8-K 1 form8k09-03earnings.txt FORM 8K - EARNINGS PRESS RE 10-29-03 News Release FOR IMMEDIATE RELEASE Contact: Paul C. Hudson, President/CEO Alvin D. Kang, CFO (323) 634-1700 www.broadwayfed.com Broadway Financial Corporation Reports Third Quarter Net Earnings LOS ANGELES, CA - (BUSINESS WIRE) - October 29, 2003 - Broadway Financial Corporation (the "Company") (NASDAQ Small-Cap: BYFC), the holding company of Broadway Federal Bank, f.s.b. (the "Bank"), today reported net earnings of $379,000 and $1,099,000 or $0.19 and $0.55 per diluted share for the three and nine months ended September 30, 2003, compared to $440,000 and $1,088,000, or $0.24 and $0.59 per diluted share, respectively, for the three and nine months ended September 30, 2002. Compared to 2002, third quarter net earnings decreased 13.86% and net earnings for the nine months increased 1.01%. President Paul C. Hudson stated, "The last two months have been encouraging as our loan origination volume has increased, and we have had net loan growth in spite of continuing heavy loan prepayments. Our pipeline of loans in process is also growing, which bodes well for the next quarter". Hudson explained, "We expected net earnings for the current quarter to be less than last year due to the effective tax rate in third quarter 2002 being 7% lower than the current quarter. In 2002, we benefited from a higher California Enterprise Zone tax incentive that reduced California taxable income." Net Earnings The change in net earnings, comparing 2003 to 2002, was primarily attributable to the increase in net interest income and non-interest income, offset by an increase in non-interest expense. Additionally, the effective tax rate was lower in 2002 as a result of higher interest income exclusions relating to loans made in California Enterprise Zones. Net interest income after provision for loan losses increased $39,000 and $201,000 or 1.95% and 3.36%, respectively, for the three and nine months ended September 30, 2003 compared to the same periods in 2002. Non-interest income increased $133,000 and $267,000 or 59.38% and 41.98%, respectively, for the three and nine months ended September 30, 2003 compared to the same periods in 2002. Non-interest expense increased $200,000 and $405,000, or 12.55% and 8.25%, respectively, for the three and nine months ended September 30, 2003 compared to the same periods in 2002. Net Interest Income Net interest income after provision for loan losses increased to $2,037,000 and $6,189,000 for the three and nine months ended September 30, 2003, from $1,998,000 and $5,988,000 for the same periods in 2002. A nine month rate/volume analysis indicates that the $201,000 increase was primarily attributable to the impact of the growth in average interest-earning assets of $32.9 million or 19.02%, and interest-bearing liabilities of $30.8 million or 18.85%, which resulted in an increase in net interest income of $1,080,000 (volume impact), offset by the impact of a decrease in the net interest rate spread of 57 basis points, which resulted in a decrease in net interest income of $879,000 (rate impact). 1 Loan originations were $18.8 million and $37.8 million for the three and nine months ended September 30, 2003 compared to $7.0 million and $20.4 million for the same periods in 2002. Loan purchases were $3.8 million and $17.8 million for the three and nine months ended September 30, 2003, compared to $820,000 and $820,000 for the same periods in 2002. Mortgage-backed securities ("MBS") purchases were $3.4 million and $15.4 million for the three and nine months ended September 30, 2003 compared to 5.0 million and $9.0 million for the same periods in 2002. Loan prepayments amounted to $12.9 million and $36.0 million for the three and nine months ended September 30, 2003 compared to $6.8 million and $21.8 million for the same periods in 2002. In the current low interest rate environment, prepayments are not expected to abate until interest rates rise significantly, and therefore management is focused on