarter 2007 and 4.69% for second quarter 2007. The annualized return on average assets for second quarter 2008 was 0.73%, compared to 0.55% for fourth quarter 2007 and 0.31% for second quarter 2007. The efficiency ratio for second quarter 2008 was 66.91%, compared to 77.26% for fourth quarter 2007 and 82.37% for second quarter 2007. The improvement in our returns on average equity and average assets as well as our efficiency ratio was primarily due to higher net earnings in the second quarter of 2008 primarily as a result of the strong growth in our interest earning assets and improvement in our net interest rate margin which translated to higher net interest income.

 

8


Table of Contents

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 the issuance of equity and debt securities, such as the preferred stock issued in 2002 and in 2006, the junior subordinated debentures issued during the first quarter of 2004, the sale to Cathay General Bancorp of 70,000 shares of common stock during the second quarter of 2004 and 145,000 shares of common stock during the second quarter of 2006 and $2.5 million line of credit advances from First Federal Bank during the second quarter of 2008. Dividends and other capital distributions from the Bank are subject to regulatory restrictions.

The Bank’s primary sources of funds are deposits, principal and interest payments on loans and securities, Federal Home Loan Bank advances, other borrowings, and to a lesser extent, proceeds from the sale of loans and securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan and security prepayments are greatly influenced by the general level of interest rates, economic conditions and competition.

Since December 31, 2007, there has been no material change in the Company’s interest rate sensitivity. For a discussion on the Company’s interest rate sensitivity and market risk, see the Company’s annual report on Form 10-KSB for the year ended December 31, 2007, including the Company’s audited consolidated financial statements and the notes thereto.

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 that 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 for this purpose.

Broadway Federal was in compliance with all capital requirements in effect at June 30, 2008, and met 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

   OTS
Minimum
Requirement
    FDICIA
“Well-capitalized”
Requirement
    Actual at
June 30, 2008
 

Tangible ratio

   1.50 %   N/A     7.71 %

Core Capital ratio

   4.00 %   5.00 %   7.71 %

Tier 1 Risk-based ratio

   4.00 %   6.00 %   10.35 %

Total Risk-based ratio

   8.00 %   10.00 %   11.11 %

 

9


Table of Contents
ITEM 4. CONTROLS AND PROCEDURES

As of June 30, 2008, an evaluation was performed under the supervision of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2008. There were no significant changes in the Company’s internal controls over financial reporting or in other factors during the Company’s last fiscal quarter that could significantly affect those controls subsequent to June 30, 2008.

 

10


Table of Contents

PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

None

 

Item 1A. RISK FACTORS

There were no material changes from risk factors previously disclosed in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

None

 

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of the Company was held on June 25, 2008 for the following purposes:

(a) To elect three directors to serve until the Annual Meeting to be held in the year 2011 and until their successors are elected and have been qualified.

At the meeting, the stockholders re-elected Mr. A. Odell Maddox, Mr. Daniel A. Medina, and Mr. Virgil Roberts to serve as directors for three-year terms. The number of votes for each of the directors was as follows:

 

Mr. A. Odell Maddox

For

   1,659,972

Against

   0

Abstain

   79,234

 

Mr. Daniel Medina

For

   1,658,716

Against

   0

Abstain

   80,490

 

Mr. Virgil Roberts

For

   1,660,012

Against

   0

Abstain

   79,194

(b) To ratify the appointment of Crowe Chizek and Company LLP as the Company’s independent auditors for 2008.

At the meeting, the stockholders ratified the appointment of Crowe Chizek and Company LLP as the Company’s independent auditors for 2008 based upon 1,718,661 shares voting “for”, 19,233 shares voting “against” and 1,312 shares abstaining.

 

11


Table of Contents

(c) To approve the Broadway Financial Corporation 2008 Long-Term Incentive Plan.

At the meeting, the stockholders approved the Broadway Financial Corporation 2008 Long-Term Incentive Plan based upon 1,057,307 shares voting “for”, 127,964 shares voting “against” and 7,772 shares abstaining.

 

Item 5. OTHER INFORMATION

None

 

Item 6. EXHIBITS

Exhibit 31.1 – Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 – Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32 – Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

12


Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: August 14, 2008     By:   /s/ Paul C. Hudson
       

Paul C. Hudson

Chief Executive Officer

Date: August 14, 2008     By:   /s/ Samuel Sarpong
       

Samuel Sarpong

Chief Financial Officer

 

13

EX-31.1 2 dex311.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 Certification of Chief Executive Officer pursuant to Section 302

Exhibit 31.1

SECTION 302 CERTIFICATION

I, Paul C. Hudson, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2008
By:   /s/ Paul C. Hudson
 

Paul C. Hudson

Chief Executive Officer

EX-31.2 3 dex312.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 Certification of Chief Financial Officer pursuant to Section 302

Exhibit 31.2

SECTION 302 CERTIFICATION

I, Samuel Sarpong, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 14, 2008
By:   /s/ Samuel Sarpong
 

Samuel Sarpong

Chief Financial Officer

EX-32 4 dex32.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER Certification of Chief Executive Officer and Chief Financial Officer

Exhibit 32

SECTION 906 CERTIFICATION

The following statement is provided by the undersigned to accompany the foregoing Report on Form 10-Q pursuant to Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed filed pursuant to any provision of the Securities Exchange Act of 1934 or any other securities law.

Each of the undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of Broadway Financial Corporation at the dates and for the periods indicated.

 

Date: August 14, 2008     By:   /s/ Paul C. Hudson
       

Paul C. Hudson

Chief Executive Officer

Date: August 14, 2008     By:   /s/ Samuel Sarpong
       

Samuel Sarpong

Chief Financial Officer

-----END PRIVACY-ENHANCED MESSAGE-----