increasing loan volume through originations and purchases. Loans receivable, net grew $20.5 million since December 31, 2002, and reflects the improvements made by Management in the Bank's loan product offerings as well as in its efficiency in service to new loan customers. Interest-bearing liabilities increased $2.7 million during the third quarter. This was attributable to the net effect of an increase in deposits of $3.8 million and a decrease in FHLB advances of $1.1 million. For the nine months ended September 30, 2003, interest-bearing liabilities increased $13.5 million, comprised of an $11.1 million increase in deposits and $2.4 million increase in FHLB advances. The net interest rate spread for the three and nine months ended September 30, 2003 was 3.78% and 3.90% respectively, compared to 4.39% and 4.47%, respectively, for the same periods in 2002. The 61 and 57 basis point decrease in spread was attributable to the larger decline in the weighted average yield on the loan portfolio, compared to the decline in the weighted average cost of funds on interest-bearing liabilities. The yield on interest-earning assets declined 120 and 128 basis points to 5.65% and 5.87%, respectively, for the three and nine months ended September 30, 2003 from 6.85% and 7.15%, respectively, for the same periods in 2002. The weighted average cost of funds declined to 1.88% and 1.97%, respectively, for the three and nine months ended September 30, 2003 compared to 2.46% and 2.68% for the same periods in 2002. The primary spread (weighted average interest rate on loans minus weighted average interest rate on deposits) at September 30, 2003 was 4.62% compared to 4.76% at September 30, 2002, a decline of 14 basis points. Non-interest Income Total non-interest income increased to $357,000 and $903,000 for the three and nine months ended September 30, 2003, from $224,000 and $636,000 for the same periods in 2002. The $133,000 increase in the third quarter from 2002 to 2003 was primarily attributable to an increase in loan fees and service charges, and net gains on sale of investments and MBS available for sale. Non-interest Expense Total non-interest expense increased to $1,793,000 and $5,313,000 for the three and nine months ended September 30, 2003 from $1,593,000 and 4,908,000 for the same periods in 2002. The $200,000 increase in the third quarter from 2002 to 2003 was primarily attributable to increases in compensation and benefits costs and occupancy expenses. 2 Loans Receivable, Net Loans receivable, net increased $20.5 million or 14.6% to $160.6 million at September 30, 2003 from $140.1 million at December 31, 2002. During the nine months ended September 30, 2003, the Bank purchased $17.8 million of adjustable rate mortgage loans having an initial fixed rate period ("hybrid ARMs"). These purchases of hybrid ARMs, along with loan originations offset the combined negative effect of a decline in the yield on the loan portfolio and the continuing high level of loan prepayments. The allowance for loan losses as a percentage of total loans was 0.87% at September 30, 2003 compared to 0.98% at December 31, 2002 and 1.10% at September 30, 2002. The Bank's non-performing assets to total assets ratio improved to 0.04% at September 30, 2003 compared to 0.07% at December 31, 2002 and 0.18% at September 30, 2002. At September 30, 2003, the Bank had no loans in foreclosure or REO (real estate owned) properties. Deposits Total deposits increased $11.1 million or 7.11% to $167.2 million from $156.1 million at December 31, 2002. Core deposits (NOW, demand, money market, and passbook accounts) increased by $1.2 million during the third quarter of 2003. At September 30, 2003 core deposits represented 44.6% of total deposits, compared to 40.4% at December 31, 2002, and 39.4% at September 30, 2002. Management has focused on increasing core deposit customers and closely managing its cost of deposits. Management expects deposit growth to be the primary source of funds for loan growth and plans to aggressively market deposit products to targeted customers. Performance Ratios For the three months ended September 30, 2003 the Company's return on average equity declined to 8.49% compared to 11.39% for the same period in 2002. The return on average assets also declined to 0.69% for the three months ended September 30, 2003 compared to 0.95% for the same period in 2002. The ratio of non-interest expense to average assets improved to 3.28% for the three months ended September 30, 2003 compared to 3.46% for the same period in 2002. The efficiency ratio increased to 74.90% in third quarter 2003 compared to 71.69% in third quarter 2002. About us Broadway Federal Bank, f.s.b. is a community-oriented savings bank, which primarily originates residential mortgage loans and conducts funds acquisition in the geographic areas known as Mid-City and South Los Angeles. The Bank operates four full service branches, three in the city of Los Angeles, and one located in the nearby city of Inglewood, California. At September 30, 2003, the Bank met the capital requirements necessary to be deemed "well capitalized" for regulatory capital purposes. Shareholders, analysts and others seeking information about the Company are invited to write to: Broadway Financial Corporation, Investor Relations, 4800 Wilshire Blvd., Los Angeles, CA 90010, or visit our website at www.broadwayfed.com. 3 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except share amounts) (Unaudited)
September 30, December 31, 2003 2002 Assets Cash $ 4,264 $ 3,859 Federal funds sold 6,900 1,500 Interest bearing deposits - 1,028 Investment securities held to maturity 2,996 2,000 Investment securities available for sale - 5,007 Mortgage-backed securities held to maturity 7,327 10,843 Mortgage-backed securities available for sale 20,843 27,697 Loans receivable, net 160,585 140,085 Loans receivable held for sale, at lower of cost or fair value 1,852 3,770 Accrued interest receivable 932 995 Investments in capital stock of Federal Home Loan Bank, at cost 1,771 1,561 Office properties and equipment, net 5,664 5,811 Other assets 8,579 750 Total assets $ 221,713 $ 204,906 Liabilities and stockholders' equity Deposits $ 167,285 $ 156,148 Advances from Federal Home Loan Bank 31,071 28,724 Advance payments by borrowers for taxes and insurance 533 311 Deferred income taxes 906 931 Other liabilities 4,004 1,871 Total liabilities 203,799 187,985 Stockholders' Equity Preferred non-convertible, non-cumulative, and non-voting stock, $.01 par value, authorized 1,000,000 shares; issued and outstanding 155,199 shares at September 30, 2003 and December 31, 2002 2 2 Common stock, $.01 par value, authorized 3,000,000 shares; issued and outstanding 1,831,485 shares at September 30, 2003 and 1,815,294 at December 31, 2002 10 10 Additional paid-in capital 10,501 10,512 Accumulated other comprehensive gain, net of taxes 26 57 Retained earnings-substantially restricted 7,844 7,005 Treasury stock-at cost, 37,457 shares at September 30, 2003 and 53,648 shares at December 31, 2002 (363) (520) Unearned Employee Stock Ownership Plan shares (106) (145) Total stockholders' equity 17,914 16,921 Total liabilities and stockholders' equity $ 221,713 $ 204,906
4 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Dollars in thousands, except per share amounts) (Unaudited)
Three Months ended Nine Months ended September 30, September 30, 2003 2002 2003 2002 Interest on loans receivable $ 2,556 $ 2,644 $ 7,669 $ 8,220 Interest on investment securities held to maturity 26 40 84 129 Interest on investment securities available for sale 7 92 52 182 Interest on mortgage-backed securities 345 208 1,153 612 Other interest income 27 36 102 131 Total interest income 2,961 3,020 9,060 9,274 Interest on deposits 730 887 2,315 2,900 Interest on borrowings 194 135 556 386 Total interest expense 924 1,022 2,871 3,286 Net interest income before provision for loan losses 2,037 1,998 6,189 5,988 Provision for loan losses - - - - Net interest income after provision for loan losses 2,037 1,998 6,189 5,988 Noninterest income: Service charges 255 186 773 574 Gain on loans receivable held for sale - - 18 - Other 102 38 112 62 Total noninterest income 357 224 903 636 Noninterest expense: Compensation and benefits 1,038 898 2,986 2,717 Occupancy expense, net 152 108 795 765 Information services 267 282 434 472 Professional services 104 123 372 322 Office service and supplies 103 100 315 295 Other 129 82 411 337 Total noninterest expense 1,793 1,593 5,313 4,908 Earnings before income taxes 601 629 1,779 1,716 Income taxes 222 189 680 628 Net earnings $ 379 $ 440 $ 1,099 $ 1,088 Other comprehensive income (loss): Unrealized income (loss) on securties available for sale $ (460) $ (24) $ (56) $ 13 Income tax benefit (expense) 179 10 25 (5) Total other comprehensive income (loss) (281) (14) (31) 8 Comprehensive earnings $ 98 $ 426 $ 1,068 $ 1,096 Net earnings 379 440 1,099 1,088 Dividends paid on preferred stock (19) (7) (58) (21) Earnings available to common shareholders $ 360 $ 433 $ 1,041 $ 1,067 Earnings per share-basic $0.20 $0.25 $0.58 $0.60 Earnings per share-diluted $0.19 $0.24 $0.55 $0.59 Dividend declared per share-common stock $0.04 $0.03 $0.11 $0.08 Basic weighted average shares outstanding 1,802,204 1,776,008 1,794,726 1,779,612 Diluted weighted average shares outstanding 1,908,887 1,813,192 1,894,614 1,805,718
5 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES Selected Ratios and Data (Dollars in thousands)
As of September 30, Well-Capitalized 2003 2002 Requirement Tangible capital 7.53% 7.32% 5.00% Core capital 7.53% 7.32% 6.00% Total Risk-Based Capital 13.19% 13.38% 10.00% Non-performing loans as a percentage of total gross loans 0.05% 0.17% Non-performing assets as a percentage of total assets 0.04% 0.18% Allowance for loan losses as a percentage of total gross loans 0.87% 1.10% Allowance for loan losses as a percentage of non-performing loans 1786.25% 660.08% Allowance for losses as a percentage of non-performing assets 1786.25% 455.36% Non-accrual loans $ 80 $ 238 Real estate acquired through foreclosure - 107 Total non-performing assets $ 80 $ 345
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Performance Ratios: Return on average assets 0.69% 0.95% 0.68% 0.80% Return on average equity 8.49% 11.39% 8.70% 9.56% Average equity to average assets 8.18% 8.38% 7.86% 8.38% Non-interest expense to average assets 3.28% 3.46% 3.30% 3.61% Efficiency ratio 74.90% 71.69% 74.92% 74.09% Net interest rate spread (1) 3.78% 4.39% 3.90% 4.47% Effective net interest rate spread (2) 3.89% 4.53% 4.01% 4.62%
(1) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of interest-bearing liabilities before provision for loan losses. (2) Effective net interest rate spread represents net interest income before provision for loan losses as a percentage of average interest-earning assets. 6 BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES Support for Calculations (Dollars in thousands)
Three Months Ended Nine Months Ended September 30, September 30, 2003 2002 2003 2002 Total assets $ 221,713 $ 190,747 $ 221,713 $ 190,747 Total gross loans $ 164,535 $ 142,521 $ 164,535 $ 142,521 Total equity $ 17,914 $ 15,578 $ 17,914 $ 15,578 Average assets $ 218,383 $ 184,300 $ 214,460 $ 181,135 Average loans $ 155,143 $ 138,274 $ 151,401 $ 139,061 Average equity $ 17,862 $ 15,451 $ 16,851 $ 15,175 Average interest-earning assets $ 209,463 $ 176,258 $ 205,842 $ 172,941 Average interest-bearing liabilities $ 196,794 $ 166,197 $ 194,120 $ 163,334 Net income $ 379 $ 440 $ 1,099 $ 1,088 Total income $ 2,394 $ 2,222 $ 7,092 $ 6,624 Non-interest expense $ 1,793 $ 1,593 $ 5,313 $ 4,908 Efficiency ratio 74.90% 71.69% 74.92% 74.09% Non-accrual loans $ 80 $ 238 $ 80 $ 238 REO, net $ - $ 107 $ - $ 107 ALLL $ 1,429 $ 1,571 $ 1,429 $ 1,571 REO-Allowance $ - $ - $ - $ - Interest income $ 2,961 $ 3,020 $ 9,060 $ 9,274 Interest expense $ 924 $ 1,022 $ 2,871 $ 3,286 Net interest income before provision $ 2,037 $ 1,998 $ 6,189 $ 5,988
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